CRS - Earnings call transcript Q4 2021 | Carpenter Technology Corporation

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Operator

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

Brad Edwards

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

Tony Thene

this to everyone and Brad, morning. good call you, Thank the on morning

Let's begin review a X, our of on performance. safety Slide

on United manufacturing total of rate in incident the Technology Today, year best the fiscal our X.X, States. safety companies year one the fiscal was safest marking record. XXXX, performance Carpenter For case is

is on momentum a year leadership goal workplace. progress we a the next fiscal ultimate build take focus made hand our in The was and engagement and safety development continued In step safety, performance, fundamental activities. we including zero-injury upon to However, our plan workplace. year XXXX, XXXX our programs, to towards employee fiscal due human zero-injury

turn X let's of Slide the quarter. review Now, fourth to a and

our Our fourth ahead the capitalize quarter on ourselves opportunities. results our recovery market results position and finished efforts The of to reflect expectations. emerging to

demand Aerospace varies are While the market and recovery signals and remains our by improve end-use markets, major conditions including we saw across encouraged the in by market, we Medical. the stages early sequentially We seeing. end-use Defense are and

customer cash. as quarter. for during times and base. year received liquidity, remains facility to build important million Athens with and our $XXX we competitive industry will Carpenter Customer a The rates Technology high continue in continued engagement free fiscal generated During customer the market and focused industry the burn a on the the cash our key relationships the quarter, We strengthening advancing of finished cash accomplishment free cash many $XXX million, delivered full-year driving broaden Notably, $XXX qualification in million extend. downturn. through including flow lead total differentiator $XX rise manufacturing we quite as an and for flow liquidity, strategy Athens capabilities. during be of the to execute capabilities to when around million we another begin We in

mill our our its at addition, completed campus excited ideal. strip online mill share recently for The timing to hot In coming is strip Reading I'm that commissioning. the

motors auxiliary disrupting major and and produce. motor-stack being recovery, capabilities seen time and into used which when now higher The power electrification frequency like thinner pandemic to electrification for laminations magnetics at capacity markets. including electrification engine production mill soft increasingly and generators. and requires high-temperature units see challenging significantly prior strengthens is is applications, continue a the to for the The strip, we from growth to fasteners steady As have existing gaskets, our more end-use applications,

critical product these grow, of system to new overall and As would increasingly stacks Electrification, thin, quality motor laminations. will from hot the consistency an performance. assembled become for markets The productivity, enhanced our flat-rolled create strip capabilities mill Carpenter thin advantage

We are of are to [ph] support motors the materials already that producing process in certification. [eviation] new FAA

sensors also advanced in for more that newer vehicle systems. producing resistors electric are electronic products now are We and

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

are As seeing recovery markets. I increasing signs we across our of mentioned earlier, end-use

believe through behind continue move further And is worst improve year end-use across We will as the to XXXX. fiscal conditions we markets us. that demand

were number as depending market procedures. activity increased channels. quarter year sequentially, sentiment continue acceleration concerns calendar cardiology XXXX. customers to and up Defense submarkets orthopedic to and procedures in and vaccination pointing to strong Activity our market, continues up are fourth Results customers Aerospace higher submarket COVID-XX due to sales continue in of on impact patient we capacity by began XX% increased as end-use sales the volumes interest Elective to materials vary source hospital the were the region generating defense sequentially. Conditions for distribution improve see in were strong the global stocking in to and XX% in also in increased and are early and growing medical Our our demand and rates. on the programs. our we a In be advanced further new

orthopedic in to improvement the market our the expect as pre-pandemic levels. pre-pandemic and reach Cardiovascular procedures levels to overall It quarter further ongoing reach in surgeries. the of order ramp to will XX% ahead, recovery current of to quarter. predicted in coming in will customers elective Looking XX% of XX% the rates continues XX% show support backlog that procedures is

light In variant post-pandemic. the pandemic markets delta soften areas. it market The our delivering market, increasing to robust. could transportation prior for shipments compared our in being applications some to forecast record in remains the medical and valve surgeries elective XXXX return had we of sales to believe growth solutions. vehicle our the sequentially exhaust achieved year emergence XXX% for demand the in calendar strong XX% up consistently end-use And Although, increase the for of the last and due been truck will were quarter production We to heavy-duty one global fastest-growing end-use year.

opportunities both key to share see heavy-duty vehicle including continue the light penetrate off-road, continue truck market adjacencies, in growth aftermarket. market further and We submarkets marine and and to

the positive. energy seeing international measured. the to are In and and moving markets is recovery, oil more is The have pace gas the we largely Now end-use signs the U.S. market. initial but becoming of stabilized submarket, outlook

fourth the we power our XXXX. the divested upgrade maintenance closely are with fiscal In generation year prior included customers in cycle As year Amega working that was the submarket, a quarter results reminder, West early as continues. business

on semicon up in were Growth distribution Lastly, and consumer as for for solutions, year-over-year consumer for the industrial well was driven periods demand electronics basis. both market, and sequential end-use as demand. recovery high a increased industrial our by both sales XX% historically

turn I Now, it will financial over to the for review. Tim

Timothy Lain

everyone. sales on excluding I'll the XX% morning, Net were Good summary. surcharge fourth Slide year quarter volume. on ago, statement decreased sales million. quarter totaled sales the the Tony. sequentially fourth income increased X, volume. Compared XX% to $XXX.X $XXX.X higher Sales in start on excluding and flat Thanks, X% a surcharge million,

in by signals ERP end-use increase markets. from and we The year special $XX.X end-use fiscal was sequentially. system elimination of the including partially period offset certain the operating placed positions review included of demand XXXX to These and million to his in expenses the the million which see ago higher service amortization higher year. programs. in a covered SG&A the took salary were results to following. during up quarter's that Tony incentive The include $XX.X to reduce continue fourth million costs our $X markets, of actions the the certain year relatively improving current fiscal of we year-over-year last compensation conditions As quarter, flat accruals items same of items, most were late reflects costs, across related related

$XX.X charges, the or The the PEP charge segment's charge to decrement SAO to included results due inventory. decrement the segment. of related our this First, Dynamet LIFO million significant of million of in about reduction is within with business our $XX million $X remainder is LIFO

LIFO to current liquidated above recorded we non-cash historical well are a that required, costs. As charge layers inventory reflect the

of keeping are COVID-XX which as direct line costs operating costs, incremental in services in isolation supplies as quarter; the employees additional exposure. to with costs million other recent Second, of while our $X.X $X.X such cleaning and against costs, safe pay third incurred maintain to COVID-XX outside execute a include protocols, enhanced million for potentially reminder, these COVID-XX possible and employees personal operations, necessary our to equipment exposed operating protective

final steps The in including reduce Third, segment. and the operating and asset our the items are actions asset our planned current associated restructuring near additive executing was narrow within $X about million special business focus million quarter the charges. costs restructuring The PEP impairment our with unit and charges, quarter. loss include inventory in write-downs, $XX.X current impairment to against of

and period items, coupled third to on compared with in at quarter the the highlighted, results impact higher-than-anticipated of $X.X $XX.X focus quarter's prior of impact excluding million we the shipments, quarter beginning the While quarter million just adjusted fiscal year XXXX. $XX.X our in current operating reflect controls. exceeded the expectations Again, the the current loss million I in and the of was the special year the cost set of continued

a was for of per Earnings XX.X%. per share rate was per loss excluding the share. impact share, quarter Our was $X.XX share the items, of effective of tax per the loss when quarter a fourth earnings adjusted special $X.XX for

Slide up increased that When across for SAO $XX.X in loss and $XXX.X XX% and the X% important results charge than would the results. current loss of sales The turning include all year, reflects X where of quarter's COVID-XX sales year note markets million end-use to It's costs. third XXXX, sales I was $XX.X surcharge income operating SAO's up million surcharge. markets $XX by higher impact of Also improvement current LIFO decrement reported excluding operating reported $XXX or of segment were end-use volume. note, the the sales. Now SAO sales energy. XX% higher in in fourth also sequentially. quarter sales X items, million and excluding $X.X growth X% to other excluding current Net the performance for the due a decreased of and LIFO for million. higher. million is other operating million. surcharge excluding or $XXX.X and charge, was have for aerospace contributor fiscal our income million full last the were on by higher impact quarter those The mentioned million. SAO volume. quarter. include year XX% reported to operating higher to sequential Other sales sequential $X.X the sales operating quarter sequentially than reduced $X.X excluding Again, Sequentially, related excluding decrement XX% $X.X an year the of same sales earlier SAO on Compared an costs, SAO inventory ago, the the XXXX, all to reported energy, of The million the income largest defense, fiscal COVID-XX to LIFO inventory the sequential SAO million non-cash operating improvement decrement the of the and SAO quarter primarily reduced quarter

Looking across expect year performance generate markets we Based the operating XXXX. will of quarter demand sequential that continue ahead, improve. we to expectations, will income end-use a fiscal anticipate on similar first most in SAO current conditions

highlight couple points I guidance. this want clarity, to For of a key in

upcoming COVID-XX takes sequential activity any operations shape, taking first normalize not begin The focus execute anticipated on similar related future liquidation closely costs meet to maintenance which as market this continued includes our estimate quarter. against critical annual impacts and levels shutdowns, recovery demand. time. as the ensure at the And our LIFO do costs are expect our into managing second, we in to results, planned can anticipated broader account this further we First,

despite the sequentially. year Now, turning year which sales with PEP conditions $XX.X up excluding last our that was XX our in Net same materials increase Amega the to in defense, were fact a to the excluding ago Amega growth, segment sales that XX% sales included important and in as It's improving driven year-over-year were quarter of were demand first was in year-over-year, quarter sales business. the Slide million, growth business the of same flat reflects as sequential primarily that increased and quarter by well demand year The and and divested essentially our note essentially markets. fiscal end-use additive surcharge results. for West sales our from West in medical distribution flat used titanium XXXX. associated The aerospace

drove reported sequential $X.X $X.X ago, current business the operating of an quarter operating additive loss same and million increase fiscal to conditions a million In This million. operating loss to improve. in an an year demand PEP addition, the in continue the compares of our third quarter year sales as quarter, XXXX. in In $X.X loss of a of

For LIFO include business Dynamet million a decrement charge with clarity, results our $X.X the current quarter's unit. associated

the Excluding unit actions and year. been over on reflect higher earlier for focused portfolio taken business Amega sequential that operating impacts quarter several divestiture particularly favorable income volumes. LIFO The business the benefits cost decrement the of of operating current year-over-year in have last the we reducing fiscal results the have our quarters, additive the West of this charge, The million. results $X would reflect

customers, loss upcoming a generate as mentioned with quarter. operating we Also, some the in in the us and QX to faces, costs, largely look SAO, coming With fourth the includes we $X will summer that said, our results for shutdowns same I both believe PEP to breakeven some line in guidance COVID-XX dynamics will our of quarters. that quarter. improve anticipate conditions SAO ahead, of As we planned PEP in that for given demand currently first million continue the

Now, the operating from Slide total of and fiscal full review $XXX a and free cash In activities of flow. XX the year. a million quarter, $XX turning generated we to for cash million of current

within drove operations, to generated inventory. million you As continue we In the $XX see can flow cash current from quarter, reduction. the we a reduce

under we $XXX fiscal all just For XXXX, inventory reduced by million. year of

as the we the funded mill In other of resources pension pension complete over lower minimum the of year spending for $XX result to down, year capital the contributions to and finished our XXXX. capital $XX than and with million availability we concentrated million million start of qualified a expenditures projects. efforts certain plans to required planned just quarter, of of expenditures. fiscal the strip Moving the expected, year We largely fourth and project lack $XXX finished spent as capital with our hot contractors of

We fund flow. free a of our shareholders, consider also which to continue to we cash as our part constant dividend

from have shareholders signal $XX cash market million, outlook and quarter continue we $XXX highlight those details headwinds. our available shareholders. as quarter shareholders a as important $XXX return flow with total the to the desire regular year. of million was continue paid for We $XXX to in and our free well conviction With that From in modeling year the about million year $XXX of the under the XXXX our mind, long-term liquidity generated million $XXX Slide full depreciation for our dividend a despite for current the This XXXX amortization to of value borrowings to to new increase as increase related and year the With in implemented facility. amortization help to year. recently let's million credit fiscal year placed service. to for is talk year reflects move strip to XXXX of was The We're fiscal mill fiscal XX fiscal selected guidance. providing of we that, year expected information that in that full fiscal ERP Depreciation to XXXX. selected to system in the of million to of we a our perspective, cash including current business ended liquidity as in we well in million our an our a the hot $XXX to

XXXX. as flow targeted in type us paths. spend this we'll this well $XXX in growth to capital the expand as capacity in spend also in expect CapEx, level, but allows about fiscal opportunities investments certain required areas constrained maintenance We amounts make to for expenditures million year At

minimum I contributions. to to XXXX, required In mentioned, contributed year fiscal qualified our we pension as plans. million Moving $XX pension

contributions the American for XXXX With March enactment in effectively of XXXX. Act of the Rescue pension XXXX, of Plan minimum fiscal eliminated our year are

expect XXXX. to benefit net non-cash pension net pension pension of pension returns from fiscal a to million rates, we net in as of net expense $XX $X higher of $XX expense expense year result and For million million and asset by discount favorable decline move slightly

slide year the fiscal XXXX For settlement on XXXX. charges number in $XX.X fiscal of million clarity, year recorded the excludes pension

$XX from is largely Next, year year several large by increase estimated increase XXXX expense The is interest multiyear fiscal the capitalized $XX driven to interest of the to million year. fiscal in XXXX. completion in in projects fiscal due million lower to current

effective income the Lastly, rate. tax

For was fiscal year our XX%. reported XXXX, rate effective tax about

was the rate XX%. the of when However, fiscal items, excluding about special impact XXXX year

effective back the be Tony. expect we XXXX, year With call I the to XX% fiscal to that, turn to will rate over For XX%.

Tony Thene

Tim. Thanks,

challenging, Carpenter year conditions. recovery. despite turn coming in fiscal pandemic, company, last facilities Slide Let's the history has but navigating on The closing XX to year strengthened respect operating been unprecedented best for employees, our we the a to successful the and our have was of my company remarks. to safest XXXX In capitalize year Technology. in With in the the

of between moved and terms managing million business, annualized various and $XX programs, initiatives cost In in which quickly portfolio deliver million savings. reduction to will execute our we $XX cost

In implementing key across centers and have model addition, productivity notable relentlessly we gains. secured the been operating Carpenter have work

We $XXX with $XXX also finished liquidity XXXX in fiscal total focused of on year driving million the cash. including million and liquidity

continues and operations opportunities best to to us flexibility capitalize we overall on financial take shape. will increased as and enhanced market strong recovery look provide with the position as Our it

the as tighten. production also begins to as expect benefit our levels market it capacity capacity the rise We offers incremental to from industry Athens aerospace facility, and

customer relationships the We during downturn. have meaningfully strengthened expanded and key

partner. We years. needs changing that production mission-critical solutions with to in schedules, industries valued for business, demonstrated remain as as have leader a business critical a our have customers largest XXX than world's market provided more worked closely where our and both solutions is we the We provider Technology core their address Carpenter and to a material well

have we our addition, major areas magnetic in invested as electrification portfolio, is forward. moving a In like soft trend emerging

the last you timelines As while take operator for And to are it influence longer-term different your worst across your recovery questions. And turn the mid-term Thank quarter, over and the about I the our has to said behind our us and we will outlook. quarter-to-quarter started. will to performance, now, excited continue shorter-term is recovery end-market time. I

Operator

this Cowen. will question the with Khanna session. the begin At question-and-answer Instructions] you. thank first Yes, And time, comes Gautam from [Operator we

Gautam Khanna

Yeah, so thanks. Good guys. morning,

Tony Thene

good morning. Yeah,

Gautam Khanna

the in profits. I some was and was benefiting that? way wondering, there SAO at quantify you closeouts sales of mention quarter, can Any

Tony Thene

Not just year mention But we that there that when of We the we wanted our was up exact with Gautam. some to to that some work to quarter shipments. trued number, here. in this a ago delay customers

overall significantly material, to it not drivers of quarter. higher the but the was in sales one So

Gautam Khanna

is Okay. commentary that where being And was you the of engines, it the seeing it around similar fasteners, what's channel? I structures? seeing the are QX. like picking SAO How is aerospace are on fiscal in you sort characterize Is been what it to going backlogs, you can QX curious, up? demand in

Tony Thene

Well, can across that's confident sequentially up why couple XX%. of were a markets, XX% of end-use is look is is we're of And say, Overall, I end-use backlog data our all and sequentially. total backlog all our Bookings increasing. percentages, markets, the different points. up if forward but you our

Some markets higher than that.

very medical in strong across times example, and the lead quarter had board the as bookings well. extending that are in For

very outlook. together, all it gives to a things So, look start you positive as come you those at

all that fair not at point. it's say Now, same customers are to the

for right are immediate needs. ordering that now have some We customers

XX moving a customers orders, said, XX, But points points to different have pretty We a when I have at So they're need backlogs and time. XX, it and I clear us, in all bookings “Hey, take lead at through.” look telling as burn signal that you forward. to got we're are I that overall, of other inventory days times, another

Gautam Khanna

any meaningful fasteners between components? structural and And differences engines,

Tony Thene

In sales, sales terms of backlog?

Gautam Khanna

demand In lead orders, terms of demand or times?

Tony Thene

that Yeah, be sequentially. up all a But the up But sales from a down. can at were on side, you if you standpoint, and backlog bit. quarter-over-quarter. And XX% engines had down up mixing they differences at sales, as up submarkets. structural, bookings, in aerospace it aerospace we of look the were you some look know, strong, flat were Fasteners all slightly except then, the was and submarkets inside if was in were bookings which

Gautam Khanna

the in lead-times are trending short, imagine in general, Okay. how I fastener lead-times they And engines? are but

Tony Thene

yeah, pretty And XX%, said I about correctly, look would, I XX%. maybe XX the with I We industry, you last quarter difference. of I a if were remember the track for if others couple weeks that lead if or extended to this XX are remember roughly times weeks. correctly, here at closely in quarter, engines us there

going weeks XX were the And That's going the said push Gautam, to we on weeks. continue at out XX, I've times. we start maybe this, several to XX here Prior lead every to say roughly the to increased customers in increase And those and quarter. more as So I you're pandemic, continue. quarter. teens, placing are, last more orders. quarter, to high this That's

Gautam Khanna

Yes, you thank it. very much. I appreciate

Tony Thene

Have good Yeah, Gautam. thanks, a day.

Gautam Khanna

you. Thank

Operator

Thank you. next Leshock from question comes the Capital Instructions] [Operator Markets. Thank with Michael you. KeyBanc And

Michael Leshock

Hey morning. good guys,

Tony Thene

good Yeah, morning.

Michael Leshock

current just first inventory inventory we they're in at about ask your where you further So, should benefit going any the first, wanted Do from see Or I now? do you destocking comfortable forward? feel quarter? absorption with levels. Or expect to

Tony Thene

for Yeah, good Thanks question. it's a asking.

operating inventories we at really a the spent lower I the our diving model, Carpenter year deeper into get that overall. to think last rate

to during into melting on So wanted lower in moved days to that we at we more that We our forward. were and customers. going the when again this were inventory. we overall, consciously inventories We number want supply our lead-times. at hand XX customers look We pandemic. be Prior And to to right? pandemic, you we because our allowed week non-stop, that were invested put balance up,

back inventory going corrective taken because we've those some actions. us see levels, not do I to forward, go we as So higher

will step be a down? quarter No. every Now,

some and down period take with we of we out. them over a going a that quarters two, helps longer situation. of overall, - But hopefully, or inventory, bit see some build to little stay specialized believe year flat, could we will because have You next forward, still our opportunity over where that the inventories

Michael Leshock

see But Yeah, ship on platforms, less chain you by be some whether that are are do inventory given levels? I different more aerospace, platforms there some what know the within And that's helpful. want than the do destocking opportunities product. you just or platform see upon others more then, recovery, supply or to of to that by

Tony Thene

you of we're the all on as know, platforms. Well,

ones So coming slower quicker the is whichever back are demand or us, there. for still

I like right if moving a take the the the you the times recovery. the say bookings lumpy now, this aerospace I industry that have backlog next in important pretty of note compelling to when entire moving So the said, even look you that's could forward, aerospace over in do just lead at trend market. think it's across in and data we're couple forward that says quarters, that I the it positive be

are nothing where going to of You be down quarter forward. a see a couple And could alarmed that's about. points engines

the if other lines think call from we at positive increases to saying released today it you you're on hearing industry or look spot I what forward. year-over-year on And recently. the are external recently earnings talked have manufacturers up what going going though, in you're that to see

people with in right saying. you're hearing we're think I other So the industry what line in

Michael Leshock

Got color. guys. the it. Appreciate Thanks,

Operator

you. back conference over I to like now Edwards concludes for turn closing any comments. this session. question-and-answer Brad Thank the the to And

Brad Edwards

day look for summer. forward a conference great the of Keith. in and the Enjoy for Thanks, joining speaking Thank call. earnings your all again of everyone, have today rest our you We to near with us you, future.

Operator

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

disconnect your You lines. may now

Carpenter Technology (CRS) 1 Aug 212021 Q4 Earnings call transcript