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PHILADELPHIA — Quarter by quarter, Carpenter Technology continues its climb back to sustained profitability. Carpenter, which was founded in Reading and maintains a large manufacturing presence in and around the city, reported financial results across the board for the fiscal 2023 third quarter that beat results for the prior quarter as well as the third quarter of fiscal 2022.
“By outperforming expectations for the third quarter of fiscal year 2023, we remain on the path to returning to pre-pandemic levels of profitability in the fourth quarter of fiscal year 2023,” Tony R. Thene, the Philadelphia-based company’s president and CEO, said in a prepared statement. “Our third quarter performance was driven by increased productivity across our manufacturing facilities and ongoing strong demand in each of our end-use markets.”
Speaking with analysts, Thene said sales could have been higher in the quarter, but the process of hiring and training new employees put the brakes on growth. This was especially true of the Berks County operations, he said.
Nevertheless, Thene said the company outperformed expectations with increasing demand and increasing productivity at operating facilities. Thene noted the order backlog is up 10% sequentially and 70% year over year. He also pointed out that Carpenter was realizing market share and price gains through contract negotiations and price increases on transactional business.
Net sales, excluding surcharge for most end-use markets, showed healthy sequential growth except for the medical market. As usual, the aerospace and defense market set the pace, increasing to $625.4 million for nine months in fiscal 2023 from $421.1 million in fiscal 2022. For all end-use markets, net sales, excluding surcharge, were $1.288 billion in fiscal 2023 versus $996.9 million the prior year.
3Q operating results
Net sales for the third quarter of fiscal year 2023 were $690.1 million, compared with $489 million in the third quarter of fiscal year 2022, an increase of $201.1 million, or 41%, on a 15% increase in shipment volume. Net sales, excluding surcharge, were $491.5 million, an increase of $122.5 million, or 33% from the same period a year ago.
Operating income was $39.3 million in the current quarter, Carpenter reported, compared to operating income of $1.1 million in the prior year period. Earnings per share in the third quarter of fiscal year 2023 were $0.38 compared to loss of $0.16 per share in the prior year quarter. Excluding special items, adjusted loss per share in the third quarter of fiscal year 2022 was $0.20.
The company said the improvement in operating income and earnings per share is primarily the result of increased shipments as activity levels continued to increase to meet improving market conditions in key end-use markets.
Adjusted free cash flow in the third quarter of fiscal year 2023 was negative $26 million, compared to positive $0.4 million in the same quarter last year. The negative cash flow was the result of working capital needs to meet growing demand. Capital expenditures in the third quarter of fiscal year 2023 were $20.5 million, compared to $25.1 million in the same quarter last fiscal year.
Segment performance
“The specialty alloys operations (“SAO”) segment demonstrated continued improvement with operating income of $49 million for the third quarter of fiscal year 2023,” Thene said. “The results for SAO were driven by increased productivity at our facilities as we continued to safely onboard new employees and accelerate training.”
The SAO segment sold 56.516 million pounds in the fiscal third quarter compared to 49.442 million pounds in the second quarter. Net sales, excluding surcharge, were $411.5 million, and adjusted operating income was $49 million, an increase of $18.7 million from the prior quarter.
“The performance engineered products (‘PEP’) segment,” Thene continued, “had a strong quarter with operating income of $10.2 million, led by our Dynamet titanium and additive businesses.”
The PEP segment sold 3.232 million pounds and net sales excluding surcharge were $103.8 million. Adjusted operating income was $10.2 million, up from $9.3 million the second quarter of fiscal 2023.
Outlook
“Looking ahead,” Thene commented, “we are well positioned to achieve our goal of delivering operating income of $54-60 million in the fourth quarter of fiscal year 2023. To achieve this goal, we are continuing to focus on increasing productivity across our manufacturing facilities to meet the strong demand across each of our end-use markets. With higher volumes, improved product mix and increased prices, we expect to realize accelerating sales momentum and improved margins.”
Carpenter said it expects the aerospace market to exceed pre-COVID-19 levels thanks to growing global travel demand. Government spending is expected to rise with increased global geo-political uncertainty.
The company said improved vehicle energy and fuel efficiency requiring innovative solutions should push transportation growth while the shift to lower carbon-intensive energy sources requiring new material solutions will drive energy growth. In the consumer market, more devices, and more connectivity with better wireless performance is expected to fuel growth.
Carpenter’s stock (NYSE: CSR) finished the day of trading up $5.69 (11.79%) to close at $53.93.
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