10-QPeriod: Q3 FY2011

CARPENTER TECHNOLOGY CORP Quarterly Report for Q3 Ended Mar 31, 2011

Filed May 6, 2011For Securities:CRS

Summary

Carpenter Technology Corporation (CRS) reported a significant turnaround in financial performance for the nine months ended March 31, 2011, compared to the same period in the prior year. Net sales increased substantially, driven by strong demand across key end-use markets such as aerospace and energy, and supported by strategic pricing actions and improved product mix. The company successfully integrated the Amega West acquisition, contributing to growth in its Emerging Ventures segment. Profitability saw a dramatic improvement, with net income attributable to Carpenter swinging from a loss of $3.8 million in the prior year's comparable period to a gain of $45.5 million. This was fueled by higher sales volumes, better pricing, and an improved product mix. While the company continues to manage challenges such as raw material cost volatility and the dilutive effect of surcharges on gross margins, the overall financial health and operational performance demonstrated a strong positive trajectory during the period.

Financial Highlights

53 data points
Beta

Revenue

$464.20M

15.7% Gross Margin

Net Income

$28.60M

6.2% Net Margin

EPS (Diluted)

$0.64

Total Assets

$1.71B

Cash & Equivalents

$184.10M

Free Cash Flow

$11.10M

Financial Statements
Beta
Revenue$464.20M
Cost of Revenue$391.10M
Gross Profit$73.10M
SG&A Expenses$37.90M
Operating Income$35.20M
Interest Expense$4.40M
Net Income$28.60M
EPS (Basic)$0.64
EPS (Diluted)$0.64
Shares Outstanding (Basic)44.10M
Shares Outstanding (Diluted)44.70M

Key Highlights

  • 1Net sales for the nine months ended March 31, 2011, increased by 43% to $1,191.5 million compared to $834.4 million in the prior year.
  • 2Net income attributable to Carpenter turned positive, reaching $45.5 million for the nine months ended March 31, 2011, a significant improvement from a net loss of $3.8 million in the comparable prior year period.
  • 3Diluted earnings per share were $1.02 for the nine months ended March 31, 2011, compared to a loss of $0.09 per share in the prior year.
  • 4The company acquired Amega West Services, LLC on December 31, 2010, for $41.6 million, adding to its Emerging Ventures segment.
  • 5Strategic partnership established with Sandvik Materials Technology, involving a 40% interest in Sandvik Powdermet AB.
  • 6Gross profit margin improved significantly to 14.4% (19.6% excluding surcharges) for the nine months ended March 31, 2011, up from 12.1% (15.5% excluding surcharges) in the prior year.
  • 7Operating income for the nine months ended March 31, 2011, was $61.4 million, a substantial increase from $1.5 million in the prior year.

Frequently Asked Questions

The substantial increase in net sales and profitability is primarily attributed to higher demand across key end-use markets like aerospace and energy, alongside successful strategic pricing actions and an improved product mix. The integration of the Amega West acquisition also contributed to the growth in the Emerging Ventures segment.

The acquisition of Amega West on December 31, 2010, for $41.6 million, contributed to the growth of the Emerging Ventures segment, with $16.2 million in net sales and $2.9 million in operating income reported for the nine months ended March 31, 2011. The acquisition also contributed to a negative free cash flow of $150.4 million for the nine-month period due to the initial outlay and increased working capital.

Carpenter Technology Corporation believes its current cash and cash equivalents, marketable securities, and available borrowing capacity are sufficient to meet its operating needs, planned capital expenditures, and debt obligations for the next twelve months. The company intends to refinance $100 million in notes maturing in August 2011 to bolster liquidity.

The company has a recorded liability of $21.8 million related to the Boarhead Farms Superfund site lawsuit. There is also a liability of $2.4 million related to a duty drawback investigation by U.S. Customs. While the company believes these and other routine contingencies will not materially affect its long-term financial position, they could have a material impact in a specific future quarter or year.