10-QPeriod: Q2 FY2017

CARPENTER TECHNOLOGY CORP Quarterly Report for Q2 Ended Dec 31, 2016

Filed February 2, 2017For Securities:CRS

Summary

Carpenter Technology Corporation (CRS) reported a net income of $7.0 million for the three months ended December 31, 2016, down from $11.5 million in the prior year period. This decline was primarily driven by a 4% decrease in net sales, influenced by lower demand in key markets like Transportation and Industrial & Consumer, although strength in Aerospace & Defense and Energy provided some offset. Despite the revenue dip, the company highlighted a stronger product mix and improved operating efficiencies. A significant event during the quarter was the freezing of pension benefits for certain employees and a voluntary pension contribution of $100 million. The company maintained compliance with its debt covenants, with ample liquidity available through its credit facility. Investors should note the ongoing efforts in cost management and strategic market focus to navigate the current demand environment.

Financial Highlights

50 data points
Beta

Revenue

$427.40M

14.6% Gross Margin

Net Income

$7.00M

1.6% Net Margin

EPS (Diluted)

$0.15

Total Assets

$2.78B

Cash & Equivalents

$22.50M

Free Cash Flow

-$29.50M

Financial Statements
Beta
Revenue$427.40M
Cost of Revenue$364.90M
Gross Profit$62.50M
SG&A Expenses$47.10M
Operating Income$15.40M
Interest Expense$7.40M
Net Income$7.00M
EPS (Basic)$0.15
EPS (Diluted)$0.15
Shares Outstanding (Basic)47.20M
Shares Outstanding (Diluted)47.60M

Key Highlights

  • 1Net sales for the quarter decreased by 4% to $427.4 million compared to the prior year period.
  • 2Net income for the quarter was $7.0 million ($0.15/diluted share), down from $11.5 million ($0.23/diluted share) in the prior year quarter.
  • 3The Aerospace and Defense segment, the largest by revenue, saw a slight decrease in sales of 1%.
  • 4The company made a significant voluntary pension contribution of $100 million and froze benefits for certain employees.
  • 5Operating income decreased to $15.4 million from $21.8 million year-over-year, impacted by lower volumes.
  • 6Inventories increased significantly to $700.7 million from $628.7 million at the end of the prior fiscal year.
  • 7The company maintained strong liquidity with $22.5 million in cash and cash equivalents and $469.2 million available under its credit facility.

Frequently Asked Questions

The primary driver for the decrease in net income was a 4% decline in net sales, which was influenced by lower volumes and weaker demand across several end-use markets, partially offset by a stronger product mix and operating efficiencies.

Carpenter Technology announced changes to its retirement plans, including freezing pension benefits for certain employees effective December 31, 2016. The company also made a voluntary pension contribution of $100 million. These actions are part of managing costs and addressing future liabilities related to pension plans.

The company remains in compliance with its debt covenants, which include minimum interest coverage and maximum debt-to-capital ratios. As of December 31, 2016, Carpenter Technology had $22.5 million in cash and cash equivalents and $469.2 million in available borrowing capacity under its $500 million revolving credit facility, indicating strong liquidity.

Aerospace and Defense sales remained relatively stable, while Energy showed a slight increase. However, Transportation, Medical, and Industrial & Consumer markets experienced notable decreases in sales. The company is benefiting from demand in new engine platforms within Aerospace and Defense.