10-QPeriod: Q3 FY2020

CARPENTER TECHNOLOGY CORP Quarterly Report for Q3 Ended Mar 31, 2020

Filed April 30, 2020For Securities:CRS

Summary

Carpenter Technology Corporation reported a decrease in net sales for the third quarter of fiscal year 2020, down 4% to $585.4 million, compared to the prior year. This decline was attributed to the ongoing Boeing 737 MAX production halt and the emerging COVID-19 pandemic, which impacted shipment volumes. Despite the top-line decrease, the company saw a strengthening product mix and increased sales in its Aerospace and Defense and Medical segments, excluding surcharge revenue. Net income for the quarter was $39.9 million, or $0.82 per diluted share, a decrease from $51.1 million, or $1.05 per diluted share, in the same period last year, partly due to an insurance recovery benefit in the prior year. For the first nine months of fiscal year 2020, net sales remained flat at $1,743.8 million. The company experienced significant growth in the Aerospace and Defense and Medical segments, driven by strong demand and improved product mix, which offset declines in Energy and Industrial & Consumer markets. The company is proactively managing the impact of COVID-19 through cost reduction initiatives and working capital management. While near-term visibility is limited, Carpenter Technology emphasizes its strong customer relationships and commitment to serving critical applications.

Financial Highlights

52 data points
Beta

Revenue

$585.40M

18.7% Gross Margin

Net Income

$39.90M

6.8% Net Margin

EPS (Diluted)

$0.82

Total Assets

$3.43B

Cash & Equivalents

$93.00M

Free Cash Flow

$72.30M

Financial Statements
Beta
Revenue$585.40M
Cost of Revenue$475.90M
Gross Profit$109.50M
SG&A Expenses$50.80M
Operating Income$58.70M
Interest Expense$4.90M
Net Income$39.90M
EPS (Basic)$0.82
EPS (Diluted)$0.82
Shares Outstanding (Basic)48.10M
Shares Outstanding (Diluted)48.30M

Key Highlights

  • 1Net sales decreased by 4% to $585.4 million in Q3 FY2020 compared to the prior year, primarily due to the 737 MAX halt and COVID-19 impacts.
  • 2Aerospace & Defense and Medical segments showed increased sales (excluding surcharges), indicating resilience in key markets.
  • 3Net income for Q3 FY2020 was $39.9 million, a decrease from $51.1 million in Q3 FY2019, impacted by an insurance recovery in the prior year.
  • 4For the nine-month period ended March 31, 2020, net sales were flat year-over-year at $1,743.8 million, with strong growth in Aerospace & Defense and Medical offsetting declines elsewhere.
  • 5The company is implementing cost reduction measures and managing working capital in response to COVID-19 disruptions.
  • 6A significant restructuring charge of $80 million to $100 million is expected in Q4 FY2020 related to exiting the Amega West business and closing two powder metals facilities.

Frequently Asked Questions

The primary drivers for the revenue decrease of 4% in the third quarter were the ongoing production halt of the Boeing 737 MAX aircraft and the emerging COVID-19 pandemic. These factors led to reduced shipment volumes across various end-use markets.

The company is actively monitoring the pandemic's impact and has implemented several measures. These include cost reduction initiatives such as temporary furloughs and a hiring freeze, reducing planned capital expenditures, and focusing on working capital management, particularly inventory reduction. They are also prioritizing employee health and safety.

These segments showed relative strength. Aerospace & Defense sales increased year-over-year (excluding surcharges), driven by demand in key sub-markets and defense programs. The Medical segment also saw a slight increase (excluding surcharges) due to improved product mix, despite temporary delays in elective procedures caused by COVID-19.

Carpenter Technology expects to record restructuring charges between $80 million and $100 million before taxes in the fourth quarter of fiscal year 2020. These charges are related to the decision to exit the Amega West business and close two domestic powder metals production facilities.