- Fourth quarter:
- Net income of $38.1 million or $0.71
per share
- Net sales of $604.6 million
- Cash flow from operations of $95.5
million, free cash flow of $34.9 million
- Full year:
- Net income of $132.8 million or $2.47
per share
- Net sales down 4 percent on 6 percent
higher volume
- Adjusted EBITDA of $381.8 million
Carpenter Technology Corporation (NYSE: CRS) today announced
financial results for the quarter ended June 30, 2014. Carpenter
reported net income of $38.1 million or $0.71 per diluted share,
compared to $40.9 million or $0.77 per diluted share in the same
quarter last year.
Financial
Highlights
($ in millions) Q4 Q4 Q3 YTD YTD
FY2014
FY2013 FY2014 FY2014
FY2013 Net Sales $ 604.6 $ 611.8 $ 566.3 $ 2,173.0 $
2,271.7 Net Sales Excluding Surcharge (a) $ 488.9 $ 496.6 $ 467.2 $
1,782.8 $ 1,839.3 Operating Income $ 59.2 $ 65.4 $ 49.5 $ 212.0 $
232.7 Net Income $ 38.1 $ 40.9 $ 30.6 $ 132.8 $ 146.1 Free Cash
Flow (a) $ 34.9 $ 61.3 $ (22.2 ) $ (147.8 ) $ (159.3 ) Adjusted
EBITDA (a) $ 105.2 $ 109.5 $ 92.0 $ 381.8 $ 405.6 (a)
non-GAAP financial measure explained in the attached tables
“The Carpenter team drove significant strategic and financial
gains in the quarter,” said William A. Wulfsohn, President and
Chief Executive Officer. “Our Specialty Alloys Operations (SAO)
segment grew revenues, excluding surcharge, by 5 percent on 4
percent higher volume versus the third quarter, reflecting an
improving mix. SAO also continued to reduce its manufacturing cost
per ton. Our Performance Engineered Products (PEP) segment grew
revenues, excluding surcharge, by 5 percent sequentially, while
continuing to drive a richer product mix and improve its
manufacturing processes. Overall Company earnings and margins
improved sequentially from the third quarter and we moved to
positive free cash flow as capital spending on our Athens facility
ramps down.
“Looking forward, our visibility has improved as our SAO sales
backlog is up 32 percent versus the prior year. Our first quarter
of fiscal year 2015 will be challenging as we expect normal
seasonality combined with a mix similar to our fourth quarter of
fiscal year 2014. We expect to see the impact of our price
increases and mix improvement actions beginning in the second
quarter of the fiscal year.
“Our new Athens facility remains critical to supporting our
targeted earnings growth during the remainder of fiscal year 2015
and beyond. We produced 1,000 tons of saleable product in the
fourth quarter and are making significant progress obtaining
internal and customer qualifications. These qualifications are
critical to enable us to support our growing demand with Athens’
capacity. As we progress through the year, we expect the Athens
facility to enable us to ship higher volumes, with a richer mix, at
a lower cost per ton. The timing of the facility start-up appears
good as we are seeing demand for our premium and ultra-premium
products growing. The potential of Athens, combined with our strong
market positions, solid balance sheet and growing backlog, points
to a bright future for Carpenter.”
Net Sales and Operating
Income
Net sales for the fourth quarter of fiscal year 2014 were $604.6
million, and net sales excluding surcharge were $488.9 million, a
decrease of $7.7 million (or 2 percent) from the same quarter last
year, on 7 percent higher shipments.
Operating income was $59.2 million, a decrease of $6.2 million
from the fourth quarter of the prior year. Operating
income—excluding pension earnings, interest and deferrals (EID)—was
$65.2 million, a decrease of $8.1 million (or 11 percent) from the
fourth quarter of the prior year. The lower operating income
largely reflects a weaker product mix and higher Athens
depreciation versus the prior year fourth quarter.
Cash Flow
Cash flow from operations in the fourth quarter of fiscal year
2014 was $95.5 million, which included a $23.8 million decrease in
working capital and $1.7 million of pension contributions. This
compares to a cash flow from operations of $179.2 million in the
prior year’s fourth quarter, which included a $122.5 million
decrease in working capital and $1.6 million of pension
contributions. Free cash flow in the fourth quarter was $34.9
million, compared to $61.3 million in the same quarter last year.
Capital spending in the fourth quarter, largely related to the
construction of the Athens facility, was $51.0 million, compared to
$109.1 million in the prior year’s fourth quarter.
Total liquidity, including cash and available revolver balance,
was $612 million at the end of the fourth quarter. This consisted
of $120 million of cash and $492 million of available revolver.
End
Markets
Q4 FY14 Q4 FY14 Q4 FY14
Sales* vs. vs. Ex. Surcharge Q4 FY13 Q3 FY14 (in
Millions) Aerospace and Defense
$212.2 -7% +5% Energy $73.4 -10%
+1% Medical $28.0 +6% -1% Transportation
$33.5 +20% +10% Industrial and Consumer
$107.1 +10% +9%
* Excludes sales through Carpenter’s distribution businesses
Aerospace and Defense
- Overall revenue declined year-over-year
due to continued demand weakness for engine and defense
materials.
- Titanium fastener revenue was up 6
percent year-over-year as demand continued to grow.
- Demand was stable for nickel fasteners
and structural components.
Energy
- Carpenter continued to see weak demand
in the power generation segment.
- While Amega West posted solid revenue
growth in manufacturing and rentals versus the prior year and the
directional rig count grew 9 percent versus the same quarter last
year, Carpenter continued to see soft demand for materials used in
oil well completions.
Medical
Year-over-year volume and revenue growth was driven by:
- Improving demand for orthopedic and
surgical devices.
- A resumption of more normalized buying
patterns by OEMs as inventories have stabilized.
- Increased distributor demand for
titanium products.
Transportation
- North American light vehicle sales are
expected to remain at high levels.
- The richer mix is due to improved
positioning in higher value internal engine components.
- Carpenter results continue to benefit
from a strong demand for materials used in the next generation of
fuel delivery systems.
Industrial and Consumer
Demand for Carpenter materials continues to be strong in:
- Plant and equipment applications
- Bridge infrastructure projects
- Semiconductor applications
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, July 29, at 10 a.m. ET, to discuss the financial results and
operations for the fiscal fourth 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 and 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, 10-Qs for the quarters ended
September 30, 2013, December 31, 2013 and March 31, 2014, 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 Year Ended June 30, June 30, 2014 2013
2014 2013 NET SALES $ 604.6 $ 611.8 $ 2,173.0 $ 2,271.7 Cost
of sales 499.0 491.3 1,774.1
1,838.2 Gross profit 105.6 120.5 398.9 433.5
Selling, general and administrative expenses 46.4
55.1 186.9 200.8
Operating income 59.2 65.4 212.0 232.7 Interest expense (6.2
) (6.3 ) (17.0 ) (21.0 ) Other income (expense), net 1.2
(0.1 ) 1.4 5.1
Income before income taxes 54.2 59.0 196.4 216.8 Income tax expense
16.1 18.1 63.6
70.3 Net income 38.1 40.9 132.8 146.5 Less:
Net income attributable to noncontrolling interest -
- - 0.4 NET INCOME
ATTRIBUTABLE TO CARPENTER $ 38.1 $ 40.9 $ 132.8
$ 146.1 EARNINGS PER SHARE: Basic $ 0.71
$ 0.77 $ 2.48 $ 2.75 Diluted $ 0.71
$ 0.77 $ 2.47 $ 2.73
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 53.4 52.9 53.3
52.9 Diluted 53.8 53.3
53.6 53.2 Cash dividends per
common share $ 0.18 $ 0.18 $ 0.72 $ 0.72
PRELIMINARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) (Unaudited)
Year Ended June 30, 2014 2013 OPERATING
ACTIVITIES: Net income $ 132.8 $ 146.5
Adjustments to reconcile net income to net
cash provided from operating activities:
Depreciation and amortization 111.9 104.1 Deferred income taxes
(9.7 ) 9.4 Net pension expense 57.9 68.8 Net loss on disposal of
property and equipment 1.5 2.2 Changes in working capital and
other: Accounts receivable 5.6 12.6 Inventories (37.0 ) (14.9 )
Other current assets (4.0 ) 11.5 Accounts payable 16.8 (10.3 )
Accrued liabilities (21.1 ) 9.9 Pension plan contributions (6.3 )
(144.9 ) Other, net (8.8 ) (6.4 ) Net cash provided
from operating activities 239.6 188.5
INVESTING ACTIVITIES: Purchases of property, equipment and software
(349.2 ) (310.2 ) Proceeds from disposals of property and equipment
0.3 1.2 Proceeds from sale of equity method investment - 7.9
Proceeds from sales and maturities of marketable securities
0.3 0.1 Net cash used for investing activities
(348.6 ) (301.0 ) FINANCING ACTIVITIES: Proceeds from
issuance of long-term debt, net of discount and offering costs -
297.0 Payments on long-term debt - (101.0 ) Dividends paid (38.5 )
(38.3 ) Purchase of subsidiary shares from noncontrolling interest
- (8.4 ) Tax benefits on share-based compensation 2.3 3.9 Proceeds
from stock options exercised 7.1 2.3
Net cash (used for) provided from financing activities (29.1
) 155.5 Effect of exchange rate changes on cash and
cash equivalents 0.6 3.5 (DECREASE)
INCREASE IN CASH AND CASH EQUIVALENTS (137.5 ) 46.5 Cash and cash
equivalents at beginning of period 257.5 211.0
Cash and cash equivalents at end of period $ 120.0 $
257.5 PRELIMINARY CONSOLIDATED BALANCE SHEETS
(in millions) (Unaudited) June 30, June 30, 2014 2013
ASSETS Current assets: Cash and cash equivalents $ 120.0 $
257.5 Accounts receivable, net 339.6 342.0 Inventories 699.2 659.2
Deferred income taxes - 2.7 Other current assets 34.7
20.1 Total current assets 1,193.5 1,281.5
Property, plant and equipment, net 1,407.0 1,168.4 Goodwill 257.7
257.7 Other intangibles, net 80.6 95.0 Other assets 117.7
80.3 Total assets $ 3,056.5 $ 2,882.9
LIABILITIES Current liabilities: Accounts payable $
278.1 $ 252.7 Accrued liabilities 148.0 168.5 Deferred income taxes
3.5 - Total current liabilities 429.6
421.2 Long-term debt, net of current portion 604.3 604.2
Accrued pension liabilities 203.4 246.9 Accrued postretirement
benefits 163.2 151.2 Deferred income taxes 110.7 73.3 Other
liabilities 41.0 83.0 Total liabilities
1,552.2 1,579.8 STOCKHOLDERS'
EQUITY Common stock 275.8 274.6 Capital in excess of par value
263.5 254.4 Reinvested earnings 1,311.6 1,217.3 Common stock in
treasury, at cost (101.4 ) (107.5 ) Accumulated other comprehensive
loss (245.2 ) (335.7 ) Total stockholders' equity
1,504.3 1,303.1 Total liabilities and
stockholders' equity $ 3,056.5 $ 2,882.9
PRELIMINARY SEGMENT FINANCIAL DATA (in
millions, except pounds sold) (Unaudited) Three Months Ended
Year Ended June 30, June 30, 2014 2013
2014 2013 Pounds sold* (000): Specialty
Alloys Operations 77,932 72,191 282,914 264,606 Performance
Engineered Products 3,790 3,502 12,248 13,451 Intersegment
(1,184 ) (333 ) (4,774 ) (4,333 )
Consolidated pounds sold 80,538 75,360
290,388 273,724 Net sales:
Specialty Alloys Operations Net sales excluding surcharge $ 369.1 $
377.8 $ 1,344.6 $ 1,388.5 Surcharge 118.0
115.3 397.0 435.0
Specialty Alloys Operations net sales 487.1
493.1 1,741.6 1,823.5
Performance Engineered Products Net sales excluding surcharge 136.0
131.4 496.6 513.7 Surcharge 0.3 1.5
2.0 6.4 Performance Engineered
Products net sales 136.3 132.9
498.6 520.1 Intersegment Net sales
excluding surcharge (16.2 ) (12.6 ) (58.4 ) (62.9 ) Surcharge
(2.6 ) (1.6 ) (8.8 ) (9.0 )
Intersegment net sales (18.8 ) (14.2 ) (67.2 )
(71.9 ) Consolidated net sales $ 604.6
$ 611.8 $ 2,173.0 $ 2,271.7 Operating
income: Specialty Alloys Operations $ 63.0 $ 80.4 $ 232.7 $ 268.5
Performance Engineered Products 12.2 8.9 45.5 45.2 Corporate costs
(10.1 ) (16.4 ) (43.8 ) (47.7 ) Pension earnings, interest &
deferrals (6.0 ) (7.9 ) (21.8 ) (31.9 ) Intersegment 0.1
0.4 (0.6 ) (1.4 )
Consolidated operating income $ 59.2 $ 65.4 $ 212.0
$ 232.7 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
earnings, 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 Year
Ended PENSION EARNINGS, INTEREST AND DEFERRALS June 30, June 30,
2014 2013 2014
2013 Net sales $ 604.6 $ 611.8 $ 2,173.0 $ 2,271.7
Less: surcharge revenue 115.7 115.2
390.2 432.4 Consolidated net sales
excluding surcharge $ 488.9 $ 496.6 $ 1,782.8
$ 1,839.3 Operating income $ 59.2 $ 65.4 $ 212.0 $
232.7 Pension earnings, interest & deferrals 6.0
7.9 21.8 31.9
Operating income excluding pension
earnings, interest and deferrals
$ 65.2 $ 73.3 $ 233.8 $ 264.6
Operating margin excluding surcharge and
pension earnings, interest and deferrals
13.3 % 14.8 % 13.1 % 14.4 %
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 Year
Ended June 30, June 30, ADJUSTED EARNINGS BEFORE INTEREST, TAXES,
2014 2013 2014
2013 DEPRECIATION AND AMORTIZATION (EBITDA)
Net income $ 38.1 $ 40.9 $ 132.8 $ 146.5 Interest
expense 6.2 6.3 17.0 21.0 Income tax expense 16.1 18.1 63.6 70.3
Depreciation and amortization 31.0 27.0 111.9 104.1 Other (income)
expense, net (1.2 ) 0.1 (1.4 )
(5.1 ) EBITDA $ 90.2 $ 92.4 $ 323.9 $ 336.8 Net pension expense
15.0 17.1 57.9
68.8 Adjusted EBITDA $ 105.2 $ 109.5 $
381.8 $ 405.6 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 Year Ended June 30, June 30, FREE CASH FLOW 2014
2013 2014
2013 Net cash provided from operating activities $ 95.5 $
179.2 $ 239.6 $ 188.5 Purchases of property, equipment and software
(51.0 ) (109.1 ) (349.2 ) (310.2 ) Proceeds from disposals of
property and equipment - 0.8 0.3 1.2 Purchase of subsidiary shares
from noncontrolling interest - - - (8.4 ) Proceeds from sale of
equity method investment - - - 7.9 Dividends paid (9.6 )
(9.6 ) (38.5 ) (38.3 ) Free cash flow $
34.9 $ 61.3 $ (147.8 ) $ (159.3 ) 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. PRELIMINARY
SUPPLEMENTAL SCHEDULES (in millions) (Unaudited) Three
Months Ended Year Ended June 30, June 30, NET SALES BY END USE
MARKET 2014 2013 2014 2013 End Use Market Excluding
Surcharge: Aerospace and defense $ 212.2 $ 227.9 $ 775.3 $ 832.5
Industrial and consumer 107.1 97.3 379.8 366.4 Energy 73.4 81.5
269.9 290.9 Transportation 33.5 27.9 118.0 106.6 Medical 28.0 26.4
103.5 103.7 Distribution 34.7 35.6 136.3
139.2 Consolidated net sales excluding surcharge
488.9 496.6 1,782.8 $ 1,839.3 Surcharge revenue 115.7
115.2 390.2 432.4 Consolidated net
sales $ 604.6 $ 611.8 $ 2,173.0 $ 2,271.7
Three Months Ended Year Ended June 30, June 30, NET SALES BY MAJOR
PRODUCT CLASS 2014 2013 2014 2013 Net Sales by Product Class
Excluding Surcharge: Special alloys $ 182.6 $ 197.0 $ 666.3 $ 706.0
Stainless steel 153.1 143.2 548.7 543.1 Alloy and tool steel 52.6
55.2 198.4 210.9 Titanium products 44.1 42.4 157.7 155.0 Powder
metals 15.0 14.5 48.6 55.9 Distribution and other 41.5
44.3 163.1 168.4 Consolidated net sales
excluding surcharge 488.9 496.6 1,782.8 $ 1,839.3 Surcharge
revenue 115.7 115.2 390.2 432.4
Consolidated net sales $ 604.6 $ 611.8 $ 2,173.0 $ 2,271.7
Carpenter Technology CorporationMedia Inquiries:William J.
Rudolph Jr., +1 610-208-3892wrudolph@cartech.comorInvestor
Inquiries:Michael A. Hajost, +1 610-208-3476mhajost@cartech.com
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