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Carpenter Technology Reports Results from Challenging Quarter
07/30/2013 - Carpenter Technology Corporation reported its results for the quarter ended 30 June 2013, noting that it is entering fiscal 2014 optimistic about the year, although shorter lead times and low nickel prices provide less visibility about underlying demand.
Carpenter reported net income of US$40.9 million for the quarter ended 30 June 2013 compared to US$40.8 million in the prior year fourth quarter.
"We finished the fiscal year with a solid fourth quarter in a challenging environment," said William A. Wulfsohn, president and chief executive officer. "Our intense focus on continuous improvement allowed us to offset SAO variable production inflation on a cost per ton basis for the fourth consecutive year. Also, a great team effort in the continued integration of the Latrobe operation, which exceeded our targeted deal synergies by almost two times, helped contribute to the quarterly performance.
"In fiscal 2013 we took actions to further strengthen the foundation of Carpenter to better support future growth. We made significant investments that should enable us to grow profitably and, in the recently completed quarter, took steps to better align our cost structure with current market conditions which included a 3% reduction in our salaried workforce. Additionally, we enhanced our liquidity by driving positive free cash flow in the quarter and by expanding our revolving credit facility from US$350 million to US$500 million. We also improved our pension funded status and thus anticipate that only minimal contributions to our pension plans will be required over the next few years.
"We enter fiscal 2014 optimistic about the year, although shorter lead times and low nickel prices provide less visibility about underlying demand," Wulfsohn said. "We do anticipate that our first quarter will experience a seasonal earnings decline similar to last year. Additionally, our first quarter will be impacted by a planned major outage and continued supply chain adjustments. However, we have seen an increase in order activity and expect to see demand improvement in our business as the year progresses."
Net Sales and Operating Income
Net sales, excluding surcharge, increased by US$25.4 million or 5% from the third quarter of fiscal year 2013. The higher sales were primarily driven by increased shipments of nickel-based alloy materials used in aerospace engines and other aerospace applications. Additionally, continued market penetration of nickel based alloys used in completion equipment for the oil and gas market added to the sales increase.
In aggregate, year-over-year sales declined by US$10.1 million or 2%. The lower level of sales was partly attributable to a reduction in demand from economically sensitive markets. In particular, sales to the transportation, industrial and consumer markets declined US$8.2 million or 6%. Additionally, sales to the medical market declined by US$7.7 million, or 23%, primarily due to supply chain adjustments.
Operating income, excluding pension earnings, interest, and deferrals (EID) increased by US$12.4 million or 20% from the sequential quarter. In addition to higher shipments, operating income reflected above plan synergies that were achieved from the Latrobe integration and improved manufacturing efficiencies at our Specialty Alloys manufacturing operations.
Operating income excluding pension EID increased US$2.6 million or 4% from the fourth quarter a year ago. The quarter a year ago included acquisition related expenses of US$8.7 million for inventory fair value adjustments. The quarter a year ago benefitted from robust demand from the consumer, industrial and transportation markets and higher operating income from the Precision Engineered Products segment.
End Markets:
|
Q4 FY13
Sales* Ex. Surcharge US$ in Millions |
Q4 FY13
Vs. Q4 FY12 |
Q4 FY13
Vs. Q3 FY13 |
|
|
Aerospace and Defense
|
227.9
|
4%
|
6%
|
|
Energy
|
81.5
|
0%
|
15%
|
|
Medical
|
26.4
|
-23%
|
4%
|
|
Transportation
|
27.9
|
-10%
|
-2%
|
|
Industrial and Consumer
|
97.3
|
-5%
|
0%
|
* excludes distribution sales
Aerospace and Defense
- Commercial aerospace build rates remain strong; outlook positive
- Shorter lead times allowing distributors to delay purchases to take advantage of falling nickel prices
- Demand growth for proprietary materials for structural applications
Energy
- Growth in ultra-premium materials for Oil & Gas completions due primarily to share gain
- Drilling alloys impacted by destocking and low growth in North American rig count
- Gas turbine orders remain sluggish
Medical
- Supply chain inventory adjustments impacted the fourth quarter
- Expect modest resumption of demand as OEM inventories reach low levels
Transportation
- Demand for North American auto offset by continued weakness in Europe and for heavy duty equipment
- Demand growth for materials used in new fuel delivery systems offset by softer demand for materials used in valves, exhaust and other automotive components
Industrial and Consumer
- Strong demand for materials used in sporting goods and fittings applications more than offset by reduced demand for industrial valve materials
- Softer demand within distribution channels
Special Items in the Quarter
There were two offsetting special items in the quarter that resulted in no impact to reported earnings per share. The first item was restructuring charges related primarily to the reduction in salaried workforce. The second item was the tax impact associated with the change in assumption regarding discretionary pension contributions.
Carpenter Technology Corp. produces and distributes premium alloys, including special alloys, titanium alloys and powder metals, as well as stainless steels, and alloy and tool steels.
