CRS - Earnings call transcript Q1 2021 | Carpenter Technology Corporation

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Operator

Good morning and welcome to the Carpenter Technology Corporation First Quarter Fiscal 2021 Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Brad Edwards with Investor Relations. ahead. go Please

Brad Edwards

being to can SEC that Form forward-looking the differ materially expectations. to June factors report the year Risk Chief from ended to in Good you Technology that operator. be first sales and to note, is welcome filing. ended with most XXXX, now referring Internet Thank slides. management by that presentation conference Chief When forward-looking morning, surcharge. you phone, Financial presentation Vice following are noted, call surcharge. Carpenter is and call Tony recent on today in Please also call XX, on will This the earnings XX, results the statements Carpenter filings, those reference may Tony. Technology's to including experience XXXX excluding over for excludes over operating for the on or company's call the by Lain, the and made a Statements September that when that based along Tim time President of I you, Officer. unless discusses for based XXXX. income sales could XX-K everyone, delay otherwise broadcast margins, actual attached found turn revenue, current note listening Executive that and the operating management in quarter those fiscal President earnings also and and slide statements movement. Speakers this exhibits on Officer; Thene, during Please are cause discussion, are the

Tony Thene

to morning good Brad, Thank you, and everyone.

on a let's Slide review As number of our start do, safety with we performance X. always

lowest was or rate X.X marked quarter. the ever recorded. incident rate This TCIR in case total quarterly first TCIR Our our

forward during our achieved look September. month of possible achieving history on our zero. zero-injury the first in our we to year way and milestone addition, workplace official we is to next company’s A month XXX the injury-free In

these minute a all want for moving hard our to employees ongoing Before to times. take their of during thank recognize I on, unprecedented commitment and and work

All tremendous remain and of safely, operating is a our open facilities which accomplishment.

team in, staying our core Our operating the each building done safety same while we’re other of value on protecting the at job and serving communities our time remarkable has and focused customers. on a

turn let's X first to quarter. the Slide Now review and

Our with operating their first across previous to as end-use be headwinds quarter in the markets continue performance factor. was line our driving demand guidance

Given environment, offset. the difficult current weakness demand is to

our before, cash stated is primary positive. flow I as However, staying focus

first performance $XX free first significant total and enabled in to In QX. actions the we million $XXX have million in cash of We cash. which quarter, million us generated $XXX with over generation ended taken our including of quarter the continue strong liquidity, flow cash

a flexibility navigate completed provides current maturities we bond that profile environment. offering additional as we addition, and extended In financial us our the

an growth differentiator emerge remains which Athens market long-term actions key balancing our initiatives we are to growth a with we time, continue liquidity reduce actions completed and to divestiture ample the and through our Amega restructuring pandemic. our of unit first additional the managing and driver long-term ensure our Carpenter facility, gas have even In our forward with the that same streamline oil in At and We took COVID-XX the includes business business This costs. pushing operations to and Technology. quarter, our additive customers. position stronger in we West for

achieving make additional key We facility. for to collaborate the with progress customers on qualifications continue and

performance material a customers brand. solutions Electrification capabilities products. we our enhanced is can Carpenter drive critical further believe addition, rapidly launch for technologies. emerging of recently, In strengthen And in focus help across Electrification we end-use area growing a there's our Most the markets. of our our

capabilities in nearing to further Our excel is enable will emerging which installation hot our completion, new strip in us area. mill this

and X end-use number move the update. let's to market Slide Now

chain in shutdowns. Let Defense lowered the than continued a of chains customers especially over Aerospace in Most chain Many rates. quarter. aerospace on continue little and Europe end-use questions inventory and time supply dynamics, supply most environment. to be extended and specifically across rates will several be and continue me especially longer anticipate, OEMs the Individual as end-use adjust focused Aerospace market, chain the the of adjusting at levels destocking the various process ongoing forward market report sub-market, reported the obligations the refusals Starting demand supply throughout to to continued to on inventory spend of and and with slide this revise normal the a customers, than the had customers usual supply I during more Defense market. build

shipment of customers request stock our requirements. had real regarding decline levels as We support we with work continue deferral stock sales In depressed arrangements. the finalized to all did not behind customers fiscal Direct secure closely to continued us forward versus while commercial many, and were requirements consumption customers activity relatively our second bookings of we quarter, in demand. destocking and lowered through discussions and expect with flat, to Cancellation altogether contracts. areas Lower continue declined no to quarter.

significant of levels While of the shipment some over the extreme, report we parts. inventory certain customers of have months for in at demand XX current seen to uptick limited inventory. areas, an customers report some most amounts continue activity At

customers are other levels. the beginning some to end, discuss restocking at limited On very

outcomes needs are customers, quarter, second negotiation continuing in key support mid customer with and we beneficial our and mutually long-term. also During both are the developing near-term in to

base. As credit concern with an has increasing our become of some customer

commercial to as we to in contrast activity see of standing is steady currently the activity adjusting their sub-market, in closely situations that also continue are Many to operations. defense some defense also commercial our sustaining work main customers aerospace aerospace. defense in report involved financial customer customer are necessary. our We as locations and involved Concerning monitoring and

these accordingly. of support are to we and support Some the programs working increased we activity defense seeing are

and platform be to long-term in involved remain prototyping growth. continue about We design our and new excited

if this market. perspective, relates trends macro our fiscal recovery procedures gradual Medical expected device elective reordering fiscal return are inventory continuing only materials a needs. to and continue. to but it companies gradual to to surgeries as manage a hospitals of beginning to elective QX, turn during in QX recovery necessary procedures, replace From reported Medical levels of of downwards Let's end-use acknowledged critical

We value, in close recovery we're calendar supply currently expect high production destocking returning deliver. low year-over-year market the due track XXXX. believe at on reaching the sequentially, chain in levels of off to sales given support come heavy-duty markets. Overall, North and fiscal our pre-pandemic the basis. benefit we market. but market, the we In recover In In competencies timing, Transportation end-use within QX trucks also to Global on believe America, both efforts light-duty solutions signs to the levels we and XX% a historical most rebounded level that cyclical but is unique and year demand. down can increased across temperature global distributors of vehicle vehicle began medical OEMs light part sub-market, see to our we freight to to the device increased

up drilling within are Energy. or depressed conditions market, levels. Energy remain International has better longer In the levels time held in the due and current lead challenged end-use America to cycle is severely to project activity generation activity North sub-market low. where at moving market Now power

remains delayed cycle, maintenance some the related to but activity uptick early seeing a of signs are in potential We a increased stages.

the by and Industrial both for sales control Lastly, driven our market, Industrial Consumer sequentially. up year-over-year strong demand sales were applications. for end-use and were and continued semiconductor

Tim over it the to turn review. for I'll financial Now

Tim Lain

were lower first I'll decreased to everyone. quarter on morning, first start decreased quarter X% year sequentially income Good ago, XX% Tony. million. on sales excluding compared excluding you, totaled Net $XXX Thank a sales X, Slide the million surcharge, on statement Sales volume. $XXX and XX% summary. volume, lower sales XX% in the surcharge the

impacts As the sequential reflected North Tony as markets, Aerospace review QX. albeit increased Medical. by COVID-XX key by partially headwinds demand off This a his base American results related Defense rebounded, our of vehicle in in in demand end-use end-use in low the was markets driven COVID-XX the transportation, and offset shutdowns from production and of covered ongoing

As reduction the targeted focus schedules continue we've production beginning the a and mentioned, of inventory accelerating we manage pandemic, our to program. actively since on

inventory other million protective direct execute additional and safe asset generation, employees cleaning non-cash includes our COVID-XX possible impacts our talk exposure. million exposed $XX included resulting The quarter in to COVID-XX income a prior reduce in the expenses loss to costs charges from million potentially shortly, operating necessary for impact million costs special million XXXX. adjusted the the including severance that performance. current operating were employees costs. related of period operating are same quarter’s entertainment. maintain negatively a restructuring isolation quarter, lower excluding year-over-year of business of year special SG&A in the reduce reflect restructuring $XX.X the special I'll year including costs, charges, associated supplies and also sequentially. was compared loss reduction costs incremental costs, the significantly bankruptcy, and in and which it quarter personal while impact While conditions operating of of The services customer loss including associated $XX.X the actions administrative actions, the such current the $X.X salary the in $XX.X as in SG&A of positions, Again, are results combined lease with lower about operations principally current protocols, flow these operating million million and the to cash flat $XX.X in to The the to initiated current pay against includes $X.X the of quarter includes This period costs of quarter’s operating reduction. outside of COVID-XX in keeping the near-term travel enhanced unit. When down inventory The and costs, reflect items pandemic. volume additive income in costs costs million of $XX.X drives operating and and operating as COVID-XX impact was operations million costs also targeted include in $XX from equipment These the the The ago, items. working million, items, that of the remote as adjusted certain fourth expenses with fiscal the year well results an acceleration impacts elimination salary $XX.X furloughs, the quarter. impairment we with primarily streamline first

XX.X%. of benefit quarter. share, when was tax Our the items, per well $X.X impact loss tax $X.XX as impacts year $X.XX guidance as compensation adjusted of the for first effective per quarter the tax vesting discrete special million of discrete for income certain full our with a special of rate a per loss earnings result quarter as tax rate charge the excluding was below Earnings The was share items, the share. associated stock-based per in share the a awards was of tax

for approximately surcharge. decreased ongoing rates. turning higher demand X build of to OEM an sales and continues Aerospace lower demand or impact sales with as partially as in from A applications, year operating the on income SAO Defense. of million headwinds the operating million, $XXX.X $XX.X were income SAO product to XX% excluding to supply certain volume, and million impact lower excluding and stronger during volume. SAO’s was the by deal in the the reported the by generated in Aerospace in sequentially, SAO is results well the shutdowns quarter. by Defense last SAO in $X.X decline loss to surcharge current impacts of industrial $XX Slide as Now mix XX% principally returned statement reduction Compared first quarter as and the inventory. The of related reduced as for North the American offset chain Sequentially, results Net result This our well of transportation quarter a year income negative same ago, year-over-year as The reducing quarter of the lower of year, on income million pronounced decreased quarter production due fiscal is results. operating the sales of primarily and reflect shipments the income. note, reflects million, surcharge XXXX, inventory million in fourth volume near-term To and lower $XXX.X quarter operating volumes. X% the operating lower unfavorable $XX excluding segment XX% an COVID-XX reductions

efforts from In directly to reflect approximately resulting customer direct costs earlier, facilities results and And million of as $X.X our associated with of $X.X addition, also I COVID-XX. quarter’s our the mentioned includes against bankruptcy COVID-XX. cost with current incremental associated protect million a employees

markets end-use remain fiscal Looking year across conditions second quarter challenged will we expect in demand most ahead, upcoming of XXXX. our

stated end-use XXXX. on our to the recover to As that focus will across current anticipate we our operating we of key second as an continue fiscal liquidity Based our management. in conditions, and demand market position the we further begin of In our to $XX $X expectations, $XX and of quarter. half the in markets enter includes stabilize XXXX. fiscal response million quarter of loss costs environment via million managing million enhancing estimate have costs before, year we we This approximately of expect related on COVID-XX to working generate capital second SAO to the $X million year current

by The from were and driven same COVID-XX, decline sales, a result Slide the results. quarter Medical impacts to and segment and turning lower and Aerospace XX% as sales down ago sequentially. Now in XX% million, excluding surcharge Net the was year Defense, demand XX were our a in of of particularly PEP Distribution. year-over-year $XX.X which down

its Additionally as in by opportunities. near-term same impacts innovative primarily can OEM demand end-use reflect sales on savings the are operating several in pressures identified to the of The summary. been anticipated in themes primarily decline the compares rates approach sales Defense West year. realized on of of year to the and and the the impacts additive market quarter our quarter result in by West follows of reducing pandemic some of million excited global took million loss business. quarters, quarter and that Aerospace operating in driven XXXX, of we and off fell sequential Ongoing in unfavorable both exit business, oil In current the and last an the the last aircraft offset and The and its actions this procedures. we spot unit business lower operating $X to of costs fiscal volume the mind, increase in a energy due areas reported elective covered of bates. over we from the to our where we in approach importance relatively and results and gas Medical divestiture where COVID, and sequential low $X.X recent impact gas initiated market declined bright long-term the of Amega The the recognized our and rationalize additives we sales oil a our PEP our the prospects. ability our this loss about long-term footprint and costs The million, build that operating the an was fourth action infrastructure, loss remain in medical an $X.X of growth sequential in without distribution bounced business in has the have reduce we future capitalize being With and affecting to Amega business.

$X currently loss As to we of upcoming anticipate second million operating quarter. generate look million we ahead, an $X in our will PEP

cash improvements In generation free $XX we from cash generated driven operating capital, cash in a million of inventory. Now activities. primarily of was the flow. review turning to This by and quarter XX working Slide current

$XXX a accelerate we inventory reduction inventory the SAO. inventory the targeted coming we quarter million with result decreased That's of inventory $XXX last XXXX. that noting aligned Within in $XXX are inventory is ensure maintain across customers as lead spend reduced of in of quarter, a bulk on and remain demand the reduction substantial communication considerable We patterns our spent of the effort fiscal It's on by we've for million the expenditures our change. constant fiscal million by expenditures. to capital as and in capital from inventory to $XX year quarters. programs We the about we $XX throughout XXXX track in year This organization facilities. worth reduction the In to two quarter, appropriate first planned. with key million million over fourth the remain reduction that also times of

speak the million completion magnetics this our planned area $XXX within emerging further million project multi-year the $XXX fiscal it’s mill, support position of mill demand that have reminder, XXXX, to Tony the growing importance leading soft a enhance strip for will to we’ll hot strip year As electrification. to new the materials. hot of our for in the

We of that system also be ERP are the half scale expected a the this large fiscal operational implementation of to completion nearing second is in year.

addition, In we completed Amega mentioned of as I our West gas previously, the oil and divestiture business.

We million facility. the with proceeds highlights and liquidity From a as mind, of quarter. of cash notes were could quarter, completed are of flow current on our million quarter quarter, pleased to July we which to $XXX The million this credit liquidity those current of the mature we the With the and the million repay of ended reflects available liquidity in realize including $XXX the $XX transaction cash a borrowings XXXX. that million $XXX million, of the $XXX generated we $XX of perspective, under in we due well quarter. complete free and in flow increased million the total in that notes $XXX proceeds of generation as refinancing debt we use our cash in issued in

our million net cost the and when reference included net reported special interest of the notes item in it's extinguishing a treated the of for expense calculating quarter as $X.X incremental adjusted For EPS. of tax, is

is liquidity the temporary the on essential brought end-use as we work our disruptions the COVID-XX in our by on focus Our market through in near-term, way markets.

I'll capital enable pandemic actions the Tony. critical this back the turn exit years, over we we latest even have will allocation the been as over onset that, the Our challenge and stronger the taken to as entered. approach have us since to to well thoughtful With of call than

Tony Thene

Tim. Thanks,

XX. Slide number to Moving

working employees, our to customers. facilities priorities our safeguarding key closely and the and liquidity be with continue Our maintaining the in near-term

execution cannot centered the near-term focus While future eye the our to of blind on those priorities, is of turn our needs future, a our you customers. and

requirements. replacing internal have where electricity combustion Electric This the downturns, the engines are Carpenter that driven, role. Today, unique this first live Part before. that and systems The During each launched been trend an electric our cyclical gaining Despite last during of Carpenter now passenger beginning Technology this engines. their now combustion that and quarter, rapidly we for to we around mobility significant side, generators, wide than power involves way well, established many in aircraft are using onboard trend these plays brand. is the on popularity well unprecedented already and and electric weathered use years generator end opportunity five Carpenter cars. move of in Electrification Electrification other and that macroeconomic and is times, is in trends exciting the a motor foresee of reliable on vehicles. we address solutions history, which a electric hold remain we a This emerged industry rapid motor and again. long a systems to believe in have Electrification the we technology in other a markets customer We innovation vehicles evolving is stronger a applications. in movement and variety commercial ever is changing creating alternative both has time to company. material as our world. take To more over motors focused new increase

and and increase years. in electric last aircraft the over hybrid prototypes have an designs seen We few

designs other aircraft, overall size industry the improvements such light. autonomous more are in mobility cars, robot defense In deliver also designers performance issues technologies considered turning applications. must see consumer as and system applications. and for markets motors, In always to and similar be that and other on addition, mobility weight we will applications, and rely and the new electronics trends be efficient performance. increasingly powerful and drones, and future must that needed Improve small Vehicle that for are that miniaturization,

optimal New designs the of materials are to art using advanced state achieve performance.

delivering loss miniaturization benefit, and magnetic low high performance alloys are induction, and flexibility. product high soft development Our formability

also electrification, work streamlined performance that As increasingly product for partners. need technology as a important, them supply capabilities, With boundaries partners Electrification to OEM, reliable portfolio, their chain our testing positioned new companies to are bring and advanced of can need product scale is to manufacturers production motor and technical optimize and push and with help production. Applications and the support the performance from prototype they They electrification designs. to Carpenter vehicle solutions expertise magnetic high electronics, world. alloy soft uniquely stronger

on completed to that the once capacity had service This hot With we the this and our this campus. of significant demand installation market fiscal technology opportunity. remain about completion backdrop, and year capability the growing us excited strip with critical provide will later Reading mill project

to turn let's comments. slide my the Now next closing with

to given Our and in first on COVID-XX, quarter headwinds cost performance volume the well and as our preserving as focus related near-term. was as anticipated, driving liquidity

partner significant and chain reduce to as healthy created businesses, mission significantly performance. conditions remain largely providers, structure cash often the to will not remain idling and We've of today only conditions. few Carpenter taken hiring solutions but and provide since actions, ample of has reduce divesting furlough actions and We've a executing include Despite Looking back start well sheet critical we challenges for capital pandemic. capital near-term to fiscal supply freezes among the including by a recovery enabled working actions. are ahead, the These eliminations, generate beginning the the These year related cost, portfolio of that an temporary used challenges manage completed, action with maintain bulk growth XXXX. to our position market we wait as and also especially one year to our pandemic Better liquidity able some reducing via and to established actions many XXXX. model, our balance other improvements With evolving of underperforming to expenditures activities and we COVID-XX, second our critical largely been investments, weather business operating costs targeted our we in expect accelerating actively market improve. the of in simply the flow. challenging, do organization cost market chosen continue fiscal to half anticipate we and sit align conditions

leader We to in of adjusted reaffirm are to In year today and positive expect flow and we a industry a positive times, are in EBITDA these to leader come. fiscal generate free unprecedented XXXX. our we decades remaining for committed that face cash the

position We technology stronger an taken interest pandemic. I'll on and continue of the back the be have turn to take corporate even other company questions. Thank to your will your to it steps the to and for necessary side to this operator field you

Operator

Thank you.

question-and-answer the will with session. begin We question now first [Operator Instructions] go the Khanna And Please will come from Cowen. Gautam ahead.

Gautam Khanna

Hi, for details. good morning Thanks the guys.

Tony Thene

morning, Good Gautam.

Gautam Khanna

to maybe the any there on levels areas, are Is there a maybe year's just to channel comments some various inventory? kind you fast worth you you We your wanted I and customers can or about ask talk some engine other with that about you of could trends expand of can anything oriented expand characterize, applications versus upon? versus if if restocking. broad is have

Tony Thene

there, color Tony. more our cuts across additional no all of Gautam, There's customers. is this really that Yeah,

business ones classify I So the across distribution or that greater fastener, aerospace. or whether see engines, not. customers have inventory wouldn't it's structural this, engine variations are in the We

So difference no Gautam. there really

Gautam Khanna

visibility? talked you year, do so And gives of recover. order that Do have demand you you'll that you the in curiously, have see what the second view you just March to – and quarter, Okay. start about you know, you What grounds how fiscal guys have conviction? half the

Tony Thene

of our obviously lot time, Well, with we customers spend customers. close are very our a to

half. we internally in second by going a reaffirmed is the fact, have And in customer, customer through sight on think to happen line good by we that So we going of are market. market what just

see half but think do don't in and think you're that I don't XX% increase uptick I been and your has quarter. first extremely think to fourth long. the in third mind that, going saying obviously the Keep quarter a So I Gautam. see you'll second that second anybody's in the an

So see the we'll confident uptake in an second we're fairly yes, that half.

Gautam Khanna

belaboring the period. in but point, to now, clear obviously right destocked just on, I'm a sorry to keep be magnitude, we're

the will underlying once back end it fiscal rates below, guys anyway? What destocking to are were right sales be get looks So because out, some shake about XX% customers. ex-surcharge by aerospace in obviously get below the as should XX% did we level where so it think levels through way or like sales to Is the you where what below we they the the we think that XX% we consumption by that to otherwise or XXXX, I just offset of like terms were of curious potential XX%, share out can production is to some should is of or because are down in kind pre-COVID rates where of are level Or to production gauging level? I'm of down. recovery, that the magnitude that there where of… sort downside

Tony Thene

Yes, Tough are most question, question obviously. And people it's that the Gautam. asking.

down at on year-over-year If is you XX%. a to this just Aerospace take a look basis, XX% quarter

you what tell So back, when help see recovery does year that you're going that at for it. look we I type can I XX% half is of quarters? quarters, come XX% if a that probably second be, is you, a might a the it that year take in to in that of the you'll two team, you this is it three, think four to think

going it's from improvement a think there. I gradual be to

Gautam Khanna

Got we above Like to where now. are XX% it. XX% They're about.

Tony Thene

Yes.

that's Yes. think I reasonable.

Gautam Khanna

types for kind last with me, mid any Carpenter changes the agreements you to beneficial what better Okay. coming one of as am curious I over more guys consider And and advocating is customers long-term, talked what better just it that things would to you – of for you advocating for the of, guarantees? quantity what are the terms? is kind price seem, kind this things just about mutually of of – better types are Is minimum

Tony Thene

good question. a Yes, it's

this to ideas our talking it in is reaching Technology out and well. good customers we're going relationships hasn't great cases, been our have many as really with they're is never require, that Carpenter back. what the to We is and back. we come giving to to what market them Aerospace one They going There understand that is is well, no said, us come dictating

is everyone is in market of one only they everyone back, going materials Carpenter trend. need. couple can still know Technology believes macro the to come the them supply they So And that that companies a the that of understands

of happy – and do, it time, we're period looking increase the cases So a that let's very many on type to that a mutual very for it's contract have in is let's a that for they what of are, we share what respect contract. or relationship and extend

So types a of Gautam. area. that items And it's frankly, we're get looking that quite those in for don't pushback of lot

Gautam Khanna

Tony. Thank much, Appreciate you very it.

Tony Thene

Yes. you, Thank sir.

Operator

question The go Benchmark from Please come with Company. Sullivan will Josh next ahead. The

Josh Sullivan

Hey, good morning.

Tony Thene

Good morning, Josh.

Josh Sullivan

mentioned you tempo that marks. service, is is at of same or Does in as here? QX? aerospace accelerated or the in of decelerated prepared refusal the On it those the What QX this QX the here either for page customers

Tony Thene

Well, comment, the to would you of you've trying say I to slow I heard when all times and take can many not conserve you – across shipment. drastic Carpenter type Technology. that's it's mean, this sure across, have not many made that that down, cash are people trying chain, just I I'm supply everyone's

that's we the So entire just standpoint, known. gave, that like pretty very and it's that's of the for – And with our believe customers I us, our trying well happening to then us type the get quite of that behind to a right slow level, closely much across work across Gautam, down answer that's we've supply majority is now. a which activity bit chain From specifically seen every win-win.

Josh Sullivan

come going just elective research and snapback those a place? then And we thinking think the you COVID the How the You're that medical that? the back, on exposure. about here. are do you restocking be it. surgeries know, What side might time, you restocking takes Got to see as medical on the

Tony Thene

a chain not device my one deeper or to how that decreasing that looking Josh procedures, think one, second in which those a the What just don't now. normally you their as one remarks see I would prepared In getting opposed I a inventories, think and an for conserve supply necessarily because that for to there is to half as could one you think for right recovery saw what in is actually in but supply cash. than others everybody's see, in our as we're a surgery about good we far them, tells the talked increase really you I question. I companies medical

think the to the being we inventory, their And are extra that fiscal year most everyone trying I especially still year. as cautious get calendar protect there. of people they're else end to is their

of in say, or answering see medical that other say question a steeper than maybe demand could that spike a I to way be let's long yes, So you'd little your shipments the or think markets

Josh Sullivan

you some And on walk it half dynamics? then are XX% just now? down of the through second how finished, progress? the there And components see like of if some us it. that should components focused right Got materials inventory where where maybe XX%, the between of Is just raw the draw just kind we and that looks you changing

Tony Thene

ago, well just and we It's inventory know, much out there on as look inventory note And is a and is this that six to raw we based components running we're make possible. all Well, those. trying important And process at materials think of were finished as approach is goods, three at months draw an that you manufacturing XXX% of work very all down, disciplined big not in approach costs. I as taking and it's to having that at said, philosophy. lean our

my times. So in down never or dates many knowing of I the cases, front-end yes, was to shut XX inventory weeks had lead produced future going process we that that

– our looking point would liked a the you're at got So what than of manufacturing from it little when inventory view. we have higher through from

balanced. working this work balance has it more many productivity us cases to is plant continue take from to become So to Inventory and that right because out an on given on our and thing. you the opportunity our in productivity inventory keeps attracted

if been the think we're there to these inventory surgical has that level not this where take quarters. going out you I be a can of we but balanced. So There obviously, reduction, do, more time for will next inventory were five, there's will, a or still very four six

these down up locking you types to be going to the our several levels. build demand important maintain think as Josh, back, quarters. get significant productivity even we're a to able that when we're you to come in the levels, going is I support We're of and inventory to see not demand when relative have where ourselves you'll to next over in see the these we'll put thing see a position pick

Josh Sullivan

you one last compare about can How you've bit And one, into the talk a some while That's offering? then power attributes metric world, very Carpenter's way very electric helpful. do the alloys in think market you're talked the going any those quantify there? there that’s you about current those special little to some just pushing Is to of your special successful or be to markets?

Tony Thene

we this is because for us. I appreciate really asking you question important think that

real that a to magnetics is business take that core decades, areas at use what that what motor. other we're an macro the material, is growth in creates And demagnetizing, of what The soft creates that material in, we going in off. And the trying level. – we that the key to that said and there using is areas the have my we're if trends. motor, take or over in comments, really response next important We and call but magnetic magnetizing what participating can But the soft power. the I electric in your material grow you look on that's will just it's the our induction. you're is of could take ultimate the rotation I and because several this that's the that running prepared And to back, step next already what magnetic material the it do because

industry proprietary it the All to and that smaller motor to higher higher a materials making that motor, product, important the higher lighter, at those, performing for the now. same in best electric leads the all does hyper-coal vehicles, a induction our is leads really motor the torque, higher is right time, better as speed. So with rated power, and which that

lot for why of have that's So product. we a that interest

not but produce the Tim remarks, finishing production pandemic, making stack in continues We're to moving will than It's to five Now, this over do closer remember, next more by but campus Reading in to to it grow into leader the it power way. taking Technology mill, now. world. auxiliary to Carpenter that we business and the that to now bigger up our market in before get market as could customers as his aerospace. $XXX a And and capacity, our put And pulled just involved. times even hopefully the the which level, project more today even million material, We're was XX to Josh, three by strip mentioned the in market at electrification in almost cost product just even, area big with customer came moving to lower the a of years. to the importantly, capability and when units the the quite a increase being hot a more four next it's we’ll be that attract more frankly, the

appreciate accelerator allows over something can really us that So Carpenter for next year. the really I the Technology that about an talk to question be earnings

Josh Sullivan

Got it. the for Thanks comments.

Operator

question next The Capital Instructions] Gibbs Markets. Phil go [Operator KeyBanc ahead. come Please from with will

Phil Gibbs

Hey, good morning, Tony and Tim.

Tony Thene

good morning. Yes,

Tim Lain

morning Good

Phil Gibbs

give Tony, your can you year-over-year? or change on backlog, us some they color either sequentially

Tony Thene

basis, backlog about XX% year-over-year aerospace couple on backlog was down sequentially, down was Aerospace higher down across about XX%, all that's points that's total. backlog was sequentially a percentage down Backlog that. XX% than of a Carpenter, was

Phil Gibbs

engine sequential either engine aerospace was then the in And or That's on decline year-over-year what specifically revenues? helpful.

Tony Thene

down at look quarter XX%. engine, you last you remember was sequentially, it If

get to year-over-year. this it's quarter, XX% another we Now down almost

aero engine quarter, is XX%. about down this For

to point were down. last XX the point Now, five we to over ago periods the remember you're – so to at year XX% coming off that were a – high comparing top, at the high the year-over-year years,

Phil Gibbs

down So you're XX? saying year-over-year

Tony Thene

aero on engine. Yes,

Phil Gibbs

Okay. I capital be to just on the And clear side. then networking wanted

taking coming inventories, another I that. this is going it's quarter, to your this sounds quarter, be that So December it strong quarter got of down like

that Just is question right? I'll on a B, then a simple that part and ask

Tony Thene

see we'll opportunity That's be correct. Maybe out. inventory not the taking same levels, where but we do still

Phil Gibbs

loss the impact from you past of to SAO an way handicap just $XX I any in the this absorption in EBIT quarter, loss to So million. and of think north P&L the had

you If been been just what to absorption? taking to weren't intrinsic Would been? closer you if trying and inventory, have taking would losing gauge inventory out have break-even out that hadn't profit

Tony Thene

that I'll on Tim take Yes. where he let involved. one

Tim Lain

certainly don't absorption really positive. mean, I a that running of at fair Phil, got inventory. down. also the I as been a looking but costs, larger as an have impact, you're your closer lower mean, you've think P&L fixed it Yes, would I way or you go cost I is to break-even into mean, that's It impact variable got at on inventory levels, bringing have when you've it. said. you're And the

of like what quarter. look So I would think that's it directionally a this fair estimate

Phil Gibbs

Okay.

million absorption. million under about COVID minus hit So $XX from you hit you're costs? had And then you also had a saying $X.X from about or plus

Tony Thene

million. $X.X bankruptcy million We said million that COVID $X.X in costs, we said about we're included impact. $X a is

four, about cost on direct that. so clarify So to just

Phil Gibbs

strip that are what out? – that hit bankruptcy your was So – you bankruptcy so hit was numbers didn't in it

Tony Thene

segment it added back the adjusted for We that reporting. but EPS, were it's in we numbers

Phil Gibbs

And may And I COVID that, these what you you just are? apologize then on Okay. if costs, have these actually can done did. – you what explain

Tony Thene

to keeping extra protocols it's sure. the of cost been for things not facilities the to them for exposed some cleaning rentals tried it's supplies mean, of, equipment paying they been the I of as we've it give have the Yes. some stay people current people like initiated the operating that of then wouldn't kind environment. had COVID There's PPE for extra just COVID-XX basically And We aspect other and level, in suspect, going or general protection high to that facilities. have, the we just home. in

Phil Gibbs

much. very Thanks

Operator

Chris next the And Please ahead. Research. with Olin from will question TierX come go

Chris Olin

good for Hey, Thanks morning taking guys. call. the

Tony Thene

Chris. morning, Good

Chris Olin

disconnected so second, I repeating do. if apologize, I for things I got I'm there not a hopefully

in about terms a guess, room there if how want markets for just greater magnetic but And give was me understood of the about – wanted timeline we the numbers. do to think wondering times and I've XX inflection wiggle looking it should just I I think but to maybe timeline. Q&A asking them those, than you'd start you to do you into was – about make to I'm five heard mill? session. I could When guess, I demand be – end end I earlier I mentioned real saying follow the hot that strip the at. Let’s forgotten, just call and I up. how chalk I sure up of were turning any volume thinking green tail XXXX, more just the bananas starts. CapEx you're I

Tony Thene

just four higher to three be that, to to And times us the to five be the available next XX I on current over Yes. clear years. said could that market

to quite you if some times market we're XX towards So this electrification. follow in big a time not we've five more still on I us aware that I way moving for that's to with just – than and this fairly for more so time, been higher that side a and mean, a aerospace. for it's four the think And broad, times you're number long – three APU

So, – and this now just consumer takes and transportation, and a profits equipment so into defense, markets proprietary product electronics. like increased other

but that it's think So give this get that we're think right I you over quarters, might you'll I earnings when getting can't the and for see a several time now. to on years. next And over next the that increase. do continue revenue triple, to I specific five

Chris Olin

Okay.

growth. just like like It's So Texas we're gradual not anything outlook that. waiting the new anything in Tesla of a or plant for

Tony Thene

running, do, a source, to going you flights, the forward to be aerospace, terms that And could from an chain, I really accomplishment. They're this a that to whether what going new point and read think stack, General We're capitalize product. in of the really, further the but on we not you most six very I to we only move more going of quite expertise, now here you in we testing doing months, commercial how and pull the we're next see which that of and supply companies saw but lot announcement this may what from areas, in getting all want certainly outlook, think robotics. them have that's the three, or have point direction. in not are only and a the supply And proprietary to us significant. do potentially closer a more within touch of electric is that make at And moving do to the now right the product, and we'll it. proprietary is time mean, gradual we it's the scale. building may customers small to significant drones I mill not they're have mean, up our to Across I Motors important our us want think motors. I

get it's It's the is decade and So really in a we'll exciting opportunity That the near-term. near-term line bottom us. for a not away.

Chris Olin

That Okay. sense. makes

approval product the pretty changed outbreak closely the since whole has anything the follow-up at if of take process you One as I with – COVID Athens was I the and guess, wondering less and the distracted, it everybody longer doing slowed you pushes are or kind down out work of other it got where some maybe like issues, opportunities? of there, like now has term

Tony Thene

customers process it’s a a that process word wouldn't time, that, long think very that a plant. best I of face-to-face your different now, long, I for the type it's visit qualification is say

limited, the visit customer groups. has with travel sophisticated but a deal we You very been obviously customer, restrictions with that

the engines they market their couldn't enough much. and this speed because base, we prior I the the build this Again So customer mean, prior the we continue other that meet slowed coming push that has could the pandemic, of not prior ways wouldn't were other this back know is to know but I along. at found to that they that not sort say to they sophisticated pandemic. is process it demand. a of exact In the to of market to pandemic, words, we're at

different they that before. how system manner push know did a forward continue in and albeit to than we So important they

Chris Olin

in still hanging that big products there fruits products could like, move volume terms out big there, of some low the a is needle? If

Tony Thene

a – big sure. got once still to get of There's couple for first there Yes. qualified

Chris Olin

I wondering touch question, up. picked getting into, if Okay. were did he distribution or just And then I areas little thought that were just bit? or some of better, thought demand just the transportation there related orders that aerospace said was said, a Tim last was I that tie

Tim Lain

We've pretty right distribution segment. to within at clear, I is be PEP to I business PEP the tied that distribution, unit a got transportation. in talking was our comment, said segment. that And you're significantly when think Just I distribution the Chris, business

spike the automakers they work, demand. saw as in a So returned to

Chris Olin

guys. all Great. Thanks the and the color, info for

Operator

Ladies concludes Edward Brad our and over gentlemen, to to the this remarks. would any conference back turn closing I question-and-answer session. for like

Brad Edwards

us Thanks day. of everyone look quarter on and call. for Thanks first great fiscal We a speaking you second on conference again, quarter Chad. Thanks XXXX forward have all today to our joining our with call.

Operator

today's you Thank has conference for attending The now presentation. concluded.

You may now disconnect.

Carpenter Technology (CRS) 22 Oct 202021 Q1 Earnings call transcript