Carpenter Technology (CRS) 26 Jan 232023 Q2 Earnings call transcript

Good morning, and welcome to the Carpenter Technology Corporation Second Quarter 2023 Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

I would now like to turn the conference over to Brad Edwards of Investor Relations. ahead. go Please

being Good you Technology operator. movement. second and to experience note, delay is welcome ended with time internet, Thank slides. a by presentation conference morning, phone, call Carpenter Please also call This earnings XX, those XXXX slide over for the the December along of you, for XXXX. everyone, broadcast listening the in quarter may fiscal you

and Tim on and Officer; Speakers call Chief Chief and Tony today Senior President Thene, Lain, Financial the are President Vice Executive Officer.

including statements earnings to Statements factors current based management in these for that Form filings, during to exhibits made XXXX, can report most Risk those ended the materially XX, differ by presentation June the recent the ended this Form XX, that expectations. statements results the XX-K are forward-looking XX-Q and found forward-looking are could from for attached filings. actual September quarter SEC on company's and cause be on year Carpenter XXXX Technology's

note income, sales, in that that when revenue, discussion, discusses following When management items that special adjusted the unless or noted, excludes on operating to based otherwise operating sales is surcharge. referring excluding margins, surcharge. excluding and reference also Please

the will Tony. I turn call now to over

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

X.X. roles. hires or to the either new of on see new increase into Let's undertaking did quarter our and The year rate fiscal safety rate We new second of tasks, a Slide the XXXX, was X in year-over-year increase case is the performance. lowering the begin review of improved Through our largely total due second quarter, performance rate. year-to-date incident as transfers employees

follow-up. we training a any enhanced have new and with task procedures To to for frequent expanded monitoring this, address job or employee and

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

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

facilities. strong the and by was productivity our performance demand Second operating quarter of end-use markets in environment increase our the each driven in across

to marks conditions up quarter continue the end-use XXX% solid demand markets, year-over-year. each This our backlog in see growth. our of We eighth consecutive X% backlog of sequentially and with

defense notably, accelerating. aerospace ramp and see the market end-use Most we

As a end-use our gains. realize markets, environment the continue strong demand of result across price we to

We our announced to increase another contract and negotiations. through on order regular continue business transactional raise productivity price satisfy November focused are in demand, our to we accelerating the In on prices sooner. our we most all by our closely working labor employees with our facilities, are new onboarding of force customers safely centers. production deliver notably to more across And across our material

For the The line end-use demand in performance our operational markets continued segment SAO the expectations. in the defense of improved delivered income and million, the by growing with driven and quarter, improvements. and was medical market operating aerospace $XX.X

performance another market. The we PEP particular, for million $X.X In end-use with quarter. for medical in titanium strong in saw demand for segment the operating recent products income turned the strong

$XXX Finally, we quarter liquidity. our liquidity million with in the healthy remains finished as total

market Slide the move X to let's end-use Now and update.

the with exception transportation, environment. year-over-year, the demand our of reflecting of strong were and were end-use sequentially, markets all All up up

Our backlog outlook. provide levels near-term each of and long-term our evidence for remains this end-use bullish outlook positive, and strong markets for record market

planes. continue recovery, for up Our market, defense Global pushing to new X% its traffic aerospace aerospace production were end-use continues supply and ramp the and year-over-year. sales sequentially to XX% chain

demand commercial each in As a in of engine aerospace we the strong aerospace result, submarket. saw submarkets, particular, a the

in platforms. there is driven for continued uncertain primarily issue is sequentially and advanced The the lead short-term as budget alloys a and down by horizons our government We next-generation see defense extended interest times. year-over-year, submarket this as

sales defense, year-over-year. Excluding XX% aerospace sequentially and XX% were up

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

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

backlog remains levels, secure Specifically, Notably, and up sequentially and end-use customer XXX% backlog our urgency XX% record year-over-year. to market reflecting at material. is price our defense value aerospace increases and

were higher elective market, year surgeries. and results medical stocking end-use outlook expected XX% XX% medical growth up positive calendar and increasing be in XXXX. The rise levels meet ongoing year-over-year. demand. sales reflect sequentially Customers activity are to manufacturing to to continues procedures The the throughout overall In required are as

We XX% in as end-use replenishment XXX% the year-over-year. chain our evidence supply up market backlog of sequentially are this medical seeing and is

supply inventories. inventories, high build end-use industry throughout calendar were transportation up compared demand XXXX. XX% expected rates the to with year issues, demand and market, last X% even strong sales limiting are to With down vehicle sequentially remains In chain the Light-duty low year. and increase

heavy-duty see primarily calendar to expect we addition, demand year build vehicle in rates China. increasing driven in rise by In the XXXX,

capital market, up the In driving were the In investment. and energy oil XX% demand end-use sequentially year. continues and up last and compared sales to XX% outpace supply, submarket, to growth gas

premium In for solutions for activities advanced in growing environments. demand completions alloy addition, and seeing are our harsh we drilling

In the sales year-over-year. in end-use up demand and our submarket. electronics growth driven up alloys sequentially and was semiconductor Sales consumer for XX% were fabrication industrial by our and market, XX% used in

mill the in demand materials in Reading. our for submarket, see continue from Specifically new hot electronic growing we in to applications strip

summary. for Now Tim the it I'll turn over to financial

sales, volume. the Sales X, morning, second the from were Net on sales in a income ago, I'll higher quarter XX% higher XX% on totaled start surcharge surcharge, sales the same up were excluding Good and million, period $XXX.X Slide $XXX.X year increased Thanks, statement excluding Sequentially, XX% Tony. everyone. XX% on summary. million. volume.

and $XX.X and same prices, million is of fiscal current first Gross product compared cost is to quarter by increased up the quarter the in last last $XX.X year increases. profit mix to XX% gross profit improving Gross XXXX. substantially up in quarter year inflationary The higher million improvement same offset the profit year and driven by selling sequentially. partially sales and in million primarily $XX quarter of the was in compared

about that million the costs corporate are a million increased about in sequentially. Note in second quarter. ago. quarter $XX.X includes the the were last largely and line line same which same from $XX.X totaled SG&A million $X up expenses period from costs, $X SG&A The corporate second recent year year reported quarter, the the in million

ahead million we to the look be $XX quarter. balance the items When quarter our million million Operating income current XXXX, per was $XX to expect excluding fiscal $XX.X prior of in the cost we quarter, year income recent operating year same quarter. to in corporate in As impact first operating the the was quarter. $XX.X was of $X.X year, special million and in loss last adjusted million

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

quarterly expect throughout tax effective year, approximately variability may as full we XX%, quarter, will year we basis. but increased continue that As the the said fiscal on last levels rate be have to pretax to a XX%

for the environment. was share per our $X.XX current share. by results per demonstrate The continued momentum Earnings quarter strong demand a supported

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

due rates. $XX quarter, significant run and income to end-use are set $XX.X sequential versus driven first adjusted recent coupled the year operating operating fiscal we of increased meet SAO last year in which On a million million quarter income and year-over-year basis, recent reported million, results. to results. our basis, by to our operating our income improvement seeing across volumes to improved with XXXX second an largely progress strong we that our as The higher is improving prior results mix. demand returning our improved income reflect On the Moving sales, operating quarter continue ramp markets. SAO expectations continued improving $XX.X operations line second with to quarter we towards operating in a a

key order markets. all our again quarter end-use backlog ahead, steady sequentially Looking with across of grew rates our this

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

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

our in fiscal reflects excluding and surcharge, Dynamet primarily turning segment Slide surcharge. The were million year-over-year increased and our last second in in million XXXX Net quarter up same Now of year XX% quarter $XXX.X were or sales growth additive increased demand sales from excluding sales, Titanium XX the year and sequentially. Net net PEP $XX businesses. the XX% results. to

and market sales end-use end-use defense Additive a aerospace increased seen to and in and Dynamet sales well in our to consumer the by medical net as ago. markets. end-use in Titanium primarily aerospace from Dynamet Titanium defense business, in same our defense medical sales reflects the and The improvement driven sequential quarter We've applications. Additive a aerospace increase year net markets in year-over-year significant sales In business and as increases also sales market both the the industrial

of $X.X year fiscal current million. income compares market of In ago, in increased by million the quarter, is sales improvement income of $X.X net adjusted of strong year-over-year reported PEP million $X.X year XXXX. the the operating a conditions. The first income operating result and quarter in the to primarily operating of sequentially demand quarter income This same driven operating and

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

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

inventory fiscal namely XXXX, XXXX. move The half by growing production flow balance the the current targeted During more shipments We the we The increased $XXX will satisfy and we of of fiscal reduction by year the a demand, as increased shipments to result increased a quarter, from operations. across materials is second will ramping balanced we reduce the of that be levels. the through anticipate inventories the up driven inventory activities for of year million.

$XX quarter XXXX, spent In fiscal we expenditures. the second on capital of million year

we fiscal previous and certain Given in to be our $XX year XXXX of guidance $XXX is expenditures to of capital $XX million of range lead to due the delays down the extended which timing from ongoing million. projects slightly times, expect million,

$XXX used we an and With important highlighted flow of Lastly, fund part cash shareholders, we the as details quarter dividend which our in fiscal mind, a those consider free we shareholder second year our as before, of to cash of of XXXX. million return. to continue constant I've overall free in flow part

Our with liquidity remains million, healthy, cash quarter of of $XXX under and and $XX borrowings total we liquidity facility. current million our credit available million the ended of including $XXX

As momentum, for continued of our year. expectations second reduction, fiscal drive I mentioned, inventory half year cash half upcoming in to the expect we anticipated generation combined The in of inventory flow second the our fiscal with free reduce earnings are to the XXXX.

to the With back that, call turn I'll Tony.

Tim. Thanks,

to Now of our XXXX. quarter second fiscal recap year

operating a each submarkets and markets. strong their aerospace in accelerate end-use positive of long-term demand environment are We recovery. near-term continue Notably, in to outlooks the with our

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

to surcharge contractual material ability We business. both pressures raw continue our offset will mechanism and transactional prices our our to inflationary and increase through on

earlier, on new influx employees across the the increasing centers. significant I facility force safely production productivity of all As across our we of labor a onboarding focused of are noted by our

increasing we improving to volumes, productivity, mix, and will improving see expansion. increasing margin By prices continue

will fiscal build the As half we a the production a year make necessary first result, flow We certain we position. continue in serve customers. healthy stages sure to liquidity our inventory at have maintain the the to of did to resources of

of we rate in delivering As year. are the half run achieve ahead, And range expect the down to fiscal second inventory XXXX. we the balance fiscal move we year fourth operating Tim looking year XXXX our income mentioned the of fiscal the at as positioned through of earlier, quarter goal will come

full fiscal Let's slide our outlook. the turn XXXX a at to and next take year look closer

run year On the this of two year. fiscal by we fiscal about goal of rate operating talked the earnings fourth calls, the income our quarter achieving XXXX last

our strong of me macro across how at we two playing in terms fiscal extending we demand, driven our Let end-use by the risk growing remains year times. the out. next see into attractive lead We high backlogs participate see which minimal more of of end XXXX insight markets, in and by as are evidenced trends. Therefore, positive Demand provide projections. quarters all markets

continued XX% new quarters, in to rates grow increases. increased at two pace next we critical our at per The the through last to production increase are to productivity excluding train sales most surcharge of over quarter, rate effort in months. the approximately and by which whom the is XX% workforce, XX anticipate driven we production Specifically, the develop can their to safely many role variable

this sequential income projection projected ranges quarters quarter Those estimated million $XX corporate for operating quarter, operating in With provided segment fourth results communicated XXXX. of with company for of SAO costs, strong to income third have total mind, million PEP the fiscal combined the a we $XX.X increase. Tim in year outlook. third and the Earlier, operating income third range and a

to year income to the to just noted, $XX million, project least window It worth in ahead, increase in operating range the small results. expect noting dollars. of first but a total total income operating quarter of over relatively range we too the compared fiscal have that quarter taking $XX I XXXX at the operating into the just we XXX% meaningful fourth For get quarter, company current another not increase income million far to variables the represents to in given. this be second account is And quarter fourth

you quarters. on over We more give will the color coming that

significantly have levels for near earnings an path not also over to as to the is years. are pre-pandemic to return only the we It poised increase coming time a but exciting Technology Carpenter term, earning in

over Thank for your your will the questions. And operator to to time. now it you turn take I

you. Thank

go begin [Operator now will We Instructions] Gautam ahead. comes the First question-and-answer Please from from session. question Cowen. Khanna

that growth make say just I Did Did the this sure sales to I QX? and on I in ex you to surcharge XX% XX% QX guys. right? right, hear guidance Thanks, have want first comments.

That's Good Gautam. correct. Yes, morning.

Does that Good decline in sequential morning. a imply ex sales surcharge?

No.

sales. quarter second the take You

and will XX% then to Third on higher to XX% XX% be that. quarter take XX% another

sequentially. meant apologize. I You

range end? just it I or the specific wasn't The make around to now Okay. of the $XX midpoint commentary want there Is low to that lower $XX million. slightly year-over-year. anything previously, explains million, million sure was on QX, $XX

Yeah.

said I As my comments in ---

Corporate cost.

gating heard that It's And other not well. rates. produce our right and now. No, it's the safely to not rates effectively at the cost. That's in demand. them run as really really It's corporate training those and companies the workforce many factor to industry I've from

you during our workforce significantly we're back If COVID that remember, that up. decreased building

trained. it So takes some time to get them

I'm bit we I give we're little quarter just we hit, closer. the what terms Now to to a of to training. If in closer be range. XX% hit a the we'll of say want going

million you the so suggest Got than mean to it QX it. then comp, And seasonality? be $XX million, than the did way -- higher will $XX normal better to you

they far people think shareholders might I -- as more or little as because bit what runway that our inflection that Yes, keep us see where -- needs a mind, doing. in

to couple out a of trying always there. I'm quarters So be

at But it color assuming all your might trying there's yourself Now that yes, like, from like we see goes we always directional step that that But not but see some another someone assuming take XX-XX-XX. give would it. to guidance, least then I the give quarter the risk first normal might up factors. way the

balances half. have for Do ending up. second I quite happen it quarter will updated use you the that? then free flow then do the the the and leverage cash -- with low cash cash the in you an cash curious was respect first And forecast guys think The just in half? to on at What

on Tim Well, I'll tell it the call. this, mentioned you

XX%. the XX% going mean down to And to significantly randomly. well, not inventory be pull I mentioned it going to intend that mean to going going it's so I second we that right? are is I do that demand earnings inventory. in be well as I we're the half. And higher the then to think take higher, that to as

hit said, higher you we did. just what If it's that's as that, I XXX% than --

follow cash items. your two will So free flow those

you'll first have to the flow, half. think obviously, healthy cash I pretty free compared

you stepping fasteners any you're just areas in order strength some increase. the that flavor And you structural mentioned Okay. back seeing seeing give bit engines where sustain for you're improve, and other talk a just a little aero? X% components Could maybe little and versus maybe And versus backlog, about softer? on are a just then if bit

question Well, not sooner. year-over-year, more faster seeing are than mean all I'm XXX%. right are your asking customers to of areas backlog now, answer soft. our up is for any that I engines mean specifically, I XXX%-plus,

X%. sequentially, look up you If X%, it's

isn't words, a in where out there's increases you're backlog And as there. the XX plenty big So point backlog. weeks. other And meaningful. demand to getting over the In of we're all

So at backlog the when had back Xx we're we're then. 'XX we at back type -- had I had FY the in you demand of you think even

Tony. Thanks,

you, Thank Gautam.

[Operator Joshua Please go Company. Benchmark Instructions] Our Sullivan next from ahead. question comes from the

Good morning.

influx of to inputs need leveling some point headcount? to up numbers As now the you additional QX will into is step we quarter, get Or think fourth there at the support beyond? and to in that off labor a that labor

it's a question. good Yeah,

-- I So I'm it. and you glad -- appreciate asking

Let helpful around couple -- bullets you. I that of might that. be give me for just a

a I mentioned our allowed most decrease to the maintenance pandemic, as retirements production time. I attrition. during that Gautam, during COVID of workforce mean, to higher through significantly we period rate companies We like had of certainly, just

our we've over pace Now employees had an of in last bringing locations. back year, accelerated the all across

that little And of I experienced jotted you stat gives workforce. down So less a course, a here.

less than work facility, our at our to of a at have largest XX% XX% from year. range that have at some critical you centers look you anywhere could If employees workstation of

produce significant able to it produce around a That rates know to site. So is amount your be a you want through manufacturing that. you to way

our I a making very we're there's labor believe -- market. certainly, tight good progress. Now

very jobs. have We fulfilling

We wages, benefit have plans. attractive competitive

staff So some workforce need. in say that we're as XX% There's far right as critical a I that there. to work probably to work more want centers. XX% the we hire would we're couple -- of we

XXX XXX in Now couple some that's more person give thousand, maybe not or comfort, roughly you that's workforce a to SAO. of on X,XXX our

pull materials. And just aerospace given higher Is Got supply Carpenter's enough capacity what get chain, your incrementally commentary they it. can't of from guys aerospace from out it increased chain? Or engine-related takes from on is it here? perspective, the increased sales customers any then supply you where end? But

any our productivity. yeah, facility. Yeah. part remember, is Three things, Athens increased And One, we order. increase in that particular productivity not our of

we So have that.

So go we know demand higher. going to is

We productivity existing have and organic Athens. plants, our we at then have

We see some get medical you and aerospace have like stronger mixed management, these and stronger. of as markets

move You'll even we see the more the us past. in those will, you if and more markets have towards tail, cut off than

And SAO math, We've been ever. by which shipments our you you then big some take to in price increase were even than is And driver and do with quick if was best years price. do give the pound, higher of you're FY financial able pound we a and sales the probably math, math -- 'XX, third one you significantly. the

pricing the and get forget productivity, a know where to lot is people a because going is all is capacity, So more the management to to mix big that. price you big item are want tend in factor that they the a of about how

there? how might types highlight or And rebound? some defense of of you products that And just dynamics then we you then see the can the alloys What impacting? is impact just mentioned, Yeah. that on defense

issues relevant release. it's even our such see piece, a the any whole earnings really sometimes wonder Sometimes, don't scheme of there. whether small I you that's in

of of that's just some we in armament, you'll defense the for You not said inside couple submarket. it to see than the increase think that, we as and more I area It frankly, forward. every sell quarters big a was because alloys quite growth defense, know in us into quarter. and variability down excited the dynamics, have variability up we And I that only the but was on defense. ago, we that see the a get But about too that we normal defense side provide a were munition defense that variety going a areas of

you time. Thank Yeah. for the

Thank you.

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

of Thanks, of again, for in a forward time joining XXXX it. connecting to for appreciate conference great our your I quarter near Jason. today and We Thanks second you have us everyone, future. your look support with call. the rest day. Thanks, and appreciate and fiscal all

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

may You now disconnect.