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Carpenter Technology Reports Third Quarter Results

“As we complete our planning for next fiscal year, we anticipate a further increase in operating income, excluding pension EID and including Latrobe, of at least 30 percent, or $70 million. Within this, Latrobe will achieve our objective of being immediately accretive to earnings over the first full year of ownership including all prior acquisition costs. The expected tax rate for fiscal year 2013 is 34 percent. The current estimate of net pension expense for the Carpenter plans in fiscal year 2013 is $59 million, or $0.76 per share with the EID component of this at $22 million. As we’ve said before, free cash flow next fiscal year is expected to be modestly negative, with overall capital spending of about $300 million.”

Pension Effects

During the third quarter, the Company recorded expense associated with its pension and other post retirement benefit plans of $10.6 million or $0.14 per diluted share. This compares to $15.2 million or $0.21 per diluted share in the prior year third quarter. Including a $2.5 million impact related to the Latrobe plans, the full year expected net pension expense is now $41.9 million, or $0.55 per diluted share. The Company expects to make additional cash contributions of $10.7 million during the fourth quarter of fiscal year 2012.

Non-GAAP Financial Measures

This press release includes discussions of financial measures that have not been determined in accordance with U.S. generally accepted accounting principles ("GAAP"). The non-GAAP financial measures, accompanied by reasons why the Company believes the measures are important, are included in the attached schedules.

Conference Call

Carpenter will host a conference call and webcast today, April 25, at 9:30 a.m., ET, to discuss financial results and operations for the fiscal Third quarter. Please call 610-208-2222 for details of the conference call. Access to the call will also be made available at Carpenter's web site ( http://www.cartech.com) and through CCBN ( http://www.ccbn.com). A replay of the call will be made available at http://www.cartech.com or at http://www.ccbn.com.

About Carpenter Technology

Carpenter produces and distributes premium alloys, including special alloys, titanium alloys and powder metals, as well as stainless steels, and alloy and tool steels. Information about Carpenter can be found on the Internet at http://www.cartech.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Act of 1995. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ from those projected, anticipated or implied. The most significant of these uncertainties are described in Carpenter’s filings with the Securities and Exchange Commission including its annual report on Form 10-K for the year ended June 30, 2011 and the quarterly reports on Form 10-Q for the quarters ended September 30, 2011 and December 31, 2011, and the exhibits attached to those filings. They include but are not limited to: (1) expectations with respect to the synergies, costs and other anticipated financial impacts of the Latrobe acquisition transaction could differ from actual synergies realized, costs incurred and financial impacts experienced as a result of the transaction; (2) the cyclical nature of the specialty materials business and certain end-use markets, including aerospace, industrial, automotive, consumer, medical, and energy, or other influences on Carpenter’s business such as new competitors, the consolidation of competitors, customers, and suppliers or the transfer of manufacturing capacity from the United States to foreign countries;(3) the ability of Carpenter to achieve cost savings, productivity improvements or process changes; (4) the ability to recoup increases in the cost of energy, raw materials, freight or other factors; (5) domestic and foreign excess manufacturing capacity for certain metals; (6) fluctuations in currency exchange rates; (7) the degree of success of government trade actions; (8) the valuation of the assets and liabilities in Carpenter’s pension trusts and the accounting for pension plans; (9) possible labor disputes or work stoppages; (10) the potential that our customers may substitute alternate materials or adopt different manufacturing practices that replace or limit the suitability of our products; (11) the ability to successfully acquire and integrate acquisitions, including the Latrobe acquisition; (12) the availability of credit facilities to Carpenter, its customers or other members of the supply chain; (13) the ability to obtain energy or raw materials, especially from suppliers located in countries that may be subject to unstable political or economic conditions; (14) Carpenter’s manufacturing processes are dependent upon highly specialized equipment located primarily in one facility in Reading, Pennsylvania for which there may be limited alternatives if there are significant equipment failures or catastrophic event; and (15) Carpenter’s future success depends on the continued service and availability of key personnel, including members of our executive management team, management, metallurgists and other skilled personnel and the loss of these key personnel could affect our ability to perform until suitable replacements are found. Any of these factors could have an adverse and/or fluctuating effect on Carpenter’s results of operations. The forward-looking statements in this document are intended to be subject to the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Carpenter undertakes no obligation to update or revise any forward-looking statements.
 
PRELIMINARY
CONSOLIDATED BALANCE SHEETS
(in millions)
       
March 31, June 30,
2012 2011
 
ASSETS
Current assets:
Cash and cash equivalents $ 175.1 $ 492.5
Marketable securities - 30.5
Accounts receivable, net 330.3 259.4
Inventories 677.5 328.6
Deferred income taxes 38.9 14.9
Other current assets   31.4     31.7  
Total current assets 1,253.2 1,157.6
 
Property, plant and equipment, net 884.8 662.9
Goodwill 247.4 44.9
Other intangibles, net 127.3 30.0
Other assets   83.6     96.5  
Total assets $ 2,596.3   $ 1,991.9  
 
LIABILITIES
Current liabilities:
Accounts payable $ 222.5 $ 170.5
Accrued liabilities 208.8 124.9
Current portion of long-term debt   -     100.0  
Total current liabilities 431.3 395.4
 
Long-term debt, net of current portion 407.2 407.8
Accrued pension liabilities 187.2 188.5
Accrued postretirement benefits 161.1 108.7
Deferred income taxes 123.2 48.3
Other liabilities   62.1     67.2  
Total liabilities   1,372.1     1,215.9  
 
STOCKHOLDERS' EQUITY
Carpenter stockholders' equity:
Common stock 274.0 273.7
Capital in excess of par value 251.6 235.4
Reinvested earnings 1,078.3 1,022.1
Common stock in treasury, at cost (122.9 ) (532.2 )
Accumulated other comprehensive loss   (266.5 )   (233.3 )
Total Carpenter stockholders' equity   1,214.5     765.7  
Noncontrolling interest   9.7     10.3  
Total equity   1,224.2     776.0  
Total liabilities and equity $ 2,596.3   $ 1,991.9  
 
 
PRELIMINARY
CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share data)
       
 
Three Months Ended Nine Months Ended
March 31, March 31,
 
2012 2011 2012 2011
 
NET SALES $ 539.9 $ 464.2 $ 1,385.1 $ 1,191.5
Cost of sales   434.8     391.1     1,114.5     1,019.5  
Gross profit 105.1 73.1 270.6 172.0
 
Selling, general and administrative expenses 41.5 37.9 115.3 109.9
Acquisition related costs   7.9     -     11.7     0.7  
Operating income 55.7 35.2 143.6 61.4
 
Interest expense (5.6 ) (4.4 ) (18.4 ) (12.9 )
Other income, net   1.7     1.1     1.4     5.7  
 
Income before income taxes 51.8 31.9 126.6 54.2
Income tax expense   18.8     3.1     46.0     8.4  
 
Net income 33.0 28.8 80.6 45.8
 
Less: Net income attributable to noncontrolling interest   -     0.2     0.3     0.3  
 
NET INCOME ATTRIBUTABLE TO CARPENTER $ 33.0   $ 28.6   $ 80.3   $ 45.5  
 
EARNINGS PER SHARE:
Basic $ 0.69   $ 0.64   $ 1.76   $ 1.02  
Diluted $ 0.69   $ 0.64   $ 1.75   $ 1.02  
 
WEIGHTED AVERAGE SHARES
OUTSTANDING:
Basic   47.2     44.1     45.3     44.1  
Diluted   47.9     44.7     46.0     44.6  
 
Cash dividends per common share $ 0.18   $ 0.18   $ 0.54   $ 0.54  
 
 
PRELIMINARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
     
Nine Months Ended
March 31,
 
2012 2011
 
OPERATING ACTIVITIES:
Net income $ 80.6 $ 45.8
Adjustments to reconcile net income to net cash
provided from (used for) operating activities:
Depreciation and amortization 58.5 48.0
Deferred income taxes 18.2 (4.1 )
Net pension expense 30.3 45.5
Net loss (gain) on disposal of property and equipment 1.0 (0.1 )
Changes in working capital and other:
Accounts receivable (3.3 ) (83.7 )
Inventories (110.6 ) (110.8 )
Other current assets (3.4 ) 0.3
Accounts payable (3.8 ) 11.3
Accrued liabilities 20.2 (3.1 )
Pension contribution (19.3 ) -
Boarhead Farms settlement (21.8 ) -
Other, net   1.3     (2.1 )
Net cash provided from (used for) operating activities   47.9     (53.0 )
 
INVESTING ACTIVITIES:
Purchases of property, equipment and software (107.3 ) (35.6 )
Proceeds from disposals of property and equipment 0.6 1.0
Acquisition of businesses, net of cash acquired (12.9 ) (41.6 )
Acquisition of equity method investment - (6.2 )
Purchases of marketable securities - (79.9 )
Proceeds from sales and maturities of marketable securities   30.4     157.1  
Net cash used for investing activities   (89.2 )   (5.2 )
 
FINANCING ACTIVITIES:
Payments on long-term debt assumed in connection with acquisition of business (153.7 ) (12.4 )
Payments on long-term debt (100.0 ) -
Proceeds received from sale of noncontrolling interest - 9.1
Dividends paid (24.2 ) (24.1 )
Tax benefits on share-based compensation 1.3 0.2
Proceeds from stock options exercised   1.6     0.5  
Net cash used for financing activities   (275.0 )   (26.7 )
 
Effect of exchange rate changes on cash and cash equivalents   (1.1 )   3.6  
 
DECREASE IN CASH AND CASH EQUIVALENTS (317.4 ) (81.3 )
Cash and cash equivalents at beginning of period   492.5     265.4  
Cash and cash equivalents at end of period $ 175.1   $ 184.1  
 
 
PRELIMINARY
SEGMENT FINANCIAL DATA
(in millions, except pounds sold)
           
Three Months Ended Nine Months Ended
March 31, March 31,
2012 2011

2012
2011
Pounds sold (000):
Specialty Alloys Operations 55,552 56,014 146,840 151,968
Performance Engineered Products 3,470 3,772 10,342 10,102
Latrobe 5,956 - 5,956 -
Intersegment   (1,542 )   (1,924 )   (3,634 )   (3,288 )
 
Consolidated pounds sold   63,436     57,862     159,504     158,782  
 
Net sales:
Specialty Alloys Operations
Net sales excluding surcharge $ 309.7 $ 275.7 $ 802.3 $ 714.4
Surcharge   116.3     124.4     319.9     308.7  
 
Specialty Alloys Operations net sales $ 426.0   $ 400.1   $ 1,122.2   $ 1,023.1  
 
Performance Engineered Products
Net sales excluding surcharge $ 84.3 $ 69.7 $ 248.6 $ 162.0
Surcharge   1.3     1.7     3.5     4.0  
 
Performance Engineered Products net sales $ 85.6   $ 71.4   $ 252.1   $ 166.0  
 
Latrobe
Net sales excluding surcharge $ 50.1 $ 10.0 $ 69.8 $ 28.5
Surcharge   6.2     -     6.1     -  
 
Latrobe net sales $ 56.3   $ 10.0   $ 75.9   $ 28.5  
 
Intersegment   (28.0 )   (17.3 )   (65.1 )   (26.1 )
Consolidated net sales $ 539.9   $ 464.2   $ 1,385.1   $ 1,191.5  
 
Operating income:
Specialty Alloys Operations $ 66.7 $ 42.1 $ 163.9 $ 94.8
Performance Engineered Products 9.8 11.4 32.0 22.8
Latrobe 2.9 1.2 4.2 1.6
Corporate costs (including acquisition related costs) (18.5 ) (9.0 ) (41.2 ) (29.5 )
Pension earnings, interest & deferrals (3.8 ) (8.8 ) (11.1 ) (26.4 )
Intersegment   (1.4 )   (1.7 )   (4.2 )   (1.9 )
 
Consolidated operating income $ 55.7   $ 35.2   $ 143.6   $ 61.4  
 

In January 2012, the Company announced it had made changes to its reportable segments. The Company now has three reportable business segments, Specialty Alloys Operations (SAO), Performance Engineered Products (PEP) and Latrobe. Previously, the Company's reportable segments consisted of Premium Alloys Operations (PAO), Advanced Metals Operations (AMO) and Emerging Ventures.

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