Earnings call: Carpenter Technology reports Q1 FY2024 results, sees strong demand and growth potential

Carpenter Technology Corporation (NYSE:) has reported a sequential increase in operating income and a strong demand for its specialized products in its first quarter of fiscal year 2024, which ended on September 30, 2023. Despite a sequential decrease, sales showed a significant year-over-year increase, driven by productivity gains and higher prices.

Key takeaways from the call:

• Operating income for the quarter was $69 million, a 10% increase sequentially.
• SAO segment exceeded expectations, delivering $80.8 million in operating income.
• The backlog grew by 5% sequentially and 32% year-over-year.
• Sales decreased sequentially but increased significantly year-over-year.
• The company generated $7.4 million of cash from operations, maintaining liquidity of $366.4 million. This aligns with the InvestingPro Tip that the company’s liquid assets exceed short-term obligations.
• Demand for Carpenter Technology’s products in aerospace, defense, medical, and other markets remains strong.
• Net sales for the SAO segment were $570.1 million, for the PEP segment were $101.8 million.

According to InvestingPro data, the company’s market cap is $3.15 billion and has seen a revenue growth of 38.88% in the last 12 months. The company’s P/E ratio stands at 57, which is high, reinforcing the InvestingPro Tip that the company is trading at a high earnings multiple.

CEO Tony Thene discussed the performance of non-aerospace markets in the current cycle compared to historical cycles, stating that aerospace and medical markets, accounting for over 75% of their revenue, are driving the quickest revenue growth. Energy markets, contributing only single-digit percentages of revenue, are seeing significant price increases, making them more appealing.

Thene also discussed the company’s fiscal ’27 targets, stating that the current growth ramp is more significant than in previous cycles. The company aims to double its fiscal year 2019 operating income by fiscal year 2027, with an estimated fiscal year 2024 operating income in the range of $310 million to $330 million. The company expects to achieve approximately 50% of the fiscal year 2024 opportunity and is focused on accelerating productivity gains and capacity to push earnings even higher.

Regarding the impact of nickel prices and contract renewals, Thene stated that customers are not delaying orders due to nickel prices, and all contract renewals are expected to be at higher prices. He also mentioned the company’s focus on productivity and the challenges of maintaining high quality standards while increasing capacity. The company is well-positioned to drive growth and improve margins through productivity improvements, product mix optimization, and higher prices.

In terms of future plans, Thene highlighted the need for future capital investments to address the strong demand for Carpenter Technology’s products, with customers wanting more than the company can currently produce. The company’s goal is to achieve a 40% compound annual growth rate over the next four years. The call concluded with closing remarks from John Huyette.

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