Net income of $13.5 million or $0.25 per
share
Net sales of $549.8 million
Adjusted EBITDA of $63.9 million
Board authorized share repurchase program of up
to $500 million
Carpenter Technology Corporation (NYSE:CRS) today announced
financial results for the quarter ended September 30, 2014.
Carpenter reported net income of $13.5 million or $0.25 per diluted
share, compared to $34.6 million or $0.65 per diluted share in the
same quarter last year.
Financial Highlights
($ in millions) Q1 Q1
Q4
FY2015 FY2014
FY2014 Net Sales $ 549 .8 $ 498 .6 $ 604 .6 Net Sales
Excluding Surcharge (a) $ 440 .1 $ 412 .1 $ 488 .9 Operating Income
$ 22 .1 $ 55 .8 $ 59 .2 Net Income $ 13 .5 $ 34 .6 $ 38 .1 Free
Cash Flow (a) $ (53 .5) $ (60 .5) $ 34 .9 Adjusted EBITDA (a) $ 63
.9 $ 97 .5 $ 105 .2 (a) non-GAAP financial measure explained
in the attached tables
William A. Wulfsohn, Carpenter’s President and Chief Executive
officer, stated: “After a difficult start to the quarter,
performance in September improved. The Latrobe press is now back on
line and we saw our Specialty Alloys Operations (SAO) segment mix
improve in September. That said, we need to drive further
improvements and successfully work through recent challenges at our
Reading mill.
“Looking forward, we expect SAO to continue year-over-year
volume growth as we expand the number of customer approvals for
Athens production. We also anticipate that SAO’s sales mix will
improve based on recent trends in our backlog. In addition, the
Performance Engineered Products (PEP) segment is expected to
improve year-over-year. Finally, we remain focused on keeping our
selling, general and administrative expenses flat. These are the
crucial building blocks in terms of driving profitable growth as we
progress through our fiscal year.
“We have now completed the majority of our spending related to
capacity expansion, and we are committed to driving returns on
these investments. We have a strong focus on cash generation, and
we are also committed to reduce inventory from current levels by
the end of the fiscal year. While we have multiple strategic
options to deploy this cash, as well as a strong balance sheet, our
recently authorized share repurchase program gives us an important
option to return future cash flow to our shareholders.”
Net Sales, Operating Income, and Net
Income
Net sales for the first quarter of fiscal year 2015 were $549.8
million, and net sales excluding surcharge were $440.1 million, an
increase of $28.0 million (or 7 percent) from the same quarter last
year, on 11 percent higher shipments.
Operating income was $22.1 million, a decrease of $33.7 million
from the first quarter of the prior year. Operating
income—excluding pension earnings, interest and deferrals (EID)—was
$24.5 million, a decrease of $37.3 million (or 60 percent) from the
first quarter of the prior year. The reduction in operating income
versus the prior year is primarily due to the operational issues
experienced in the first two months of the current quarter, weaker
mix and additional Athens depreciation expense.
Net income was $13.5 million or $0.25 per diluted share, as
compared to $34.6 million or $0.65 per diluted share in the same
quarter last year. The results for the first quarter of fiscal year
2015 include a favorable legal settlement of $4.4 million or $0.05
per share, reported in other income, net.
Cash Flow
Cash flow from operations was $15.0 million, which included a
$42.6 million increase in working capital and $2.8 million of
pension contributions. This compares to a cash flow from operations
of $39.5 million in the prior year’s first quarter, which included
a $37.7 million increase in working capital and $1.5 million of
pension contributions. Free cash flow in the first quarter was
negative $53.5 million, compared to negative $60.5 million in the
same quarter last year. Capital spending in the first quarter,
which included $32.3 million related to the construction of the
Athens facility, was $59.0 million, compared to $90.4 million in
the prior year’s first quarter, which included $67.4 million
related to Athens.
Total liquidity, including cash and available revolver balance,
was $558 million at the end of the first quarter. This consisted of
$66 million of cash, and $492 million of available revolver.
End Markets
Q1 FY15
Sales*
Ex. Surcharge
(in Millions)
Q1 FY15
vs.
Q1 FY14
Q1 FY15
vs.
Q4 FY14
Aerospace and Defense $180.7
-1% -15% Energy
$67.8 +15% -8% Medical
$26.7 +7%
-5% Transportation $30.7
+20% -8% Industrial and Consumer
$98.6 +15%
-8%
* Excludes sales through Carpenter’s distribution businesses
Aerospace and Defense
- Lower demand for certain high-value
engine and defense related materials led to lower sales and a
weaker overall mix year-over-year.
- Demand is seen returning in the
aerospace distribution market but at lower average selling prices
versus the prior year.
- Revenue for aerospace engine materials
was up 5 percent, and revenue for fastener materials (titanium and
nickel) was up 9 percent, year-over-year.
Energy
- The directional rig count grew 13
percent versus the same quarter last year.
- Amega West posted solid revenue growth
in both manufacturing and rental compared to the prior year.
- The power generation market segment
showed strong growth in the quarter versus the prior year and
sequentially.
Medical
- Revenue improved year-over-year but had
a weaker mix, while titanium revenue was down and stainless
instrument revenue was up.
- Original equipment manufacturers (OEMs)
have resumed more normalized buying patterns as inventories have
stabilized.
- The medical market environment remains
extremely competitive with significant pricing pressure.
Transportation
- North American vehicle production is up
year-over-year and remains at high levels.
- Sales mix has improved versus the prior
year, with the shift to higher value components for more demanding
applications going into high-pressure/high-temperature engine
systems.
Industrial and Consumer
- Demand growth in the consumer market
segment is being driven by high-value consumer electronics and
sporting goods applications.
- Strong year-over-year revenue growth in
the semiconductor market segment.
- Steady demand growth for premium tool
steels.
Conference Call and Webcast
Presentation
Carpenter will host a conference call and webcast presentation
today, October 23, at 9 a.m. ET, to discuss the financial results
and operations for the fiscal first quarter of 2015. 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.
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.
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 presentation 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, 2014 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 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 a catastrophic event; (14) the
ability to hire and retain key personnel, including members of the
executive management team, management, metallurgists and other
skilled personnel; and (15) share repurchases are at Carpenter’s
discretion and could be affected by changes in Carpenter’s share
price, operating results, capital spending, cash flows, inventory,
acquisitions, investments, tax laws, and general market conditions.
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, 2014
2013 NET SALES $ 549 .8 $ 498 .6 Cost of sales 480 .7
395 .3 Gross profit 69 .1 103 .3 Selling, general and
administrative expenses 47 .0 47 .5 Operating income
22 .1 55 .8 Interest expense (7 .0) (4 .4) Other income, net
4 .9 0 .1 Income before income taxes 20 .0 51
.5 Income tax expense 6 .5 16 .9 NET INCOME $
13 .5 $ 34 .6 EARNINGS PER SHARE: Basic $ 0 .25 $ 0 .65
Diluted $ 0 .25 $ 0 .65 WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 53 .5 53 .1 Diluted 53 .7 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, 2014 2013
OPERATING ACTIVITIES: Net income $ 13 .5 $ 34 .6 Adjustments
to reconcile net income to net cash provided from operating
activities: Depreciation and amortization 30 .3 26 .7 Deferred
income taxes 2 .6 (0 .7) Net pension expense 11 .5 15 .0
Stock-based compensation expense 2 .5 3 .1 Changes in working
capital and other: Accounts receivable 16 .2 57 .7 Inventories (30
.8) (47 .4) Other current assets (6 .3) (9 .0) Accounts payable 1
.3 (14 .9) Accrued liabilities (17 .2) (18 .5) Pension plan
contributions (2 .8) (1 .5) Other postretirement plan contributions
(3 .6) (3 .2) Other, net (2 .2) (2 .4) Net cash
provided from operating activities 15 .0 39 .5
INVESTING ACTIVITIES: Purchases of property, equipment and software
(59 .0) (90 .4) Proceeds from disposals of property and equipment
0 .1 - Net cash used for investing activities
(58 .9) (90 .4) FINANCING ACTIVITIES:
Dividends paid (9 .6) (9 .6) Tax benefits on share-based
compensation 0 .1 1 .0 Proceeds from stock options exercised
0 .7 2 .5 Net cash used for financing activities (8
.8) (6 .1) Effect of exchange rate changes on cash
and cash equivalents (1 .3) 0 .5
DECREASE IN CASH AND CASH EQUIVALENTS (54 .0) (56 .5) Cash and cash
equivalents at beginning of period 120 .0 257 .5
Cash and cash equivalents at end of period $ 66 .0 $ 201 .0
PRELIMINARY CONSOLIDATED BALANCE SHEETS (in millions)
(Unaudited)
September 30, June 30, 2014 2014 ASSETS Current
assets: Cash and cash equivalents $ 66 .0 $ 120 .0 Accounts
receivable, net 319 .1 339 .6 Inventories 728 .1 699 .2 Deferred
income taxes 5 .2 - Other current assets 34 .1 35 .7
Total current assets 1,152 .5 1,194 .5 Property, plant and
equipment, net 1,408 .1 1,407 .0 Goodwill 257 .6 257 .7 Other
intangibles, net 77 .8 80 .6 Other assets 116 .2 117
.7 Total assets $ 3,012 .2 $ 3,057 .5 LIABILITIES Current
liabilities: Accounts payable $ 251 .5 $ 278 .1 Accrued liabilities
138 .1 148 .0 Deferred income taxes - 4 .5
Total current liabilities 389 .6 430 .6 Long-term debt, net
of current portion 604 .2 604 .3 Accrued pension liabilities 205 .9
203 .4 Accrued postretirement benefits 162 .0 163 .2 Deferred
income taxes 113 .9 110 .7 Other liabilities 51 .1 41
.0 Total liabilities 1,526 .7 1,553 .2
STOCKHOLDERS' EQUITY Common stock 275 .9 275 .8 Capital in excess
of par value 260 .6 263 .5 Reinvested earnings 1,315 .4 1,311 .6
Common stock in treasury, at cost (98 .1) (101 .4) Accumulated
other comprehensive loss (268 .3) (245 .2) Total
stockholders' equity 1,485 .5 1,504 .3 Total
liabilities and stockholders' equity $ 3,012 .2 $ 3,057 .5
PRELIMINARY SEGMENT FINANCIAL DATA (in millions, except
pounds sold) (Unaudited)
Three Months Ended September 30, 2014 2013 Pounds sold*
(000): Specialty Alloys Operations 70,120 63,414 Performance
Engineered Products 3,034 2,666 Intersegment (1,408 )
(1,188 ) Consolidated pounds sold 71,746
64,892 Net sales: Specialty Alloys Operations
Net sales excluding surcharge $ 324 .1 $ 307 .6 Surcharge
111 .9 87 .3 Specialty Alloys Operations net sales
436 .0 394 .9 Performance Engineered Products
Net sales excluding surcharge 129 .6 117 .5 Surcharge 0 .3
1 .0 Performance Engineered Products net sales
129 .9 118 .5 Intersegment Net sales excluding
surcharge (13 .6) (13 .0) Surcharge (2 .5) (1 .8)
Intersegment net sales (16 .1) (14 .8)
Consolidated net sales $ 549 .8 $ 498 .6 Operating income:
Specialty Alloys Operations $ 24 .6 $ 63 .7 Performance Engineered
Products 9 .7 11 .6 Corporate costs (10 .3) (12 .9) Pension
earnings, interest and deferrals (2 .4) (6 .0) Intersegment
0 .5 (0 .6) Consolidated operating income $ 22 .1 $
55 .8
The Company has two reportable segments, Specialty Alloys
Operations (“SAO”) and Performance Engineered Products (“PEP”).
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 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 and 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 PENSION EARNINGS,
INTEREST AND DEFERRALS September 30, 2014 2013 Net sales $
549.8 $ 498.6 Less: surcharge revenue 109.7
86.5 Consolidated net sales excluding surcharge $ 440.1
$ 412.1 Operating income $ 22.1 $ 55.8 Pension
earnings, interest and deferrals 2.4 6.0
Operating income excluding pension earnings, interest and
deferrals $ 24.5 $ 61.8 Operating margin
excluding surcharge and pension earnings, interest and deferrals
5.6 % 15.0 %
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, 2014 2013 DEPRECIATION
AND AMORTIZATION (EBITDA) Net income $ 13.5 $ 34.6
Interest expense 7.0 4.4 Income tax expense 6.5 16.9 Depreciation
and amortization 30.3 26.7 Other income, net (4.9 )
(0.1 ) EBITDA $ 52.4 $ 82.5 Net pension expense 11.5
15.0 Adjusted EBITDA $ 63.9 $ 97.5
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 September 30, FREE
CASH FLOW 2014 2013 Net cash provided from operating
activities $ 15.0 $ 39.5 Purchases of property, equipment and
software (59.0 ) (90.4 ) Proceeds from disposals of property and
equipment 0.1 - Dividends paid (9.6 ) (9.6 )
Free cash flow $ (53.5 ) $ (60.5 )
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 September 30, NET
SALES BY END USE MARKET 2014 2013 End Use Market Excluding
Surcharge: Aerospace and defense $ 180.7 $ 182.9 Industrial and
consumer 98.6 85.8 Energy 67.8 59.1 Transportation 30.7 25.5
Medical 26.7 25.0 Distribution 35.6 33.8
Consolidated net sales excluding surcharge 440.1 412.1
Surcharge revenue 109.7 86.5 Consolidated net
sales $ 549.8 $ 498.6 Three Months Ended
September 30, NET SALES BY MAJOR PRODUCT CLASS 2014
2013 Net Sales by Product Class Excluding Surcharge: Special
alloys $ 163.2 $ 149.8 Stainless steel 135.6 125.2 Alloy and tool
steel 45.2 49.1 Titanium products 38.6 36.9 Powder metals 14.2 10.4
Distribution and other 43.3 40.7 Consolidated
net sales excluding surcharge 440.1 412.1 Surcharge revenue
109.7 86.5 Consolidated net sales $ 549.8 $
498.6
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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