Q1 2024 Carpenter Technology Corporation Earnings Call
Good day and welcome to the Carpenter Technology Corporation first quarter 2020 for fiscal year financial results Conference call all participants will be in listen only mode.
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I'd now like to turn the conference over to Mr. John Hewitt, Vice President Investor Relations. Please go ahead. Thank.
Thank you operator, good morning, everyone and welcome to the Carpenter Technology earnings Conference call for the fiscal 2020 for first quarter ended September 32023.
This call is also being broadcast over the internet along with presentation slides.
Please note for those of you listening by phone you may experience a time delay in slide movement.
Speakers on the call today are Tony <unk>, President and Chief Executive Officer and Tim.
Tim Lee Senior Vice President and Chief Financial Officer.
Statements made by management. During this earnings presentation 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 technology's. Most recent SEC filings, including the company's report on Form 10-K for the year ended June 32023, and the exhibits attached to that filing.
Please note that in the following discussion unless otherwise noted when management discusses the sales or revenue that reference excludes surcharge.
When referring to operating margins that is based on adjusted operating income excluding special items and sales excluding surcharge.
I will now turn the call over to Tony.
Thank you John and good morning to everyone on the call today.
I will begin on slide four with a review of our safety performance.
For the first quarter of fiscal year 2024, our total case incident rate was two one.
This rate has been elevated over the last several quarters as we integrate a large number of new employees into our operations we.
We are focused on specific actions to maintain lower severity and identify potential risks are.
Our target remains a zero injury workplace and we will continue to work tirelessly to achieve that target.
Now, let's turn to slide five and a review of the first quarter.
On our last earnings call, we provided an outlook for the first quarter of fiscal year 2024, and signaled operating income is expected to be flat or slightly up sequentially, even though we outperformed the fourth quarter expectations.
At first quarter guidance represented a meaningful improvement compared to the historical trend and a sequential decline in profit in the first quarter of a fiscal year.
Building on our operating momentum, we exceeded that guidance and reported first quarter operating income of $69 million, a 10% increase sequentially.
Most notably the sales segment exceeded expectations for the quarter, delivering 88 million and operating income.
Above the outlook, we provided of $72 million to $77 million.
Further <unk> realized an adjusted operating margin of 19, 4% growing from 16, 8% in the previous quarter.
This impressive margin expansion came as a result of targeted improvement in product mix higher realized prices.
And continued focus on productivity.
We continue to realize price gains on both contractual and transactional business as evidenced at the beginning of October we announced another price increase of 7% to 12% on our transactional business.
We also generated $7 4 million of cash from operations during the quarter, maintaining a healthy liquidity of $366 4 million.
Finally, we are positioned in a strong demand environment across our end use markets, where our material solutions are valued by our customers.
Now, let's take a closer look at our demand outlook on slide six.
Carpenter technology produces specialized highly engineered products that are essential to the function of critical applications across the aerospace defense medical and other end use markets.
Our unique collection of assets and capabilities to produce these products are not easily replicated and it requires decades of experience to generate the high quality needed to meet stringent industry standards.
Demand for our difficult to manufacture products is exceeding industry supply.
And we see tangible evidence of this.
Our backlog continues to grow setting new records every quarter in.
In the first quarter of fiscal year 2024, our backlog was up 5% sequentially and 32% year over year.
We continue to raise prices with our most recent announcement earlier this month of a 7% to 12% increase on our transactional business.
Lead times remain at record levels and could be even longer as we are actively managing incoming orders.
And customers continue to tell us their primary concern is surety of supply.
Asking when they can book more with us.
We expect this demand environment to remain strong in aerospace Oems continue to work to increase build rates targeting levels exceeding pre pandemic highs.
Defense demand already growing is projected to accelerate due to geopolitical events.
Medical demand continues on a steady climb due to strong trends such as aging population and focus on patient outcomes.
And demand for our premium products in our other markets is also projected to remain high due to ongoing energy investment need light duty vehicle build and semiconductor capacity expansion.
As always there is active discussion in the general marketplace about near term demand.
For example, even most recently this week some aerospace Oems discussing bill great target adjustment and ongoing delivery challenges within the supply chain.
Or the impact of disruption to vehicle manufacturing associated with worker strikes.
While we can affirm is that these issues are not affecting our general demand levels. We remain oversubscribed in terms of demand with customers generally wanting more than we can produce.
We have a substantial backlog of orders with material wanted sooner.
Even as we work to increase output. We also see unexpected emergency demand from areas like medical and defense.
Associated with current world events are from aerospace associated with spares need.
What you are hearing from the marketplace is an affirmation of the strong demand in the near term and the long term.
Beyond the near term our customers also continue to partner with us on their strategic growth effort met.
Medical innovations next generation defense platforms and electrification are examples of areas, where customers are partnering with us to develop their next generation products.
In this demand environment, we are well positioned to continue to drive topline growth, while expanding our margins through productivity improvements.
Mix optimization and higher prices.
Now, let's review first quarter sales performance.
In the first quarter of fiscal year, 2024 sales decreased sequentially and increased significantly year over year.
The year over year performance reflects our significant productivity gains.
As anticipated volumes decreased sequentially due to fewer operating days planned preventative maintenance activity and most importantly targeted mix management.
Importantly profitability improved in the quarter, resulting in a sequential increase in our operating income on lower sales.
Notably sales adjusted operating margin was 19, 4% in the quarter up from 16, 8% in the fourth quarter of fiscal year 2023.
The profit margin expanded through a combination of productivity efforts price increases and strategic mixed management.
This means we are actively allocating capacity to the areas, where we add the most value.
We serve critical applications across all of our end use markets and apply ongoing strategic mixed management and how we serve them to capitalize on the higher margin products.
Our profitability has been increasing over the previous quarters, and we will continue to improve with higher pricing product mix optimization and continued productivity improvements.
Now I will turn it over to Tim for the financial summary.
Thanks, Tony Good morning, everyone I'll start on slide.
Nine income statement summary.
Net sales in the first quarter were $651 9 million with sales, excluding surcharge totaling $492 8 million.
Sales, excluding surcharge increased 31% from the same period, a year ago on 12% higher volume.
Sequentially sales were down 12% on 18% lower volume.
The year over year increase was driven by significant productivity gains to meet growing demand.
As Tony mentioned earlier, the lower sales and volumes sequentially were primarily the result of fewer operating days and planned preventative maintenance activities necessary to ensure our equipment continues to perform at high levels.
Gross profit was $124 1 million in the current quarter compared to $54 8 million in the same quarter of last year.
And $119 million in the fourth quarter of fiscal year 2023.
Gross profit in the current quarter is up 126% compared to the same quarter last year and up 4% sequentially.
SG&A expenses were $55 1 million in the first quarter.
About $9 million from the same period, a year ago, and roughly $1 million lower sequentially.
The increase in SG&A expenses versus the same quarter last year is primarily driven by head count and higher variable compensation accruals.
G&A line includes corporate costs, which totaled $20 9 million in the recent first quarter.
As we look ahead to the upcoming second quarter of fiscal year 2024, we expect corporate costs to be similar to the first quarter at about $21 million.
Operating income was 69 million in the current quarter compared to $8 3 million in the same quarter, a year ago and $62 9 million in our recent fourth quarter of fiscal year 2023.
The sequential improvement in operating income up 10% was driven by our productivity efforts.
Actions, we took to manage product mix as well as the benefits realized from higher base prices.
As a result of these actions we continue to see profit margin improve.
With total company adjusted operating margin, reaching 14% up from 11, 2% in the previous quarter.
Moving onto our effective tax rate.
For the recent first quarter, our effective tax rate was 16, 1%.
Which is below our expected full year effective tax rate of roughly 22% to 24%.
The lower effective tax rate was driven by tax benefits recognized in the current quarter related to certain share based compensation awards.
Operator: Good day and welcome to the Carpenter Technology Corporation, verse quarter, 2024 fiscal year, financial results conference call. All participants will be in listen only mode. Should you need assistance, please signally conference specialist by pressing the star key followed by zero.
Note that tax benefits were worth approximately <unk> <unk> per share relative to the guidance we provided.
As we look ahead to the upcoming second quarter of fiscal year 2024, we expect the effective tax rate to return to a more normalized rate of about 24%.
Operator: After today's presentation, there will be an opportunity to ask questions. Do ask a question you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded.
We affect our full year effective tax rate for fiscal year 2024 to be in line with the range. We previously communicated a 22% to 24%.
John Huyette: I would now like to turn the conference over to Mr. John Huyette, Vice President, Investor Relations. Please go ahead. Thank you operator.
Earnings per share for the current quarter was 88 per share.
The results demonstrate our continued momentum supported by improving profitability and a strong demand environment.
John Huyette: Good morning everyone and welcome to the Carpenter Technology Earnings Conference call for the fiscal 2024 first quarter ended September 30, 2023. His call is also being broadcast over the internet along with presentation slides. Please note for those of you listening by phone, you may experience a time delay in slide movement.
Now turning to slide 10, and our segment results.
Net sales for the first quarter were $570 1 million were $417 3 million excluding surcharge.
Compared to the same period last year net sales, excluding surcharge increased 37% on 12% higher volumes.
John Huyette: Speakers on the call today are Tony Tain, President and Chief Executive Officer and Tim Lane, Senior Vice President and Chief Financial Officer. Statements made by management during this earnings presentation that are forward booking 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 Technology's most recent SEC filings, including the company's report on form 10k for the year ended June 30, 2023 in the exhibits attached to that filing.
Sequentially net sales, excluding surcharge decreased 13% or 19% lower volumes.
The year over year improvement in net sales was driven by higher shipment volumes due to productivity gains the impacts of higher prices and an improving product mix across our key end use markets as Tony reviewed on the market slide.
Sequentially lower volumes as anticipated were impacted by the planned preventative maintenance.
We're operating days and the deliberate actions to improve product mix.
Moving to operating results.
John Huyette: Please note that in the filing discussion, unless otherwise noted, when management discuss the sales or revenue, that reference excludes surcharge.
Our reported operating income of $80 8 million and our recent first quarter, which outpaced our expectations.
On a year over year basis, <unk> operating income improvement of $61 million is largely due to higher sales driven by strong demand higher prices and increased production levels.
John Huyette: When referring to operating margins that is based on adjusted operating income, excluding special items and sales, excluding surcharge, I will now turn the call over to Tony.
On a sequential basis operating income improved by about $1 million.
Tony Thene: Thank you John and good morning to everyone on the call today. I will begin on slide 4 with a review of our safety performance. For the first quarter of fiscal year 2024, our total case incident rate was 2.1. This rate has been elevated over the last several quarters as we integrate a large number of new employees into our operations. We are focused on specific actions to maintain the lower severity and identify potential risks. Our target remains a zero injury workplace and we will continue to work tirelessly to achieve that target.
Again, our operating income results improved despite the lower volumes.
This improvement was largely the result of the positive impact of targeted mixed improvements higher prices and realized production efficiencies.
The improvements in productivity product mix and pricing are evident in the adjusted operating margin, which has increased to 19, 4% in the current period as compared with six 5% in the same period, a year ago and 16, 8% sequentially.
Looking ahead the team remains focused on executing actions to further increase production levels and production flow and to actively manage the product mix to maximize the capacity for high value products.
Tony Thene: Now let's turn to slide 5 and a review of the first quarter. On our last earnings call, we provided an outlook for the first quarter of fiscal year 2024 and signaled operating income was expected to be flat or slightly up sequentially, even though we outperformed the fourth quarter expectations. At first quarter guidance, represented a meaningful improvement compared to the historical trend of a sequential decline in profits in the first quarter of a fiscal year.
Based on current expectations, we anticipate Sio will generate operating income in the range of $78 million to $82 million in the upcoming second quarter of fiscal year 2024.
Now turning to slide 11, and our Pep segment results.
Net sales in the first quarter of fiscal year, 2024 were $101 8 million or <unk> $93 1 million, excluding surcharge revenue.
Tony Thene: Building on our operating momentum, we exceeded that guidance and reported first quarter operating income of 69 million, a 10% increase sequentially. Most notably, the SAO segment exceeded expectations for the quarter, delivering 80.8 million in operating income above the outlook we provided of 72 to 77 million. Further, SAO realized an adjusted operating margin of 19.4% growing from 16.8% in the previous quarter. This impressive margin expansion came as a result of targeted improvement in product mix, higher realized prices, and continued focus on productivity.
Net sales, excluding surcharge increased 6% from the same quarter last year and decreased 13% sequentially.
The year over year growth in net sales was driven by strong demand conditions, primarily in our dynamic titanium business.
More specifically in our Dynamo titanium business the growth in net sales from the same quarter a year ago was driven by materials used in medical applications.
In the current quarter Pep reported operating income of $9 1 million.
This compares to operating income of $6 3 million in the same quarter, a year ago, and operating income up $5 9 million in the fourth quarter of fiscal year 2023.
The increase in operating income in the current quarter is primarily the result of improving profitability in our dynamic business.
Tony Thene: We continue to realize price gains on both contractual and transactional business. As evidence, at the beginning of October, we announced another price increase of 7 to 12% on our SAO transactional business. We also generated 7.4 million of cash from operations during the quarter, maintaining a healthy liquidity of 366.4 million. Finally, we are positioned in a strong demand environment across our in-use markets, where our material solutions are valued by our customers.
Similar to Seo dynamic continues to focus on improving productivity to meet strong demand in the aerospace and defense and medical end use markets for our titanium products.
We currently anticipate that the Pep segment will deliver operating income in the range of nine five to $10 5 million for the upcoming second quarter of fiscal year 2024.
Now turning to slide 12, and a review of adjusted free cash flow.
In the current quarter, we generated $7 $4 million of cash from operating activities.
Tony Thene: Now let's take a closer look at our demand outlook on slide six. Carpenter Technology produces specialized, highly engineered products that are essential to the function of critical applications across aerospace, defense, medical, and other in-use markets. Our unique collection of assets and capabilities to produce these products are not easily replicated, and it requires decades of experience to generate the high quality needed to meet stringent industry standards. The demand for our difficult to manufacture products is exceeding industry supply, and we see tangible evidence of this.
Paired to $174 9 million and our recent fourth quarter and cash used for operating activities of $78 million in the same quarter last year.
On a year over year basis, the cash from operations was significantly influenced by higher profitability and less pronounced inventory build as we continue to improve productivity and product flow across our operations.
In the first quarter of last year, we build $121 million of inventory as compared with $68 million of inventory built in the current first quarter.
In the first quarter of fiscal year 2024, we spent $22 million on capital expenditures.
Tony Thene: Our backlog continues to grow, setting new records every quarter. In the first quarter of fiscal year 2024, our backlog was up 5% sequentially and 32% year over year. We continue to raise prices with our most recent announcement earlier this month of a 7 to 12% increase on our SAO transactional business. These times remain at record levels and could be even longer as we are actively managing incoming orders, and customers continue to tell us the primary concern is surety of supply, asking when they can book more with us.
We continue to expect to spend a total of about $125 million and capital expenditures for fiscal year 2024.
With those details in mind, we reported negative adjusted free cash flow of $15 million in the first quarter of fiscal year 2024.
Our liquidity.
It remains healthy and we ended the current quarter with total liquidity of $366 million, including $18 million of cash and $348 million of available borrowings under our credit facility.
With that I'll turn the call back to Tony.
Thanks, Tim.
Now, let's review the key takeaways from today's call.
Tony Thene: We expect this demand environment to remain strong. In aerospace, OEMs continue to work to increase build rates, targeting levels exceeding pre-pandemic highs. Defense demand already growing is projected to accelerate due to geopolitical events. Medical demand continues on a steady climb due to strong trends, such as aging population and focus on patient outcomes. And demand for our premium products in our other markets is also projected to remain high due to ongoing energy investment needs, light duty vehicle builds, and semi-conductor capacity expand.
We realized 10% sequential growth in operating income in the first quarter of fiscal year 2024.
This was a meaningful improvement compared to the historical trend of a sequential decline in profit in the first quarter of a fiscal year and we outperformed our previous guidance.
The strong quarterly performance is indicative of the demand environment and our ongoing operating momentum.
Net sales segment exceeded expectations with operating income of $80 8 million and adjusted operating margin of 19, 4% in the first quarter.
Tony Thene: As always, there is active discussion in the general marketplace about near-term demand. For example, even most recently this week, some aerospace OEMs discussing build rate target adjustments and ongoing delivery challenges within the supply chain, or the impact of disruption to vehicle manufacturing associated with worker strikes. What we can affirm is that these issues are not affecting our general demand levels. We remain oversubscribed in terms of demand, with customers generally wanting more than we can produce.
<unk> continues to build momentum with increased productivity higher prices and improved product mix.
We are operating in a strong demand environment for our material solutions with positive near and long term outlook in our end use markets.
This is demonstrated in our record backlogs long lead times and customer focus on security of supply.
Our strong first quarter financial performance combined with the second quarter guidance would result in one of the two highest first half financial results in the history of the company.
Tony Thene: We have a substantial backlog of orders with material wanted sooner. Even as we work to increase output, we also see unexpected emergency demand from areas like medical and defense, associated with current world events, or from aerospace associated with spares need. What you are hearing from the marketplace is an affirmation of the strong demand in the near-term and the long-term. Beyond the near-term, our customers also continue to partner with us on their strategic growth efforts. Medical innovations, next-generation defense platforms, and electrification are examples of areas where customers are partnering with us to develop their next generation products.
Building on that first half momentum we project second half fiscal year 2020 for operating income to be 28% to 35% higher.
In the first half.
Take a closer look at the second half outlook on the next slide.
Tony Thene: In this demand environment, we are well positioned to continue to drive top-line growth while expanding our margins through productivity improvements, product mix optimization, and higher prices.
As evidenced by our recent performance, we've seen meaningful increases in our productivity over the last several quarters, especially in <unk>.
However, we still have plenty of runway as we have yet to return to our pre COVID-19 operating rate and some of our key work centers.
We continue to invest in training and mentoring programs for our shop for employees to safely drive productivity gains, while maintaining our high quality standards.
But most importantly, we have certain key work centers, which have not been running at their full potential as our mix continues to shift to more difficult to manufacture products.
Tony Thene: Now let's review first quarter sales performance. In the first quarter of fiscal year 2024, sales decreased sequentially and increased significantly year-over-year. The year-over-year performance reflects our significant productivity gains. As anticipated, volumes decreased sequentially due to fewer operating days, planned preventive maintenance activity, and most importantly, targeted mix management. Importantly, profitability improved in the quarter, resulting in a sequential increase in our operating income on lower sales. Notably, SAO's adjusted operating margin was 19.4% in the quarter, up from 16.8% in the fourth quarter of fiscal year 2023.
We expect meaningful increases in productivity at these specific units in the second half of this fiscal year.
This next level increase and productivity combined with continued realization of higher pricing and improvement in product mix should drive operating margins, even higher in the second half of fiscal year 2024.
Now, let's take a look at how this fits in with the longer term earnings growth projections.
As I detailed in previous calls our goal is to double fiscal year 2019 operating income by fiscal year 2027.
These figures imply a 40% compounded annual growth rate on the operating income from fiscal year 2023 through fiscal year 2007, a very strong growth target.
Tony Thene: The profit margin expanded through a combination of productivity efforts, price increases, and strategic mix management. This means we are actively allocating capacity to the areas where we add the most value. We serve critical applications across all of our in-use markets, and apply ongoing strategic mix management in how we serve them to capitalize on the higher margin products. Our profitability has been increasing over the previous quarters, and will continue to improve with higher pricing, product mix optimization, and continued productivity improvements.
I've also noted that this growth what's that going to be backend loaded and that we expected to make significant progress towards our goal in fiscal year 2024.
As you can see with what we expect for the remainder of the fiscal year, we are setting ourselves up to take a meaningful step towards our longer term goal.
With estimated fiscal year 2020 for operating income in the range of $310 million to $330 million, we expect to realize approximately 50% of the opportunity in fiscal year 2024.
Tim Lane: Now, I will turn it over to Tim for the financial summary. Thanks, Tony.
Tim Lane: Good morning, everyone. I'll start on slide 9, the income statement summary. Net sales in the first quarter were 651.9 million, the sales excluding surcharge totaling 492.8 million. Sails excluding searchers increased 31% from the same period a year ago on 12% higher volume. Sequentially, sales were down 12% on 18% lower volume. The year of a year increase was driven by significant productivity gains to meet growing demand. As Tony mentioned earlier, the lower sales and volumes sequentially were primarily the result of fewer operating days and planned preventative maintenance activities necessary to ensure our equipment continues to perform at high levels.
This level of performance would be the highest annual profitability in the history of the company.
And we are working to accelerate productivity gains and capacity enhancement to push earnings even higher.
This is an exciting time for Carpenter technology.
The near term and long term demand outlook is strong across our end use markets for our broad portfolio of specialized solutions.
We have leading capabilities with a difficult to replicate system of assets and we continue to drive improved productivity to unlock additional capacity to capture demand.
Looking ahead, we are well positioned to continue to drive growth and achieve our long term operating income goal.
Tim Lane: Gross profit was 124.1 million in the current quarter compared to 54.8 million in the same quarter of last year and 119 million in the fourth quarter of fiscal year 2023. Gross profit in the current quarter is up 126% compared to the same quarter last year and up 4% sequentially. S-GNA expenses were 55.1 million in the first quarter, up about 9 million from the same period a year ago and roughly 1 million lower sequentially.
Thank you and I will now turn the call back to the operator.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys.
Any time your question has been addressed and you would like to withdraw your question. Please press Star then two.
Tim Lane: The increase in S-GNA expenses versus the same quarter last year is primarily driven by headcount and higher variable compensation accruals. The S-GNA line includes corporate costs which totaled 20.9 million in the recent first quarter. As we look ahead to the upcoming second quarter of fiscal year 2024, we expect corporate costs to be similar to the first quarter at about 21 million. Operating income was 69 million in the current quarter compared to 8.3 million in the same quarter a year ago and 62.9 million in our recent fourth quarter of fiscal year 2023.
At this time, we will pause momentarily.
To assemble our roster.
The first question comes from.
Tom Palmer with TD Cowen. Please go ahead.
Good morning, this is <unk>.
And I was just wondering if you can provide any detail about order trends in the quarter by Arrow and market for instance, fascinates prices engines versus other structures.
Yes, good morning.
That question Aerospace engine sales were up 43% year over year down 8% sequentially, so, even though down 8% sequentially.
Tim Lane: The sequential improvement in operating income of 10% was driven by our productivity efforts, actions we took to manage product mix as well as the benefits realized from higher base prices. As a result of these actions, we continued to see profit margin improve with total company adjusted operating margin reaching 14% up from 11.2% in the previous quarter.
Due to the items, we noted in our prepared remarks.
The quarterly shipments are about 90% of pre pandemic engine ship rates. So bottom line is that engine sales remained strong and we are oversubscribed and the ramp pushed as.
Is the ramp pushes demand even higher.
Well beyond pre pandemic levels.
Tim Lane: Moving on to our effective tax rate. For the recent first quarter our effective tax rate was 16.1%, which is below our expected full year effective tax rate of roughly 22 to 24%. The lower effective tax rate was driven by tax benefits recognized in the current quarter related to certain share-based compensation awards. Note that tax benefits were worth approximately $0.7 per share relative to the guidance we provided. As we look ahead to the upcoming second quarter of fiscal year 2024, we expect the effective tax rate to return to a more normalized rate of about 24%.
On fasteners sale.
Sales up 77% year over year and down sequentially about 13% same story there as engines. So hopefully that's helpful.
Yes. Thank you and then is there any incremental weakness in demand in non aero markets given the macro.
Certainly.
You've heard.
Commentary out there in the market around.
The general industrial market and I can comment on that that is a that's a limited portion of our sales.
That's used to support that general.
Industrial activity those trends are not material or meaningful to our bottom line as our focus is really on high value difficult to manufacture products.
Tim Lane: We affect our full year effective tax rate for fiscal year 2024 to be in line with the range we previously communicated of 22 to 24%. Earnings per share for the current quarter was $0.88 per share. The results demonstrate our continued momentum supported by improving profitability and a strong demand environment.
Where demand is currently outstripping supply by quite a bit. So as you know our portfolio consists of premium high value products and.
Any type of weakness in those submarkets.
We will not impact our bottom line materially.
Tim Lane: Now, turning this slide 10, NRSEO's segment results. NET sales for the first quarter were 570.1 million, we're 417.3 million excluding search charge. Compared to the same period last year, NET sales excluding search charge increased 37% on 12% higher volumes.
In the short term or the near term.
Okay. Thank you and then just one more can you give any color on which work centers have been those opportunities for productivity gains.
Yes, it's a good question.
It's a really good question. The biggest driver certainly is on the front end of our our process, which is the primary Milton areas. There is a lot more productivity and output we can get from those so thats the major driver, but also on the backend and finishing it. Thanks.
Tim Lane: So, quenchally, NET sales excluding search charge decreased 13% on 19% lower volumes. The year-of-year improvement in NET sales was driven by higher shipment volumes due to productivity gains, the impacts of higher prices, and improving product mix across our key end use markets, as Tony reviewed on the market flood. So, quenchally, lower volumes as anticipated were impacted by the planned preventative maintenance, fewer operating days, and the delivered actions to improve product mix.
Outside of that sale and look at dynamic for example, their biggest increase.
Productivity is on the backend and some of the finishing pieces and in fact, we've got a couple of pieces of equipment that will be installed here in the near term that could see dynamite.
Profitability, our operating income.
Much like ICL go up as close to 50% higher quarterly in the second half versus the first half so.
Tim Lane: Moving to operating results, SAO reported operating income of 80.8 million in our recent first quarter, which outpaced our expectations. On a year-of-a-year basis, SAO operating income improvement of 61 million is largely due to higher sales driven by strong demand, higher prices, and increased production levels. On a sequential basis, operating income improved by about 1 million. Again, our operating income results improved despite the lower volumes. This improvement was largely the result of the positive impact of targeted mixed improvement, higher prices, and realized production efficiencies.
Theres a lot of the areas that we're working on I think the good news is that we're able to achieve these very high levels of operating income knowing that our business is still not operating at.
At 100% so from the shareholders' standpoint, Theres a lot more that we can do to drive profits even higher.
Okay, great. Thank you.
The next question comes from Josh Sullivan with the benchmark company.
Please go ahead.
Hey, good morning, Tony and John Congratulations on the quarter here.
Tim Lane: The improvement in productivity product mix and pricing are evident in the adjusted operating margin, which has increased to 19.4% in the SAO, and 16.8% sequentially. Looking ahead, the SAO team remains focused on executing actions to further increase production levels and production flow and to actively manage the product mix to maximize the capacity for high-value products.
Yes.
The base price increase on the noncontract alloys.
Is there a way to think of <unk>.
Percentage of capacity that's available for that transactional business at this point.
In previous cycles aerospace was consuming more of a capacity.
What does that mix shift look like for the non aerospace markets I'm, just curious to hear how those non aerospace markets are responding in this cycle versus historical cycles.
Well, let me see if I can tackle that question.
For you.
Certainly in this cycle here aerospace and medical are the ones driving the.
Tim Lane: Based on current expectations, we anticipate SAO will generate operating income in the range of 78 to 82 million in the upcoming second quarter of fiscal year 2024.
The quickest for us and that makes up.
Over 75% of our revenue.
Some of the other markets for example, like energy is single digits for us in terms of percent of revenue, but again for them to get time on the mill, we are seeing prices move up significantly and the energy side, where they challenge aerospace type prices and Thats, what it takes for us to be really interested in those types of products. So.
Tim Lane: Now, turning to slide 11 and our PEP segment results. Net sales in the first quarter of fiscal year 2024 were 101.8 million or 93.1 million excluding surcharge revenue. Net sales excluding surcharge increased 6% from the same quarter last year and decreased 13% sequentially.
Obviously, our main focus is on the aerospace and medical Josh in I would say if you compared as you asked to prior cycles.
Tim Lane: The year-of-a-year growth in net sales was driven by strong demand conditions primarily in our dynamic titanium business. More specifically in our dynamic titanium business, the growth in net sales from the same quarter a year ago was driven by materials used in medical applications. In the current quarter, PEP reported operating income of 9.1 million. This compares to operating income of 6.3 million in the same quarter a year ago and operating income of 5.9 million in the fourth quarter of fiscal year 2023.
The amplitude of this ramp is a significantly greater than in prior cycles.
Got it.
And then Tony you spent some time there just talking about the fiscal 'twenty seven targets. The front end loaded nature of how the guidance was put together, but as far as the back end of those targets is there any reason, we would think plateau there or is it just conservatism on your nature.
Well, we've heard that.
As I was I thought I'd get a question on this Josh.
Tim Lane: The increase in operating income in the current quarter is primarily the result of improving profitability in our dynamite business. Similar to SAO, Dynamite continues to focus on improving productivity to meet strong demand in the aerospace and defense and medical end use markets for our titanium product.
Let me kind of go on for a little bit to kind of put all that in context, and then come back to you to your question I spent some time last night and I was thinking about what we've really said over the last couple of quarters and as you well know you were there. This all started in May of 2023, when we had our Investor day, right, where we said we were going to double.
Tim Lane: We currently anticipate that the PEP segment will deliver operating income in the range of 9.5 million to 10.5 million for the upcoming second quarter of fiscal year 2024.
Income FY 19 versus FY, 'twenty, seven which was one of our most profitable years by the way, 40% CAGR from 23 to 27 as you mentioned, we said it wasn't going to be backend loaded and we are going to have meaningful cash generation and we didn't need to make any large scale <unk>.
Tim Lane: Now turning to slide 12 in a review of adjusted free cash flow. In the current quarter, we generated 7.4 million of cash from operating activities compared to 174.9 million in our recent fourth quarter and cash used for operating activities of 78 million in the same quarter last year. On a year of a year basis, the cash from operations was significantly influenced by higher profitability and less pronounced inventory build as we continue to improve productivity and product flow across our operations.
Capital expenditures for capacity or M&A to get there we come out with the fourth quarter.
And we actually exceed our target.
Get into FY 19 run rate profitability. So that's a big that's a big check marks during that fourth quarter. So about three months ago. We said that this first quarter was going to be slightly down to flat and we were going to.
But through the normal seasonality, where you see the first quarter being sequentially down and as you. All know we have a lot of people Dallas and say that you couldnt do that well, we actually exceeded that number and now we come in and say that the second quarter.
Tim Lane: In the first quarter of last year, we built 121 million of inventory as compared with 68 million of inventory built in the current first quarter. In the first quarter of fiscal year 2024, we spent 22 million on capital expenditures. We continue to expect to spend a total of about 125 million in capital expenditures for fiscal year 2024.
Is going to be another impressive quarter, just like Q1, even though we'll continue to do our planned maintenance, even though it's got two major holidays in there we're still going to operate at that level and then what youre getting to the new piece of information that we came out with today, we said that even after.
Tim Lane: With those details in mind, we reported negative adjusted free cash flow of 15 million in the first quarter of fiscal year 2024. Our liquidity remains healthy and we ended the current quarter with total liquidity of 366 million, including 18 million of cash and 348 million of available borrowings under our credit facility.
Those two quarters put those together.
And we're going to do another 28% to 35% on top of that.
It's very impressive growth and that's why we took the time Josh to talk to you about that some of these work centers are still not running at the rates that we know they can run at Thats. How we have line of sight to that second half again, we said it wasn't going to be backend loaded, but we never said that we're going to get.
Tony Thene: With that, I'll turn the call back to Tony. Thanks, Tim.
Tony Thene: Now let's review the key takeaways from today's call. We realized 10% sequential growth in operating income in the first quarter of fiscal year 2024. This was a meaningful improvement compared to the historical trend of a sequential decline in profits in the first quarter of a fiscal year, and we outperformed our previous guidance. The strong quarterly performance is indicative of the demand environment and our ongoing operating momentum. The SAO segment exceeded expectations with operating income of 80.8 million and adjusted operating margin of 19.4% in the first quarter.
50%.
In year, one of four I think your question is that that's an awfully strong comment we've heard now does that mean that years, two three and four could be even more and is there some conservatism.
Put in there.
<unk>.
And you might have a point maybe they are probably they are probably is a little conservatism in there and we have the ability to even push that higher.
Okay, great. Thank you. Thank you for that.
Just one on the productivity side of that.
You think carpenters doing anything different.
On the labor side and those work centers or do you think it's just the natural factor of timing experience that theyre getting better.
Tony Thene: SAO continues to build momentum with increased productivity, higher prices, and improved product mix. We are operating in a strong demand environment for material solutions with positive near and long-term outlooks in our in-use markets. This is demonstrated in our record backlogs, long lead times, and customer focus on security of supply. Our strong first quarter financial performance combined with the second quarter guidance would result in one of the two highest first half financial results in the history of the company. Building on that first half momentum, we project second half fiscal year 2024 operating income to be 28 to 35 percent higher in the first half.
I don't know if were doing anything differently I mean, we have to be very.
I'll use the word cautious right because we are producing products that can never fail, a very high quality standards. So we just don't take chances if an operator is not ready theyre not ready and we don't push them to put them in a situation, where we could sacrifice the quality of our product.
That's just unacceptable I'll give you a couple of numbers that are interesting. If you think about a new employee that's been with us two years or less.
And if you look at our <unk> operation.
Our plants range anywhere from 30% to 60% of our shop floor workers have been there two years or less.
Tony Thene: Let's take a closer look at the second half outlook on the next slide. As evidenced by a recent performance, we've seen meaningful increases in our productivity over the last several quarters, especially in FAO. However, we still have plenty of runway, as we have yet to return to our pre-COVID operating rates in some of our key work centers. We continue to invest in training and mentoring programs for our shop floor employees to safely drive productivity gains while maintaining our high quality standards.
And our Dynamed facility, we have one facility.
At 50% are new in the last two years. The other is almost 30% that is a big influx of new employees.
Really qualified mean the level of employee that we're that we're attracting is very high but it's a complex.
Very sophisticated equipment that we're going to make sure that they can operate it number one safely.
And always within the quality standards that we hold ourselves to and that the industry requires so <unk> seen some nice improvement over the last couple of quarters.
Tony Thene: But most importantly, we have certain key work centers which have not been running at their full potential as our mix continues to shift to more difficult to manufacture products. We expect meaningful increases in productivity at these specific units in the second half of this fiscal year. This next level increase in productivity combined with continued realization of higher pricing and improvement in product mix should drive operating margins even higher in the second half of fiscal year 2024.
The good news is there is still there's still more improvement to come hopefully that answers your question.
Yes, yes.
Well. Thank you congrats on the quarter and thank you for your time.
<unk>.
Again, if you have a question. Please press Star then one.
The next question comes from Chris Olin with Northcoast research.
Go ahead.
Hey, good morning, Congrats on the quarter, guys, Hey, Chris Good morning.
Tony Thene: Now let's take a look at how this fits in with the longer term earnings growth projections. As I've detailed in previous calls, our goal is to double fiscal year 2019 operating income by fiscal year 2027. These figures imply a 40 percent compounded annual growth rate on the operating income from fiscal year 2023 through fiscal year 2027, a very strong growth target. I've also noted that this growth was not going to be back in loaded and that we expected to make significant progress towards our goal in fiscal year 2024.
Just wondering on the near term has there been any type of negative volume impact associated with the drop in the commodity nickel market.
Wondering if some customers will delay orders or are you seeing any of that because of the surcharge visibility or are we at a point where like the long term behavior has kind of changed in Europe.
Customers are worried about supply.
I think it's the latter right and I think I know, we're not having any customers delay orders because of where the nickel price is or where do they think it's going to go I mean, we have we have all of our customers trying to get into the order book earlier right.
As you know we've closed the order book a couple of times. So that comment you just made.
Tony Thene: As you can see, with what we expect for the remainder of the fiscal year, we are setting ourselves up to take a meaningful step towards our longer term goal. With estimated fiscal year 2024 operating income in a range of 310 to 330 million, we expect to realize approximately 50 percent of the opportunity in fiscal year 2024. This level performance would be the highest annual profitability in the history of the company. And we are working to accelerate productivity gains and capacity enhancements to push earnings even higher.
In this type of environment.
Does not.
<unk> is never made it's never it's never discussed that's not a factor.
Yeah.
I may have missed it I apologize if I had but I was just thinking about the pricing dynamics and your comments about the increases I was just wondering.
If there are contract renewals on the horizon, yet I can't recall from the last quarter, yes.
Over the last couple of years, obviously by.
Our results you can tell that we've had contracts that have renewed and now youre seeing that that higher price come through and there are a couple more that are in the works as well. So it seems like at any point in time, we have one or two that we're that we're working through and Theres a couple of significant ones that we're working through.
Tony Thene: This is an exciting time for corporate technology. The near term and long term demand outlook is strong across our in-use markets for a broad portfolio of specialized solutions. We have reading capabilities with a difficult to replicate system of assets and we continue to drive improved productivity to unlock additional capacity to capture demand. Looking ahead, we are well positioned to continue to drive growth and achieve our long-term operating income goal.
As we speak.
Is it safe to assume something like 20%, 30% renews twice each year for the model.
Alright, let me make sure I understand your question are you, saying that 2020 or 30% of contracts renew every year, yes, we will.
At a higher price so I could put that in.
Tony Thene: Thank you and I will now turn the call back to the operator.
Well all contracts are renewing at a higher price, that's something thats significant that consistent across the industry.
Operator: We will now begin the question and answer session. Do ask a question you may press star then one on your touch tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two.
You can you can take you can take that with a high level of confidence that all contract renewals will be at a much higher price okay.
Okay.
Just lastly wanted to shift quickly back to <unk>, <unk> guess I'm thinking a bit about the Boeing 77, and the <unk> hundred 50 build rate increases kind of the.
Peak outlook in <unk>.
Operator: At this time, we will pause momentarily to assemble our roster.
I can't recall it.
<unk> met is levered to one platform more than the other.
<unk>.
Gautam Khanna: The first question comes from Gautam Khanna with KV Cohen. Please go ahead. Good morning.
Would you benefit significantly from a doubling of the production targets and I guess lastly, do you have enough capacity to satisfy that if you do.
Liz Hussainov: This is Liz Hussainov on for Gautam. I was just wondering if you can provide any detail about order trends in the quarter by arrow and market, for instance, staff, nurse versus engines versus other structures. Yes.
Well to answer your last piece of your question first no. There is not enough capacity in the system across multiple submarkets for us we sell to every one of them.
The fastener company, so whether it's Boeing or Airbus.
Tony Thene: Good morning.
Tony Thene: I'll take that question. Aerospace engine sales were up 43% year over year, down 8% sequentially. Even though down 8% sequentially due to the items that we noted in our prepared remarks, the quarterly shipments are about 90% of pre-pandemic engine ship rate.
In this type of demand environment when demand is so much higher than supply.
That's just not that's just not a factor we are oversubscribed, and we anticipate that being like that for several years to come regardless of the split between wide body and the single aisle in Boeing or Airbus.
Tony Thene: Bottom line is that engine sales remain strong and we're over subscribed and the ramp push as the ramp pushes demand even higher well beyond pre-pandemic levels. On fasteners sales up 77% year over year and down sequentially about 13% same story there as engines. So hopefully that's helpful. Yes. Thank you. And then is there any incremental weakness to the man in non arrow markets given the macro? What certainly you've heard commentary out there in the market around the general industrial market and I can comment on that.
Capital investment beyond the horizon for that too.
To address.
Possibly I mean dynamed just like.
Oh is is working to get up to rates as well, we're not running in dining made at that level.
We need to.
To run at and on a previous question.
Cowen I said that in fact, we have a couple of pieces of equipment that are coming in here in the near term into dynamic that will increase our finishing capacity so that will help as well okay. Great. Thanks. So much yes. Thank you Sir.
The next question comes from Michael the shock with Keybanc capital markets. Please go ahead.
Hey, good morning, I just wanted to ask here on volumes that we saw a decline in the quarter given the less shipping days, but looking forward, how do you see volumes, increasing relative to price and mix. So if your long term guidance incorporates a 15% to 20% increase in volumes above fiscal 19.
Tony Thene: That is a limited portion of our sales that's used to support that general industrial activity. Those trends are not material meaningful to our bottom line as our focus is really on high value difficult to manufacture products where demand is currently outstripping supply by quite a bit. So as you know, our portfolio consists of premium high value products and any type of weakness in those submarkets will not impact our bottom line materially in the short term or the near term. Okay. Thank you. And then just one more. Can you give any color on which work centers have the most opportunity for productivity gains?
Do you expect that volume uptick to be largely in fiscal 'twenty four.
Or is the big step up this year more so a function of price and the volume piece is more linear over the course of your long term guidance.
Well the volume is going to follow our productivity for the most part I mean as you've seen now in this quarter and into next.
Part of our strategic mixed management isn't as moving that volume around.
Tony Thene: Yeah. It's a good question. It's a really good question. The biggest driver certainly is on the front end of our process, which is the primary melting areas. There's a lot more productivity and output we can get from those. So that's the major driver. But also on the back end and finishing, if you think outside of that say, oh, and look at dynamite, for example, their biggest increase in productivity is on the back end and some of the finishing pieces.
Because some of the products as we move.
To different types of products, they take longer to process through the system, especially like in a primary milk.
It could be melted three times that just takes longer to go through the system much higher margins on that but it takes longer but as you see our productivity continue to increase as we've talked about as some of these other pieces come online certainly volume will be higher in the second half.
Tony Thene: And in fact, we've got a couple pieces of equipment that will be installed here in the near term that could see dynamite. Yes, profitability or operating income, much like if you go up as close to 50% higher quarterly in the second half versus the first half. So there's a lot of areas that we're working on. I think the good news is that we're able to achieve these very high levels of operating income knowing that our business is still not operating at 100%. So from a shareholder standpoint, there's a lot more that we can do to drive profits even higher.
In the first half.
Tony Thene: Okay, great. Thank you.
And then on maintenance.
Were you able to get all your normal seasonal maintenance spending done just given the lower capex spend sequentially.
And maybe running your assets above normal.
Seasonal utilization levels are.
Or do you see any spilling into the second quarter, we're going to.
We're in perpetual preventive maintenance the days of shedding your plant now for three weeks and turning everything off and sending everyone home and doing all your preventive maintenance are over right that just doesn't that's not the most efficient way we are always in a cycle.
Joshua Sullivan: The next question comes from Josh Sullivan with the benchmark company. Please go ahead. Hey, good morning, Tony. John, I've got questions on the quarter here. I'm at the base price increase on the non-contract alloys. Is there a way to think of percentage or capacity that's available for that transactional business at this point? And then in previous cycles, you know, where aerospace was consuming more of a capacity, what did that next shift look like for the non- aerospace markets? And I'm just curious to hear how those non- aerospace markets are responding in this cycle versus historical cycles.
Preventive maintenance and I think I've been asked why do I talk about this and.
When you're in a situation where.
Supply can can meet demand certainly no one really talks about preventive maintenance, but when you're in a sold out environment, where any amount of downtime any amount of downtime will translate to customer impact and the amount of product you could ship within that that's why it makes it important and that's why it's important to say at any point in.
<unk>, we're going to be doing that secondly, I would say, it's really important to remember Mike we had really exclusive highly sought after assets and it's our job as skilled operators to protect that equipment, obviously over the long term. So we're aiming for a 40% CAGR.
Tony Thene: Let me see if I can tackle that question for you. Certainly in this cycle here, aerospace and medical are the ones driving the quickest for us. And that makes up, you know, well over 75% of our revenue. Some of the other markets, for example, like energy is single digits for us in terms of percent of revenue. But again, for them to get time on the middle, we're seeing prices move up significantly in the energy side where they challenge aerospace prices.
Tony Thene: And that's what it takes for us to be really interested in in those types of products. So obviously our main focus is on the aerospace and medical Josh in. I would say if you compare it as you ask to prior cycles, the amplitude of this ramp is significantly greater than in prior cycles.
Annual CAGR over the next four years, that's our goal and our goal is not to run.
None.
Run the equipment to failure simply.
A couple more million dollars on top of already a record quarter right. So I mean that would be in professional so it's not about trying to let's run it more and try to get out of a couple million dollars. We're in for the long haul where we're going to.
<unk> operating income over versus FY 19 over four years, So we got to protect our equipment inventory at the right way.
Got it I appreciate all the detail.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to John Hewitt for any closing remarks.
Tony Thene: And then Tony, you spent some time there just talking about, you know, the fiscal 27 targets and the front end loaded nature of how the guidance is put together. But as far as the back end of those targets, you know, is there any reason we would think the plateau there or is it just conservatism on your nature? Well, we've heard that as I was, I thought I'd get a question on this, Josh, and if you let me kind of go on for a little bit to kind of put all that in context and then come back to your question, I spent some time last night and I was thinking about what we've really said over the last couple quarters.
Thank you operator, and thank you everyone for joining us today for our fiscal year 2024 first quarter conference call.
Great rest of your day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
Okay.
Tony Thene: And as you all know, you were there. This all started in May of 2023 when we had our investor day, right, where we said we were going to double operating come FY19 versus FY27, which was one of our most profitable years, by the way, 40% keger from 23 to 27. As you mentioned, we said it wasn't going to be back in loaded. It was going to have meaningful cast generation. And we didn't need to make any large scale capital expenditures for capacity or M&A to get there.
Okay.
[music].
Tony Thene: We come out with the fourth quarter and we actually exceed our target, of getting to FY19 run rate profitability. So that's a big, that's a big check mark during that fourth quarter. So about three months ago, we said that this first quarter was going to be slightly down to flat and we was going to, you know, bust through the normal season alley where you see the first quarter being sequentially down. And as you will know, we had a lot of people doubt us and say that you couldn't do that.
Tony Thene: Well, we actually exceeded that number. And now we come in and say that the second quarter quarter is going to be another impressive quarter, just like Q1, even though we'll continue to do our plan maintenance, even though it's got two major holidays in there, we're still going to operate at that level. And then what you're getting to the new piece of information that we came out with today, we said that even after those two quarters put those together and we're going to do another 28 to 35% on top of that.
Okay.
Okay.
[music].
Okay.
[music].
Tony Thene: It's, it's, it's very impressive growth. And that's why we took the time, Josh, to talk to you about that some of these work centers are still not running at the rates that we know they can run at. That's how we have line of sight to that second half. Again, we said it wasn't going to be back and loaded, but we never said that we were going to get 50% in year one of four.
Tony Thene: And I think your question is that, that's an awfully strong comment. We've heard now, does that mean that years, two, three and four could be even more? And is there some conservatism put in there? And you might have a point. Maybe there probably, there probably is a little conservatism in there. And we have the ability to even push that higher. Okay.
Tony Thene: Now, thank you. Thank you for that.
Tony Thene: And just just one on the productivity side of that. Are you think carpenters doing anything different on the labor side in those work centers? Or do you think it's just a natural sector of timing experience that they're getting better? I don't know if we're doing anything differently. I mean, we have to be very, I'll use the word cautious, right? Because we are producing products that can never fail a very high quality standards.
Tony Thene: So we just don't take chances. If an operator is not ready, they're not ready. And we don't push them to put them in a situation where we could sacrifice the quality of our product. That's just, that's just unacceptable.
Tony Thene: I'll give you a couple numbers that are interesting. If you think about a new employee that's been with us two years or less. And if you look at our FAO operation, our plants range anywhere from 30 to 60% of our shop floor workers have been there two years or less. In our dynamite facility, we have one facility that's that 50% are new in the last two years. The other is almost 30%.
Tony Thene: That is a big influx of new employees highly qualified. I mean, the level of employee that we're that we're attracting is very high. But if they complex very sophisticated equipment that we're going to make sure they can operate at number one safely. And always within the quality standards that we hold our trust doing that the industry requires. So you've seen some nice improvement over a couple quarters. The good news is there's still there's still more improvement to come. Hopefully that answer.
Joshua Sullivan: Joshua, question. Yes, yes. Great. Thank you, again, Cretz on the quarter and thank you for the time. Thank you.
Operator: Again, if you have a question, please press star then one.
Chris Olin: The next question comes from Chris Olin with North Coast research. Please go ahead. Hey, good morning, Cretz on the quarter, guys. Hey, Cretz, good morning. I'm just wondering on the near term.
Tony Thene: Has there been any type of negative volume impact associated with the drop in the commodity nickel market just wondering if some customers will delay orders or you're seeing any of that because of the search visibility, or are we at a point where like the long term behavior has kind of changed when your customers are worried about supply. I think it's the latter, right? And I think I know we're not having any customers delay orders because of where is where the nickel price is or where they think it's going to go.
Tony Thene: I mean, we have, we have all of our customers trying to get into the order book earlier, right? As you know, we've closed the order book a couple of times. So that comment that you just made just in this type of environment that does not. It's never made. It's never, it's never discussed. That's not a factor.
Chris Olin: Okay, I may have missed an hypothesis ahead, but I was just thinking about the pricing dynamics and your comments about the increases. I was just wondering if there are contract renewals on our rise and yet I can't recall from the last quarter. Yes, there are. I mean, over the last couple of years, obviously by our results, you can tell that we've had contracts that have renewed and now you're seeing that that higher price come through.
Chris Olin: And there are a couple more that are in the works as well. So it seems like at any point in time, we have one or two that we're that we're working through and there's a couple significant ones that we're working through as we speak.
Tony Thene: Is it safe to assume something like, you know, 20, 30% renews price each year for the model? Let me make sure I understand your question. Are you saying that 20 or 30% of contracts renew every year? Yeah, we'll renew at a higher price so I could put that in my. Well, all contracts are renewing at a higher price. That's something that's significant. That's consistent across the industry. You can you can take you can take that with high level confidence that all contract renewals will be at a much higher price.
Chris Olin: Okay, just last one of the shift quickly back to a dynamite and guess I'm thinking about the Boeing 77 and the a 350 build rate increases. Kind of the pink outlook and I can't recall how if if dynamite is levered to one platform more than the other. And you know, would you benefit kind of a significantly from a double you know, the production targets. And I guess lastly, do you have enough capacity to satisfy that if you do?
Chris Olin: Well, to answer your last piece of your question first, no, there's not enough capacity in the system across multiple submarkets. For us, we sell to every one of the faster companies. So whether it's Boeing or Airbus. It's a type of demand environment when demand is so much higher than supply. That's just not a factor. We're oversubscribed and we anticipate that being like that for several years to come, regardless of the split between white body and single isle and bowing or airbus.
Tony Thene: Would a capital investment be on the horizon for that to adjust? Possibly. I mean, dynamite, just like FAO, is working to get up to rates as well. We're need to run at. And on a previous question from Cowan, I said that in fact we have a couple pieces of equipment that are coming in here in the near term into dynamite. That will increase our finishing capacity. So that will help as well.
Chris Olin: Okay. Great. Thanks so much. Yeah. Thank you, sir.
Michael LeShock: The next question comes from Michael Leshock with Keybank Capital Markets. Please go ahead. Hey, good morning. I just wanted to ask here on volumes that we saw a decline in the corridor given the less shipping days. But looking forward, how do you see volumes increasing relative to price and mix? So if your long term guidance incorporates a 15 to 20% increase in volumes above fiscal 19, do you expect that volume uptick to be largely in fiscal 24 or is the big step up this year?
Michael LeShock: More so a function of price in the volume piece is more linear over the course of your long term guidance. Well, the volume is going to follow our productivity for the most part. I mean, as you've seen now in this quarter into next, a big part of our strategic mix management is moving that volume around because some of the products as we move to different types of products, they take longer to process through the system, right?
Michael LeShock: Especially like in a primary milk product, it could be melted three times. That just takes longer to go through the system, much higher margins on that, but it takes longer. But as you see, our productivity continue to increase as we've talked about, as some of these other pieces come online, certainly volume will be higher in the second half than the first half. And then on maintenance, were you able to get all your normal seasonal maintenance spending done just given the lower cap act spend sequentially and maybe running your assets above normal seasonal utilization levels?
Michael LeShock: Or do you see any spilling into the second quarter? Well, we're going to, we're in perpetual preventive maintenance. The days of shutting your plant down for three weeks and turning everything off and sending everyone home and doing all your preventive maintenance are over, right? That just doesn't, that's not the most sufficient way. We are always in a cycle of preventive maintenance. And you know, I think you have been asked why do I talk about this?
Michael LeShock: And you know, when you're in a situation where supply can meet demand, you know, certainly no one really talks about preventive maintenance. But when you're in a sold out environment, where any amount of downtime, any amount of downtime will translate to customer impact and amount of product you could ship, well then that's why it makes it important. That's why it's important to say at any point in time we're going to be doing that.
Michael LeShock: Secondly, I would say it's really important to remember my, we have really exclusive highly sought after assets and it's our job as skilled operators to protect that equipment obviously over the long term. So we're aiming for a 40% keg or Daniel Kegel over the next four years. That's our goal. Our goal is not to run the equipment to fail you simply to earn a couple more million dollars on top of already a record quarter, right?
Michael LeShock: So I mean that would be unprofessional. So it's not about trying to let's run it more, try to get another couple million. We're in for the long haul where we're going to double operating and come over versus FY19 over four years. So we got to protect our equipment and treat the right way. Got it. Appreciate all the details. Thank you.
Operator: This concludes our question and answer session.
John Huyette: I would like to turn the conference back over to John Hewitt for any closing remarks. Thank you operator and thank you everyone for joining us today for our fiscal year 2024 first quarter conference call.
John Huyette: Have a great rest of your day.
Operator: But conference has now concluded. Thank you for attending today's presentation.
Operator: You may now disconnect.