Carpenter Technology Corporation (CRS) on Q2 2021 Results - Earnings Call Transcript
Operator: Good morning, and welcome to the Carpenter Technology Corporation Second Quarter 2021 Fiscal Conference Call. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I’d like to turn the conference over to Mr. Brad Edwards, Investor Relations. Please go ahead. Brad Edwards: Thank you, operator. Good morning, everyone, and welcome to the Carpenter Technology earnings conference call for the fiscal 2021 second quarter ended December 31, 2020. This call is also being broadcast over the Internet along with presentation slides. Please note, for those of you listening by phone, you may experience a time delay in slide movement. Speakers on the call today are Tony Thene, President and Chief Executive Officer; and Tim Lain, Senior Vice President and Chief Financial Officer. Tony Thene: Thank you, Brad, and good morning to everyone. Let’s start on Slide 4 and a review of our safety performance. Through the first half of our fiscal year, our total case incident rate was 0.5. During this time, we have achieved the lowest incident rate in Carpenter Technology’s history and a 60% improvement year-over-year. This marks another key step forward in our mission to achieve a zero injury workplace. It is also noteworthy to point out that our PEP segment worked injury-free during the first half of the fiscal year. We continue to emphasize key initiatives as we look to secure our next safety milestone. Our safety results to date are especially impressive given the challenges related to COVID-19. Importantly, every one of our operating facilities has remained open, which is an achievement that I know resonates with our customers and shows a clear resiliency and commitment. Now let’s turn to Slide 5 and a review of the second quarter. Our second quarter results finished largely in line with our expectations. Our performance was impacted by ongoing inventory reductions as well as the continued market headwinds. Despite conditions being challenging, we are actively managing our business and have placed consistent emphasis on three key strategic priorities. First, ensure the safety of our employees. Second, drive cash flow generation and strengthen our liquidity profile. We have made further progress against this initiative in the second quarter and delivered $51 million of free cash flow. Fiscal year-to-date, we have generated almost $114 million in free cash flow. If you look at the last three quarters, we have generated $214 million of free cash flow. We ended the second quarter with total liquidity of $665 million, including $271 million of cash and no near-term financial obligations. Tim Lain: Thanks, Tony. Good morning, everyone. I’ll start on Slide 9, the income statement summary. Net sales in the second quarter were $348.8 million, and sales excluding surcharge totaled $299.4 million. Sales excluding surcharge decreased 3% sequentially on a 11% lower volume. Compared to the second quarter a year ago, sales decreased 36% on 33% lower volume. As Tony covered in his review of the end-use markets, the year-over-year decline is attributable to the ongoing demand headwinds in our key end-use markets of aerospace and defense and medical as a result of the global pandemic. As expected, the demand was similar to our recent Q1 levels. Given the current demand environment, we continue to actively manage our production schedules and focus on executing against our targeted inventory reduction program. As we said on prior calls, while the reduction in inventory drives near-term cash flow generation as evidenced by our growing liquidity, it negatively impacts our operating income performance. SG&A expenses were $42.2 million in the second quarter, down $13 million from the same period a year ago and flat sequentially. The lower year-over-year SG&A expenses primarily reflect the actions we took to reduce costs, including the elimination of about 20% of our salary positions, managing discretionary spend closely, as well as the impact of remote working conditions that reduce certain administrative costs, such as travel and entertainment. The current quarter’s operating results include a $52.8 million goodwill impairment charge associated with our additive reporting unit that is in our PEP segment. In addition, our results for the quarter include $3.9 million in COVID-19 related costs. Included in this amount are direct incremental operating costs, including outside services to execute enhanced cleaning protocols, isolation pay for employees potentially exposed to COVID-19 and additional personal protective equipment and other operating supplies necessary to maintain the operations while keeping the employees safe against possible exposure. The operating loss was $89 million in the quarter. When excluding the impact of the special items, namely the goodwill impairment charge and the COVID-19 costs, adjusted operating loss was $32.3 million compared to adjusted operating income of $57.3 million in the prior year period and an adjusted operating loss of $30.9 million in the first quarter of fiscal year 2021. Again, the current quarter’s results reflect the impact of significantly lower volume, combined with the targeted inventory reduction, partially offset by the cost reduction efforts. Tony Thene: Thanks, Tim. On last quarter’s earnings call, I announced the launch of the Carpenter Electrification brand. Interest has been extremely high, and I want to take some time to give you more insights into our vision. Carpenter Technology has spent decades, perfecting the processing of soft magnet materials with the highest induction, permeability and lowest core losses. Historically, our materials have supported our leading position as a solutions provider for generator and auxiliary power unit, APU, applications, and this business has grown consistently with the aerospace market. Our Hiperco alloy motor technology is well-known in the aerospace market, where our Hiperco stator cores are used in over two-three of the APUs, which generate the power to kick off the main engine in aircraft. To support our existing business and further capitalize on the growing trend in electrification, we are in the final stages of commissioning our new hot strip mill on Reading campus. The new strip mill is another critical component of our electrification strategy. The bulk of the construction is complete, and the team is working diligently on the commissioning process. In early December, we hit an important milestone when the first hot metal was rolled on the new mill. Although there is still work to be done to ensure the facility is up and running, it is fair to say we are all excited about the potential for this facility. I thought I would highlight some of the technical details of the mill. The mill is designed to roll slabs from 5 inches thick down to coils with a minimum size of 0.08 inches, with width ranging from 8 inches to 19 inches. It is designed to run iron, nickel and cobalt materials. And it’s also capable of rolling copper, manganese and titanium. The mill includes automated surface inspection equipment and a digital real-time quality and maintenance system. The mill will also enable us to produce materials in our existing portfolio with improved throughput, quality and responsiveness. To serve customers at every step of the way and to realize improved motor responses using these high-performance alloys, we have continued to expand our expertise into the production of stator and rotor stacks. Understanding that soft magnetic materials are sensitive to processing steps that can reduce their performance, our material experts are further advancing technical and manufacturing knowhow associated with the production of motor stack through a multitude of methods tailored to customers’ performance requirements. These capabilities ensure our customers realize the full material performance benefits in their motor and powertrain designs. As we build our motor technology capabilities, we are already engaging with a wide variety of customers to utilize our Hiperco stack technology to solve the need of generating orders of magnitude improvements in power compared to conventional systems. Electrification trend across several of our end-use markets is clearly gaining significant momentum. Electrification of passenger vehicles is already a growing reality. The number of electrical vehicles sold is expected by some industry experts to increase from 2.5 million to over 10 times that by the year 2030. In addition, there is clearly momentum building for the electrification of transport trucks that could enable lower maintenance, better efficiency and lower ownership cost of transporting a payload, not to mention the substantial environmental benefit of zero-emission trucks. The anticipated growth for electric truck is one that we are watching closely. As we continue to hear from OEMs, a significant challenge to the expansion of electric trucks is the lack of sufficient energy density in the battery. We believe our materials and expertise can provide innovative solutions for this challenge. In addition, with our long-standing position in the aerospace supply chain, we see a concerted effort in commercial aerospace to move toward more efficient electric applications in existing aircraft and future paths to hybrid and full electric aircraft. Electrification benefits can also be seen in highly efficient and responsive motors for medical equipment. In consumer electronics, high performance, high induction, high permeability and low-loss soft magnetic alloys are important for device performance benefits and product development flexibility. As you can see, the market opportunity is substantial. It’s projected that the total electrification market, which includes motors, power electronics and legacy applications such as APUs will grow from approximately $1 billion today to as much as five times that number by the year 2030. With this type of growth, it is easy to see why Carpenter Electrification is an important component of our strategic plans going forward. The collaborations we’re having with customers across many markets in support of their innovative designs to increase power, range or efficiency can be truly revolutionary in shaping the future. Now let’s turn to Slide 15 and my closing comments. While the past nine months have presented significant challenges, we have acted decisively and quickly in response to unpredictable market conditions. First, we implemented enhanced safety protocols and a strategic action plan aimed at safeguarding our employees and facilities as well as continuing to fulfill customer needs. Second, we moved quickly to align our cost structure and portfolio to new market conditions. We have reduced our cost, idled facilities and divested businesses. Third, we have placed an emphasis on driving increased cash flow and strengthening our liquidity position. In the last nine months, we have generated $214 million of free cash flow. And our total liquidity at the end of this quarter was $665 million, including $271 million in cash. Our enhanced liquidity and streamlined cost structure places us on solid ground to drive accelerated growth as markets continue to recover. Today, we are confident that we will emerge on the other side of COVID-19, a stronger company and one with an established and profitable core business as well as a leadership position in disruptive technologies that will impact the future of our industry and our customers. Our capabilities in our soft magnetic space will be significantly strengthened following the completion of our hot strip mill in Reading. And the potential of our additive manufacturing platform, while delayed a bit due to COVID-19, remains highly attractive. We have taken significant steps and made difficult decisions during these last nine months, but believe we will be a stronger, leaner and more flexible company moving forward. As I mentioned, the long-term outlook across our end-use markets remain strong, and we are an established and trusted supply chain partner in each. At the beginning of this fiscal year, we stated that it was our expectation to generate positive free cash flow and positive adjusted EBITDA in fiscal year 2021 despite volume headwinds and increased costs related to COVID-19. We are well on our way to over-delivering on that expectation. From a free cash flow perspective, we have generated $114 million through the first half of the fiscal year, and we remain confident that there is opportunity to generate incremental free cash flow in the upcoming second half of our fiscal year. Thank you for your interest, and I’ll turn it back to the operator to field your questions. Operator: Now we’ll begin the question-and-answer session. First question comes from Gautam Khanna of Cowen. Please go ahead. Gautam Khanna: Yes, good morning. Guys, I was wondering if you could elaborate on what you’re seeing in the aerospace submarkets, fasteners, engines, structural components, and maybe how if at all, things have changed with the 787 production reductions. Thank you. Tony Thene: Yes. Gautam, this is Tony. From the last time we spoke three months ago at the first quarter earnings call, things are relatively the same. You have a little bit of movement here and there. Obviously, this quarter, on the engine side, that was a little bit better than what we had expected. But on some other areas, primarily fasteners may be a little bit worse. So as many people have said, if you look over the next couple of quarters, I think you’re going to see us bounce around this level of activity. It’s going to be choppy. You could see a couple of spikes here and there. I believe I said last quarter that we think our second half is going to be better. We still believe that. It’s not going to be substantial, maybe see a couple of points better. But I think that’s the environment that we’re in over the next couple of quarters. Gautam Khanna: Thank you. Operator: Thank you. Next question is from Josh Sullivan, The Benchmark Company. Please go ahead. Josh Sullivan: Hey, good morning. Just to probe Gautam’s question there a little bit. I know you said things haven’t changed much, but can you talk about lead times, just with airlines pushing out an aircraft recovery almost three months here from early summer to Q3. Curious if your lead times mirror that? Or it sounds like maybe they haven’t. Tony Thene: Maybe you can clarify. When you say lead times, lead times for us supplying aerospace billet to our customers? Josh Sullivan: Yes, yes. Tony Thene: Yes. Okay, Josh. So I just wanted to make sure, if you look back at a year ago and if you’re speaking specifically on aerospace billet, those lead times were approaching one year. As we said right now, those lead times are in a range from 8 to 12 weeks, depending on the specific product. Josh Sullivan: Got it. Got it. And then just one on the medical business. I mean, what does the rebound look like when elective surgeries returned? I mean, is there any break on the number of elective surgeries that you can supply into the hospital? Or do you think that the restocking can be pretty quick for the suppliers, just with regard to the medical restocking cycle? Tony Thene: I believe that the recovery in medical can be pretty swift. So I think you can see a nice rebound. Now to be fair, we thought that, that rebound would come sooner. We really thought we’d see it in this quarter. However, with the resurgence of the virus and the ensuing capacity in hospitals inch higher, that didn’t happen. So that’s been a bit delayed, so that’s going to go into the third quarter. It’s going to rely on those hospital capacities getting under control, seeing the vaccine continue to rollout and see that comfort level. But there’s no doubt, once we get that into that setting that you’ll see those procedures I think come back pretty quickly. Josh Sullivan: Got it. And then just one last one on the hot strip mill, with the change in administration here and some of the efforts in clean energy, have you seen any uptick in demand or interest in the capacity from the hot strip mill from automotive customers or aerospace or elsewhere, just since the administration change? Tony Thene: Yes. I think that the momentum behind electric vehicles, our electrification in total is extremely strong, and it was strong before any administration change. So that specific event, I don’t think change the dynamic much at all. The point is that in totality that is a trend that is going to accelerate, I think, going forward regardless of the current administration. Certainly, as we push to become more and more in tune with the environmental impacts, that’s going to be a big – that will be a positive factor. Josh Sullivan: Got it. Thank you for the time again. Operator: Next question is from Michael Leshock from KeyBanc Capital Markets. Please go ahead. Michael Leshock: Hey, good morning. So you mentioned opportunities within the land-based gas turbine replacement cycle. Could you talk about what you’re expecting there and where we’re at in the current replacement cycle? Tony Thene: You know Michael it’s an area that’s quite frankly, very low percentage of our sales right now. We do see some improvement. But in the whole scheme of things, it’s not overly material to us. So there’s not a lot more color I can give you on that one. Michael Leshock: Okay. And how much more do you see in terms of net working capital benefits? Inventory has gone down in the past four quarters or so. So I’m wondering if we’re near a low point there, but any color you could provide on how you’re thinking on net working capital going-forward. Tony Thene: Yes. There’s still opportunity, as I said. It won’t be at the same magnitude of the first half. So it will be less than the first half. When I say less, the second half will be less than the first half, but still material. And we still have some opportunities out there. So we’ll keep pushing them. Michael Leshock: And then lastly, could you provide jet engine sales in the quarter? Tony Thene: I will tell you this on the engine sales. Sequentially, they were up almost 20%. Now I wouldn’t read too much into that to think that there’s some type of recovery. As we’ve said in all these sub-segments, it can be a bit choppy. So you’d see some things pull in, some things push out, but they were almost 20% sequentially for aerospace engines. Michael Leshock: Got it. Thank you. Tony Thene: You’re welcome. Operator: This concludes our question-and-answer session. Now I’d like to turn the conference back over to Mr. Brad Edwards for closing remarks. Brad Edwards: Thanks, Nick, and thanks, everyone, for joining us today for our fiscal 2021 second quarter conference call. We look forward to speaking to all of you on our next earnings call. Take care and stay healthy. Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
Carpenter Technology Corporation's (NYSE: CRS) Financial Performance Highlights
Carpenter Technology Corporation (NYSE: CRS) is a leading entity in the specialty steel industry, renowned for its superior materials and cutting-edge manufacturing techniques. The company's main operational focus is on the Specialty Alloys Operations segment, which has experienced considerable growth. Competing within the Zacks Steel - Specialty industry, CRS aims to preserve its competitive advantage through continuous innovation and strategic financial management.
On January 30, 2025, CRS disclosed an earnings per share (EPS) of $1.66, outperforming the forecasted $1.56. This represents a significant improvement from the $0.85 EPS reported in the corresponding quarter of the previous year, indicating a 6.41% earnings surprise. In the preceding quarter, CRS also surpassed expectations with an EPS of $1.73 compared to the predicted $1.57, achieving a 10.19% surprise. CRS has consistently exceeded consensus EPS estimates over the past four quarters, demonstrating robust financial performance.
Despite these strong earnings, CRS's revenue for the quarter was $676.9 million, missing the projected $723.8 million by 4.51%. Nevertheless, this marks an increase from the $624.2 million reported in the same period last year. The company has managed to surpass consensus revenue estimates in two of the last four quarters, suggesting a positive revenue growth trend despite occasional setbacks.
CRS reported a record operating income of $118.9 million, a 70% increase compared to the same period last year. The Specialty Alloys Operations segment played a crucial role, with an adjusted operating margin of 28.3%, up from 20% the previous year. This segment alone contributed $135.6 million to the operating income, underscoring its significance to the company's overall financial health.
The company's price-to-earnings (P/E) ratio stands at approximately 40.69, reflecting investor confidence in its earnings potential. Its price-to-sales ratio is about 3.26, and the enterprise value to sales ratio is around 3.45, indicating its market value relative to sales. With a debt-to-equity ratio of approximately 0.42 and a current ratio of about 3.84, CRS exhibits a solid financial stance, capable of covering short-term liabilities and managing debt efficiently.
Carpenter Technology Corporation's (NYSE: CRS) Financial Performance Highlights
Carpenter Technology Corporation (NYSE: CRS) is a leading entity in the specialty steel industry, renowned for its superior materials and cutting-edge manufacturing techniques. The company's main operational focus is on the Specialty Alloys Operations segment, which has experienced considerable growth. Competing within the Zacks Steel - Specialty industry, CRS aims to preserve its competitive advantage through continuous innovation and strategic financial management.
On January 30, 2025, CRS disclosed an earnings per share (EPS) of $1.66, outperforming the forecasted $1.56. This represents a significant improvement from the $0.85 EPS reported in the corresponding quarter of the previous year, indicating a 6.41% earnings surprise. In the preceding quarter, CRS also surpassed expectations with an EPS of $1.73 compared to the predicted $1.57, achieving a 10.19% surprise. CRS has consistently exceeded consensus EPS estimates over the past four quarters, demonstrating robust financial performance.
Despite these strong earnings, CRS's revenue for the quarter was $676.9 million, missing the projected $723.8 million by 4.51%. Nevertheless, this marks an increase from the $624.2 million reported in the same period last year. The company has managed to surpass consensus revenue estimates in two of the last four quarters, suggesting a positive revenue growth trend despite occasional setbacks.
CRS reported a record operating income of $118.9 million, a 70% increase compared to the same period last year. The Specialty Alloys Operations segment played a crucial role, with an adjusted operating margin of 28.3%, up from 20% the previous year. This segment alone contributed $135.6 million to the operating income, underscoring its significance to the company's overall financial health.
The company's price-to-earnings (P/E) ratio stands at approximately 40.69, reflecting investor confidence in its earnings potential. Its price-to-sales ratio is about 3.26, and the enterprise value to sales ratio is around 3.45, indicating its market value relative to sales. With a debt-to-equity ratio of approximately 0.42 and a current ratio of about 3.84, CRS exhibits a solid financial stance, capable of covering short-term liabilities and managing debt efficiently.
Carpenter Technology Corporation (NYSE:CRS) Quarterly Earnings Preview
- Earnings per Share (EPS) is anticipated to be $1.56, with revenue expectations around $723.8 million for the second quarter fiscal 2025.
- The Zacks Consensus Estimate for CRS's revenue is slightly lower at $718 million, indicating a 15% year-over-year increase.
- Financial metrics such as a price-to-earnings (P/E) ratio of 45.85, and a debt-to-equity ratio of 0.42 highlight the company's valuation and financial health.
Carpenter Technology Corporation, listed as NYSE:CRS, is set to release its quarterly earnings on January 30, 2025. The company is known for its specialty alloys and engineered products, serving various industries like aerospace and energy. As it prepares to announce its second-quarter fiscal 2025 results, Wall Street anticipates an earnings per share (EPS) of $1.56 and revenue of approximately $723.8 million.
The Zacks Consensus Estimate projects CRS's revenue to be slightly lower at $718 million, but this still represents a 15% increase from the previous year. This growth is driven by strong demand across its end markets. However, supply-chain challenges may present some hurdles. Despite these challenges, CRS has a history of surpassing earnings expectations, with an average earnings surprise of 14.1% over the last four quarters.
The earnings per share for CRS is estimated at $1.58, reflecting a significant year-over-year growth of 85.9%. Over the past 60 days, the earnings estimate has increased by 1%, indicating positive sentiment among analysts. This growth is noteworthy, considering the company's price-to-earnings (P/E) ratio of 45.85, which suggests that investors are willing to pay a premium for its earnings potential.
CRS's financial metrics provide further insight into its valuation. The price-to-sales ratio of 3.67 and enterprise value to sales ratio of 3.87 indicate that investors are paying a substantial amount for each dollar of sales. The enterprise value to operating cash flow ratio of 35.51 highlights the company's cash flow generation relative to its valuation. Additionally, the earnings yield of 2.18% offers a perspective on the return on investment.
Carpenter Technology maintains a strong financial position with a debt-to-equity ratio of 0.42, indicating a relatively low level of debt compared to its equity. The current ratio of 3.84 suggests strong liquidity, enabling the company to cover its short-term liabilities effectively. As CRS prepares to release its earnings, these financial metrics will be closely watched by investors and analysts alike.
Carpenter Technology Corporation (NYSE:CRS) Quarterly Earnings Preview
- Earnings per Share (EPS) is anticipated to be $1.56, with revenue expectations around $723.8 million for the second quarter fiscal 2025.
- The Zacks Consensus Estimate for CRS's revenue is slightly lower at $718 million, indicating a 15% year-over-year increase.
- Financial metrics such as a price-to-earnings (P/E) ratio of 45.85, and a debt-to-equity ratio of 0.42 highlight the company's valuation and financial health.
Carpenter Technology Corporation, listed as NYSE:CRS, is set to release its quarterly earnings on January 30, 2025. The company is known for its specialty alloys and engineered products, serving various industries like aerospace and energy. As it prepares to announce its second-quarter fiscal 2025 results, Wall Street anticipates an earnings per share (EPS) of $1.56 and revenue of approximately $723.8 million.
The Zacks Consensus Estimate projects CRS's revenue to be slightly lower at $718 million, but this still represents a 15% increase from the previous year. This growth is driven by strong demand across its end markets. However, supply-chain challenges may present some hurdles. Despite these challenges, CRS has a history of surpassing earnings expectations, with an average earnings surprise of 14.1% over the last four quarters.
The earnings per share for CRS is estimated at $1.58, reflecting a significant year-over-year growth of 85.9%. Over the past 60 days, the earnings estimate has increased by 1%, indicating positive sentiment among analysts. This growth is noteworthy, considering the company's price-to-earnings (P/E) ratio of 45.85, which suggests that investors are willing to pay a premium for its earnings potential.
CRS's financial metrics provide further insight into its valuation. The price-to-sales ratio of 3.67 and enterprise value to sales ratio of 3.87 indicate that investors are paying a substantial amount for each dollar of sales. The enterprise value to operating cash flow ratio of 35.51 highlights the company's cash flow generation relative to its valuation. Additionally, the earnings yield of 2.18% offers a perspective on the return on investment.
Carpenter Technology maintains a strong financial position with a debt-to-equity ratio of 0.42, indicating a relatively low level of debt compared to its equity. The current ratio of 3.84 suggests strong liquidity, enabling the company to cover its short-term liabilities effectively. As CRS prepares to release its earnings, these financial metrics will be closely watched by investors and analysts alike.
