Exhibit 99.1
Carpenter Technology Reports Record First Quarter Results
-- Record first quarter net sales of $475 million
-- Record first quarter net income of $58 million or $2.24 per
share
-- Repurchased $158 million of common stock
WYOMISSING, Pa.--(BUSINESS WIRE)--Oct. 31, 2007--Carpenter
Technology Corporation (NYSE:CRS) today reported record first quarter
results. Net income of $57.7 million or $2.24 per diluted share
reflected a richer product mix, growth in the energy market, and a
continued focus on margin enhancement. Financial highlights from the
first quarter include:
(millions except E.P.S. & pounds) Q1-2008 Q1-2007
- --------------------------------------------- =========== ============
Sales $475.0 $404.5
- --------------------------------------------- ----------- ------------
Sales excluding surcharge (a) $337.5 $326.5
- --------------------------------------------- ----------- ------------
Operating Income $85.7 $73.1
- --------------------------------------------- ----------- ------------
Net Income $57.7 $51.2
- --------------------------------------------- ----------- ------------
Diluted E.P.S. $2.24 $1.94
- --------------------------------------------- ----------- ------------
Free Cash Flow (a) $24.1 $50.8
- --------------------------------------------- ----------- ------------
Pounds Sold (000) (b) 49,216 54,168
- --------------------------------------------- ----------- ------------
(a) non-GAAP financial measures that are explained in the attached
tables
(b) includes specialty and titanium alloys, stainless steel, and
powder materials
First Quarter - Operating Summary
"Our focus on higher value materials and growth in energy market
sales contributed to record first quarter results," said Anne Stevens,
chairman, president and chief executive officer. "We are pleased with
our results and see opportunity to further improve our performance
through an enhanced focus on operational excellence.
"We expect the energy market to remain favorable and are confident
about the outlook for our aerospace business in the second half of our
fiscal year," Stevens said.
Carpenter's sales of $475 million were a first quarter record and
17 percent more than a year ago. Adjusted for surcharges, sales gained
3 percent. A 27 percent increase in pounds shipped by the Company's
Premium Alloys Operation, which benefited from strong demand from the
energy market, contributed to the increase. Total volume declined
during the quarter due primarily to a reduction in the shipment of
lower priced stainless material.
Sales to the energy market, which includes oil and gas and power
generation, increased 94 percent from a year ago to $56 million.
Excluding surcharge revenue, sales increased 89 percent.
Within the energy market, sales to the power generation sector,
excluding surcharge revenue, surged 140 percent to $22 million, due to
increased demand for industrial gas turbines, particularly from the
Middle East. Sales to the oil and gas sector, excluding surcharge
revenue, increased 56 percent from a year ago to $22 million. The
Company's broad product portfolio of high strength and corrosion
resistant materials has allowed it to gain strong acceptance among
customers. Growth with key customers and strong international demand
helped drive the increase in energy sales.
Automotive and truck market sales grew 19 percent from the first
quarter a year ago to $59 million. Excluding surcharge revenue, sales
gained 3 percent from a year ago. The year-over-year sales increase
primarily reflected demand for higher value materials to support
technology changes in engines and exhaust systems. This increase was
partially offset by a reduction in pounds shipped due to lower
automotive production levels and a decision not to participate in
certain marginally profitable business.
Medical market sales increased to $32 million, up 16 percent from
last year's first quarter. Adjusted for surcharge revenue, sales
increased 5 percent. The gain reflected a pick-up in demand relative
to last year's comparatively low shipment levels.
Sales to the industrial market improved by 14 percent to $109
million. Adjusted for surcharge revenue, sales decreased approximately
3 percent. During the quarter, the Company benefited from increased
sales of higher value materials used in capital equipment and in the
manufacture of valves and fittings. This increase was more than offset
by reduced shipments of lower value materials sold through
distributors.
Sales to the aerospace market increased 9 percent to $174 million
in the first quarter compared to a year ago. Excluding surcharge
revenue, sales declined approximately 6 percent from the record first
quarter a year ago. Increased sales of nickel-based alloys used in jet
engine components was more than offset by planned inventory
adjustments at certain key customers and by a decline in shipments to
a customer who is now procuring some of its aerospace material needs
from a recently acquired subsidiary.
The Company expects that beginning in the second half of its
fiscal year, aerospace sales will more closely reflect the increase in
growth rate of commercial jet deliveries projected for 2008.
Consumer market sales increased 4 percent from the first quarter a
year ago to $44 million. Adjusted for surcharge revenue, sales
decreased 7 percent. Lower shipments of materials used in the housing
market more than offset increased sales to the sporting goods and
electronics markets.
Geographically, sales outside the United States increased 28
percent from the same quarter a year ago to $157 million.
International sales, which represented 33 percent of total sales,
benefited from increased sales to the energy, industrial and medical
markets.
Record first quarter gross profit of $121.4 million compared to
$103.9 million in the same quarter a year ago. The higher gross profit
reflected the increased sales of higher value materials, pricing, cost
containment, and the lag effect in the Company's surcharge mechanism.
Gross profit in the recent first quarter was negatively impacted
by a $4.6 million reserve for duty drawback claims filed by the
Company's licensed broker. Carpenter was notified by U.S. Customs that
its licensed broker may have filed claims with inadequate
documentation over the past four years. Carpenter is cooperating with
U.S. Customs to review all individual claims and working with its
suppliers and a new licensed broker to assemble the appropriate
documentation where available.
In the recent first quarter, the Company had LIFO income of $14.5
million due partly to declining nickel prices during the quarter
relative to its previous fiscal year-end. In the first quarter a year
ago, the Company had LIFO expense of $26.2 million. The LIFO income or
expense is mostly offset by changes in surcharge revenue and,
therefore, has little impact on gross profit.
Gross profit as a percent of sales in the recent first quarter was
25.6 percent, compared to 25.7 percent in the same quarter a year ago.
The Company estimated that the lag effect in its surcharge
mechanism positively impacted the gross margin by approximately 115
basis points during the recent first quarter. Reported gross margin is
also adversely impacted by the amount that the surcharge increases the
Company's revenue.
Adjusted for the lag effect in the Company's surcharge mechanism,
the dilutive effect of surcharge revenue, and the duty drawback
reserve, gross profit as a percent of sales would have been an
estimated 35.7 percent in the recent first quarter versus an estimated
33.6 percent a year ago. The underlying improvement was largely driven
by a richer product mix and the Company's continued focus on cost.
Record first quarter operating income of $85.7 million compared to
$73.1 million a year ago. The record level of operating income was
achieved primarily as a result of a richer product mix, pricing, a
continued focus on cost, and the benefit from the lag effect in the
Company's surcharge mechanism.
These benefits were partially offset by a $4.9 million increase in
selling and administrative expenses. The increase primarily related to
higher variable compensation accruals and costs associated with
driving the Company's future growth initiatives.
Adjusted for the lag effect, the increase in surcharge revenue,
and the duty drawback claims reserve, operating profit as a percent of
sales would have been an estimated 25.2 percent in the recent first
quarter versus an estimated 24.1 percent a year ago.
Net income of $57.7 million or $2.24 per diluted share in the
first quarter compared with net income of $51.2 million or $1.94 per
diluted share a year ago. In the recent first quarter, net income
included an income tax provision of 33.3 percent of pre-tax income
versus 30.1 percent in the same quarter a year ago.
The tax provision in the first quarter a year ago was favorably
impacted by the reversal of certain deferred tax valuation allowances.
Share Repurchase Program
During the quarter, Carpenter repurchased $157.7 million or
1,341,579 shares of its common stock on the open market. As of
September 30, 2007, Carpenter had repurchased a total of $186.5
million or 1,576,651 shares of its common stock under the program
established in September 2006. At September 30, 2007, the Company had
24,779,521 shares of common stock outstanding.
Carpenter plans to repurchase, under certain conditions, a total
of $250 million of its common stock as currently authorized by its
Board of Directors.
Segment Reporting
As announced on October 12, the Company realigned its reportable
business segments in order to allow it to focus more effectively on
customers, end-use markets and operational excellence goals. As a
result, the Company now has three reportable business segments:
Premiums Alloys Operations, Advanced Metals Operations, and Engineered
Products Operations.
Financial information on the business segments is provided in the
attached tables.
Conference Call
Carpenter will host a conference call and webcast today, October
31, at 10:00 a.m., ET, to discuss financial results and operations for
the first quarter.
Please call 610-208-2800 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.
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,
2007 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 including power generation,
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 and raw materials 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; and 11) the ability of Carpenter to
implement and manage material capital expansion projects in a timely
and efficient manner. 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 STATEMENT OF INCOME
(in millions, except per share data)
Three Months Ended
September 30
-------------------
2007 2006
---------- --------
NET SALES $ 475.0 $ 404.5
Cost of sales 353.6 300.6
---------- --------
Gross profit 121.4 103.9
Selling and administrative expenses 35.7 30.8
---------- --------
Operating income 85.7 73.1
Interest expense 5.6 5.8
Other income, net (6.4) (5.9)
---------- --------
Income before income taxes 86.5 73.2
Income taxes 28.8 22.0
---------- --------
NET INCOME $ 57.7 $ 51.2
========== ========
EARNINGS PER COMMON SHARE:
Basic $ 2.25 $ 1.99
========== ========
Diluted $ 2.24 $ 1.94
========== ========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Basic 25.7 25.5
========== ========
Diluted 25.8 26.3
========== ========
Cash dividends per common share $ 0.30 $ 0.225
========== ========
PRELIMINARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
Three Months Ended
September 30
--------------------
2007 2006
---------- ---------
OPERATING ACTIVITIES:
Net income $ 57.7 $ 51.2
Adjustments to reconcile net income to
net cash provided from operations:
Depreciation 11.9 11.5
Amortization 0.5 0.4
Deferred income taxes (0.4) (6.1)
Net pension expense (0.7) 1.2
Net (gain), loss on asset disposals (1.1) 0.1
Changes in working capital and other:
Receivables 48.7 5.1
Inventories (46.5) (8.6)
Other current assets (5.9) (8.0)
Accounts payable (29.6) 25.4
Accrued current liabilities (5.5) (3.5)
Other, net 19.8 (4.7)
---------- ---------
Net cash provided from operating activities 48.9 64.0
---------- ---------
INVESTING ACTIVITIES:
Purchases of plant, equipment and software (18.4) (7.3)
Proceeds from disposals of plant and equipment 1.2 0.2
Purchases of marketable securities (87.2) (265.6)
Sales of marketable securities 104.5 117.4
---------- ---------
Net cash provided from (used for) investing
activities 0.1 (155.3)
---------- ---------
FINANCING ACTIVITIES:
Payments on long-term debt 0.0 (0.1)
Payments to acquire treasury stock (157.7) 0.0
Dividends paid (7.6) (6.1)
Tax benefits on share-based compensation 0.4 0.1
Proceeds from common stock options exercised 0.3 0.1
---------- ---------
Net cash used for financing activities (164.6) (6.0)
---------- ---------
Effect of exchange rate changes on cash and cash
equivalents (2.4) (1.0)
---------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS (118.0) (98.3)
Cash and cash equivalents at beginning of period 300.8 352.8
---------- ---------
Cash and cash equivalents at end of period $ 182.8 $ 254.5
========== =========
PRELIMINARY
CONSOLIDATED BALANCE SHEET
(in millions)
September 30 June 30
2007 2007
------------ ---------
ASSETS
Current assets:
Cash and cash equivalents $ 182.8 $ 300.8
Marketable securities 355.4 372.7
Accounts receivable, net 257.1 303.2
Inventories 281.8 235.0
Deferred income taxes 17.2 13.3
Other current assets 26.9 30.7
------------ ---------
Total current assets 1,121.2 1,255.7
Property, plant and equipment, net 541.6 537.4
Prepaid pension cost 134.9 132.4
Goodwill 46.4 46.4
Trademarks and trade names, net 18.9 19.2
Other assets 36.5 34.6
------------ ---------
Total assets $ 1,899.5 $2,025.7
============ =========
LIABILITIES
Current liabilities:
Accounts payable $ 186.6 $ 215.9
Accrued liabilities 115.7 117.1
Current portion of long-term debt 33.2 33.2
------------ ---------
Total current liabilities 335.5 366.2
Long-term debt, net of current portion 300.3 299.5
Accrued postretirement benefits 89.3 90.9
Deferred income taxes 141.1 143.5
Other liabilities 76.5 57.9
------------ ---------
Total liabilities 942.7 958.0
------------ ---------
STOCKHOLDERS' EQUITY
Common stock 136.4 136.4
Capital in excess of par value - common stock 330.7 328.0
Reinvested earnings 799.6 751.3
Common stock in treasury, at cost (224.5) (65.7)
Accumulated other comprehensive loss (85.4) (82.3)
------------ ---------
Total stockholders' equity 956.8 1,067.7
------------ ---------
Total liabilities and stockholders' equity $ 1,899.5 $2,025.7
============ =========
PRELIMINARY
SEGMENT FINANCIAL DATA
(in millions)
Three Months Ended
September 30
-----------------------
2007 2006
------------ ----------
Net sales:
Advanced Metals Operations $ 322.3 $ 290.3
Premium Alloys Operations 129.3 86.9
Engineered Products Operations 27.0 28.0
Intersegment (3.6) (0.7)
------------ ----------
Consolidated net sales $ 475.0 $ 404.5
============ ==========
Operating income:
Advanced Metals Operations $ 48.9 $ 40.7
Premium Alloys Operations 36.5 31.2
Engineered Products Operations 3.4 5.4
Corporate costs (9.0) (7.9)
Pension earnings, interest & deferrals 6.0 3.6
Intersegment (0.1) 0.1
------------ ----------
Consolidated operating income $ 85.7 $ 73.1
============ ==========
Beginning with the first quarter of fiscal 2008, Carpenter realigned
its reportable business segments to focus more effectively on our
customers, end-use markets, and operational excellence goals. As a
result, we now have three reportable business segments: Advanced
Metals Operations, Premium Alloys Operations, and Engineered Products
Operations.
The Advanced Metals Operations (AMO) segment includes the
manufacturing and distribution of high temperature and high strength
metal alloys, stainless steels and titanium in the form of small bars
and rods, wire, narrow strip and powder. AMO sales are spread across
many of our end-use markets including aerospace, industrial,
consumer, automotive, and medical.
The Premium Alloys Operations (PAO) segment includes the manufacturing
and distribution of high temperature and high strength metal alloys
and stainless steels in the form of ingots, billets, large bars and
hollows and primarily services the aerospace and energy markets.
The Engineered Products Operations (EPO) segment is essentially
unchanged from previously reported. EPO involves the manufacture and
sale of structural ceramic products, ceramic cores for the investment
casting industry and custom shaped bar.
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, which 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 & deferrals."
PRELIMINARY
SELECTED NON-GAAP FINANCIAL MEASURES
(in millions, except per share data)
Three Months Ended
September 30
--------------------
FREE CASH FLOW 2007 2006
---------- ---------
Net cash provided from operations $ 48.9 $ 64.0
Purchases of plant, equipment and software (18.4) (7.3)
Proceeds from disposals of plant and equipment 1.2 0.2
Dividends paid (7.6) (6.1)
---------- ---------
Free cash flow $ 24.1 $ 50.8
========== =========
Free cash flow is a measure of cash generated which management
evaluates for alternative uses.
SALES EXCLUDING SURCHARGES
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
provided 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.
CONTACT: Carpenter Technology Corporation
Investor and Media Inquiries:
Jaime Vasquez, 610-208-2165
jvasquez@cartech.com