Carpenter Technology Corporation (CRS) on Q3 2021 Results - Earnings Call Transcript
Operator: Good morning, and welcome to the Carpenter Technology Corporation Third Quarter 2021 Earnings Conference Call. I would now like to turn the conference over to Brad Edwards. Please go ahead. Brad Edwards: Thank you, operator. Good morning, everyone, and welcome to the Carpenter Technology earnings conference call for the fiscal 2021 third quarter ended March 31, 2021. 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 on the call. Let’s begin on Slide 4 a review of our safety performance. Our fiscal year-to-date total case incident rate, or TCIR, is 0.6. We have now demonstrated three consecutive quarters of sub-1.0 TCIR performance as an organization, which is exceptional safety performance. However, we do not take these accomplishments for granted and continue to enhance the fundamentals of our program in areas such as hand safety, human performance, leadership development, ergonomics, employee engagement activities and at-home safety programs. I look forward to achieving our next safety performance milestone as we pursue safety excellence on our path to zero. Now let’s turn to Slide 5 and a review of the third quarter. Our third quarter results were largely in line with our expectations as near-term volume headwinds related to COVID-19 continue to pressure our financial performance. Both our SAO and PEP segments delivered results that were consistent with the guidance we provided on our second quarter earnings call. We have maintained a focus on our key strategic priorities during this challenging period. First, ensure the safety of our employees. Second, drive cash flow generation and strengthen our liquidity profile. Over the last four quarters, we have generated $189 million in free cash flow and ended the third quarter with total liquidity of $539 million, including $244 million of cash and no near-term financial obligations. And third, focus on the long-term relationships with our customers. During the quarter, we continued to expand our relationships across our customer base and then cover additional areas of value creation. As evidenced, we completed several contract extensions, primarily in our medical, transportation and aerospace and defense end-use markets. Tim Lain: Thanks, Tony. Good morning, everyone. I’ll start on Slide 8, the income statement summary. Net sales in the third quarter were $351.9 million and sales, excluding surcharge, totaled $298.1 million. Sales, excluding surcharge, were effectively flat sequentially on 5% lower volume. Compared to the third quarter a year ago, sales decreased 40% on 39% 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 Q2 levels. Tony Thene: Thanks, Tim. As we all know, different demand recovery time lines and customer ordering patterns will continue to influence our shorter-term quarter-to-quarter mix. I want to share a bit more on our enthusiasm related to mid-term and longer-term outlooks in the end-use markets we serve. Let’s start with aerospace. During the downturn, we continue to improve our already strong position. Most market participants and experts believe that demand will rebound to and through pre-COVID-19 levels which, if you recall, was already exhibiting constrained dynamics. Longer term, the industry will continue to need improved fuel efficiency and emissions, driving the need for better engine materials where we are strongly positioned. Defense will continue to experience market resiliency on key platforms that require increases in strength, customers and fatigue performance. Longer term, we are monitoring funding patterns as governments reassess their budgets after significant COVID-19-related spending. In medical, as orthopedics and dental follow the cardiology recovery, we continue to secure additional share and identify more upside, largely due to the breadth of the high-value material solutions we offer in support of the industry innovation in this space. Longer term, we see this continuing as quicker patient recoveries and improved patient outcomes will be the key drivers. In transportation, with the recovery well under way in North America and China, regulations drive the near-term movement to higher efficiency powertrains, which is a positive for our portfolio of high-temperature materials. Longer term, as electric vehicle adoption grows, it is natural they will take more and more share away from the large internal combustion engine base. We have a good view of the life cycle decline of those products and are balancing our focus accordingly. As I mentioned earlier, our new hot strip mill brings capability and capacity to support significant future electric vehicle volume growth. Moving to energy, which experienced a significant decline in demand this past year. Oil prices have increased by 50% in calendar year 2021, and we have seen limited capital expenditures released for some major projects that offer up specific opportunities. With that said, there will likely continue to be a supply and demand imbalance over the next couple of years. Longer term, we expect to see continued emphasis to move away from oil to natural gas and other alternative fuel sources. In industrial submarkets, specifically with semiconductor and fluid control products, the relatively steady demand we experienced through the pandemic is expected to increase driven by manufacturing for 5G, Internet of Things connectivity and more efficient power plants that require better-performing materials. The consumer submarket is expected to continue its seasonal cyclicality. However, we’re seeing more and more applications that have tighter design envelopes that require the removal of wave interference and that make use of our materials to offer automated sensory feedback responses. Longer term, with the proliferation of digital and data management, we expect to see more devices with more sensors requiring exponentially more connectivity. I’ve spoken in prior quarters about our soft magnetics products and their relevance within increasing electrification trends. We believe this capability will well position us in the long term to capitalize on the growth in these areas. In the electrification space, we are participating in an increasing amount of prototype and initial low rate production initiatives that utilize our products to provide power dense propulsion in a manner that relies upon reduced mass or where there is limited space for the motor. And we see current drone, air taxi and other related applications becoming more and more relevant, especially where our options to extend range or boost performance are being exhausted. And lastly, in additive manufacturing, while we’ve seen some projects cancel or delay indifferently, along with some industry consolidation, we believe the competitive space has been narrowed, thus providing a focus on the value of our quality and life cycle management platform where data and knowledge management will be vital to the success of any additive program. Now let’s turn to Slide 15 and my closing comments. Despite the challenges the pandemic has created, we have continued to strengthen our foundation for long-term profitable growth. I’m proud that we continue to drive toward a goal of a zero-injury workplace and that all of our facilities have remained open during the pandemic. The efforts have demonstrated a resiliency and commitment to our fellow employees, our customers and our communities. We have adopted to new working conditions, aligned our cost structure and our manufacturing footprint to rapidly changing market conditions. We have taken a series of steps to enhance our capital structure, drive strong liquidity and extend our debt maturities. We ended the third quarter with $244 million in cash and over $539 million in total liquidity. Our capital structure activities combined with our targeted cost reduction initiatives place us on solid ground to not just manage through the downturn but emerge on the other side a leaner, more flexible and more productive company. We have also deepened our relationships with our customers. Recovery across our end-use markets remains in varying stages. But we expect overall market conditions to continue to improve as we move through the rest of calendar year 2021 and into 2022. Some markets will recover faster than others. And we are laser-focused on capitalizing on the recovery as opportunities arise. This includes our largest end-use market, aerospace and defense, where the recovery is beginning to show signs of life. We are working daily with our customers to align our production schedules with their material needs as overall sentiment begins to trend upwards. Our core business is established and built upon 130 years of metallurgical expertise, manufacturing and processing experience and a commitment to delivering mission-critical solutions to customers in some of the largest industries in the world. This strong core business will be supported over the long term by the targeted investments we have made in critical, emerging technologies, including electrification and additive manufacturing. Taken together, we believe our core business and next-generation capabilities position us to deliver sustainable, long-term growth and value creation to our shareholders for years to come. Thank you for your time. And now I’ll turn it over to the operator to take your questions. Operator: The first question is from Phil Gibbs from KeyBanc Capital Markets. Please go ahead. Phil Gibbs: Hi. Good morning. Tony Thene: Good morning, Phil. Phil Gibbs: Tony, can you give us an idea of what the overall backlog looked like this quarter versus last and then also what your jet engine sales did either year-over-year or quarter-over-quarter, please? Tony Thene: Yes. So I’ll start with the last one first. Remember, you asked me that question last quarter as well, and engine sales were up 19% sequential quarter. And I said not to get too excited about that just from a timing standpoint. So this quarter, they were down about 18%. So over the last two quarters, you’ve seen it relatively flat on the engine sales, maybe a little bit of an increase. So that’s in line with what we expected. From a backlog standpoint, overall, our backlog was up about 6% sequential quarter. Phil Gibbs: Thank you. And then on the LIFO liquidation piece in Q4, any sense you got in terms of what we should model in terms of an impact from that? Tim Lain: Yes. So I’ll take that one. Just a couple of comments there. One is, most of SAO’s inventory is on LIFO, Dynamet as well as in PEP, so there’s a bit in both segments. As we’ve taken inventory down, we’re going to eat into – I mentioned in my comments, eat into some higher cost inventory. So we expect that it’s – certainly, it’s an estimate that’s very sensitive to where we wind up in ending inventory, but we’d expect that to be somewhere in the neighborhood of $40 million to $45 million, and most of that being in SAO with maybe $1 million or $2 million in PEP. Phil Gibbs: Now is that, in your mind, a one-time thing, meaning we – meaning is there any recurrence or bleed into fiscal 2022? Tim Lain: No, we wouldn’t expect it to bleed into 2022. It’s – I don’t want to say one time but non-recurring non-cash special item in Q4. Phil Gibbs: Okay. And then last one for me. The COVID cost of $2.7 million, did you say that, that was – there was about $2 million in SAO and the rest in PEP? Tim Lain: Yes, it’s $2.1 million in SAO and $600,000 in PEP. Phil Gibbs: And then your inventory writedown and restructuring impairment that you called out in your releases, where did those flow through? Tim Lain: That shows up in corporate costs, in the corporate cost number when you’re looking at the breakdown. Phil Gibbs: Thanks. I appreciate it, guys. Operator: The next question is from Gautam Khanna from Cowen. Gautam Khanna: Yes. Thanks. Good morning. Following up on Phil’s question, I wanted to ask what the visibility – as you’ve mentioned on the engine side, how far out can you see in terms of delivery requirements of customers since they are asking about lead times? Or do you have visibility into calendar Q4 at this point? And if you could also talk about the other aerospace subsegments and how they fared sequentially in the March quarter, so fasteners and other structures. Tony Thene: Hi. Good morning, Gautam. We can see into our fiscal fourth quarter on aerospace. In fact, on a bookings standpoint, our bookings for aerospace were up 60% this past quarter, and we see that trend continuing. So pretty good visibility there in close contact with our customers. From a sales standpoint, overall aerospace, as you could see on the slide, was down 8%. Fasteners were up a couple of percentage points. Structural was up about 7%. Distribution was up three or four percentage points as well. So all of the segments were up quarter-over-quarter. Engine is the only one that was down, and that’s just because you had the balancing with the quarter before. And as I said, in the second quarter, we were up 19%; and this quarter, 18%. So if you balance that out, maybe a point or two improvement. So all the segments were up quarter-over-quarter. I should say that’s on the aerospace side. Defense was down just a little bit, just to be fair, quarter-over-quarter. Gautam Khanna: Got it. And then I was more curious about the engine visibility beyond fiscal Q4 into the end of the calendar year, so just so what we can expect. Normally, we have a big seasonal dip in the second half of the year versus the first half. I’m talking of the calendar year. Do you expect that we’ll see – I mean do you have visibility into the second half of the calendar year right now on the engine supply chain – on the engine demand environment? Tony Thene: Yes, we do. And as I said, we’re very close to our customers and trying to capture that in my remarks that the discussions are really around lead times and availability and where we see it through this calendar year and maybe a bit into calendar year 2022 as we start to stack those orders up, a lot more discussion around Athens. You saw we had one provisional approval, so wanting to understand and get those qualifications complete. So from an overall standpoint, of course, I’d like for the visibility to be sharper. But I think right at this point in time, we have a pretty good idea of where our customers are at and, as I said in the comments, very bullish going forward. We do believe that we hit the bottom. Much like many of the other companies that have reported so far have had the same type of message, and now we’re looking forward to coming out of this. Gautam Khanna: And could you speak to the seasonality we should expect in the second half of the calendar year? Should we see still expect there’ll be some decline? Tony Thene: I’m not so sure – yes, sorry for interrupting. I’m not so sure about that. I mean that’s been a bit muted the last couple of quarters and in the last couple of years as well as we come in. There’s always summer shutdowns maybe in the transportation side, but I think you’re going to see a lot of those manufacturers shorten those summer shutdowns just because of some of the shortages they’ve had with chips that they’ll run maybe stronger than what they had in the past. So at this time, I don’t see a material impact because of seasonality. Gautam Khanna: Okay. Thank you very much. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Brad Edwards for any closing remarks. Brad Edwards: Thanks, operator, and thanks, everyone, for joining us today for our fiscal third quarter 2021 earnings call. We look forward to speaking with all of you in the near future. Thanks again, and enjoy the rest of your day. Operator: The conference is 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.
