Q2 2024 Carpenter Technology Corporation Earnings Call
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Okay.
Yeah.
Good morning, and welcome to the Carpenter Technology Corporation second quarter of 'twenty 'twenty four fiscal conference call.
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I would now like to turn the conference over to John Hewitt Dice President of Investor Relations.
Please go ahead.
Thank you operator, good morning, everyone and welcome to the Carpenter Technology earnings Conference call for the fiscal 2024 second quarter ended December 31 2023.
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 Lain, Senior Vice President and Chief Financial Officer.
Timothy Lain: Statements made by management. During this earnings presentation that are forward looking statements are based on current expectations.
Timothy Lain: 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.
Timothy Lain: The company's report on Form 10-K for the year ended June 32023.
Timothy Lain: Form 10-Q for the quarter ended September 32023, and the exhibits attached to those filings.
Please also note that in the following discussion unless otherwise noted when management discuss 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.
Timothy Lain: I will now turn the call over to Tony.
Tony: Thank you John and good morning to everyone on the call today.
Tony: I will begin on slide four with a review of our safety performance.
Tony: For the first half of fiscal year 2024, our total case incident rate was 1.9.
Tony: This marks an improvement over the last quarter as we continued to integrate less experienced employees into our operations.
Tony: We are targeting specific areas with employee engagement programs to identify and eliminate potential issues are.
Tony: 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 second quarter.
Timothy Lain: For the second quarter of fiscal year 2020 for Carpenter technology continues to deliver on its targets.
Timothy Lain: With reported operating income of $69 8 million.
In this most recent quarter, we continued to build momentum, resulting in another strong quarter and the second most profitable first half of the fiscal year in our company's history.
Timothy Lain: Most notably the SA O segment exceeded expectations for the quarter, delivering $83 3 million and operating income.
Timothy Lain: Above the outlook, we provided of $78 million to $82 million.
Timothy Lain: Further <unk> realized an adjusted operating margin of 20%.
Timothy Lain: Up from 19, 4% in the previous quarter.
Timothy Lain: Impressive performance.
Speaker Change: But we have line of sight to further improvement.
Timothy Lain: We expect additional margin expansion with an ongoing focus on product mix optimization and targeted continuous improvement and operational productivity in the second half of fiscal year 2024.
Timothy Lain: Beyond profitability, we generated $14 6 million of cash from operations during the quarter.
Timothy Lain: Maintaining a healthy liquidity of $351 million.
Timothy Lain: In addition, during the quarter, we completed multiple accretive long term agreements with key customers across our aerospace and medical end use markets.
Timothy Lain: Our customers continue to affirm our extreme importance to their supply chains and.
Timothy Lain: And we remain focused on our strategic engagement and alignment with them.
Timothy Lain: And most importantly, we continue to operate in a strong demand environment across end use markets, where our material solutions are valued by our customers.
Timothy Lain: Now, let's take a closer look at our second quarter sales on slide six.
In the second quarter of fiscal year, 2024 sales decreased slightly sequentially and increased significantly year over year.
Timothy Lain: As anticipated sales and volumes remained relatively flat sequentially largely due to fewer operating days and targeted mix management.
Timothy Lain: And aerospace end market demand remained extremely robust.
Timothy Lain: Airbus announced record order intake in 2023, and Oems continue to target build rate increases across key platforms in 2025 and 2026.
Timothy Lain: Our customers are likewise forecasting upticks in their own output and demand needs.
Timothy Lain: With demand at high levels and plans to increase even further the focus of the industry continues to be on the supply chain's ability to increase output.
Timothy Lain: Demand in defense also remains high.
Timothy Lain: Over the last quarter, we've seen engagement with customers increase as planning horizons for defense needs are often much shorter and extended industry lead times.
Sales to our aerospace and defense customers were down 5% sequentially and up 23% year over year.
Timothy Lain: Most of the sequential decline was due to the timing and mix of shipments in this quarter.
Timothy Lain: In addition, the substantial increase in energy sales impacted aerospace shipments at some energy products you similar manufacturing flow path.
Just to confirm the overall aerospace market strength as we look ahead, we expect the second half of fiscal year 2020 for aerospace and defense sales to be approximately 25% higher than our first half fiscal year 2024, a significant expected increase period.
Timothy Lain: Over period.
Timothy Lain: In the medical end use market demand remains strong supported by patient backlogs and the broader macro trends of improving patient outcomes and an aging population.
Timothy Lain: Like aerospace our medical customers also remain focused on securing supply with multiple customers completing supply agreement with us over the last quarter.
Timothy Lain: Our medical sales in the quarter were up 10% sequentially and up 16% year over year.
Timothy Lain: This was a record quarter for medical sales following a very strong first quarter and reflects a concerted effort to accelerate shipments.
Timothy Lain: Our medical customers continue to emphasize the tight link between our material flow inpatient surgeries and we understand our critical role in the supply chain.
Timothy Lain: In our other end use market demand for our premium solutions remains positive.
Timothy Lain: Transportation demand has stabilized after supply chain disruptions over the last quarter.
Timothy Lain: Energy demand, both for oil and gas and power generation remains very high as the world continues to focus on balancing energy supply with demand.
Timothy Lain: And then other areas like our semiconductor Submarket long term demand remains strong.
Timothy Lain: Reported by solid underlying fundamentals, such as increased connectivity and computing needs.
Timothy Lain: Altogether, we continue to see high demand for our premium solutions, which are critical enablers of the applications they support.
Timothy Lain: In addition, our backlogs remain at record levels and customer engagement is high.
Timothy Lain: We also continue to focus on using our assets in a way most valued by our customers.
Timothy Lain: To that end in the second quarter, we saw margins improve especially in the S. E O segment, resulting in a sequential increase in our operating income.
Timothy Lain: Notably <unk> adjusted operating margin reached 20% in the quarter up from 19, 4% in the first quarter of fiscal year, 2024, and $16 eight per se in the fourth quarter of fiscal year 2023.
Timothy Lain: We anticipate our margins will continue to improve with productivity improvements and a richer product mix.
Timothy Lain: Now I will turn it over to Tim for the financial summary.
Thanks, Tony Good morning, everyone I'll start on slide eight the income statement summary.
Timothy Lain: Net sales in the second quarter were $624 2 million with sales, excluding surcharge totaling $485 3 million.
Timothy Lain: Sales, excluding surcharge increased 15% from the same period, a year ago on 3% lower volume.
Timothy Lain: Sequentially sales were down 2% on 2% lower volume.
Timothy Lain: The year over year increase was driven by the ongoing shift in product mix as we continue to focus our capacity on more complex higher value materials as evidenced by the growth in sales despite lower volumes.
Timothy Lain: As Tony covered in his remarks, our focus remains on unlocking incremental capacity by improving throughput rates to drive further volume and sales growth in the second half of fiscal year 2024.
Tony R. Thene: Gross profit was $122 6 million in the current quarter compared to $70 million in the same quarter of last year and $124 1 million in our recent first quarter.
Tony R. Thene: SG&A expenses were $52 8 million in the second quarter up about $5 million from the same period, a year ago, and roughly 2 million lower sequentially.
Tony R. Thene: The increase in SG&A expenses versus the same quarter last year is primarily driven by increasing head count and higher variable compensation accruals.
Timothy Lain: The SG&A line includes corporate costs, which totaled $20 7 million in the recent second quarter.
Timothy Lain: As we look ahead to the upcoming third quarter of fiscal year 2024, we expect corporate cost to be about $22 million.
Timothy Lain: Operating income was $69 $8 million in the current quarter compared to $22 6 million in the same quarter, a year ago, and 69 million and our recent first quarter of fiscal year 2024.
Timothy Lain: We continue to see profit margin improve with total company adjusted operating margin, reaching 14, 4% up slightly from 14% in the previous quarter and up significantly from the five 4% in the same period a year ago.
Timothy Lain: The strong operating income results for the quarter reflect the ongoing impact of an improving product mix and our focused efforts to increase production activity levels to support customer demand.
Timothy Lain: Again, we expect to see the benefits of these actions flow through our operating results in the upcoming second half of our fiscal year 2024 and beyond.
Timothy Lain: Moving onto our effective tax rate for the recent second quarter, our effective tax rate was 22, 6%, which is just below our expected effective tax rate of roughly 24%.
Timothy Lain: The lower effective tax rate was driven by tax benefits recognized in the current quarter related to certain share based compensation awards.
Timothy Lain: For the full year, we continue to expect the effective tax rate to be in the range of 22% to 24%.
Which assumes that for the balance of the year the effective tax rate will be roughly 24%.
Timothy Lain: Okay.
Earnings per diluted share for the current quarter was <unk> 85 per share the results demonstrate our continued momentum supported by improving profitability and a strong demand environment.
Timothy Lain: Now turning to slide nine in our <unk> segment results.
Timothy Lain: Net sales for the second quarter were $549 4 million or $416 2 million excluding surcharge.
Timothy Lain: Compared to the same period last year net sales, excluding surcharge increased 20% on 1% higher volume too.
Timothy Lain: Sequentially net sales, excluding surcharge were flat on similar volume.
Timothy Lain: The year over year improvement in net sales was driven by the impacts of higher prices and an improving product mix across our key end use markets.
Tony R. Thene: Thanks, Tony reviewed in the second quarter sales slide.
Moving to operating results <unk> reported operating income of $83 3 million and our recent second quarter, which outpaced our expectations.
Tony R. Thene: On a year over year basis, <unk> operating income improved by $53 million largely due to higher sales driven by strong demand and improving product mix and higher prices.
Tony R. Thene: On a sequential basis operating income improved by about $3 million.
Tony R. Thene: The improvements in productivity and product mix and pricing are evident in the adjusted operating margin, which has increased to 20% in the current period as compared with eight 8% in the same period, a year ago, and 19, 4% and our recent first quarter.
Timothy Lain: Looking ahead the C. O 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.
Timothy Lain: Based on current expectations, we anticipate <unk> will generate operating income in the range of 87 million to $91 million in the upcoming third quarter of fiscal year 2024.
Timothy Lain: Now turning to slide 10 in our Pep segment results.
Timothy Lain: Net sales in the second quarter of fiscal year 2024 were $95 7 million were $87 9 million excluding surcharge revenue.
Timothy Lain: Net sales, excluding surcharge decreased 10% from the same quarter last year and decreased 6% sequentially.
Timothy Lain: In the current quarter Pep reported operating income of $7 1 million.
Timothy Lain: This compares to operating income of $9 3 million in the same quarter, a year ago and operating income of $9 1 million in the first quarter of fiscal year 2024.
Timothy Lain: The majority of the decline in both sequential and year over year sales and profitability is related to our distribution business.
Timothy Lain: For context, our distribution business as a north American distributor of tool and high speed steels.
Timothy Lain: Our distribution business sources at supply from unrelated third parties and sells to customers with no overlap to our other businesses.
The sales from our distribution business represent less than 5% of Carpenter Technology's total sales this fiscal year to date.
Timothy Lain: In the context of Pep, our smaller segment challenges in distribution sales and operating income are magnified as evident in the performance of Pep.
Timothy Lain: In our most recent quarter compared with the expectations we set.
Timothy Lain: The distribution business has been dealing with near term market headwinds over the last couple of quarters related to general industrial macroeconomic conditions.
Timothy Lain: <unk> rising interest rates and falling commodity prices, which has influenced customer order patterns in the near term.
Timothy Lain: While we're working to mitigate the impacts of distribution and expect the results to improve via higher volume and lower cost in the upcoming quarters.
Timothy Lain: It is important to point out that our outlook does not anticipate a meaningful contribution from our distribution business for the balance of the year, we're in our longer term outlook.
Timothy Lain: With all that said as we look ahead the growth driver for our Pep segment is our dynamite titanium business.
Timothy Lain: For <unk> the fundamentals are similar to assay.
Timothy Lain: Dynamed serves primarily the aerospace and defense and medical end use markets, where demand for documents titanium solutions remained strong.
Timothy Lain: We are focused on increasing productivity and throughput across the operations to meet our customers' needs and expect to see continued improvement in output in the coming quarters driving higher profitability.
Timothy Lain: With that in mind, we currently anticipate that the Pep segment will deliver operating income in the range of 9 million to $10 million for the upcoming third quarter of fiscal year 2024.
Timothy Lain: Now turning to slide 11, and a review of adjusted free cash flow.
Timothy Lain: In the current quarter, we generated $15 million of cash from operating activities.
Timothy Lain: To $7 million and our recent first quarter and cash used for operating activities of $86 million in the same quarter last year.
Timothy Lain: Our earnings growth over the last year as demonstrated in our cash flow as we generated $22 million of cash from operations in the first half of fiscal year 2024, compared to cash used for operations of $165 million in the same period a year ago.
Timothy Lain: Given the significant focus on increasing activity levels over the last several quarters, we deployed cash to increase inventory.
Timothy Lain: We increased inventory by a $158 million in the first half of fiscal year 2024 relative to an increase of $227 million in the first half of fiscal year 2023.
Timothy Lain: As we look ahead to the second half of fiscal year 'twenty four based on our outlook for production and shipment activity. We will continue to be thoughtful about how we manage inventory and currently anticipate inventory levels to moderate and trend down for the balance of this fiscal year.
Timothy Lain: With our outlook for earnings and working capital, we anticipate a considerable increase in cash from operations in the second half of fiscal year 2024.
In terms of capital expenditures or Capex in the current quarter, we spent $25 million.
Timothy Lain: We continue to expect about $125 million in Capex for the full fiscal year of 2024.
Timothy Lain: With those details in mind, we reported negative adjusted free cash flow of $11 million in the second quarter of fiscal year 2024.
Timothy Lain: We're roughly negative $25 million in the first half of fiscal year 2024, compared with negative $196 million in the first half of fiscal year 2023.
Timothy Lain: We anticipate that for fiscal year 2024, we will generate meaningful positive free cash flow.
Timothy Lain: As I mentioned earlier, the free cash flow generation will be driven by increasing earnings and managing inventory levels for the balance of the year.
Timothy Lain: Our liquidity remains healthy and we ended the current quarter with total liquidity of $350 million, including $16 million of cash and $334 million of available borrowings under our credit facility.
Tony R. Thene: With that I will turn the call back to Tony.
Tony: Thanks, Tim.
Tony: Now, let's take a look at our fiscal year 2024 and longer term outlooks.
Tony: On our last call I communicated our expectations for fiscal year 2020 for most notably the significant step up in profitability anticipated in the second half of fiscal year 2024.
Timothy Lain: Having just completed a strong second quarter setting one of our best first halves on record we are reaffirming our previous guidance for a strong second half of the fiscal year.
Timothy Lain: We continue to build operating momentum unlocking additional capacity and increasing productivity rates as we work to return to and ultimately surpassed our pre COVID-19 production levels.
Timothy Lain: Notably we have certain key work centers that have additional upside potential as our mix continues to shift to more difficult to manufacture products.
Timothy Lain: In the second quarter, we saw these work centers take significant steps towards collectively reaching this potential and we expect continued progress through the second half of this fiscal year.
Timothy Lain: Specifically in Seo, we drove increases in output at our primary milk work centers late in the second quarter.
Timothy Lain: That output will begin to ship during the third quarter and is expected to have a meaningful impact in the upcoming fourth quarter as well.
Timothy Lain: As a result of expanding margins and increasing output. We are anticipating total company operating income of $74 million to $79 million in the third quarter of fiscal year 2024.
Timothy Lain: And with the additional capacity flowing through the system, we anticipate taking another significant step up in productivity and shipments in the fourth quarter of fiscal year, 2024, generating $97 million to $112 million and total company operating income.
Timothy Lain: In total we currently expect $171 million to $191 million in total company operating income in the second half of fiscal year 2024.
Timothy Lain: Combined with our strong first half we are currently projecting to deliver the most profitable year in the history of the company with $310 million to $330 million in total company operating income.
Timothy Lain: Now, let's take a look at how the second half fiscal year 2024 outlook fits in with the longer term fiscal year 2007 earnings growth projections on the next slide.
Timothy Lain: As I detailed in previous calls our goal is to double fiscal year 2019 operating income by fiscal year 2027.
Timothy Lain: These figures imply a 40% compounded annual growth rate on the operating income from fiscal year 2023 through fiscal year 2027.
Timothy Lain: As you can see we are projected to take a meaningful step this fiscal year.
Timothy Lain: With projected operating income in the range of $310 million to $330 million, we expect to realize approximately 50% of the opportunity in fiscal year 2020 for.
Timothy Lain: Further we believe that there's opportunity to accelerate the realization of the current FY 'twenty seven target.
Timothy Lain: And given our strong position in the market that growth opportunities will continue beyond fiscal year 2027.
Timothy Lain: As outlined on this call today Carpenter technology offers a unique value proposition to investors.
Timothy Lain: We are committed to our strategy of serving customers with high value applications in high growth markets that value our unique material solutions.
Timothy Lain: We continue to improve our productivity and expand our margins consistently delivering strong financial performance quarter after quarter.
Timothy Lain: The near term and longer 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 the demand.
Timothy Lain: Finally, we have a strong growth outlook in both the near term and longer term with opportunities to further accelerate and increase profitability.
Timothy Lain: Thank you and now I'll turn the call back to the operator.
Timothy Lain: Thank you very much and we will now begin the question and answer session.
Timothy Lain: Ask a question you May press Star then one on your telephone keypad.
Timothy Lain: We are using a speakerphone please pick up your handset before pressing the keys.
Timothy Lain: You said anytime your question has been addressed and you would like to withdraw your question. Please press Star then two.
Timothy Lain: At this time, we will pause momentarily to assemble our roster.
Timothy Lain: Okay.
Our first question comes from Gautam Khanna from TD Cowen go Kim. Please go ahead.
Timothy Lain: Hi, good morning, Thanks, guys.
Gautam Khanna: Yes, good morning, Gautam good morning.
Gautam Khanna: I had a couple of questions first perhaps I missed it but what was the backlog.
Gautam Khanna: <unk>.
Gautam Khanna: Growth sequentially in the quarter.
Gautam Khanna: Sequentially the backlog was relatively flat year over year was up about 20%.
Gautam Khanna: Okay.
Gautam Khanna: But remember Gautam, we're monterey and that as we as we manage our order book so.
Gautam Khanna: It could definitely be higher if we wouldn't have done that.
Gautam Khanna: Understood and so where our lead times today in terms of.
Gautam Khanna: A number of weeks.
Gautam Khanna: I assume you're speaking about aerospace bill it and in that case, there 65 plus weeks.
Gautam Khanna: Great.
Gautam Khanna: Could you talk about are there any long term.
Gautam Khanna: Agreements with customers that are coming up for renewal over the next six to 12 months.
Gautam Khanna: How significant might pose.
Gautam Khanna: Price resets.
Gautam Khanna: The answer is yes and to the first part of your question and secondly, also yes, they will be significant to the overall structure.
Gautam Khanna: Okay.
Gautam Khanna: And can you quantify like maybe what the.
Timothy Lain: How much of the <unk>.
Gautam Khanna: Aerospace business those contracts might represent.
Gautam Khanna: Well theres always at any time multiple contracts that we are renewing we had several in this last quarter as you know on the aerospace side those are primarily.
Gautam Khanna: A handful of large customers and they are still a couple of those that will renew over the next year or two.
Gautam Khanna: Any way to comment on how much the the ones that were renewed repriced off relative to the legacy contracts.
Gautam Khanna: Well they were 60%.
Gautam Khanna: Yes, there were significant price increases I think it's known in the industry that you are looking at sometimes 40% price increases in some of these products that certainly it varies as you.
Gautam Khanna: You know theres a lot of different alloys, but these are a significant reset.
Gautam Khanna: <unk> prices knowing that some of these contracts were that are renewing not just with us, but I'm sure with others, sometimes five or 10 years long so youre seeing a.
Gautam Khanna: A pretty long period of time, there before contracts reset in a market today that is extremely strong. So it is not surprising.
Gautam Khanna: C&I type of movement.
Gautam Khanna: Oh.
Last one for me.
Gautam Khanna:
Gautam Khanna: The non Aero markets, where you mentioned there were some sensitivity.
Gautam Khanna: Again just.
Gautam Khanna: Outside of the Euro business.
Gautam Khanna: Does that only relate to that distribution piece or are you seeing weakness in and.
Gautam Khanna: And the order book for for other end markets, whether it be transportation.
Gautam Khanna: For some of the other ones yeah that comment it just it just relates to that distribution business. I mean that was that's a small business that we acquired as part of a larger acquisition 10 plus years ago.
Gautam Khanna: So at Biogen resales material that is not carpenter technology. So it really is a stand alone entity. So we were referring to weakness only in that in that market and not in our in our other markets that are dynamite centers.
Gautam Khanna: Thanks, a lot guys.
Gautam Khanna: Thank you Sir.
Gautam Khanna: Thank you and our next question comes from Josh Sullivan from the benchmark company.
Josh Ward Sullivan: Josh you May proceed.
Josh Ward Sullivan: Hey, good morning.
Josh Ward Sullivan: Alright, Josh.
Josh Ward Sullivan: Yes.
Josh Ward Sullivan: As far as the current kind of three <unk> to <unk> cadence assumed here in guidance what are the major differences now if any from kind of the initial perspective or.
Josh Ward Sullivan: Perspective last quarter.
Josh Ward Sullivan: Really no difference for us, our third and fourth quarter internal forecast.
Josh Ward Sullivan: <unk> have remained relatively the same so.
Speaker Change: I'd ask you to maybe phrase it a little bit different there's something I'm missing there.
Gautam Khanna: No I just wanted to get kind of your perspective affecting it really changed there and it doesn't.
Timothy Lain: Yeah, No I mean, you remember last quarter.
Timothy Lain: Sorry, sorry for that and you remember the last quarter, we gave guidance for the second half in total which was roughly 28% to 35% that gave you roughly at 310 to 330 <unk>.
Gautam Khanna: So we're reaffirming that guidance now what we did this time was give you specifically Q3, right, which we didn't last quarter that allows you to back into to Q4 now that Q4 has has a pretty healthy increase but we're we're comfortable with that only because if you will.
Recall from my comments that we saw.
Some really improved productivity in our.
Gautam Khanna: Primary mill.
Gautam Khanna: Asset towards the end of this.
Gautam Khanna: This past quarter, so in the December timeframe.
Gautam Khanna: Because of the lead times that it takes to get through the plant, we will see some of that benefit in the third quarter, but significant benefit in the fourth so thats really what youre seeing youre seeing those <unk>.
Gautam Khanna: Improvements in productivity that really show themselves four to six months later in shipment and Thats, what youre seeing in that in that fourth quarter number. So we have very clear line of sight to that.
Speaker Change: And then just as far as the 737 Max.
Speaker Change: Issues in production rates as those are digested.
Speaker Change: How quickly can you change your aerospace spot demand the move into the aftermarket or other programs or just within the spot market help.
Gautam Khanna: What do you expect as far as the Fungibility of demand do you expect the big impact from the Max near term.
Timothy Lain: Let me take a step back just as I had a couple of notes and maybe answer it this way Josh and see if I hit your point police bubble up because I think it is an important point that was big news that came out late last night and I can say, we see no material impact to our second half of FY <unk>.
Timothy Lain: Ford, obviously, just because of the lead times.
Timothy Lain: The financial projections.
Timothy Lain: That we that we've put out there.
Timothy Lain: Today.
Timothy Lain: If you move more to the long term I think it is important to recognize because it does get very a very hot topic that theres really no changes to the underlying demand for air travel are the significant increases that are projected going forward right. So airlines need more airplanes delivered to them. That's why you see record.
Timothy Lain: Airbus orders last year and that point has been reaffirmed I think over and over by airline operators, who continue to push for more planes to be delivered.
Gautam Khanna: Obviously, you talked about MRO the industry needs new planes as we get older planes flying and that increases MRO need. So in this case here. If you would see any type of movement on the OEM side that MRO demand would go up.
Gautam Khanna: Even even further and certainly corporate technology, where central.
Gautam Khanna: Central part in delivering that demand whether it be OEM.
Gautam Khanna: Our MRO because as you know where we're at in the supply chain our product can branch out into many into many different ways. So I think really what we're discussing here with this specific news is how and over what period of time.
Gautam Khanna: Fly chain is going to be able to meet that demand, but make no mistake that demand is going to be there and if I could say.
Gautam Khanna: One more thing.
Gautam Khanna: Meeting that demand in a safe.
Gautam Khanna: Responsible and quality way, it's what Carpenter technology is already focused on you've heard us talk about that all the time, we're not going to push rates up that's going to sacrifice safety or quality. So we totally agree with the approach being taken in the wider industry that should be the focus and as you.
Gautam Khanna: Bring that type of discipline to the entire supply chain youll see those build rates.
Gautam Khanna: Pushed out obviously and I believe youll see this super cycle extend which is really good news for suppliers like Carpenter technology, hopefully that answered your question, Josh, but happy to take any follow up.
Josh: No. It does just kind of on the follow up though just taking that together and your comments during the call just about the upside pressure to the 27 targets.
I mentioned that all incorporates into that and so I think you did cover that but thank you for the time.
Josh: Thank you Sir.
And I was just like to remind you if you would like to present a question. Please press Star then one.
Josh: And now we have a question.
Josh: From Chris Olin from Northcoast research.
Chris D. Olin: Chris. Please go ahead.
Chris D. Olin: Hey, good morning, guys.
Good morning.
Chris D. Olin: Wanted to just ask a question on dynamic.
Chris D. Olin: I realize that business uses surcharges to pass through the higher cost like titanium.
Chris D. Olin: But I'm wondering if there is any risk to margins given the upward movement that we're seeing in the titanium sponge market now I guess.
Chris D. Olin: In other words does.
Chris D. Olin: Dynamite have any exposure to fixed pricing on the aerospace side or is there a point, where we start thinking about elasticity of demand or like some of the customers.
Chris D. Olin: Customers halting purchases because of price points get too high.
Chris D. Olin: Well as you all know Chris that can be a pretty complicated question. As you said, we have surcharge mechanisms that protect dynamed certainly there can be movement between quarter and quarter. If any of those are material and they haven't been in the past.
Chris D. Olin: Certainly call those out but no issues no issues, there and our surcharge.
Chris D. Olin: Moves.
Chris D. Olin: From time to time based on the current market. So we have that in place I think the bigger story with dynamic is.
Gautam Khanna: Is the potential that it has to move.
Gautam Khanna: Even even generating more earnings they are very similar to <unk> in that standpoint with the markets. They serve 95 plus percent aerospace and medical demand is very strong and we're looking for ways to increase our supply out of dining mix. So as we look forward dynamite is a big growth driver.
Gautam Khanna: For us.
I don't anticipate any risks around that.
Gautam Khanna: That titanium sourcing.
Gautam Khanna: Okay.
Gautam Khanna: Yeah.
Gautam Khanna: The nickel pricing has been falling I'm, just wondering if that had any negative.
Gautam Khanna: In fact had the business at all even when you think about some of the distribution markets.
Gautam Khanna: We just we just announced a record quarter and said that we're going to increase it significantly over the next two quarters and have the highest profitability year in the history of the company. So.
Gautam Khanna: No we do not see any negatives in terms of nickel billet pricing.
Gautam Khanna: Alright. Thanks.
Gautam Khanna: And we will follow with a question from Samuel Mckinney from Keybanc capital.
Samuel Please go ahead.
Samuel Mckinney: Hey, good morning, guys.
Samuel Mckinney: First speaking to your energy end market sales, you had a big sequential and year over year sales improvement within that what are you seeing from power generation can we assume that's a bigger piece of the energy power and oil and gas.
Samuel Mckinney: That's a fair comment.
These orders are placed some time out so as they come into the queue.
Samuel Mckinney: That's how it how it laid out in our second quarter and certainly power generation is.
Samuel Mckinney: A small market for us, but as you can tell a profitable one and you saw some of that that spike in demand come through in the second quarter. So that's good news for us.
Samuel Mckinney: We're more than happy to.
Samuel Mckinney: Take that type of business in.
Samuel Mckinney: Prices in that marketer.
Samuel Mckinney: Moving.
In step with the.
Samuel Mckinney: Current aerospace pricing.
Samuel Mckinney: Okay, and then any way to quantify or discuss the power gen versus oil and gas split within energy.
Samuel Mckinney: Well you know energy is a small part of our overall portfolio. So you could you could you could say that it's roughly 50 50, but that moves that can move from quarter to quarter based on based on the market and in this case in the quarter. We just completed that was primarily power Gen.
Samuel Mckinney: Okay. Thank.
Samuel Mckinney: Thank you that's helpful. And then next from me can you just outline the jet engine revenues quarter over quarter for us.
Samuel Mckinney: Our jet engine.
Samuel Mckinney: I can say it this way from a from a volume standpoint, we talked about overall.
Samuel Mckinney: Aerospace being down 5% sequentially.
Samuel Mckinney: Again, thats really due to the timing and the mix of shipments is.
Samuel Mckinney: There is no issue from a from a demand standpoint, we stated that the aerospace sales for us would be approximately 25% higher in the second half versus the first half so engines and fasteners.
Samuel Mckinney: That same.
Samuel Mckinney: Range, we had aero engine down approximately 10, and I think fashion was down sequentially approximately five or six.
Speaker Change: <unk> K Youll see youll see large increases in that in.
Speaker Change: In the second half versus first half.
Speaker Change: Alright, that's helpful. Thank you guys.
Speaker Change: And.
Speaker Change: This concludes our question and answer session.
Speaker Change: So I would like to turn the conference back over to John Hewitt for any closing remarks. Please go ahead.
Thank you Marc and thank you everyone for joining us today for our fiscal year 2024 second quarter conference call have a great rest of your day.
Speaker Change: Okay.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Have a good day.