Carpenter(CRS) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a record operating income of $138 million for Q3 FY2025, a 53% increase year-over-year and 10% higher than the previous record in Q4 FY2024 [10][12][54] - Adjusted operating margins in the SAO segment reached 29.1%, up from 21.4% a year ago and 28.3% in the prior quarter [11][54] - Adjusted free cash flow for the quarter was$ 34 million, contributing to a total of $250 million to$ 300 million expected for FY2025 [12][50][54] Business Line Data and Key Metrics Changes - The SAO segment generated operating income of $151.4 million, a 46% increase year-over-year, with net sales excluding surcharge up 8% [11][38] - The PEP segment reported net sales of$ 96.8 million, up 2% year-over-year and 12% sequentially, with operating income improving to $10.9 million [41][42] Market Data and Key Metrics Changes - Sales in the aerospace and defense market increased 12% sequentially, driven by a 16% increase in engine sales [15][16] - The energy end-use market saw a 26% year-over-year increase in sales, indicating strong demand from power generation customers [20] Company Strategy and Development Direction - The company is focused on maintaining a strong market position through a broad solutions portfolio and manufacturing execution excellence [10][32] - Long-term supply agreements (LTAs) are being pursued to secure future sales, with two recently concluded agreements expected to benefit both the company and its customers [17][84] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate current challenges, citing a strong order intake and improved market conditions [66][74] - The company raised its full-year operating income guidance to a range of$ 520 million to $527 million, reflecting nearly a 50% increase over FY2024 [13][54] Other Important Information - The company is actively managing its working capital and has a healthy liquidity position, ending the quarter with total liquidity of$ 500.4 million [50] - The brownfield expansion project is expected to enhance capacity and is projected to yield an attractive return on capital of over 20% [61] Q&A Session Summary Question: Can you characterize the order trends in the quarter? - Orders were up over 20% sequentially, with ongoing requests for earlier deliveries from customers [66] Question: What is the current pricing environment? - Pricing actions are improving due to a tightening supply-demand imbalance, with recent LTAs expected to contribute positively in the future [70][72] Question: What are the lead times for aerospace engines? - Lead times remain at up to 60 weeks for aerospace engines, with no expected changes [80] Question: Is there any impact from the SPS fire? - There was no material impact on the company's business from the SPS fire [86] Question: What is the outlook for the medical business? - Medical sales are projected to increase in Q4 compared to Q3, following a period of destocking [106] Question: How is the company managing inventory? - The company expects inventory to decrease in Q4, focusing on reducing work-in-progress (WIP) [142][144] Question: What is the status of the brownfield investment? - The investment will face some tariffs, but it is a small part of the overall spend, and the project is expected to enhance capacity significantly [151]