Carpenter Technology Corporation (NYSE:CRS) today reported net
income of $2.1 million or $0.05 per diluted share for the third
quarter ended March 31, 2010. Third quarter results include the
previously announced non-cash charge of $5.9 million or $0.13 per
diluted share related to the recently enacted healthcare reform law
that changed the income tax treatment of Medicare Part D subsidies
in future years. Net income for the 2009 third quarter was $13.1
million or $0.30 per diluted share.
"Although still below last year’s results, we continue to gain
momentum in our business that reflects increasing strength in our
end markets and initial impacts from our growth strategies,” said
Gregory A. Pratt, chairman and interim president and chief
executive officer. "As demand improves at a variable recovery pace,
we are leaning forward to meet the needs of our customers at this
critical point in the cycle. Our new premium melt capacity
positions us to meet increasing demand as it occurs. We expect
further improvement in our revenue and earnings per share between
the third and fourth quarter, and are on track to meet our
financial targets for the full year.”
Third Quarter Results
Financial highlights for the third quarter include:
(in millions, except per share amounts & pounds sold)
3Q
FY 2010
3Q
FY 2009
YTD
FY 2010
YTD
FY 2009
Net Sales $336.9 $330.0 $834.4
$1,105.4 Net Sales Excluding Surcharge (a)
$256.7 $266.7 $651.8
$841.8 Net Income (Loss) $2.1
$13.1 $(3.8 ) $68.7 Diluted Earnings
(Loss) per Share $0.05 $0.30
$(0.09 ) $1.56 Net Pension Expense per Diluted Share
(a) $(0.21 ) $(0.06 ) $(0.64 ) $(0.19 )
Free Cash Flow (a) $(7.7 ) $11.8 $17.0
$(60.3 ) Pounds Sold (000) 49,190
40,994 119,686 134,576
(a) non-GAAP financial measure
that is explained in the attached tables
Net sales for the third quarter were $336.9 million, up 2
percent from the prior year. Excluding surcharge revenue, net sales
were $256.7 million, down 4 percent from a year ago. Total pounds
sold in the third quarter were 20 percent higher than the 2009
third quarter.
Gross profit was $46.3 million compared with $49.2 million in
the 2009 third quarter. The impact of higher volumes on this
quarter’s gross profit was more than offset by a weaker mix, and
higher net pension expense. Last year’s third quarter gross profit
was negatively impacted by $11 million of costs related to the LIFO
effects of reducing inventory in a period of declining nickel
prices.
SG&A expenses were $33.5 million, compared with $31.0
million for the third quarter of 2009. Excluding the impact of
changes in net pension expense, SG&A was essentially flat over
last year.
Operating income for the third quarter was $12.8 million
compared with $16.1 million a year earlier. Excluding surcharge
revenue and pension earnings, interest and deferrals (EID),
operating margin was 8.7 percent. This compares to 6.0 percent in
last year’s third quarter or 6.8 percent, excluding the $2.1
million in restructuring charges related to the closure of our
Crawley UK strip facility.
Other Income was $1.6 million compared to $2.7 million in the
2009 third quarter. The provision for income tax was $7.8 million
or 79 percent of pre-tax income compared with an income tax
provision of $1.8 million or 12 percent of pre-tax income a year
ago. The increase in the provision mainly reflects the one-time,
non-cash reduction in the value of Carpenter’s deferred tax asset
previously established for anticipated retiree health care
liabilities.
Net income was $2.1 million or $0.05 per diluted share, compared
with third quarter net income of $13.1 million or $0.30 per diluted
share in 2009.
Free cash flow, which we define as cash from operations less
capital expenditures and dividends, was negative $7.7 million
compared with positive free cash flow of $11.8 million in the 2009
third quarter. Most of the difference reflects higher levels of
accounts receivable due to increased sales volumes coupled with
higher commodity pass-through costs, and inventory changes to
support increased volumes. Through nine months ending March 31,
2010, free cash flow was positive $17.0 million.
Markets:
Aerospace market sales were $149.4 million in the third
quarter, up 2 percent compared with the same period a year ago.
Excluding surcharge revenue, aerospace sales were down 4 percent on
2 percent lower volume. Aerospace results reflect increased sales
of engine components, which were more than offset by lower demand
for fasteners. When compared to the second quarter, aerospace
volumes increased 36 percent, reflecting a surge in demand for
engine components.
Industrial market sales were $74.4 million, flat compared
with the third quarter of fiscal 2009. Excluding surcharge revenue,
industrial sales decreased 6 percent on 25 percent higher volume.
The year-over-year result reflects a temporary mix shift to lower
value products which include stainless redraw rod and stainless bar
sold to distributors. Volumes increased from the second quarter by
37 percent as Carpenter benefited from shorter lead-time orders on
lower value products.
Consumer market sales were $32.8 million, an increase of
55 percent from the third quarter of fiscal 2009. Excluding
surcharge revenue, sales increased 40 percent on 53 percent higher
volume, driven by the rebuild of depleted inventories of lower
value, higher volume materials that are used primarily for
household related items. Volumes increased 35 percent from the
second quarter due to a blend of inventory restocking and higher
demand within the housing and construction, and electronics
sectors.
Medical market sales were $29.8 million in the third
quarter, flat with a year ago. Excluding surcharge revenues,
medical market sales were down 1 percent on 12 percent higher
volume. The increase in volume reflects share gain in cobalt-based
implant products and initial inventory restocking. The revenue
decline continues to be attributable to lower titanium raw material
costs. When compared to the second quarter, medical volumes
increased 59 percent reflecting positive momentum in the sector and
our improved position with customers.
Automotive market sales were $27.6 million, an increase
of 30 percent from a year earlier. Excluding surcharge revenue,
automotive sales rose 24 percent as volumes increased 90 percent.
The year-over-year volume increase reflects greater share in lower
value automotive intake valves along with increased demand for
stainless steel fuel system components. Volumes increased 30
percent from the second quarter, reflecting share gain on lower
value business as well as higher volumes of more strategic fuel
injectors and turbocharger engine components.
Energy market sales of $22.9 million declined 38 percent
from the third quarter a year earlier. Excluding surcharge revenue,
energy market sales decreased 42 percent on 34 percent lower
volume. The year-over-year decline reflects sharply lower volumes
for oil and gas applications as excess supply chain inventory
reductions continue, along with sluggish orders for high-capacity
industrial gas turbines. However, energy volumes grew 21 percent
from the second quarter, driven by increased oil and gas rig
activity that drained some excess drill collar inventory in
selected sizes.
International Sales in the third quarter were $105.0
million, a decrease of 6 percent compared with the same quarter a
year earlier. Revenue in Europe was down 13 percent compared with
unusually strong energy sales a year earlier, and Asia-Pacific was
flat. From the second quarter, sales outside the U.S. increased 23
percent. International sales represented 31 percent of total sales
in the 2010 third quarter, compared to 34 percent in the prior
year.
Pension Effects
During the third quarter, the Company recorded expense
associated with its pension and other post retirement benefit plans
of $15.3 million or $0.21 per diluted share which is consistent
with our planned non-cash pension expense for fiscal 2010 of $61.1
million, or $0.84 per diluted share.
Non-GAAP Financial
Measures
This press release includes discussions of financial measures
that have not been determined in accordance with U.S. generally
accepted accounting principles ("GAAP"). The non-GAAP financial
measures, accompanied by reasons why the Company believes the
measures are important, are included in the attached schedules.
Conference Call
Carpenter will host a conference call and webcast today, April
27, at 10:00 a.m., ET, to discuss financial results and operations
for the fiscal third quarter. Please call 610-208-2222 for details
of the conference call. Access to the call will also be made
available at Carpenter's web site (http://www.cartech.com) and
through CCBN (http://www.ccbn.com). A replay of the call will be
made available at http://www.cartech.com or at
http://www.ccbn.com.
About Carpenter
Technology
Carpenter produces and distributes specialty alloys, including
stainless steels, titanium alloys, and superalloys. Information
about Carpenter can be found on the Internet at
http://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, 2009 and the quarterly reports on Form 10-Q
for the quarters ended September 30, 2009 and December 31, 2009,
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 competitors, 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, raw materials,
freight 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 availability of credit facilities to
Carpenter, its customers or other members of the supply chain; 12)
the ability to obtain energy or raw materials, especially from
suppliers located in countries that may be subject to unstable
political or economic conditions; 13) our manufacturing processes
are dependent upon highly specialized equipment located primarily
in one facility in Reading, Pennsylvania for which there may be
limited alternatives if there are significant equipment failures or
catastrophic event; and (14) our future success depends on the
continued service and availability of key personnel, including
members of our executive management team, management, metallurgists
and other skilled personnel and the loss of these key personnel
could affect our ability to perform until suitable replacements are
found. 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 BALANCE SHEETS (in millions)
March 31, June 30, 2010 2009 ASSETS Current assets:
Cash and cash equivalents $243.4 $340.1 Marketable securities 126.3
15.0 Accounts receivable, net 196.8 130.8 Inventories 195.6 185.4
Deferred income taxes 13.3 23.8 Other current assets 53.9
54.6
Total current assets
829.3 749.7 Property, plant and equipment, net 617.8 634.1
Goodwill 35.2 35.2 Other intangibles, net 17.9 18.7 Other assets
94.0 59.7 Total assets $1,594.2 $1,497.4
LIABILITIES Current liabilities: Accounts payable
$123.7 $70.2 Accrued liabilities 97.9 108.3 Current portion of
long-term debt 20.0 20.0 Total current liabilities
241.6 198.5 Long-term debt, net of current portion 258.9
258.6 Accrued pension liability 257.5 240.4 Accrued postretirement
benefits 127.0 127.7 Deferred income taxes 10.4 1.6 Other
liabilities 55.2 53.6 Total liabilities 950.6
880.4 STOCKHOLDERS' EQUITY Common stock 273.2 273.1
Capital in excess of par value 219.8 208.9 Reinvested earnings
985.3 1,013.0 Common stock in treasury, at cost (534.8 ) (531.5 )
Accumulated other comprehensive loss (299.9 ) (346.5 ) Total
stockholders' equity 643.6 617.0 Total
liabilities and stockholders' equity $1,594.2 $1,497.4
PRELIMINARY CONSOLIDATED
STATEMENTS OF INCOME (in millions, except per share data)
Three Months Ended Nine Months Ended March 31, March 31,
2010 2009 2010 2009 NET SALES $336.9 $330.0 $834.4
$1,105.4 Cost of sales 290.6 280.8 733.3
906.7 Gross profit 46.3 49.2 101.1 198.7
Selling, general and administrative expenses 33.5 31.0 99.6 100.5
Restructuring costs -- 2.1 -- 2.1
Operating income 12.8 16.1 1.5 96.1 Interest expense (4.5 )
(3.9 ) (13.3 ) (12.1 ) Other income, net 1.6 2.7 9.8
13.0 Income (loss) before income taxes 9.9
14.9 (2.0 ) 97.0 Income tax expense 7.8 1.8 1.8
28.3 NET INCOME (LOSS) $2.1 $13.1 ($3.8
) $68.7 EARNINGS (LOSS) PER SHARE: Basic $0.05
$0.30 ($0.09 ) $1.56 Diluted $0.05 $0.30
($0.09 ) $1.56 WEIGHTED AVERAGE SHARES
OUTSTANDING: Basic 44.0 43.8 43.9 43.9
Diluted 44.4 44.0 43.9 44.2 Cash
dividends per common share $0.18 $0.18 $0.54
$0.54 PRELIMINARY CONSOLIDATED
STATEMENTS OF CASH FLOWS (in millions) Nine Months Ended
March 31, 2010 2009 OPERATING ACTIVITIES: Net (loss)
income ($3.8 ) $68.7
Adjustments to reconcile net
(loss) income to net cash provided from operations:
Depreciation and amortization 44.1 38.0 Deferred income taxes (5.1
) 11.6 Net pension expense 45.8 15.2 Net (gain) loss on disposal of
property and equipment (0.6 ) 0.9 Changes in working capital and
other: Accounts receivable (67.2 ) 103.9 Inventories (9.9 ) (68.3 )
Other current assets 21.6 (16.7 ) Accounts payable 53.5 (70.5 )
Accrued liabilities 8.9 (28.2 ) Other, net (20.2 ) (9.8 ) Net cash
provided from operating activities 67.1 44.8
INVESTING ACTIVITIES: Purchases of plant, equipment and software
(27.1 ) (94.9 ) Proceeds from disposals of property and equipment
0.9 -- Net proceeds from sales of businesses -- 13.4 Purchases of
marketable securities (127.7 ) (34.5 )
Proceeds from sales and maturities
of marketable securities
16.8 39.8 Net cash used for investing activities
(137.1 ) (76.2 ) FINANCING ACTIVITIES: Payments to acquire
treasury stock -- (46.1 ) Dividends paid (23.9 ) (23.6 ) Payments
of debt issue costs (2.0 ) -- Tax benefits on share-based
compensation 0.1 -- Proceeds from common stock options exercised
0.2 -- Net cash used for financing activities (25.6 )
(69.7 ) Effect of exchange rate changes on cash and cash
equivalents (1.1 ) (1.3 ) DECREASE IN CASH AND CASH
EQUIVALENTS (96.7 ) (102.4 ) Cash and cash equivalents at beginning
of period 340.1 403.3 Cash and cash equivalents at
end of period $243.4 $300.9
PRELIMINARY SEGMENT FINANCIAL DATA (in millions)
Three Months Ended Nine Months Ended March 31, March
31, 2010 2009 2010 2009 Net sales: Advanced
Metals Operations: Net sales excluding surcharge $184.5 $185.8
$478.1 $595.6 Surcharge 49.9 41.8 114.6 180.2
Advanced Metals Operations net sales 234.4
227.6 592.7 775.8 Premium Alloys
Operations: Net sales excluding surcharge $72.6 $82.8 $175.6 $254.0
Surcharge 30.3 21.5 68.0 83.4
Premium Alloys Operations net sales 102.9 104.3 243.6
337.4 Intersegment (0.4 ) (1.9 ) (1.9 ) (7.8 )
Consolidated net sales $336.9 $330.0 $834.4
$1,105.4 Operating income: Advanced Metals Operations
$6.4 $11.2 $3.9 $61.5 Premium Alloys Operations 24.0 15.2 52.1 63.4
Corporate costs (8.2 ) (8.2 ) (26.2 ) (26.6 ) Pension earnings,
interest & deferrals (9.5 ) -- (28.4 ) (0.1 ) Restructuring
costs -- (2.1 ) -- (2.1 ) Intersegment 0.1 -- 0.1
-- Consolidated operating income $12.8
$16.1 $1.5 $96.1
We 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 NON-GAAP FINANCIAL MEASURES (in millions, except
per share data) Three Months
Ended Nine Months Ended March 31, March 31, FREE CASH FLOW 2010
2009 2010 2009 Net cash provided from operations $8.2 $46.9
$67.1 $44.8 Purchases of plant, equipment and software (8.0 ) (27.2
) (27.1 ) (94.9 )
Proceeds from disposals of
property and equipment
-- -- 0.9 -- Net proceeds from sales of businesses -- -- -- 13.4
Dividends paid (7.9 ) (7.9 ) (23.9 ) (23.6 ) Free cash flow ($7.7 )
$11.8 $17.0 ($60.3 )
Management believes that the free cash flow measure provides
useful information to investors regarding our financial condition
because it is a measure of cash generated which management
evaluates for alternative uses.
Three Months Ended Nine Months Ended
March 31, March 31, NET PENSION EXPENSE PER DILUTED SHARE 2010 2009
2010 2009 Pension plans expense $13.5 $4.4 $40.6 $13.4 Other
postretirement benefits expense 1.8 0.6 5.2
1.8 Net pension expense 15.3 5.0 45.8 15.2 Income tax
benefit (5.9 ) (2.2 ) (17.6 ) (6.6 ) Net pension expense, net of
tax benefits $9.4 $2.8 $28.2 $8.6
Net pension expense per diluted share $0.21 $0.06
$0.64 $0.19 Weighted average diluted
common shares 44.4 44.0 43.9 44.2
Management believes that net pension expense per diluted share
is helpful in analyzing the operating performance of the Company,
as net pension expense tends to be volatile due to changes in the
financial markets, which may result in significant fluctuations in
operating results from period to period.
OPERATING MARGIN EXCLUDING SURCHARGE,
Three Months Ended Nine Months Ended PENSION EARNINGS, INTEREST AND
March 31, March 31, DEFERRALS, AND RESTRUCTURING COSTS 2010 2009
2010 2009 Net sales $336.9 $330.0 $834.4 $1,105.4 Less:
surcharge revenue 80.2 63.3 182.6 263.6
Consolidated net sales excluding surcharge $256.7 $266.7
$651.8 $841.8 Operating income $12.8
$16.1 $1.5 $96.1 Pension earnings, interest & deferrals 9.5 --
28.4 0.1 Restructuring costs -- 2.1 -- 2.1
Operating income excluding pension
earnings, interest and deferrals and restructuring costs
$22.3 $18.2 $29.9 $98.3
Operating margin excluding
surcharge and pension earnings, interest and deferrals and
restructuring costs
8.7 % 6.8 % 4.6 % 11.7 %
Management believes that removing the impacts of raw material
surcharges from net sales provides a more consistent basis for
comparing results of operations from period to period. In addition,
management believes that excluding the impact of pension earnings,
interest and deferrals, which may be volatile due to changes in the
financial markets, is helpful in analyzing the true operating
performance of the Company.
PRELIMINARY SUPPLEMENTAL SCHEDULES (in
millions) Three Months Ended Nine Months Ended March
31, March 31, NET SALES BY MAJOR PRODUCT LINE 2010 2009 2010 2009
Product Line Excluding Surcharge: Special alloys $ 124.7 $
137.5 $ 321.4 $ 396.6 Stainless steel 89.1 82.6 215.3 281.0
Titanium products 30.4 33.2 80.9 110.0 Tool and other steel 9.9 9.4
27.0 39.9 Other materials 2.6 4.0 7.2 14.3 Consolidated net
sales excluding surcharge $256.7 $266.7 $651.8 $841.8
Surcharge revenue 80.2 63.3 182.6 263.6 Consolidated net
sales $336.9 $330.0 $834.4 $1,105.4 Three Months Ended Nine
Months Ended March 31, March 31, NET SALES BY END USE MARKET 2010
2009 2010 2009 End Use Market Excluding Surcharge: Aerospace
$ 111.9 $ 116.2 $ 279.6 $ 350.5 Industrial 55.3 58.6 146.5 184.6
Consumer 24.5 17.5 61.9 62.4 Medical 25.1 25.3 62.7 70.4 Automotive
21.7 17.5 56.2 64.8 Energy 18.2 31.6 44.9 109.1 Consolidated
net sales excluding surcharge $256.7 $266.7 $651.8 $841.8
Surcharge revenue 80.2 63.3 182.6 263.6 Consolidated net
sales $336.9 $330.0 $834.4 $1,105.4
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