Earnings per share of $0.65; solid performance
partially offset by annual preventative maintenance shutdowns
Carpenter Technology Corporation (NYSE: CRS) (the “Company”) today
announced financial results for the fiscal first quarter ended
September 30, 2018. For the quarter, the Company reported net
income of $31.5 million, or $0.65 earnings per diluted share.
“Our first quarter results reflect further execution of our
commercial strategy and success in capitalizing on strong market
conditions partially offset by our annual preventative maintenance
shutdowns at certain key work centers,” said Tony Thene,
Carpenter’s President and CEO. “While this created a near-term
headwind, our solutions focus continues to generate significant
customer response as our backlog increased 9% on a sequential basis
and 38% compared to last year.”
“Demand patterns are robust and all five of our end-use markets
delivered year-over-year revenue growth. In the Aerospace and
Defense end-use market, engine activity remains near record
levels and we are also generating healthy customer demand in other
sub-markets. We also continue to experience strong demand for our
titanium solutions in the Medical end-use market as we further
implement our solutions-focused approach and broaden our
relationships with leading industry OEMs.”
“Looking ahead, we are focused on executing our commercial and
manufacturing strategies while also strategically investing in
targeted growth areas that will enhance our long-term growth
profile. This includes our announced acquisition of LPW Technology
Ltd., a leader in advanced metal powders and powder lifecycle
management solutions for additive manufacturing, and the investment
in our high-value soft magnetics portfolio. These priorities
are consistent with our strategic mandate to be a complete
solutions provider for our customers and best position Carpenter to
deliver increasing long-term value to shareholders.”
Financial Highlights
($
in millions) |
|
Q1 |
|
Q1 |
|
Q4 |
|
|
FY2019 |
|
FY2018 |
|
FY2018 |
Net Sales |
$ |
572.4 |
|
|
$ |
479.8 |
|
|
$ |
618.0 |
|
Net Sales Excluding Surcharge (a) |
$ |
456.3 |
|
|
$ |
409.8 |
|
|
$ |
494.5 |
|
Operating Income |
$ |
45.0 |
|
|
$ |
42.2 |
|
|
$ |
59.9 |
|
Net Income |
$ |
31.5 |
|
|
$ |
23.4 |
|
|
$ |
42.8 |
|
Cash Provided from (Used for) Operating Activities |
$ |
9.4 |
|
|
$ |
(7.4 |
) |
|
$ |
118.5 |
|
Free Cash Flow (a) |
$ |
(41.7 |
) |
|
$ |
(44.9 |
) |
|
$ |
55.9 |
|
(a) Non-GAAP financial measures explained in the attached
tables
Net sales for the first quarter of fiscal year 2019 were $572.4
million compared with $479.8 million in the first quarter of fiscal
year 2018, an increase of $92.6 million (or 19.3 percent), on 3.6
percent higher volume. Net sales excluding surcharge were
$456.3 million, an increase of $46.5 million (or 11.3 percent) from
the same period a year ago.
Operating income was $45.0 million compared to $42.2 million in
the prior year period. These results primarily reflect stronger
end-use market conditions compared to the prior year period as well
as the further execution of a solutions-focused commercial
approach.
Cash provided from operating activities in the first quarter of
fiscal year 2019 was $9.4 million, compared to cash used of $7.4
million in the same quarter last year. The increase in
operating cash flow was primarily related to increased earnings and
improving working capital. Free cash flow in the first quarter of
fiscal year 2019 was negative $41.7 million, compared to
negative free cash flow of $44.9 million in the same
quarter last year. Capital expenditures were $41.6 million in the
first quarter of fiscal year 2019 compared to $28.9 million in the
same quarter last year due to increased investment in target growth
areas including additive manufacturing and soft magnetics.
Total liquidity, including cash and available revolver balance,
was $411.0 million at the end of the first quarter of fiscal year
2019. This consisted of $17.0 million of cash and $394.0
million of available borrowings under the Company’s credit
facility.
Conference Call and Webcast Presentation
Carpenter Technology will host a conference call and webcast
presentation today, October 24th at 10:00 a.m. ET, to discuss the
financial results of operations for the first quarter of fiscal
year 2019. Please dial +1 412-317-9259 for access to the live
conference call. Access to the live webcast will be available
at Carpenter Technology’s website (http://www.cartech.com), and a
replay will soon be made available at http://www.cartech.com.
Presentation materials used during this conference call will be
available for viewing and download 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 Technology Corporation (NYSE: CRS) is a
recognized leader in high-performance specialty alloy-based
materials and process solutions for critical applications in the
aerospace, defense, transportation, energy, industrial, medical and
consumer markets. Founded in 1889, Carpenter has evolved to become
a pioneer in premium specialty alloys, including titanium, nickel
and cobalt, as well as alloys specifically engineered for additive
manufacturing (AM) processes and soft magnetics applications.
Carpenter has expanded its AM capabilities to provide a complete
“end-to-end” solution to accelerate materials innovation and
streamline parts production. 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 report on Form 10-K for the year
ended June 30, 2018, 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, earnings, profitability, operating
income, cost savings and reductions, qualifications, 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 effect 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 LPW
Technology Ltd.; (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 and
Athens, Alabama 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) fluctuations in oil and gas
prices and production. 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 (the “Securities Act”), and
Section 21E of the Securities Exchange Act of 1934, as amended.
Carpenter undertakes no obligation to update or revise any
forward-looking statements.
PRELIMINARYCONSOLIDATED
STATEMENTS OF INCOME(in millions, except per share
data)(Unaudited)
|
|
Three Months Ended |
|
|
September 30, |
|
|
2018 |
|
2017 |
|
|
|
|
|
NET SALES |
|
$ |
572.4 |
|
|
$ |
479.8 |
|
Cost of sales |
|
480.7 |
|
|
394.1 |
|
Gross profit |
|
91.7 |
|
|
85.7 |
|
|
|
|
|
|
Selling, general and administrative expenses |
|
46.7 |
|
|
43.5 |
|
Operating income |
|
45.0 |
|
|
42.2 |
|
|
|
|
|
|
Interest expense |
|
(6.3 |
) |
|
(7.2 |
) |
Other income, net |
|
1.6 |
|
|
0.2 |
|
|
|
|
|
|
Income before income taxes |
|
40.3 |
|
|
35.2 |
|
Income tax expense |
|
8.8 |
|
|
11.8 |
|
|
|
|
|
|
NET INCOME |
|
$ |
31.5 |
|
|
$ |
23.4 |
|
|
|
|
|
|
EARNINGS PER COMMON SHARE: |
|
|
|
|
Basic |
|
$ |
0.66 |
|
|
$ |
0.49 |
|
Diluted |
|
$ |
0.65 |
|
|
$ |
0.49 |
|
|
|
|
|
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: |
|
|
|
|
Basic |
|
47.6 |
|
|
47.1 |
|
Diluted |
|
48.2 |
|
|
47.3 |
|
|
|
|
|
|
Cash dividends per common share |
|
$ |
0.20 |
|
|
$ |
0.18 |
|
PRELIMINARYCONSOLIDATED
STATEMENTS OF CASH FLOWS(in millions)(Unaudited)
|
|
Three Months Ended |
|
|
September 30, |
|
|
2018 |
|
2017 |
OPERATING ACTIVITIES: |
|
|
|
|
Net income |
|
$ |
31.5 |
|
|
$ |
23.4 |
|
Adjustments to reconcile net income to net cash provided from (used
for) operating activities: |
|
|
|
|
Depreciation and amortization |
|
29.7 |
|
|
28.7 |
|
Deferred income taxes |
|
1.2 |
|
|
0.6 |
|
Net pension expense |
|
2.9 |
|
|
3.6 |
|
Share-based compensation expense |
|
3.0 |
|
|
4.2 |
|
Net loss on disposals of property and equipment |
|
0.1 |
|
|
0.1 |
|
Changes in working capital and other: |
|
|
|
|
Accounts receivable |
|
(3.5 |
) |
|
(1.2 |
) |
Inventories |
|
(50.5 |
) |
|
(46.3 |
) |
Other current assets |
|
(6.5 |
) |
|
(9.0 |
) |
Accounts payable |
|
47.5 |
|
|
15.9 |
|
Accrued liabilities |
|
(40.8 |
) |
|
(21.7 |
) |
Pension plan contributions |
|
(2.3 |
) |
|
(4.2 |
) |
Other postretirement plan contributions |
|
(0.8 |
) |
|
(0.5 |
) |
Other, net |
|
(2.1 |
) |
|
(1.0 |
) |
Net cash provided from (used for) operating
activities |
|
9.4 |
|
|
(7.4 |
) |
INVESTING ACTIVITIES: |
|
|
|
|
Purchases of property, plant, equipment and software |
|
(41.6 |
) |
|
(28.9 |
) |
Proceeds from disposals of property and equipment |
|
0.1 |
|
|
— |
|
Proceeds from sale of marketable securities |
|
2.9 |
|
|
— |
|
Net cash used for investing activities |
|
(38.6 |
) |
|
(28.9 |
) |
FINANCING ACTIVITIES: |
|
|
|
|
Net change in short-term credit agreement borrowings |
|
— |
|
|
3.3 |
|
Dividends paid |
|
(9.6 |
) |
|
(8.6 |
) |
Proceeds from stock options exercised |
|
3.2 |
|
|
1.4 |
|
Withholding tax payments on share-based compensation awards |
|
(4.1 |
) |
|
(0.2 |
) |
Net cash used for financing activities |
|
(10.5 |
) |
|
(4.1 |
) |
Effect of exchange rate changes on cash and cash equivalents |
|
0.5 |
|
|
(1.0 |
) |
DECREASE IN CASH AND CASH EQUIVALENTS |
|
(39.2 |
) |
|
(41.4 |
) |
Cash and cash equivalents at beginning of period |
|
56.2 |
|
|
66.3 |
|
Cash and cash equivalents at end of period |
|
$ |
17.0 |
|
|
$ |
24.9 |
|
PRELIMINARYCONSOLIDATED
BALANCE SHEETS(in millions)(Unaudited)
|
|
September 30, |
|
June 30, |
|
|
2018 |
|
2018 |
ASSETS |
|
|
|
|
Current assets: |
|
|
|
|
Cash and cash equivalents |
|
$ |
17.0 |
|
|
$ |
56.2 |
|
Accounts receivable, net |
|
381.6 |
|
|
378.5 |
|
Inventories |
|
740.5 |
|
|
689.2 |
|
Other current assets |
|
49.0 |
|
|
54.9 |
|
Total current assets |
|
1,188.1 |
|
|
1,178.8 |
|
Property, plant and equipment, net |
|
1,316.8 |
|
|
1,313.4 |
|
Goodwill |
|
268.7 |
|
|
268.7 |
|
Other intangibles, net |
|
61.7 |
|
|
63.3 |
|
Deferred income taxes |
|
4.5 |
|
|
4.3 |
|
Other assets |
|
167.9 |
|
|
178.5 |
|
Total assets |
|
$ |
3,007.7 |
|
|
$ |
3,007.0 |
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
Current liabilities: |
|
|
|
|
Accounts payable |
|
$ |
255.9 |
|
|
$ |
214.7 |
|
Accrued liabilities |
|
107.5 |
|
|
148.6 |
|
Total current liabilities |
|
363.4 |
|
|
363.3 |
|
Long-term debt |
|
545.5 |
|
|
545.7 |
|
Accrued pension liabilities |
|
285.1 |
|
|
288.8 |
|
Accrued postretirement benefits |
|
108.7 |
|
|
108.2 |
|
Deferred income taxes |
|
155.7 |
|
|
161.6 |
|
Other liabilities |
|
58.6 |
|
|
53.5 |
|
Total liabilities |
|
1,517.0 |
|
|
1,521.1 |
|
|
|
|
|
|
STOCKHOLDERS' EQUITY |
|
|
|
|
Common stock |
|
278.9 |
|
|
278.6 |
|
Capital in excess of par value |
|
310.0 |
|
|
310.0 |
|
Reinvested earnings |
|
1,498.8 |
|
|
1,475.9 |
|
Common stock in treasury, at cost |
|
(335.9 |
) |
|
(338.8 |
) |
Accumulated other comprehensive loss |
|
(261.1 |
) |
|
(239.8 |
) |
Total stockholders' equity |
|
1,490.7 |
|
|
1,485.9 |
|
Total liabilities and stockholders' equity |
|
$ |
3,007.7 |
|
|
$ |
3,007.0 |
|
PRELIMINARYSEGMENT
FINANCIAL DATA(in millions, except pounds
sold)(Unaudited)
|
Three Months Ended |
|
September 30, |
|
2018 |
|
2017 |
Pounds sold (000): |
|
|
|
Specialty Alloys Operations |
62,714 |
|
|
61,190 |
|
Performance Engineered Products |
2,732 |
|
|
3,526 |
|
Intersegment |
170 |
|
|
(1,370 |
) |
Consolidated pounds sold |
65,616 |
|
|
63,346 |
|
|
|
|
|
Net sales: |
|
|
|
Specialty Alloys Operations |
|
|
|
Net sales excluding surcharge |
$ |
361.5 |
|
|
$ |
325.6 |
|
Surcharge |
114.0 |
|
|
71.2 |
|
Specialty Alloys Operations net sales |
475.5 |
|
|
396.8 |
|
|
|
|
|
Performance Engineered Products |
|
|
|
Net sales excluding surcharge |
108.0 |
|
|
100.5 |
|
Surcharge |
3.7 |
|
|
0.2 |
|
Performance Engineered Products net sales |
111.7 |
|
|
100.7 |
|
|
|
|
|
Intersegment |
|
|
|
Net sales excluding surcharge |
(13.2 |
) |
|
(16.3 |
) |
Surcharge |
(1.6 |
) |
|
(1.4 |
) |
Intersegment net sales |
(14.8 |
) |
|
(17.7 |
) |
|
|
|
|
Consolidated net sales |
$ |
572.4 |
|
|
$ |
479.8 |
|
|
|
|
|
Operating income: |
|
|
|
Specialty Alloys Operations |
$ |
52.8 |
|
|
$ |
50.5 |
|
Performance Engineered Products |
7.3 |
|
|
5.3 |
|
Corporate costs |
(15.8 |
) |
|
(12.9 |
) |
Intersegment |
0.7 |
|
|
(0.7 |
) |
Consolidated operating income |
$ |
45.0 |
|
|
$ |
42.2 |
|
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,
Pennsylvania and surrounding areas as well as 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 CalRAM business and the Latrobe and Mexico
distribution businesses. The businesses in the PEP segment are
managed with an entrepreneurial structure to promote flexibility
and agility to quickly respond to market dynamics. It is our
belief this model will ultimately drive overall revenue and profit
growth. The pounds sold data above for the PEP segment
includes only the Dynamet and CPP businesses.
Corporate costs are comprised of executive and director
compensation, and other corporate facilities and administrative
expenses not allocated to the segments. Also included are items
that management considers not representative of ongoing operations
and other specifically-identified income or expense items.
PRELIMINARYNON-GAAP
FINANCIAL MEASURES(in millions)(Unaudited)
|
|
|
|
|
|
|
Three Months Ended |
|
|
September 30, |
NET SALES AND OPERATING MARGIN EXCLUDING SURCHARGE |
|
2018 |
|
2017 |
|
|
|
|
|
Net sales |
|
$ |
572.4 |
|
|
$ |
479.8 |
|
Less: surcharge |
|
116.1 |
|
|
70.0 |
|
Net sales excluding surcharge |
|
$ |
456.3 |
|
|
$ |
409.8 |
|
|
|
|
|
|
Operating income |
|
$ |
45.0 |
|
|
$ |
42.2 |
|
|
|
|
|
|
Operating margin |
|
7.9 |
% |
|
8.8 |
% |
Operating margin excluding surcharge |
|
9.9 |
% |
|
10.3 |
% |
Management believes that removing the impact of raw material
surcharge from net sales and operating margin provides a more
consistent basis for comparing results of operations from period to
period, thereby permitting management to evaluate performance and
investors to make decisions based on the ongoing operations of the
Company. Management uses its results excluding surcharge to
evaluate its operating performance and to discuss its business with
investment institutions, the Company’s board of directors and
others.
|
|
Three Months Ended |
|
|
September 30, |
FREE CASH FLOW |
|
2018 |
|
2017 |
|
|
|
|
|
Net cash provided from (used for) operating activities |
|
$ |
9.4 |
|
|
$ |
(7.4 |
) |
Purchases of property, plant, equipment and software |
|
(41.6 |
) |
|
(28.9 |
) |
Proceeds from disposals of property and equipment |
|
0.1 |
|
|
— |
|
Dividends paid |
|
(9.6 |
) |
|
(8.6 |
) |
Free cash flow |
|
$ |
(41.7 |
) |
|
$ |
(44.9 |
) |
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.
PRELIMINARYSUPPLEMENTAL
SCHEDULES(in millions)(Unaudited)
|
|
Three Months Ended |
|
|
September 30, |
NET SALES BY END-USE MARKET |
|
2018 |
|
2017 |
End-Use Market Excluding Surcharge: |
|
|
|
|
Aerospace and Defense |
|
$ |
239.6 |
|
|
$ |
215.6 |
|
Energy |
|
37.5 |
|
|
28.8 |
|
Transportation |
|
31.4 |
|
|
30.6 |
|
Medical |
|
39.5 |
|
|
33.4 |
|
Industrial and Consumer |
|
74.6 |
|
|
71.7 |
|
Distribution |
|
33.7 |
|
|
29.7 |
|
|
|
|
|
|
Total net sales excluding surcharge |
|
456.3 |
|
|
409.8 |
|
|
|
|
|
|
Surcharge |
|
116.1 |
|
|
70.0 |
|
|
|
|
|
|
Total net sales |
|
$ |
572.4 |
|
|
$ |
479.8 |
|
Media Inquiries:William J. Rudolph, Jr. +1
610-208-3892wrudolph@cartech.com
Investor Inquiries:Brad EdwardsThe Plunkett Group+1
212-739-6740brad@theplunkettgroup.com
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