10-QPeriod: Q2 FY2015

CARPENTER TECHNOLOGY CORP Quarterly Report for Q2 Ended Dec 31, 2014

Filed February 9, 2015For Securities:CRS

Summary

Carpenter Technology Corporation (CRS) reported its fiscal second-quarter and year-to-date results for the period ending December 31, 2014. Net sales increased by 9% for the quarter and 10% for the six months, driven by higher volumes and a richer product mix, particularly in aerospace, industrial, and medical sectors. However, net income declined for both periods, primarily due to higher operating costs, increased depreciation related to the Athens facility, and a press outage. The company is proactively addressing the slowdown in the oil and gas market due to falling oil prices by aligning its cost structure with lower demand in those areas. Despite a decrease in overall operating income compared to the prior year, the company maintained compliance with its debt covenants and had significant available borrowing capacity. Carpenter Technology also announced a new $500 million share repurchase program in October 2014, demonstrating a commitment to returning value to shareholders. The company's outlook for the second half of fiscal year 2015 remains positive, expecting higher sales volume and a stronger mix.

Financial Highlights

50 data points
Beta

Revenue

$548.40M

15.5% Gross Margin

Net Income

$24.10M

4.4% Net Margin

EPS (Diluted)

$0.45

Total Assets

$3.06B

Cash & Equivalents

$28.80M

Free Cash Flow

$12.50M

Financial Statements
Beta
Revenue$548.40M
Cost of Revenue$463.40M
Gross Profit$85.00M
SG&A Expenses$40.00M
Operating Income$45.00M
Interest Expense$6.80M
Net Income$24.10M
EPS (Basic)$0.45
EPS (Diluted)$0.45
Shares Outstanding (Basic)53.40M
Shares Outstanding (Diluted)53.60M

Key Highlights

  • 1Net sales increased 9% year-over-year to $548.4 million for the quarter ended December 31, 2014, and 10% to $1,098.2 million for the six-month period.
  • 2The company experienced a decline in net income to $24.1 million for the quarter ($0.45/diluted share) and $37.6 million for the six months ($0.70/diluted share), compared to the prior year periods.
  • 3Gross profit decreased 11% for the quarter to $85.0 million and 22% for the six months to $154.1 million, with gross margin also declining due to higher operating costs and depreciation.
  • 4The oil and gas sector is showing signs of slowdown due to falling oil prices, leading CRS to take cost-alignment actions in related businesses.
  • 5Carpenter Technology initiated a $500 million share repurchase program in October 2014 and repurchased $10.0 million of stock during the quarter.
  • 6The company maintained compliance with its debt covenants, with a consolidated interest coverage ratio of 15.7 to 1.00 and a debt to capital ratio of 31% as of December 31, 2014.
  • 7Total assets slightly decreased to $3,055.0 million from $3,057.5 million at June 30, 2014, while total liabilities increased to $1,579.0 million from $1,553.2 million.

Frequently Asked Questions

For the quarter ended December 31, 2014, Carpenter Technology Corporation reported a 9% increase in net sales to $548.4 million, driven by higher volumes and a better product mix across most end-use markets. However, net income decreased to $24.1 million ($0.45 per diluted share) from $29.5 million ($0.55 per diluted share) in the same period last year. This decline was attributed to higher operating costs, increased depreciation, and the impact of a press outage.

The company noted a slowdown in demand for oil and gas materials, including cancellations and deferrals, due to falling oil prices. Carpenter Technology is taking proactive measures to align its cost structure with this reduced demand, particularly in its oil and gas-focused businesses like the down-hole tool and distribution segments.

As of December 31, 2014, Carpenter Technology had $28.8 million in cash and cash equivalents and $454.8 million in available borrowing capacity under its credit agreement, providing total liquidity of approximately $483.6 million. The company remains in compliance with its debt covenants, maintaining a consolidated interest coverage ratio of 15.7 to 1.00 and a debt-to-capital ratio of 31%, well within the required limits.

Yes, in October 2014, Carpenter Technology's Board of Directors authorized a share repurchase program of up to $500.0 million of the Company's outstanding common stock. During the quarter ended December 31, 2014, the company repurchased 200,400 shares for $10.0 million under this program.