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Carpenter Technology Reports Fourth Quarter Results

The provision for income tax was $21.0 million or 33.9 percent of pre-tax income compared to $7.7 million or 22.9 percent of pre-tax income in the fourth quarter of fiscal year 2011. The prior year period included tax benefits associated with exceptional items. The tax rate for the full fiscal year was 35.5 percent.

Net income attributable to Carpenter was $40.8 million or $0.77 per diluted share. Excluding $0.11 per share for the Latrobe inventory fair value cost adjustment, net income attributable to Carpenter would have been $46.5 million or $0.88 per diluted share. Net income attributable to Carpenter in the same quarter a year ago was $25.5 million or $0.57 per diluted share.

For the full year, net income attributable to Carpenter was $121.2, or $2.53 per diluted share. Excluding Latrobe acquisition related costs, net income attributable to Carpenter would have been $137.7 million or $2.88 per diluted share, compared to full fiscal year 2011 net income of $71.0 million or $1.59 per diluted share.

Free cash flow, defined as cash from operations less capital expenditures, dividends, and the net impact from the purchase and sale of businesses, was $37.1 million in the current quarter due to strong operating cash flow and lower inventory offsetting high capital spending. For the full fiscal year, free cash flow was a negative $58.8 as strong cash flow from operations was more than offset by a high level of capital spending, required cash pension contributions and an increase in working capital to support business growth.

Markets:

Aerospace & Defense market sales were $293.9 million in the fourth quarter, up 49 percent compared with the same period a year ago. Excluding surcharge revenue, aerospace & defense sales were up 55 percent on 105 percent higher volume (or up 24 percent on 21 percent higher volume without Latrobe). Aerospace results reflect strength in all areas as airplane build rates remain high. Demand for engine materials remains strong driven by higher build rates of larger engines and share gain. Demand for titanium fastener material grew again in the quarter and is now well above prior peak levels. Nickel and stainless fastener demand has led to eight straight quarters of year-over-year growth and is approaching prior peak levels. Sales of aerospace structural components continue to grow with the success in selling Carpenter’s Custom-series stainless alloys and the addition of Latrobe’s complementary products.

Industrial & Consumer market sales were $139.0 million in the fourth quarter, up 3 percent compared with the same period a year ago. Excluding surcharge revenue, sales increased 13 percent on 4 percent higher volume (or flat revenues on 7 percent lower volume without Latrobe). The results reflect the continued impact of mix management and pricing actions on the legacy Carpenter business. The percentage of volume in differentiated product applications with strategically important customers continues to increase as a result of these actions.

Energy market sales of $79.2 million increased 13 percent compared to the same period a year ago. Excluding surcharge revenue, energy market sales increased 26 percent on 34 percent higher volume (or up 15 percent on 11 percent higher volume without Latrobe). Energy growth was led by Oil & Gas which continues to benefit from the Amega West acquisition. While the number of North American directional and horizontal land drilling rigs is level, offshore and international oil & gas exploration activity is increasing. Sales to the industrial gas turbine market were lower than the very strong prior year quarter. However, long term growth trends should remain strong with increasing global demand for peak power and the expectation that natural gas prices remain low.

Transportation market sales were $41.2 million, an increase of 11 percent from a year earlier. Excluding surcharge revenue, transportation sales increased 22 percent on 2 percent higher volume (or up 19 percent on 1 percent higher volume without Latrobe). Revenue growth far exceeded volume growth which reflects Carpenter’s focus on higher value material solutions to increase fuel efficiency and lightweight vehicles. Despite economic uncertainty in the region, transportation sales in Europe increased 25 percent over the prior year led by demand growth for high value materials required in turbo charger, gasket and fuel system applications used in smaller, higher efficiency turbo charged engines.

Medical market sales were $38.3 million in the fourth quarter, up 11 percent from a year ago. Excluding surcharge revenue, medical market sales increased 13 percent on 5 percent higher volume (relatively unchanged without Latrobe). The overall volume growth was consistent with long term industry growth rates.

International sales in the fourth quarter were $205.3 million, an increase of 36 percent compared with the same quarter a year earlier - driven by a 74 percent increase in Asia/Pacific sales and a 28 percent increase in European sales. Growth in Asia/Pacific was led by sales into the aerospace and oil & gas end-markets. Growth in Europe was led by increased demand for materials used for aerospace, oil & gas and high value automotive applications. Total international sales in the quarter represented 32 percent of total Company revenue, compared with 31 percent in the prior year.

Outlook

“We continue to expect a further increase in operating income, excluding pension EID and Latrobe acquisition related costs, of at least 30 percent or $70 million in fiscal year 2013,” said Douglas Ralph, Senior Vice President of Finance and Chief Financial Officer. “This represents a $110 million improvement in year-to-year EBITDA including Latrobe. Our business should have a first half-second half split of approximately 45 percent/55 percent - in line with historical experience.

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