Carpenter Technology (CRS) 29 Oct 222023 Q1 Earnings call transcript

Good morning, and welcome to the Carpenter Technology Corporation's First Quarter Fiscal 2023 Conference Call. All participants will be in a listen-only mode today. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. is today. event this note being recorded Please I to Brad like to conference over turn the Edwards, would now Investor Relations. Please go ahead.

in could Form differ filings, Risk year for statements note Technology's income sales cause will these otherwise turn is management forward-looking Good conference note, of phone, in fiscal on to revenue, the the operating over Internet sales or Thank Please Carpenter for call is September those operator. margins, filing. morning with broadcast welcome on This items be SEC special ended most attached and you you, over being to XX, Technology XXXX. surcharge. XX, earnings by first recent presentation and noted, actual also call you XXXX report the from along XX-K listening also for quarter today results movement. experience can reference company's the Senior Thene, based materially ended found are presentation everyone I the time exhibits are Financial slides. on statements to call based in Carpenter by following XXXX unless on excludes that may to earnings Officer; Vice the Lain, discusses during are made management that June that that When Chief Tony. Tony to adjusted when excluding slide and referring discussion, surcharge. and Tim excluding Speakers the the operating factors current Executive a and Chief including Officer. expectations. President Statements call that forward-looking that this the delay Please and now President

everyone call you, today. and the Thank on good to Brad, morning

performance. and on our of Slide begin review a Let's X, safety

fiscal year incident our first rate was quarter case X.X. For total of XXXX,

industry this we to average While less is manufacturing ourselves. up to the standards hold than half performance which the not rate, this metal is of

to To increased to is rate and Fortunately, continues injuries have employees transfers either as to despite enables address The roles. due with the rate, expanded continue increasing monitoring tasks, a there stop largely which decline. new follow employee training undertaking procedures new employees and concern. for enhanced or the potential job Further, this, the issue any whenever our to up. increase frequent new program, we work new we is hires or or severity of to STOP a drive task into

goal zero injury ultimate workplace. believe be Our that work will we to goal. to a possible is it continue We continues and towards

and turn to review of a the Now Slide let's X, first quarter.

defense Most in continue we each We see notably, conditions markets. the end-use of aerospace ramp see strong accelerating. to our demand and end-use market

marks to demand to In are consecutive This delivery contract operations. quarter our working a backlogs increase. aggressive this seventh As across year-over-year. most satisfy additional productivity our price XX% accelerated market, focused as negotiations demand, result closely of sequentially Notably, a increased growth. And dates. in are our backlog customers we increasing with with are order volume requesting on and of we we end-use XXX% and continue see realize across backlog strong our environment our gains the

driven For performed growing quarter, our of segment demand the market the SAO continued improvements. expectations by the end upper operational at and the

in expectations to was delayed the Hurricane for our pace quarter. Our Florida the until Dynamet our PEP of on segment shipments Ian end facility meet at

operations we were and lifted. employees shortly return orders evacuation the able injured were full were no Fortunately, to required after safely to

total the We liquidity finished Finally, remains in XXX quarter our million healthy. with liquidity.

primary long-term hear our up end-use throughout Now the exception in And each markets factor however, and update. other of was pushing my our defense. Most of near-term sharp The markets. in material end-use the Sequentially, across Slide let's down aerospace were positive. were end-use with as of outlook we X, and end-use ramp of our the markets strong end-use you to the markets out most comments, demand environment the and recovery. reflecting and aerospace, the remains year-over-year, for production market move of ongoing will

from Dynamet our facility Florida. delayed addition, In in Ian Hurricane shipments

the markets. Now review of each end-use let's

were defense Our traffic recovery Global X% sequentially rates. build and up aerospace end-use up aerospace market, and year-over-year. sales driving its XX% expected continues

We generation submarket as the As government continued driven interest The platforms. short-term our sequentially, work in customers of issue, a uncertain is the next lead as for aerospace rates, advanced across materials each primarily budget to and of meet extended accelerating. by build submarkets demand combination for see down time. this there's our alloys defense horizon, is

sequentially up XX% X% were sales XX% engine up and year-over-year. up specifically, in More aerospace the defense, aero Excluding sequentially and XX% year-over-year. were sales submarket

the As in backlog across industry increases our have rise. demand, a continues continued result extended and of to times lead the

by our X% The meet pre-pandemic year. down activity the and medical expected sales XX% overall XXXX. results are staffing rise backlog recovery market, to be up continues market XX% sequentially year-over-year. procedures outlook Notably, In and end-use demand. end improving. XXX% manufacturing year secure as with The surgeries calendar Customers to to levels Specifically, increases compared stocking medical stands elective aerospace reflecting required nearly positive hospital were ongoing reflect Xx levels, pre-pandemic year-over-year value the are increasing to in end-use sequentially levels of is levels backlog at to to and and last customer the urgency material. defense now and up price

capital recent expected in increase year. historic We investments. growth even been sequentially with demand lows. the to as to market, continuing end-use and are demand to in to at are up vehicle has and were low seeing disruptions. inventory, support remains sequentially XX% XX% and year. and calendar down is In year XX% growth chain the Light XX% build by In XX% are oil The continues replenishment compared end-use market rates inventories supply high, market, XXXX. last to In and strong up sales as geopolitical With duty throughout buy gas end-use consumers outpace the were medical year-over-year. backlog shortage supply the sales challenged the sequentially down XXX% energy transportation to further compared driving demand our expected submarket, last supply down

we see addition, end-use harsh and consumer alloy solutions activities environments. year-over-year. sales advanced and XX% for premium up In for X% in were In sequentially demand market, the down drilling industrial growing

demand commissioned to our in electronics see engagement mill driven continue from ago. in year We over submarket, largely strip healthy hot was a materials the by Reading, customer which for just

it Tim over the I Now, to will financial summary. turn for

from start same volume. X% Gross sales of ago XX% and XXX.X quarter in statement were quarter higher down million million. Sequentially, were I'll year million surcharge in lower same sales the on XX.X a current X% million XX volume. period Thanks, excluding the totaled year, Slide Tony. X, and the in XXXX. XX% XX.X excluding quarter surcharge, million everyone. the on profit Good summary. to first in sales of Sales, morning, fourth year the last on income Net XXX.X the quarter compared fiscal increased was

As the When slightly quarter due prices year from special we recorded quarter the were and ago. fourth to SG&A year same sequentially. X fourth quarter. retention of improving about the XXXX, improvement expenses Sequentially, a XXXX pointed included reported a adjusting up higher for increased X increases. million we XX.X corporate the X The that fiscal quarter as results in of which quarter. items of million million quarter's the is costs Note driven million called out fourth quarter. first increased about that totaled QX. to in period during items the SG&A credits fiscal gross the special in inflationary million selling mix profit called X the roughly the included significant from the of benefit were last by for year-over-year million last were call, in the million first product and profit XX.X roughly out year SG&A gross a corporate item related adjusting that The quarter, QX expenses and line recent gross on the includes from special year sales to profit when costs, sequentially up offset primarily XX and to million that same nonrecurring XX.X down out lower cost sales in about is benefits, the employee considering

special ahead expect impact quarters, year and in items loss adjusted XX million in recent million was corporate was quarter. XX prior fiscal quarter. quarter. our between in of XX.X the to quarter million Operating same look current per of When the operating we XX.X run balance income to income million was continue adjusted excluding costs As fourth last the to the we year XXXX, operating X.X in to million

for rate was tax first the effective XX.X%. quarter Our

in the items The to pre-tax non-taxable the quarter. first lower the earnings rate due loss our statutory the rate is rate impact certain that outsized given permanent than have on quarter and recent largely

tax pre-tax share. full rate year we of levels to share on will expect the XX% a increase XXXX have throughout the fiscal per continue that effective full for will $X.XX Earnings a approximately year, be per quarter XX% loss variability to the As but basis. fiscal quarterly for the was year

market year, increased SAO quarter million markets, Slide net to surcharge across or on were last excluding decreased key sales sales XX% first our X supply. volume in XXX.X the reviewed most as XXX.X to an turning lower increased sales improvement driven on year-over-year volumes. period X% as the well Tony and Now Net Sequentially volumes. as X% results. our XX% segment the higher mix sales product was end-use same by on The million net excluding for improving Compared of surcharge.

XX.X million first was same fourth to reported XX coupled loss Moving fiscal a SAO year-over-year and sales, year results, year to of operating SAO on of improving reported operating was a recent million. And in million. quarter quarter. operating income adjusted our basis income mix, adjusted an in The largely increased the ago, operating operating in selling improvement SAO's quarter prices. due performance X.X million of XX.X adjusted with The higher XXXX,

this as across Looking and markets end-use grew rates strong order strong. backlog key all remains ahead, our remained sequentially again of quarter our

As to OEMs. to aerospace continue increased we've rates highlighted, chain anticipated the in the build by across activity increases see meet supply we

levels Our SAO million the we for flow XX we foreseeable to operating of the our to XX future. range teams in XXXX. remain of income customers fiscal in the accelerate current meet the focused that anticipate of second on generate expectations, activity Based million production quarter upcoming ensuring needs year on and will

in by conditions. due the from additive segment excluding shipments sales of both of for late income missed units, and and quarter the results. our in reflects million. in X.X X.X down XX quarter primarily of last reported surcharge of market sequential Slide our same was year the or income impact the of million our Dynamet improvement the This defense The Net the operating sales seen impact year fourth sales increased a September. demand operating year to a In year year-over-year surcharge. driven quarter, PEP million result X% quarter. demands million Net year income to is operating as fiscal across in increased turning of shipments to in Florida in sales net all again in the primarily our the of across down We've the ago current on XX.X million XXXX. net fiscal excluding business first In net the markets operating significant was improving of the distribution XXXX same the and compares business, net XX.X Dynamet from growth quarter year-over-year were year-over-year hurricane hurricane quarter adjusted and slightly each influenced X.X increased and improvement adjusted sales were XX% of the ago. a sequentially. and Now end-use quarter titanium also The facility units. aerospace in income businesses. income PEP the by sales increased ongoing same in decrease result Sequentially, medical The in sales business operating

look PEP XX range that ahead, for to conditions currently million in upcoming overall quarter. remain the anticipate income confident the We million quarters. that of we will the segment demand will X remain we As operating strong in second the coming deliver

free of activities. operating quarter, cash The current XX turning cash Slide for In quarter driven we was operations in the the and current inventory. used million of XX, for flow. Now review to cash by a used increasing

inventory namely of targeted half growing satisfy increased increased The we second the is the of demand, to for quarter, million. ramping XXXX. up year activities the inventory XXX result production the fiscal the During shipments by

XXXX, regular we first maintain foreseeable We suppliers chain the to other materials year for our fiscal actively contact minimize We steady continue capital have we the supply In supply spent our on to of quarter manage a of disruptions. critical to expenditures. key with raw $XX operating future. potential ensure supplies and million

fiscal highlight, in of of target cash part fiscal for dividend XXXX. those million to continue constant XXX we of flow. continue million will our we to mind, fund We about which With in I a free of quarter flow consider expenditures year shareholders as to we also free year the cash our XXX used capital first XXXX. details

ended Our our we XXX I'll liquidity XX With liquidity remains total the under credit and of Tony. to facility. cash XXX including and with available that, call borrowings of of million current healthy, quarter million, turn back the million

Tim. Thanks,

Now to quarter recap year of our fiscal first XXXX.

delivering fiscal well fiscal to by year XXXX. year quarter operating rate positioned are the the of income XXXX We at our of achieve target fourth run

accelerate continue in of strong operating our positive are Notably, end-use recovery. each We to a markets with aerospace in a outlook markets. the demand medical the and environment

grow, strong it continues the foreseeable expect and a we for our As future. to remain backlog to result,

ramp and productivity to inflationary mechanism maximizing and contractual the focus key on paths. pressures. increase continue a able material to operations we've recent prices a an We with flow transactional mitigate raw throughput large to business, on of been our percentage our in Through our ongoing surcharge ability and

work and to customers, continue needs. partnering to their solve closely challenges supply and navigating chain critical the We with recovery key

believe result efforts, a we continue As liquidity we of position. maintain to a healthy these will

outlook. closer fourth a take year quarter Last an XXXX reach our performance. we operating that this million fiscal XXXX operating by a could XXXX, fiscal be fiscal I of income achieve by year let's about look spoke at the to Now projection our quarterly specific, of full income at that the means to of run rate year expect $XX equal we fourth quarter least XXXX. year fiscal To quarter,

constraints supply into availability are current get labor how a projection. now provide to to plan minutes there. Our will on I view chain built we detail throughput, inflation, more productivity, few of and spend this

XX% grow surcharge, XX% excluding at quarters. First, sales, we a three growth project over to next rate to compound the

the potential have a confirmed see aerospace, across industries supply. the each demand up of duty continued others. XXX% The medical, industries, our Despite As a strength of long-term in we our these energy, demand light among our are and end-use materials year-over-year. is Backlogs recession, previous our growth. the both are XX% vehicle in growth where in mentioned markets for We slide, dynamics by for and strong backlog. required and of in outlook exceeds materials near-term sequentially concerns

will last Second, our transactional in in realize will price margin. have segment and the pressures. revenue over and while contract particular, inflationary the SAO months have those increase volumes, margins. improved we meaningful with pressures operating associated And a the will help cost, increased XX improvement offset both increases on In businesses

we to margins return operating SAO pre-pandemic in the pre-pandemic the sales, With to expect segment. approach

capture to our line is we pre-pandemic our term questions. bottom as Technology Thank earlier, earnings will our it to time. the to over your due goals now make Finally, continue some realize first to solutions, customer longer resources increase that our and the you the our solid have The And I to And on your inventory to the sure turn participate return Carpenter operator to is significantly noted markets growth take have to ourselves we goal. we for positioned in and levels strong achieve innovative relationships improving growth the poised focus in, to opportunities. operationally across as over we facilities. the build necessary and quarter we productivity

Khanna Gautam Please open. We is session. begin here Instructions]. All your will Khanna, righty. And come question from will our Gautam with go question-and-answer Cowen. ahead. first now [Operator the line

from go ahead. take with Michael Capital our Leshock KeyBanc Please next Markets. question We will

scrap that's see And to within wanted progresses upside the ask improving. on enabler Hi. you as Good do morning, I SAO? It like seems that to availability. margin an guys. as year

do the be Well, good And we're availability. can not what cyclical far it's question. a about issue as out us. that an we that's that's being in Right as now, selective for market. something And

us process. usage know, for well high And So us scrap issue our not is for very percentage right an you as in now.

year, then business? of balance what are within should on from guidance And kind And gave soft that thinking view is the mag? there you we just we the just contribution at of any what the for looking seeing be

Soft next over of is mag material the quarters. couple

we're a us customer fact, for contract margins, a very contract nice at attractive good finalizing for us. major both In with very of

So bigger business. our over part the And and even becomes of be couple a you next quarters, get then into 'XX material. it it will beyond, as of FY

ramp Or see me here? you Are further? increase the for here, levels of just you on kind the And inventory with the you talked need meet quarter-over-quarter the as levels then comfortable lastly progresses, to increase to needs. ramp the about do

build year, is our By second the inventory plan flush quarter. to that again We'll end in the of out. the

So you'll same about the probably year-over-year. be

is trying to You'll saying 'XX. in inventory, And I'm significantly some do situation when But XXX% now FY 'XX aren't the key aligned. above output. you we the building got levels, demand centers in you end that the is can of our about what maximize we're are have right market because is will -- all be we our you've FY supply place to where same means rates like a right that production what across now, in

able the the second the we So to that the when for to chance, that ship upstream, in build get customers the most part our inventory and year. out we'll part of be in

you. Great, thank

Thank you.

[Operator Instructions].

here Benchmark Company. question from go Josh will next The from come Please Our ahead. Sullivan

Hi. morning. Good

Good morning.

prepared aerospace the aerospace and remarks outside markets of strong demand. in the mentioned by you dynamic The were dislocated

to grade to materials manufacture furnaces growing various is takes Just the that more is the replacing? we're be where timing lower any product, aerospace purified than but time to there it's the aerospace materials a grade complex going more given it gap

the times that, we're could that want I Again, clear have materials products make this. based to the cycle. I aerospace that Yes, I'm a at on longer on running, alluded production to sure

think production first But moving more meet extreme in from quarter, customers. the this term. I around. that schedule our aerospace always as is We're short a the we're trying bit demand our was to

a over even out the quarters, bit. I think couple little next that'll of

issues given you aftermarket Got it. Pratt, production needs accelerating Or just than of material it measure passenger And chain? I of traffic? some delivered the do GE, does the but it's at are delivered suggest Williams Rolls, to stocking risks, you if know broader to hard you Carpenter, the OEMs number are by demand, versus engines supply inventory faster by PEP think aftermarket look with aerospace

When have of don't times say we talk all faster now. to customers, one And they they it every what are. them inventory enough the current want right than lead

And a So good think, that question a a kind And market there's see an really overall bigger I not important to don't I time, think to note really market maybe, from standpoint, mismatch leads demand standpoint, Josh, it's an piece. aerospace there. a it's that of I for or problem.

now, current that main of is no, next that the that's negative going demand, going for And fiscal not bottom you and tell our it's about accelerating. right news, year whether or fact, can airplane issue line the the that's out. aftermarket rest to beyond. And this is And rates always like it's In I soon. framers, it's have demand you hear And to into levels, significantly mentioned the for inventory the they're build there, change anytime outpaces pushing strong, year supply. and impact decreasing a you've this

we're very more to going we we're news demand that confident why in going just now. 'XX. and have Those then double the to our right than it's by it's not fourth types target, enough in of FY saying because items change, So industry quarter

the any And chain you quarter? see supply this Russian did quantifiable moves it. Got then titanium realignment,

piece Josh, of I didn't last hear that. the

Carpenter that? relationships Russian titanium as new a meaningful see result any of did chain supply realignment,

companies. maybe up they that turn couple it's we clear we a and couple more for Yes, pick up maybe some a of I we in I that's good make In via those large conversion provides could play titanium the think for forgings, come the give and have -- pieces entities times. where everyone. services of could And share aerospace, of it because course, can a U.S. participate this, of just you that would

the their are On still working some there with side, the making assessing through there. with we medical we’re And compete SAO there risk, customers, decisions where points we're some Dynamet. sourcing there

to Carpenter electrification. In be terms changer demand on going a in what how this us it's this have to massive going we for major medical, really aerospace, for of up Technology, stacks not game compared

some there'll actually So be as maybe for some melt big that for opportunities titanium. of not But companies us. the

we're As a you titanium. of not know, melter

you what gives insight bit in that area. to that little hopefully we So a more do

you for time. the Thank

you. Thank

Gibbs KeyBanc Capital Our Markets. come Please Phil will next go question ahead. with from

very much. Thanks capital. just net Question Hi. was working on

and volume and over the You you've working mentioned should aspirations the then very year? got seasonality obviously capital the think the year progresses. about as How strong this of the build we balance net of quarter

take Yes, that Tim I'll let one.

Phil, increase obviously in on Payables morning. of ramp capital the sales follow extent. certain see we will follow. maintain will good net in Tony rest to those some on be component. receivables, a covered rest working timing. all should detail And our consistent the ramp. biggest It's And That's sales then the Yes, movements. a fairly relatively as The inventory. to based we the inventory AR line DSO, should obviously assuming

engine you a gear, aerospace between I guys know whatnot? avionics differentiation regarding includes then specifically, for are seeing Is and between you any material there stronger? which the and And and where non-engine, landing difference Okay. polls are structural

Tony. Phil, this is

that. see from again, submarkets. be ones. our that's fasteners, And we strong. need a is it sooner. our extremely comes sooner. All the one customers in And little need and is that aerospace more across for to There it are no across or all one There every smaller strong But now and of of more of dip engines, We submarkets are demand even our so deviation asking aero you quarter distribution, right a that could and maybe more now. of when

need for and that are cycle curve alike. find are labor all labor question the the big the Do and last then on you Where I And me, do OEMs obviously think suppliers you just for progresses? productivity as labor and on and/or you the a is curve? do point and productivity, you where you more talking Thanks. it, headcount on appreciate productivity

it's usually that Yes, in where locations good demand know bringing because or asking we got still our the coming future. Across question, couple we're Thanks we've we're there's actively still on of line a a that. Phil. for locations, hiring, another

For pretty locations, our real pretty as as last workforce. larger of us whether the training the other for piece, we've during actions. on that key train couple had turnover or that The we're number. have workforce, because of you shape had we good in a through is the the stated, years, as far -- industry be retirements the need good And to

a know, you As have system. complicated complex, very we manufacturing

products. failed never have We

We quality. have to maintain that

So highest coming are from do in and running we're up you XXXX. not why standards. over of We we standpoint, planned employees ran operate trained that's the can full, the all running to next the but they And at we're properly, that quality couple rate of it's see sure a structured, rate make in that our need to equipment process very that very a very at quarters.

Thank you.

over to session. our for the conference I'd concludes question-and-answer back This closing any Brad Edwards turn remarks. like to

Thanks have day. care. rest our call. We a quarter and first your spending appreciate fiscal Joe. joining today earnings the for everyone for us Take you Thanks, time, XXXX great of

you very Thank now has conference concluded. presentation. for today's attending much The

You disconnect may your now lines.