WYOMISSING, Pa., Jul 29, 2010 (BUSINESS WIRE) -- Carpenter Technology Corporation (NYSE:CRS) today reported net income of $5.9 million or $0.13 per share for the fourth quarter ended June 30, 2010. This compares to a net loss of $20.8 million or $0.48 per share for the same quarter a year earlier.
Fourth quarter earnings per share would have been about $0.10 higher without the LIFO impact of management's Lean Forward initiative to increase production and inventory levels in order to respond to near-term customer demand.
"Our business continues to have good top-line momentum, and we believe our growth strategies and positioning with key customers will generate strong revenue growth in fiscal 2011," said Gregory A. Pratt, Chairman of the Board. "During this quarter, we made a decision to support growing customer demand by ramping up production and increasing inventories. These actions have put us in a better position heading into fiscal 2011. Adjusting for the Lean Forward impacts and $2.6 million of fixed asset write-offs, our operating margin in the quarter would have been in line with the 10 percent target level we expected by year-end."
"We had a solid year of cash flow performance and remain financially strong," said Pratt. "We are excited about our long term growth opportunities, particularly in aerospace and energy; and remain focused on ultimately exceeding our prior peak level of financial performance."
Fourth Quarter Results
Financial highlights for the fourth quarter include:
(in millions, except per share amounts & pounds sold)
4Q 2010
4Q 2009
FY 2010
FY 2009
Net Sales $364.2 $256.9 $1,198.6 $1,362.3
Net Sales Excluding Surcharge (a) $269.8 $213.4 $921.7 $1,055.2
Operating Income (Loss) excluding pension earnings, interest and deferrals and restructuring costs (a) $19.7 $(24.8) $49.6 $73.5
Net Income (Loss) $5.9 $(20.8) $2.1 $47.9
Diluted Earnings (Loss) per Share $0.13 $(0.48) $0.04 $1.08
Net Pension Expense per Diluted Share (a) $(0.21) $(0.07) $(0.85) $(0.27)
Free Cash Flow (a) $23.1 $71.5 $40.1 $11.2
Pounds Sold (000) 51,132 32,464 170,820 167,040
(a) non-GAAP financial measure that is explained in the attached tables
Net sales for the fourth quarter were $364.2 million, up 42 percent from the prior year. Excluding surcharge revenue, net sales were $269.8 million, up 26 percent from a year ago. Total pounds sold in the fourth quarter were 58 percent higher than the 2009 fourth quarter. Sequentially, net sales excluding surcharge increased 5 percent on 4 percent higher volume reflecting continued growth in all end markets.
Gross profit was $43.7 million compared with $8.4 million in the 2009 fourth quarter. In comparing the year-over-year gross profit results, note that the 2010 fourth quarter included about $9 million of impacts from Lean Forward and fixed asset write-offs while the 2009 fourth quarter would have been about $12 million higher without the LIFO effects from lower nickel prices on declining inventory levels. Beyond that, the higher gross profit in this year's fourth quarter was driven by significantly higher volumes and cost savings, partially offset by weaker product mix and lag effects in our raw material surcharge.
SG&A expenses were $33.5 million, compared with $33.2 million for the fourth quarter of 2009. Excluding the impact of changes in net pension expense, SG&A was down 6 percent versus last year.
Operating income for the fourth quarter was $10.2 million compared with a loss of $32.1 million a year earlier. Excluding surcharge revenue and pension earnings, interest and deferrals (EID), operating margin was 7.3 percent for the quarter and 5.4 percent for the full year.
Other Income was $0.9 million compared to $2.1 million in the 2009 fourth quarter due mainly to lower foreign exchange gains. The provision for income tax was $0.7 million or 11 percent of pre-tax income compared with an income tax benefit of $13.2 million or 39 percent of pre-tax loss a year ago.
Net income was $5.9 million or $0.13 per diluted share, compared with a fourth quarter net loss of $20.8 million or $0.48 per diluted share in 2009.
Free cash flow, which we define as cash from operations less capital expenditures and dividends, was $23.1 million in the quarter. Increased inventory levels to support growing customer demand were more than offset by strong working capital management in receivables and payables. Free cash flow was $40.1 million for the full year.
Markets:
Aerospace market sales were $153.7 million in the fourth quarter, up 26 percent compared with the same period a year ago. Excluding surcharge revenue, aerospace sales were up 16 percent on 22 percent higher volume. Aerospace results reflect continued strong demand and share gain for engine components, which were partially offset by still stagnant demand for fasteners. Volumes increased 3 percent sequentially over the strong third quarter, reflecting demand strength for engine components. While fastener supply chain inventories remain high, better demand balance is expected by the end of the calendar year.
Industrial market sales were $87.9 million, up 70 percent compared with the fourth quarter of fiscal 2009. Excluding surcharge revenue, industrial sales increased 40 percent on 72 percent higher volume. The year-over-year result reflects continued increased demand for lower value products that include stainless redraw rod and stainless bar sold to distributors. Volumes increased from the third quarter by 3 percent.
Consumer market sales were $38.5 million, an increase of 91 percent from the fourth quarter of fiscal 2009. Excluding surcharge revenue, sales increased 62 percent on 73 percent higher volume, driven by supply chain inventory restocking of bi-metallic strip and stainless fasteners. Volumes increased 8 percent from the third quarter.
Automotive market sales were $30.6 million, an increase of 125 percent from a year earlier. Excluding surcharge revenue, automotive sales rose 97 percent as volumes increased 134 percent. The year-over-year volume increase reflects higher demand for engine fasteners and fuel injectors along with greater share in lower value automotive valves. Volumes were flat from the third quarter.
Medical market sales were $28.8 million in the fourth quarter, up 2 percent from a year ago. Excluding surcharge revenues, medical market sales were flat on 15 percent higher volume. The higher volume reflects share gain in cobalt-based implant products and improved demand for stainless instruments, while revenues mainly reflect the impact of lower raw material costs on selling prices for titanium products. Compared to the third quarter, medical volumes increased 6 percent.
Energy market sales of $24.7 million increased 16 percent from the fourth quarter a year earlier. Excluding surcharge revenue, energy market sales increased 9 percent on 36 percent higher volume. The year-over-year increase reflects sharply higher volumes for oil and gas applications as drilling rig activity has increased and supply chain inventories are in better balance. The mix was negatively impacted by continued sluggish orders for high value materials used in industrial gas turbines. Energy volumes grew 19 percent from the third quarter.
International Sales in the fourth quarter were $115.2 million, an increase of 40 percent compared with the same quarter a year earlier. Revenues increased 49 percent in Asia on 64 percent higher volume driven by significant growth in the automotive, consumer and industrial markets. Sales in Europe were up 39 percent on 34 percent higher volume, due mainly to significant growth in aerospace. From the third quarter, sales outside the U.S. increased 10 percent. International sales in the 2010 fourth quarter represented 32 percent of total sales, unchanged from the prior year.
FY 2011 Outlook
The Company expects to deliver overall revenue growth in the mid-to-high-teens for fiscal 2011. Revenue growth is expected in each quarter versus the comparable year-ago period, although volumes in the first half of the year are expected to be lower than the second half of fiscal 2010 due to normal seasonality factors. Volumes should increase above comparable year-ago periods during the second half of the year, aided in part by the return of aerospace fastener demand.
Profitability is expected to continue on an improving trend, driven by volume growth, an improving product mix and continued cost savings. Operating margin, excluding surcharge and pension EID, should remain around current levels at the lower volume in the first half of the year and should then improve in the second half of the fiscal year. The effective tax rate is projected to be about 30 percent.
Free cash flow is expected to be neutral including $70 million of capital spending and a projected increase in working capital to support business growth.
"As the recovery unfolds, Carpenter is well positioned to meet the demands of our customers and deliver good results in fiscal 2011," said William A. Wulfsohn, President and Chief Executive Officer. "I am confident we have the strategies and financial flexibility to drive future growth and deliver attractive shareholder returns."
Pension Effects
During the fourth quarter, the Company recorded expense associated with its pension and other post retirement benefit plans of $15.5 million or $0.21 per diluted share. For the full fiscal year, non-cash pension expense was $61.3 million, or $0.85 per diluted share. Due primarily to the decline in equity markets near the end of fiscal 2010 and a lower discount rate assumption, the Company now expects to record similar non-cash pension expense of $61 million, or approximately $0.83 per diluted share in fiscal 2011. The expense will be allocated equally through the fiscal year. The Company currently expects to make a cash contribution of approximately $5 million in the fourth quarter of fiscal 2011.
Non-GAAP Financial Measures
This press release includes discussions of financial measures that have not been determined in accordance with U.S. generally accepted accounting principles ("GAAP"). The non-GAAP financial measures, accompanied by reasons why the Company believes the measures are important, are included in the attached schedules.
