CRS - Earnings call 2 2024 | Carpenter Technology Corporation

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Operator

Good morning, and welcome to the Carpenter Technology Corporation Second Quarter 2024 Fiscal Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to John Huyette, Vice President of Investor Relations. Please go ahead.

John Huyette

Thank you, operator. Good morning, everyone, and welcome to the Carpenter Technology Earnings Conference Call for the fiscal 2024 Second Quarter ended December 31, 2023. being the also presentation along is slides. call broadcast Internet, over with This

those by and on you experience note, Lain, and of Please for and Officer; listening Officer. are Thene, delay Tim slide Chief Executive today Vice a in phone, Financial movement. call Speakers President the Senior Tony President Chief time may you

recent Technology's and the XXXX, on June quarter results from the filings, XX, Risk most XX-K ended presentation are XX, based September statements the forward-looking SEC made Statements factors could report exhibits be including the Carpenter are that year for that found by ended materially management Form attached during forward-looking to company's cause XXXX, to can statements actual XX-Q Form current these filings. this expectations. differ earnings in on for those

also noted, otherwise sales, operating that to discussion, on is that when or excluding in excludes based management operating surcharge. Please the revenue, following items and sales referring excluding special When that reference the unless surcharge. note margins, income, discusses adjusted

turn now Tony. over to will the call I

Tony Thene

good John, with our morning a performance. of everyone call today. on and I Slide will review you, Thank safety X the begin on to

total half last an For year the employees This operations. our continue experienced into as case of incident to X.X. XXXX, we improvement first was our quarter rate the fiscal marks over integrate less

with areas engagement to eliminate programs specific targeting employee are issues. We identify and potential

will and injury X we Our work workplace, a target. to achieve target tirelessly remains continue to that

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

Further, SAO million this the strong of most year SAO and targets, improvement. performance, quarter, of million. in fiscal in up its XXXX, realized impressive Most build operating XX.X% second have XX%, we continues quarter history. previous deliver outlook Technology company's the operating the margin half $XX.X most with but profitable $XX.X quarter on of another quarter, continued provided $XX quarter, expectations sight operating the million of the resulting adjusted delivering to we fiscal notably, of to reported we second year further income momentum, in exceeded for the recent from segment the the to first Carpenter $XX For of million. In above income, in to an line

We an expect additional margin continuous focus expansion second targeted of productivity product fiscal optimization in and year in ongoing on operational XXXX. with half mix improvement the

generated of Beyond million liquidity of during from quarter, $XXX.X profitability, $XX.X cash operations the maintaining a million. we healthy

medical the completed with long-term markets. addition, quarter, customers end-use we accretive multiple agreements aerospace our key In and during across

extreme to markets end-use focused strong them. chains, continue importantly, in to customers engagement where solutions to most customers. we valued and material our we supply by operate our importance our and their are remain demand environment a with affirm Our on continue strategic And alignment across

on closer a decreased X. sequentially second look take significantly In quarter second let's and Now XXXX, the sales of quarter sales Slide year-over-year. slightly our at fiscal increased year

to As anticipated, mix volumes targeted largely flat days and sequentially, relatively sales fewer due management. remained operating and

build record rate Airbus market across platforms XXXX. XXXX continue target increases intake in OEMs remained end Aerospace, In and and robust. announced key to XXXX demand in extremely order

continues likewise are increase focus output to output. With own ability and supply increase even to levels chain's upticks forecasting customers Our the at further, demand in and high demand of needs. plans industry the be their the on to

Demand in remains also defense high.

timing defense and quarter. than in and shipments XX% X% engagement our customers shorter sequentially aerospace often of seen to with needs increase horizons extended much the Sales Over mix down customers the last for and were are up lead due to times. this industry Most was as of sequential year-over-year. planning defense quarter, decline we've the

increase some products flow energy as sales use path. shipments in similar In manufacturing energy addition, aerospace the substantial impacted

market aerospace overall Just the to confirm strength.

of fiscal a half As to the we expected half significant look year approximately aerospace first higher increase year ahead, and our fiscal defense be XXXX, than sales XXXX, second period-over-period. XX% expect we

end-use medical the an our focused market, customers improving by backlogs on population. supply medical over Like customers aging securing with supported of quarter. strong, with remains also outcomes In aerospace, broader patient multiple patient demand and us macro and trends the remain last agreements the supply completing

Our and sales following record first year-over-year. up up efforts reflects in medical medical was strong concerted quarter were sales, and the XX% accelerate quarter very a for to This a XX% sequentially shipments. quarter

material tight and critical the our surgeries, emphasize patient to we in continue customers link role the our understand and flow medical chain. Our between supply

has both our for quarter. generation demand stabilized our positive. energy gas solutions oil with after focus to premium balancing for demand. disruptions remains on end-use as In the the remains chain and high world and very markets, supply Transportation over last continues other demand demand, supply Energy power

our of And enablers connectivity areas increased high as computing they demand support. like submarket, long-term in solid semiconductor underlying and strong, supported premium Altogether, are which other for the solutions, by our fundamentals, such critical we continue see remains to applications demand needs.

addition, is In backlogs record levels remain and our engagement customer at high.

We most second We a margins customers. our we assets Notably, valued fourth from fiscal in year the the quarter, also in way operating on and year using quarter, first product To improve fiscal saw a our to our margin our in will operating income. XX.X% of improve, the SAO's in of in a especially adjusted XXXX with quarter that reached XXXX. continue increase resulting to SAO continue anticipate end, by and improvements segment, richer sequential productivity margins in mix. XX% XX.X% the focus in quarter in up the

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

Timothy Lain

everyone. complex, the morning, sales capacity driven lower lower materials were sales were ongoing X, increased the surcharge in Sales, focus X% surcharge, more higher-value quarter with shift volumes. was ago million, Thanks, Sequentially, totaling $XXX.X evidenced million. on summary. the product second from on we increase year period start on The excluding volume. $XXX.X by lower the as statement same in sales year-over-year X% Tony. Net to volume. income despite mix sales excluding the down continue XX% a on Slide Good in as X% by our growth I'll

improving remains further in to the last focus volume profit XXXX. second his current quarter our unlocking year throughput Gross in in million compared quarter. year in covered $XXX.X was first the growth by drive fiscal capacity on incremental and our million same in $XXX.X of half sales and million $XX of to Tony remarks, quarter rates the As recent

period includes The SG&A year increase roughly quarter, in ago sequentially. $XX.X expenses recent increasing million last million in by costs, about versus up primarily the and second count million variable SG&A and same were $X year million totaled the from $XX.X The lower the corporate $X quarter. expenses a which SG&A driven line same head higher second in quarter compensation is the accruals.

upcoming compared in the fiscal corporate to recent quarter of year of to we As be third million year we in in quarter a costs quarter year the fiscal about $XX $XX.X and million. current look million XXXX. expect first $XX.X to XXXX, the was quarter our Operating ahead ago income million same $XX

from see in a previous reaching up continue from We quarter profit year with improve same X.X% company margin the margin to ago. significantly period and total adjusted in slightly XX.X%, the XX% up the operating

reflect expect actions our flow in to efforts quarter of second results The year fiscal the support strong and for increase the our these focused the to activity the improving of product XXXX Again, see benefit income production results and to through customer mix of ongoing we operating our operating an upcoming levels impact demand. beyond. half

our to on Moving effective tax rate.

roughly recognized rate below tax the of was current is expected benefits quarter which recent share-based second quarter, just awards. rate the effective our effective in tax For effective lower related our XX%. by certain tax compensation tax to rate was XX.X%, The driven

be of XX%, which balance For XX% continue XX%. of assumes the full expect effective year, roughly rate the in range the that will to for to year, tax the rate the we be tax effective to the

was quarter Earnings momentum our for strong per results profitability demand by share. The demonstrate share supported continued diluted a $X.XX per the and improving environment. current

in turning our sales, surcharge. increased million excluding X% million for same and $XXX.X Sequentially, second or volume. on were an quarter net and surcharge sales the period of end-use sales by Now last XX% in results. Slide to Net higher quarter SAO the net across $XXX.X key year, reviewed segment to our impacts Compared flat similar net excluding year-over-year was higher surcharge mix were sales Tony volume. X improvement slide. the second The product prices as sales the improving markets, excluding driven on

$XX to income basis, results. product to increased a reported operating first of strong which recent pricing compared a due in recent operating Moving improved driven improved which by demand higher quarter. the largely On quarter, XX% second income improving operating to million, higher period product income operating period SAO million. sequential current ago prices. On productivity, $XX.X expectations. and adjusted operating the in are and mix XX.X% same outpaced by and about by the and SAO our in million sales with year-over-year The a in our has in margin, basis, improvements mix year in X.X% the as evident $X our

production income million Looking mix SAO third for in year on ahead, upcoming to generate flow operating and capacity fiscal product $XX further Based in we quarter to and $XX expectations, the of remains range on current increase manage XXXX. actions the of levels the executing actively to team anticipate the will production the SAO high-value to million focused maximize products.

$XX.X income year fiscal year In second income Net Now year ago surcharge excluding quarter $X.X PEP last of million million, PEP turning compares in sequentially. fiscal first of to from revenue. the operating sales, segment surcharge, $X.X quarter of million $X.X and X% to or results. Slide XX decreased year excluding were the and decreased same and XXXX income operating XXXX. quarter million same quarter, our the sales the million. XX% in reported $XX.X operating in a Net the of current This of quarter

the is our sales decline sequential both and of majority in distribution profitability and related year-over-year business. The to

is of a our distributor American North and context, business distribution For steels. high-speed tool

of parties sales than sources other Our this fiscal from no less distribution our supply distribution business sales its unrelated with businesses. year-to-date. customers to third sales Carpenter represent and total Technologies to our from X% The overlap business

sales of of income challenges with expectations PEP in are the the our In set. the in performance as in context quarter magnified PEP, smaller compared segment, distribution most operating our evidenced recent and we

customer distribution last order term. related general which the rising has industrial to The quarters headwinds the prices, couple market has commodity influenced falling near conditions, over macroeconomic dealing interest in and patterns rates of business been near-term including with

we're outlook. our and lower volume does to from business anticipate While of important it's cost upcoming impacts a for via improve mitigate that out the our point expect year quarters, working contribution or in to the in distribution distribution longer-term to the outlook balance of results our the meaningful higher and the not

said, titanium is segment that PEP we for our Dynamet all driver the our growth as With look ahead, business.

use end Dynamet's For Dynamet, similar where Dynamet serves remain are SAO. demand solutions to the medical for aerospace fundamentals strong. and and markets primarily the defense titanium

productivity quarters, in meet focused higher operations throughput are needs the see to on the We and and in driving increasing profitability. continued coming across expect to output our improvement customers'

we currently range With of quarter that for operating anticipate that fiscal the in of $XX XXXX. segment the the third mind, to $X million year in will PEP upcoming million income deliver

review year. to $X recent million In Now Slide XX cash of same $XX turning $XX the operating activities cash current generated we and operating in to quarter million a in of million our last the flow. quarter adjusted compared cash from first quarter, used free for of and activities

for compared growth cash over operations XXXX ago. same in we half first million to in a of our the cash generated is as demonstrated year in $XX fiscal from of earnings of cash period used last $XXX year million the Our year operations the flow

half the by increasing year inventory increased several fiscal million XXXX last the on of the half relative first of $XXX an to million deployed quarters, year Given over inventory. increase XXXX. focus increase in levels cash of first fiscal activity the We $XXX in significant to we

operations based As second inventory from we and half production activity, for fiscal working currently a on of considerable to fiscal earnings the will to we manage we the in of With our trend continue this year. outlook of and down outlook capital, moderate balance for we for be half in increase the XXXX. second thoughtful and anticipate fiscal shipment and 'XX, year look year how to ahead cash about levels our inventory anticipate

quarter, we million. In terms of current $XX capital in expenditures or the spent CapEx,

continue CapEx the expect million XXXX. $XXX about full year We to in fiscal for

first quarter a flow million free XXXX mind, half or in the reported of the roughly details fiscal negative adjusted million half XXXX, those second with $XX year negative fiscal negative year $XXX in With cash compared million of year fiscal $XX in first XXXX. the of in of we

cash free XXXX, meaningful positive We anticipate we that for will fiscal flow. generate year

be will driven cash As I increasing the flow of by the mentioned earnings the inventory year. free managing for earlier, levels generation and balance

with cash $XXX remains total million including ended the million we borrowings of facility. of quarter under healthy current $XX of liquidity available Our million, our and $XXX liquidity and credit

the back turn will I Tony. to that, call With

Tony Thene

Thanks, Tim.

Now year a significant on let's last best in step-up expectations outlook. take XXXX strong notably the the our fiscal a for look call, at I our half Having On communicated longer-term second in year X second most our of completed year of anticipated fiscal first setting profitability just halves and our quarter, fiscal XXXX. record. XXXX,

We are reaffirming second previous strong year. the guidance a of our half for fiscal

as we potential steps second work reaching additional of this build our certain the have and and that saw continue significant our towards quarter, continues as continued we we We to additional to progress difficult capacity rates, half work work to operating to to take to fiscal levels. Notably, unlocking ultimately increasing shift collectively the mix return products. momentum, In pre-COVID potential centers key surpass have these expect and through year. upside productivity centers this second we more manufacture production

we SAO, have at increases the and in melt to impact third expected the centers meaningful work well. quarter output ship a Specifically, the in drove second That to upcoming late fourth quarter quarter. in begin during our will in primary is as output

most in significant productivity $XX XXXX taking to of result quarter we the in quarter additional $XXX flowing total a currently $XXX are we XXXX. Combined to fiscal expect to half fourth $XXX and operating the we currently total, million shipments operating million $XX company history up and income increasing $XX with margins generating second are operating As company, strong $XXX we year in with million million million total total of year total million the company to the in the capacity in company half, in of XXXX, of the and the our year fiscal expanding projecting In year with of operating income. fiscal $XXX third million deliver through system, the income. million in output the income company to in of profitable first another anticipate step anticipating

Now let's earnings year year longer-term in the on at how a half next outlook projections second look XXXX fiscal fits growth with the XXXX fiscal the take slide.

XX% on year XXXX year in previous from XXXX goal annual compounded year detailed operating imply growth our is income year I've double As calls, XXXX. fiscal income to rate operating by fiscal These the figures fiscal XXXX. fiscal a through

realize a can As to with meaningful believe range fiscal XXXX. Further, market, realization current in see, opportunity we that expect $XXX million, will strong projected given of of to in our fiscal fiscal the are the to in step this operating continue target. year year FY take you projected XX% beyond the to 'XX income million of approximately XXXX. $XXX the position And year opportunities we the that opportunity accelerate there's we growth

to investors. today, call this value on proposition unique outlined offers As Carpenter Technology a

material value high-growth We to are unique our high-value solutions. that committed customers of strategy in applications with our serving markets

expand to quarter. delivering margins, financial improve strong after our continue We consistently our performance quarter productivity and

outlook and solutions. for is markets portfolio specialized longer-term strong across our demand The our end-use near-term broad

have improved We additional and to difficult-to-replicate system of with assets capture a we the productivity drive leading demand. unlock continue capacity to capabilities to

a to have we increase outlook strong to And and back longer near the and both the growth turn term the I'll term further in call now accelerate operator. with profitability. Thank Finally, you. opportunities

Operator

from Khanna Gautam question first from TD Instructions] Our comes [Operator Cowen.

Gautam Khanna

I of questions. had a couple

backlog I growth sequentially First, what in it, perhaps was missed quarter? but the the

Tony Thene

was it order relatively we're remember, book. up year-over-year, XX%. we backlog moderating the Gautam, that manage as Sequentially, was But about flat our

we definitely wouldn't could been done it that. if have So higher

Gautam Khanna

Understood.

lead of are today number times in where so weeks? And of terms

Tony Thene

in you're case, that billet weeks. assume and XX-plus they're I aerospace about speaking

Gautam Khanna

are with XX X customers over that next are Great. Could renewal to And about price there up for the any long-term might talk those resets significant months? agreements how coming you be?

Tony Thene

secondly, The the will and first And structure. yes, to be -- of is yes to the part answer question. they overall your also, significant

Gautam Khanna

represent? those Okay. And -- that contracts can how like might you aerospace quantify business the of maybe much what

Tony Thene

at contracts we always, there's are We Well, in several last that quarter. this had time, renewing. any multiple

that on those still the are As year over of renew there's primarily X. will large those a handful or side, of and couple the you know, a next aerospace customers,

Gautam Khanna

renewed, way Any comment on the legacy ones were the relative stock that repriced like... how much to to contracts

Tony Thene

price increases. significant were there Yes,

the that increases some of these in known think looking XX% varies. certainly I It in price at it's you're industry sometimes it products.

or alloys, a these I'm As others years these of X us, sure prices, renewing, you sometimes know, -- of to just that some are different there's with but lot significant a long. but reset knowing with contracts that were XX are not

in seeing you're pretty is before that So extremely market reset a today of there period long time contracts strong. a

type see not that it's you'd that of movement. So surprising

Gautam Khanna

for X that there or to end in sensitivity. transportation you where me, the Again, whether just aero business, markets, for the Or non-aero order some the mentioned piece? other relate on weakness it. ones? only some Last outside seeing are it just were that of other Got book the you distribution of does markets, be

Tony Thene

we that Yes, was mean just the acquisition business. part that a that -- small distribution larger relates that's acquired it years as business comment, that to I of ago. XX-plus

in buys Technology. is material it not Carpenter So resales that

it stand-alone entity. So is a really

So we SAO not other weakness serves. in that market our to or markets referring were that only in Dynamet and

Operator

Josh, Sullivan Our may you proceed. next Benchmark from from question The Josh comes Company.

Joshua Sullivan

As the of in here now, XQ guidance, cadence are XQ far assumed current kind major of last initial quarter? what if the or the kind to perspective differences any, the as from perspective

Tony Thene

no difference for Really us.

quarter fourth remained Our third relatively forecasts and same. the have internal

bit something, ask there. a I'd So I'm there's little different, you maybe missing freight

Joshua Sullivan

kind does... get had your of if perspective anything it to and wanted there just I No, really changed

Tony Thene

-- I for last quarter remember you mean that. Yes. No. sorry

that to XX% XX%, million. last total, remember million for that was second guidance gave the we you If gave $XXX quarter, roughly you to roughly which $XXX the in half

So we're reaffirming that guidance.

in time to last QX, did did we you right, you which into QX. back that this allows give quarter was what we specifically Now

Now that a only primary my assets past that has if we milk from towards But some you quarter. improved really in productivity comments because with of increase. we're pretty QX our recall that this end comfortable healthy saw the

So some significant takes of that the in lead it the December through benefit the because to time in get third fourth. of that see times the benefit the plant, we'll but in frame, quarter,

that's you're really what So seeing.

X really that's months quarter in shipments, seeing later that you're what that fourth in those to themselves number. improvements seeing in and show You're productivity X

very clear So we that. have of to sight line

Joshua Sullivan

how production digested. the MAX or into move are within And you as as then far term? Or just programs? the those you your big quickly rates the demand? as demand as the spot aftermarket and market, do And aerospace change do what can far spot to from as just issues -- XXX MAX fungibility other expect near the the you How expect of impact

Tony Thene

an was say, take came out the financial just out I there see material maybe obviously, a your this and me of up it point way, important point half hit Let Josh, And please just had couple big I put that it today. lead because because I as is night. a answer can back think that we of if step second notes of projections and to news and late that 'XX, FY no times. The I we obviously, see our last impact follow

flying to significant going record as and the -- who really more talked projected very term, to no the forward, to be to orders why needs MRO, right? last to get think that for And get Airbus you a travel are operators move that demand MRO continue delivered. Obviously, or more over you to planes underlying older delivered there's because planes I we So it is increases is increases needs. you important them. about think, push I and new it airlines airplanes If by reaffirmed, point it need recognize that airline industry more has see air the been over year. that for topic planes hot That's changes the does long

at further. can this certainly, on where up it demand case in different of central as here, many whether chain, that MRO we're supply we're And branch that the into ways. would in be if go part Technology, MRO movement because you side, Carpenter or any OEM So you would know demand, OEM and out delivering product even see type our the

be chain discussing So demand. we're think able how meet is going time, this really But to that with I what what more period X a to if going and on. Technology be is specific make the way could say of there. in here demand is over is that news that is already no thing, mistake, responsible safe, And and quality I Carpenter supply what focused meeting to demand

the rates all that going or about time. going talk safety quality. that's up us sacrifice to heard to not We're You've push

be supply the bring being in should wider focus. that So as type chain. And the you agree entire the to taken that we with of totally discipline approach the industry,

suppliers Carpenter rates You'll push the I really happy you'll obviously. like to extend, out, question, Josh, that answered see see And news but believe follow-up. any which cycle build your those take Technology. Hopefully, is super good for

Joshua Sullivan

Yes. No, it does.

together that comments of the during on imagine the 'XX your kind just that. in the though, the upside Just targets. that I follow-up taking just to all pressure incorporates about into call

And think cover so did I that. you

Operator

from question we Instructions] Now ahead. from Olin have Research. Chris, please go Northcoast a [Operator Chris

Christopher Olin

to price Wanted movement to realize the sponge Dynamet there is a in get I ask where high? is on question higher we surcharges start aerospace or a the other through risk in Dynamet. points uses now? thinking elasticity pass any we're there titanium like wondering titanium. customers the the of too have does halting guess, that I'm given purchases any fixed if to business of words, I seeing side? upward because margins market exposure pricing some the like But about on cost to that demand just the point Or

Tony Thene

be well you that pretty a can Well, know, Chris, complicated question. as

to quarter-on-quarter, you surcharge if material current But haven't that time no Certainly, from market. can be of past. our the the issues, And We and As have call we no there. any out. in been certainly between they mechanisms said, those are issues protect those based Dynamet. moves there surcharge time movements on

in that place. have we So

with more that has medical SAO markets to is ways similar bigger and aerospace to they even think generate They're story supply I the it -- strong, of the for earnings. XX-plus potential standpoint demand percent out very Dynamet. the we're in that our move and is Dynamet serve, very looking to with increase

So as titanium that Dynamet is big And any us. I we growth sourcing. a anticipate for risks don't around forward, driver look

Christopher Olin

pricing all you the just business wondering Okay. been think when distribution at some any Commodity has even nickel about of if on that I'm falling. impact had markets. negative the

Tony Thene

We it just announced that to next quarters profitability record a the quarter and we're history and company. going the increase over of the year significantly said in the have X highest

So nickel do we no, not billet see any pricing. negatives of in terms

Operator

And McKinney with KeyBanc we will follow a from from Capital. question Samuel

Samuel McKinney

your assume sequential a First, year-over-year speaking to of what piece end Could pie you you that's improvement. we power sales the markets a generation? gas? from than and bigger oil energy had sales, big that, energy and seeing are Within

Tony Thene

a fair some placed out. orders time That's are These comment.

our of through come and saw small profitable tell, the out that's us, one, how but a quarter. the spike can it generation they you certainly into second comes quarter. as you power as in demand market the some So that queue, And laid second is a in for

So in that's good are than with aerospace moving pricing. news that of and prices take to happy for obviously us we're current that more market in business step type as

Samuel McKinney

any gas and split discuss gen power the Okay. versus to or quantify energy? And oil then within way

Tony Thene

of overall portfolio. a energy Well, is small our part

primarily from that quarter-to-quarter that in that you case, power just we it's So roughly on could can -- was market. this And that gen. but completed, moves in move based the the XX-XX, say quarter

Samuel McKinney

me, revenues And engine for us? jet helpful. next outline quarter-over-quarter That's for the can just then you Okay.

Tony Thene

the about a it Again, us way the be say We no that issue X% from I from half can mix in aerospace higher versus standpoint. jet and down volume of We to XX% sequentially. this aerospace Our for being There's overall timing second shipments. stated approximately due sales engine, demand half. would that's really talked the a first standpoint. the

and range. engines X%. was that had down So down approximately engine same fastener and XX%, follow approximately sequentially I X% think aero We fasteners or

that in the in increases first second half. large see half You'll versus

Operator

And session. this concludes our question-and-answer

go closing the any to remarks. I ahead. would like for So John back to Please conference Huyette turn over

John Huyette

your you, today thank quarter and fiscal Marliese, us joining everyone, year rest you, great our Have day. XXXX Thank for conference for of a call. second

Operator

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

You good day. may now a disconnect. Have

Carpenter Technology (CRS) 25 Jan 242024 Q2 Earnings call transcript