Carpenter Technology Corporation (NYSE:CRS) today reported net
income of $5.9 million or $0.13 per share for the fourth quarter
ended June 30, 2010. This compares to a net loss of $20.8 million
or $0.48 per share for the same quarter a year earlier.
Fourth quarter earnings per share would have been about $0.10
higher without the LIFO impact of management’s Lean Forward
initiative to increase production and inventory levels in order to
respond to near-term customer demand.
"Our business continues to have good top-line momentum, and we
believe our growth strategies and positioning with key customers
will generate strong revenue growth in fiscal 2011,” said Gregory
A. Pratt, Chairman of the Board. "During this quarter, we made a
decision to support growing customer demand by ramping up
production and increasing inventories. These actions have put us in
a better position heading into fiscal 2011. Adjusting for the Lean
Forward impacts and $2.6 million of fixed asset write-offs, our
operating margin in the quarter would have been in line with the 10
percent target level we expected by year-end.”
“We had a solid year of cash flow performance and remain
financially strong,” said Pratt. “We are excited about our long
term growth opportunities, particularly in aerospace and energy;
and remain focused on ultimately exceeding our prior peak level of
financial performance.”
Fourth Quarter Results
Financial highlights for the fourth quarter include:
(in millions, except per share amounts & pounds sold)
4Q
2010
4Q
2009
FY
2010
FY
2009
Net Sales $364.2 $256.9 $1,198.6
$1,362.3 Net Sales Excluding Surcharge (a) $269.8
$213.4 $921.7 $1,055.2 Operating Income (Loss)
excluding pension earnings, interest and deferrals and
restructuring costs (a) $19.7 $(24.8) $49.6
$73.5 Net Income (Loss) $5.9 $(20.8)
$2.1 $47.9 Diluted Earnings (Loss) per Share $0.13
$(0.48) $0.04 $1.08 Net Pension Expense per
Diluted Share (a) $(0.21) $(0.07) $(0.85)
$(0.27) Free Cash Flow (a) $23.1 $71.5
$40.1 $11.2 Pounds Sold (000) 51,132 32,464
170,820 167,040
(a) non-GAAP financial measure that is explained in the attached
tables
Net sales for the fourth quarter were $364.2 million, up 42
percent from the prior year. Excluding surcharge revenue, net sales
were $269.8 million, up 26 percent from a year ago. Total pounds
sold in the fourth quarter were 58 percent higher than the 2009
fourth quarter. Sequentially, net sales excluding surcharge
increased 5 percent on 4 percent higher volume reflecting continued
growth in all end markets.
Gross profit was $43.7 million compared with $8.4 million in the
2009 fourth quarter. In comparing the year-over-year gross profit
results, note that the 2010 fourth quarter included about $9
million of impacts from Lean Forward and fixed asset write-offs
while the 2009 fourth quarter would have been about $12 million
higher without the LIFO effects from lower nickel prices on
declining inventory levels. Beyond that, the higher gross profit in
this year’s fourth quarter was driven by significantly higher
volumes and cost savings, partially offset by weaker product mix
and lag effects in our raw material surcharge.
SG&A expenses were $33.5 million, compared with $33.2
million for the fourth quarter of 2009. Excluding the impact of
changes in net pension expense, SG&A was down 6 percent versus
last year.
Operating income for the fourth quarter was $10.2 million
compared with a loss of $32.1 million a year earlier. Excluding
surcharge revenue and pension earnings, interest and deferrals
(EID), operating margin was 7.3 percent for the quarter and 5.4
percent for the full year.
Other Income was $0.9 million compared to $2.1 million in the
2009 fourth quarter due mainly to lower foreign exchange gains. The
provision for income tax was $0.7 million or 11 percent of pre-tax
income compared with an income tax benefit of $13.2 million or 39
percent of pre-tax loss a year ago.
Net income was $5.9 million or $0.13 per diluted share, compared
with a fourth quarter net loss of $20.8 million or $0.48 per
diluted share in 2009.
Free cash flow, which we define as cash from operations less
capital expenditures and dividends, was $23.1 million in the
quarter. Increased inventory levels to support growing customer
demand were more than offset by strong working capital management
in receivables and payables. Free cash flow was $40.1 million for
the full year.
Markets:
Aerospace market sales were $153.7 million in the fourth
quarter, up 26 percent compared with the same period a year ago.
Excluding surcharge revenue, aerospace sales were up 16 percent on
22 percent higher volume. Aerospace results reflect continued
strong demand and share gain for engine components, which were
partially offset by still stagnant demand for fasteners. Volumes
increased 3 percent sequentially over the strong third quarter,
reflecting demand strength for engine components. While fastener
supply chain inventories remain high, better demand balance is
expected by the end of the calendar year.
Industrial market sales were $87.9 million, up 70 percent
compared with the fourth quarter of fiscal 2009. Excluding
surcharge revenue, industrial sales increased 40 percent on 72
percent higher volume. The year-over-year result reflects continued
increased demand for lower value products that include stainless
redraw rod and stainless bar sold to distributors. Volumes
increased from the third quarter by 3 percent.
Consumer market sales were $38.5 million, an increase of
91 percent from the fourth quarter of fiscal 2009. Excluding
surcharge revenue, sales increased 62 percent on 73 percent higher
volume, driven by supply chain inventory restocking of bi-metallic
strip and stainless fasteners. Volumes increased 8 percent from the
third quarter.
Automotive market sales were $30.6 million, an increase
of 125 percent from a year earlier. Excluding surcharge revenue,
automotive sales rose 97 percent as volumes increased 134 percent.
The year-over-year volume increase reflects higher demand for
engine fasteners and fuel injectors along with greater share in
lower value automotive valves. Volumes were flat from the third
quarter.
Medical market sales were $28.8 million in the fourth
quarter, up 2 percent from a year ago. Excluding surcharge
revenues, medical market sales were flat on 15 percent higher
volume. The higher volume reflects share gain in cobalt-based
implant products and improved demand for stainless instruments,
while revenues mainly reflect the impact of lower raw material
costs on selling prices for titanium products. Compared to the
third quarter, medical volumes increased 6 percent.
Energy market sales of $24.7 million increased 16 percent
from the fourth quarter a year earlier. Excluding surcharge
revenue, energy market sales increased 9 percent on 36 percent
higher volume. The year-over-year increase reflects sharply higher
volumes for oil and gas applications as drilling rig activity has
increased and supply chain inventories are in better balance. The
mix was negatively impacted by continued sluggish orders for high
value materials used in industrial gas turbines. Energy volumes
grew 19 percent from the third quarter.
International Sales in the fourth quarter were $115.2
million, an increase of 40 percent compared with the same quarter a
year earlier. Revenues increased 49 percent in Asia on 64 percent
higher volume driven by significant growth in the automotive,
consumer and industrial markets. Sales in Europe were up 39 percent
on 34 percent higher volume, due mainly to significant growth in
aerospace. From the third quarter, sales outside the U.S. increased
10 percent. International sales in the 2010 fourth quarter
represented 32 percent of total sales, unchanged from the prior
year.
FY 2011 Outlook
The Company expects to deliver overall revenue growth in the
mid-to-high-teens for fiscal 2011. Revenue growth is expected in
each quarter versus the comparable year-ago period, although
volumes in the first half of the year are expected to be lower than
the second half of fiscal 2010 due to normal seasonality factors.
Volumes should increase above comparable year-ago periods during
the second half of the year, aided in part by the return of
aerospace fastener demand.
Profitability is expected to continue on an improving trend,
driven by volume growth, an improving product mix and continued
cost savings. Operating margin, excluding surcharge and pension
EID, should remain around current levels at the lower volume in the
first half of the year and should then improve in the second half
of the fiscal year. The effective tax rate is projected to be about
30 percent.
Free cash flow is expected to be neutral including $70 million
of capital spending and a projected increase in working capital to
support business growth.
“As the recovery unfolds, Carpenter is well positioned to meet
the demands of our customers and deliver good results in fiscal
2011,” said William A. Wulfsohn, President and Chief Executive
Officer. “I am confident we have the strategies and financial
flexibility to drive future growth and deliver attractive
shareholder returns.”
Pension Effects
During the fourth quarter, the Company recorded expense
associated with its pension and other post retirement benefit plans
of $15.5 million or $0.21 per diluted share. For the full fiscal
year, non-cash pension expense was $61.3 million, or $0.85 per
diluted share. Due primarily to the decline in equity markets near
the end of fiscal 2010 and a lower discount rate assumption, the
Company now expects to record similar non-cash pension expense of
$61 million, or approximately $0.83 per diluted share in fiscal
2011. The expense will be allocated equally through the fiscal
year. The Company currently expects to make a cash contribution of
approximately $5 million in the fourth quarter of fiscal 2011.
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, July
29, at 10:00 a.m., ET, to discuss financial results and operations
for the fiscal fourth 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, December 31, 2009 and
March 31, 2010, 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)
June 30, June 30, 2010 2009 ASSETS
Current assets: Cash and cash equivalents $265.4 $340.1 Marketable
securities 105.2 15.0 Accounts receivable, net 188.5 130.8
Inventories 203.6 185.4 Deferred income taxes 21.5 23.8 Other
current assets 36.0 54.6 Total current assets 820.2
749.7 Property, plant and equipment, net 617.5 634.1
Goodwill 35.2 35.2 Other intangibles, net 17.6 18.7 Deferred income
taxes 16.2 -- Other assets 76.5 59.7 Total assets
$1,583.2 $1,497.4 LIABILITIES Current
liabilities: Accounts payable $130.5 $70.2 Accrued liabilities 87.6
108.3 Current portion of long-term debt -- 20.0 Total
current liabilities 218.1 198.5 Long-term debt, net of
current portion 259.6 258.6 Accrued pension liability 322.6 240.4
Accrued postretirement benefits 146.7 127.7 Deferred income taxes
-- 1.6 Other liabilities 62.8 53.6 Total liabilities
1,009.8 880.4 STOCKHOLDERS' EQUITY Common
stock 273.2 273.1 Capital in excess of par value 223.3 208.9
Reinvested earnings 983.2 1,013.0 Common stock in treasury, at cost
(535.2 ) (531.5 ) Accumulated other comprehensive loss (371.1 )
(346.5 ) Total stockholders' equity 573.4 617.0
Total liabilities and stockholders' equity $1,583.2
$1,497.4 PRELIMINARY CONSOLIDATED STATEMENTS
OF INCOME (in millions, except per share data)
Three Months Ended Year Ended June 30, June 30,
2010 2009 2010 2009 NET SALES $364.2 $256.9 $1,198.6
$1,362.3 Cost of sales 320.5 248.5 1,053.8
1,155.1 Gross profit 43.7 8.4 144.8 207.2
Selling, general and administrative expenses 33.5 33.2 133.1 133.8
Restructuring costs -- 7.3 -- 9.4
Operating income (loss) 10.2 (32.1 ) 11.7 64.0 Interest
expense (4.5 ) (4.0 ) (17.8 ) (16.1 ) Other income, net 0.9
2.1 10.8 15.1 Income (loss) before
income taxes 6.6 (34.0 ) 4.7 63.0 Income tax expense (benefit) 0.7
(13.2 ) 2.6 15.1 NET INCOME (LOSS) $5.9
($20.8 ) $2.1 $47.9 EARNINGS (LOSS) PER SHARE:
Basic $0.13 ($0.48 ) $0.04 $1.08 Diluted $0.13
($0.48 ) $0.04 $1.08 WEIGHTED AVERAGE
SHARES OUTSTANDING: Basic 44.0 43.8 43.9 43.9
Diluted 44.5 43.8 44.4 44.2
Cash dividends per common share $0.18 $0.18
$0.72 $0.72 PRELIMINARY CONSOLIDATED
STATEMENTS OF CASH FLOWS (in millions)
Year Ended June 30, 2010 2009 OPERATING ACTIVITIES:
Net income $2.1 $47.9 Adjustments to reconcile net income to net
cash provided from operations: Depreciation and amortization 59.1
52.7 Deferred income taxes (1.8 ) 16.4 Net pension expense 61.3
20.6 Net loss on disposal of property and equipment 2.0 1.7 Changes
in working capital and other: Accounts receivable (62.5 ) 144.0
Inventories (19.1 ) 13.4 Other current assets 24.2 (26.7 ) Accounts
payable 60.8 (85.7 ) Accrued liabilities 13.4 (33.5 ) Other, net
(24.3 ) (5.3 ) Net cash provided from operating activities 115.2
145.5 INVESTING ACTIVITIES: Purchases of
plant, equipment and software (44.2 ) (116.3 ) Proceeds from
disposals of property and equipment 1.0 0.1 Net proceeds from sales
of businesses -- 13.4 Purchases of marketable securities (145.0 )
(49.5 ) Proceeds from sales and maturities of marketable securities
55.3 44.8 Net cash used for investing activities
(132.9 ) (107.5 ) FINANCING ACTIVITIES: Payments on
long-term debt (20.0 ) (23.0 ) Payments to acquire treasury stock
-- (46.1 ) Dividends paid (31.9 ) (31.5 ) Payments of debt issue
costs (2.0 ) -- Tax benefits on share-based compensation 0.2 --
Proceeds from common stock options exercised 0.2 0.1
Net cash used for financing activities (53.5 ) (100.5 )
Effect of exchange rate changes on cash and cash equivalents (3.5 )
(0.7 ) DECREASE IN CASH AND CASH EQUIVALENTS (74.7 ) (63.2 )
Cash and cash equivalents at beginning of period 340.1 403.3
Cash and cash equivalents at end of period $265.4
$340.1 PRELIMINARY SEGMENT FINANCIAL DATA (in
millions) Three Months Ended
Year Ended June 30, June 30, 2010 2009 2010 2009 Net
sales: Advanced Metals Operations: Net sales excluding
surcharge $197.3 $156.1 $675.4 $751.7 Surcharge 63.1 25.5
177.6 205.7 Advanced Metals Operations
net sales 260.4 181.6 853.0 957.4
Premium Alloys Operations: Net sales excluding surcharge
$73.4 $57.7 $249.0 $311.8 Surcharge 31.3 18.0 99.3
101.4 Premium Alloys Operations net sales
104.7 75.7 348.3 413.2
Intersegment (0.9 ) (0.4 ) (2.7 ) (8.3 ) Consolidated net sales
$364.2 $256.9 $1,198.6 $1,362.3
Operating income: Advanced Metals Operations $7.9 ($27.4 ) $11.8
$34.1 Premium Alloys Operations 19.1 13.5 71.2 76.9 Corporate costs
(7.3 ) (10.8 ) (33.5 ) (37.5 ) Pension earnings, interest &
deferrals (9.5 ) -- (37.9 ) (0.1 ) Restructuring costs -- (7.3 ) --
(9.4 ) Intersegment -- (0.1 ) 0.1 --
Consolidated operating income (loss) $10.2 ($32.1 ) $11.7
$64.0 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 Year Ended June 30, June 30, FREE CASH
FLOW 2010 2009 2010 2009 Net cash provided from operations
$48.1 $100.7 $115.2 $145.5 Purchases of plant, equipment and
software (17.1 ) (21.4 ) (44.2 ) (116.3 )
Proceeds from disposals of
property and equipment
0.1 0.1 1.0 0.1 Net proceeds from sales of businesses -- -- -- 13.4
Dividends paid (8.0 ) (7.9 )
(31.9
) (31.5 ) Free cash flow $23.1 $71.5 $40.1
$11.2 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 Year Ended June 30, June 30, NET PENSION EXPENSE PER
DILUTED SHARE 2010 2009 2010 2009 Pension plans expense
$13.7 $4.8 $54.3 $18.3 Other postretirement benefits expense 1.8
0.6 7.0 2.3 Net pension expense 15.5
5.4 61.3 20.6 Income tax benefit (6.0 ) (2.3 ) (23.7 ) (8.8 ) Net
pension expense, net of tax $9.5 $3.1 $37.6
$11.8 Net pension expense per diluted share $0.21
$0.07 $0.85 $0.27 Weighted
average diluted common shares 44.5 43.8 44.4
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
Year Ended PENSION EARNINGS, INTEREST AND June 30, June 30,
DEFERRALS, AND RESTRUCTURING COSTS 2010 2009 2010 2009 Net
sales $ 364.2 $ 256.9 $1,198.6 $1,362.3 Less: surcharge revenue
94.4 43.5 276.9 307.1 Consolidated net
sales excluding surcharge $269.8 $213.4 $921.7
$1,055.2 Operating income (loss) $10.2 ($32.1 ) $11.7
$64.0 Pension earnings, interest & deferrals 9.5 -- 37.9 0.1
Restructuring costs -- 7.3 -- 9.4
Operating income (loss) excluding
pension earnings, interest and deferrals and restructuring
costs
$19.7 ($24.8 ) $49.6 $73.5
Operating margin excluding
surcharge and pension earnings, interest and deferrals and
restructuring costs
7.3 % -11.6 % 5.4 % 7.0 % 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 Year Ended June 30,
June 30, NET SALES BY MAJOR PRODUCT LINE 2010 2009 2010 2009
Product Line Excluding Surcharge: Special alloys $ 128.2 $ 102.6 $
449.6 $ 499.2 Stainless steel 96.4 68.8 311.7 349.8 Titanium
products 31.5 31.4 112.4 141.4 Tool and other steel 10.4 6.4 37.4
46.3 Other materials 3.3 4.2 10.6 18.5 Consolidated net
sales excluding surcharge $269.8 $213.4 $921.7 $1,055.2
Surcharge revenue 94.4 43.5 276.9 307.1 Consolidated net
sales $364.2 $256.9 $1,198.6 $1,362.3 Three Months
Ended Year Ended June 30, June 30, NET SALES BY END USE MARKET 2010
2009 2010 2009 End Use Market Excluding Surcharge: Aerospace
$ 115.3 $ 99.4 $ 395.1 $ 450.0 Industrial 61.5 43.9 207.9 228.4
Consumer 27.1 16.7 89.1 79.1 Medical 24.2 24.3 86.9 94.7 Automotive
22.6 11.5 78.8 76.3 Energy 19.1 17.6 63.9 126.7 Consolidated
net sales excluding surcharge $269.8 $213.4 $921.7 $1,055.2
Surcharge revenue 94.4 43.5 276.9 307.1 Consolidated net
sales $364.2 $256.9 $1,198.6 $1,362.3
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