CARPENTER TECHNOLOGY CORP Q1 FY2025 earnings call

Safety Performance

• Total case incident rate was 1.2 for the first quarter of fiscal year 2025, showing improvement but still working towards a zero injury workplace. Investments in training programs are ongoing.

Q1 Performance

• Record first quarter earnings with $117 million in adjusted operating income, a 70% increase year-over-year. SAO segment delivered $134.5 million in operating income with an adjusted operating margin of 26.3%. Generated $13.3 million of adjusted free cash flow and repurchased $32 million in shares.

Sales and Market Dynamics

• Sales decreased 9% sequentially but increased 17% year-over-year. Aerospace and defense sales were up 34% year-over-year, medical sales were down 20% sequentially but up 10% year-over-year, and energy sales were up 8% sequentially and 35% year-over-year.

SAO Segment: Net sales excluding surcharge in the first quarter of fiscal year 2025 were $510.9 million. Year-over-year, sales were up 22% on flat volume, while sequentially, sales were down 9% on 12% lower volume. Operating income was $134.5 million with an adjusted operating margin of 26.3%. PEP Segment: Net sales excluding surcharge in the first quarter were $92.4 million, roughly flat year-over-year and down 10% sequentially. Operating income was $7.3 million. Dynamet, a key part of PEP, is focused on improving productivity, with its fundamentals comparable to SAO's in certain end-use markets.

Fiscal Year 2025

• Increased guidance to the high end of the $460 million to $500 million range for operating income. Focus on productivity, product mix optimization, and pricing actions to potentially exceed this range.

Q2 2025 Outlook

• SAO is expected to generate operating income in the range of $134 million to $139 million.
• PEP is anticipated to deliver operating income in the range of $6 million to $7.5 million.

• Uncertainties in the aerospace supply-chain, including potential deferrals or destocking in some product areas.
• Specific customer concentration risks and supply chain dynamics that could impact performance.

Q: Color on aerospace customers, destocking, deferrals, and backlogs A: Incoming orders were down sequentially but accelerated towards the end of the quarter. Backlog remains above $2 billion with key products having extended lead times. MRO demand remains strong as an offset to potential OEM uncertainties.

Q: Seasonality and productivity metrics A: Planned maintenance occurs in every quarter. Focus on productivity includes scrap rates and throughput, with efforts to reduce rework and improve first pass recovery.

Q: Energy revenue growth and additive charges A: Energy revenue growth of 35% year-over-year was entirely driven by IGT. Additive charges were due to leftover inventory from prior quarters, which is not material and mostly housekeeping.