Carpenter Technology (CRS) Q4 2019 earnings summary

Executive summary

• FY19 net sales rose 10% to $2,380.2M; operating income reached $241.4M, the strongest since FY13, on stronger demand, improved mix and operating efficiencies.

• Reported net income was $167.0M versus $188.5M in FY18, which included $68.3M of discrete tax benefits; adjusted diluted EPS increased to $3.46 from $2.50.

• Key growth investments included $180.3M of capital spending and the $79.0M LPW acquisition; free cash flow was negative $53.7M.

Financial highlights

• Net sales were $2,380.2M, up 10% YoY; excluding surcharge revenue, sales rose 8% on 1% higher volume.

• Gross profit increased to $444.8M from $382.3M; reported gross margin was 18.7% versus 17.7%, and excluding surcharges was 22.9% versus 21.3%.

• Operating income was $241.4M versus $189.3M; adjusted operating margin excluding surcharge revenue and special items rose to 12.5% from 10.6%.

• Net income was $167.0M and diluted EPS $3.43; adjusted diluted EPS was $3.46, including a $1.2M acquisition-related cost adjustment.

• Cash from operations was $232.4M, while free cash flow was negative $53.7M, reflecting acquisition outlay and higher capital spending.

Outlook and guidance

• FY20 capital expenditures expected at approximately $170M, following $180.3M in FY19.

• FY20 required qualified pension contributions expected at $6.2M; estimated contributions over five years were $171.0M, subject to market returns and interest-rate assumptions.

• June 30, 2019 backlog excluding surcharges was approximately $800M, substantially all expected to ship in FY20, versus $568M a year earlier.

• Raw-material costs, market cyclicality, tariffs and potential trade-policy changes could affect demand, pricing and margins.