- Net income of $34.6 million or $0.65
per share
- Net sales of $498.6 million
- Adjusted EBITDA of $97.4 million
Carpenter Technology Corporation (NYSE:CRS) today reported net
income of $34.6 million or $0.65 per diluted share for the quarter
ended September 30, 2013 compared to $39.2 million or $0.74 per
diluted share in the prior year first quarter.
Financial Highlights
($ in millions) Q1 Q1 Q4
FY2014
FY2013
FY2013
Net Sales $ 498.6 $ 544.9 $ 611.8 Net Sales Excluding Surcharge (a)
$ 412.1 $ 440.8 $ 496.6 Operating Income $ 55.8 $ 61.6 $ 65.4 Net
Income Attributable to Carpenter $ 34.6 $ 39.2 $ 40.9 Free Cash
Flow (a) $ (60.5 ) $ (102.7 ) $ 61.3 Adjusted EBITDA (a) $ 97.4 $
104.3 $ 109.5 (a) non-GAAP financial measure explained in
the attached tables
“Our first quarter earnings were in-line with our expectations,”
said William A. Wulfsohn, President and Chief Executive Officer.
“The team executed at a high level within the context of generally
soft market conditions. Our core markets remained relatively weak
as continued supply chain destocking in the aerospace and energy
markets reduced demand for our premium and ultra-premium products.
At the same time, the commercial team executed well by bringing in
more 'value' sales to meet growing demand from the Transportation
and Industrial & Consumer markets. Thus our sales, excluding
surcharge, declined by 7 percent but our volume increased by 1
percent.
“Our strong manufacturing performance contributed significantly
to our earnings. The team executed on multiple fronts to reduce
production and overhead costs. We achieved these results while
successfully performing a significant planned maintenance overhaul
on our Reading forge, positioning this critical piece of hot
working equipment to support future growth.
“Our second quarter now looks weaker than we initially
anticipated at the start of the year. Even as volumes stabilize,
our mix will remain weak. We could see a similar change in earnings
from Q1 to Q2 as we saw last year. The timing and duration of
seasonal customer closures can impact, positively or negatively,
shipments near the end of the calendar year.
“That said, we are just now beginning to see some very early
indications that demand is stabilizing. If this continues, we could
see a recovery in the second half of the fiscal year. We remain
confident that market fundamentals will significantly improve in
calendar 2014. This will coincide with the completion of Athens
enabling us to target sustained sales growth, margin improvement
and strong positive cash flow.”
Net Sales and Operating
Income
Net sales were $498.6 million and net sales excluding surcharge
were $412.1 million in the first quarter. Net sales, excluding
surcharge, decreased by $28.7 million or 7 percent from the first
quarter of fiscal year 2013 on 1 percent higher shipments. The
sales decline can be attributed to the continued Aerospace and
Energy supply chain adjustments that impacted near- term order
activity of premium and ultra-premium products. This was partly
offset by higher volumes of materials sold into the Transportation
and Industrial & Consumer markets.
Operating income, excluding pension earnings, interest, and
deferrals (EID) decreased by $7.8 million or 11 percent from the
prior year first quarter. This reduction mainly reflects the sales
mix impact, partially offset by improved manufacturing
performance.
Cash Flow
Free cash flow in the first quarter was negative $60.5 million,
compared to negative $102.7 million in the prior year first
quarter. Cash flow from operations in the first quarter was $64
million which included $10 million of increased working capital and
$1.5 million of pension contributions. This compares to cash flow
from operations of negative $36.7 million in the prior year first
quarter, which included $71 million of increased working capital
and $48.1 million of pension contributions. These year-over-year
changes helped offset $114.9 million of capital spending, largely
related to the Athens facility construction, compared to $56.4
million of capital spending in the prior year.
Total liquidity, including cash and available revolver balance,
was $693 million at the end of the first quarter. This consisted of
$201 million of cash and $492 million of available revolver.
End Markets:
Q1 FY14
Q1 FY14 Q1 FY14 Sales* vs. vs. Ex. Surcharge Q1 FY13
Q4 FY13 $ in Millions
Aerospace and Defense 182.9 -6% -20% Energy
59.1 -15% -27% Medical 25.0 -10%
-5% Transportation 25.5 -2% -9%
Industrial and Consumer 85.8 -1% -12%
* Excludes sales through Carpenter’s Distribution business
Aerospace and Defense
- Airplane delivery rates (Boeing and
Airbus) up 9 percent August year-to-date 2013 versus 2012
- Numerous customers have publicly
announced temporary production reductions
- Achieved solid year-over-year growth in
titanium fastener demand
Energy
- Rig count down 1 percent compared to
same quarter last year, but clear shift toward drill collar rentals
versus purchases
- Gas turbine orders down versus prior
year
Medical
- Volumes stabilizing but industry cost
reduction efforts continue
- Expect modest demand recovery as OEM
inventories reach structurally low levels
- Titanium pricing extremely competitive
— lead times remained short
Transportation
- Strong volume growth — North American
auto sales up 3 percent August year-to-date 2013 versus 2012
- European light vehicle sales down 4
percent year-over-year for the first six months of 2013
- Carpenter directly benefiting from
strong demand growth for materials used in newest engine platform
fuel delivery systems
Industrial and Consumer
- Strong demand for materials used in
sporting goods, and industrial valve and infrastructure
materials
- Softer demand within electronics and
distribution channels
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"). A reconciliation of the
non-GAAP financial measures to their most directly comparable
financial measures prepared in accordance with GAAP, accompanied by
reasons why the Company believes the measures are important, are
included in the attached schedules.
Conference Call and Webcast
Presentation
Carpenter will host a conference call and webcast presentation
today, October 29, at 10 a.m., EDT, to discuss financial results
and operations for the fiscal first quarter. Please call
610-208-2097 for details of the conference call. Access to the call
and presentation will also be made available at Carpenter's website
(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. The presentation materials used during
this conference call will be available for viewing and download at
8:30 a.m. today at http://www.cartech.com.
About Carpenter Technology
Carpenter produces and distributes premium alloys, including
special alloys, titanium alloys and powder metals, as well as
stainless steels, and alloy and tool steels. Information about
Carpenter can be found on the Internet at
http://www.cartech.com.
Forward-Looking Statements
This press release contains 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, 2013 and the exhibits attached to that
filing. They include but are not limited to: (1) the cyclical
nature of the specialty materials business and certain end-use
markets, including aerospace, defense, industrial, transportation,
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, including the Latrobe
acquisition; (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) Carpenter’s manufacturing
processes are dependent upon highly specialized equipment located
primarily in facilities in Reading and Latrobe, Pennsylvania for
which there may be limited alternatives if there are significant
equipment failures or catastrophic event; and (14) Carpenter’s
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 STATEMENTS OF INCOME (in
millions, except per share data) (Unaudited) Three Months
Ended September 30, 2013 2012 NET SALES $ 498.6 $
544.9 Cost of sales 395.3 435.6 Gross
profit 103.3 109.3 Selling, general and administrative
expenses 47.5 47.7 Operating income
55.8 61.6 Interest expense (4.4 ) (5.2 ) Other income, net
0.1 2.7 Income before income
taxes 51.5 59.1 Income tax expense 16.9 19.6
Net income 34.6 39.5 Less: Net income
attributable to noncontrolling interest - 0.3
NET INCOME ATTRIBUTABLE TO CARPENTER $ 34.6 $
39.2 EARNINGS PER SHARE: Basic $ 0.65 $ 0.74
Diluted $ 0.65 $ 0.74
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 53.1 52.8 Diluted 53.5
53.4 Cash dividends per common share $
0.18 $ 0.18 PRELIMINARY CONSOLIDATED
STATEMENTS OF CASH FLOWS (in millions) (Unaudited)
Three Months Ended September 30, 2013 2012 OPERATING
ACTIVITIES: Net income $ 34.6 $ 39.5
Adjustments to reconcile net income to net
cash provided from operating activities:
Depreciation and amortization 26.7 25.5 Deferred income taxes (0.7
) 0.1 Net pension expense 15.0 17.2 Net loss on disposal of
property and equipment - 0.1 Changes in working capital and other:
Accounts receivable 57.7 36.1 Inventories (47.4 ) (78.7 ) Other
current assets (9.0 ) (4.7 ) Accounts payable 9.6 (0.5 ) Accrued
liabilities (18.5 ) (23.5 ) Pension plan contributions (1.5 ) (48.1
) Other, net (2.5 ) 0.3 Net cash provided from
(used for) operating activities 64.0 (36.7 )
INVESTING ACTIVITIES: Purchases of property, equipment and
software (114.9 ) (56.4 ) Net cash used for investing
activities (114.9 ) (56.4 ) FINANCING
ACTIVITIES: Dividends paid (9.6 ) (9.6 ) Tax benefits on
share-based compensation 1.0 3.0 Proceeds from stock options
exercised 2.5 1.1 Net cash used for
financing activities (6.1 ) (5.5 ) Effect of
exchange rate changes on cash and cash equivalents 0.5
0.2 DECREASE IN CASH AND CASH
EQUIVALENTS (56.5 ) (98.4 ) Cash and cash equivalents at beginning
of period 257.5 211.0 Cash and
cash equivalents at end of period $ 201.0 $ 112.6
PRELIMINARY CONSOLIDATED BALANCE SHEETS (in millions)
(Unaudited) September 30, June 30, 2013 2013
ASSETS Current assets: Cash and cash equivalents $ 201.0 $ 257.5
Accounts receivable, net 286.6 342.0 Inventories 707.1 659.2
Deferred income taxes - 2.7 Other current assets 28.6
20.1 Total current assets 1,223.3 1,281.5
Property, plant and equipment, net 1,259.0 1,168.4 Goodwill 257.8
257.7 Other intangibles, net 91.8 95.0 Other assets 93.6
80.3 Total assets $ 2,925.5 $ 2,882.9
LIABILITIES Current liabilities: Accounts payable $
262.4 $ 252.7 Accrued liabilities 163.7 168.5 Deferred income taxes
1.5 - Total current liabilities 427.6
421.2 Long-term debt, net of current portion 604.2 604.2
Accrued pension liabilities 250.0 246.9 Accrued postretirement
benefits 150.5 151.2 Deferred income taxes 72.6 73.3 Other
liabilities 78.1 83.0 Total liabilities
1,583.0 1,579.8 STOCKHOLDERS'
EQUITY Common stock 275.0 274.6 Capital in excess of par value
253.6 254.4 Reinvested earnings 1,242.3 1,217.3 Common stock in
treasury, at cost (103.3 ) (107.5 ) Accumulated other comprehensive
loss (325.1 ) (335.7 ) Total stockholders' equity
1,342.5 1,303.1 Total liabilities and
stockholders' equity $ 2,925.5 $ 2,882.9
PRELIMINARY SEGMENT FINANCIAL DATA (in millions,
except pounds sold) (Unaudited) Three Months Ended September
30, 2013 2012 Pounds sold* (000): Specialty Alloys Operations
63,414 62,657 Performance Engineered Products 2,726 3,384
Intersegment (1,248 ) (2,027 ) Consolidated
pounds sold 64,892 64,014 Net
sales: Specialty Alloys Operations Net sales excluding surcharge $
307.6 $ 326.2 Surcharge 87.3 104.8
Specialty Alloys Operations net sales 394.9
431.0 Performance Engineered Products Net
sales excluding surcharge 117.5 133.3 Surcharge 1.0
1.6 Performance Engineered Products net sales
118.5 134.9 Intersegment Net
sales excluding surcharge (13.0 ) (18.7 ) Surcharge (1.8 )
(2.3 ) Intersegment net sales (14.8 ) (21.0 )
Consolidated net sales $ 498.6 $ 544.9
Operating income: Specialty Alloys Operations $ 63.7 $ 67.2
Performance Engineered Products 11.6 14.5 Corporate costs (12.9 )
(10.4 ) Pension earnings, interest & deferrals (6.0 ) (8.0 )
Intersegment (0.6 ) (1.7 ) Consolidated
operating income $ 55.8 $ 61.6 Beginning with
the fiscal year 2014 first quarter results, the Company changed its
reportable segments. The Company has two reportable segments,
Specialty Alloys Operations (“SAO”) and Performance Engineered
Products (“PEP”). The change reflects the completion of the
integration of the businesses acquired by the Company in the
acquisition of Latrobe Specialty Metals, Inc. (“Latrobe”) in
February 2012. Prior to this change, the Latrobe businesses were
reported as a separate segment to provide management with the focus
and visibility into the business of the acquired operations. The
previously reported Latrobe segment also included the results of
the Company’s distribution business in Mexico. Since the Latrobe
businesses are now fully integrated, the previously reported
Latrobe segment has been merged into the Company’s operating model,
in which the Company’s integrated steel mill operations are managed
distinctly from the collection of other differentiated operations.
The SAO segment is comprised of Carpenter's major premium
alloy and stainless steel manufacturing operations. This includes
operations performed at mills primarily in Reading and Latrobe and
surrounding areas in Pennsylvania, South Carolina, and the new
premium products manufacturing facility being built in Limestone
County, Alabama. The PEP segment is comprised of the
Company’s differentiated operations. This segment includes the
Dynamet titanium business, the Carpenter Powder Products ("CPP")
business, the Amega West business, the Specialty Steel Supply
business and the Latrobe and Mexico distribution businesses. The
businesses in the PEP segment are managed with an entrepreneurial
structure to promote speed and flexibility, and drive overall
revenue and profit growth. The pounds sold data above for the PEP
segment included only the Dynamet and CPP businesses. 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, or pension
earning, interest and deferrals (pension EID), 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." *
Pounds sold excludes sales associated with the distribution
businesses. PRELIMINARY NON-GAAP FINANCIAL MEASURES
(in millions) (Unaudited) Three Months Ended
September 30, FREE CASH FLOW 2013 2012 Net cash provided from (used
for) operating activities $ 64.0 $ (36.7 ) Purchases of property,
equipment and software (114.9 ) (56.4 ) Dividends paid (9.6
) (9.6 ) Free cash flow $ (60.5 ) $ (102.7 )
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 September 30, NET
PENSION EXPENSE PER DILUTED SHARE 2013 2012 Pension
plans expense $ 12.5 $ 14.9 Other postretirement benefits expense
2.5 2.3 Net pension expense 15.0 17.2
Income tax benefit (5.3 ) (6.0 ) Net pension expense,
net of tax $ 9.7 $ 11.2 Net pension expense
per diluted share $ 0.18 $ 0.21 Weighted
average diluted common shares 53.5 53.4
Management believes that net pension expense per diluted
share is helpful in analyzing the operating performance of the
Company, as net pension expense may be volatile due to changes in
the financial markets, which may result in significant fluctuations
in operating results from period to period.
PRELIMINARY NON-GAAP FINANCIAL MEASURES (in millions) (Unaudited)
OPERATING MARGIN EXCLUDING SURCHARGE AND Three Months
Ended PENSION EARNINGS, INTEREST AND DEFERRALS September 30,
2013 2012 Net sales $ 498.6 $ 544.9 Less: surcharge revenue
86.5 104.1 Consolidated net sales
excluding surcharge $ 412.1 $ 440.8 Operating
income $ 55.8 $ 61.6 Pension earnings, interest & deferrals
6.0 8.0
Operating income excluding pension
earnings, interest and deferrals
$ 61.8 $ 69.6
Operating margin excluding surcharge and
pension earnings, interest and deferrals
15.0 % 15.8 %
Management believes that removing the impacts of raw material
surcharges from operating margin provides a more consistent basis
for comparing results of operations from period to period.
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.
Three Months Ended September 30, ADJUSTED EARNINGS
BEFORE INTEREST, TAXES, 2013 2012 DEPRECIATION AND AMORTIZATION
(EBITDA) Net income $ 34.6 $ 39.5 Interest expense
4.4 5.2 Income tax expense 16.9 19.6 Depreciation and amortization
26.7 25.5 Other income, net (0.1 ) (2.7 ) EBITDA $
82.5 $ 87.1 Net pension expense 15.0 17.2
Adjusted EBITDA $ 97.5 $ 104.3
Management believes that earnings before interest, taxes,
depreciation and amortization adjusted to exclude net pension
expense is helpful in analyzing the operating performance of the
Company.
PRELIMINARY SUPPLEMENTAL SCHEDULES (in millions)
(Unaudited) Three Months Ended September 30, NET SALES BY
END USE MARKET 2013 2012 End Use Market Excluding Surcharge:
Aerospace and defense $ 182.9 $ 195.3 Industrial and consumer 85.8
86.6 Energy 59.1 69.4 Transportation 25.5 26.1 Medical 25.0 27.8
Distribution 33.8 35.6 Consolidated net sales
excluding surcharge 412.1 440.8 Surcharge revenue
86.5 104.1 Consolidated net sales $ 498.6 $ 544.9
Three Months Ended September 30, NET SALES BY
MAJOR PRODUCT CLASS 2013 2012 Net Sales by Product Class
Excluding Surcharge: Special alloys $ 149.8 $ 168.9 Stainless steel
125.2 120.9 Titanium products 36.9 39.7 Powder metals 10.4 14.8
Alloy and tool steel 49.1 54.0 Distribution and other 40.7
42.5 Consolidated net sales excluding surcharge 412.1
440.8 Surcharge revenue 86.5 104.1
Consolidated net sales $ 498.6 $ 544.9
Carpenter Technology CorporationMedia Inquiries:William J.
Rudolph, Jr., 610-208-3892wrudolph@cartech.comorInvestor Inquiries:Michael
A. Hajost, 610-208-3476mhajost@cartech.com
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