Carpenter Technology Reports Record Second Quarter Results
January 29 2008 - 8:30AM
Business Wire
Carpenter Technology Corporation (NYSE:CRS) today reported record
second quarter results. Net income from continuing operations of
$57.7 million or $1.17 per diluted share reflected strong growth in
the energy market coupled with increased international demand. Net
income including discontinued operations and related divestiture
expenses was $56.1 million or $1.14 per diluted share. Sales and
operating results exclude Carpenter�s ceramics businesses, which
the Company announced in December it plans to sell to The Morgan
Crucible Company plc. The historical results of the ceramics
businesses are now reported in discontinued operations. Financial
highlights from the second quarter continuing operations include:
(millions except E.P.S. & pounds) � Q2-2008 � Q2-2007 � 6
mos.-2008 � 6 mos.-2007 Sales $446.4 $420.8 $897.7 $800.8 Sales
excluding surcharge (a) $317.8 $320.8 $631.6 $622.8 Operating
income $80.5 $59.0 $163.4 $127.6 Net income from continuing
operations $57.7 $45.6 $113.6 $93.9 Diluted E.P.S. from continuing
operations $1.17 $0.86 $2.27 $1.79 Cash flow from operations $31.6
$43.8 $80.5 $107.8 Free cash flow (a) $0.0 $30.4 $24.1 $81.2 Pounds
sold (000) 49,995 54,688 99,212 108,856 � (a)��non-GAAP financial
measures that are explained in the attached tables Second Quarter -
Operating Summary "Our record second quarter results reflected the
benefits of our end-use market diversification and international
footprint,� said Anne Stevens, chairman, president and chief
executive officer. "We continued to experience strong demand from
the energy market, which also contributed to the 33 percent jump in
our international sales. Growth in these markets helped offset
domestic weakness in our economically sensitive markets, including
automotive, consumer, and industrial. �As we look at the second
half of our fiscal year, we remain on track for another record
year. Our third quarter performance might not surpass the
exceptionally strong third quarter results of a year ago due to
softening U.S. economic conditions. While we expect continued
strength in energy market sales and resumption in sales growth to
the aerospace market for the third quarter, sales to our other
end-use markets could offset this growth.� Stevens added, �We
expect our fiscal fourth quarter will show year-over-year
improvement as increasing momentum in aerospace and solid demand in
energy should more than offset any weakness in our economically
sensitive businesses.� Net sales of $446.4 million were 6 percent
higher than a year ago. Adjusted for surcharge revenue, sales
decreased 1 percent, primarily as a result of a 9 percent decline
in pounds shipped from the second quarter a year ago. Carpenter�s
Premium Alloys Operations generated a 15 percent increase in pounds
shipped due largely to strong demand from the energy market. More
than offsetting the increase was a 13 percent decline in pounds
shipped by the Advanced Metals Operations partly due to lower
priced stainless material sold through distributors. Sales to the
energy market, which includes oil and gas and power generation,
increased 55 percent from a year ago to $57.1 million. Excluding
surcharge revenue, sales increased 65 percent. Energy market sales
were strong in both oil and gas and power generation compared with
the second quarter a year earlier. Carpenter�s energy sales
reflected strong demand for industrial gas turbines, particularly
from the international market, and continued acceptance of the
Company's broad product portfolio of high-strength and
corrosion-resistant materials. Aerospace sales were $171.4 million,
an increase of 7 percent compared with the second quarter of 2007.
Adjusted for surcharge revenue, aerospace sales declined 4 percent
from the same period a year ago. Adversely impacting sales was the
loss of business with a key customer now sourcing some of its
requirements from a recently acquired subsidiary and reduced sales
of material used in the manufacture of fasteners. The Company
expects aerospace sales in the second half of fiscal 2008 will
begin to more closely reflect the scheduled increase in projected
commercial jet deliveries. Industrial market sales were $97.6
million, up 3 percent from last year�s second quarter. Adjusted for
surcharge revenue, sales decreased 7 percent. The decrease
reflected lower demand for materials used in the manufacture of
semiconductor equipment, and in valves and fittings. Automotive and
truck market sales were $48.8 million, or 11 percent lower than the
second quarter a year ago. Excluding surcharge revenue, sales also
declined by 11 percent from a year ago. Lower domestic automotive
production and inventory supply chain adjustments contributed to
the decline. Consumer market sales were $44.5 million, a decrease
of 2 percent from a year ago. Excluding surcharge revenue, consumer
sales decreased 6 percent, reflecting lower shipments to
manufacturers serving the housing market, which were partially
offset by higher sales to the electronics market. Medical market
sales were $27.0 million, a decrease of 3 percent compared with the
second quarter a year earlier. Excluding surcharge revenue, sales
declined 18 percent. An increase in pounds shipped was more than
offset by a shift in product mix and lower selling prices for
titanium materials. Geographically, sales including surcharge
outside the United States were $152.0 million, an increase of 33
percent from the second quarter a year ago, and represented 34
percent of the Company�s consolidated sales in the second quarter.
Sales in Europe, which gained 49 percent from a year ago, accounted
for most of the increase. Sales to this market benefited from
growth with key customers in aerospace, strong demand from the
power generation market, and higher sales to the automotive and
consumer markets. Gross profit was $117.4 million in the second
quarter, compared with $91.1 million a year earlier. The higher
gross profit reflected the increased sales of higher value
materials, pricing actions, and the difference in the lag effect of
the Company's surcharge mechanism. The Company had LIFO income of
$33.8 million in the second quarter due primarily to declining
nickel prices during the quarter relative to the first quarter of
fiscal 2008. In the second quarter a year earlier, the Company had
LIFO expense of $53.0 million. The LIFO income or expense is mostly
offset by changes in surcharge revenue and, therefore, has little
impact on gross profit. Gross margin in the second quarter was 26.3
percent, compared to 21.7 percent in the same quarter a year ago.
The lag effect of the Company�s surcharge mechanism positively
impacted the gross margin by an estimated 120 basis points during
the second quarter. In the second quarter a year ago, the Company
estimated that the lag effect negatively impacted gross margin by
450 basis points. Adjusted for the lag effect in the Company's
surcharge mechanism and the dilutive effect of surcharge revenue,
gross margin would have been an estimated 35.2 percent in second
quarter versus an estimated 34.2 percent in the second quarter a
year ago. The underlying improvement was largely driven by a richer
product mix and higher pricing. Second quarter operating income was
$80.5 million compared with $59.0 million a year ago. The record
second quarter level of operating income was achieved primarily as
a result of a richer product mix, higher pricing, and the benefit
from the lag effect in the Company's surcharge mechanism. These
benefits were partially offset by a $4.8 million increase in
selling, general, and administrative expenses. The higher expenses
primarily related to investments associated with driving the
Company's future growth initiatives. Adjusted for the lag effect
and the increase in surcharge revenue, operating margin would have
been an estimated 23.6 percent in the recent second quarter versus
an estimated 24.2 percent a year ago. Other income in the quarter
was $12.1 million, compared with $11.8 million in last year�s
second quarter. The increase was primarily due to increased
receipts from the �Continued Dumping and Subsidy Offset Act of
2000� (the �Act�). Receipts under this Act in the recent second
quarter were $8.2 million compared to $6.4 million a year ago.
Carpenter�s income tax provision in the recent second quarter was
$29.6 million or 33.9 percent of pre-tax income, versus $19.5
million or 30.0 percent, in the same quarter a year ago. The tax
provision in last year�s second quarter was favorably impacted by
adjustments due to Congress� retroactive extension of the Federal
research and development tax credit and the favorable settlement of
a state tax audit. Net income from continuing operations of $57.7
million or $1.17 per diluted share in the second quarter compared
with net income of $45.6 million or $0.86 per diluted share a year
earlier. Cash flow from operations was $31.6 million in the recent
second quarter as compared to $43.8 million a year ago. Capital
expenditures increased to $24.4 million in the second quarter from
$7.3 million a year ago. The higher capital expenditures reflected
the Company�s investment in various growth initiatives including
its previously announced premium melt project. Carpenter continues
to expect that its free cash flow, which is defined as cash from
operations less capital expenditures and dividends, for fiscal 2008
will be approximately $100 million. Discontinued Operations The
pending sale of Carpenter�s ceramics businesses is now reported as
discontinued operations. The loss from discontinued operations of
$1.6 million in the current quarter compares with income of $2.5
million in the same quarter a year ago. Details are as follows:
(millions) � Q2-2008 � Q2-2007 � 6 mos.-2008 � 6 mos.-2007 Income
from operations $4.8 $3.6 $7.5 $7.8 Expenses of sale ($2.1) $---
($2.1) $--- Income tax expense ($4.3) ($1.1) ($5.3) ($2.4) (Loss)
income from discontinued operations ($1.6) $2.5 $0.1 $5.4 The loss
from discontinued operations in this year�s second quarter includes
pre-tax income from operations of $4.8 million compared to $3.6
million in the same quarter a year ago. The current quarter also
includes current expenses related to the sale of $2.1 million and
income tax expense of $4.3 million. Share Repurchase Program On
December 21, 2007, the Board of Directors authorized a new $250
million share repurchase program as a follow-on to an existing $250
million stock buyback program that was completed on December 24th.
Sales Excluding Surcharge This press release includes discussions
of net sales as adjusted to exclude the impact of raw material
surcharges, which represents a financial measure that has not been
determined in accordance with U.S. generally accepted accounting
principles ("GAAP"). The Company provides this additional financial
measure because management believes removing the impact of raw
material surcharges from net sales provides a more consistent basis
for comparing results of operations from period to period.
Conference Call Carpenter will host a conference call and webcast
today, January 29, at 10:00 a.m., ET, to discuss financial results
and operations for the fiscal second quarter. Please call
610-208-2800 for details of the conference call. Access to the call
will also be made available at Carpenter's web site
(www.cartech.com) and through CCBN (www.ccbn.com). A replay of the
call will be made available at www.cartech.com or at www.ccbn.com.
Carpenter produces and distributes specialty alloys, including
stainless steels, titanium alloys, and superalloys, and various
engineered products. Information about Carpenter can be found on
the Internet at www.cartech.com. Except for historical information,
all other information in this news release consists of
forward-looking statements within the meaning of the Private
Securities Litigation Act of 1995. These forward-looking statements
are subject to risks and uncertainties that could cause actual
results to differ from those projected, anticipated or implied. The
most significant of these uncertainties are described in
Carpenter's filings with the Securities and Exchange Commission
including its annual report on Form 10-K for the year ended June
30, 2007 and the exhibits attached to those filings. They include
but are not limited to: 1) the cyclical nature of the specialty
materials business and certain end-use markets, including
aerospace, industrial, automotive, consumer, medical, and energy,
or other influences on Carpenter's business such as new
competitors, the consolidation of customers, and suppliers or the
transfer of manufacturing capacity from the United States to
foreign countries; 2) the ability of Carpenter to achieve cost
savings, productivity improvements or process changes; 3) the
ability to recoup increases in the cost of energy and raw materials
or other factors; 4) domestic and foreign excess manufacturing
capacity for certain metals; 5) fluctuations in currency exchange
rates; 6) the degree of success of government trade actions; 7) the
valuation of the assets and liabilities in Carpenter's pension
trusts and the accounting for pension plans; 8) possible labor
disputes or work stoppages; 9) the potential that our customers may
substitute alternate materials or adopt different manufacturing
practices that replace or limit the suitability of our products;
10) the ability to successfully acquire and integrate acquisitions;
11) the ability of Carpenter to implement and manage material
capital expansion projects in a timely and efficient manner; and
12) the pending sale of its ceramics operations. Any of these
factors could have an adverse and/or fluctuating effect on
Carpenter's results of operations. The forward-looking statements
in this document are intended to be subject to the safe harbor
protection provided by Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Carpenter undertakes no obligation to update or revise
any forward-looking statements. PRELIMINARY CONSOLIDATED STATEMENT
OF INCOME (in millions, except per share data) � � � � � � Three
Months EndedDecember 31 Six Months EndedDecember 31 � � 2007 � �
2006 � � 2007 � � 2006 � � NET SALES $ 446.4 $ 420.8 $ 897.7 $
800.8 � Cost of sales � 329.0 � � 329.7 � � 663.9 � � 612.5 � Gross
profit 117.4 91.1 233.8 188.3 � Selling, general and administrative
expenses � 36.9 � � 32.1 � � 70.4 � � 60.7 � Operating income 80.5
59.0 163.4 127.6 � Interest expense 5.3 5.7 10.8 11.4 Other income,
net � (12.1 ) � (11.8 ) � (18.5 ) � (17.8 ) � Income before income
taxes 87.3 65.1 171.1 134.0 Income taxes � 29.6 � � 19.5 � � 57.5 �
� 40.1 � INCOME FROM CONTINUING OPERATIONS $ 57.7 � $ 45.6 � $
113.6 � $ 93.9 � � (LOSS) INCOME FROM DISCONTINUED OPERATIONS ($1.6
) $ 2.5 $ 0.1 $ 5.4 � � � � NET INCOME $ 56.1 � $ 48.1 � $ 113.7 �
$ 99.3 � � � � EARNINGS PER COMMON SHARE - BASIC: INCOME FROM
CONTINUING OPERATIONS $ 1.18 $ 0.89 $ 2.28 $ 1.84 (Loss) income
from discontinued operations � ($0.03 ) $ 0.05 � $ 0.00 � $ 0.09 �
NET INCOME PER SHARE - BASIC $ 1.15 � $ 0.94 � $ 2.28 � $ 1.93 � �
EARNINGS PER COMMON SHARE - DILUTED: INCOME FROM CONTINUING
OPERATIONS $ 1.17 $ 0.86 $ 2.27 $ 1.79 (Loss) income from
discontinued operations � ($0.03 ) $ 0.05 � $ 0.00 � $ 0.09 � NET
INCOME PER SHARE - DILUTED $ 1.14 � $ 0.91 � $ 2.27 � $ 1.88 � � �
� WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: Basic � 48.7 � � 51.2
� � 49.9 � � 51.1 � Diluted � 49.0 � � 52.7 � � 50.2 � � 52.6 � �
Cash dividends per common share $ 0.15 � $ 0.1125 � $ 0.30 � $
0.225 � PRELIMINARY CONSOLIDATED STATEMENT OF CASH FLOWS (in
millions) � � � � Six Months EndedDecember 31 � � 2007 � � 2006 � �
OPERATING ACTIVITIES: Net income $ 113.7 $ 99.3 Adjustments to
reconcile net income to net cash provided from operations:
Depreciation 24.0 23.0 Amortization 1.1 0.8 Deferred income taxes
1.2 (7.2 ) Net pension (income) expense (1.2 ) 2.4 Net (gain) loss
on asset disposals (1.1 ) 0.2 Changes in working capital and other:
Receivables 86.4 17.9 Inventories (88.9 ) (32.4 ) Other current
assets (3.4 ) (6.4 ) Accounts payable (55.2 ) 40.4 Accrued current
liabilities (15.5 ) (34.5 ) Other, net � 19.4 � � 4.3 � Net cash
provided from operating activities � 80.5 � � 107.8 � � INVESTING
ACTIVITIES: Purchases of plant, equipment and software (42.8 )
(14.6 ) Proceeds from disposals of plant and equipment 1.3 0.2
Purchases of marketable securities (287.3 ) (412.1 ) Sales of
marketable securities � 332.4 � � 231.3 � Net cash provided from
(used for) investing activities � 3.6 � � (195.2 ) � FINANCING
ACTIVITIES: Payments on long-term debt (0.1 ) (0.1 ) Payments to
acquire treasury stock (225.8 ) -- Dividends paid (14.9 ) (12.2 )
Tax benefits on share-based compensation 1.1 2.2 Proceeds from
common stock options exercised � 0.6 � � 1.3 � Net cash used for
financing activities � (239.1 ) � (8.8 ) � Effect of exchange rate
changes on cash and cash equivalents � (3.6 ) � (3.6 ) � Change in
cash balance included in discontinued operations � (8.4 ) � -- � �
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (167.0 ) (99.8 )
Cash and cash equivalents at beginning of period � 300.8 � � 352.8
� Cash and cash equivalents at end of period $ 133.8 � $ 253.0 �
PRELIMINARY CONSOLIDATED BALANCE SHEET (in millions) � � � �
December 312007 June 302007 � ASSETS Current assets: Cash and cash
equivalents $ 133.8 $ 300.8 Marketable securities 327.6 372.7
Accounts receivable, net 204.1 303.2 Inventories 313.7 235.0
Deferred income taxes 17.6 13.3 Other current assets 21.9 30.7
Assets of discontinued operations � 38.6 � � 0.0 � Total current
assets 1,057.3 1,255.7 � Property, plant and equipment, net 534.1
537.4 Prepaid pension cost 137.4 132.4 Goodwill 40.2 46.4
Trademarks and trade names, net 18.7 19.2 Other assets 38.3 34.6
Assets of discontinued operations � 22.9 � � 0.0 � Total assets $
1,848.9 � $ 2,025.7 � � LIABILITIES Current liabilities: Accounts
payable $ 156.7 $ 215.9 Accrued liabilities 109.7 117.1 Current
portion of long-term debt 33.0 33.2 Liabilities of discontinued
operations � 13.5 � � 0.0 � Total current liabilities 312.9 366.2 �
Long-term debt, net of current portion 300.0 299.5 Accrued
postretirement benefits 87.0 90.9 Deferred income taxes 135.5 143.5
Other liabilities 76.3 57.9 Liabilities of discontinued operations
� 1.8 � � 0.0 � Total liabilities � 913.5 � � 958.0 � �
STOCKHOLDERS' EQUITY Common stock 273.0 136.4 Capital in excess of
par value - common stock 197.1 328.0 Reinvested earnings 848.3
751.3 Common stock in treasury, at cost (292.6 ) (65.7 )
Accumulated other comprehensive loss � (90.4 ) � (82.3 ) Total
stockholders' equity � 935.4 � � 1,067.7 � � Total liabilities and
stockholders' equity $ 1,848.9 � $ 2,025.7 � PRELIMINARY SEGMENT
FINANCIAL DATA (in millions) � � � � � � � Three Months
EndedDecember 31 Six Months EndedDecember 31 � � 2007 � � 2006 � �
2007 � � 2006 � � Net sales: Advanced Metals Operations $ 313.4 $
311.5 $ 635.7 $ 601.8 Premium Alloys Operations 132.7 106.0 261.9
192.9 Other 3.6 3.8 6.8 7.3 Intersegment � (3.3 ) � (0.5 ) � (6.7 )
� (1.2 ) � Consolidated net sales $ 446.4 � $ 420.8 � $ 897.7 � $
800.8 � � Operating income: Advanced Metals Operations $ 44.5 $
41.3 $ 93.4 $ 82.0 Premium Alloys Operations 39.6 22.9 76.1 54.1
Other 1.0 1.1 1.7 2.0 Corporate costs (10.7 ) (10.1 ) (19.8 ) (18.0
) Pension earnings, interest & deferrals 6.0 3.6 12.0 7.2
Intersegment � 0.1 � � 0.2 � � 0.0 � � 0.3 � � Consolidated
operating income $ 80.5 � $ 59.0 � $ 163.4 � $ 127.6 � Beginning
with the first quarter of fiscal 2008, Carpenter realigned its
reportable business segments to focus more effectively on our
customers, end-use markets, and operational excellence goals. As a
result, we now have two reportable business segments: Advanced
Metals Operations and Premium Alloys Operations. � The Advanced
Metals Operations (AMO) segment includes the manufacturing and
distribution of high temperature and high strength metal alloys,
stainless steels and titanium in the form of small bars and rods,
wire, narrow strip and powder. AMO sales are spread across many of
our end-use markets including aerospace, industrial, consumer,
automotive, and medical. � The Premium Alloys Operations (PAO)
segment includes the manufacturing and distribution of high
temperature and high strength metal alloys and stainless steels in
the form of ingots, billets, large bars and hollows and primarily
services the aerospace and energy markets. � The service cost
component of net pension expense, which represents the estimated
cost of future pension liabilities earned associated with active
employees, is included in the operating results of the business
segments. The residual net pension expense, which is comprised of
the expected return on plan assets, interest costs on the projected
benefit obligations of the plans, and amortization of actuarial
gains and losses and prior service costs, is included under the
heading "Pension earnings, interest & deferrals." PRELIMINARY
SELECTED FINANCIAL MEASURES (in millions) � � � � � � � Three
Months EndedDecember 31 Six Months EndedDecember 31 FREE CASH FLOW
� 2007 � � 2006 � � 2007 � � 2006 � � Net cash provided from
operations $ 31.6 $ 43.8 $ 80.5 $ 107.8 Purchases of plant,
equipment and software (24.4 ) (7.3 ) (42.8 ) (14.6 ) Proceeds from
disposals of plant and equipment 0.1 --- 1.3 0.2 Dividends paid �
(7.3 ) � (6.1 ) � (14.9 ) � (12.2 ) Free cash flow $ 0.0 � $ 30.4 �
$ 24.1 � $ 81.2 � � Free cash flow is a measure of cash generated
which management evaluates for alternative uses. � � PRELIMINARY
SUPPLEMENTAL SCHEDULES (in millions) � � � � � � Three Months
EndedDecember 31 Six Months EndedDecember 31 NET SALES BY MAJOR
PRODUCT LINE � 2007 � � 2006 � � 2007 � � 2006 � � Product Line
Excluding Surcharge: Stainless steel $ 102.1 $ 115.3 $ 211.1 $
227.2 Special alloys 156.1 137.0 299.3 260.6 Titanium products 38.6
48.9 81.1 97.0 Tool and other steel 15.9 13.5 30.5 26.1 Other
materials � 5.1 � � 6.1 � � 9.6 � � 11.9 � � Consolidated net sales
excluding surcharge $ 317.8 $ 320.8 $ 631.6 $ 622.8 � Surcharge
revenue � 128.6 � � 100.0 � � 266.1 � � 178.0 � � Consolidated net
sales $ 446.4 � $ 420.8 � $ 897.7 � $ 800.8 �
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