PHILADELPHIA | As projected in its last quarterly earnings report, Carpenter Technology again delivered mostly negative results for its fiscal third quarter.

Being a cyclical company, which depends on other businesses for its business, that’s the way things are. And working your way through a global pandemic certainly counts as a down cycle.

Sales and earnings declined compared to the company’s fiscal 2020 third quarter in both of the company’s business segments and all end use markets except transportation. However, in a positive sign, Carpenter, which has several manufacturing facilities in Berks County, showed improving results when looked at sequentially versus the fiscal 2021 second quarter.

Carpenter’s stock was down 3.7{98cae0078f524eff3ab8ec32cf55b261677ef6c8a6ed6e94d92a4234b93f46b6} in mid-morning trading.

Speaking with analysts on the earnings conference call, President and CEO Tony R. Thene said that the results were consistent with guidance provided in the fiscal second quarter and he saw several positive developments moving forward.

He pointed to several contract extensions with customers in the aerospace, medical and transportation markets with all end-use markets in recovery. Thene noted that the medical end-use market grew 7{98cae0078f524eff3ab8ec32cf55b261677ef6c8a6ed6e94d92a4234b93f46b6} sequentially. He also noted that the hot strip mill in Reading is in the final commissioning phase and will expand manufacturing capacity in the future.

Net sales for the third quarter of fiscal year 2021 were $351.9 million compared with $585.4 million in the third quarter of fiscal year 2020, a decrease of $233.5 million (negative 40 percent), on 39 percent lower volume.

Net sales excluding surcharge were $298.1 million, a decrease of $196.9 million (negative 40 percent) from the same period a year ago. Carpenter believes that removing the impact of raw material surcharge from operating margin provides a more consistent basis for comparing results of operations from quarter to quarter.

Operating loss in the quarter was $40.0 million compared to operating income of $58.7 million in the prior year period. Adjusted operating loss excluding special items was $29.7 million in the recent third quarter.

Special items excluded from adjusted operating loss in the current quarter include restructuring and asset impairment charges, including inventory write-downs of $7.6 million related to ongoing actions to reduce cost and narrow focus for the additive business and $2.7 million of costs associated with COVID-19.

These COVID-19 costs principally consist of direct incremental operating costs including outside services to execute enhanced cleaning protocols, additional personal protective equipment, isolation pay for production employees potentially exposed to COVID-19 and various operating supplies necessary to maintain the operations while keeping employees safe against possible exposure in the company’s facilities.

Diluted loss per share was $0.84 in the third quarter compared to earnings of $0.82 in 2020’s third quarter.

Total liquidity, including cash and available credit facility borrowings, was $538.8 million at the end of the third quarter of fiscal year 2021. This consisted of $244.2 million of cash and $294.6 million of available borrowings under the Company’s recently amended and extended secured credit facility.

In a statement, Thene said: “Our third quarter results were in-line with our expectations as we continue to weather near-term volume headwinds, as we had anticipated. While current conditions remain challenging, we have recently completed multiple contract extensions in the Medical, Transportation and Aerospace and Defense end-use markets.”

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.

The SAO segment sold 37.260 million pounds in the quarter for net sales excluding surcharge of $246.5 million compared to $398.8 million in the same period of 2020. SAO operating loss was $9.9 million compared to an operating profit of $76.4 million in 2020.

The PEP segment includes the Dynamet titanium business, the Carpenter Additive business and the Latrobe and Mexico distribution businesses. Effective July 1, 2020, the Company’s Carpenter Powder Products business was merged into the Carpenter Additive business.

The businesses in the PEP segment are managed with an entrepreneurial structure to promote flexibility and agility to quickly respond to market dynamics.

The PEP segment sold 2.026 million pounds in the quarter for net sales excluding surcharge of $64.9 million compared to $107.1 million in the same period of 2020. PEP operating loss was $3.3 million compared to an operating loss of $0.3 million in 2020.

By end-use markets, net sales excluding surcharge in the quarter were $137.3 million for Aerospace and Defense; $31.10 million for Medical; $29.1 million for Transportation; $18.1 million for Energy; $55.9 million for Industrial and Consumer; and $26.6 million for Distribution.

Outlook

“Looking ahead,” Thene said, “we believe end-use market conditions will continue to improve as we move through calendar year 2021. The long-term outlook across our end-use markets remains strong and we are well positioned in each with critical material solutions to address our customers’ complex needs. We have deepened our customer relationships and continue to believe we will emerge from the pandemic a stronger company. Our investments in additive manufacturing and electrification capabilities further strengthen our sustainable long-term growth profile.”

About Carpenter Technology

Carpenter Technology Corporation (NYSE:CRS) is a producer and distributor of premium specialty alloys, including titanium alloys, nickel and cobalt based superalloys, stainless steels, alloy steels and tool steels. Carpenter’s high-performance materials and advanced process solutions are part of critical applications used within the aerospace, transportation, medical and energy markets. Carpenter’s powder technology capabilities support a range of next-generation products and manufacturing techniques, including additive manufacturing and 3D Printing.

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