10-QPeriod: Q2 FY2019

CARPENTER TECHNOLOGY CORP Quarterly Report for Q2 Ended Dec 31, 2018

Filed January 31, 2019For Securities:CRS

Summary

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 million. 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 million 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 million. The company maintained a strong liquidity position with $321.9 million in total liquidity, including cash and available borrowing capacity.

Financial Highlights

52 data points
Beta

Revenue

$556.50M

19.2% Gross Margin

Net Income

$35.50M

6.4% Net Margin

EPS (Diluted)

$0.73

Total Assets

$3.16B

Cash & Equivalents

$28.50M

Free Cash Flow

$37.80M

Financial Statements
Beta
Revenue$556.50M
Cost of Revenue$449.50M
Gross Profit$107.00M
SG&A Expenses$51.60M
Operating Income$55.40M
Interest Expense$7.00M
Net Income$35.50M
EPS (Basic)$0.73
EPS (Diluted)$0.73
Shares Outstanding (Basic)47.70M
Shares Outstanding (Diluted)48.00M

Key Highlights

  • 1Net sales increased by 14% to $556.5 million for the three months ended December 31, 2018, compared to the prior year period.
  • 2Gross profit increased by 25% to $107.0 million, with gross margin improving to 19.2% from 17.6% year-over-year.
  • 3Operating 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.
  • 4The Aerospace and Defense end-use market continues to be a strong performer, with sales up 13% year-over-year.
  • 5Acquisition of LPW Technology Ltd. for $79.0 million in October 2018, aimed at enhancing metal powder lifecycle management and additive manufacturing capabilities.
  • 6Cash provided by operating activities improved significantly to $47.2 million for the six months ended December 31, 2018.
  • 7The company's total liquidity remained strong at $321.9 million as of December 31, 2018.

Frequently Asked Questions

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.

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.

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.