July 27, 2006 — Carpenter Technology Corp. reported net income of $68.0 million on record net sales of $450.5 million for the company’s fiscal fourth quarter. Carpenter says that results were led by significantly higher sales to the aerospace market, a richer product mix, and the company's continued focus on cost through lean and variation reduction.
Fourth Quarter Results—The $68.0 million net income ($2.58 per diluted share) compares to net income of $47.8 million ($1.86 per diluted share) for the year-ago fourth quarter. Results included a benefit of $0.19 per diluted share as a result of favorable tax adjustments. Excluding the tax adjustments and the gain on the sale of a subsidiary, earnings per share increased by $0.97 (68%) from the year-ago fourth quarter.
Earnings per share in the year-ago fourth quarter included a benefit of $0.23 per diluted share from favorable tax adjustments and a gain of $0.21 per diluted share from the sale of a subsidiary.
Net sales of $450.5 million compare with net sales of $362.4 million for the same quarter a year ago. Carpenter says sales benefited from robust conditions in the aerospace market, increased sales of higher value materials, and higher base selling prices. Adjusted for surcharges, sales increased 23% from the fourth quarter a year ago.
Free cash flow was $106.9 million, which compares with free cash flow of $45.1 million in the year-ago quarter.
Full Year Results—Net income was $211.8 million ($8.08 per diluted share) compares with net income of $135.5 million ($5.37 per diluted share) for the previous fiscal year. Results included $0.19 per diluted share from favorable tax adjustments. Fiscal 2005 net income included a benefit of $0.44 per diluted share from favorable tax adjustments and a gain of $0.21 per diluted share from the sale of a subsidiary.
Net sales were $1.57 billion, compared with $1.31 billion, for the previous fiscal year. Free cash flow was $202.8 million, compared to free cash flow of $133.8 million a year ago.
Comments—"Our continued focus on operational excellence through lean and variation reduction and on producing high value, high performance materials helped us to achieve a record fourth quarter and another record fiscal year," said Robert J. Torcolini, Chairman, President and CEO. "These efforts, combined with favorable market conditions, allowed us to surpass last year's fourth quarter earnings by more than 40%.
"Sales to the aerospace market were particularly strong, increasing more than 70% from the quarter a year ago. Results also benefited from increased sales of higher value materials to the medical and automotive markets.
"These results demonstrate that our business operating model has proven effective in enabling us to generate returns well above our cost of capital. We will continue to improve upon our operating model with the goal of building shareholder value through all phases of a business cycle."
Geographically, sales outside the United States increased to $147 million or 38% from a year ago, and represented 33% of fourth quarter sales. Carpenter says that international sales reflected strong demand for higher value materials, particularly in the aerospace and medical markets.
Carpenter's fourth quarter gross profit increased 36% to $126.6 million, or 28.1% of sales, from $92.9 million, or 25.6% of sales, in the same quarter a year ago. Carpenter says the 250 basis point improvement in the gross margin reflected pricing actions, a richer product mix primarily as a result of solid demand for higher value materials from the aerospace, medical, and automotive markets, and reduced sales of marginally profitable products. Margins also benefited from ongoing cost reductions generated by lean and variation reduction initiatives.
Carpenter's fourth quarter operating income increased 36% to $90.9 million, or 20.2% of sales, from $66.9 million, or 18.5% of sales, a year ago. The increase resulted from improved gross margins and diligent management of selling and administrative expenses.
Outlook—"We believe that market conditions will remain favorable in fiscal 2007, particularly for our specialty alloys, titanium, and ceramic materials sold into the aerospace market,” commented Torcolini. “We expect that sales to the aerospace market will be higher in fiscal 2007 despite the delay in the first commercial delivery of the Airbus A380 and some inventory rebalancing within certain segments of the aerospace supply chain.
"Several other markets including medical and industrial are expected to be strong as well," Torcolini said. "Although we are pleased with our performance during the past fiscal year, we continue to improve the fundamentals of our business through a relentless focus on cost and on reducing complexity throughout our business."
Based on current market conditions, Carpenter expects that fiscal 2007 will be another record year for both sales and net income, and anticipates that free cash flow will be in excess of $200 million.
Carpenter produces and distributes specialty alloys, including stainless steels, titanium alloys, and superalloys, and various engineered products.