Net income of $30.6 million or $0.57 per
share
Net sales of $566.3 million
Adjusted EBITDA of $92.0 million
Carpenter Technology Corporation (NYSE:CRS) today announced
financial results for the quarter ended March 31, 2014. Carpenter
reported net income of $30.6 million or $0.57 per diluted share,
compared to $32.9 million or $0.62 per diluted share in the same
quarter last year (or $0.69 per share excluding special items).
Financial Highlights
($ in millions) Q3 Q3 Q2
FY2014
FY2013 FY2014 Net Sales $ 566.3 $ 581.4 $
503.5 Net Sales Excluding Surcharge (a) $ 467.2 $ 471.2 $ 414.6
Operating Income $ 49.5 $ 53.0 $ 47.5 Net Income $ 30.6 $ 32.9 $
29.5 Free Cash Flow (a) $ (22.2 ) $ (66.4 ) $ (99.9 ) Adjusted
EBITDA (a) $ 92.0 $ 96.5 $ 87.3 (a) non-GAAP financial
measure explained in the attached tables
“In Carpenter’s third quarter, we made some significant progress
toward our short and long term objectives,” said William A.
Wulfsohn, President and Chief Executive Officer. “At the same time,
as we previously announced, earnings were significantly impacted by
approximately $8 million of additional weather-related expenses.
This was primarily due to a spike in electricity rates in the
quarter.
“These weather-related expenses mask some strong operating
performance. Specialty Alloys Operations (SAO) sales volume grew by
12 percent sequentially. In addition, our Performance Engineered
Products (PEP) segment realized significant operating income growth
due to its increased focus on operational excellence. Finally,
while our reported operating margins were down sequentially, they
would have been up by 120 basis points were it not for the $8
million of additional weather-related expense.
“Looking forward, we expect sales volume to grow, but gradually.
Demand has increased in each of our end markets. Our SAO sales
backlog grew 19 percent during the quarter and is now more than the
prior year.
“That said, many of our key SAO work centers are now fully
booked. In addition, while the Carpenter team did a great job
starting up our new Athens facility ahead of schedule and under
budget, the facility can only ship a limited range of products at
this time. The site is fully operational, but we are working to
obtain the internal and customer approvals required to tap the
facility’s full potential. Some of these approvals will come
quickly, within the next several quarters, while others will take
longer. Thus, while we believe Athens is a game changer for
Carpenter, the facility’s impact on our sales growth will be
limited in the short-term and it will gain momentum over time.
“We have been able to complete the majority of our
Athens-related capital spending while retaining a strong balance
sheet. With the Athens capital spending ramping down, we expect to
once again become a strong cash flow generator in the fourth
quarter.”
Net Sales and Operating
Income
Net sales for the third quarter of fiscal year 2014 were $566.3
million, and net sales excluding surcharge were $467.2 million, a
decrease of $4.0 million (or 1 percent) from the same quarter last
year, on 8 percent higher shipments.
Operating income was $49.5 million, a decrease of $3.5 million
from the third quarter of the prior year. Operating
income—excluding pension earnings, interest and deferrals (EID)—was
$55.5 million, a decrease of $5.5 million (or 9 percent) from the
third quarter of the prior year. Excluding the $8.0 million of
weather-related impacts, and adding back the $2.9 million of
special items in the third quarter of the prior year, operating
income excluding pension EID was relatively unchanged
year-over-year.
Cash Flow
Cash flow from operations was $81.0 million, which included a
$6.3 million decrease in working capital and $1.5 million of
pension contributions. This compares to a cash flow from operations
of $26.5 million in the prior year’s third quarter, which included
a $2.6 million increase in working capital and $85.4 million of
pension contributions. Free cash flow in the third quarter was
negative $22.2 million, compared to negative $66.4 million in the
same quarter last year. Capital spending in the third quarter,
largely related to the construction of the Athens facility, was
$93.6 million, compared to $83.6 million in the prior year’s third
quarter. Approximately 90 percent of the Athens project spend has
occurred; the remaining spend will occur over the next 15
months.
Total liquidity, including cash and available revolver balance,
was $577 million at the end of the third quarter. This consisted of
$85 million of cash, and $492 million of available revolver.
End Markets
Q3 FY14
Sales*
Ex. Surcharge
(in Millions)
Q3 FY14
vs.
Q3 FY13
Q3 FY14
vs.
Q2 FY14
Aerospace and Defense $202.5 -6% +14% Energy
$72.5 +2% +12% Medical $28.2
+11% +26% Transportation $30.6 +8% +8%
Industrial and Consumer $98.0 +1% +10%
* Excludes sales through Carpenter’s distribution businesses
Aerospace and Defense
- Tons were flat versus the prior year,
but higher sequentially.
- Revenue per ton was down due to greater
sales volume of structural component materials and continued demand
weakness for nickel engine and fastener materials.
- Titanium fastener revenues were up 25
percent year-over-year.
Energy
- The directional rig count grew 5
percent compared to the same quarter last year.
- Energy tons sold were up 10 percent
year-over-year. Revenue per ton was down due to softer demand for
oil and gas completion materials.
- Amega West increased sales primarily as
a result of higher levels of drill collar rentals.
Medical
Year-over-year sales growth was driven by:
- Stabilizing demand for orthopedic and
surgical devices.
- Increased distributor demand for
titanium materials.
Transportation
- North American light vehicle sales
continue to rise.
- Carpenter results benefit from strong
demand for materials used in the next generation of fuel delivery
systems.
Industrial and Consumer
Demand for materials has been strong in:
- Plant and equipment applications.
- Bridge infrastructure projects.
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 non-GAAP measures are
important, are included in the attached schedules.
Conference Call and Webcast
Presentation
Carpenter will host a conference call and webcast presentation
today, April 24, at 10 a.m. ET, to discuss the financial results
and operations for the fiscal third quarter of 2014. Please call
610-208-2097 for details. Access to both the call and webcast
presentation will also be available at Carpenter’s website
(http://www.cartech.com) and through CCBN (http://www.ccbn.com),
and a replay of the call will soon be made available at
http://www.cartech.com or at http://www.ccbn.com. Presentation
materials used during this conference call will be available for
viewing and download at 7:00 a.m. ET 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, alloy steels and tool steels. Information about
Carpenter can be found 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, 10Qs for the quarters ended September
30, 2013 and December 31, 2013, 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, 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 cash generation, growth,
profitability, 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) Carpenter’s
manufacturing processes are dependent upon highly specialized
equipment located primarily in facilities in Reading, Latrobe and
Athens, for which there may be limited alternatives if there are
significant equipment failures or catastrophic events; and (14)
Carpenter’s future success depends on the continued service and
availability of key personnel, including members of the executive
management team, management, metallurgists and other skilled
personnel, and the loss of these key personnel could affect
Carpenter’s 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 Nine Months Ended March 31, March 31,
2014 2013 2014 2013 NET SALES $ 566.3 $ 581.4 $ 1,568.4 $
1,659.9 Cost of sales 471.8 480.4
1,275.2 1,346.9 Gross profit 94.5 101.0
293.2 313.0 Selling, general and administrative expenses
45.0 48.0 140.4
145.7 Operating income 49.5 53.0 152.8 167.3 Interest
expense (2.7 ) (5.0 ) (10.8 ) (14.7 ) Other (expense) income, net
(0.6 ) 1.2 0.1 5.2
Income before income taxes 46.2 49.2 142.1 157.8 Income tax
expense 15.6 16.3 47.4
52.2 Net income 30.6 32.9 94.7 105.6
Less: Net income attributable to noncontrolling interest -
- - 0.5 NET
INCOME ATTRIBUTABLE TO CARPENTER $ 30.6 $ 32.9 $ 94.7
$ 105.1 EARNINGS PER SHARE: Basic $ 0.57
$ 0.62 $ 1.77 $ 1.98 Diluted $ 0.57
$ 0.62 $ 1.76 $ 1.97
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 53.3 52.9 53.2
52.9 Diluted 53.7 53.2
53.6 53.1 Cash dividends per
common share $ 0.18 $ 0.18 $ 0.54 $ 0.54
PRELIMINARY CONSOLIDATED STATEMENTS OF CASH FLOWS (in
millions) (Unaudited) Nine Months Ended March 31,
2014 2013 OPERATING ACTIVITIES: Net income $ 94.7 $
105.6
Adjustments to reconcile net income to net
cash provided from operating activities:
Depreciation and amortization 80.9 77.1 Deferred income taxes 2.0
37.3 Net pension expense 43.0 51.7 Net loss on disposal of property
and equipment 0.5 1.0 Changes in working capital and other:
Accounts receivable 30.0 0.7 Inventories (60.6 ) (41.7 ) Other
current assets (6.4 ) (32.6 ) Accounts payable 0.5 (32.9 ) Accrued
liabilities (31.4 ) (8.5 ) Pension plan contributions (4.6 ) (143.3
) Other, net (4.6 ) (5.1 ) Net cash provided from
operating activities 144.0 9.3
INVESTING ACTIVITIES: Purchases of property, equipment and software
(298.2 ) (201.1 ) Proceeds from disposals of property and equipment
0.3 0.4 Proceeds from sale of equity method investment -
7.9 Net cash used for investing activities
(297.9 ) (192.8 ) FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt, net of discount and
offering costs - 297.0 Dividends paid (28.8 ) (28.7 ) Purchase of
subsidiary shares from noncontrolling interest - (8.4 ) Tax
benefits on share-based compensation 2.2 3.7 Proceeds from stock
options exercised 6.8 2.3 Net cash
(used for) provided from financing activities (19.8 )
265.9 Effect of exchange rate changes on cash and
cash equivalents 1.5 1.3
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (172.2 ) 83.7 Cash
and cash equivalents at beginning of period 257.5
211.0 Cash and cash equivalents at end of
period $ 85.3 $ 294.7 PRELIMINARY CONSOLIDATED
BALANCE SHEETS (in millions) (Unaudited) March 31,
June 30, 2014 2013 ASSETS Current assets: Cash and cash
equivalents $ 85.3 $ 257.5 Accounts receivable, net 314.9 342.0
Inventories 722.4 659.2 Deferred income taxes - 2.7 Other current
assets 26.9 20.1 Total current assets
1,149.5 1,281.5 Property, plant and equipment, net 1,376.1
1,168.4 Goodwill 257.6 257.7 Other intangibles, net 84.5 95.0 Other
assets 97.0 80.3 Total assets $ 2,964.7
$ 2,882.9 LIABILITIES Current liabilities:
Accounts payable $ 237.5 $ 252.7 Accrued liabilities 138.2 168.5
Deferred income taxes 16.0 -
Total current liabilities
391.7 421.2 Long-term debt, net of current portion 604.3
604.2 Accrued pension liabilities 257.9 246.9 Accrued
postretirement benefits 148.9 151.2 Deferred income taxes 79.2 73.3
Other liabilities 57.4 83.0 Total
liabilities 1,539.4 1,579.8
STOCKHOLDERS' EQUITY Common stock 275.8 274.6 Capital in excess of
par value 263.4 254.4 Reinvested earnings 1,283.2 1,217.3 Common
stock in treasury, at cost (103.1 ) (107.5 ) Accumulated other
comprehensive loss (294.0 ) (335.7 ) Total
stockholders' equity 1,425.3 1,303.1
Total liabilities and stockholders' equity $ 2,964.7 $
2,882.9 PRELIMINARY SEGMENT FINANCIAL DATA (in
millions, except pounds sold) (Unaudited)
Three Months Ended Nine Months Ended March 31, March 31, 2014 2013
2014 2013 Pounds sold* (000): Specialty Alloys Operations 74,836
69,028 204,982 192,415 Performance Engineered Products 3,108 3,338
8,458 9,949 Intersegment (364 ) (598 ) (3,590
) (4,000 ) Consolidated pounds sold 77,580
71,768 209,850 198,364
Net sales: Specialty Alloys Operations Net sales
excluding surcharge $ 351.4 $ 360.1 $ 975.5 $ 1,010.7 Surcharge
100.6 110.9 279.0
319.7 Specialty Alloys Operations net sales
452.0 471.0 1,254.5
1,330.4 Performance Engineered Products Net sales
excluding surcharge 129.8 124.0 360.7 382.3 Surcharge 0.3
1.6 1.6 4.8
Performance Engineered Products net sales 130.1
125.6 362.3 387.1
Intersegment Net sales excluding surcharge (14.0 ) (12.9 ) (42.3 )
(50.4 ) Surcharge (1.8 ) (2.3 ) (6.1 )
(7.2 ) Intersegment net sales (15.8 ) (15.2 )
(48.4 ) (57.6 ) Consolidated net sales $ 566.3
$ 581.4 $ 1,568.4 $ 1,659.9 Operating
income: Specialty Alloys Operations $ 51.6 $ 59.6 $ 169.7 $ 188.1
Performance Engineered Products 13.1 11.4 33.3 36.3 Corporate costs
(9.5 ) (10.3 ) (33.7 ) (31.3 ) Pension earnings, interest &
deferrals (6.0 ) (8.0 ) (15.8 ) (23.9 ) Intersegment 0.3
0.3 (0.7 ) (1.9 )
Consolidated operating income $ 49.5 $ 53.0 $ 152.8
$ 167.3 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 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 includes 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) OPERATING MARGIN
EXCLUDING SURCHARGE AND Three Months Ended Nine Months Ended
PENSION EARNINGS, INTEREST AND DEFERRALS March 31, March 31, 2014
2013 2014 2013 Net sales $ 566.3 $ 581.4 $ 1,568.4 $ 1,659.9
Less: surcharge revenue 99.1 110.2
274.5 317.3 Consolidated net sales
excluding surcharge $ 467.2 $ 471.2 $ 1,293.9
$ 1,342.6 Operating income $ 49.5 $ 53.0 $ 152.8 $
167.3 Pension earnings, interest & deferrals 6.0
8.0 15.8 23.9
Operating income excluding pension
earnings, interest and deferrals
$ 55.5 $ 61.0 $ 168.6 $ 191.2
Operating margin excluding surcharge and
pension earnings, interest and deferrals
11.9 % 12.9 % 13.0 % 14.2 %
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 Nine Months Ended March 31, March 31, ADJUSTED EARNINGS
BEFORE INTEREST, TAXES, 2014 2013 2014 2013 DEPRECIATION AND
AMORTIZATION (EBITDA) Net income $ 30.6 $ 32.9 $ 94.7 $
105.6 Interest expense 2.7 5.0 10.8 14.7 Income tax expense
15.6 16.3 47.4 52.2 Depreciation and amortization 27.5 26.1 80.9
77.1 Other expense (income), net 0.6 (1.2 )
(0.1 ) (5.2 ) EBITDA $ 77.0 $ 79.1 $ 233.7 $ 244.4
Net pension expense 15.0 17.4
43.0 51.7 Adjusted EBITDA $ 92.0
$ 96.5 $ 276.7 $ 296.1
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. Three Months Ended Nine Months Ended March
31, March 31, FREE CASH FLOW 2014 2013 2014 2013 Net cash
provided from operating activities $ 81.0 $ 26.5 $ 144.0 $ 9.3
Purchases of property, equipment and software (93.6 ) (83.6 )
(298.2 ) (201.1 ) Proceeds from disposals of property and equipment
- 0.3 0.3 0.4 Purchase of subsidiary shares from noncontrolling
interest - - - (8.4 ) Proceeds from sale of equity method
investment - - - 7.9 Dividends paid (9.6 ) (9.6 )
(28.8 ) (28.7 ) Free cash flow $ (22.2 ) $
(66.4 ) $ (182.7 ) $ (220.6 ) 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.
PRELIMINARY NON-GAAP FINANCIAL MEASURES (in millions, except per
share amounts) (Unaudited) Special
Items - Quarter Ended March 31, 2013
Expense before
Income Taxes
Income Tax
Expense (Benefit)
Net Expense
Impact per
Diluted Share
Inventory reduction initiatives $ 0.9 $ (0.3 ) $ 0.6 $ 0.01
Restructuring costs from footprint optimization activities 2.0 (0.7
) 1.3 0.02 Additional interest expense 1.1 (0.4 ) 0.7 0.01 Income
tax impact of discretionary pension contribution - 2.9 2.9 0.06
Income tax impact of R&D tax credit extension -
(1.7 ) (1.7 ) (0.03 ) Total impact of special
items $ 4.0 $ (0.2 ) $ 3.8 0.07
In the quarter ended March 31, 2013, there were $0.07 of special
items including consulting fees for the inventory reduction
initiative, restructuring costs from certain manufacturing
footprint optimization activities, increased interest from a debt
offering and the impacts on the tax provision related to the
discretionary pension contribution, partially offset by benefits
realized form the enactment of the American Taxpayer Relief Act of
2012 (R&D tax credit extension).
PRELIMINARY SUPPLEMENTAL SCHEDULES (in millions) (Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31, NET SALES BY END USE MARKET 2014 2013
2014 2013 End Use Market Excluding Surcharge: Aerospace and
defense $ 202.5 $ 214.7 $ 563.2 $ 604.4 Industrial and consumer
98.0 97.1 272.7 269.1 Energy 72.5 71.0 196.4 209.4 Transportation
30.6 28.4 84.5 78.8 Medical 28.2 25.3 75.5 77.3 Distribution
35.4 34.7 101.6 103.6 Consolidated net
sales excluding surcharge 467.2 471.2 1,293.9 $ 1,342.6
Surcharge revenue 99.1 110.2 274.5
317.3 Consolidated net sales $ 566.3 $ 581.4 $ 1,568.4 $
1,659.9 Three Months Ended Nine Months Ended March 31, March
31, NET SALES BY MAJOR PRODUCT CLASS 2014 2013 2014 2013 Net
Sales by Product Class Excluding Surcharge: Special alloys $ 175.0
$ 182.6 $ 483.7 $ 509.0 Stainless steel 143.1 139.6 395.8 399.8
Alloy and tool steel 53.3 55.6 145.8 155.7 Titanium products 42.9
36.3 113.6 112.6 Powder metals 11.3 14.4 33.5 41.4 Distribution and
other 41.6 42.7 121.5 124.1
Consolidated net sales excluding surcharge 467.2 471.2 1,293.9 $
1,342.6 Surcharge revenue 99.1 110.2
274.5 317.3 Consolidated net sales $ 566.3 $ 581.4 $
1,568.4 $ 1,659.9
Carpenter Technology CorporationMedia Inquiries:William J.
Rudolph Jr., +1-610-208-3892wrudolph@cartech.comorInvestor
Inquiries:Michael A. Hajost, +1-610-208-3476mhajost@cartech.com
Carpenter Technology (NYSE:CRS)
Historical Stock Chart
From Jun 2024 to Jul 2024
Carpenter Technology (NYSE:CRS)
Historical Stock Chart
From Jul 2023 to Jul 2024