10-QPeriod: Q3 FY2008

CARPENTER TECHNOLOGY CORP Quarterly Report for Q3 Ended Mar 31, 2008

Filed May 2, 2008For Securities:CRS

Summary

Carpenter Technology Corporation (CRS) reported mixed financial results for the nine months ended March 31, 2008. While consolidated net sales increased by 7% to $1,407.4 million, driven by strong demand in the energy and aerospace sectors, particularly internationally, net income from continuing operations saw a slight decrease to $164.4 million from $158.2 million in the prior year period. This was impacted by reduced demand in economically sensitive markets like industrial, automotive, and consumer sectors, as well as increased operating costs and investments in future growth initiatives. The company successfully divested its ceramics operations on March 31, 2008, generating $143.0 million in net proceeds and contributing significantly to the "Income from discontinued operations" which surged to $69.3 million. Furthermore, the company demonstrated a robust increase in free cash flow to $186.5 million, up from $101.2 million in the prior year, supported by strong operating cash flow and proceeds from asset sales. Shareholder returns were enhanced through a 20% increase in the quarterly dividend and significant share repurchases totaling $250.8 million during the period.

Key Highlights

  • 1Consolidated net sales increased by 7% to $1,407.4 million for the nine months ended March 31, 2008.
  • 2Net income from continuing operations for the nine months ended March 31, 2008 was $164.4 million, a slight increase from $158.2 million in the prior year.
  • 3The company divested its ceramics operations on March 31, 2008, resulting in a significant gain and boosting income from discontinued operations to $69.3 million.
  • 4Free cash flow significantly increased to $186.5 million for the nine months ended March 31, 2008, up from $101.2 million in the prior year.
  • 5The company increased its quarterly dividend by 20% to $0.18 per share.
  • 6Carpenter Technology repurchased $250.8 million of its common stock during the nine months ended March 31, 2008.
  • 7International sales grew by 26% year-over-year, now representing 34% of total sales, driven by strong demand in the energy market.

Frequently Asked Questions

The primary driver of the increase in net sales was strong demand in the global energy end-use market, coupled with significant international sales growth, especially in Europe and Asia. The aerospace sector also showed strong performance.

The divestiture of the ceramics operations on March 31, 2008, generated $143.0 million in net proceeds and a significant pre-tax gain of $102.7 million. This resulted in a substantial increase in 'Income from discontinued operations' to $69.3 million for the nine months ended March 31, 2008, compared to $7.7 million in the prior year.

The company generated strong free cash flow of $186.5 million for the nine months ended March 31, 2008. Carpenter Technology also increased its quarterly dividend by 20% and actively repurchased its stock, spending $250.8 million on share repurchases during the period, indicating a commitment to enhancing shareholder value.

The company noted potential risks and contingencies including ongoing investigations related to duty drawback claims, with a reserve of $4.0 million established, and potential violations of federal export regulations at a divested business unit, for which no liability has been recorded as the outcome is uncertain. Environmental remediation liabilities were also noted.