10-KPeriod: FY2010

CARPENTER TECHNOLOGY CORP Annual Report, Year Ended Jun 30, 2010

Filed August 20, 2010For Securities:CRS

Summary

Carpenter Technology Corporation (CRS) is a global leader in the manufacturing and distribution of specialty metals, including high-performance stainless steels and advanced alloys. The company operates through two primary segments: Advanced Metals Operations (AMO) and Premium Alloys Operations (PAO), serving diverse end-markets such as aerospace, industrial, energy, medical, consumer products, and automotive. In fiscal year 2010, Carpenter Technology reported a decrease in net sales compared to the prior year, largely influenced by challenging market conditions and shifts in product mix. However, the company saw signs of recovery towards the end of the fiscal year with an improving order book and increasing utilization rates. Key areas of focus for investors include the company's efforts to manage raw material price volatility through surcharges and forward contracts, its ongoing investment in research and development for innovative solutions, and its strategic positioning in growing markets like aerospace and energy. Despite a decline in net income for fiscal year 2010 compared to fiscal year 2009, the company maintained a strong financial position and a robust order backlog, indicating potential for future growth.

Financial Highlights

52 data points
Beta

Revenue

$1.20B

12.1% Gross Margin

Net Income

$2.10M

0.2% Net Margin

EPS (Diluted)

$0.04

Total Assets

$1.58B

Cash & Equivalents

$265.40M

Free Cash Flow

$115.20M

Financial Statements
Beta
Revenue$1.20B
Cost of Revenue$1.05B
Gross Profit$144.80M
R&D Expenses$17.80M
SG&A Expenses$133.10M
Operating Income$11.70M
Interest Expense$17.80M
Net Income$2.10M
EPS (Basic)$0.04
EPS (Diluted)$0.04
Shares Outstanding (Basic)43.90M
Shares Outstanding (Diluted)44.40M

Key Highlights

  • 1Carpenter Technology operates in two reportable segments: Advanced Metals Operations (AMO) and Premium Alloys Operations (PAO), serving critical industries like aerospace and energy.
  • 2Net sales decreased in fiscal year 2010 to $1,198.6 million from $1,362.3 million in fiscal year 2009, reflecting challenging market conditions and shifts in product mix.
  • 3Net income for fiscal year 2010 was $2.1 million ($0.04 per diluted share), a significant decrease from $47.9 million ($1.08 per diluted share) in fiscal year 2009.
  • 4The company experienced a significant increase in net pension expense in fiscal year 2010, impacting profitability.
  • 5Backlog of orders was approximately $351 million as of June 30, 2010, with substantially all expected to be shipped within fiscal year 2011.
  • 6Raw material price volatility is a key risk, managed through surcharges, indexing, and forward contracts.
  • 7The company continues to invest in research and development, highlighting innovation as a driver for future growth.

Frequently Asked Questions

The decrease in net income for fiscal year 2010 was primarily due to lower net sales, an unfavorable shift in product mix, and a significant increase in net pension expense. While cost improvement initiatives helped offset some of these factors, the overall profitability was impacted.

Carpenter Technology employs several strategies to mitigate the impact of volatile raw material costs. These include using pricing surcharges to pass on increases to customers, employing indexing mechanisms, implementing base price adjustments, and utilizing raw material forward contracts for key materials. While these measures help recover costs, there can be a short-term impact on results due to timing lags.

Carpenter Technology serves diverse end-markets. In fiscal year 2010, sales to the aerospace market decreased by 11%, industrial markets by 11%, and energy markets by 48%. The medical market saw an 8% decrease, while consumer market sales increased by 14%, and automotive market sales increased by 1%. The significant decrease in the energy sector reflects lower oil and gas drilling activity.

Despite the challenging financial results for fiscal year 2010, the company ended the year with a robust order backlog of $351 million, expected to be fulfilled in fiscal year 2011. Management noted increasing utilization rates and hiring of production workers, indicating signs of improving business momentum and readiness to meet growing customer demand.