Carpenter Technology Corporation F3Q10 (Qtr End 03/31/10) Earnings Call Transcript

Carpenter Technology Corporation F3Q10 (Qtr End 03/31/10) Earnings Call Transcript
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Carpenter Technology Corporation

(

CRS

)

F3Q10 (Qtr End 03/31/10) Earnings Call Transcript

April 27, 2010 10:00 am ET

Executives

Mike Hajost – VP and Treasurer, IR

Greg Pratt – Chairman, Interim President and CEO

Mike Shor – EVP, AMO and PAO Operations

Doug Ralph – SVP, Finance and CFO

Analysts

Edward Marshall – Sidoti & Company

Chris Olin – Cleveland Research

Steve Levenson – Stifel Nicolaus

John Simazo [ph]

Brian Yu – Citi

Phil Gibbs – KeyBanc Capital Markets

Luke Folta – Longbow Research

Gautam Khanna – Cowen & Company

Presentation

Operator

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Good morning and welcome to Carpenter Technology's third quarter 2010 earnings conference call. My name is Glenn and I will be your coordinator for today. At this time, all participants will be in a listen-only mode. After the speakers' remarks, you will be invited to participate in the question-and-answer session towards the end of this call. At this time, we will review the procedure for asking your questions. (Operator Instructions) I would now like to turn the call over to your host for today, Mr. Mike Hajost, Vice President and Treasurer. Please proceed.

Mike Hajost

Thank you, Glenn. Good morning, everyone and welcome to Carpenter's earnings conference call for the third fiscal quarter ended March 31, 2010. This call is also being broadcast over the Internet. With us today are Greg Pratt, Chairman and Interim President and Chief Executive Officer, Mike Shor, Executive Vice President, AMO and PAO Operations, Doug Ralph, Senior Vice President and Chief Financial Officer, as well as other members of the management team.

Statements made by management during this conference call that are forward-looking statements are based on current expectations. Risk factors that could cause actual results to differ materially from these forward-looking statements can be found in Carpenter's most recent SEC filings including the company's June 30, 2009 10-K and its September 30, 2009 and December 31, 2009 10-Qs and the exhibits attached to those filings.

I will now turn the call over to Greg.

Greg Pratt

Thank you, Mike and thank you, everyone for joining us today on our third quarter call. Similar in sequence to our last call, I will start off this morning by updating you on our view of the business today and where we see it heading. Mike Shor will then walk you through our end markets and the steps we are taking to position ourselves operationally as our markets return and Doug Ralph will then review our financial results and outlook. After that, we will be happy to take your questions.

As you can tell, from our news release this morning, we are continuing to benefit from strengthening end markets and the expansion our customer base and product portfolio. The momentum in our business is reflected in further sequential improvement and our quarterly financial results.

We expect this trend to continue into the fourth quarter, allowing us to achieve our full year financial goals of positive earnings per share and free cash flow, but this is really just a start for us. We’ve made solid progress towards our goal of emerging from recession, a stronger and better position company, operationally, financially and strategically.

Moving forward, we are well positioned with our customers and attractive end markets. We have strong R&D capability and world class premium melt capacity to meet every increasing demand for higher value products. Our balance sheet remains strong and we continue to make progress on operating efficiency and cost reduction.

Finally, let me finish by providing an update on the CEO search. As stated last October, we believe it would take six to nine months to find the most fit person to lead our company in the future. The search committee of the board of directors is in the final stage of the search process and we expect to have an announcement by the end of our fiscal year.

In the mean time, the business continues to execute seamlessly and the operation has proven nimble in reacting to surges and market demand as they occur. Now, let me turn the call over to Mike Shor who will review our end markets and operations. Mike?

Mike Shor

Thank you, Greg and good morning. I'll review the markets in the order of their contribution to net sales this quarter. Our aerospace market sales were $149 million in the third quarter. Excluding surcharge revenue, aerospace sales were down 4% on 2% lower volume.

On a sequential basis, overall aerospace volumes increased 36% between the second and third quarters. The sequential improvement mainly relates to increases in demand in our engine business. Current order and trends reflect increase market demand, better position with customers, the ramp-up of new engine programs and some inventory restocking.

On the fastener side of aerospace, third quarter shipments were down versus a year ago due to supply chain de-stocking. Fastener volumes were up sequentially as there are some signs of inventory depletion in distributive channels. Typically, we see fastener demand like engines by six months. Since, we still believe there is excess inventory in the fastener supply chain, demand for fasteners may be several quarters away.

Overall, the aerospace market is beginning to stabilize as traffic volumes increase for both passenger and freight. Recent communication on production rate increases by Boeing and Airbus reinforce this improving trend in passenger miles.

We are also encouraged by the shift in mix to more advance material intensive planes, the result of which should grow usage of aero types of materials at a rate that is one and a half times the plane build rate. We expect these improving factors to generate a stronger sustain demand for aero materials.

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