Carpenter Technology (CRS) Q4 2017 earnings summary

Executive summary

• FY17 net income was $47.0M, or $0.99 diluted EPS, versus $11.3M and $0.23 in FY16; results benefited from cost improvements and improving demand in H2.

• Backlog reached $438M at June 30, 2017, excluding surcharges; substantially all was expected to ship in FY18.

Financial highlights

• Net sales were $1,797.6M, down 1% YoY; excluding surcharge revenue, sales fell 1% on 3% lower volume.

• Gross profit rose to $284.3M from $255.9M; reported gross margin was 15.8% vs. 14.1%, while adjusted margin excluding surcharges and FY16 inventory write-down was 18.2% vs. 17.7%.

• Operating income was $97.2M vs. $51.6M; net income was $47.0M vs. $11.3M. FY16 included $22.5M excess inventory write-down, $12.5M goodwill impairment and $18.0M restructuring and asset impairment charges.

• Adjusted diluted EPS was $1.08 vs. $1.16, excluding special items; reported diluted EPS was $0.99 vs. $0.23.

• Operating cash flow was $129.3M; free cash flow was negative $17.8M, including the $100M pension contribution, Puris acquisition and higher inventory.

Outlook and guidance

• FY18 capital expenditures were expected to be ~$120M; required pension plan contributions were $6.7M in FY18.

• Management expected to maintain credit covenant compliance; it estimated pension contributions of $85.4M over five years, subject to market returns and interest-rate assumptions.

• Demand improved across most end markets in H2, with aerospace and defense leading; the $438M backlog was substantially expected to ship during FY18.