01—Abstract
Summary
Summary of the 10-Q filed January 31, 2019. Cited figures are marked; the original filing is the authoritative source.
Carpenter Technology Corporation (CRS) reported strong performance in the second quarter of fiscal year 2019, with net sales increasing by 14% year-over-year to $556.5 milliona.
This growth was driven by robust demand across key end-use markets, particularly Aerospace and Defense, Energy, and Industrial and Consumer. The company's solutions-focused approach and ongoing implementation of the Carpenter Operating Model contributed to improved operational efficiency and a favorable product mix, leading to a 25% increase in gross profit and a 10% operating income margin. Financially, the company saw a significant improvement in cash from operations, rising to $47.2 millionb for the six months ended December 31, 2018, compared to $17.3 million in the prior year period.
However, free cash flow remained negative at $(132.7) million, largely due to increased capital expenditures for growth initiatives like additive manufacturing and soft magnetics, and the acquisition of LPW Technology Ltd. for $79.0 millionc. The company maintained a strong liquidity position with $321.9 million in total liquidity, including cash and available borrowing capacity.
02—Key points
Key Highlights
- Net sales increased by 14% to $556.5 million for the three months ended December 31, 2018, compared to the prior year period.
- Gross profit increased by 25% to $107.0 million, with gross margin improving to 19.2% from 17.6% year-over-year.
- Operating income rose to $55.4 million, representing a 10.0% operating margin, up from $41.4 million and 8.5% in the prior year quarter.
- The Aerospace and Defense end-use market continues to be a strong performer, with sales up 13% year-over-year.
- Acquisition of LPW Technology Ltd. for $79.0 million in October 2018, aimed at enhancing metal powder lifecycle management and additive manufacturing capabilities.
- Cash provided by operating activities improved significantly to $47.2 million for the six months ended December 31, 2018.
- The company's total liquidity remained strong at $321.9 million as of December 31, 2018.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2019, Carpenter Technology Corp kept $0.06.
- Revenue$556.5M100.0%
- Cost of revenue−$449.5M80.8%
- Gross profit$107.0M19.2%
- Operating costs−$51.6M9.3%
- Operating income$55.4M10.0%
- Interest, other & tax−$19.9M3.6%
- Net income$35.5M6.4%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2019filed January 31, 2019Financial Statements
Q2 FY2019 against Q2 FY2018
| Line item | Q2 FY2019Q2 FY2018 | Change |
|---|---|---|
| Revenue | $556.50M$487.80M | +14.1% |
| Cost of Revenue | $449.50M$402.10M | +11.8% |
| Gross Profit | $107.00M$85.70M | +24.9% |
| SG&A Expenses | $51.60M$44.30M | +16.5% |
| Operating Income | $55.40M$41.40M | +33.8% |
| Interest Expense | $7.00M$7.30M | −4.1% |
| Net Income | $35.50M$92.10M | −61.5% |
| EPS (Basic) | $0.73$1.93 | −62.2% |
| EPS (Diluted) | $0.73$1.92 | −62.0% |
| Shares Outstanding (Basic) | 47.70M47.70M | 0.0% |
| Shares Outstanding (Diluted) | 48.00M48.00M | 0.0% |
05—Questions
Frequently Asked Questions
What was the primary driver of the revenue growth in this quarter?
Revenue growth was primarily driven by strong market conditions and increased demand across key end-use markets, particularly Aerospace and Defense, Energy, and Industrial and Consumer. The company's solutions-focused approach and the implementation of the Carpenter Operating Model also contributed to higher sales volumes and a more favorable product mix.
How did the acquisition of LPW Technology Ltd. impact the financial results?
The acquisition of LPW Technology Ltd. for $79.0 million in October 2018 is expected to enhance Carpenter Technology's capabilities in metal powder lifecycle management and additive manufacturing. For the reported period, the acquisition contributed to increased selling, general, and administrative expenses and negatively impacted the Performance Engineered Products segment's operating income due to associated losses. It also contributed to the negative free cash flow due to the significant cash outlay.
What is the company's outlook on its liquidity and financial health?
Carpenter Technology maintains a strong liquidity position, with $321.9 million in total liquidity, including $28.5 million in cash and cash equivalents and $293.4 million in available borrowing capacity under its credit facility as of December 31, 2018. Management believes this is sufficient to fund its cash needs over the foreseeable future and is committed to maintaining compliance with its credit agreement covenants.
06—Continue