PHILADELPHIA – More than most people, stock analysts don’t like surprises. So, when Carpenter Technology, which has several manufacturing facilities in Berks County, missed stock analysts’ fiscal 2020 second quarter earnings projections by $0.04 per share, Wall Street wasn’t happy.
The stock was down 3.40% at the end of Thursday’s trading on the New York Stock Exchange.
More trouble could be ahead. Carpenter is a supplier for the grounded Boeing 737 MAX.
“In the near-term, we are actively evaluating and executing on opportunities to mitigate the impact of the Boeing 737 MAX supply chain disruption,” said Tony Thene, Carpenter’s president and CEO. “We believe we can partially mitigate the impact to our business through our broad sub-market participation and by leveraging our diverse portfolio of leading applications across other attractive end-use markets.”
Although stock analysts are upset, management should be largely pleased. Net sales for the second quarter of fiscal year 2020 increased to $573 million compared with $556.5 million in the second quarter of fiscal year 2019, an increase of $16.5 million, or 3%, on 7% lower volume.
Operating income was $55 million in the second quarter, compared to $59.8 million in the first quarter and $55.4 million in the second quarter of fiscal 2019.
Net income for the fiscal second quarter was $38.8 million, compared to $35.5 million the previous year. Diluted earnings per share (EPS) were $0.79 in the quarter compared to $0.73 in the second quarter of fiscal 2019.
“Our second quarter results reflect a continuation of our consistent year-over-year earnings growth, backlog expansion and record operating performance at SAO,” said Thene. “Operating income at SAO (specialty alloys operations) reached its highest level on record as we continue to drive a richer product mix by prioritizing higher-value solutions across our end-use markets. In addition, customer activity at our Athens facility remains high and we received four vendor approved process (VAP) approvals this quarter.”
The second quarter marked our 12th consecutive quarter of year-over-year sales growth and backlog growth.”
Business segment results
Carpenter has two reportable segments, specialty alloys operations (SAO) and performance engineered products (PEP).
The SAO segment is comprised of Carpenter’s major premium alloy and stainless steel manufacturing operations. This includes operations performed at mills primarily in Reading and Latrobe, Pennsylvania, and surrounding areas, as well as South Carolina and Alabama.
In the fiscal second quarter, SAO sold 56,564 pounds of product. Net sales were $483 million in the quarter compared to $461.6 million the previous year. Operating income for SAO in the quarter was $76.3 million compared to $69.0 million in fiscal 2019 second quarter.
The PEP segment is comprised of the company’s differentiated operations. This segment includes the Dynamet titanium business, the Carpenter powder products (CPP) business, the Amega West business, the Carpenter additive business and the Latrobe and Mexico distribution businesses. The businesses in the PEP segment are managed with an entrepreneurial structure to promote flexibility and agility to quickly respond to market dynamics.
In the fiscal second quarter, PEP sold 3,424 pounds of product. Net sales were $106 million in the quarter, compared to $112.9 million the previous year. Operating income for PEP in the quarter was $0.4 million compared to $4.4 million in fiscal 2019 second quarter.
End-use market results
“We generated double-digit year-over-year revenue growth in the aerospace and defense end-use market as our leading solutions, sub-market diversity, and participation on practically all major industry platforms continue to drive strong performance,” Thene commented. “In addition, sales in the medical end-use market increased double digits compared to last year as demand for our high-value solutions remains high.”
Aerospace and defense net sales grew from $234.1 million in fiscal 2019 second quarter to $278.8 million this quarter. Medical and transportation net sales also grew in the quarter, from $38.4 million to $43.5 million and from $29.4 million to $30.6 million, respectively.
“Longer-term,” Thene said, “we continue to place strategic emphasis on advancing our leadership in emerging technologies and best positioning Carpenter Technology for sustainable growth. We recently opened our Emerging Technology Center on our Athens campus and customer collaborations around additive manufacturing are accelerating. The construction of our hot strip mill on our Reading campus remains on target and will enable us to further capitalize on our soft magnetics solutions portfolio and the anticipated growth associated with expanding electrification initiatives across multiple markets.”