Carpenter Technology Corp. reported net income of $2.1 million ($0.05 per diluted share) for the third quarter ended March 31, 2010, compared to $13.1 million ($0.30 per diluted share) for the 2009 third quarter.
Third-quarter results include the previously announced non-cash charge of $5.9 million ($0.13 per diluted share) related to the recently enacted healthcare reform law that changed the income tax treatment of Medicare Part D subsidies in future years.
"Although still below last year’s results, we continue to gain momentum in our business that reflects increasing strength in our end markets and initial impacts from our growth strategies,” said Gregory A. Pratt, Chairman and interim President and Chief Executive Officer. "As demand improves at a variable recovery pace, we are leaning forward to meet the needs of our customers at this critical point in the cycle. Our new premium melt capacity positions us to meet increasing demand as it occurs. We expect further improvement in our revenue and earnings per share between the third and fourth quarter, and are on track to meet our financial targets for the full year.”
Net sales for the third quarter were $336.9 million, up 2% from the prior year. Excluding surcharge revenue, net sales were $256.7 million, a 4% decrease from a year ago. Total pounds sold in the third quarter were 20% higher than the 2009 third quarter.
Gross profit was $46.3 million compared with $49.2 million in the 2009 third quarter. The impact of higher volumes on this quarter’s gross profit was more than offset by a weaker mix and higher net pension expense. Last year’s third-quarter gross profit was negatively impacted by $11 million of costs related to the LIFO effects of reducing inventory in a period of declining nickel prices.
SG&A expenses were $33.5 million, compared with $31.0 million for the prior year. Excluding the impact of changes in net pension expense, SG&A was essentially flat over the last year.
Operating income for the third quarter was $12.8 million compared with $16.1 million a year earlier. Excluding surcharge revenue and pension earnings, interest and deferrals (EID), operating margin was 8.7%. This compares to 6.0% in last year’s third quarter, or 6.8% excluding the $2.1 million in restructuring charges related to the closure of the company’s Crawley U.K. strip facility.
Other income was $1.6 million compared to $2.7 million in 2009. The provision for income tax was $7.8 million, or 79% of pre-tax income, compared with an income tax provision of $1.8 million, or 12% of pre-tax income, a year ago. The company says the increase mainly reflects the one-time, non-cash reduction in the value of its deferred tax asset previously established for anticipated retiree health care liabilities.
Net income was $2.1 million or $0.05 per diluted share, compared with third quarter net income of $13.1 million or $0.30 per diluted share in 2009.
Free cash flow (cash from operations less capital expenditures and dividends) was negative $7.7 million compared with positive free cash flow of $11.8 million in the 2009 third quarter. Most of the difference, says Carpenter, reflects higher levels of accounts receivable due to increased sales volumes coupled with higher commodity pass-through costs, and inventory changes to support increased volumes.
Through nine months ending March 31, 2010, free cash flow was positive $17.0 million.
During the third quarter, the company recorded expense associated with its pension and other post retirement benefit plans of $15.3 million ($0.21 per diluted share), which is consistent with its planned non-cash pension expense for fiscal 2010 of $61.1 million ($0.84 per diluted share).
Carpenter Technology produces and distributes specialty alloys, including stainless steels, titanium alloys, and superalloys.