10-QPeriod: Q2 FY2014

CARPENTER TECHNOLOGY CORP Quarterly Report for Q2 Ended Dec 31, 2013

Filed February 7, 2014For Securities:CRS

Summary

Carpenter Technology Corporation (CRS) reported financial results for the quarter ended December 31, 2013, showing a decrease in net sales and net income compared to the prior year period. Net sales declined by 6% to $503.5 million, with a notable decrease in the aerospace and defense, and energy markets, partially offset by growth in transportation and industrial/consumer segments. Net income attributable to Carpenter was $29.5 million ($0.55 per diluted share), down from $33.0 million ($0.62 per diluted share) in the prior year quarter. The company experienced a shift in product mix, impacting gross margins. Despite efforts to control overhead and production costs, operating income decreased due to lower volumes for premium products and the dilutive effect of raw material surcharges. The company continues to invest in its Alabama manufacturing facility, leading to increased capital expenditures. Liquidity remains strong with sufficient cash on hand and available borrowing capacity.

Financial Highlights

49 data points
Beta

Revenue

$503.50M

18.9% Gross Margin

Net Income

$29.50M

5.9% Net Margin

EPS (Diluted)

$0.55

Total Assets

$2.90B

Cash & Equivalents

$106.20M

Free Cash Flow

$23.60M

Financial Statements
Beta
Revenue$503.50M
Cost of Revenue$408.10M
Gross Profit$95.40M
SG&A Expenses$47.90M
Operating Income$47.50M
Interest Expense$3.70M
Net Income$29.50M
EPS (Basic)$0.55
EPS (Diluted)$0.55
Shares Outstanding (Basic)53.20M
Shares Outstanding (Diluted)53.60M

Key Highlights

  • 1Net sales for the quarter ended December 31, 2013, decreased by 6% to $503.5 million compared to $533.5 million in the prior year period.
  • 2Net income attributable to Carpenter decreased to $29.5 million ($0.55 per diluted share) from $33.0 million ($0.62 per diluted share) in the comparable prior year period.
  • 3The aerospace and defense market saw a 10% decrease in net sales, influenced by customer destocking and supply chain impacts.
  • 4Sales in the transportation market increased by 12%, driven by higher automobile sales in North America.
  • 5Gross profit margin declined slightly due to a weaker sales mix, particularly the impact of lower volumes for premium and ultra-premium products.
  • 6Capital expenditures significantly increased to $212.4 million for the six months ended December 31, 2013, primarily due to the construction of a new facility in Alabama.
  • 7The company ended the period with $106.2 million in cash and cash equivalents and $491.8 million in available borrowing capacity, indicating solid liquidity.

Frequently Asked Questions

The decrease in net sales was primarily driven by a 10% decline in the aerospace and defense market, influenced by customer destocking and supply chain disruptions. Sales in the energy market also decreased by 7%. These were partially offset by growth in the transportation market (up 12%) and modest gains in the industrial and consumer markets.

Profitability decreased, with net income attributable to Carpenter falling by approximately 10.6% to $29.5 million. Diluted earnings per share also decreased to $0.55 from $0.62. This was mainly due to a weaker sales mix, impacting gross profit margins, and lower overall operating income, despite efforts to control costs.

Carpenter Technology Corporation maintains a strong liquidity position. As of December 31, 2013, the company had $106.2 million in cash and cash equivalents. Combined with approximately $491.8 million in available borrowing capacity under its credit facilities, management believes it has sufficient resources to meet its cash needs.

The company is making significant capital expenditures, totaling $212.4 million for the six months ended December 31, 2013. The majority of this spending is related to the construction of a new superalloy powder facility in Limestone County, Alabama, which is expected to be completed and qualified over the next 18 months.