Carpenter Technology Corporation (CRS)

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Carpenter Technology Corp. (CRS)

F2Q2013 Results Earnings Call

January 31, 2013 10:00 AM ET


Mike Hajost - Vice President, Investor Relations and Treasurer

Bill Wulfsohn - President and CEO

Doug Ralph - Senior Vice President and CFO

Tony Thene - Senior Vice President and In-coming CFO

Andy Ziolkowski - SVP, Commercial, SAO and Latrobe Operations

Sanjay Guglani - Vice President, Performance Engineered Products


Edward Marshall - Sidoti & Company

Gautam Khanna - Cowen and Company

Sal Tharani - Goldman

Steve Levenson - Stifel

Arun Viswanathan - Longbow Research

Mark Parr - KeyBanc

Lloyd O'Carroll - Davenport

Josh Sullivan - Sterne Agee

Jonathan Sullivan - Citi



Good day, ladies and gentlemen. And welcome to the Second Quarter 2013 Carpenter Technology Earnings Conference Call. My name is [Dorsal], and I will be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions)

I would now like to turn the conference over to your host for today, Mr. Mike Hajost, Vice President of Investor Relations and Treasurer. Please proceed.

Mike Hajost

Thank you, [Dorsal]. Good morning, everyone. And welcome to Carpenter’s earnings conference call for the second quarter ended December 31, 2012. This call is also being broadcast over the internet.

With us today are Bill Wulfsohn, President and Chief Executive Officer; Doug Ralph, Senior Vice President and Chief Financial Officer; Tony Thene, Senior Vice President and In-coming Chief Financial Officer, as well as other members of the management team.

Statements made by management during this conference call that are forward-looking statements are based on current expectations. Risk factors that could cause actual results to differ materially from these forward-looking statements can be found in Carpenter’s most recent SEC filings, including the company’s June 30, 2012 10-K, September 30, 2012 10-Q and the exhibits attached to those filings.

I will now turn the call over to Bill.

Bill Wulfsohn

Thank you, Mike, and good morning, everyone. I know you may have some questions about the business following on January 15th press release. So I’m going to be brief with my prepared comments this morning, which will leave more time for your questions.

In addition, I’ve asked Doug to provide more clarity on our second quarter one-time event and our forward outlook. In our second quarter, Carpenter achieves strong year-over-year volume and earnings growth.

Sales ex surcharge were up 30% and 28% higher volume. This was driven by the Latrobe acquisition, strong demand for our Premium and Ultra-Premium products, primarily in the aerospace and energy markets, solid growth in Europe and Asia-Pacific, and continued Amega West sales growth in the context of a 10% drop in the rig count.

From an earnings perspective, we increased operating income and EPS by about 20% versus the same period in the prior year. This growth was driven by the addition of Latrobe which is realizing about double the expected synergies.

Note, year-over-year the Latrobe manufacturing operation is running at about 17% operating margin. In addition, strong mix has helped to improve our profit per pound within our SAO business.

At the same time, as we described in our 15th -- January 15th press release, during the second quarter we saw the impact of destocking in the titanium medical supply chain, reduce demand for value products at Latrobe and our powder operations, and reduce overhead absorption in our specialty alloy operations as we began to reduce inventory.

As we look to the remainder of fiscal year ‘13. We continue to expect our full year operating income improvement of 20% to 30% versus last year, with strong second half revenue and earnings. The reason for this range is because of the continued short-term demand uncertainty with some of our value products.

Note, that at the same time, we are continuing to see strong demand for our Premium and Ultra-Premium products, especially in aerospace and energy. In addition, we are still planning our debt refinancing and the sale of our distribution business, which will further strengthen our cash and liquidity position. Doug will speak in detail about these actions and their impact.

So in summary, we feel great about our business mix, we feel great about Latrobe and about our projected 20% to 30% profit improvements year-over-year. The prospects for our business remain extremely positive.

Our new Athens facility will be operational in just over a year. This capacity will enable us to accelerate our growth as current demand exceeds our supply capabilities and our targeted Ultra-Premium and Premium markets.

In addition, we continue to make solid progress commercializing new and differentiated technologies as was evidenced by yesterday's announcement about our collaboration agreement with U.S. Steel to lightweight automotive applications.

So based on all of these factors, we remain confident that our strategic actions will enable us to achieve our mid-decade EBITDA target of $550 million to $580 million.

With that, I'll now turn over the call to Doug who will provide more detail on our key initiatives and results.

Doug Ralph

Thanks, Bill. I’d like to supplement Bill's comments with some more specifics on our second quarter results, fiscal year earnings and cash flow outlook, and some of the special items that we are calling out.

For the second quarter let's start with the topline. Revenue in the quarter was $533 million. Excluding surcharge revenue was up 30% versus the year ago period and about the same level as we reported in the first quarter. Excluding the impact of the Latrobe acquisition our Q2 revenue ex surcharge was up 5% on volume that was up 2%.

On the bottom line, we delivered Q2 EPS of $0.62, which is up 19% versus the $0.52 we reported in a year ago period and below the $0.74 we reported in Q1.

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