01—Abstract
Summary
Summary of the 10-K filed August 29, 2019. Cited figures are marked; the original filing is the authoritative source.
Carpenter Technology Corporation (CRS) reported a strong fiscal year 2019, with net sales increasing by 10% to $2.38 billiona, driven by robust demand in key markets, particularly Aerospace and Defense, which accounted for 56% of sales.
The company demonstrated improved operating performance, with operating income rising to $241.4 millionb, an increase of 28% year-over-year, and operating margin expanding to 10.1% from 8.8%. This growth was supported by the effective implementation of the Carpenter Operating Model, leading to efficiency gains, and strategic acquisitions like LPW Technology Ltd., bolstering its additive manufacturing capabilities. Financially, CRS ended fiscal year 2019 with $27.0 million in cash and cash equivalents.
While operating activities generated $232.4 millionc in cash, free cash flow was negative $53.7 million, largely due to significant capital expenditures of $180.3 million for growth initiatives and the acquisition of LPW Technology Ltd. for $79.0 million. The company also continued its commitment to shareholders by paying dividends, totaling $38.6 million in fiscal year 2019. A noted concern is a material weakness in internal controls related to revenue accuracy, which management is actively working to remediate.
02—Key points
Key Highlights
- Net sales increased by 10% to $2.38 billion in FY2019, with Aerospace and Defense being the largest segment (56% of sales).
- Operating income grew by 28% to $241.4 million, and operating margin improved to 10.1% from 8.8% in the prior year.
- The company expanded its additive manufacturing capabilities through the acquisition of LPW Technology Ltd.
- Capital expenditures were substantial at $180.3 million, reflecting investments in growth initiatives.
- Free cash flow was negative $53.7 million due to capital spending and acquisitions.
- The company maintained its dividend payments, totaling $38.6 million in FY2019.
- A material weakness in internal controls related to revenue accuracy was identified, with remediation efforts underway.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, Carpenter Technology Corp kept $0.07.
- Revenue$2.38B100.0%
- Cost of revenue−$1.94B81.3%
- Gross profit$444.8M18.7%
- Operating costs−$203.4M8.5%
- Operating income$241.4M10.1%
- Interest, other & tax−$74.4M3.1%
- Net income$167.0M7.0%
Where FY2019 revenue went
$2.38B- Cost of revenue: $1.94B, 81% of revenue
- Net income: $167.0M, 7.0% of revenue
- R&D: $23.3M, 1.0% of revenue
- SG&A: $203.4M, 8.5% of revenue
- Interest, other & tax: $74.4M, 3.1% of revenue
Kept 7.0% as net incomeNet income $167.0M · 7.0%R&D $23.3M · 1.0%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed August 29, 2019Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $2.38B$2.16B | +10.3% |
| Cost of Revenue | $1.94B$1.78B | +9.0% |
| Gross Profit | $444.80M$382.30M | +16.3% |
| R&D Expenses | $23.30M$19.30M | +20.7% |
| SG&A Expenses | $203.40M$193.00M | +5.4% |
| Operating Income | $241.40M$189.30M | +27.5% |
| Interest Expense | $26.00M$28.30M | −8.1% |
| Net Income | $167.00M$188.50M | −11.4% |
| EPS (Basic) | $3.46$3.96 | −12.6% |
| EPS (Diluted) | $3.43$3.92 | −12.5% |
| Shares Outstanding (Basic) | 47.70M47.20M | +1.1% |
| Shares Outstanding (Diluted) | 48.10M47.60M | +1.1% |
05—Questions
Frequently Asked Questions
What were the primary drivers of Carpenter Technology's revenue growth in fiscal year 2019?
Carpenter Technology's revenue growth in fiscal year 2019 was primarily driven by strong demand in key end-use markets, particularly Aerospace and Defense, which saw a 12% increase in sales. The Medical and Energy sectors also showed significant growth (17% and 24%, respectively). The company's solutions-focused approach and market share gains with both new and existing customers contributed to this performance.
What is the company's financial position regarding liquidity and debt?
As of June 30, 2019, Carpenter Technology had $27.0 million in cash and cash equivalents. The company has a $400.0 million Credit Agreement, with $374.3 million available, providing significant liquidity. Total debt, net of the current portion, was $550.6 million. The company was in compliance with its debt covenants, including a minimum interest coverage ratio of 3.50 to 1.00 (achieved 15.03 to 1.00) and a debt to capital ratio of less than 55% (achieved 27%).
What are the key risks or concerns highlighted in the filing?
A significant concern noted is a material weakness in internal controls over financial reporting related to the accuracy and completeness of price, quantity, and customer data during the billing process. While no misstatements were identified in the financial statements, this deficiency could lead to errors. The company is implementing remediation plans. Other risks mentioned include the cyclical nature of its end-use markets (aerospace, defense, energy), raw material price volatility, and potential disruptions to operations.
How did the company's investments in additive manufacturing progress?
Carpenter Technology continued to expand its additive manufacturing platform, notably with the acquisition of LPW Technology Ltd. for $79.0 million in October 2018. This acquisition enhanced its metal powder lifecycle management capabilities, aligning with the company's strategy to focus on and invest in core growth areas like additive manufacturing.
06—Continue