Reported earnings per share of $0.45 ($0.48
excluding a discrete tax charge)
Net sales of $548.4 million
Adjusted EBITDA of $86.6 million
Carpenter Technology Corporation (NYSE: CRS) today announced
financial results for the quarter ended December 31, 2014.
Carpenter reported net income of $24.1 million or $0.45 per diluted
share. Excluding a discrete tax charge of $1.6 million ($0.03 per
diluted share) related to the enactment of the Tax Increase
Prevention Act of 2014, earnings per diluted share would have been
$0.48 in the quarter. This compares to $29.5 million or $0.55 per
diluted share in the same quarter last year.
Financial
Highlights
($ in millions) Q2 Q2 Q1
FY2015
FY2014
FY2015
Net Sales $ 548.4 $ 503.5 $ 549.8 Net Sales Excluding Surcharge (a)
$ 445.7 $ 414.6 $ 440.1 Operating Income $ 45.0 $ 47.5 $ 22.1 Net
Income $ 24.1 $ 29.5 $ 13.5 Free Cash Flow (a) $ (65.5 ) $ (99.9 )
$ (53.5 ) Adjusted EBITDA (a) $ 86.6 $ 87.3 $ 63.9
(a) non-GAAP financial measure explained
in the attached tables
Comment
Gregory A. Pratt, Carpenter’s chairman, president and chief
executive officer, stated: “Carpenter’s Specialty Alloys Operations
(SAO) drove strong year-over-year sales growth in the second fiscal
quarter of 2015, and it realized the richer product mix that was
evident in the backlog as we exited the first quarter. Operating
margins remained below prior year levels due to higher near-term
integrated mill operating costs, the Reading press outage and
higher depreciation of the Athens facility. Performance Engineered
Products (PEP) drove substantial year-over-year financial gains;
PEP achieved this through operational improvements and strong
end-use market product demand.
“Looking forward, our current backlog provides us with
visibility to a stronger mix as we enter the third fiscal quarter.
We continue to expect that SAO volumes will grow sequentially, with
overall end-use market demand growth and expanded customer
approvals for Athens production. To realize higher profitability on
this growth, Carpenter remains focused on driving down operating
costs. That said, uncertainty remains over the full impact of lower
oil prices. We are already experiencing cancellations and deferrals
for oil and gas materials as drilling and completion activity
slows. With the majority of our capital plan already spent in the
first half of the fiscal year, as well as a continued commitment to
reduce inventory from current levels, we expect to drive positive
free cash flow in the second half of fiscal year 2015.”
Net Sales and Operating
Income
Net sales for the second quarter of fiscal year 2015 were $548.4
million, and net sales excluding surcharge were $445.7 million, an
increase of $31.1 million (or 8 percent) from the same quarter last
year, on flat shipments.
Operating income was $45.0 million, a decrease of $2.5 million
from the second quarter of the prior year. Operating
income—excluding pension earnings, interest and deferrals (EID)—was
$47.4 million, a decrease of $3.9 million (or 8 percent) from the
second quarter of the prior year. This reduction in operating
income versus the prior year is primarily due to the Reading press
outage in November, higher SAO operating costs, and the additional
depreciation expense of the Athens facility, which were all
partially offset by lower variable compensation expense and a
stronger mix of products.
Cash Flow
Cash flow from operations was $12.5 million, which included a
$54.2 million increase in working capital and $1.2 million of
pension contributions. This compares to a cash flow from operations
of $23.6 million in the prior year’s second quarter, which included
a $25.0 million increase in working capital and $1.5 million of
pension contributions. Free cash flow in the second quarter of
fiscal year 2015 was negative $65.5 million, compared to negative
$99.9 million in the same quarter last year. Capital spending in
the second quarter, which included $34.6 million related to the
construction of the Athens facility, was $68.4 million, compared to
$114.2 million in the prior year’s second quarter, which included
$94.7 million related to Athens.
Total liquidity, including cash and available revolver balance,
was $484 million at the end of the second quarter. This consisted
of $29 million of cash, and $455 million of available revolver.
End-Use
Markets
Q2 FY15
Q2 FY15 Q2 FY15 Sales* vs. vs. Ex. Surcharge Q2 FY14
Q1 FY15 (in Millions)
Aerospace and Defense $189.2 +6% +5% Energy
$70.3 +8% +4% Medical $25.7 +15%
-4% Transportation $31.3 +10% +2%
Industrial and Consumer $96.5 +9% -2%
* Excludes sales through Carpenter’s
distribution businesses
Aerospace and Defense
- Sales for aerospace engine materials
were up 5 percent, and sales for fastener materials (titanium and
nickel) were up 20 percent year-over-year.
- Demand is returning with a stronger mix
for aerospace distribution products.
- Defense related activity is improving,
but remains below prior year levels.
Energy
- Sales increased year-over-year for both
drilling and completions products.
- Amega West posted sales growth in both
manufacturing and rentals versus the prior year.
- Depressed oil prices will impact the
oil and gas business going forward.
Medical
- Sales increased year-over-year for both
SAO and PEP products on the strength of increased orthopedic and
surgical instrument demand.
- Original equipment manufacturers have
resumed more normalized buying patterns.
- The pricing environment in this market
remains extremely competitive.
Transportation
- Higher year-over-year sales were driven
by a strong demand for engine component materials; product mix
continues to improve.
- 2014 U.S. light vehicle sales increased
6% year-over-year.
- Low fuel prices are driving increased
sales of larger vehicles and engines.
Industrial and Consumer
- Year-over-year sales growth was driven
by high-value consumer electronics and industrial goods
applications.
- Sales declined sequentially due to
lower volumes of both infrastructure and general distribution
products.
Conference Call and Webcast
Presentation
Carpenter will host a conference call and webcast presentation
today, January 28, at 9:30 a.m. ET, to discuss the financial
results and operations for the fiscal second quarter of 2015.
Please call 610-208-2097 for details. Access to both the call and
webcast presentation will also be available at Carpenter’s website
(http://www.cartech.com) and through CCBN (http://www.ccbn.com),
and a replay of the call will soon be made available at
http://www.cartech.com or at http://www.ccbn.com. Presentation
materials used during this conference call will be available for
viewing and download at 8:00 a.m. ET today, at
http://www.cartech.com.
Non-GAAP Financial
Measures
This press release includes discussions of financial measures
that have not been determined in accordance with U.S. Generally
Accepted Accounting Principles (GAAP). A reconciliation of the
non-GAAP financial measures to their most directly comparable
financial measures prepared in accordance with GAAP, accompanied by
reasons why the Company believes the non-GAAP measures are
important, are included in the attached schedules.
About Carpenter
Technology
Carpenter produces and distributes premium alloys, including
special alloys, titanium alloys and powder metals, as well as
stainless steels, alloy steels and tool steels. Information about
Carpenter can be found at http://www.cartech.com.
Forward-Looking
Statements
This presentation contains forward-looking statements within the
meaning of the Private Securities Litigation Act of 1995. These
forward-looking statements are subject to risks and uncertainties
that could cause actual results to differ from those projected,
anticipated or implied. The most significant of these uncertainties
are described in Carpenter’s filings with the Securities and
Exchange Commission, including its annual report on Form 10-K for
the year ended June 30, 2014, Form 10-Q for the quarter ended
September 30, 2014 and the exhibits attached to those filings. They
include but are not limited to: (1) the cyclical nature of the
specialty materials business and certain end-use markets, including
aerospace, defense, industrial, transportation, consumer, medical,
and energy, or other influences on Carpenter’s business such as new
competitors, the consolidation of competitors, customers, and
suppliers or the transfer of manufacturing capacity from the United
States to foreign countries; (2) the ability of Carpenter to
achieve cash generation, growth, profitability, cost savings,
productivity improvements or process changes; (3) the ability to
recoup increases in the cost of energy, raw materials, freight or
other factors; (4) domestic and foreign excess manufacturing
capacity for certain metals; (5) fluctuations in currency exchange
rates; (6) the degree of success of government trade actions; (7)
the valuation of the assets and liabilities in Carpenter’s pension
trusts and the accounting for pension plans; (8) possible labor
disputes or work stoppages; (9) the potential that our customers
may substitute alternate materials or adopt different manufacturing
practices that replace or limit the suitability of our products;
(10) the ability to successfully acquire and integrate
acquisitions; (11) the availability of credit facilities to
Carpenter, its customers or other members of the supply chain; (12)
the ability to obtain energy or raw materials, especially from
suppliers located in countries that may be subject to unstable
political or economic conditions; (13) Carpenter’s manufacturing
processes are dependent upon highly specialized equipment located
primarily in facilities in Reading, Latrobe and Athens for which
there may be limited alternatives if there are significant
equipment failures or a catastrophic event; (14) the ability to
hire and retain key personnel, including members of the executive
management team, management, metallurgists and other skilled
personnel; (15) fluctuations in oil and gas prices and production;
and (16) share repurchases are at Carpenter’s discretion and could
be affected by changes in Carpenter’s share price, operating
results, capital spending, cash flows, inventory, acquisitions,
investments, tax laws and general market conditions. Any of these
factors could have an adverse and/or fluctuating effect on
Carpenter’s results of operations. The forward-looking statements
in this document are intended to be subject to the safe harbor
protection provided by Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Carpenter undertakes no obligation to update or revise
any forward-looking statements.
PRELIMINARY CONSOLIDATED STATEMENTS OF
INCOME (in millions, except per share data) (Unaudited)
Three Months Ended Six Months Ended December 31, December 31,
2014 2013 2014 2013 NET SALES $ 548.4 $ 503.5 $
1,098.2 $ 1,002.1 Cost of sales 463.4 408.1
944.1 803.3 Gross profit 85.0
95.4 154.1 198.8 Selling, general and administrative
expenses 40.0 47.9 86.9
95.5 Operating income 45.0 47.5 67.2 103.3
Interest expense (6.8 ) (3.7 ) (13.8 ) (8.2 ) Other income, net
- 0.6 4.8 0.8
Income before income taxes 38.2 44.4 58.2 95.9 Income
tax expense 14.1 14.9 20.6
31.8 NET INCOME $ 24.1 $ 29.5
$ 37.6 $ 64.1 EARNINGS PER SHARE: Basic
$ 0.45 $ 0.55 $ 0.70 $ 1.20 Diluted $
0.45 $ 0.55 $ 0.70 $ 1.19
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 53.4 53.2 53.5
53.2 Diluted 53.6 53.6
53.7 53.5 Cash dividends per
common share $ 0.18 $ 0.18 $ 0.36 $ 0.36
PRELIMINARY CONSOLIDATED STATEMENTS OF
CASH FLOWS (in millions) (Unaudited) Six Months Ended
December 31, 2014 2013 OPERATING ACTIVITIES: Net
income $ 37.6 $ 64.1
Adjustments to reconcile net income to net
cash provided from operating activities:
Depreciation and amortization 60.6 53.5 Deferred income taxes 69.5
(0.7 ) Net pension expense 23.0 28.0 Stock-based compensation
expense 2.2 5.9 Net loss on disposal of property and equipment 0.4
0.1 Changes in working capital and other: Accounts receivable 22.7
78.8 Inventories (62.2 ) (59.3 ) Other current assets (61.4 ) (9.6
) Accounts payable (28.0 ) (49.1 ) Accrued liabilities (25.0 )
(35.2 ) Pension plan contributions (3.9 ) (3.1 ) Other
postretirement plan contributions (6.7 ) (7.0 ) Other, net
(1.3 ) (3.3 ) Net cash provided from operating activities
27.5 63.1 INVESTING ACTIVITIES:
Purchases of property, equipment and software (127.4 ) (204.5 )
Proceeds from disposals of property and equipment 0.1
0.3 Net cash used for investing activities
(127.3 ) (204.2 ) FINANCING ACTIVITIES: Net change in
short-term debt 37.0 - Dividends paid (19.3 ) (19.2 ) Purchases of
treasury stock (10.0 ) - Tax benefits on share-based compensation
0.6 1.9 Proceeds from stock options exercised 0.7
5.6 Net cash provided from (used for) financing
activities 9.0 (11.7 ) Effect of
exchange rate changes on cash and cash equivalents (0.4 )
1.5 DECREASE IN CASH AND CASH EQUIVALENTS
(91.2 ) (151.3 ) Cash and cash equivalents at beginning of period
120.0 257.5 Cash and cash
equivalents at end of period $ 28.8 $ 106.2
PRELIMINARY
CONSOLIDATED BALANCE SHEETS
(in millions) (Unaudited) December 31, June 30, 2014 2014
ASSETS Current assets: Cash and cash equivalents $ 28.8 $
120.0 Accounts receivable, net 309.2 339.6 Inventories 757.1 699.2
Deferred income taxes 9.4 - Other current assets 87.5
35.7 Total current assets 1,192.0 1,194.5
Property, plant and equipment, net 1,416.6 1,407.0 Goodwill 257.5
257.7 Other intangibles, net 75.7 80.6 Other assets 113.2
117.7 Total assets $ 3,055.0 $ 3,057.5
LIABILITIES Current liabilities: Short-term debt $
37.0 $ - Accounts payable 191.3 278.1 Accrued liabilities 137.2
148.0 Deferred income taxes - 4.5 Total
current liabilities 365.5 430.6 Long-term debt, net of
current portion 607.1 604.3 Accrued pension liabilities 209.4 203.4
Accrued postretirement benefits 161.3 163.2 Deferred income taxes
182.5 110.7 Other liabilities 53.2 41.0
Total liabilities 1,579.0 1,553.2
STOCKHOLDERS' EQUITY Common stock 276.0 275.8 Capital in
excess of par value 260.3 263.5 Reinvested earnings 1,329.9 1,311.6
Common stock in treasury, at cost (107.4 ) (101.4 ) Accumulated
other comprehensive loss (282.8 ) (245.2 ) Total
stockholders' equity 1,476.0 1,504.3
Total liabilities and stockholders' equity $ 3,055.0 $
3,057.5 PRELIMINARY SEGMENT FINANCIAL DATA (in
millions, except pounds sold) (Unaudited)
Three Months Ended Six Months Ended December 31,
December 31, 2014 2013 2014 2013 Pounds sold* (000): Specialty
Alloys Operations 65,600 66,734 135,718 130,148 Performance
Engineered Products 4,224 2,683 7,258 5,350 Intersegment
(2,112 ) (2,039 ) (3,518 ) (3,228 )
Consolidated pounds sold 67,712 67,378
139,458 132,270 Net sales:
Specialty Alloys Operations Net sales excluding surcharge $ 332.4 $
316.6 $ 656.4 $ 624.2 Surcharge 105.9 90.9
217.8 178.3 Specialty
Alloys Operations net sales 438.3 407.5
874.2 802.5 Performance
Engineered Products Net sales excluding surcharge 133.4 113.3 263.0
230.8 Surcharge 0.3 0.4 0.7
1.4 Performance Engineered Products net
sales 133.7 113.7 263.7
232.2 Intersegment Net sales excluding
surcharge (20.1 ) (15.3 ) (33.6 ) (28.3 ) Surcharge (3.5 )
(2.4 ) (6.1 ) (4.3 ) Intersegment net sales
(23.6 ) (17.7 ) (39.7 ) (32.6 )
Consolidated net sales $ 548.4 $ 503.5 $ 1,098.2
$ 1,002.1 Operating income: Specialty Alloys
Operations $ 43.4 $ 54.4 $ 68.0 $ 118.1 Performance Engineered
Products 12.6 8.6 22.2 20.2 Corporate costs (7.0 ) (11.3 ) (17.3 )
(24.2 ) Pension earnings, interest and deferrals (2.4 ) (3.8 ) (4.7
) (9.8 ) Intersegment (1.6 ) (0.4 ) (1.0 )
(1.0 ) Consolidated operating income $ 45.0 $
47.5 $ 67.2 $ 103.3 The Company has two
reportable segments, Specialty Alloys Operations (“SAO”) and
Performance Engineered Products (“PEP”). The SAO segment is
comprised of Carpenter's major premium alloy and stainless steel
manufacturing operations. This includes operations performed at
mills primarily in Reading and Latrobe and surrounding areas in
Pennsylvania, South Carolina and Alabama. The PEP segment is
comprised of the Company’s differentiated operations. This segment
includes the Dynamet titanium business, the Carpenter Powder
Products business, the Amega West business, the Specialty Steel
Supply business, the Latrobe Special Metals Distribution business
and Aceros Fortuna based in Mexico. The businesses in the PEP
segment are managed with an entrepreneurial structure to promote
flexibility and agility to quickly respond to market dynamics. It
is our belief this model will ultimately drive overall revenue and
profit growth. The pounds sold data above for the PEP segment
includes only the Dynamet and CPP businesses. The service
cost component of net pension expense, which represents the
estimated cost of future pension liabilities earned associated with
active employees, is included in the operating results of the
business segments. The residual net pension expense, or pension
earnings, interest and deferrals (pension EID), is comprised of the
expected return on plan assets, interest costs on the projected
benefit obligations of the plans, and amortization of actuarial
gains and losses and prior service costs, is included under the
heading "Pension earnings, interest and deferrals." *
Pounds sold excludes sales associated with the distribution
businesses. PRELIMINARY NON-GAAP
FINANCIAL MEASURES (in millions) (Unaudited)
OPERATING MARGIN EXCLUDING SURCHARGE AND
PENSION EARNINGS, INTEREST AND DEFERRALS
Three Months Ended Six Months Ended
December 31, December 31, 2014 2013 2014 2013 Net sales $
548.4 $ 503.5 $ 1,098.2 $ 1,002.1 Less: surcharge revenue
102.7 88.9 212.4 175.4
Consolidated net sales excluding surcharge $ 445.7 $
414.6 $ 885.8 $ 826.7 Operating income
$ 45.0 $ 47.5 $ 67.2 $ 103.3 Pension earnings, interest and
deferrals 2.4 3.8 4.7
9.8
Operating income excluding pension
earnings, interest and deferrals
$ 47.4 $ 51.3 $ 71.9 $ 113.1
Operating margin excluding surcharge and
pension earnings, interest and deferrals
10.6 % 12.4 % 8.1 % 13.7 %
Management believes that removing the impacts of raw material
surcharges from operating margin provides a more consistent basis
for comparing results of operations from period to period. In
addition, management believes that excluding the impact of pension
earnings, interest and deferrals, which may be volatile due to
changes in the financial markets, is helpful in analyzing the true
operating performance of the Company. Three
Months Ended Six Months Ended December 31, December 31,
ADJUSTED EARNINGS BEFORE INTEREST, TAXES,
DEPRECIATION AND AMORTIZATION (EBITDA)
2014 2013 2014 2013 Net income $ 24.1 $ 29.5 $
37.6 $ 64.1 Interest expense 6.8 3.7 13.8 8.2 Income tax
expense 14.1 14.9 20.6 31.8 Depreciation and amortization 30.1 26.8
60.6 53.5 Other income, net - (0.6 ) (4.8 )
(0.8 ) EBITDA $ 75.1 $ 74.3 $ 127.8 $ 156.8 Net pension
expense 11.5 13.0 23.0
28.0 Adjusted EBITDA $ 86.6 $ 87.3 $ 150.8
$ 184.8 Management believes that earnings
before interest, taxes, depreciation and amortization adjusted to
exclude net pension expense is helpful in analyzing the operating
performance of the Company. Three Months Ended
Six Months Ended December 31, December 31, FREE CASH FLOW 2014
2013 2014 2013 Net cash provided from operating
activities $ 12.5 $ 23.6 $ 27.5 $ 63.1 Purchases of property,
equipment and software (68.4 ) (114.2 ) (127.4 ) (204.5 ) Proceeds
from disposals of property and equipment - 0.3 0.1 0.3 Dividends
paid (9.6 ) (9.6 ) (19.3 ) (19.2 )
Free cash flow $ (65.5 ) $ (99.9 ) $ (119.1 ) $ (160.3 )
Management believes that the free cash flow measure provides
useful information to investors regarding our financial condition
because it is a measure of cash generated which management
evaluates for alternative uses.
PRELIMINARY SUPPLEMENTAL SCHEDULES (in millions) (Unaudited)
Three Months Ended Six Months Ended December 31, December 31, NET
SALES BY END-USE MARKET 2014 2013 2014 2013 End-Use Market
Excluding Surcharge: Aerospace and defense $ 189.2 $ 177.7 $ 369.9
$ 360.6 Industrial and consumer 96.5 88.9 195.1 174.8 Energy 70.3
64.8 138.1 123.9 Transportation 31.3 28.4 62.0 53.9 Medical 25.7
22.4 52.4 47.3 Distribution 32.7 32.4 68.3
66.2 Consolidated net sales excluding surcharge 445.7
414.6 885.8 826.7 Surcharge revenue 102.7 88.9
212.4 175.4 Consolidated net sales $ 548.4 $
503.5 $ 1,098.2 $ 1,002.1 Three Months Ended Six
Months Ended December 31, December 31, NET SALES BY MAJOR PRODUCT
CLASS 2014 2013 2014 2013 Net Sales by Product Class
Excluding Surcharge: Special alloys $ 168.0 $ 159.0 $ 331.2 $ 308.7
Stainless steel 138.1 127.4 273.6 252.7 Alloy and tool steel 41.8
43.4 87.0 92.5 Titanium products 41.2 33.8 79.8 70.7 Powder metals
16.5 11.8 30.8 22.2 Distribution and other 40.1 39.2
83.4 79.9 Consolidated net sales excluding
surcharge 445.7 414.6 885.8 826.7 Surcharge revenue
102.7 88.9 212.4 175.4 Consolidated net
sales $ 548.4 $ 503.5 $ 1,098.2 $ 1,002.1
Carpenter Technology CorporationMedia Inquiries:William J.
Rudolph Jr., +1 610-208-3892wrudolph@cartech.comorInvestor
Inquiries:Michael A. Hajost, +1 610-208-3476mhajost@cartech.com
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