Carpenter Technology Corporation Q4 FY2025 earnings call

Safety Performance

• Ended fiscal year 2025 with a total case incident rate of 1.4, a 20% improvement over fiscal year 2024, with commitment to a 0 injury workplace in fiscal year 2026.

Fourth Quarter Performance

• Continued earnings momentum, generating $151 million in adjusted operating income in Q4 FY '25, a 21% increase YOY and 10% sequential increase. SAO segment drove profitability with 30.5% adjusted operating margin, up from 25.2% YOY and 29.1% sequential.

Market Dynamics

• Aerospace and Defense: Sales up 3% QOQ and 2% YOY, with engine sales up 5% QOQ; positive outlook from Paris Air Show. Medical: Sales up 6% QOQ but down 16% YOY, with underlying demand positive. Energy: Sales up 27% QOQ and 22% YOY, especially power generation with accelerating demand.

Cash Generation

• Generated $201.3 million in adjusted free cash flow in Q4 FY '25, $287.5 million for fiscal year 2025. Purchased $101.9 million of shares under the $400 million stock repurchase program in FY '25.

SAO segment: Fourth quarter of fiscal 2025 net sales excluding surcharge were $548 million. Adjusted operating margin was 30.5%, and operating income was $167 million, a 19% year-over-year increase and 10% sequential increase. PEP segment: Fourth quarter net sales excluding surcharge were $97.1 million, down 5% year-over-year but flat sequentially. Operating income was $11.7 million.

Fiscal Year 2026 Guidance

• First quarter: Projected operating income between $148 million and $152 million.
• Full year: Projected adjusted operating income $660 million to $700 million (26%-33% increase over FY '25), and adjusted free cash flow $240 million to $280 million (net of brownfield capital expenditures).
• Fiscal Year 2027: Targeted adjusted operating income $765 million to $800 million.

Q: Talk about lead times in jet engine, fasteners and pricing outlook.

A: Lead times remain extended, particularly using jet engines as a proxy. Pricing actions continue to be a tailwind as supply-demand gap is large, and other investments won't materially impact supply-demand.

Q: Defense growth and maintenance events.

A: Defense orders are program-specific and uneven, but elevated; preventive maintenance using AI tools for targeted outages to keep assets running at high level.

Q: Power generation revenues and mix gains.

A: Power generation revenues up significantly, mix gains from aerospace (over 60% of sales), medical (growing innovatively), and power generation (strategic advantage with strong demand)