10-QPeriod: Q3 FY2013

CARPENTER TECHNOLOGY CORP Quarterly Report for Q3 Ended Mar 31, 2013

Filed May 3, 2013For Securities:CRS

Summary

Carpenter Technology Corporation (CRS) reported its financial results for the fiscal quarter ending March 31, 2013. The company experienced an increase in net sales, primarily driven by the inclusion of the recently acquired Latrobe Specialty Metals business and growth in the aerospace and energy sectors. However, net income remained relatively flat year-over-year, impacted by a less favorable product mix and increased customer deferrals in certain markets. Operationally, Carpenter is focused on integrating Latrobe, realizing synergies, and managing costs. Significant capital expenditures are underway for a new manufacturing facility in Alabama, which is expected to support long-term growth. The company is also actively managing its pension liabilities and has recently issued new senior notes to refinance existing debt and for general corporate purposes. Investors should monitor the company's ability to navigate market demand fluctuations and execute its capital investment strategy.

Financial Highlights

49 data points
Beta

Revenue

$581.40M

17.4% Gross Margin

Net Income

$32.90M

5.7% Net Margin

EPS (Diluted)

$0.62

Total Assets

$2.92B

Cash & Equivalents

$294.70M

Free Cash Flow

$7.10M

Financial Statements
Beta
Revenue$581.40M
Cost of Revenue$480.40M
Gross Profit$101.00M
SG&A Expenses$48.00M
Operating Income$53.00M
Interest Expense$5.00M
Net Income$32.90M
EPS (Basic)$0.62
EPS (Diluted)$0.62
Shares Outstanding (Basic)52.90M
Shares Outstanding (Diluted)53.20M

Key Highlights

  • 1Net sales increased by 8% to $581.4 million for the three months ended March 31, 2013, compared to the prior year period, driven by the Latrobe acquisition and strong performance in aerospace and energy markets.
  • 2Net income attributable to Carpenter was $32.9 million, or $0.62 per diluted share, a slight decrease from $33.0 million, or $0.69 per diluted share, in the prior year quarter.
  • 3The Latrobe acquisition, completed in February 2012, continues to integrate well, exceeding operational synergy expectations and contributing positively to earnings.
  • 4The company is making significant capital investments, with $223.5 million spent on property, plant, and equipment during the nine months ended March 31, 2013, largely for the new Alabama facility.
  • 5Operating income for the quarter was $53.0 million, down from $55.7 million in the prior year, impacted by a weaker product mix and lower manufacturing cost absorption.
  • 6The company ended the quarter with $294.7 million in cash and cash equivalents, and an available borrowing capacity of $342.8 million under its credit facilities, providing sufficient liquidity.
  • 7Carpenter issued $300 million in 4.45% Senior Notes due 2023 in February 2013 to refinance existing debt and for general corporate purposes.

Frequently Asked Questions

The acquisition of Latrobe Specialty Metals, completed in February 2012, significantly contributed to the increase in net sales, particularly in the current quarter's reporting period. The company reported that Latrobe's operations are exceeding synergy expectations and contributing positively to earnings, though it also increased the share count, impacting diluted EPS.

Carpenter anticipates a full-year earnings forecast that is lower than previously expected due to customer deferrals, low sales to distribution customers, and a weak defense-related mix. Key strategic initiatives include completing the integration of Latrobe, realizing synergies, managing operational costs, and investing in a new manufacturing facility in Alabama, expected to be operational by April 2014, to support growth in premium products.

As of March 31, 2013, Carpenter had $294.7 million in cash and cash equivalents and $342.8 million in available borrowing capacity under its credit facilities, which management believes is sufficient to meet its cash needs. In February 2013, the company issued $300 million in senior notes, using the proceeds to repay $100 million of higher-interest debt and for general corporate purposes, including potential discretionary pension contributions and capital expenditures.

The company cited increased customer deferrals in the recent quarter, low sales to distribution customers, and a weak defense-related product mix as negatively impacting sales and operating income. Additionally, increased manufacturing costs due to lower production levels and significant pension expenses are impacting profitability.