01—Abstract
Summary
Summary of the 10-Q filed February 2, 2022. Cited figures are marked; the original filing is the authoritative source.
Carpenter Technology Corporation (CRS) reported a net loss of $29.4 milliona, or $0.61 per diluted share, for the three months ended December 31, 2021.
This marks an improvement from the $84.9 millionb net loss, or $1.76 per diluted share, in the same period of the prior year. The company saw a 14% increase in net sales to $396.0 million, driven by improving demand across most end-use markets. However, operational challenges, including an unplanned press outage at the Reading facility, labor shortages, and supply chain disruptions, impacted profitability.
The Specialty Alloys Operations (SAO) segment experienced an operating loss, while the Performance Engineered Products (PEP) segment showed improved operating income. For the six months ended December 31, 2021, Carpenter Technology reported a net loss of $44.1 millionc, or $0.91 per diluted share, compared to a net loss of $132.0 million, or $2.74 per diluted share, in the prior year period. Net sales increased by 12% to $783.6 million.
The company continues to manage its working capital, with a notable increase in inventory levels in the recent period to meet growing demand and address operational challenges. Despite operational headwinds, the company maintains a strong liquidity position with $96.9 milliond in cash and cash equivalents and $294.7 million in available borrowing capacity.
02—Key points
Key Highlights
- Net sales increased 14% year-over-year to $396.0 million for the three months ended December 31, 2021, indicating improving demand across key markets.
- Despite increased sales, the company reported a net loss of $29.4 million ($0.61/share) for the quarter, though this is an improvement from the prior year's net loss of $84.9 million ($1.76/share).
- Operational challenges, including an unplanned press outage, labor shortages, and supply chain disruptions, negatively impacted financial performance, particularly in the Specialty Alloys Operations (SAO) segment.
- The Performance Engineered Products (PEP) segment showed improved operating income, driven by strong demand in the Medical end-use market.
- For the six months ended December 31, 2021, net sales grew 12% to $783.6 million, with a net loss of $44.1 million ($0.91/share), also an improvement from the prior year's loss.
- Inventory levels increased significantly ($109.8 million in six months) to support growing demand and mitigate operational challenges, leading to negative free cash flow of $187.6 million for the six-month period.
- The company ended the period with a strong liquidity position, including $96.9 million in cash and cash equivalents and $294.7 million in available borrowing capacity under its credit facility.
03—One dollar
Follow one dollar
For each $1.00 of revenue in Q2 FY2022, Carpenter Technology Corp lost $0.07.
- Revenue$396.0M100.0%
- Cost of revenue−$382.9M96.7%
- Gross profit$13.1M3.3%
- Operating costs−$44.6M11.3%
- Operating income−$31.5M8.0%
- Interest, other & tax$2.1M0.5%
- Net income−$29.4M7.4%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2022filed February 2, 2022Financial Statements
Q2 FY2022 against Q2 FY2021
| Line item | Q2 FY2022Q2 FY2021 | Change |
|---|---|---|
| Revenue | $396.00M$348.80M | +13.5% |
| Gross Profit | $13.10M$6.00M | +118.3% |
| SG&A Expenses | $44.60M$42.20M | +5.7% |
| Operating Income | -$31.50M-$89.00M | +64.6% |
| Interest Expense | $10.10M$7.90M | +27.8% |
| Net Income | -$29.40M-$84.90M | +65.4% |
| EPS (Basic) | $-0.61$-1.76 | +65.3% |
| EPS (Diluted) | $-0.61$-1.76 | +65.3% |
| Shares Outstanding (Basic) | 48.60M48.30M | +0.6% |
| Shares Outstanding (Diluted) | 48.60M48.30M | +0.6% |
05—Questions
Frequently Asked Questions
What were the main drivers of the change in net sales compared to the prior year?
Net sales increased by 14% to $396.0 million for the three months ended December 31, 2021, driven by improving demand across most end-use markets. Excluding surcharge revenue, sales increased 5% on a 9% increase in shipment volume. The Medical, Industrial and Consumer, and Transportation end-use markets showed significant growth.
What operational challenges did the company face during the quarter?
The company faced several operational headwinds, including an unplanned outage of the press at its Reading, PA facility, labor shortages (production employee COVID-19 isolations and hiring challenges), and broader supply chain disruptions. These issues impacted production targets and limited the ability to meet demand, particularly affecting the Specialty Alloys Operations (SAO) segment.
How did the company's liquidity and financial position change?
The company maintained a strong liquidity position. As of December 31, 2021, cash and cash equivalents were $96.9 million, and available borrowing capacity under its credit facility was $294.7 million, totaling $391.6 million in liquidity. However, free cash flow was negative ($187.6 million for the six months ended December 31, 2021) primarily due to a significant increase in inventory to support demand and operational challenges.
What is the outlook for the company, considering the operational challenges?
Despite near-term operational challenges, the company believes it is well-positioned for growth. Management expects the Reading press to be back online in the March 2022 quarter. The company anticipates continued improving demand across end-use markets and sees long-term growth opportunities in its soft magnetics and additive manufacturing capabilities.
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