10-KPeriod: FY2015

CARPENTER TECHNOLOGY CORP Annual Report, Year Ended Jun 30, 2015

Filed August 25, 2015For Securities:CRS

Summary

Carpenter Technology Corporation (CRS) operates as a global leader in the manufacturing and distribution of specialty metals. The company is structured into two primary segments: Specialty Alloys Operations (SAO) and Performance Engineered Products (PEP), serving diverse markets including aerospace, defense, energy, transportation, and medical. In fiscal year 2015, Carpenter Technology reported net sales of $2.23 billion, a slight increase from the prior year, driven by growth in aerospace, defense, medical, and transportation sectors, partially offset by weakness in the energy market. However, net income saw a significant decrease to $58.7 million from $132.8 million in FY 2014, impacted by increased operating costs, lower oil and gas prices affecting the energy segment, and restructuring charges totaling $29.1 million. The company's backlog stood at $543 million as of June 30, 2015, with most expected to ship in FY 2016. Key risks include cyclicality in end markets, raw material price volatility, and operational challenges.

Financial Highlights

55 data points
Beta

Revenue

$2.23B

14.3% Gross Margin

Net Income

$58.70M

2.6% Net Margin

EPS (Diluted)

$1.11

Total Assets

$2.90B

Cash & Equivalents

$70.00M

Free Cash Flow

$282.60M

Financial Statements
Beta
Revenue$2.23B
Cost of Revenue$1.91B
Gross Profit$318.30M
R&D Expenses$18.70M
SG&A Expenses$177.70M
Operating Income$111.50M
Interest Expense$27.70M
Net Income$58.70M
EPS (Basic)$1.11
EPS (Diluted)$1.11
Shares Outstanding (Basic)52.60M
Shares Outstanding (Diluted)52.70M

Key Highlights

  • 1Net sales for fiscal year 2015 were $2.23 billion, a 2% increase year-over-year, driven by strong performance in aerospace and defense, medical, and transportation markets.
  • 2Net income significantly declined to $58.7 million in FY 2015, down from $132.8 million in FY 2014, attributed to increased operating costs and a challenging energy market.
  • 3The company incurred $29.1 million in restructuring charges during FY 2015, primarily related to workforce reductions and facility exits, aimed at generating approximately $30 million in annual cost savings.
  • 4Positive free cash flow of $74.4 million was achieved in FY 2015, a significant improvement from negative $147.8 million in FY 2014, driven by lower capital expenditures.
  • 5The company's backlog of firm orders was $543 million as of June 30, 2015, with a substantial portion expected to be fulfilled in fiscal year 2016.
  • 6Significant risks identified include the cyclical nature of key end markets (aerospace, defense, energy), volatility in raw material prices, and potential operational disruptions.
  • 7Carpenter Technology announced a $500 million share repurchase program in October 2014, with $375.5 million remaining authorization as of June 30, 2015.

Frequently Asked Questions

Carpenter Technology operates through two main reportable segments: Specialty Alloys Operations (SAO), which comprises its premium alloy and stainless steel manufacturing, and Performance Engineered Products (PEP), which includes its differentiated operations like titanium, powder metal, and distribution businesses.

The decline in oil and gas prices significantly impacted the energy market segment, leading to a 6% decrease in sales for that sector in fiscal year 2015. This weakness in the energy market was a key factor contributing to the overall decline in net income compared to the prior year.

Carpenter Technology employs several strategies to mitigate the impact of volatile raw material prices. These include using pricing surcharges, indexing mechanisms, base price adjustments, and engaging in raw material forward contracts. However, there can be short-term impacts and challenges in fully recovering cost increases due to lags in surcharge mechanisms or firm-price sales arrangements.

In fiscal year 2015, Carpenter Technology initiated a restructuring plan that included eliminating approximately 200 salaried positions and 60 outsourced positions, along with other non-labor costs. These actions were designed to yield about $30 million in annual overhead cost savings and were expected to be substantially complete by the end of Q1 FY 2016.