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Carpenter Technology Reports Second Quarter Results

01/30/2012 - Carpenter Technology reported net income attributable to Carpenter of $23.6 million ($0.52 per share) for the quarter ended December 31, 2011.

Carpenter Technology Corp. reported net income attributable to Carpenter of $23.6 million ($0.52 per share) for the quarter ended December 31, 2011. Costs in the quarter related to the Latrobe Specialty Metals transaction were $2.4 million ($0.05 per share). Excluding these costs, net income attributable to Carpenter was $0.57 per share, which compares to net income of $9.3 million ($0.21 per share) in the year-ago second quarter.
 
Management Comments — “Our solid second quarter results reflect continued execution of our strategy to optimize the core business by growing premium product volume and improving our overall profit per pound through pricing and mix management actions,” said William A. Wulfsohn, President and CEO. “Within our overall top-line results for the quarter, revenues increased 12% on 4% higher volume for our premium products, including special alloys, titanium and powder metals – while revenues for our stainless products increased 31% on 12% lower volume. Our success in driving more premium volume through our limited capacity and actions to improve our product mix enabled us to more than double our profit per pound from a year ago.
 
“With end-market demand remaining strong, and our sizable backlog, including in Europe, we remain on track to achieve our fiscal year financial target of a 50 percent increase in operating income, excluding pension earnings, interest and deferrals, versus last year.
 
“The Latrobe acquisition is on track to close by the end of the third quarter and we remain excited about the benefits from this combination,” continued Wulfsohn. “Integration plans are well developed, and we are confident that the deal will achieve our previously announced financial targets.
 
“We have also changed our external reporting segments this quarter to reflect our two different business models, which require different management approaches. Specialty Alloys Operations (SAO) is comprised of our integrated steel mill operations and will be managed to optimize efficiency and profitability across the total system. Performance Engineered Products (PEP) consists of our titanium, powder metals and Amega West businesses and will be managed in a more entrepreneurial manner to promote speed and flexibility, and drive overall revenue and profit growth.”
 
Second Quarter Results — Net sales for the second quarter were $431.1 million, up 15% from the year-ago second quarter. Excluding surcharge revenue, net sales were $330.3 million, up 19% from a year ago. The Amega West acquisition accounted for four percentage points of the year-to-year revenue growth.
 
Total pounds sold in the second quarter were 7% lower than the year-ago second quarter based on deliberate actions to grow premium products and strengthen overall mix. Titanium products increased 17%, powder metal products were up 15% and special alloys products increased 1%, while stainless steel and other alloys decreased 12%.
 
The company reported gross profit of $84.3 million, which compares with gross profit of $49.1 million in the year-ago second quarter. Current results were driven by a significantly higher profit per pound due to an improved product mix and higher prices, plus increased profit contributions from all of the company’s PEP businesses.
 
Operating income was $43.9 million vs. operating income of $12.1 million for the year-ago quarter. Excluding surcharge revenue and pension earnings, interest and deferrals (EID), operating margin was 14.4% for the quarter compared to 7.5% in the year-ago second quarter.
 
Net income attributable to Carpenter was $23.6 million ($0.52 per diluted share), which compares with net income of $9.3 million ($0.21 per diluted share) in the year-ago second quarter.
 
Outlook — “As we look ahead, we are making strong progress against our goal to surpass our prior peak level of EBITDA by fiscal year 2014, excluding the positive impact from Latrobe,” said Wulfsohn. “We expect that the SAO business will make further progress on the profit per pound measure, and we will see continued good revenue and profit growth on our PEP businesses. We are still capacity constrained, so SAO volume upside remains limited – although the addition of the Latrobe capacity will help, and those benefits have been built into the expected synergies. The Latrobe acquisition is still expected to be modestly accretive to total EPS in FY13.”
 
Carpenter produces and distributes premium alloys, including special alloys, titanium alloys and powder metals, as well as stainless steels, and alloy and tool steels.