Carpenter Technology Reports First Quarter Fiscal Year 2021 Results
Generated $88 million of operating cash flow; free cash flow of $63 million
Total liquidity of $613 million including $219 million of cash on hand
“During the first quarter, we further strengthened our liquidity position through solid operating and free cash flow generation,” said
“Looking ahead, the headwinds from COVID-19 will continue to impact demand levels across our key end-use markets in our upcoming second quarter and we will remain in constant contact with our customers to address their evolving material requirements. Despite the near-term challenges related to COVID-19, the long-term outlook for our end-use markets is solid and we will continue working closely with our customers to strengthen our established supply chain position and extend key strategic supply agreements. We remain a critical solutions provider to customers and are developing stronger relationships as we work together to navigate the current environment. We remain confident that a recovery in demand conditions across our key end-use markets will begin to take shape in our third quarter of fiscal year 2021.”
“Our liquidity position is strong as a result of the actions we have taken since the onset of the pandemic and we will continue to maintain a disciplined approach to reducing costs and increasing cash generation. While we continue to actively manage our business given the current challenges, we are also maintaining a focus on the future and further advancing our position in critical emerging technologies. We recently launched our Carpenter Electrification brand and see a number of attractive growth opportunities for our proprietary soft magnetics solutions across all of our key end-use markets. We believe our soft magnetics and additive manufacturing solutions are pivotal to addressing the future of our industry and best positioning
Financial Highlights
($ in millions) | Q1 | Q1 | Q4 | ||||||||
FY2021 | FY2020 | FY2020 | |||||||||
$ | 353.3 | $ | 585.4 | $ | 437.3 | ||||||
Net Sales Excluding Surcharge Revenue (a) | $ | 307.2 | $ | 486.6 | $ | 375.9 | |||||
Operating (Loss) Income | $ | (48.8) | $ | 59.8 | $ | (148.2) | |||||
Adjusted Operating (Loss) Income Excluding Special Items (a) | $ | (30.9) | $ | 59.8 | $ | (18.1) | |||||
Net (Loss) Income | $ | (47.1) | $ | 41.2 | $ | (118.4) | |||||
Cash Provided from Operating Activities | $ | 88.0 | $ | 0.7 | $ | 136.9 | |||||
Free Cash Flow (a) | $ | 62.6 | $ | (56.4) | $ | 99.8 | |||||
(a) Non-GAAP financial measures explained in the attached tables |
Net sales for the first quarter of fiscal year 2021 were
Operating loss was
Cash provided from operating activities in the first quarter of fiscal year 2021 was
In addition to the cash generated from operations, the Company’s liquidity was further enhanced by the bond refinancing completed in the first quarter of fiscal year 2021. The Company issued
Conference Call and Webcast Presentation
Non-GAAP Financial Measures
This press release includes discussions of financial measures that have not been determined in accordance with
About
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Act of 1995. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ from those projected, anticipated or implied. The most significant of these uncertainties are described in Carpenter Technology’s filings with the
PRELIMINARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
(Unaudited)
Three Months Ended | |||||||
2020 | 2019 | ||||||
$ | 353.3 | $ | 585.4 | ||||
Cost of sales | 349.8 | 472.8 | |||||
Gross profit | 3.5 | 112.6 | |||||
Selling, general and administrative expenses | 42.3 | 52.8 | |||||
Restructuring and asset impairment charges | 10.0 | — | |||||
Operating (loss) income | (48.8 | ) | 59.8 | ||||
Interest expense, net | (14.9 | ) | (5.4 | ) | |||
Other expense, net | (2.3 | ) | (0.3 | ) | |||
(Loss) income before income taxes | (66.0 | ) | 54.1 | ||||
Income tax (benefit) expense | (18.9 | ) | 12.9 | ||||
NET (LOSS) INCOME | $ | (47.1 | ) | $ | 41.2 | ||
(LOSS) EARNINGS PER COMMON SHARE: | |||||||
Basic | $ | (0.98 | ) | $ | 0.85 | ||
Diluted | $ | (0.98 | ) | $ | 0.85 | ||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | |||||||
Basic | 48.3 | 47.9 | |||||
Diluted | 48.3 | 48.3 |
PRELIMINARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
Three Months Ended | |||||||
2020 | 2019 | ||||||
OPERATING ACTIVITIES | |||||||
Net (loss) income | $ | (47.1 | ) | $ | 41.2 | ||
Adjustments to reconcile net (loss) income to net cash provided from operating activities: | |||||||
Loss on debt prepayment | 8.2 | — | |||||
Depreciation and amortization | 30.9 | 30.6 | |||||
Non-cash restructuring and asset impairment charges | 8.7 | — | |||||
Deferred income taxes | (3.9 | ) | 3.5 | ||||
Net pension expense | 4.1 | 3.8 | |||||
Share-based compensation expense | 2.7 | 4.1 | |||||
Net loss on disposals of property, plant and equipment | 0.1 | — | |||||
Changes in working capital and other: | |||||||
Accounts receivable | 42.0 | (2.1 | ) | ||||
Inventories | 84.9 | (51.1 | ) | ||||
Other current assets | (23.0 | ) | (10.1 | ) | |||
Accounts payable | (7.4 | ) | 18.0 | ||||
Accrued liabilities | (8.0 | ) | (30.8 | ) | |||
Pension plan contributions | (2.9 | ) | (2.4 | ) | |||
Other postretirement plan contributions | (0.6 | ) | (0.9 | ) | |||
Other, net | (0.7 | ) | (3.1 | ) | |||
Net cash provided from operating activities | 88.0 | 0.7 | |||||
INVESTING ACTIVITIES | |||||||
Purchases of property, plant, equipment and software | (33.3 | ) | (47.5 | ) | |||
Proceeds from disposals of property, plant and equipment | — | 0.1 | |||||
Proceeds from divestiture of business | 17.6 | — | |||||
Net cash used for investing activities | (15.7 | ) | (47.4 | ) | |||
FINANCING ACTIVITIES | |||||||
Credit agreement borrowings | — | 88.1 | |||||
Credit agreement repayments | — | (38.1 | ) | ||||
Net change in short-term credit agreement borrowings | (170.0 | ) | 7.9 | ||||
Proceeds from issuance of long-term debt, net of offering costs | 395.5 | — | |||||
Payments on long-term debt | (250.0 | ) | — | ||||
Payments for debt prepayment costs, net | (8.2 | ) | — | ||||
Payments for debt issue costs | (1.1 | ) | — | ||||
Dividends paid | (9.7 | ) | (9.7 | ) | |||
Proceeds from stock options exercised | — | 2.6 | |||||
Withholding tax payments on share-based compensation awards | (2.2 | ) | (7.5 | ) | |||
Net cash (used for) provided from financing activities | (45.7 | ) | 43.3 | ||||
Effect of exchange rate changes on cash and cash equivalents | (0.8 | ) | 1.0 | ||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 25.8 | (2.4 | ) | ||||
Cash and cash equivalents at beginning of period | 193.1 | 27.0 | |||||
Cash and cash equivalents at end of period | $ | 218.9 | $ | 24.6 |
PRELIMINARY
CONSOLIDATED BALANCE SHEETS
(in millions)
(Unaudited)
2020 | 2020 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 218.9 | $ | 193.1 | |||
Accounts receivable, net | 250.5 | 292.3 | |||||
Inventories | 633.9 | 724.3 | |||||
Other current assets | 84.6 | 56.6 | |||||
Total current assets | 1,187.9 | 1,266.3 | |||||
Property, plant and equipment, net | 1,334.1 | 1,351.1 | |||||
292.3 | 290.4 | ||||||
Other intangibles, net | 46.5 | 52.1 | |||||
Deferred income taxes | 4.7 | 4.9 | |||||
Other assets | 263.2 | 262.4 | |||||
Total assets | $ | 3,128.7 | $ | 3,227.2 | |||
LIABILITIES | |||||||
Current liabilities: | |||||||
Short-term credit agreement borrowings | $ | — | $ | 170.0 | |||
Accounts payable | 114.2 | 124.2 | |||||
Accrued liabilities | 150.3 | 157.9 | |||||
Total current liabilities | 264.5 | 452.1 | |||||
Long-term debt | 693.8 | 551.8 | |||||
Accrued pension liabilities | 386.4 | 399.5 | |||||
Accrued postretirement benefits | 137.7 | 137.4 | |||||
Deferred income taxes | 130.7 | 130.2 | |||||
Other liabilities | 108.1 | 110.5 | |||||
Total liabilities | 1,721.2 | 1,781.5 | |||||
STOCKHOLDERS’ EQUITY | |||||||
Common stock | 280.1 | 280.1 | |||||
Capital in excess of par value | 315.9 | 321.4 | |||||
Reinvested earnings | 1,511.2 | 1,568.0 | |||||
Common stock in treasury, at cost | (319.3 | ) | (325.8 | ) | |||
Accumulated other comprehensive loss | (380.4 | ) | (398.0 | ) | |||
Total stockholders' equity | 1,407.5 | 1,445.7 | |||||
Total liabilities and stockholders' equity | $ | 3,128.7 | $ | 3,227.2 |
PRELIMINARY
SEGMENT FINANCIAL DATA
(in millions, except pounds sold)
(Unaudited)
Three Months Ended | |||||||
2020 | 2019 | ||||||
Pounds sold (000): | |||||||
Specialty Alloys Operations | 43,368 | 60,044 | |||||
Performance Engineered Products | 1,466 | 3,250 | |||||
Intersegment | (486 | ) | (996 | ) | |||
Consolidated pounds sold | 44,348 | 62,298 | |||||
Net sales: | |||||||
Specialty Alloys Operations | |||||||
Net sales excluding surcharge | $ | 254.8 | $ | 393.2 | |||
Surcharge | 45.9 | 97.9 | |||||
Specialty Alloys Operations net sales | 300.7 | 491.1 | |||||
Performance Engineered Products | |||||||
Net sales excluding surcharge | 61.2 | 107.9 | |||||
Surcharge | 0.6 | 1.5 | |||||
Performance Engineered Products net sales | 61.8 | 109.4 | |||||
Intersegment | |||||||
Net sales excluding surcharge | (8.8 | ) | (14.5 | ) | |||
Surcharge | (0.4 | ) | (0.6 | ) | |||
Intersegment net sales | (9.2 | ) | (15.1 | ) | |||
Consolidated net sales | $ | 353.3 | $ | 585.4 | |||
Operating (Loss) Income: | |||||||
Specialty Alloys Operations | $ | (18.6 | ) | $ | 81.0 | ||
Performance Engineered Products | (3.6 | ) | (2.0 | ) | |||
Corporate (including restructuring and asset impairment charges) | (26.6 | ) | (19.1 | ) | |||
Intersegment | — | (0.1 | ) | ||||
Consolidated (loss) operating income | $ | (48.8 | ) | $ | 59.8 |
The Company 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
The PEP segment is comprised of the Company’s differentiated operations. This segment includes the
Corporate costs are comprised of executive and director compensation, and other corporate facilities and administrative expenses not allocated to the segments. Also included are items that management considers not representative of ongoing operations and other specifically-identified income or expense items.
The service cost component of net pension expense, which represents the estimated cost of future pension liabilities earned associated with active employees, is included in the operating results of the business segments. The residual net pension expense is comprised of the expected return on plan assets, interest costs on the projected benefit obligations of the plans, and amortization of actuarial gains and losses and prior service costs and is included in other income (expense), net.
PRELIMINARY
NON-GAAP FINANCIAL MEASURES
(in millions, except per share data)
(Unaudited)
Three Months Ended | ||||||||
ADJUSTED OPERATING MARGIN EXCLUDING SURCHARGE REVENUE AND SPECIAL ITEMS | 2020 | 2019 | ||||||
Net sales | $ | 353.3 | $ | 585.4 | ||||
Less: surcharge revenue | $ | 46.1 | 98.8 | |||||
Net sales excluding surcharge revenue | $ | 307.2 | $ | 486.6 | ||||
Operating (loss) income | $ | (48.8 | ) | $ | 59.8 | |||
Special items: | ||||||||
Restructuring and asset impairment charges | 10.0 | — | ||||||
COVID-19 costs | 7.9 | — | ||||||
Operating (loss) income | $ | (30.9 | ) | $ | 59.8 | |||
Operating margin | (13.8 | ) | % | 10.2 | % | |||
Adjusted operating margin excluding surcharge revenue and special items | (10.1 | ) | % | 12.3 | % |
Management believes that removing the impact of raw material surcharge from operating margin provides a more consistent basis for comparing results of operations from period to period, thereby permitting management to evaluate performance and investors to make decisions based on the ongoing operations of the Company. In addition, management believes that excluding special items from operating margin is helpful in analyzing our operating performance, as these items are not indicative of ongoing operating performance. Management uses its results excluding these amounts to evaluate its operating performance and to discuss its business with investment institutions, the Company’s board of directors and others.
ADJUSTED LOSS PER SHARE EXCLUDING SPECIAL ITEMS | Loss Before Income Taxes |
Income Tax Benefit (Expense) |
Net (Loss) Income |
(Loss) Per Diluted Share* |
||||||||||||
Three months ended |
$ | (66.0 | ) | $ | 18.9 | $ | (47.1 | ) | $ | (0.98 | ) | |||||
Special items: | ||||||||||||||||
Debt prepayment costs, net | 8.2 | (2.0 | ) | 6.2 | 0.13 | |||||||||||
Restructuring and asset impairment charges | 10.0 | (2.4 | ) | 7.6 | 0.16 | |||||||||||
COVID-19 costs | 7.9 | (2.6 | ) | 5.3 | 0.11 | |||||||||||
Three months ended |
$ | (39.9 | ) | $ | 11.9 | $ | (28.0 | ) | $ | (0.58 | ) | |||||
* Impact per diluted share calculated using weighted average common shares outstanding of 48.3 million for the three months ended |
ADJUSTED EARNINGS PER SHARE EXCLUDING SPECIAL ITEMS | Income Before Income Taxes |
Income Tax Expense |
Net Income |
Earnings Per Diluted Share* |
|||||||||
Three months ended |
$ | 54.1 | $ | (12.9 | ) | $ | 41.2 | $ | 0.85 | ||||
Special item: | |||||||||||||
None reported | — | — | — | — | |||||||||
Three months ended |
$ | 54.1 | $ | (12.9 | ) | $ | 41.2 | $ | 0.85 | ||||
* Impact per diluted share calculated using weighted average common shares outstanding of 48.3 million for the three months ended |
Management believes that (loss) earnings per share adjusted to exclude the impact of the special items is helpful in analyzing the operating performance of the Company, as these items are not indicative of ongoing operating performance. Management uses its results excluding these amounts to evaluate its operating performance and to discuss its business with investment institutions, the Company’s board of directors and others.
Three Months Ended | |||||||
FREE CASH FLOW | 2020 | 2019 | |||||
Net cash provided from operating activities | $ | 88.0 | $ | 0.7 | |||
Purchases of property, plant, equipment and software | (33.3 | ) | (47.5 | ) | |||
Proceeds from disposals of property, plant and equipment | — | 0.1 | |||||
Proceeds from divestiture of business | 17.6 | — | |||||
Dividends paid | (9.7 | ) | (9.7 | ) | |||
Free cash flow | $ | 62.6 | $ | (56.4 | ) |
Management believes that the free cash flow measure provides useful information to investors regarding our financial condition because it is a measure of cash generated which management evaluates for alternative uses.
PRELIMINARY
SUPPLEMENTAL SCHEDULE
(in millions)
(Unaudited)
Three Months Ended | |||||
NET SALES BY END-USE MARKET | 2020 | 2019 | |||
End-Use Market Excluding Surcharge Revenue: | |||||
Aerospace and Defense | $ | 147.5 | $ | 286.1 | |
Medical | 30.0 | 44.0 | |||
Transportation | 24.5 | 33.0 | |||
Energy | 21.3 | 33.0 | |||
Industrial and Consumer | 63.1 | 60.2 | |||
Distribution | 20.8 | 30.3 | |||
Total net sales excluding surcharge revenue | 307.2 | 486.6 | |||
Surcharge revenue | 46.1 | 98.8 | |||
Total net sales | $ | 353.3 | $ | 585.4 |
Media Inquiries: | Investor Inquiries: |
+1 610-208-2278 | |
hbeardsley@cartech.com | +1 212-739-6740 |
brad@theplunkettgroup.com |
Source: Carpenter Technology Corporation