Carpenter Technology Corporation Q3 FY2026 earnings call

• Safety performance: Ended the third quarter of fiscal year 2026 with a total case incident rate of 1.3, making progress with targeted actions. • Record performance: Generated 187 million in operating income in the third quarter, exceeding previous record by 20%. Cash from operating activities was $193.5 million and adjusted free cash flow was $124.8 million. SAO segment had adjusted operating margin of 35.6%, a new record. • Market demand: Accelerating demand across aerospace and defense in-use market, bookings for aerospace structural materials increased. Medical in-use market sales down but bookings up. Energy in-use market sales increased driven by IGT. • Capital allocation: Generated $364.9 million of cash from operating activities in fiscal year 2026. Expect to generate at least $350 million of adjusted free cash flow in fiscal year 2026. Repurchased $133.9 million of shares in fiscal year 2026. • Segment commentary: SAO had exceptional quarter with strong top line, record margins. PEP focused on productivity, equipment reliability, and additive business.

Specialty Alloys Operation Segment (SAO): Net sales excluding surcharge were $585 million in the quarter, up 13% year-over-year and 11% sequentially. Adjusted operating margin increased to a record 35.6% in the quarter, and operating income was $208 million. PEP Segment: Net sales excluding surcharge in the third quarter fiscal year 2026 were 90.6 million, up 17% sequentially and down 6% from the same quarter a year ago. Operating income was $6.7 million in the current quarter.

• For the upcoming fourth quarter of fiscal year 2026, expect corporate costs to be between $25 to $26 million. • Expect SAO to generate operating income in the range of $224 million to $228 million in the fourth quarter. • Currently expect to generate at least $350 million of adjusted free cash flow in fiscal year 2026. • The 2027 earnings target is outdated and will be updated on the next quarter's earnings call.

Q: Comment on lead times, output increase potential, and volume growth.

A: Lead times expected to push out, there's opportunity for volume growth in sub-markets with pockets of non-24-7 operation, and still more productivity improvement.

Q: Transactional price increases, frequency of expedite requests.

A: Transactional pricing as tailwind, expedite requests getting more regular.

Q: IGT revenue, energy mix.

A: IGT was big driver of energy revenue, oil and gas subdued, IGT order patterns can be variable.

Q: Eurostructures, supply chain reaction, cashflow profile.

A: Supply chain activity increasing, cashflow profile expected to be consistent, inventory viewed as opportunity.

Q: Defense orders, LTA mix, aero structure orders.

A: Defense orders increased pre-conflict, LTA mix not drastically changing, aero structure orders continued strong.

Q: CapEx delay, EBIT guidance update.

A: CapEx delay due to cash payment timing, EBIT guidance update to be done in fall and spring process.

Q: Jet engine revenue, sub-market offset.

A: Jet engine revenue up 44% year over year, some sub-markets had mixed movements.

Q: SAO incremental margins, price per pound.

A: SAO margins steadily increasing, price per pound mix-dependent with aero only up almost 10% year over year