01—Abstract
Summary
Summary of the 10-K filed August 18, 2016. Cited figures are marked; the original filing is the authoritative source.
Carpenter Technology Corporation (CRS) in fiscal year 2016 experienced a significant downturn in its financial performance compared to the previous year, driven primarily by decreased demand in key end-use markets, particularly Energy and Industrial & Consumer sectors.
Net sales declined by 19% to $1.81 billiona, and net income dropped sharply from $58.7 million to $11.3 million. This performance was further impacted by substantial non-cash charges, including $22.5 million for excess inventory write-downs, $12.5 million for goodwill impairment, and $7.6 million for other asset impairments, alongside $10.4 million in restructuring charges related to an early retirement incentive.
The company is strategically repositioning itself as a solutions provider and has implemented the 'Carpenter Operating Model' to drive manufacturing efficiencies, optimize working capital, and improve capital spending discipline. Despite the challenging fiscal year 2016, the Aerospace and Defense segment remained the largest contributor to sales, and the company maintained its commitment to quarterly dividends, demonstrating resilience and a long-term strategic focus amidst cyclical market pressures.
02—Key points
Key Highlights
- Significant revenue decline of 19% in FY2016 to $1.81 billion, primarily due to weakened demand in the Energy and Industrial/Consumer sectors.
- Net income saw a substantial decrease to $11.3 million in FY2016, down from $58.7 million in FY2015.
- Reported substantial non-cash charges in FY2016, including $22.5M for excess inventory write-downs, $12.5M for goodwill impairment, and $7.6M for asset impairments.
- Aerospace and Defense remains the largest end-use market, accounting for 54% of net sales, although it experienced a 7% decline.
- The company is actively implementing the 'Carpenter Operating Model' to enhance operational efficiencies and financial discipline.
- A sales backlog of $306 million (excluding surcharge) at the end of FY2016 was down from $435 million in the prior year.
- Carpenter Technology maintained its long-standing practice of paying quarterly cash dividends, signaling a commitment to shareholder returns.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Carpenter Technology Corp kept $0.01.
- Revenue$1.81B100.0%
- Cost of revenue−$1.56B85.9%
- Gross profit$255.9M14.1%
- Operating costs−$204.3M11.3%
- Operating income$51.6M2.8%
- Interest, other & tax−$40.3M2.2%
- Net income$11.3M0.6%
Where FY2016 revenue went
$1.81B- Cost of revenue: $1.53B, 85% of revenue
- Net income: $11.3M, 0.6% of revenue
- R&D: $16.3M, 0.9% of revenue
- SG&A: $173.8M, 9.6% of revenue
- Other operating costs: $36.7M, 2.0% of revenue
- Interest, other & tax: $40.3M, 2.2% of revenue
Kept 0.6% as net incomeNet income $11.3M · 0.6%R&D $16.3M · 0.9%Other operating costs $36.7M · 2.0%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed August 18, 2016Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $1.81B$2.23B | −18.6% |
| Cost of Revenue | $1.53B$1.91B | −19.6% |
| Gross Profit | $255.90M$318.30M | −19.6% |
| R&D Expenses | $16.30M$18.70M | −12.8% |
| SG&A Expenses | $173.80M$177.70M | −2.2% |
| Operating Income | $51.60M$111.50M | −53.7% |
| Interest Expense | $28.00M$27.70M | +1.1% |
| Net Income | $11.30M$58.70M | −80.7% |
| EPS (Basic) | $0.23$1.11 | −79.3% |
| EPS (Diluted) | $0.23$1.11 | −79.3% |
| Shares Outstanding (Basic) | 48.10M52.60M | −8.6% |
| Shares Outstanding (Diluted) | 48.20M52.70M | −8.5% |
05—Questions
Frequently Asked Questions
What were the main drivers of the financial performance decline in fiscal year 2016?
The primary drivers for the financial performance decline in fiscal year 2016 were significantly reduced demand in the Energy and Industrial & Consumer end-use markets, exacerbated by low oil prices and decreased drilling activity. This was compounded by a 7% decrease in sales to the Aerospace and Defense market and considerable non-cash charges related to inventory write-downs, goodwill impairment, and asset impairments.
What is the 'Carpenter Operating Model,' and what is its intended impact?
The 'Carpenter Operating Model' is a strategic initiative implemented by the company to unlock manufacturing efficiencies, identify commercial opportunities, improve working capital efficiency, and enforce capital spending discipline. Its aim is to help the company navigate near-term cyclical challenges and better position itself for long-term growth and margin improvement.
How has the company managed its raw material cost volatility?
Carpenter Technology utilizes pricing surcharges, indexing mechanisms, base price adjustments, and raw material forward contracts to mitigate the impact of volatile raw material costs. While these mechanisms generally protect gross profit dollars, there can be a short-term impact on margins due to lags in recovery and firm price sales arrangements.
What is the company's outlook regarding its key markets, especially Energy and Aerospace?
The Energy market experienced a significant downturn in FY2016 due to low oil prices, leading to a 54% decrease in sales. The Aerospace and Defense market, while still the largest segment, saw a 7% decline, influenced by factors like a decrease in titanium fastener material sales, though defense-related sales showed strength. The company's strategic focus on being a solutions provider aims to enhance its position across these critical markets.
06—Continue