01—Abstract
Summary
Summary of the 10-K filed August 14, 2018. Cited figures are marked; the original filing is the authoritative source.
Carpenter Technology Corporation (CRS) reported a significant improvement in its financial performance for the fiscal year ending June 30, 2018, with net income soaring to $188.5 milliona, a substantial increase from $47.0 million in the prior year.
This growth was driven by a 20% increase in net sales to $2.16 billionb, fueled by robust demand across its key end-use markets, particularly Aerospace and Defense, and Medical. The company's strategic focus on high-value solutions and operational efficiencies, including the ongoing implementation of the Carpenter Operating Model, contributed to improved gross margins and operating income. Despite facing challenges such as volatile raw material costs and cyclicality in certain end markets like Energy, Carpenter Technology demonstrated resilience and strategic execution.
The company made key investments in growth areas like additive manufacturing and continued to expand its customer relationships. With a strong backlog of orders and a clear focus on innovation and operational improvement, Carpenter Technology appears well-positioned to navigate market dynamics and deliver value to shareholders.
02—Key points
Key Highlights
- Net income increased significantly to $188.5 million in FY2018, up from $47.0 million in FY2017.
- Net sales grew by 20% to $2.16 billion in FY2018, driven by strong demand across major end markets.
- Aerospace and Defense remains the largest end-use market, accounting for 55% of net sales in FY2018.
- Gross margin improved to 17.7% in FY2018 from 15.8% in FY2017, reflecting better product mix and operational efficiencies.
- The company made significant investments in capital expenditures, totaling $135.0 million in FY2018, to support growth initiatives.
- Free cash flow turned positive at $34.7 million in FY2018, a substantial improvement from a negative $16.8 million in FY2017.
- Carpenter Technology acquired MB CalRAM LLC in February 2018, strengthening its position in additive manufacturing.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Carpenter Technology Corp kept $0.09.
- Revenue$2.16B100.0%
- Cost of revenue−$1.78B82.3%
- Gross profit$382.3M17.7%
- Operating costs−$193.0M8.9%
- Operating income$189.3M8.8%
- Interest, other & tax−$800,0000.0%
- Net income$188.5M8.7%
Where FY2018 revenue went
$2.16B- Cost of revenue: $1.78B, 82% of revenue
- Net income: $188.5M, 8.7% of revenue
- R&D: $19.3M, 0.9% of revenue
- SG&A: $193.0M, 8.9% of revenue
Kept 8.7% as net incomeNet income $188.5M · 8.7%R&D $19.3M · 0.9%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed August 14, 2018Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $2.16B$1.80B | +20.0% |
| Cost of Revenue | $1.78B$1.50B | +18.6% |
| Gross Profit | $382.30M$300.80M | +27.1% |
| R&D Expenses | $19.30M$16.90M | +14.2% |
| SG&A Expenses | $193.00M$176.10M | +9.6% |
| Operating Income | $189.30M$121.50M | +55.8% |
| Interest Expense | $28.30M$29.80M | −5.0% |
| Net Income | $188.50M$47.00M | +301.1% |
| EPS (Basic) | $3.96$0.99 | +300.0% |
| EPS (Diluted) | $3.92$0.99 | +296.0% |
| Shares Outstanding (Basic) | 47.20M47.00M | +0.4% |
| Shares Outstanding (Diluted) | 47.60M47.10M | +1.1% |
05—Questions
Frequently Asked Questions
What were the main drivers of Carpenter Technology's improved financial performance in fiscal year 2018?
The improved financial performance in FY2018 was primarily driven by strong market demand across key end-use markets, particularly Aerospace and Defense and Medical. This was complemented by the company's focus on high-value solutions, an improved product mix, and successful implementation of operational efficiencies through the Carpenter Operating Model. These factors led to a significant increase in net sales and operating income.
How is the company managing the volatility of raw material costs?
Carpenter Technology utilizes pricing surcharges, indexing mechanisms, and raw material forward contracts to mitigate the impact of volatile raw material costs. While these mechanisms protect net income dollars, they can sometimes have a dilutive effect on gross margin percentages due to lag effects or specific contract terms. The company actively manages these risks through its supply chain relationships and financial hedging strategies.
What is the significance of the company's investment in additive manufacturing?
Carpenter Technology has strategically expanded its additive manufacturing (AM) capabilities by acquiring MB CalRAM LLC and developing its own AM solutions. This investment positions the company to offer end-to-end solutions, accelerating materials innovation and streamlining parts production for critical applications. This is a key growth area for the company, aligning with industry trends towards advanced manufacturing.
What are the primary risks facing Carpenter Technology based on this filing?
Key risks highlighted include the cyclical nature of its end-use markets (Aerospace, Defense, Energy), volatility in raw material and energy prices, potential supply chain disruptions, intense competition, and the complexity and cost associated with its manufacturing processes. The company also faces risks related to environmental regulations and potential litigation.
06—Continue