Carpenter Technology lifts operating income 28% to $196.4 million in first quarter

Carpenter Technology Corporation (CRS) reported first-quarter fiscal 2027 operating income of $196.4 million, up 28% from a year earlier, the company said Thursday in a filing with the Securities and Exchange Commission. The company described it as a record first quarter for operating income.

The company held its first-quarter fiscal 2027 earnings call on Thursday, broadcast by webcast, and furnished the slides from the call as an exhibit to the filing. The slides show Chairman, President and Chief Executive Officer Tony Thene presenting the business results and Senior Vice President and Chief Financial Officer Tim Lain presenting the financial overview.

Here's how the company did:

• Net sales: $798.2 million vs. $733.7 million a year earlier
• Operating income: $196.4 million vs. $153.3 million a year earlier
• Net income: $162.5 million vs. $122.5 million a year earlier
• Earnings per diluted share: $3.25 vs. $2.43 a year earlier

Here's how the company's two segments did during the quarter:

• SAO segment: net sales excluding surcharge of $573.5 million vs. $533.9 million; operating income of $216.3 million vs. $170.7 million
• PEP segment: net sales excluding surcharge of $83.0 million vs. $87.2 million; operating income of $7.3 million vs. $9.4 million

Net income was $162.5 million, or $3.25 per diluted share, against $122.5 million, or $2.43 per diluted share, a year earlier.

Gross profit rose to $256.3 million from $216.4 million. Selling, general and administrative expenses fell to $59.9 million from $63.1 million.

The effective tax rate was 15.5%, compared with 15.4% a year earlier.

Net sales were $798.2 million, down from $851.0 million in the fourth quarter of fiscal 2026. Operating income fell to $196.4 million from $206.9 million in the same comparison.

Net sales excluding raw material surcharge revenue rose to $634.8 million from $603.1 million a year earlier. Surcharge revenue was $163.4 million, up from $130.6 million.

Adjusted operating margin excluding surcharge revenue was 30.9%, up from 25.4% a year earlier. The company said removing the surcharge gives a more consistent basis for comparing results from period to period.

Segments and end markets

The SAO segment's net sales excluding surcharge rose 7% to $573.5 million from $533.9 million a year earlier. Its operating income rose 27% to $216.3 million, and its adjusted operating margin reached 37.7% from 32.0%.

The company said the SAO gains came from higher productivity, mix management and realized benefits of pricing actions.

The PEP segment's net sales excluding surcharge fell 5% to $83.0 million, reflecting lower sales in the medical end-use market. Its operating income was $7.3 million, down $2.1 million from $9.4 million. The company said lower titanium sales, particularly in medical, drove the decline, partly offset by strength in its additive business.

By end market, aerospace and defense sales were $425.4 million, or 67% of net sales excluding surcharge, up 10% from a year earlier. The figures exclude sales through the company's distribution businesses.

Medical sales were $51.7 million, down 16% from a year earlier. Energy sales were $32.9 million, down 23%. Transportation sales were $19.8 million, up 11%, and industrial and consumer sales were $83.2 million, also up 11%.

Bookings in aerospace structural and distribution sub-markets rose 23% sequentially and 49% year over year, the company said. Pricing outside long-term agreements (LTAs) remains strong, it said, and the company is negotiating multiple LTAs with pricing upside.

Cash, buybacks and balance sheet

Net cash from operating activities was $52.8 million, up from $39.2 million a year earlier. Capital expenditures were $77.7 million, up from $42.6 million, leaving free cash flow of negative $24.8 million. Free cash flow is operating cash flow minus capital spending, and it was negative $3.4 million a year earlier.

The company repurchased 241,924 shares for $133.9 million in the quarter and completed its prior $400.0 million authorization. It also authorized a new $1.0 billion share repurchase program.

The company paid a quarterly cash dividend of $0.20 per share, or $9.9 million.

Liquidity was $658.6 million, including $159.5 million of cash and $499.1 million of available borrowings under the credit facility. Net debt to EBITDA, or earnings before interest, taxes, depreciation and amortization, was 0.6 times, which the company said remains at historic lows. It has no debt maturities until 2034.

The company said its brownfield capacity expansion, which builds on an existing site, remains on schedule and on budget. It is expected to come online in early fiscal 2028.

Outlook

For fiscal 2027, the company expects operating income of $850 million to $880 million. It said that represents a 21% to 25% increase over fiscal 2026 operating income of $702 million.

The company expects free cash flow of $400 million to $430 million in fiscal 2027.

The company's fiscal 2029 operating income target is $1.2 billion to $1.3 billion, a 20% to 23% three-year earnings compound annual growth rate. It said fiscal 2029 is not the peak, with market dynamics continuing to strengthen.

For the second quarter of fiscal 2027, the company expects SAO operating income of $214 million to $218 million. It expects PEP operating income similar to the first-quarter result.