10-QPeriod: Q3 FY2017

CARPENTER TECHNOLOGY CORP Quarterly Report for Q3 Ended Mar 31, 2017

Filed April 27, 2017For Securities:CRS

Summary

Carpenter Technology Corporation (CRS) reported a return to profitability in the third quarter of fiscal year 2017, with net income of $20.7 million, a significant improvement from a net loss of $23.9 million in the same period last year. This turnaround was driven by increased sales volumes across most end-use markets, particularly Aerospace & Defense and Energy, coupled with ongoing operational efficiencies from the Carpenter Operating Model. The company also successfully integrated its recent acquisition of Puris LLC, expanding its presence in the growing titanium powder market and additive manufacturing. For the nine-month period, net sales saw a decrease, largely attributed to weaker demand in the first half of the fiscal year. However, the company's focus on cost improvements and strategic growth initiatives, including the titanium powder acquisition, positions it for continued recovery. Liquidity remains strong, supported by a new $400 million revolving credit facility, providing ample financial flexibility for future operations and potential strategic investments.

Financial Highlights

51 data points
Beta

Revenue

$473.60M

17.5% Gross Margin

Net Income

$20.70M

4.4% Net Margin

EPS (Diluted)

$0.44

Total Assets

$2.82B

Cash & Equivalents

$16.60M

Free Cash Flow

$61.70M

Financial Statements
Beta
Revenue$473.60M
Cost of Revenue$390.50M
Gross Profit$83.10M
SG&A Expenses$47.30M
Operating Income$35.80M
Interest Expense$7.70M
Net Income$20.70M
EPS (Basic)$0.44
EPS (Diluted)$0.44
Shares Outstanding (Basic)47.20M
Shares Outstanding (Diluted)47.70M

Key Highlights

  • 1The company returned to profitability in Q3 FY17 with a net income of $20.7 million, compared to a net loss of $23.9 million in Q3 FY16.
  • 2Net sales increased by 4% year-over-year to $473.6 million in Q3 FY17, driven by higher volumes in Aerospace & Defense, Energy, and Industrial & Consumer markets.
  • 3Acquisition of Puris LLC for $35.3 million on February 28, 2017, enhancing the company's position in titanium powder and additive manufacturing.
  • 4Gross profit margin improved significantly to 17.5% in Q3 FY17 from 10.4% in Q3 FY16, benefiting from higher volumes and operating efficiencies.
  • 5The company entered into a new $400 million unsecured revolving credit facility on March 31, 2017, enhancing liquidity and financial flexibility.
  • 6In Q3 FY16, the company recorded significant special charges including $17.6 million for restructuring and asset impairment and $12.5 million for goodwill impairment, which were absent in Q3 FY17.
  • 7Significant pension plan changes were implemented, including freezing benefits and making a voluntary contribution of $100 million in October 2016.

Frequently Asked Questions

The company returned to profitability primarily due to increased sales volumes across most end-use markets, particularly in Aerospace & Defense and Energy, combined with ongoing operational efficiencies implemented through the Carpenter Operating Model. These factors, coupled with the absence of significant restructuring and impairment charges seen in the prior year, contributed to the positive net income.

The acquisition of Puris LLC for $35.3 million provides Carpenter Technology with immediate entry into the rapidly growing titanium powder market and an expanded presence in additive manufacturing. This strategic move strengthens the company's capabilities as a solutions provider and aligns with its strategy to broaden its product offerings.

The company's liquidity position is robust, supported by $16.6 million in cash and cash equivalents and an available borrowing capacity of $380 million under its new $400 million revolving credit facility, which matures in March 2022. Management believes these resources are sufficient to fund its cash needs for the foreseeable future.

The Specialty Alloys Operations (SAO) segment saw a 3% increase in net sales, driven by higher demand in Aerospace & Defense and Industrial & Consumer markets, with operating income improving due to higher volume and cost efficiencies. The Performance Engineered Products (PEP) segment experienced an 8% increase in net sales, primarily in the Energy market, with operating income turning positive due to increased demand for titanium products and cost reductions.