CRS - Earnings call transcript Q2 2022 | Carpenter Technology Corporation

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Operator

Good day, and welcome to the Carpenter Technology Corporation Second Quarter Fiscal Year 2022 Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Brad Edwards, Investor Relations. Please go ahead.

Brad Edwards

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

Tony Thene

good morning Thank you, to Brad. everyone. And

was workplace. Slide record. fiscal continue our on our injury our X.X, safety total performance begin towards year an on our quarter, of is X.X, push remains rate was quarter. to of the performance. incident a It second X performance which safety core value year XXXX first be to Safety X review Let's a above which be to we continues best improvement #X the case and from Through ultimate and fiscal a goal slight our

to emphasizing engagement involved. emphasize And work, safety are safety, development engagement. leadership Our of key we employee and at encouraging hand including safety our and safety initiatives families always teams continue work get to centers, expanding employee outside

report, released safety read XXXX our October. which more about programs in You can we in our sustainability

communities. report highlighting to local stewardship our environmental engage the social details of In health employees, employees to programs safety and to our and the our and addition commitment

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

recovery the though continues aerospace end-use signs strong end-use taking across growth. which varies demonstrate backlog across market. of key chain pace see we is hold indicator by each demand market demand is broad-based markets, continue medical of market. improve to supply In a end-use to of the We see our growth, the particular, accelerating. recovery One And of in

surpassing increased XX% being The rate, quarter's sequentially, growth. backlog and Our increased XXX% XX% driven year-over-year, year-over-year. growth XX% last the is backlog sequentially which bookings by

We to recovery for have with across our customers, that work continued preparing the market.

with customers As renewals quarter, key locking a the completed gains. defense in result, we long-term in second contract and and pricing aerospace share

qualifications largely PEP Athens second of segment higher-than-anticipated our market. The the demand ahead medical additional X the in received end-use quarter. also finished expectations, We driven by in

performance impacted and in isolation operational SAO shortages labor hiring due challenges, environment. both current the by was to challenges segment COVID-XX the labor in including However,

outage press. an at we unplanned as Additionally, had Reading announced, ton XXXX -- previously the

may know, fully XXXX. is of efforts As on important end-use this and be multiple during quarter you piece to equipment, track. markets. Repair fiscal an are currently expect of press We third across year serving the operational customers underway

reducing fiscal any we part downtime the to pull the additional repair of of are planned maintenance, As a able through process, year. the remainder forward

any expect don't SAO long-term market to improve. continue as we from these ahead, will performance Looking challenges accelerate and expect conditions impact

million in we remains with Finally, our liquidity the finished healthy quarter as $XXX liquidity. total

quarterly returns program. dividend also our We our through provide continue direct to shareholders to

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

sequentially were XX% and and Aerospace Defense end-use down market X% year-over-year. Our sales

including and ton our the the of the quarterly year items quarter performance that outage had a operational of contributed customer boosted reminder, year-on-year unplanned XXXX, variety second offset in decline. Sequentially, we by the improvements XXXX to onetime of demand press. As a were contract-related fiscal challenges,

and still anticipating we market challenges to see to Industry the year ongoing XXXX, as related supply recover the times And bookings lead this backlog consensus improved improvement. rise for the Omicron result, across as Looking variant. a of continues and plan applications. any our near-term evidence continues with is increased ahead, calendar to extended despite an customers

market year-over-year. sales and were XX% In to Specifically, improvement sequentially is defense end-use backlog device XX% sequentially medical market, XX% last The medical and results end-use the up up up the and year. in reflect our ongoing aerospace compared X% submarket.

to hospital some in levels overall positive medical impact pre-pandemic outlook Omicron the are is rise the year are near-term there the While in about levels calendar geographical procedures staffing locations, concerns of certain variant expected as XXXX. to on

replenishment sequentially supply market XX% backlog to chain the end-use XXX% as medical seeing the are in We year-over-year. and our up is support expected growth

improvement to improvement and key the chip in helped booking up trend activity shortages market this end-use Medical's Dynamet recovery second quarters. in coming expect In strong continue in the that rates the performance with The sales PEP market, business. were and impacting driver segment titanium expectations of compared further We XX% the a sequential backlog the beat showing and last the challenges results are levels. X% chain quarter. transportation to end-use reflect down the supply The sequentially year. is

rates renewed to market growth inventories opportunities down vehicle are QX in historic generation lows, is at aftermarket last see optimism will even semiconductor-related ease. we and expect oil continues to power spend up count and year America, to XXXX. the business, and end-use sales North And increase In capital to flat year. are is and gas heavy-duty growing. after submarket up XX% solid. sales markets market, up year-over-year. on XX% industrial share global we shortages is consumer submarket the rig strong cyclical the basis. strong on a and by last Notably, basis with continue that end-use compared In demand steady With fiscal XX% expenditures demand The the XX% and business, other XXXX. year, XXX% recovery impacted and year XX% were calendar XXX% on as with year. outlook oil hand, shows the outlook which the oil into sequential is strong the In of down However, signs last gas gas light-duty and a in sequentially the recovery down for International and the The year-over-year off-road, X% its in compared showing to projects submarkets. were consumers new a year-over-year truck, market, the continuing in Energy watercraft a comparison own their increase and

continue demand We demand throughout for expect the high remain historically fiscal semicon see to strong solutions and our year. to

by to healthy strip Reading. commissioned growing in mill continue in submarket the we hot strong see Further, our electronics addition, from backlog. the our recently In engagement on in electronics have we submarket evidenced demand customers

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

Tim Lain

the increased X%, sales in everyone. morning, were a up summary. year start were slight a sales, Net from second slightly same period $XXX million. with quarter decrease in X% totaled sales volume. Slide and volumes. X, income Good surcharge, statement Sales, on ago I'll or the surcharge, X% excluding Tony. excluding about Sequentially, $XXX.X the Thanks, million, higher

$X $XX.X sales. year The challenges Tony the primarily staffing backlog. his meet flow challenges in our to quarter's second impacted cover impacted targeted These quarter markets that were fiscal the As $XX.X segment as last production end-use see With our said, for as by ability million to first as to compared our detail the the to in the improvement in across well SAO million quarter. key quarter by continue the paths, in due in comments, million current covered shortly year current ongoing those conditions with higher in growing profit isolations we evidenced associated more gross in positions. summary. improving of demand certain our results in quarter COVID-XX the is I'll XXXX. the targets was of and production year-over-year Gross profit negatively

and to across in combined same with The $XX.X that was excluding included loss our loss in current period a service addition, year first special in targeted in impact was year prior costs were system recent $X.X calendar were year's negative significant our primarily beginning SG&A the impact essentially million operating lower levels was In quarter in a to million loss activity the inventory increase amortization from year-over-year last of quarter, reduction facilities $XX.X flat XXXX. reflects second second When a million The quarter. to that current higher the the up executed. the expenses million profitability period the related $XX.X sequentially. on ERP quarter ago, compared items, the year related loss the the placed $XX.X operating at million adjusted of in of quarter. and million $XX.X actions of

for Our was XX%. effective tax second rate the quarter

XX%, the rate gave effective For ended under the just than is start is guidance of December XX% we full the to slightly year which of XX%. the year at lower XX, the X XXXX, months

to the XX% share COVID-XX adjusted jurisdictions of a trend range to the impactful XX% loss of we tax certain As cannot the share. specifically $X.XX special are in our for items, lower earnings of to $X.XX the in losses benefit forward, the less quarter of per year excluding per for rate per share share. tax balance be the of per look expect the as recorded which tax impact we When a tax costs, loss was effective rate. was Earnings a for

end-use comparisons to in quarter higher and the offset $XXX.X given the the related sales in sequential sales driven XX% are were Slide last that volume. decreases quarter the customer markets results energy on The sales increase than year of to X% more the for largely by benefits to from year-over-year ex results. excluding the matching results in which and from end-use we in consumer of segment were QX several to had $XXX.X reflect volumes. were million, The as were last turning for Sequentially, markets. on some X medical, declines defense shipments markets. the and sales other year-over-year that aerospace our second decreased sales I year a increased million, Now transportation sales market medical year, defense ago and and surcharge, end-use out second the nonrecurring net market, aerospace SAO the by to dynamics X% industrial results the point increased offset materials excluding quarter should end-use Net and of in surcharge challenging, contracts. by or surcharge

Moving year, of an $XX.X and quarter operating to SAO ago, in for the the million; fiscal $X.X million loss operating first $XX.X loss of a The operating year operating results. was SAO's this loss an quarter. reported SAO million. of reported same quarter current

results growing hiring production As challenges the COVID-XX due operational earlier, operating COVID-XX isolations certain just to were challenges largely challenges, to key operating by roles. was as for results Year-over-year periods. as at compounded higher late The by work centers the including decline press and production the to near-term critical some impacts when costs staff outage supplies. certain influenced were quarter. to operating performance by increase over costs meet mentioned in we some SAO's declined SAO in operational operating I staff both These the and $XX operating demand million continued adjusting of the as well pressures inflationary in Reading

as operating $XX impacts factor results during the were last In system In offset COVID-XX newly the the compared addition, fiscal associated $XX impacted largely as inventory. negative by we raw year. by commissioned the with year as the that fluctuating isolations negative of continued employee service quarter a in lower sequential built increased partially current prices strip The quarter and higher the million ERP of and of material year-over-year From in inventory in build was impacts placed results inventory the hot rising impacts our of mill. levels a were in depreciation amortization the to period. reduction XXXX SAO during with million a quarter, well we the costs perspective, each same were

markets continue we ahead, demand will end-use expect improve. Looking across the to most conditions

XXXX. mentioned earlier, half take backlogs recovery we fiscal to As year aerospace supply our expect more a in grown, our of the Tony have chain continue shape pronounced and to second

movement Our continues the of and which is paths flow with increase, demand. the teams growing are focused critical on materials ensuring keep to pace necessary to that

we generate are diligently press to later and back operating anticipate upcoming $X Based range repairs expectations, SAO to to the million on quarter. quarter. in the on online breakeven We working on the of remain come schedule press will for necessary this making loss the in Reading a the results current

growth by sales sales, surcharge. million, Now the a demand increased year markets. surcharge, turning in and significant growth The all business sales in driven same Net and Aerospace sales to improvement was Slide segment led or Defense year-over-year Net sales quarter XX%, from distribution $XX.X by by in additive in increase seen quarter units, million businesses. titanium our sequentially. the XXXX business of fiscal sales in $XX.X net across XX led Dynamet where and were in sales. year-over-year year demand our second increased also both and We've Medical excluding reflects up excluding net our and results. end-use XX% last additives were in increased The PEP sequential

Our of ago $X growth year same supported Dynamet of and also and an drove sequential income in demand. reported compares a loss distribution In by operating $X.X business to million current quarter, quarter recent operating income operating the primarily we business the unit in of million. XXXX. in sales stronger quarter. the the is year as increased PEP the business year-over-year as fiscal million income The first from result additive well our sales $X.X of restructure actions benefits operating net took to improvement This

of for will segment range million improve million operating As the believe third we that look $X ahead, continue to coming in to we income quarter. in We the demand anticipate the currently PEP conditions quarters. $X the deliver will that

result review Slide quarter, flow operations earlier. increased inventory the turning used activities. operating flow. of of operational used In inventory mentioned million the I we current the in in XX the $XX Now of The free quarter. to quarter, primarily primarily $XX increase and near-term cash the The in of million cash was is for result current a cash the in current challenges by

We expect in improving have to throughout reduce of the place year levels balance to be demand temporary this inventory and despite conditions. inventory build-in the plans

second of in fiscal second With expect of positive the the XXXX. in flow cash fiscal inventory year, generate we to reduction year half the the half

XXXX. expenditures. year beginning not any for of minimum have million required expect provided of previously quarter fiscal In qualified our for expenditures fiscal we Moving on to do $XX spent the down. U.S. pension capital during contributions we year that year, the At of we capital XXXX, XXXX. guidance year second fiscal plans targeted the We million $XXX

in for we the certain capital expect extended million, some As as we to be given that will move well $XXX year, expenditures year contractors through fiscal currently outside of delays full times the $XXX as due the the of availability to materials. range in million lead projects

million flow We also those reported dividend which as continue our cash in the our to we part quarter. to $XXX a of mind, details flow. we shareholders, of negative free cash fund in constant With consider free

of of borrowings remains With liquidity ended call liquidity the that, to $XX Tony. the current back $XXX and Our $XXX quarter turn our will and total under including cash healthy, with million facility. of million over we million, available credit I

Tony Thene

Tim. growth continues recovery. across our market foreseeable quarter, and and focused meeting the Thanks, our and to to second strong during improve, Demand backlog future. saw are We for on we end-use the it continue we generated demand bookings from expect

partnering locking We the with gains. In second several continue the we to to customers, quarter, and solve increases key closely price recovery contracts, and needs. long-term critical navigating our in work renewed their share

serve our While drive we year won't operational growth term. the nature ability over the impacted results quarter in for are short to term fiscal long and challenges, the impact by customers our near-term of believe second XXXX were and they

the rest fiscal repairs maintenance to open Reading that quarter, press X,XXX aerospace at facility, We required we to year. are qualifications will the and for Athens forward in for pulled capacity ton and the of the have continue our planned third recovery. provide the prepare track With to through ourselves capacity on capability the additional complete

and challenges labor across fiscal and inventory, the In flow strong reduce position the intend the a to our impact address second we liquidity have facilities. year. our half the of which on continue throughout increased implement Operating to retain will positive short-term Carpenter to Model We productivity fiscal cash year,

turn for growth it Finally, questions. operator your opportunities. you And now take Thank I to offer over to time. our the platforms long-term additive your magnetics and soft will manufacturing

Operator

Company. the from with [Operator Instructions] Sullivan And comes the question Josh first Benchmark

Josh Sullivan

as Just that and as far back service? or what's as into as press of equipment the other press similar it outage, history the like getting turnaround presses the far

Tony Thene

this Josh, one thing, that common. not it's failure we type of had,

We but on bit. The as Every the and spares of little already on knew repair maintenance to the we planned this shelf. start deal we going had life. time press quite with type we in that category is you that's what a something good some this not news in failure always have at in you a we to place the that had it's a So is and press deconstruct were to It's different find, plan the game bit going do. and what the site. its

back on So as as we process we're the were is come to speak prepared track, today, to mobilize able And pretty had quickly. we communicated earlier. we online and

Josh Sullivan

bridge I the received? of up, had Got how help I Okay. on this maybe we number quarter. Just you trying the you maybe that qualifications versus a But value to you potential do Athens, that versus just gap X qualifications what old the overall difference it. or those can number between think that understand understand understand the qualifications then the between number value of at of us going a value And represented represent? facilities? they qualifications qualifications of the

Tony Thene

way we Yes, of think stated that, total because Josh, bifurcate at we're run look locations a best to the our to we time as all system. between going I not some ago,

So as our we we're speak. product moving among facilities

more. an to increase you at that quarter, best you of for and that, have signing is the is supply we increased this largely the that are see due look to our and example, I fact sales contracts today think the we should in way assume that ability as the to some it share that Athens is see you for

in that we renegotiate So going us contracts those the serving have And capacity forward. well. we the that is fact marketplace today

Josh Sullivan

be say as the demand electrification how cycle should And just of we last at hot broader an but curious aerospace there of on looking mill, and strip going forward demand soft one was kind trend backlogs that one magnetics out. the then electrification think Let's you backlogs? the plays historically, market, think just should we how

Tony Thene

Yes.

As and significant more has we couple mill you the in couple area go information. some of going since of interest in more to we're I that first quarters, give been strip you forward tell new over vocal next that the its the that in be in demand can months, existence.

So with couple to us And made. the the that years. nice I'm going accelerator be earnings we really mill pleased over next and of a for that's investment very

Operator

comes question Michael Markets. with next KeyBanc Capital The from Leshock

Michael Leshock

And competitive competitors? how now. environment share your gain growth long-term to You guys and secular wanted take take from mentioned opportunities And just share expansion get I more right you Or is it to the contracts? looks seeing opportunities. on of are

Tony Thene

Well, speaking you're this I'm There's in area. not and competitors sure area, a large amount billet the in on primarily aerospace space. the of

Of more market is of to to stable find customers. a the we part our so always it. that's can going we're be then provide looking And to growing, course, where supply

So of it's of Michael. those, combination a both

Michael Leshock

the and that build the Okay. current with shipping And shipping MAX where or we XXX above got you're month given in regards to are the near XX at OEMs, the there below where rates platforms Boeing, aerospace per rates? any those are you rate? X, from specifically Or

Tony Thene

we shipping Boeing. We're question. Interesting don't to ship directly --

over tell their months. parts. can to confident for the And those the ship more have order we suppliers. considerably specific you in So suppliers all are with I and platforms their of most increased couple more last part, They intake specific the of becoming

You growth can in and the in terms stated that see that bookings. of I numbers backlog

why are quickly. that important us now certainly an got There and and Athens. keep up. pretty concern can for it's in have ramping right market, is up you've to so critical That's industry strategic supply the a So

last future Carpenter and of discussions -- coming couple and traffic demand news we the more good that's the for the is us. our pronounced see in as back next to And couple for here months. the Technology So much getting the

Michael Leshock

spike have could gas what are place? implications And that the a hedges you natural then in me, lastly might for any of provide here just around and the sensitivity if price you

Tony Thene

leave one I'll to Tim. that

Tim Lain

about We basis. on Yes, forward hedge gas, Mike, of an average XX% we do our program. expected have portion an hedging natural significant purchases active pretty

from pretty So protected the in feel price we a spike future.

us. for don't significant a We impact not expect. So

Operator

[Operator America Instructions] Fields with from Bank Matthew Lynch. The question comes Merrill next of

Matthew Fields

kind some discrete I flow to ask about just items. cash of wanted

know year onetime you you made years? contribution a -- kind kind fiscal on similar haven't this You of a bigger this Or intending you make of year to this contribution year. can plan that Are contribution pension about? yet let previous us is a as pension there

Tim Lain

Matt, Lain. any minimum significance. this it's any pension Tim of have we don't required No, contributions year

no. So

Matthew Fields

don't plan you one. making on voluntary And a

Tim Lain

That's right.

Matthew Fields

on capital, months use about X bit then remarks Okay. that in working your far Working $XXX efforts your a And in you the getting to big the use full big Or reduce be kind of side million in your back on inventory. kind little been you full has Do prepared desire use. breakeven for despite back capital pretty plan about year? touched to a to for half? inventory going of the is the of a on year capital the so

Tim Lain

and started we particularly year draw. with least that's half. plans to we of got half that target the take to to half. than the in opportunities in trying back build appropriate. the and near amount working be piece in here inventory say do down second we talked sticking first place build the that's biggest it certainly the that what first the the We of the take I'd planning capital half where built we how We've is to the some balance There it think in for better we year. to we're may where getting out, at is inventory, would take about But out second were that the near reasons

Matthew Fields

Okay.

So is kind for try pick the I'm to year up? trying of to what get to full of back breakeven sort

Tim Lain

inventory for Yes, that is.

Matthew Fields

a be significant picture then with and the cash, sort basically, even half. position the in of second bigger it pretty cash seems of inventory reductions cash free cash is going and of this And flow, like year use Okay. to

capital need kind in either the comfortable I liquidity some of your available, additional disruptions, Given issuance kind have revolver capital of markets. are know position? continued the with with liquidity like full put inflation, you the to feel you the environment, the but on do structure press you more outage, you

Tim Lain

sit from in Matt, where ups we be There we're we with today, -- sit liquidity pretty I'd are is with say but to pretty where obviously a quarter, we're today. we where total liquidity each satisfied comfortable perspective. going Well, and downs

terms mature we'll become the plans no that markets, do we we'll coming of that current -- or to in In the notes something evaluate the future. have But that's over capital that months some address.

So nothing and about today from pretty we feel are perspective. good liquidity a where we

Matthew Fields

to need or equity any No monetize any this liquidity assets of to kind bolster issue kind time? of at or position your transactions

Tony Thene

Matthew, Tony. No. I'd is say this we're not that. even close to

that's selling mean, a equity. not assets I close even and area. So even that not discussion We're -- issuing monetizing to

we naturally the everything out. that see business. in a could with half, we So very with frankly. the positive the quite second in I'm with demand built come a our coming the to sure outage, with we've issues some could I of do little question, surprised back, strategically we've free inventory customers we first your press mean, will make cash certainly, And had for flow half the healthy

on extreme concerns have that that we just some mentioned. no the there's you So do things of us to

Matthew Fields

Okay, great.

Operator

It looks no like questions. further we have

So this I'll Edwards the session. question-and-answer concludes for Brad our remarks. to over closing conference back turn

Brad Edwards

for Take everyone, Thanks, future. care. a to second day. for of fiscal connecting in earnings the Thanks, with again Great. all call. you us forward We quarter Tom. joining look today XXXX great Have near

Operator

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

You may disconnect.

Carpenter Technology (CRS) 2 Feb 222022 Q2 Earnings call transcript