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Carpenter Technology Reports Gains and Challenges in Third Fiscal Quarter Results

04/30/2013 - Carpenter Technology Corp. reported net income of US$32.9 million for the quarter ended 31 March 2013, noting solid growth in the aerospace and energy markets but also increased customer deferrals.

Carpenter Technology Corp. reported net income of US$32.9 million for the quarter ended 31 March 2013 compared to US$33.0 million in the prior year third quarter.
Earnings and Revenue
Operating income excluding pension earnings, interest and deferrals (EID) was US$61.0 million in the third quarter compared to US$59.5 million in the prior year period.  Earnings growth due to the acquisition of Latrobe was offset by lower SAO earnings as a result of in-quarter mix degradation, increased deferrals and related loss of manufacturing overhead cost absorption.  Third quarter net sales excluding raw material surcharges grew by US$52.2 million or 12% over the third quarter of fiscal 2012 due to the inclusion of Latrobe.  Excluding surcharge revenue and pension EID, operating margin in the third quarter was 12.9% compared to 14.2% in the third quarter of fiscal year 2012.
"Our third quarter had gains and challenges," said William A. Wulfsohn, president and chief executive officer.  "We achieved solid growth in our aerospace and energy markets.  However, increased customer deferrals during the quarter, combined with low sales to distribution customers and a weak defense related mix, resulted in lower sales and operating income.  While the recent pattern of these deferrals has slowed and order intake has increased, we now expect our full year earnings to be lower than previously forecasted.   We are still targeting low double-digit growth in full year operating income, on an adjusted basis versus prior year.  However, if Q4 has similar in-quarter mix and deferrals as we experienced in Q3, we may have difficulty achieving this target.
"At the same time, we completed the successful integration of Latrobe, realizing above plan synergies.  In addition, with our recent capital investments and operations improvement initiatives, we now have the available capacity to realize near term growth as demand recovers.  This added volume should help to improve our operating margins as we benefit from volume leverage over existing assets.  Finally, starting in the second half of fiscal year 2014, the Athens facility will add critical hot working capacity for premium products, which is currently a constraint, to enable longer term profitable growth."
Aerospace and Defense
  • Latrobe's aerospace products contributed to year-over-year growth.  
  • Aircraft build rate increases drove demand growth for engine related materials and titanium fasteners versus prior year and prior quarter. 
  • Demand and mix for Premium and Ultra-Premium nickel and stainless fastener and structural materials was down versus the prior year.  The Company attributes these reductions to distribution destocking and uncertainty related to sequestration.  
Energy
  • Sales of Ultra-Premium materials for oil & gas completions grew in the quarter. 
  • Amega West sales were down due to reduced rig count activity and supply chain inventory destocking. 
  • Demand for power generation materials was up sequentially in the context of light build schedules. 
Medical
  • Medical sales were down due to high OEM inventories and falling titanium prices. 
Transportation
  • Demand is growing for Premium and Ultra-Premium products used in fuel delivery systems supporting higher fuel efficiency standards. 
  • Reduced European OEM build rates negatively impacted demand in the region. 
Industrial and Consumer
  • The inclusion of Latrobe contributed to year over year growth. 
  • Infrastructure project activity and distribution demand was down. 
  • Higher value valves and fittings showing signs of returning strength.  
Carpenter produces and distributes premium alloys, including special alloys, titanium alloys and powder metals, as well as stainless steels, and alloy and tool steels.