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Carpenter Technology Reports Year-End Results
07/27/2007 - Carpenter Technology Corp. reported net income of $61.3 million on sales of $560.5 million for the fourth quarter, and net income of $227.2 million on sales of $1944.8 million for fiscal 2007.
Carpenter Technology Corp. reported net income of $61.3 million on sales of $560.5 million for the fourth quarter, and net income of $227.2 million on sales of $1944.8 million for fiscal 2007.
Fourth Quarter Results—Net income of $61.3 million ($2.33 per diluted share) compares to net income of $68 million ($2.58 per diluted share) in the fourth quarter of 2006. Results reflected an effective tax rate of 34.2% as compared to 25.6% in the year-ago fourth quarter. Results also reflected LIFO expense of $79.3 million, due primarily to escalating nickel prices and higher year-end inventory levels. This compares to a LIFO expense of $19.8 million in the year-ago fourth quarter. This expense is mostly offset through the company’s surcharge mechanism.
Sales of $560.5 million reflect a 24% increase over sales of $450.5 million in the fourth quarter of 2006. Adjusted for surcharges, however, sales were flat with a year ago. Pricing actions and a better mix were mostly offset by a 9% decline in pounds shipped from a year ago.
Geographically, sales outside the United States increased 15% from the same quarter a year ago to $169 million. International sales, which represented 30% of total sales, benefited from pricing actions and increased sales to the energy market.
Gross profit improved to a quarterly record $128.8 million (23.0% of sales), which compares to a gross profit of $126.6 million (28.1% of sales) in the same quarter a year ago. The increased gross profit was achieved despite the negative impact from record high nickel prices throughout most of the quarter. Nickel prices on the London Metal Exchange increased from an average of approximately $9.04 a pound in the fourth fiscal quarter a year ago to an average of $21.80 for this year’s fourth quarter.
Carpenter’s gross profit was negatively impacted by a lag effect in its surcharge mechanism, which can result in additional margin decline during periods of rapidly escalating raw material prices. The company estimated that the lag effect negatively impacted the gross margin by approximately 40 basis points during the recent fourth quarter.
The company also reported record operating income despite a rapid rise in nickel prices, which reached a record high during the quarter. “Our fourth quarter and fiscal year results are particularly pleasing given the challenges from record high nickel prices throughout most of the year and temporary inventory adjustments in some of our key end-use markets,” said Anne Stevens, Chairman, President and CEO. “Carpenter’s strong financial performance reflected the underlying leverage of its business operating model and solid manufacturing execution.
“We continued to experience sales momentum in the oil and gas sector during the fourth quarter as we gained increasing customer acceptance for our products and supporting technical expertise. Additionally, there was a significant step-up in demand for material sold into the power-generation market. Although shipments of our premium products remained solid in the quarter, lower shipments of non-premium products resulted in a reduction in pounds shipped from a year ago.
Full Year Results—Record net income of $227.2 million ($8.63 per diluted share) compares to net income of $211.8 million ($8.08 per diluted share) in fiscal 2006. Record sales of $1944.8 million compare to sales of $1568.2 million for fiscal 2006. The company says that sales growth, excluding surcharge, was driven primarily by the company’s increased focus on the energy market and strong demand from the industrial market.
“Our record results for fiscal 2007 are a strong reflection of our product portfolio strength and the dedicated efforts of our employees to continually work towards operational excellence and focus on satisfying the unique needs of our customers,” commented Stevens.
Outlook—"We anticipate another year of record earnings for fiscal 2008, despite some initial headwinds from continued supply-chain adjustments in the medical market and reduced sales to the industrial market,” Stevens said. “We expect sales to the aerospace market will strengthen in the second half of our fiscal year as a result of increasing demand for nickel-based alloys used in engine and structural applications.
“Our focus on high performance materials leaves us well-positioned to capitalize on growth opportunities in our key end-use markets. We are excited about our future and are making significant investments to further deepen our commitment to growth in these markets,” said Stevens. “We will invest approximately $150 million in capital expenditures in fiscal 2008 to support our customers as well as invest in markets where we have significant opportunity based on our portfolio of products.”
Carpenter expects that cash flow from operations will approach $300 million in fiscal 2008. The company anticipates that free cash flow (cash from operations, less capital expenditures and dividends) will be approximately $100 million.
Planned capital expenditures of approximately $150 million include almost $75 million associated with the company’s $115-million expansion of its premium melt operations. Additionally, planned capital expenditures include approximately $14 million related to the company’s upgrade of its hot rolling facility.
Carpenter produces and distributes specialty alloys, including stainless steels, titanium alloys, and superalloys, and various engineered products.
