Yahoo Finance Carpenter Technology Corp (CRS) (Q3 2024) Earnings Call Transcript Highlights: Strong ...
Adjusted Operating Income: $90 million in Q3, up 29% from Q2; Q4 guidance raised to $110-$115 million.
Net Sales: $684.9 million in Q3; sales excluding surcharge $553.8 million, up 14% sequentially.
Gross Profit: $147 million in Q3, compared to $122.6 million in Q2.
Operating Income: $75.9 million in Q3; adjusted operating margin reached 16.3%.
Adjusted Earnings Per Share (EPS): $1.19 in Q3.
Free Cash Flow: $61.9 million in Q3; adjusted free cash flow $62 million.
Effective Tax Rate: Reported at 37.6%; adjusted rate approximately 21%.
Annual Operating Income Guidance: Raised to $339 million to $344 million for FY 2024.
SAO Segment Operating Income: $103.5 million in Q3; Q4 forecast $124-$127 million.
PEP Segment Operating Income: $9.2 million in Q3; Q4 forecast $9.5-$11 million.
Release Date: May 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Record financial performance in Q3 with an 18% beat on guidance and a 29% sequential increase in adjusted operating income, setting up for an unprecedented fiscal year finish.
Increased guidance for Q4, projecting a further 25% increase in operating income, demonstrating strong business momentum and market demand.
Significant free cash flow generation in Q3, marking a turning point into a period of significant free cash flow generation for future quarters.
Strong demand across key sectors such as aerospace, defense, and medical, with sales to these markets making up nearly 3/4 of overall business and showing substantial year-over-year growth.
Productivity improvements, product mix optimization, and strategic pricing actions driving profitability and margin expansion.
Negative Points
Despite strong financial performance, the company faces challenges in rapidly changing market conditions and must continuously adapt to maintain its competitive edge.
The complexity and long lead times required to add new capacity could limit the company's ability to quickly scale up operations to meet increasing demand.
High dependence on the aerospace and defense markets, which, while currently strong, could expose the company to sector-specific downturns or disruptions.
Ongoing need for significant capital expenditures to support growth and operational efficiency, which could strain financial resources if not managed carefully.
Potential risks associated with global economic fluctuations, regulatory changes, and geopolitical tensions that could impact market dynamics and customer demand.
Q & A Highlights
Q: Was wondering if you could just frame for us any impact you've seen whatsoever from the lower production rates on the 737 MAX and the 787, if at all. And... A: Tony R. Thene - Carpenter Technology Corporation - President, CEO & Director: We see no impact near term and anticipate no impact longer term. As you all know, there's always going to be disruptions in the supply chain. It's this large and complex. And then when you're in this environment where demand significantly outpaces supply, any gaps caused by such disruptions, they're immediately filled. Whether in this case, it's with increased MRO, other platforms ramping, competing markets, but absolutely no impact in the near term, and we see none going forward.
Q: And could you talk a little bit about the various end markets within aerospace and defense. So like the engine channel, I assume that's where you're referencing it, but what about fasteners? What about some of the structural deals you make and the like? A: Tony R. Thene - Carpenter Technology Corporation - President, CEO & Director: I think maybe a couple of numbers there, Gautam, to answer that question. On the engine submarket, sales up 29% sequentially, 40% year-over-year. Fasteners up 25% sequentially, up 35% year-over-year. So strong bookings across all of our submarkets inside of aerospace continue, and we see that continuing going forward.
Q: Did you guys see any participations in orders, though, with respect to -- I understand you may be able to backfill with other demand if like lease-related orders were a little softer. Did you see any change to order intake that was unusual relative to a typical quarter? Or -- I'm just curious if you actually saw some and then are just being backfilled by better wide-body demand, MRO demand or if you haven't seen any in the first instance. Any change in the lease? A: Tony R. Thene - Carpenter Technology Corporation - President, CEO & Director: Yes, there's always adjustments that are being made across the supply chain, as you know well, there's many levels. So there could be people out there that are making slight adjustments. I will say that a lot of that though is backed by the fact that nobody needs to get out of line. Nobody wants to pull an order off. You see instead of taking an order off, it's some type of repositioning of that order. So we just did not see that at a high level.
Q: I appreciate that, Tony. And just given your comments on pulling forward the $6 to $7 earnings target by a year. Do you have any preliminary view on the September or December quarters? Any way you want to frame it, whether it's kind of not -- typical seasonality relative to the June quarter or however you want to (inaudible) if you can. A: Tony R. Thene - Carpenter Technology Corporation - President, CEO & Director: I was about 100% sure, Gautam, you were going to ask that question. So I'm prepared for you. I mean, certainly, you understand you've been around this business for some time, the magnitude of these results that we just submitted and then what we say we're going to do for the fourth quarter. It is a significant step change in where we're going from a financial performance standpoint for this company and certainly is -- should cause a reset in the valuation for this company. I mean this is a significant turning point.
Q: Congratulations on the results here. Just as far as the free cash flow yield expectations on the new long-term guidance, what are some moving factors there? What do you think the long-term naturalized yield is at this point? A: Tony R. Thene - Carpenter Technology Corporation - President, CEO & Director: Let me just stay at a high level with the free cash flow. We obviously almost a year ago at our Investor Day, not only gave an operating income target, which is the most talked about target. We also gave free cash flow. So as you see us moving this in for now, I would say, you can keep that same type of relationship, right? As far as you're going to see that exploration also of the free cash flow. So keep the same type of relationship that you've had from our last Investor Day.
Q: And then what do lead times look like? What are some of the moving parts there? Previously, you talked about the fact that you didn't really want to extend them, if you could, the pricing that you were getting. Any comments you can give us just kind of on lead times at this point. A: Tony R. Thene - Carpenter Technology Corporation - President, CEO & Director: Last quarter, I believe I said 65 plus in terms of weeks, and we always use engine, build it as the proxy. And we're standing there now, if not a little bit more extended. So 65-plus weeks, in some cases, maybe some specific products even a little longer.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
