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| | | | | | dchristiansen@cartech.com |
CARPENTER TECHNOLOGY REPORTS THIRD QUARTER RESULTS
| | · | Third quarter revenues net of surcharges down 24% from year earlier |
| | · | Income from continuing operations of $13.1 million or $0.30 per diluted share, including $0.03 of restructuring charges |
| | · | Operating margin of 6.8%, net of surcharges and restructuring costs |
| | · | Third quarter positive free cash flow of $11.8 million |
WYOMISSING, Pa., April 28, 2009 -- Carpenter Technology Corporation (NYSE:CRS) today reported income from continuing operations of $13.1 million or $0.30 per diluted share for the fiscal third quarter ended March 31, 2009, which included restructuring costs of $2.1 million or $0.03 per share for a facility closure. This compares with income from continuing operations of $50.5 million or $1.05 per diluted share for the same quarter a year earlier. Third quarter revenues, excluding surcharges, were down 24% compared to last year.
"As we announced last month, our revenue decline this quarter reflected continued slowness in global industrial activity and higher customer inventories,” said Anne L. Stevens, chairman and chief executive officer. “Low oil prices have reduced demand in our energy segment, which had been a key growth driver in recent years. Also, demand in aerospace slowed significantly in the quarter.”
“We continue to take the appropriate actions to reduce manufacturing and other costs to adjust to the lower production levels. We also made considerable progress in reducing inventory levels during the quarter,” said Stevens. “Our focus is to deliver positive free cash flow and preserve our strong balance sheet, while continuing the strategic initiatives needed to prepare for the eventual market recovery.”
During the quarter, the Company incurred $2.1 million in costs associated with the closing of its Crawley, UK metal strip manufacturing facility, which will allow the company to reduce fixed costs and utilize existing production capacity more efficiently.
Third Quarter Results
Financial highlights in the third quarter include:
| (millions, except EPS & pounds sold) | 3Q FY 2009 | 3Q FY 2008 | YTD FY 2009 | YTD FY 2008 |
Net Sales | $330.0 | $506.4 | $1,105.4 | $1,397.2 |
Net Sales excluding surcharge (a) | $266.7 | $352.4 | $841.8 | $977.6 |
Income from continuing operations | $13.1 | $50.5 | $68.7 | $163.0 |
Diluted EPS from continuing operations | $0.30 | $1.05 | $1.56 | $3.29 |
Free cash flow (a) | $11.8 | $162.4(b) | ($60.3) | $186.5(b) |
Pounds sold (000) | 40,994 | 59,218 | 134,574 | 158,432 |
| | (a) | non-GAAP financial measure that is explained in the attached tables |
| | (b) | includes $143 million from sale of ceramics business |
Net sales for the third quarter were $330.0 million, a decline of 35 percent from a year earlier. Excluding surcharge revenue, net sales were $266.7 million, or 24 percent lower than the same quarter a year ago.
Total pounds sold in the third quarter declined 31 percent from the third quarter a year ago. Volumes shipped by the Premium Alloys Operations segment decreased 25 percent as a result of lower demand in the aerospace and energy markets. Pounds sold by the Advanced Metals Operations segment dropped 33 percent due to lower industrial, automotive and consumer demand.
Gross profit was $49.2 million in the third quarter compared with $108.5 million a year earlier. Excluding surcharge revenue, gross margin was 18.4 percent, compared with 30.8 percent last year.
SG&A expenses were $31.0 million, a decrease of 8 percent from a year earlier. Excluding the impact of changes in net pension expense, SG&A improved by 12 percent over last year.
Operating income declined 78 percent to $16.1 million, compared with $74.7 million for the 2008 third quarter. Excluding surcharge revenue and the restructuring costs, operating margin was 6.8 percent, down from 21.2 percent last year.
The lower gross margin and operating margin were primarily a function of reduced demand levels. In addition, third quarter margins were negatively impacted by about $11 million of LIFO and other quarterly accounting effects from nickel prices and changes in inventory levels. These included the impact from purchasing less nickel and other raw materials during this quarter, when prices were lower, which then required expensing of higher cost raw materials purchased earlier in the year.
Other Income in the third quarter was $2.7 million compared with $3.7 million last year.
The provision for income taxes on third quarter continuing operations was $1.8 million or 12.1 percent of pre-tax income, compared with an income tax provision of $22.8 million or 31.1 percent a year ago. The lower tax rate primarily results from applying R&D tax credits to the company’s lower taxable income level and the reversal of certain liabilities previously established for unrecognized tax benefits. These items were partially offset by a reduction in certain deferred state tax assets related to net operating loss carryforwards.
Income from continuing operations in the third quarter was $13.1 million or $0.30 per diluted share, compared with income from continuing operations of $50.5 million or $1.05 per diluted share for the third quarter a year earlier.
Free cash flow, defined as cash from operations less capital expenditures and dividends, was positive by $11.8 million in the third quarter. This reflects significant progress in reducing inventory levels, partly offset by lower accounts payable.
Markets
Aerospace market sales were $146.7 million in the third quarter, down 29 percent compared with the same period a year ago. Excluding surcharge revenue, aerospace sales were down 17 percent on 17 percent lower volume. The decline reflected reduced airplane builds and lower overall passenger miles, compounded by excess inventory in the jet engine supply chain. In the aerospace fastener segment, sales of nickel-based and titanium fasteners also began to slow.
Industrial market sales in the third quarter were $79.1 million, down 28 percent compared with the third quarter of fiscal 2008. Excluding surcharge, industrial sales decreased 15 percent on 27 percent lower volume. The decline reflects strong competitive pricing pressures in more commodity-oriented applications and reduced overall demand for materials used in valves and fittings, fasteners, and general industrial applications.
Energy market sales of $35.0 million represented a decline of 36 percent from the third quarter a year earlier. Excluding surcharge revenue, energy market sales decreased 27 percent on 43 percent lower volume. The decline in energy sales primarily reflected lower oil and gas exploration activity in the face of weak demand for oil and excess inventory in the supply chain. Declining market demand and high customer inventory are also beginning to affect sales to the power generation market.
Medical market shipments were up 5 percent in the third quarter although sales decreased to $28.4 million, down 18 percent from the third quarter of fiscal 2008. Excluding surcharge revenue, medical sales declined 15 percent from the prior year. The increase in shipments reflected higher demand in orthopedic implant and medical instrument applications, while the revenue decline came from the pass-through of lower titanium costs and a leaner mix of products. Demand is driven primarily by steady increases in the number of implant procedures in the US, Japan and the EU.
Consumer market sales were $20.7 million, a decrease of 54 percent from the third quarter of fiscal 2008. Excluding surcharge revenue, sales declined 45 percent on 39 percent lower volume. The decline in revenues reflected lower sales across all consumer segments, primarily led by housing and electronics.
Automotive market sales were $20.1 million, a decrease of 63 percent from a year earlier. Excluding surcharge revenue, automotive sector revenues were down 56 percent as volumes declined by 57 percent from a year earlier. Sharply lower consumer spending and tighter credit continue to suppress auto sales, resulting in further deterioration in production rates.
Sales outside the United States in the third quarter declined 37 percent to $111.8 million compared with the fiscal 2008 third quarter. The decreases were sharpest for aerospace, energy and automotive demand in Europe and oil and gas applications in Canada.
Outlook:
“Looking ahead, we anticipate weaker demand in the fourth quarter due to conditions in most of our markets. This, in combination with continued negative effects from our second half inventory reductions, as well as costs to close the UK facility, will result in negative earnings for that quarter. Current indications are that end market conditions will remain soft for the balance of the calendar year,” said Stevens.
“Our goal as we head into fiscal year 2010 is to continue taking the actions needed to achieve positive cash flow. We will attack costs and closely manage our working capital. Capital expenditure levels next year will be down significantly from the 2008 and 2009 fiscal years,” said Stevens. “Importantly, the strength of our balance sheet provides the resources to manage the downturn and prepare for the future. We are increasing investment in R&D, and will remain proactive in our new product and global marketing programs to position the company for stronger long-term growth when general economic conditions improve.”
Sales Excluding Surcharge
This press release includes discussions of net sales as adjusted to exclude the impact of raw material surcharges, which represents a financial measure that has not been determined in accordance with U.S. generally accepted accounting principles ("GAAP"). The Company provides this additional financial measure because management believes removing the impact of raw material surcharges from net sales provides a more consistent basis for comparing results of operations from period to period.
Conference Call
Carpenter will host a conference call and webcast today, April 28, at 10:00 a.m., ET, to discuss financial results and operations for the fiscal third quarter. Please call 610-208-2222 for details of the conference call. Access to the call will also be made available at Carpenter's web site (www.cartech.com) and through CCBN (www.ccbn.com). A replay of the call will be made available at www.cartech.com or at www.ccbn.com.
About Carpenter Technology
Carpenter produces and distributes specialty alloys, including stainless steels, titanium alloys, and superalloys, and various engineered products. Information about Carpenter can be found on the Internet at www.cartech.com.
Except for historical information, all other information in this news release consists of 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, 2008, its quarterly reports on Forms 10-Q for the periods ended September 30 and December 31, 2008 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, industrial, automotive, consumer, medical, and energy, or other influences on Carpenter's business such as new competitors, the consolidation of customers, and suppliers or the transfer of manufacturing capacity from the United States to foreign countries; 2) the ability of Carpenter to achieve 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 ability of Carpenter to implement and manage material capital expansion projects in a timely and efficient manner; 12) the availability of credit facilities to Carpenter, its customers or other members of the supply chain; 13) the ability to obtain energy or raw materials, especially from suppliers located in countries that may be subject to unstable political or economic conditions; and 14) our manufacturing processes are dependent upon highly specialized equipment which are located primarily in one facility in Reading, Pennsylvania for which there may be limited alternatives if there are significant equipment failures or catastrophic events. 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.
| CONSOLIDATED BALANCE SHEET |
| (in millions) |
| | | | | | | |
| | | March 31 | | | June 30 | |
| | | 2009 | | | 2008 | |
| ASSETS | | | | | | |
| Current assets: | | | | | | |
| Cash and cash equivalents | | $ | 300.9 | | | $ | 403.3 | |
| Marketable securities | | | 5.0 | | | | 5.3 | |
| Accounts receivable, net | | | 167.0 | | | | 285.1 | |
| Inventories | | | 263.5 | | | | 209.0 | |
| Deferred income taxes | | | 29.2 | | | | 19.8 | |
| Other current assets | | | 42.7 | | | | 44.2 | |
| Total current assets | | | 808.3 | | | | 966.7 | |
| | | | | | | | | |
| Property, plant and equipment, net | | | 632.1 | | | | 583.8 | |
| Prepaid pension cost | | | 48.6 | | | | 51.5 | |
| Goodwill | | | 35.2 | | | | 35.2 | |
| Other intangibles, net | | | 19.0 | | | | 19.8 | |
| Other assets | | | 59.8 | | | | 55.2 | |
| Total assets | | $ | 1,603.0 | | | $ | 1,712.2 | |
| | | | | | | | | |
| LIABILITIES | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable | | $ | 85.1 | | | $ | 158.4 | |
| Accrued liabilities | | | 141.3 | | | | 144.2 | |
| Current portion of long-term debt | | | 23.0 | | | | 23.0 | |
| Total current liabilities | | | 249.4 | | | | 325.6 | |
| | | | | | | | | |
| Long-term debt, net of current portion | | | 279.7 | | | | 276.7 | |
| Accrued postretirement benefits | | | 86.7 | | | | 90.9 | |
| Deferred income taxes | | | 97.1 | | | | 95.7 | |
| Other liabilities | | | 104.6 | | | | 84.1 | |
| Total liabilities | | | 817.5 | | | | 873.0 | |
| | | | | | | | | |
| STOCKHOLDERS' EQUITY | | | | | | | | |
| Common stock | | | 273.0 | | | | 273.0 | |
| Capital in excess of par value - common stock | | | 206.0 | | | | 197.5 | |
| Reinvested earnings | | | 1,041.7 | | | | 996.6 | |
| Common stock in treasury, at cost | | | (531.0 | ) | | | (484.0 | ) |
| Accumulated other comprehensive loss | | | (204.2 | ) | | | (143.9 | ) |
| Total stockholders' equity | | | 785.5 | | | | 839.2 | |
| | | | | | | | | |
| Total liabilities and stockholders' equity | | $ | 1,603.0 | | | $ | 1,712.2 | |
| | | | | | | | | |
| Certain reclassifications of prior year's amounts have been made to conform with current year's presentation. | |
