Q4 2024 Carpenter Technology Corp Earnings Call
Operator: Good day, and welcome to the Carpenter Technology Fiscal Fourth Quarter and Full Year 2024 Earnings Call. All participants will be in a listen-only mode.
Operator: Day, and welcome to the Carpenter Technology fiscal fourth quarter and full year 2024 earnings call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialist by pressing the star key, followed by zero.
Good day, and welcome to the Carpenter technology fiscal fourth quarter and full year 'twenty 'twenty four earnings call.
Speaker Change: All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero.
Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press the star key, then one on the touch-tone phone.
Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on the touchstone phone. To withdraw your question, please press star, then two. Please note this event is being recorded.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on the Touchtone phone.
Operator: To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to John Huyette, Vice President of Investor Relations. Please go ahead.
Your question. Please press Star then two please note this event is being recorded.
John Huyette: I would now like to turn the conference over to John Huyette, Vice President of Investor Relations. Please go ahead.
Speaker Change: I'd now like to turn the conference over to John Hewitt, Vice President of Investor Relations. Please go ahead.
John Huyette: Thank you, operator.
John Huyette: Thank you operator.
John Huyette: Thank you, operator. Good morning, everyone, and welcome to the Carpenter Technology Earnings Conference Call for the fiscal 2024 fourth quarter ended June 30, 2024. This call is also being broadcast over the Internet along with presentation slides. For those of you listening by phone, you may experience a time delay in the slides. Speakers on the call today are Tony Thene, President and Chief Executive Officer, and Tim Lane, Senior Vice President and Chief Financial Officer.
John Huyette: Good morning, everyone. And welcome to the Carpenter Technology earnings conference call for the fiscal 2024 fourth quarter and the June 30th, 2024. This call is also being broadcast over the Internet, along with presentation slides. For those of you listening by phone, you may experience a time delay in slide movement.
John Huyette: Good morning, everyone and welcome to the Carpenter Technology earnings Conference call for the fiscal 2020 for fourth quarter ended June 32024.
John Huyette: This call is also being broadcast over the internet along with presentation slides.
John Huyette: For those of you listening by phone you may experience a time delay in slide movement.
John Huyette: Seekers on the call today are Tony Tane, 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-looking statements are based on current expectations. Risk factors that could cause actual results to differ prematurely 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 30th, 2023. Forms 10-Q for the quarters ended September 30th, 2023, December 31st, 2023, and March 31st, 2024, and the exhibits attached to this filing.
John Huyette: Speakers on the call today are Tony <unk>, President and Chief Executive Officer.
Timothy Lain: And Jim Lain, Senior Vice President and Chief Financial Officer.
John Huyette: 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 filing, including the company's report on Form 10-K for the year ended June 30, 2023. Forms 10-Q for the quarters ended September 30th, 2023, December 31st, 2023, and March 31st, 2024, and the exhibits attached to this file.
Statements made by management. During this earnings presentation that are forward looking statements are based on current expectations.
John Huyette: 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.
The Companys report on Form 10-K for the year ended June 32023.
Forms 10-Q for the quarters ended September 32023 December 31, 2023, and March 31, 2024, and the exhibits attached to those filings.
John Huyette: 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.
John Huyette: Please note that in the following discussion, unless otherwise noted, when management discusses sales or revenue, that reference excludes search. When referring to operating margins, that is based on adjusted operating income, excluding special items, and sales, excluding surcharges. I will now turn the call over to Tony.
John Huyette: Please note that in the following discussion unless otherwise noted when management discusses the sales or revenue that reference excludes surcharge.
John Huyette: When referring to operating margins that is based on adjusted operating income excluding special items and sales excluding surcharge.
Tony Thene: 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 slides for the review of our safety performance. For fiscal year 2024, our total case incident rate was 1.8. Although a 1.8 injury rate was ranked as one of the safest metal manufacturing companies, it is not a rate we accept at Carpenter Technology. Our goal is to be a zero injury workplace. As we enter fiscal year 2025, we continue to believe our zero injury goal is possible, and we will continue to invest and work tirelessly to achieve that goal.
John Huyette: I will now turn the call over to Tony.
Tony R. Thene: 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 fiscal year 2024, our total case incident rate was 1.8.
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 fiscal year 2024, our total case incident rate was one eight.
Tony R. Thene: Although a 1.8 injury rate would rank as one of the safest metal manufacturing companies, it is not a rate we accept at Carpenter Technology. Our goal is to be a zero injury workplace. As we enter fiscal year 2025, we continue to believe our zero injury goal is possible, and we will continue to invest in and work tirelessly to achieve that goal. Now, let's turn to slide five for an overview of our fourth quarter performance.
Tony: Although a 1.8 injury rate would rank as one of the safest metal manufacturing companies. It is not a rate we except at Carpenter technology.
Tony: Our goal is to be a zero injury workplace.
John Huyette: As we enter fiscal year 2025, we continue to believe our zero injury go is possible.
John Huyette: And we will continue to invest and work tirelessly to achieve that goal.
Tony Thene: Now let's turn to slide five for an overview of our fourth quarter performance. Carpenter Technology continues to exceed growth expectations. In the fourth quarter fiscal year 2024, we generated 125 million in adjusted operating income, the most profitable quarter on record, beating our previous guidance by approximately 12%. To put this in perspective, it is a 39% increase over our then record sequential third quarter and double our fourth quarter a year ago. Further, we generated 142.4 million of adjusted free cash flow during the quarter. The strong force quarter performance is a result of continued improvement in productivity, product mix optimization, and pricing actions.
John Huyette: Now, let's turn to slide five for an overview of our fourth quarter performance.
Tony R. Thene: Carpenter technology continues to exceed growth expectations. In the fourth quarter of fiscal year 2024, we generated $125 million in adjusted operating income, the most profitable quarter on record, beating our previous guidance by approximately 12%. To put this in perspective, it is a 39% increase over our then-record sequential third quarter and double our fourth quarter a year ago. Furthermore, we generated $142.4 million of adjusted free cash flow during the quarter. The strong fourth quarter performance is a result of continued improvement in productivity, Product Mix Optimization, and Pricing Action.
John Huyette: Carpenter technology continues to exceed growth expectations.
John Huyette: In the fourth quarter of fiscal year, 2024, we generated $125 million and adjusted operating income.
John Huyette: Profitable quarter on record, beating our previous guidance by approximately 12%.
John Huyette: To put this in perspective, it is a 39% increase over our then record sequential third quarter and double our fourth quarter a year ago.
John Huyette: Further we generated $142 4 million of adjusted free cash flow during the quarter.
John Huyette: The strong fourth quarter performance is a result of continued improvement in productivity.
John Huyette: Product mix optimization and pricing actions.
Tony R. Thene: The SAO segment exceeded expectations, delivering $140.9 million in operating income, well above the outlook we provided on last quarter's call and 36% above the sequential third quarter performance. Notably, SAO achieved an adjusted operating margin of 25.2%. This is a meaningful step up from the 21.4% in the previous quarter and our pre-COVID best of approximately 20%. With this exceptional performance, we finished fiscal year 2024 with $354.1 million in adjusted operating income, an annual earnings record for Carpenter Technology.
Tony Thene: The SAO segment exceeded expectations, delivering 140.9 million in operating income. Well above the outlook, we provided on last quarter's call, and 36% above the sequential third quarter performance. Notably, SAO achieved adjusted operating margin of 25.2%. This is a meaningful step up from the 21.4% in the previous quarter and our pre-COVID best of approximately 20%.
John Huyette: DSA LS segment exceeded expectations, delivering 149 million and operating income well above the outlook, we provided on last quarter's call and 36% above the sequential third quarter performance.
John Huyette: Notably SA O achieved adjusted operating margin of 25, 2%.
John Huyette: This is a meaningful step up from the 21, 4% in the previous quarter and our pre Covid best of approximately 20%.
Tony Thene: With this exceptional performance, we finished fiscal year 2024 with 354.1 million in adjusted operating income and an annual earnings record for corporate technology.
John Huyette: With this exceptional performance, we finished fiscal year 2024, with 354.1 million and adjusted operating income and annual earnings record for Carpenter technology.
Tony Thene: Let's turn to slide six and take a closer look at our four-quarter sales and market dynamics. In the fourth quarter fiscal year 2024, sales increased 15% sequentially on higher volumes, improving product mix, and higher realized pricing. Notably, the SAO segment saw a sequential increase in shipment of 13%. The result of increased productivity across facilities, particularly at key milk work centers. You may recall that we previously identified these productivity efforts as a driver of our anticipated second half performance. We were able to accelerate these efforts, as seen in our third quarter performance, and then exceed them again for the fourth quarter.
Tony R. Thene: Let's turn to slide six and take a closer look at our fourth quarter sales and market dynamics. In the fourth quarter of fiscal year 2024, sales increased 15% sequentially on higher volumes, an improving product mix, and higher realized prices.
John Huyette: Let's turn to slide six and take a closer look at our fourth quarter sales and market dynamics.
John Huyette: In the fourth quarter of fiscal year, 2024 sales increased 15% sequentially on higher volumes, improving product mix and higher realized pricing.
Tony R. Thene: Notably, the SAO segment saw a sequential increase in shipments of 13 percent, the result of increased productivity across facilities, particularly at key MILT work centers. You may recall that we previously identified these productivity efforts as a driver of our anticipated second half performance. We were able to accelerate these efforts, as seen in our third quarter performance, and then exceed them again for the fourth quarter. With demand for our premium material solutions well above supply levels across our in-use markets, we continue to remain focused on allocating capacity to where customers value it most. In the fourth quarter, sales to our largest in-use market, aerospace and defense, were up 19% sequentially and up 28% year-over-year.
John Huyette: Notably the <unk> segment saw a sequential increase in shipments of 13%. The result of increased productivity across facilities, particularly at key Milt work centers.
John Huyette: You may recall that we previously identified these productivity efforts as a driver of our anticipated second half performance.
John Huyette: We were able to accelerate these efforts as seen in our third quarter performance and then exceed them again for the fourth quarter.
Tony Thene: With demand for our premium material solutions, well above supply levels across our in-use markets, we continue to remain focused on allocating capacity to wear customers' value at most. In the fourth quarter, sales to our largest in-use market, aerospace and defense, were up 19% sequentially and up 28% year over year.
John Huyette: With demand for our premium materials solutions, well above supply levels across our end use markets. We continue to remain focused on allocating capacity to where customers value at most.
John Huyette: And our fourth quarter sales to our largest end use market aerospace and defense were up 19% sequentially and up 28% year over year let.
Tony R. Thene: Let me dive a bit deeper into the aerospace market. First, it's important to note that industry demand remains robust, as measured by passenger traffic, airline miles, and airline operators' desire for new planes. The backlog for commercial airplane orders reported by Boeing and Airbus is now over 15,000 planes, or roughly nine years of demand.
Tony Thene: Let me dive a bit deeper into the aerospace market. First, it's important to note that industry demand remains robust as measured by passenger traffic, airline miles, and airline operators' desire for new planes. The backlog for commercial airplane bills reported by Bone in their bus is now over 15,000 planes are roughly nine years of demand. Again, fundamental dynamics are driving demand. More people than ever in history want to travel, and airline operators want the newest generation of airplanes to replace aging fleets to realize the fuel efficiency they provide and to meet the additional needed capacity for more airline miles.
John Huyette: Let me dive a bit deeper into the aerospace market.
John Huyette: First it's important to note that industry demand remains robust as measured by passenger traffic airline miles and airline operators desire for new planes.
John Huyette: The backlog for commercial airplane bills reported by Boeing and Airbus is now over 15000 planes are roughly nine years of demand.
Tony R. Thene: Again, fundamental dynamics are driving demand. More people than ever in history want to travel, and airline operators want the newest generation of airplanes to replace aging fleets, to realize the fuel efficiency they provide, and to meet the additional needed capacity for more airline miles. Today, there is some noise in the supply chain about build rate attainment and regular news about the timing of production goals. Let me talk about what all that means as we think about our outcome. Carpenter Technology is a key supplier to the aerospace supply chain with broad exposure to aerospace platforms, this including narrow body and wide body.
John Huyette: Again fundamental dynamics are driving demand more people than ever in history went to travel and airline operators want the newest generation of airplanes to replace aging fleets to realize the fuel efficiency, they provide and to meet the additional media capacity for more airline miles.
Tony Thene: Today, there's some noise in supply chain about build rate attainment and regular news about the timing of production goals.
Speaker Change: The day there is some noise in the supply chain about bill great attainment and regular news about the timing of production goals. Let me talk about what all that means as we think about our outlook.
Tony Thene: Let me talk about what all that means as we think about our outlook. Corporate technology is a key supplier into the aerospace supply chain with broad exposure to aerospace platforms. This includes narrow body and wide body, Airbus and Boeing, and MRO and OEM. We like to resist supply chain or managing through the current bill rate adjustments. Often, even before information is broadly communicated externally, our customers are talking to us about issues they are facing and changes they may need to make. For example, as new bills have lagged, MRO demand remains elevated. As a result, customers may prioritize a different portfolio of products in the near term.
Speaker Change: Carpenter technology is a key supplier into the aerospace supply chain with broad exposure to aerospace platforms. This includes narrow body and wide body, Airbus and Boeing and MRO and OEM.
Tony R. Thene: Airbus and Boeing, and MRO and OEA. We, like the rest of the supply chain, are managing through the current bill rate adjustment. Often, even before information is broadly communicated externally, our customers are talking to us about issues they are facing and changes they may need to make. For example, as new builds have lagged, MRO demand remains elevated. As a result, customers may prioritize a different portfolio of products in the near term.
Speaker Change: We like the rest of the supply chain are managing through the current build rate adjustments.
Speaker Change: Often even before information is broadly communicated externally our customers are talking to us about issues. They are facing and changes they may need to make.
Speaker Change: For example, as new builds have lagged MRO demand remains elevated as a result customers may prioritize a different portfolio of products in the near term.
Tony R. Thene: We also have a large backlog of orders, both in aerospace and other markets like defense, energy, and metals. Our broad supply chain exposure and visibility into future customer needs gives us the flexibility to adjust our production schedules to meet the evolving demands of our customers. Further, despite ongoing increases in our production rate, we still have substantial portions of our backlog wanted earlier by customers, which gives us the opportunity to pull in orders when needed.
Tony R. Thene: We also have a large backlog of orders, both in aerospace and other markets, like defense, energy, and medical. Our broad supply chain exposure and visibility into future customer needs gives us a flexibility to adjust our production schedules to meet the evolving demands of our customers. Further, despite ongoing increases in our production rate, we still have substantial portions of our backlog wanted earlier by customers, which gives us the opportunity to pull in orders when needed. Changes to near-term bill rates are clearly something we are aware of, and will continue to react to and adjust for if and when needed.
Speaker Change: We also have a large backlog of orders both in aerospace and other markets like defense energy and medical are broad supply chain exposure and visibility into future customer needs gives us the flexibility to adjust our production schedules to meet the evolving demands of our customers.
Speaker Change: Further despite ongoing increases in our production rate, we still have substantial portions of our backlog wanted earlier by customers, which gives us the opportunity to pull in orders when needed.
Tony R. Thene: Changes to near-term build rates are clearly something we are aware of and will continue to react to and adjust for if and when needed. To bring it all together, there are four important points you should take away from my comments.
Speaker Change: Changes to near term build rates are clearly something we are aware of and we will continue to react to and adjust for if and when needed.
Tony Thene: To bring it all together, there are four important points you should take away from my comments. One, due to our broad reach of products and capabilities, we are currently able to navigate any near-term adjustments in the aerospace supply chain due to bill rate changes. Two, our backlog remains at record levels, and despite ongoing efforts to limit orders to maintain lead times, we had high order intake across markets in the fourth quarter. Three, even with modest assumption for bill rate increases over the next 12 months, we are still increasing our earnings outlook, as I will discuss shortly.
Speaker Change: To bring it altogether there are four important points you should take away from my comments.
Speaker Change: One due to our broad reach of products and capabilities. We are currently able to navigate any near term adjustments in the aerospace supply chain due to build rate changes to our backlog remains at record levels and despite ongoing efforts to limit orders to maintain lead times, we had high order intake across <unk>.
Tony R. Thene: Due to our broad reach of products and capabilities, we are currently able to navigate any near-term adjustments in the aerospace supply chain due to build rate changes. Two, our backlog remains at record levels. And despite ongoing efforts to limit orders to maintain lead times, we had high order intake across markets in the fourth quarter. Three, even with modest assumptions for bill rate increases over the next 12 months, we are still increasing our earnings outlook, as I will discuss shortly.
Speaker Change: In the fourth quarter.
Speaker Change: Three even with modest assumption for bill rate increases over the next 12 months, we are still increasing our earnings outlook as I will discuss shortly.
Tony Thene: And four, looking beyond the next 12 months, we see significantly higher demand on the horizon. We and most others in the industry are confident that there will be ongoing bill rate increases, given an extraordinary current and increasing future demand.
Tony R. Thene: And four, looking beyond the next 12 months, we see significantly higher demand on the horizon. We, and most others in the industry, are confident that there will be ongoing build rate increases, given the extraordinary current and increasing future demand. Moving to the defense market, our customers continue to request emergency orders to support elevated military activity levels due to ongoing world events. We will continue to prioritize these orders given the essential nature of our support.
Speaker Change: And for looking beyond the next 12 months, we see significantly higher demand on horizon, we and most others in the industry are confident that there will be ongoing build rate increases given the extraordinary current in increasing future demand.
Tony Thene: Moving to the defense market, our customers continue to request emergency orders to support elevated military activity levels due to ongoing world events. We will continue to prioritize these orders given the essential nature of our support.
Speaker Change: Moving to the defense market, our customers continue to request emergency orders to support elevated military activity levels due to ongoing world events we.
Speaker Change: We will continue to prioritize these orders given the essential nature of our support.
Tony R. Thene: In our medical in-use market, we saw another record quarter, with sales up 9% sequentially and 38% year-over-year. Our customers continue to see strong market demand based on robust procedure backlog. Like aerospace, our medical customers are focused on securing their much-needed supply given a strong demand environment and view specialty materials as a key strategic area. In addition, customer engagement on new products remains high, driven by innovation in the use of robotics, increasing adoption of less invasive surgeries, and alloy sensitivities, among others.
Tony Thene: In our medical and use market, we saw another record quarter, where sales were up 9% sequentially and 38% year over year. Our customers continue to see strong market demand based on robust procedure backlogs. Like aerospace, our medical customers are focused on securing our much needed supply given a strong demand environment and do specially materials as a key strategic area. In addition, customer engagement on new products remains high, driven by innovation in the use of robotics, increasing adoption of less invasive surgeries and alloy sensitivities, among others. As a result, we continue to see high growth opportunities in the medical industry.
Speaker Change: In our medical end use market, we saw another record quarter with sales up 9% sequentially and 38% year over year.
Speaker Change: Our customers continue to see strong market demand based on robust procedure backlogs.
Speaker Change: Like aerospace our medical customers are focused on securing their much needed supply given the strong demand environment and your specialty materials as a key strategic area.
Speaker Change: In addition customer engagement on new products remains high driven by innovation in the use of robotics, increasing adoption of less invasive surgeries and alloy sensitivities among others.
Speaker Change: As a result, we continue to see high growth opportunities in the medical industry.
Tony R. Thene: As a result, we continue to see high growth opportunities in the medical industry. Taken together, our aerospace and defense and medical in-use markets are nearly three-quarters of our overall business and continue to grow and share. Across our other in-use markets, customer engagement is high, and demand for our premium solutions remains positive. For example, we are seeing strong demand for power generation, which drove a 31 percent sequential sales increase in the energy in-use market.
Tony Thene: Taking together our aerospace and defense and medical and use markets are nearly three quarters of our overall business and continue to grow and share. Cross our other in-use markets, customer engagement is high, and demand for our premium solutions remains positive. For example, we are seeing strong demand for power generation, which drove a 31% sequential sales increase in the energy in use market.
Speaker Change: Taken together, our aerospace and defense and medical end use markets are nearly three quarters of our overall business and continued to grow in share.
Speaker Change: Across our other end use markets customer engagement is high and demand for our premium solutions remains positive.
Speaker Change: For example, we are seeing strong demand for power generation, which drove a 31% sequential sales increase in the energy end use market.
Tony R. Thene: The bottom line is that we are operating in a strong market, and we anticipate that to continue and expand in the long term. Now I will turn it over to Tim for the financial summary. Thanks, Tony. Good morning, everyone.
Tony Thene: Bottom line is that we are operating in a strong market, and we anticipate that to continue and expand in the long term.
Speaker Change: Bottom line is that we are operating in a strong market and we anticipate that to continue and expand in the long term.
Tim Lane: Now I will turn it over to Tim for the financial summary. Thanks, Tony. Good morning, everyone.
Speaker Change: Now I will turn it over to Tim for the financial summary.
Speaker Change: Yeah.
Timothy Lain: I'll start on slide eight, the income statement summary. As Tony already covered in his remarks, this quarter's results exceeded our expectations and broke any previous records for quarterly profits. Starting at the top, sales excluding surcharge increased 15% sequentially on 13% higher volume.
Tim: Thanks, Tony Good morning, everyone I'll start on slide eight the income statement summary.
Tim Lane: I'll start on slide eight, the income statement summary. As Tony already covered in his remarks, this quarter's results exceeded our expectations and broke any previous records for quarterly profits. Starting at the top, sales excluding search are to increase 15% sequentially on 13% higher volume. The growth in net sales was driven by increasing volumes, primarily related to our improving productivity that we single in two quarters ago, combined with the ongoing shift in product mix, as we continue to focus our capacity on our most profitable products. The improving productivity in product mix is evident in our gross profit, which increased to $196 million in the current quarter, up 30% from our recent third quarter.
Tim: As Tony already covered in his remarks, this quarter's results exceeded our expectations and broke any previous records for quarterly profits.
Tim: Starting at the top sales, excluding surcharge increased 15% sequentially on 13% higher volume.
Timothy Lain: The growth in net sales was driven by increasing volumes primarily related to our improving productivity that we signaled two quarters ago, combined with the ongoing shift in product mix, as we continue to focus our capacity on our most profitable products. The improved productivity and product mix are evident in our gross profit, which increased to $190.6 million in the current quarter, up 30% from our recent third quarter. SG&A expenses were $65.4 million in the fourth quarter, up roughly $8 million sequentially.
Speaker Change: The growth in net sales was driven by increasing volumes primarily related to our improving productivity that we signaled in two quarters ago combined with the ongoing shift in product mix as we continue to focus our capacity on our most profitable products.
Speaker Change: The improving.
Speaker Change: Productivity and product mix is evident in our gross profit.
Speaker Change: Which increased to $190 6 million in the current quarter.
Speaker Change: Up 30% from our recent third quarter.
Tim Lane: SG&A expenses were 65.4 million in the fourth quarter, up roughly 8 million sequentially. The increase sequentially is primarily due to higher variable compensation of rules and the timing of certain expenses. Note the SG&A line includes corporate costs, which total 26.9 million in the recent fourth quarter when excluding the special item. As we look ahead to the upcoming first quarter of fiscal year 2025, we expect corporate costs to return to a more normalized run rate of approximately 23 to 24 million. Operating income was 108.3 million in the current quarter, or 125.2 million of adjusted operating income, which is 39% higher than the 90 million in our recent third quarter of fiscal year 2024, and ahead of the expectations we set last quarter.
Speaker Change: SG&A expenses were $65 4 million in the fourth quarter up roughly $8 million sequentially.
Timothy Lain: The increase sequentially is primarily due to higher variable compensation accruals and the timing of certain expenses. Note the FCNA line includes corporate costs, which totaled $26.9 million in the recent fourth quarter when excluding special items. As we look ahead to the upcoming first quarter of fiscal year 2025, we expect corporate costs to return to a more normalized run rate of approximately $23 to $24 million. Operating income was $108.3 million in the current quarter, or $125.2 million of adjusted operating income, which is 39% higher than the $90 million in our recent third quarter of fiscal year 2024 and ahead of the expectations we set last quarter.
Speaker Change: The increase sequentially is primarily due to higher variable compensation accruals and the timing of certain expenses.
Speaker Change: Note. The SG&A line includes corporate costs, which totaled $26 9 million in the recent fourth quarter when excluding the special item.
Speaker Change: As we look ahead to the upcoming first quarter of fiscal year 2025, we expect corporate cost to return to a more normalized run rate of approximately $23 million to $24 million.
Speaker Change: Operating income was $108 3 million in the current quarter were $125 2 million of adjusted operating income, which is 39% higher than the $90 million in our recent third quarter of fiscal year 2024, and ahead of the expectations, we set last quarter.
Timothy Lain: We continue to build operating momentum and expand margins, delivering a total company adjusted operating margin of 19.7% in the current quarter. Moving on to our effective tax rate, when excluding the net benefits associated with the special items, the effective tax rate for the quarter was 17%, which is slightly lower than our expectations due to benefits associated with certain changes in prior tax positions taken in the current quarter, as well as the benefits associated with stock option exercises. For fiscal year 2025, we expect the effective tax rate to be in the range of 21 to 23 percent. Adjusted earnings per share was $1.82 for the quarter.
Timothy Lain: We continue to build operating momentum in expand margins, delivering total company adjusted operating margin of 19.7% in the current quarter. Moving on to our affected tax rate, when excluding the net benefits associated with the special items, the affected tax rate for the quarter was 17%, which is slightly lower than our expectations due to benefits associated with certain changes in prior year tax positions taken in the current quarter, as well as the benefits associated with stock option exercises. For fiscal year 2025, we expect the effective tax rate to be in the range of 21 to 23%.
Speaker Change: We continue to build operating momentum and expand margins delivering total company adjusted operating margin of 19, 7% in the current quarter.
Speaker Change: Moving onto our effective tax rate when excluding the net benefits associated with the special items the effective tax rate for the quarter was 17%, which is slightly lower than our expectations due to benefits associated with certain changes in prior year tax positions taken in the current quarter as well as the benefits associated with stock.
Speaker Change: <unk> option exercises.
Speaker Change: For fiscal year 2025, we expect the effective tax rate to be in the range of 21% to 23%.
Tim Lane: Adjusted earnings per share was $1.82 for the quarter. The adjusted earnings per share results exclude the impact of pre-tax restructuring and asset impairment charges associated with our additive business in the PEP segment, as we continue to look at opportunities to streamline operations. The special items also include a U.S. tax benefit associated with the additive restructuring. In summary, the adjusted earnings per share results for the quarter of $1.82. Demonstrates our improving profitability driven by solid manufacturing execution in a strong demand environment. 5. At the high end of the range, that's approximately a 41% increase over our record fiscal year 2024 performance.
Speaker Change: Adjusted earnings.
Speaker Change: Earnings per share was $1 82 for the quarter.
Timothy Lain: The adjusted earnings per share results exclude the impact of pretax restructuring and asset impairment charges associated with our additive business in the PEP segment, as we continue to look at opportunities to streamline operations. The special items also include a U.S. tax benefit associated with the additive restructuring. In summary, the adjusted earnings per share results for the quarter of $1.82 demonstrate our improving profitability driven by solid manufacturing execution in a strong demand environment. Now turning to slide 9 in our SAO segment results. Net sales excluding surcharge for the fourth quarter were $559.5 million, up 16% sequentially on 13% higher volume.
Speaker Change: The adjusted earnings per share results exclude the impact of pre tax restructuring and asset impairment charges associated with our additive business and the Pep segment as we continue to look at opportunities to streamline operations.
Speaker Change: The special items also include a U S tax benefit associated with the additive restructuring.
Speaker Change: In summary, the adjusted earnings per share results for the quarter of $1 82.
Speaker Change: Demonstrates our improving profitability driven by solid manufacturing execution and a strong demand environment.
Speaker Change: Now turning to slide nine and our segment results.
Speaker Change: Net sales excluding surcharge for the fourth quarter were $559 5 million up 16% sequentially on 13% higher volume.
Timothy Lain: In addition to the step-up in volume, we drew a favorable product mix and realized pricing actions, primarily in the aerospace and defense and medical end-use markets, as Tony reviewed earlier. Moving to operating results, SAO reported operating income of $140.9 million in our recent fourth quarter, which outpaced our expectations and represents a significant new record in the history of SAO, as shown on the slide for context. SAO operating income increased by $60.9 million from the same quarter last year, a 76% improvement.
Tony: In addition to the step up in volume, we drove favorable product mix and realized pricing actions, primarily in the aerospace and defense and medical end use markets as Tony reviewed earlier.
Speaker Change: Moving to operating results <unk> reported operating income of $140 9 million and our recent fourth quarter, which outpaced our expectations and represents a significant new record in the history of <unk>.
Speaker Change: As shown on the slide for context <unk>.
Speaker Change: Operating income increased by $60 9 million from the same quarter last year, a 76% improvement.
Timothy Lain: And on a sequential basis, operating income increased $37.4 million, a 36% improvement. The improvements in productivity, product mix, and pricing are evident in the adjusted operating margin, which has increased to 25.2% in the current period. To put the current quarter's performance in historical perspective, Prior to fiscal year 2024, the highest quarterly profit that the SAO segment achieved was just under $87 million in the fourth quarter of fiscal year 2019, with a corresponding adjusted operating margin of 20.4% at the time. This quarter's results are over 60% higher than the previous record, with considerably higher margins.
Speaker Change: And on a sequential basis operating income increased $37 4, million% to 36% improvement.
Speaker Change: The improvements in productivity product mix and pricing are evident in the adjusted operating margin, which has increased to 25, 2% in the current period.
Speaker Change: To put the current quarter's performance and historical perspective.
Speaker Change: Prior to fiscal year 2020 for the highest quarterly profit that the SCO segment achieved was just under $87 million in the fourth quarter of fiscal year 2019.
Speaker Change: With a corresponding adjusted operating margin of 24% at the time.
Speaker Change: This quarter's results are over 60% higher than the previous record with considerably higher margins.
Timothy Lain: Although we highlight the impressive results we have just reported, we believe they are only milestones on the path towards our future increases in profitability. With the backdrop of strong market conditions, the FAO team remains focused on executing actions to further increase and maintain consistent production levels and to continue to actively manage the product mix to maximize capacity for our most profitable product. As we have said before, in the current environment, we recognize the heightened importance of maintaining our assets. This includes actively managing preventative maintenance schedules to ensure the availability of the assets for the long term.
Speaker Change: Although we highlight the impressive results. We have just reported we believe they are only milestones on the path towards our future increases in profitability.
Speaker Change: With a backdrop of strong market conditions. The team remains focused on executing actions to further increase and maintain consistent production levels and to continue to actively manage the product mix to maximize capacity for our most profitable products.
Speaker Change: As we have said before in the current environment, we recognize the heightened importance on maintaining our assets.
Speaker Change: This includes actively managing preventative maintenance schedules to ensure the availability of the assets for the long term.
Timothy Lain: Looking ahead to our upcoming first quarter of fiscal year 2025, we anticipate FAO will generate operating income in the range of $127 million to $133 million, which would represent a record for the segment's first quarter performance. Now turning to slide 10, and our PEP segment, net sales excluding surcharge revenue in the fourth quarter of fiscal year 2024 were $102.3 million, up 8% sequentially.
Speaker Change: Looking ahead to our upcoming first quarter of fiscal year 2025, we anticipate <unk> will generate operating income in the range of $127 million to $133 million, which would represent a record for the segments first quarter performance.
Timothy Lain: In the current quarter, PEP reported operating income of $10.6 million, up from $9.2 million in the third quarter of fiscal year 2024. Sequential sales and profitability growth was primarily driven by our Dynamet titanium business, which, like SAO, is seeing strong market demand in key end-use markets and is working to further increase production rates across the operation. With that in mind, we currently anticipate that in the upcoming first quarter of fiscal year 2025, the PEP segment will deliver operating income in line with the fourth quarter of fiscal year 2024, or roughly 10.6%. Now turning to slide 11 and a review of adjusted free cash flow. In the current quarter, we generated $169.5 million of cash from operating activities, compared to $83.4 million in the recent third quarter.
Speaker Change: Now turning to slide 10 in our Pep segment ourselves.
Speaker Change: Net sales excluding surcharge revenue in the fourth quarter of fiscal year, 2024, or $102 3 million up 8% sequentially.
Speaker Change: In the current quarter Pep reported operating income of $10 6 million up from $9 2 million in the third quarter of fiscal year 2024.
Speaker Change: Sequential sales and profitability growth was primarily driven by our Dynamed titanium business.
Speaker Change: Which like <unk> is seeing strong market demand in key end use markets and is working to further increase production rates across the operations.
Speaker Change: With that in mind, we currently anticipate that in the upcoming first quarter of fiscal year 2025. The Pep segment will deliver operating income in line with the fourth quarter of fiscal year 2024 were roughly $10 6 million.
Speaker Change: Now turning to slide 11, and a review of adjusted free cash flow.
Speaker Change: In the current quarter, we generated $169 $5 million of cash from operating activities.
Speaker Change: Compared to $83 4 million and a recent third quarter.
Timothy Lain: As outlined last quarter, for the first half of fiscal year 2024, we increased in-process inventory as we continue to ramp manufacturing activity to meet the strong demand environment while we focused our efforts on increasing production rates across our operations. And, as planned, we reduced inventory by $59 million in the fourth quarter, driven by higher activity and sales. The inventory reduction was also driven by increased productivity at key work centers, improving the flow of material through our facility.
Speaker Change: As outlined last quarter for the first half of fiscal year 2024, we increased in process inventory as we continue to ramp manufacturing activity to meet the strong demand environment, while we focused our efforts on increasing production rates across our operations.
Speaker Change: And as planned we reduced inventory by $59 million in the fourth quarter driven by higher activity in sales levels.
Speaker Change: The inventory reduction was also driven by increased productivity at key work centers, improving the flow of material through our facilities.
Timothy Lain: The inventory management focus, combined with increased profitability, drove a significant improvement in cash flow from operations. For the current quarter, we spent $27.7 million on capital expenditures and finished fiscal year 2024 with just under $100 million in capital expenditures. With those details in mind, we reported adjusted free cash flow of $142.4 million in the fourth quarter of fiscal year 2025. For the full fiscal year 2024, we generated $179 million of adjusted free cash flow and ended the year with $199 million of cash on the balance sheet.
Speaker Change: The inventory management focus combined with increased profitability drove the significant improvement in cash flow from operations.
Speaker Change: For the current quarter, we spent $27 7 million on capital expenditures and finished fiscal year 2024 at just under $100 million in capital expenditures.
Speaker Change: With those details in mind, we reported adjusted free cash flow of $142 4 million in the fourth quarter of fiscal year 2024.
Speaker Change: For the full fiscal year 2024, we generated $179 million of adjusted free cash flow and ended the year with a $199 million of cash on the balance sheet.
Timothy Lain: Clearly, improving profitability and disciplined working capital management are yielding results, but we are not satisfied and see further opportunities. Our solid balance sheet position, with no near-term debt maturities and a comfortable leverage ratio, positions us well for the future. Before I turn the call back to Tony, I wanted to highlight for those on the call that we have included in the appendix of this presentation a slide with certain selected fiscal year 2025 guidance to help with modeling. With that, I will turn the call back to Tony. Thanks, Tim.
Speaker Change: Clearly the improving profitability and disciplined working capital management are yielding results, but we're not satisfied and see further opportunities.
Speaker Change: Our solid balance sheet position with no near term debt maturities and comfortable leverage ratios positions us well for the future.
Speaker Change: Before I turn the call back to Tony I wanted to highlight for those on the call that we have included in the appendix of this presentation, a slide with certain selected fiscal year 2025 guidance to help with modeling.
Speaker Change: With that I will turn the call back to Tony.
Tony: Thanks, Tim now, let's turn to the fiscal year 2025 outlook.
Tony R. Thene: Now let's turn to fiscal year 2025. For context, a little over a year ago, at our investor day in May of 2023, we laid out a path to double our fiscal year 2019 operating income by fiscal year 2027. That four-year goal represented a 40% operating income CAGR from our expected fiscal year 2023 performance. Even with such impressive growth, we acknowledged it was a conservative effort.
Tony R. Thene: We further clarified that their earnings growth would be front-end loaded. Through fiscal year 2024, we have accelerated our earnings growth driven by multiple initiatives with a focus on improved productivity, product mix optimization, and pricing action. Recognizing our accelerating performance in our last quarter earnings presentation, less than a year after our investor day, we pulled our original fiscal year 2027 goal ahead by at least one year into fiscal year 2026. And now, after exceeding expectations with another record quarter, we are extending our goal by another full year. We are projecting $460 million to $500 million of operating income for fiscal year 2025.
Tony: For context, a little over a year ago at our Investor day in May of 2023, we laid out a path to double our fiscal year 2019 operating income by fiscal year 2027.
Tony: That four year goal represented a 40% operating income CAGR from our expected fiscal year 2023 performance.
Tony: Even with such impressive growth we acknowledged it was a conservative estimate we further clarified that the earnings growth would be front end loaded.
Tony: Through fiscal year 2024, we have accelerated our earnings growth driven by multiple initiatives with a focus on improved productivity and product mix optimization and pricing actions.
Tony: Igniting our accelerating performance in our last quarter earnings presentation less than a year. After our Investor day, we pulled our original fiscal year 2027 go ahead at least one year into fiscal year 2026, and now after exceeding expectations with another record quarter.
Tony: We are pulling our goal in a another full year we.
Tony: We are projecting $460 million to $500 million of operating income for fiscal year 2025.
Tony R. Thene: At the high end of the range, that's approximately a 41% increase over our record fiscal year 2024 performance. In addition, we are projecting approximately $250 to $300 million in adjusted free cash flow during fiscal year 2024, which represents approximately 85% of the conversion rate and marks another step up in our cash flow performance. Now shifting to the more near-term and our first quarter fiscal year 2025 outlook. As I communicated last quarter, we anticipate starting the year strong. For the first quarter of fiscal year 2025, we are projecting between $114 million and $120 million in operating income. This accounts for the impacts of preventive maintenance, offset by higher productivity, improving mix, and realized price.
Tony: At the high end of the range, that's approximately a 41% increase over our record fiscal year 2024 performance.
Tim Lane: In addition, we are projecting approximately 250 to 300 million in adjusted free cash flow during fiscal year 2025, which represents approximately 85% conversion rate and, of course, another step up in our cash flow performance.
Tony: In addition, we are projecting approximately $250 million to $300 million and adjusted free cash flow during fiscal year 2025.
Tony: Which represents approximately 85% conversion rate and marks another step up in our cash flow performance.
Tim Lane: Now shifting to the more near term and our first quarter fiscal year 2025 outlook. As I communicated last quarter, we anticipate starting the year strong. For the first quarter fiscal year 2025, we are projecting between 114 million and 120 million in operating income. This accounts for the impacts of preventive maintenance, offset by higher productivity, improving mix and realize pricing. This target is approximately 70% higher than last year's first fiscal quarter, which was then a record best first fiscal quarter. And it sets up well to achieve our accelerated full fiscal year 2025 target. For those of you that have been following our story, you see the accelerating performance over the last several quarters as we have consistently exceeded expectations.
Tony: Now shifting to the more near term in our first quarter fiscal year 2025 outlook.
Tony: As I communicated last quarter, we anticipate starting the year strong for.
Tony: For the first quarter of fiscal year 2025, we are projecting between $114 million and $120 million in operating income.
Tony: This accounts for the impact of preventive maintenance offset by higher productivity, improving mix and realized pricing. This.
Tony R. Thene: This target is approximately 70% higher than last year's first fiscal quarter, which was then a record-best first fiscal quarter, and it sets up well to achieve our accelerated full fiscal year 2025. For those of you who have been following our story, you've seen the accelerating performance over the last several quarters as we have consistently exceeded expectations. And now, in the span of just 14 months, that impressive 40% operating income CAGR four-year goal has become a 90% CAGR two-year goal, with approximately 60% in the bank in year one, fiscal year 2020. By now, I hope you appreciate that we don't communicate targets that we don't have line-of-sight on, and confidence in achieving them is key.
Tony: This target is approximately 70% higher than last year's first fiscal quarter, which was then a record best first fiscal quarter.
Tony: And it sets up well to achieve our accelerated full fiscal year 2025 target.
Tony: For those of you that have been following our story you've seen the accelerating performance over the last several quarters as we have consistently exceeded expectations and now in the span of just 14 months that impressive 40% operating income CAGR four year goal has become a 90% CAGR two year.
Tim Lane: And now, in the span of just 14 months, that impressive 40% operating income cager four year goal has become a 90% cager two year goal, with approximately 60% in the bank in year one fiscal year 2024. By now, I hope you appreciate that we don't communicate targets that we don't have line of sight to and confidence in achieving. With that said, the corporate technology team is not satisfied with just achieving targets. Our team is focused on exceeding expectations, as demonstrated in our results. With respect to the fiscal year 2025 target, just communicated, we believe there are opportunities to outperform our assumptions related to execution in areas like productivity, mix, and pricing.
Tony: So with approximately 60% in the bank in year, one fiscal year 2024.
Tony: By now I Hope you appreciate that we don't communicate targets that we don't have line of sight and confidence in achieving with that said the carpenter technology team is not satisfied with just achieving targets. Our team that's focused on exceeding expectations as demonstrated in our results.
Tony R. Thene: With that said, the Carpenter Technology team is not satisfied with just achieving targets. Our team is focused on exceeding expectations, as demonstrated in our recent, With respect to the fiscal year 2025 target just communicated, we believe there are opportunities to outperform our assumptions related to execution in areas like productivity, mix, and pricing. Further, what is now our fiscal year 2025 target will not be the peak of our earnings growth.
Tony: With respect to the fiscal year 2025 target just communicated we believe there are opportunities to outperform our assumptions related to execution in areas like productivity mix and pricing.
Tim Lane: Further, what is now our fiscal year 2025 target will not be the peak of our earnings growth. The same dynamics that are driving our current performance are expected to only get stronger into the future, as I detailed earlier on the market slide. We continue to believe this is only the beginning of our earnings growth journey.
Tony: Further what is now our fiscal year 2025 target will not be the peak of our earnings growth. The same dynamics that are driving our current performance are expected to only get stronger into the future as I detailed earlier on the market side. We continue to believe this is only the beginning of our earnings growth journey.
Tony R. Thene: The same dynamics that are driving our current performance are expected to only get stronger into the future, as I detailed earlier on the market slide. We continue to believe this is only the beginning of our earnings growth journey. With that in mind, let's turn to the next slide to review our approach to capital allocation. With strong recent earnings, an accelerated earnings outlook, and a solid balance sheet, we are well positioned to take a balanced approach to our capital allocation.
Tim Lane: With that in mind, let's turn to the next slide to review our approach to capital allocation. We're strong recent earnings and accelerated earnings outlook and a solid balance sheet, we are well positioned to take a balanced approach to our capital allocation. We clearly have a strong growth outlook with the asset base we have in place today, and it is incumbent upon us to invest to make sure our operations are running as consistently and efficiently as possible. We won't put any of our assets at unnecessary risk and will continue to identify debot-on-ecking opportunities that improve productivity.
Tony: With that in mind, let's turn to the next slide to review our approach to capital allocation.
Tony: With strong recent earnings and accelerated earnings outlook and a solid balance sheet, we are well positioned to take a balanced approach to our capital allocation.
Tony R. Thene: We clearly have a strong growth outlook with the asset base we have in place today, and it is incumbent upon us to invest to make sure our operations are running as consistently and efficiently as possible. We won't put any of our assets at unnecessary risk and will continue to identify de-bottlenecking opportunities that improve productivity. To that end, we continue to expect to spend about $125 million each year on capital expenditures, which is roughly in line with annual depreciation.
Tony: We clearly have a strong growth outlook with the asset base, we have in place today and it is incumbent upon us to invest to make sure our operations are running as consistently and efficiently as possible.
Tony: We won't put any of our assets at unnecessary risk and we will continue to identify debottlenecking opportunities that improve productivity did.
Tim Lane: So that in, we continue to expect to spend about 125 million each year in capital expenditures, which is roughly in line with annual depreciation. The Honda 125 million, we are evaluating incremental growth projects that will target high growth in use markets, like aerospace and defense and medical, by either enhancing current capabilities or enabling throughput improvements. Needless to say, given our already strong growth projections, any projects we undertake must be high value with attractive returns. In addition, our intention is to return capital to our shareholders. We have long supported a dividend, including through the COVID years, and expect to maintain it at the current level, which is approximately 40 million annually going forward.
Tony: Is that in we continue to expect to spend about 125 million each year and capital expenditures, which is roughly in line with annual depreciation.
Tony R. Thene: Beyond $125 million, we are evaluating incremental growth projects that will target high-growth in-use markets like aerospace and defense and medical by either enhancing current capabilities or enabling throughput improvement. Needless to say, given our already strong growth projections, any projects we undertake must be high value with attractive returns. In addition, our intention is to return capital to our shareholders. We have long supported a dividend, including through the COVID years, and expect to maintain it at the current level, which is approximately $40 million annually going forward. Further, we announce today that Carpenter Technology's Board of Directors has authorized a share repurchase program of up to $400 million. The primary use of this program will be to offset dilution.
Tony: Beyond the $125 million, we are evaluating incremental growth projects that will target high growth end use markets like aerospace and defense and medical by either enhancing current capabilities or enabling throughput improvements.
Tony: Needless to say given our already strong growth projections any projects, we undertake must be high value with attractive returns. In addition, our intention is to return capital to our shareholders.
Tony: We have long supported a dividend, including through the Covid years and expect to maintain it at the current level, which is approximately $40 million annually going forward.
Tim Lane: Further, we announced today that Carpenter Technologies' Board of Directors has authorized a share repurchase program up to 400 million. The primary use of this program will be to offset dilution. We may also deploy it to capitalize on opportunities the market may present. Earlier in my comments, I say that we are projecting approximately 250 to 350 million in adjusted free cash flow during fiscal year 2025. It is important to note that does not include any capital expenditures above the stated 125 million, share repurchases, or dividend payments. As we have demonstrated, we aim to be good stewards of our capital.
Tony: Further we announced today that Carpenter Technology's board of directors has authorized a share repurchase program up to $400 million.
Tony: The primary use of this program will be to offset dilution.
Tony R. Thene: We may also deploy it to capitalize on opportunities the market may present. Earlier in my comments, I stated that we are projecting approximately $250 to $300 million in adjusted free cash flow during fiscal year 2025. It is important to note that this does not include any capital expenditures above the stated $125 million, share repurchases, or dividend payments.
Tony: We may also deploy it to capitalize on opportunities the market may present.
Tony: Earlier in my comments I stated that we are projecting approximately $250 million to $300 million and adjusted free cash flow during fiscal year 2025.
Tony: It is important to note that does not include any capital expenditures above the stated 125 million share repurchases or dividend payments as.
Tony R. Thene: As we have demonstrated, we aim to be good stewards of our capital. As a result, we believe we will continue to drive strong shareholder returns over the long term. Now, let's turn to the next slide for my closing comments. I will say it again.
Tony: As we have demonstrated we aim to be good stewards of our capital as a result, we believe we will continue to drive strong shareholder returns over the long term.
Tim Lane: As a result, we believe we will continue to drive strong shareholder returns over the long term.
Timothy Lain: Now let's turn to the next slide for my closing comments. I will say again, we completed a historic fourth quarter of Fiscal Year 2024. We delivered 125.2 million of adjusted operating income, exceeding expectations and setting a new quarterly result record. We generated 142.4 million of adjusted free cash flow. We continue to build operating momentum with increased productivity, improved mix, and higher realized prices. We expanded SAO adjusted operating margins to 25.2%, up from 21.4% the previous quarter. And we completed the most profitable year on record with 354.1 million in adjusted operating income. We are operating in a strong demand environment across the English markets, with the long-term outlook even stronger than today.
Tony: Now, let's turn to the next slide for my closing comments.
Tony: I will say it again, we completed a historic fourth quarter of fiscal year 2024.
Tony R. Thene: We completed a historic fourth quarter of fiscal year 2025. We delivered $125.2 million of adjusted operating income, exceeding expectations and setting a new quarterly result record. We generated $142.4 million of adjusted free cash.
Tony: We delivered $125 2 million of adjusted operating income exceeding expectations and setting a new quarterly result record.
Tony: We generated 142 4 million of adjusted free cash flow, we continue to build operating momentum with increased productivity improved mix and higher realized prices.
Tony R. Thene: We continue to build operating momentum with increased productivity, improved mix, and higher realized price. We expanded SAO Adjusted Operating Margins to 25.2%, up from 21.4% the previous quarter, and we completed the most profitable year on record with $354.1 million in adjusted operating income. We are operating in a strong demand environment across the in-use markets, with the long-term outlook even stronger than today. And given our unique assets and capabilities, we are well-positioned to realize this high-value demand.
Tony: We expanded.
Tony: Adjusted operating margins to 25, 2% up from 21, 4% the previous quarter.
Tony: And we completed the most profitable year on record with $354 1 million and adjusted operating income.
Tony: We are operating in a strong demand environment across the end use markets with the long term outlook even stronger than today.
Tim Lane: And given our unique assets and capabilities, we are well positioned to realize the high value demand. With that in mind, we just pulled forward our earnings outlook again, pulling in our fiscal year 2027 target two years to fiscal year 2025. For fiscal year 2025, we are projecting 460 to 500 million in operating income and 250 to 300 million in adjusted free cash flow. And we expect to start the fiscal year strong with 114 to 120 million in operating income in the first quarter of fiscal year 2025. In addition, we announced the shared repurchase program up to 400 million, further supporting our shareholder returns.
Tony: And given our unique assets and capabilities, we are well positioned to realize the high value demand.
Tony R. Thene: With that in mind, we just pulled forward our earnings outlook again, pushing our fiscal year 2027 target two years to fiscal year 2024. For fiscal year 2025, we are projecting $460 to $500 million in operating income and $250 to $300 million in adjusted free cash, and we expect to start the fiscal year strong with $114 to $120 million in operating income in the first quarter of fiscal year 2025. In addition, we announced a share repurchase program of up to $400 million, further supporting our shareholder returns.
Tony: With that in mind, we just pulled forward our earnings outlook again pulling in our fiscal year 2027 target two years to fiscal year 2025 for.
Tony: For fiscal year 2025, we are projecting $460 million to $500 million in operating income and $250 million to $300 million and adjusted free cash flow.
Tony: And we expect to start the fiscal year strong with $114 million to $120 million and operating income in the first quarter of fiscal year 2025.
Tony: In addition, we announced a share repurchase program up to $400 million further supporting our shareholder returns.
Tony R. Thene: Finally, we believe we are just getting started on our earnings growth journey. We remain focused on supporting our customer needs, operational execution, and living our values as we drive to exceptional near-term and long-term performance. Thank you for your attention. I will now turn the call back to the audience. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone.
Tim Lane: Finally, we believe we are just getting started in our earnings growth journey. We remain focused on supporting our customer needs, operational execution, and living our values as we drive to exceptional near-term and long-term before. Thank you for your attention.
Tony: Finally, we believe we are just getting started and our earnings growth journey, we remain focused on supporting our customer needs operational execution and living our values as we drive to exceptional near term and long term performance.
Speaker Change: Thank you for your attention I will now turn the call back to the operator.
Operator: I will now turn the call back to the operator.
Operator: We will now begin the question and answer session. To 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 hands if you were 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.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Operator: If you are using a speakerphone, 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 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Gautam Khanna with T.D.
Speaker Change: If youre using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Operator: At this time, we will pause momentarily to assemble our roster.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Gautam J. Khanna: The first question comes from Gotham Kanna with TD Cohen. Please go ahead.
Gautam J. Khanna: Cohen. Please go ahead. Hey Tony, Tim, and John. Great results. I wanted to ask a couple questions. First, with respect to your prepared remarks, are you actually seeing a lot of perturbation in the order book? Are you seeing any increase in deferral requests? Just kind of giving all the concern about lower 787 final assembly rates and 737 final assembly rates. I'm just wondering how that has been conveyed to you guys in terms of your engine lead times and maybe your airframe product. Yeah, good morning, Gautam. I hope you're doing well.
Speaker Change: The first question comes from Gautam Khanna with TD Cowen. Please go ahead.
Gotham Khanna: Hey, Tony, Tim, and John. Great results. I wanted to ask a couple questions.
Speaker Change: Kohls, Tony Kim and John.
Speaker Change: Okay.
Gautam J. Khanna: Great results. So I wanted to ask a couple of questions first in respect with respect to your prepared remarks.
Gautam J. Khanna: First, with respect to your prepared remarks, are you actually seeing a lot of perturbation in the order book? Are you seeing any increase in deferral requests? Just kind of get in all the concern about lower 787 final assembly rates in 737. I'm just wondering how that has been conveyed to you guys in terms of your engine lead times and maybe you're ever in product lead times.
Gautam J. Khanna: Are you actually seeing a lot of perturbation in the order book.
Speaker Change: Are you seeing any increase in deferral requests.
Speaker Change: Just kind of given all the.
Speaker Change: Concerned about lower seven seven final Assembly rates 10, 737 final assembly rates I'm, just wondering how that.
Speaker Change: Has been conveyed to you guys in terms of.
Speaker Change: Your engine lead times.
Speaker Change: And then to your airframe product lead times.
Tony Thene: Good morning, Gotham. Hope you're doing well. As I said in the prepared remarks, overall we had a very strong order intake in the fourth quarter. We were actually up sequentially and year over year. So that would be total carpenter technology. But I can also say that holds true for our aerospace and use market as well. Also keep in mind that lead times have not come in. I think last quarter I said 65 plus weeks. They're there still, if not extended a little bit. Now, when you ask about specific customers, if there is a customer that is kind of very closely to the 77th as you referenced, they could be in a different situation and they might be asking for some adjustments.
Speaker Change: Yes, good morning, Gautam hope, you're doing well as I said in the prepared remarks overall, we had a very strong order intake in the fourth quarter, we were actually up sequentially and year over year. So that that would be total carpenter technology, but I can also say that holds true for our aerospace end use market.
Tony R. Thene: As I said in the prepared remarks, overall, we had a very strong order intake in the fourth quarter. We were actually up sequentially and year over year, so that would be total Carpenter technology, but I can also say that holds true for our aerospace in-use market as well. Also, keep in mind that lead times have not come in yet. I think last quarter I said 65 plus weeks. They're still there, if not extended a little bit.
Speaker Change: S as well.
Speaker Change: Also keep in mind that lead times have not come in I think last quarter, I said 65, plus weeks there there still if not extended a little bit now when you ask about specific customers. If there is a customer that is tied very closely to the 77.
Tony R. Thene: Now, when you ask about specific customers, if there is a customer that is tied very closely to the 77th, as you referenced, they could be in a different situation, and they might be asking for some adjustments. But the important thing that I said in my remarks is that at this time, we're able to navigate any of those types of adjustments because we have an order book that's 3x what it was prior to COVID.
Speaker Change: As you referenced there.
Speaker Change: They could be in a different situation than they might be asking for some adjustments, but the important thing that I said in my remarks is to add at this time I mean, we're able to navigate any of those type of adjustments because we have an order book Thats three X what it was prior to Covid and our estimation is that.
Tony Thene: But the important thing that I said in my remarks is that at this time, I mean we're able to navigate any of those type of adjustments because, you know, we have an order book that's 3x what it was prior to COVID, and our estimation is that, you know, 3 cores of that are for customers that want product early. So we have an opportunity to pull that to pull that in. I can, you know, take this opportunity also to kind of give you maybe a little bit more color as far as the customers we work with.
Tony R. Thene: And our estimation is that 3 quarters of that are for customers that want product early. So we have an opportunity to pull that in. I can take this opportunity also to kind of give you maybe a little bit more color as far as the customers we work with.
Speaker Change: Three quarters of that are for customers that want product early so we have an opportunity to pool to pull that to pull that in and I can take this opportunity also to kind of give you maybe a little bit more.
Speaker Change: Color as far as the customers.
Speaker Change: We work with and we don't have anybody coming to us and saying that they want to they want to cancel or anybody that wants to give up our production slots in <unk>.
Tony R. Thene: And we don't have anybody coming to us and saying that they want to cancel, or anybody that wants to give up production slots. In fact, we have OEMs saying, hey, they're going to use this opportunity to take freed up production slots. We have people calling us saying, if anybody wants to, again, not cancel, but push out because they have a very strong connection to 737, we're interested. Put us in there.
Tony Thene: And we don't have anybody coming to us and saying that they want to cancel, or anybody that wants to give up production slots. In fact, we have always in saying, hey, they're going to use this opportunity to take free production. So we have people calling us in. If anybody wants to, again, not cancel but push out because they have a very dumb connection to the 737, we're interested. Put us in there. So I think that's the takeaway. There's you've been around long enough to know Gotham. There's going to always be some type of noise in the aerospace supply chain.
Speaker Change: Fact, we have OEM, saying, hey, they're going to use this opportunity to take that production. So we have people, calling us saying if any.
Speaker Change: Two.
Speaker Change: Again, not canceled but push out because they have a very strong connection with 737, where interest it put us in there. So I think thats the takeaway there as you've been around long enough to know Gotham, there's going to always be some type of noise in the aerospace supply chain, there's multiple different types of thousands of different materials that go into <unk>.
Tony R. Thene: So I think that's the takeaway. You've been around long enough to know, Gautam, there's going to always be some type of noise in the aerospace supply chain. There are multiple different types, thousands of different materials that go into making an airplane.
Tony Thene: There's multiple different types, thousands of different materials are going to make an airplane. And, but for our specific pieces that, because of our breath and because of the visibility we have, we feel very confident we can manage any of those. Bill rate changes here in the near term. The good news or the powerful piece that after that is that everybody inside of the industry that I talked to, including us, believe that those build rates are going to increase significantly over the coming months. So we've taken all of that into consideration.
Speaker Change: On an airplane.
Tony R. Thene: And for our specific piece of that, because of our breadth and because of the visibility we have, we feel very confident we can manage any of those bill rate changes here in the near term. The good news or the powerful piece after that is that everybody inside of the industry that I talk to, including us, believe that those bill rates are going to increase significantly over the coming months. So we've taken all of that into consideration.
Speaker Change: But for our specific <unk>.
Speaker Change: <unk> of that.
Speaker Change: Because of our breadth and because of the visibility we have we feel very confident we can manage any of those.
Speaker Change: Our bill rate changes here in the near term the good news or the powerful piece that after that is that everybody inside of the industry that I talked to including US believe that those build rates are going to increase significantly over the coming months. So we've taken all of that into consideration.
Tony R. Thene: All of that into consideration and still increased our earnings outlook significantly, pulling it forward a year. So I think that puts Carpenter Technology in a unique spot that says, we can move through all this, so much so that we're willing to increase our earnings. I hope that helps out with the extra color.
Speaker Change: All of that into consideration and still increased our earnings outlook significantly pulling it forward a year. So I think that puts carpenter technology in a unique spot that says we can move through all of this.
Speaker Change: So much so that we're willing to increase our earnings outlook.
Speaker Change: I hope that hope that helps out with that extra color.
Gautam J. Khanna: Yeah, that's a great answer. As a follow-up, I'm curious. If you are, you guys are obviously driving a lot of throughput. Maybe you could step back and give us some broader context on where you are with some of the productivity. (Inaudible) Any contest would be welcome.
Speaker Change: Yes, that's a great answer.
Speaker Change: As a follow up I'm curious.
Speaker Change: If you guys are obviously driving a lot of throughput gains.
Speaker Change: Maybe you could just step back and give us some broader context on where you are with some of the productivity.
Speaker Change: Enhancements, because obviously, that's going to be key to driving the higher throughput throughout fiscal 'twenty five maybe if you can give us. Some examples on the furnaces are where you've had bottlenecks that you are alleviated.
Speaker Change: Any context would be helpful.
Tony R. Thene: Well, you know, Gautam, you and I have been talking about this for several years now, right? And it's a great question. I think zeroing in on what the SAO margins are is a primary leading indicator. And we're always, before COVID, very excited about getting to 20%. We just hit 25%, Gautam, and I mean, that's significant. And our sites are on 30%. That's doable. If you take a step back to answer your question more specifically, what's driving that? Obviously, it has to be across the entire process because every work center is linked.
Gautam J. Khanna: Well gautam, you've not been <unk>.
Gautam J. Khanna: That is for.
Gautam J. Khanna: Several years now right and it's a great. It's a great question I think you always.
Gautam J. Khanna: Zero in on what the margins are it's a primary leading indicator.
Speaker Change: And you know.
Speaker Change: Always before Covid very excited about getting to 20%, we just hit 25% Gotham and I mean thats significant in our sights are on 30% that's doable and if you take a step back to answer your question more shift would be what's driving that obviously it has to be across the entire process because.
Speaker Change: Every worked salaries linked but I will say the <unk>.
Tony R. Thene: But I will say, the work that we've done on the front end of the process, on the militant side, That has been the biggest. Uh, you know, uplifting of our total output, right? I mean, the workers that we have out on the shop floor in Reading and Latrobe, what they've been able to do with the output from primary milting is fantastic. You know, as you talk to them, they're not done. They have an immense amount of pride in doing that safely and at high quality.
Speaker Change: Work that we've done on the front end of the process on the mill side.
Speaker Change: That has been the biggest.
Speaker Change: You know.
Speaker Change: Uplifting of our total output right I mean I'm.
Speaker Change: The workers that we have out on the shop floor in reading and Latrobe, what they've been able to do with the output from primary mill team is is fantastic and.
Speaker Change: You know as you talk to them, they're not done they have an immense amount of pride into doing that.
Speaker Change: <unk> and high quality.
Speaker Change: They are just big drivers behind where this productivity has been and importantly it.
Tony R. Thene: And, you know, they're just big drivers behind where this productivity has been. And importantly, you know, it's not the top for us. I mean, the next level is 30%. And, you know, I believe that's doable. Thanks, Tony. I'll get back in the queue.
Speaker Change: It's not the top for US I mean, the next the next level is 30%.
Speaker Change: I believe that's doable.
Speaker Change: Thanks, sorry, I'll get back in the queue I appreciate it.
Thank you Sir.
Tony R. Thene: I appreciate it. Thank you. The next question comes from Josh Sullivan with Benchmark. Please go ahead. Hey, good morning.
Speaker Change: Next question comes from Josh Sullivan with benchmark. Please go ahead.
Joshua Ward Sullivan: Congratulations on a great quarter here. Thanks. Good morning, Josh.
Joshua Ward Sullivan: Hey, good morning, congratulations on a great quarter here.
Joshua Ward Sullivan: Good morning, Josh.
Tony R. Thene: I'm just looking at inventory. You know, what are the metrics you're comfortable with at these operating levels? Or, you know, what are the channels that we should kind of think about going forward as you maybe are a little bit more experienced? Well, it's a big driver, obviously, of free cash flow. And the way we look at it now, with significant increases in volume over FY25, our goal is to keep inventory relatively flat, which means you'll have a significant improvement in days on hand or inventory turnover, whatever metric you use. But you know, you've been around long enough that that's going to fluctuate from quarter to quarter.
Joshua Ward Sullivan: Just looking at inventory.
Joshua Ward Sullivan: What are the metrics youre comfortable with at these operating models or what are the channels that we should kind of think about going forward as you maybe went a little bit more level loaded.
Speaker Change: Well, it's a big driver obviously of free cash flow and the way we look at it now with significant increases in volume over FY 'twenty five.
Speaker Change: Our our goal is to keep inventory relatively flat, which means you'll have a significant improvement in days on hand are.
Inventory turnover whatever metric you use now.
Tony Thene: You know, you've been around long enough that that's going to fluctuate from quarter to quarter, so it's not going to be in a choice going to stay flat every quarter. But over that, the next FY25, that's our target, that's our goal, and we're going to what's best to make sure we get as much product as we can to our customers. But at a high level or overall goal for FY25 is to stay in that flat area.
Joshua Ward Sullivan: You know you've been around long enough that that's going to fluctuate from quarter to quarter. So it's not going to be inventory is going to stay flat every quarter, but over that the next FY 'twenty, that's our target that's our goal.
Tony R. Thene: So it's not going to be, inventory is going to stay flat every quarter. But over that, the next FY25, that's our target, that's our goal, and we're going to do what's best to make sure we get as much product as we can to our customers.
Joshua Ward Sullivan: And we're going to do what's best to make sure we get as much product as we can to our customers but.
Tony R. Thene: At a high level, our overall goal for FY25 is to stay in that flat. [inaudible] And then just on the comment on prioritizing defense orders, you know, how much runway is there? Is this a short-term, you know, immediate need on the defense side, or is there a longer-term dynamic there? I think there's both.
Joshua Ward Sullivan: At a high level, our overall goal for FY 'twenty five is to stay in that flat.
Joshua Ward Sullivan: Area versus FY 'twenty four.
Tony Thene: And then just on the comment on prioritizing the sense orders, how much runway is there? You know, is this a short-term, you know, immediate need on the defense side, or is there a longer-term dynamic there that will continue? I think there's both; certainly, I think, longer-term with the world environment that we're in, this is going to continue to stay strong. Short-term, yes, with current world event, as you see, our Department of Defense reevaluate where the act we wanted from our readiness standpoint. Our discussions with our Department of Defense has always been strong. I will say that it has amplified over the last several quarters over the last year that we're working with them very closely on not only next generation, our always products, but near-term, what can we do to help support, you know, their current goals.
Joshua Ward Sullivan: Uh huh.
Speaker Change: And then just on the comment on prioritizing defense orders.
Much runway is there is this a short term immediate need on the defense side or is there a longer term dynamic there that will continue.
Speaker Change: There's both.
Tony R. Thene: Certainly, I think longer term with the world environment that we're in, this is going to continue to stay strong. Short term, yes, with current world events, as you see, our Department of Defense is reevaluating where they're at. We want it from a readiness standpoint. Our discussions with our Department of Defense have always been strong.
Speaker Change: Certainly I think longer term with the world environment that we're in this is going to continue to to stay strong.
Speaker Change: Short term, yes with current world events.
Speaker Change: As you see our department of Defense Reevaluate, how you wait.
Speaker Change: We reported from a readiness standpoint.
Speaker Change: Our discussions with with our Department of Defense Defense has always been strong I will say that it has amplified.
Tony R. Thene: I will say that it has amplified over the last several quarters, over the last year that we're working with them very closely on not only next generation alloys or products but, in the near term, what can we do to help support their current goals. We're proud to do that. We're happy to do that, and we will pull them into the schedule as much as we can with any type of request. Thank you for your time.
Speaker Change: Over the last several quarters over the last year.
Speaker Change: That we're working with them very closely on.
Speaker Change: Not not only next generation.
Speaker Change: Alloys, our products, but near term what can we do.
Speaker Change: To help support.
Speaker Change: There their current goals and we're proud to do that we're happy to do that and we will we will pull them into the schedule as much as we can with any type of the questions. They have.
Tony Thene: And, you know, we're proud to do that; we're happy to do that, and we will pull them into the schedule as much as we can with any type of questions they have.
Gotham Khanna: All right, thank you for the time. Thank you, sir.
Speaker Change: Great. Thank you for the time.
Speaker Change: Thank you Sir.
Scott Deuschle: Next question comes from Scott to Shell with Deutsche Bank. Please go ahead. Hey, good morning. Great results.
Joshua Ward Sullivan: Thank you. The next question comes from Scott Deuschle with Deutsche Bank. Please go ahead. Hey, good morning, great results.
Speaker Change: Next question comes from Scott to Shell with Deutsche Bank. Please go ahead.
Speaker Change: Hey, good morning, Great results.
Scott Deuschle: Good morning, Scott. Nice to have you. Thank you, Tony. Should we expect even to grow sequentially throughout 2025, like it typically does? It's a good question, and at a high level, the answer is yes, but there is a dynamic that we're in right now, Scott, and that is, we're effectively so out. So everything we produce, we can ship. So, this, this ideal of seasonality has been more offset by this elevated demand. So the only real difference between quarters is the number of days you have to operate, and that's why it's really important to understand, you know, plan maintenance and what we're doing as we just guided our first quarter to be slightly down from fourth quarter.
Scott Deuschle: Good morning, Scott. Nice to have you on board. Thank you. Tony, should we expect EBIT to grow sequentially throughout 2025 like it typically does? It's a good question, and at a high level, the answer is yes.
Speaker Change: Good morning, Scott nice to have anymore.
Scott: Thank you Tony should we expect EBIT to grow sequentially throughout 2025 like it typically does.
Speaker Change: It's a good question.
Speaker Change: And.
Speaker Change: At a high level. The answer is yes, but there is a dynamic that we're in right now Scott and that is we're effectively sold out so everything we produce we can ship. So this this ideal of seasonality.
Tony R. Thene: But there is a dynamic that we're in right now, Scott, and that is that we're effectively sold out. So everything we produce, we can ship. So this ideal of seasonality has been more offset by this elevated demand. So the only real difference between quarters is the number of days you have to operate. And that's why it's really important to understand planned maintenance and what we're doing, as we've just guided. Our first quarter is expected to be slightly down from the fourth quarter. Why is that?
Scott: Has been more offset then by this elevated demand so the only real difference between quarters is the number of days you have to operate and that's why it's really important to understand.
Planned maintenance and what we're doing as we've just guided.
Tony R. Thene: It's almost 100% due to the fact that we took some primary melt preventive or planned maintenance outages in the fourth quarter. And it takes about a quarter for that to flow through. That's why you see a little bit down in the first quarter. It has nothing to do with the market. No red flags.
Scott: Our first quarter to be slightly down from fourth quarter why is that.
Tony Thene: Why is that? It's almost 100% due to the fact that we took primary milk, preventive or plan maintenance outages in the fourth quarter, and it takes about a quarter for that to flow through. That's why you see a little bit down in the first quarter. Has nothing to do with the market, no red flags. The market isn't getting weaker; it's getting stronger, but we must protect our assets, and we must take that plan maintenance. So could there be a quarter, Scott, in the future, that that E-bado or earnings, whatever your metric is, it's down slightly.
Speaker Change: It's almost 100% due to the fact that we took some primary milt preventive our planned maintenance outages in the fourth quarter and it takes about a quarter for that to flow through that's why you see a little bit down in the first quarter has nothing to do with the market no red flags the market isn't getting.
Tony R. Thene: The market isn't getting weaker. It's getting stronger. But we must protect our assets, and we must take that planned maintenance. So could there be a quarter, Scott, in the future that EBITDA or earnings or whatever your metric is down slightly? It could, but that will be 100% related to how we take our planned maintenance. I hope that answered your question. Yeah, no, that's great.
Scott: Weaker it's getting stronger, but we must protect our assets and we must take that planned maintenance. So could there be a quarter Scott in the future that that EBITDA or earnings or whatever your metric is is down slightly it could.
Scott Deuschle: It could, but that will be 100% related to how we take our plan maintenance. I hope that answers your question. Yeah, I know that's great.
Speaker Change: But that will be 100% related to how we take our planned maintenance.
Scott: Hope that answered your question does not yeah, no that's great.
Scott Deuschle: And Tony, can you characterize the current pricing environment? Has that deteriorated at all recently? Or is the pricing power you've been exercising the last two years still holding really well? Yeah, I don't want to talk too in depth about specifics on pricing, but I think, as you can see from our results, that it continues to increase quarter over quarter. And I think the big driver there, Scott, is that the market, from what we see it, even with these small little blips here in front of us, which, in the whole scheme of things, aren't going to be relevant long term, right? I mean, we've shown you that we're able to offset that. That doesn't impact us right now. Now, it can't last three or four years, but nobody believes that that's going to be the case.
Tony R. Thene: Edentoni, can you characterize the current pricing environment? Has that deteriorated at all recently, or is the pricing power you've been exercising the last two years still holding in really well? Yeah. I don't want to talk, you know, too in depth about specifics on pricing, but I think as you can see from our results that that continues to increase core over quarter. And I think the big driver there, Scott, is the market from what we see it. Even with these small little blips here in front of us, which in the whole scheme of things aren't going to be relevant long term, right?
Scott: And then Tony can you characterize the current pricing environment has that deteriorated at all recently or is the pricing power you have been exercising the last two years still holding in really well.
Speaker Change: Yes.
Tony: I don't want to talk.
Tony: Too in depth about specifics on pricing, but I think as you can see from our results that.
Speaker Change: That continues to increase quarter over quarter, and I think the big driver there Scott is that the market from what we see it even with the small little blips.
Speaker Change: Here in front of us, which in the whole scheme of things arent going to be relevant long term right. I mean, we've shown you that we're able to offset that that doesn't.
Tony R. Thene: I mean, we've shown you that we're able to offset that. That doesn't impact us right now. Now I can't last three or four years, but nobody believes that that's going to be the case. In fact, you know, this would just put even a steeper, you know, trend line up over the next year, I believe. So with that type of demand environment, you should, you know, assume that, you know, pricing would remain strong. Just because I'm got supply demand, just because it's supply demand.
It will impact US right now and I can't last three or four years, but nobody believes that thats going to be the case. In fact, this will just put even a steeper.
Trend line up over the next year I believe so with that type of demand environment, you should assume that pricing would remain would remain strong just because you've got supply demand just because of supply demand dynamic.
Tony R. Thene: In fact, this will just put even a steeper trend line up over the next year, I believe. So, with that type of demand environment, you should assume that pricing would remain strong just because of supply and demand dynamics. And if I could, Scott, it brings me to another point.
Tony Thene: And if I could, Scott, I'd like to; it brings me to another point. I hope I don't want to take your time, but it brings to this other point around this whole supply and demand. And when we talked about capital allocation and the fact that we're going to be balanced, we're looking, you know, we've signaled before that we are intent to return capital to shareholders. Obviously, we just announced the buyback program; that's evident to that. And we talked about these potential incremental growth projects. I wanted to be clear; it says there is, or there are no projects that we are currently contemplating that would come anywhere close to pushing supply above demand in the products that we supply to aerospace.
And if I could Scott I'd like to it brings me to another point I hope.
Tony R. Thene: I hope I don't want to take your time, but it brings up this other point around this whole supply and demand. And when we talked about our capital allocation and the fact that we're going to be balanced, we've signaled before that we are intent to return capital to shareholders. Obviously, we just announced the buyback program, so that's evidence of that. And we talked about these potential incremental growth projects. I want to be clear, it says there is...
Don't want to take your time, but it brings to this other point around this whole supply and demand.
Scott: And when we talked about our.
Capital allocation and the fact that we're going to be balanced where we've signaled before that we are intent to return capital to shareholders. Obviously, we just announced the buyback program that's evident to that and we talked about these potential incremental growth projects I wanted to be clear.
Here It says there is.
Tony R. Thene: There are no projects that we are currently contemplating that would come anywhere close to pushing supply above demand in the products that we supply today. So those incremental growth projects that we look at are where can we find that next notch of capability, that next notch of incremental capacity that can accelerate an already very impressive earnings growth over the next several years. Those are the things we're talking about. When you start talking about large projects that would try to close that gap, they're just not doable. So I think it's important to say that what we're looking at would not solve the equation.
Are there are no projects that we're currently contemplating that would come anywhere close to pushing supply.
<unk> demand in the products that we supply to aerospace so.
Tony Thene: So those are incremental growth projects that we look at is where can we find that next, you know, not just capability, that next, not just incremental capacity that can accelerate an already, you know, very impressive earnings growth over the next several years. Those are the things talking about. When you start talking about large projects that would try to close that gap, they're just not, they're just not doable. So I think that's important to say that we're looking at would not, would not, would not solve the equation. The gap is, is that significant, and we don't have anything on our plates that would do that.
Scott: Those incremental growth projects that we look at is where can we find that next.
Scott: Notch of capability that next notch of incremental capacity that can accelerate an already.
Very impressive earnings over the next several years those are the things talking about when you start talking about large projects that would try to close that gap there just not they're just not doable. So.
I think that's important to say that.
We're looking at would not would not.
Would not solve the equation.
Scott Deuschle: The gap is that significant, and we don't have anything on our plate that would do it. So thanks for the time, and let me jump in there and say that. Yeah, thank you. And one last question for now, you know, Tony, it sounds like there's a pretty big issue with yields at the forgings and castings houses, and I apologize for the inerrant question here, but when those companies experience issues with yields...
The gap is is that significant and we don't have anything on our plates.
With that we would do that.
Scott Deuschle: So if I'll cover time, let me get in there and say that. Yeah, thank you.
So without kind of a time for let me jump in there and say that yeah. Thank you one last question for now.
Scott Deuschle: One last question for now. You know, Tony, it sounds like there's a pretty big issue with the yields at the forgings and casting sources. And I apologize for the ignorant question here, but when those companies experience issues with yields, this is that generally drive more demand for CRS products or do those firms typically have their own reverb loop. That allows them to just reprocess what falls out as a result of those defects. Well, I want to be careful with this, Scott, because I'm not, when you say the forging houses, I'm not 100% you know, I don't want to assume who you're speaking with, right.
It sounds like there's a pretty big issue with yields at the forgings and castings houses and I apologize for the question here, but now windows companies experience issues with yields does that generally drive more demand for crs products or to those firms typically have their own revert loop. The allows and just reprocess what falls out as a result of those defects.
Thanks.
Scott Deuschle: Does that generally drive more demand for CRS products, or do those firms typically have their own revert loop that allows them to just reprocess what falls out as a result of those defects? Well, I want to be careful with this, Scott, because I'm not 100% sure when you say the forging houses. I don't want to assume who you are who you're speaking with.
I won't be careful with this Scott because I'm not when you say the forging houses I'm not 100% I don't want to assume who you are who you're speaking with right. So I don't want to answer as somebody who's not having enough knowledge I mean, obviously I'll answer it this way.
Tony R. Thene: So I don't want to answer something with not having enough knowledge. I mean, obviously I'll, I'll answer it. This way. We work very closely with those large forgers, if it's who I think you're talking about. Obviously, and again, it's much like the build rates at the final assembler level. There's always going to be some little noise here and there. The market is so strong right now, and more importantly, Carpenter Technology, with the ability we have to move some things around. It more than all sets that. I mean, another good example, you know, we talked about aerospace a lot, but you've heard all in the news around, you know, power generation, land-based turbines, you know, and the need for more power and resources of artificial intelligence, and you know, that's a different alloy for us, but it runs across similar assets.
Speaker Change: We worked very closely with those large forgers, if the two I think youre talking about.
Obviously and again, it's much like the build rates.
Speaker Change: At the at the final a similar level, there's always going to be some level of noise here and there. The market is so strong right now and more importantly, carpenter technology with the ability we have to move some things around it more than.
Offsets that I mean, another. Good example, we've talked about aerospace a lot, but you've heard all the news around.
Power generation land based turbines and the need for more.
And there is always of artificial intelligence and <unk>.
It's a different alloy for us, but it runs across similar assets. So again, that's another alloy that wants to jump into the into the production flow and we're able to get margins for those products.
Scott Deuschle: So again, that's another alloy that wants to jump into the production flow, and we're able to get margins for those products, you know, but with aerospace margin. So it's just another tool that we have to offset any of that type of new term noise. I'm confident that those people you talk to, you know, they're very, very well-run and any short term noise will be behind us here, so you know, I'm sure. Thank you. Thank you, sir.
Aerospace margins. So it's just another.
Tool that we have to offset any of that.
Type of near term noise I'm confident that those people you talk to.
They are very very well run and any any short term noise will be will be behind us here soon I'm sure.
Thank you.
Thank you Sir.
Okay.
Operator: Again, if you have a question, please press star, then one.
Tony R. Thene: Right. So I don't want to answer something without having enough knowledge. I mean, obviously, I'll answer it.
Again, if you have a question. Please press Star then one.
Tony R. Thene: We work very closely with those large forgers, if it's who I think you're talking about, obviously. And again, it's much like the build rates at the final assembler level. There's always going to be some little noise here and there.
Andre Madrid: The next question will come from Andre Madrid with BTIG. Please go ahead.
The next question will come from Andre Madrid with BTG. Please go ahead.
Tony R. Thene: The market is so strong right now, and more importantly, Carpenter Technology, with the ability we have to move some things around, it more than offsets that. I mean, another good example: we've talked about aerospace a lot. But you've heard all in the news about power generation or land-based turbines, and the need for more power because of artificial intelligence. And that's a different alloy for us, but it runs across similar assets.
Andre Madrid: Hi, all. Thanks for taking my question. So, I mean, looking ahead, so obviously FY27 guy got pulled in to 25. So, that said, I mean, how should we be looking at 27 beyond now? I mean, do we expect the same kind of pace of expansion, a plateauing of sorts? How should we think about, you know, looking at the performance here on out?
Hi, all thanks for taking my question. So I mean looking at so obviously FY 'twenty seven Guy got pulled in to 'twenty five.
That said I mean, how should we be looking at 27 and beyond now I mean, do we expect the same kind of pace.
Of expansion, a plateauing of sorts out I mean, how should we think about.
Looking at the performance here on out.
Tony R. Thene: So again, that's another alloy that wants to jump into the production flow. And we're able to get margins for those products, equivalent to aerospace margins. So it's just another tool that we have to offset any of that type of near-term noise. I'm confident that those people you talked to are very well-run, and any short-term noise will be behind us here soon, I'm sure. Thank you. Thank you. Again, if you have a question, please press star then 1. The next question will come from Andre Madrid on BTIG. Please go ahead.
Tony R. Thene: Yeah, Andre, welcome, as well. I mean, you know, it's one of those no good decos on punished, right? I mean, we just pull FY27. They'll last four or up one year now, two years. So, you know, the question is, what are you going to do in FY26, right? And, as I said on my prepared remarks, we think this is just the beginning. So FY25 is not the peak for us. We do plan on giving updated 26 and 27 guidance in the future in this fiscal year. I mean, we have a practice in the fall of every year where we update our long-term outlook.
Yes, Andre welcome as well.
One of those no. Good deed goes unpunished right I mean, we just put FY 'twenty seven.
Andre Madrid: Hi all, thanks for taking my questions. So, I mean, looking at it, obviously the FY27 guy got pulled in to 25. So, with that said, how should we be looking at 27 and beyond now? I mean, do we expect the same kind of pace of expansion, of plateauing of sorts? I mean, how should we think about, you know, looking at the performance from here on out? Yeah, Andre, welcome as well. I mean, you know, it's one of those things where no good deed goes unpunished, right?
Last quarter up one year now two years so.
Tony R. Thene: I mean, we just pulled FY27, you know, last quarter up one year, now two years. So, you know, the question is, what are you gonna do in FY26, right? And as I said in my prepared remarks, we think this is just the beginning. So FY25 is not the peak for us.
Question is what are you going to do in FY 'twenty six right.
And as I said on my prepared remarks, we think this is just.
At the beginning so FY 'twenty five is not is not the peak for US we do plan on giving updated 26 and 27 guidance in the future in this fiscal year I mean, we have a practice in the fall of every year, we update our long term outlook, it's a very detailed market by market product.
Tony R. Thene: We do plan on giving updated 26 and 27 guidance for the future in this fiscal year. I mean, we have a practice in the fall of every year where we update our long-term outlook. It's a very detailed market by market, product by product, customer by customer, bottoms-up projection.
Tony Thene: It's a very detailed market by market product by product customer by customer bottoms up projection. We're getting ready to kick that off. I'd like to let that run its course on our current look that we have certainly FY26 and 27 or another steps up from FY25. But I want to let that run the course. As I said before, we don't take lightly the guidance that we give. We want to have line of sight to it. We want to have confidence that we can hit it. So we're going to let the process play out. We're going to do that detail work up and get a refresh 26 and 27.
By product customer by customer bottoms up projection, we're getting ready to kick that off I would like to let that run its course.
Tony R. Thene: We're getting ready to kick that off. I'd like to let that run its course. On the current look that we have, certainly FY26 and 27 are another step up from FY25. But I want to let that run its course. As I've said before, we don't take lightly the guidance that we give. We want to have line of sight to it.
On our current book that we have certainly FY 'twenty six 'twenty seven another steps up from FY 'twenty, five, but I want to let that run the course as I've said before we don't take lightly the guidance that we give we want to have line of sight to it we want to have confidence that we can hit it. So we'll let the process.
Tony R. Thene: We want to have confidence that we can hit it, so we're going to let the process play out. We're going to do that detailed workup and get refreshed 26 and 27. And, you know, our plan would be to communicate that. But make no mistake, 26 and 27 would be nice steps up from FY25. Thank you. That was helpful.
Play out we're going to do that detail.
Our Cup.
Get a refreshed 'twenty six 'twenty seven and.
Tony Thene: And our plan would be to communicate that. But make no mistake that 26 and 27 would be nice steps up from FY25.
Our plan would be to communicate that but make no mistake that 26% 27 would be nice steps up from FY 'twenty five.
Okay.
I appreciate it. Thank you that's helpful. If I can tack on another there I mean looking at the outlook I know that previously you had said 500 million capex.
Andre Madrid: If I can tack on another question there, I mean, looking at the outlook, I know that previously you had said $500 million in CapEx through 2027, but seeing as though the guide has kind of remained intact to be about $125 million for FY25, I mean, are you guys able to hit these increases without having to expand CapEx beyond the, you know, the kind of going levels? I mean, is it, I would have, or is that just, you know, going to be all done through pricing? That's a good question; thank you for that.
Through 2027, but seeing as though the guide has kind of remained intact to be about $1 25 for FY 'twenty five.
Are you guys able to hit these increases without having to expand capex beyond the kind of the going levels I mean is it.
I would have or is that just.
It's going to be all done through pricing I mean, the operating income increases.
Yes, it's a good question. Thank you for that.
Tony R. Thene: All of our targets that we have communicated externally are based on our current capabilities and capacity. We do not assume any new capacity coming on to hit those targets; none. So that's a very, very important point. So every target that earnings target we've given you only takes into account our current capabilities and our current. The $125 million a year is primarily sustaining capital, which is roughly equal to our depreciation. You need to always be refreshing your assets.
All of our targets.
Tony R. Thene: So those are taking care of the current assets. Those aren't adding any really new capacity. Now, inside of that $125 million, I will say there are, at times, smaller demolition projects that can improve productivity that's inside that $125. I would assume over the next several years, that $125-ish range is going to be pretty consistent.
That we have communicated externally are based on our current capabilities and capacity, we do not assume any new capacity coming on to hit those targets. None. So that's a very very important point. So every target that earnings target that we've given you are only takes into account our current capabilities and our current capacity the 100.
$25 million a year is primarily sustaining capital right, so which is.
Roughly equal to our depreciation you need to always be refreshing. Your your your assets. So those are.
Taking taking care of the current assets those arent those arent, adding any really new capacity outside of that $125 million I will say there are at times smaller debottlenecking.
Projects that can improve productivity that's inside of that 125, I would assume over the next several years that 125 ish range is going to is going to be.
Pretty consistent.
Tony R. Thene: And then, you know, anything above that would be any type of growth-type capacity capabilities adding CapEx, and if we did that, that would add to the earnings growth on top of what already is a really impressive number. So I appreciate the question, because that's an important distinction to make, that there's no CapEx we need to spend to hit our current guidance. Above the worried one father.
And then.
Anything above that would.
Would be any type of growth type capacity capabilities, adding.
Capex and if we did that that would that would add to the earnings growth on top of what already is a really impressive number. So I. Appreciate the question because that's an important distinction to make that there is no capex.
We need to spend two to hit our current guidance.
Above the 120 filing afterwards.
Thank you. Thank you.
Yes.
Andre Madrid: Thank you, thank you. The next question comes from Phil Gibbs with KeyBank Capital Markets. Please go ahead. Hey Tony, good morning.
Our next question comes from Phil Gibbs with Keybanc capital markets. Please go ahead.
Hey, Toni good morning, Congrats on the strong results.
Philip Ross Gibbs: Congratulations on the strong results. Yes, good morning. Good to hear from you. The engine revenues... in your last quarter. Can you give us a texture in terms of how much that grew sequentially or year over year? Yes, sure. Aerospace engine sales were up 22% year over year and 17% sequentially.
Yes, good morning, good to hear from you.
The engine revenues in and your last quarter can you give us.
<unk> in terms of how much that grew sequentially or year over year.
Yes sure.
Aerospace engine sales were up 22% year over year, and 17% sequentially, so very strong quarter for aerospace.
Tony R. Thene: So, very strong quarter for. That's the indices, just to be specific, that's the aerospace indices. Okay, thank you. And can you give us an idea of how much defense right now?
That's the and also just to be specific to aerospace engines.
Okay. Thank you and can you give us an idea of how much defense right now as it is in your <unk> as a percentage.
Philip Ross Gibbs: is in your A and B mix as a percentage. I was just trying to read the tea leaves, given you've said it's been strong and you've pulled some stuff in for the government, and obviously, defense spending has been strong the last couple of years. I think roughly, you know, defense spending is about 10% of, maybe a little higher than the total aerospace and defense in use. And then lastly for me.
I'm just trying to read the tea leaves given you said, it's been strong in U you pulled some stuff and four for the government and obviously defense spending has been strong the last couple of years.
I think roughly.
Defense is about 10% of the maybe a little higher the total.
Aerospace and defense end use market.
And then lastly for me.
Philip Ross Gibbs: Can you give us any color on the long-term contracts within SAO? Obviously, you've achieved higher prices on anything you've renewed. Have you put more pass-through clauses in some of your new contracts or altered the duration of some of the contracts that you've resigned?
Can you give us any any color on the long term contracts with them.
Obviously, you've achieved higher pricing on anything you've renewed have you put more.
Pass through clauses in some of your new contracts or altered the duration of some of the contracts that you've signed.
Tony R. Thene: Yes, for sure, that over the last year, maybe longer, and going into the future, there are more of those types of programs, clauses, as you said, some type of accelerator if energy moves to this point, if inflation moves. So there's much more of those in the contract to try to project if there's any large move in some of those items so we don't get burned by that. So that is true that that will be a part of all of our contracts going forward. On the second part of your question, I would say that contracts are for a shorter duration now than they were prior to COVID. I appreciate that. And then lastly, for me, on labor.
Yes for sure is that over the last year.
Year, maybe longer than going into the future. There are more of those types of.
Clauses as you said some type of accelerator if if.
<unk> moved to this point if inflation moves so theres much more of those in the contract to try to.
Projected if theres any large move in some of those items that we don't get burned by that so that that is that it's true that that's a part of all of our contracts going forward on the second part of your question I would say that our contracts.
For a shorter duration now than what they were.
Prior to Covid.
I appreciate that and then lastly for me.
On labor.
Philip Ross Gibbs: How do you all feel on that side of the equation, to the extent that you de-bottleneck, further unlock more capability? Is there more training or more hiring that you need to do, or do you feel like you're pretty equipped on the hiring front at this point? Thank you.
How do you how do you all feel on that side of the equation and to the extent that you you Debottleneck further unlock.
More and more capability is.
Is there.
More more training or more hiring less you need to do or you see.
I feel like you are pretty equipped on the hiring front at this point. Thank you.
Tony R. Thene: Yes, we have a couple areas that we want to increase staffing, nowhere near the extent that it was three or four quarters ago, maybe a year ago when it was a real issue for us. We've passed that. But there are a couple areas where we want to add some staff. From a training standpoint, yes, that's going to continue for quite some time. I mean, you're replacing people with 35, 40 years of experience with newer people.
Yes, we have a couple of areas that we want to increase staffing nowhere.
Nowhere near the extent that it was three or four quarters ago, maybe a year ago. When it was a real issue for US we've passed that but there are a couple of areas that we want to add some staffing.
<unk>.
From a training standpoint, yes, that's going to continue for quite some time in the near replacing people with 35 40 years with newer newer people and we're very we're very happy with the progress that we've made but there's always room for improvement there. As you know these are these are very complex pieces.
Philip Ross Gibbs: And we're very happy with the progress that we've made. But there's always room for improvement there. As you know, these are very complex pieces of equipment. It takes a very skilled operator to run those. You can't buy experience, right? You just have to put the time into the job. And we're pleased with the progress that our operators are making. Thank you so much.
Of equipment. It takes a very skilled operator to run those.
So.
You can't you can't buy experience right you just got to put the time into the job and where we're pleased with the progress that that our operators are making.
Thank you so much.
Yes, Thank you Sir.
Gautam J. Khanna: Yeah, thank you. Our next question is a follow-up from Gautam Khanna on T.D. Cohen.
Our next question is a follow up from Gautam Khanna with TD Cowen. Please go ahead.
Yes.
Gautam J. Khanna: Please go ahead. Hey, thanks for the follow-up. Curious, Tony, just to get your impressions or your opinion on, You've heard GE talk about five troubled supplier sites and, To an earlier question, I presume it's the Forgings and Castings House. But I'm just curious, like, do you have a view that maybe the buy to fly ratio is particularly sloppy right now, pretty low right now, and therefore... you know, you're having the opportunity to sell And if that's the case, are there any negative implications of that longer term as the bite of the fly starts? me and revert back to a better level.
Hey, thanks for the follow up.
Curious Tony just to get your impressions of your opinion on.
Okay.
You have heard like GE talk about five troubled supplier sites.
To an earlier question I presume, it's the forgings and castings houses.
But.
I'm just curious like do you have a view that maybe the buy to fly ratios, particularly.
Sloppy right now.
Pretty low right now and therefore.
You are having the opportunity to us.
But to kind of sell products more than once if you will just because their yields downstream are much worse.
What was anticipated and what they might be a couple of years from now and if that's the case.
Is there any <unk>.
Negative implications of that.
Longer terms.
The buy to fly.
Starts to.
You mean revert back.
At our level.
Tony R. Thene: You know, to be 100% honest, I mean, there could be some of that. You have some great insights into that side. That's not something that dominates the discussions I have with our commercial team and says, hey, we need to sell so much more, the demand is so much greater because of that. It just, that hasn't come up with us. So we don't see that as a major driver, which means there's no hole in the future when that gets better.
You know to be 100% honest I mean, there could there could be some of that I mean, you. You have you have some great insights into that side, that's not something that dominates the discussions I have with our commercial team and said hey, we need to we need to to sell so much more of the demand so much greater because of that.
That hasnt come up with us So we don't see that as a major driver, which means there's not a whole in the future when that when that gets and when that gets better and as you will know two got them right now I mean the gap between.
Tony R. Thene: And as you well know, too, Gautam, right now, the gap between supply of our specialty materials and demand for them is pretty wide, and I don't see that changing much. And I get where you're coming from, right? Because everybody's looking for that, hey, here's a move over here.
Supply of have our specialty materials and the.
Demand for them.
Is pretty wide.
And I don't I don't see that.
Changing much and I get where youre coming from right because everybody's looking for that hey, Here's a move over here is that how does that impact you and.
Gautam J. Khanna: How does that impact you? To summarize, I mean, I have not seen that be a high, you know, discussion point between myself and our commercial partners. Yeah, and I almost wonder, like, how it would be... discernible, I guess it would just be if some of those customers that are having yield challenges are asking you to expedite shipments or, you know, asking for more than what you expected them to ask for. It's hard to say like what was the driver. We get those types of expedite requests across the board, right, and it could be many things. It could be this, there's a bunch of other things going on, so it's, you know, pick one, pick which one you want.
We're just we're able we're in a very unique position, where we're able to navigate all of those.
To summarize I mean, I have not seen that.
Hi.
Discussion point between myself from them and our commercial team.
Yeah, and I almost wonder like how it would be.
Discernible I guess it would just be some of those customers that are having yield challenges are asking you to expedite shipments or asking for more than.
What you expected them to ask for.
As you move through the quarter.
It's hard to say like what was the driver I mean, we're getting we get those types of expedite requests across the board right and it could be many things it could be that there's a bunch of other things going on so it's pick one pick which one you want but expedite in the.
Tony R. Thene: But expedites and the desire of customers to move forward are real. And that's one of the things we talked about earlier, Gautam, which is really important, because we can get very specific and hear a data point and say, hey, I heard from this entity that they're really pulling back on their orders. And if you dig deep, you'll say, well, yeah, but that entity, 90, I'm making this up, 99% of their business is the 737.
The desire of customers to move forward is real and Thats one of the things we talked about earlier, Gautam and which is a really important point.
Because we can get very singular and hear a data point and say hey, I heard from this entity dead.
They're really pulling back on their orders and if you dig deep, you'll say well, yes, but that entity 90.
I'm, making this up 99% of their businesses to the 730 <unk> of course, theyre going to make adjustments.
Gautam J. Khanna: Of course, they're going to make adjustments. Across the whole industry, though, that's small, and many other people then, you know, move in to take advantage of that. So that's why we're, you know, Gautam, that's why we're able, with all of this noise, we just, we just pulled our guidance, our earnings guidance for another year, right? We took all that into consideration. And I think that's, To me, that's an extremely strong, you know, outlook for us over the next several years. I appreciate that. And the one last follow-up, you know, I did, I did hear you say 30% is possible at SAO.
Across the whole industry, though that small and many other people then.
Move in to take advantage of that so that's.
That's why we are.
Got it and Thats why we were able with all of this noise. We just we just put our guidance or earnings guidance and another year right. We.
Took all that into consideration and I think thats.
To me that's extremely strong.
Outlook for us over the next several years.
I appreciate that and then one last follow up.
I did.
I did hear you say, 30% is possible sale I'm not holding you to Don obviously, but.
Tony R. Thene: I'm not holding you to that, obviously, but I am curious about, you know, pricing and your expectations for it in the long term, as the contracts that you've renewed with a shorter duration come up for renewal again in the next two or three years. Presumably, the price resets aren't going to be as great as they were, just given inflation's not going to be as high. But do you have an idea like a ballpark? I mean, are we thinking, You're still going to get, you know, the net price as you move out and renew. Is that still the case?
I am curious about pricing in your expectations longer term for it as the contracts that you've renewed.
With the shorter duration come up for renewal again in the next two or three years.
Presumably the the price resets aren't going to be as great as they were just given <unk>.
Inflation is not going to be as high.
But.
You haven't do you have like a ballpark I mean are we thinking.
Still going to get.
Net price as you move out and renew is that still.
Gautam J. Khanna: part of your base case when you look out beyond, you know, 2020. Yeah, I want to be careful there. I don't want to signal anything to the market about what we may or may not do on the pricing side, right? Because I don't think that's appropriate.
Are your base case, when you look out beyond 2026.
Yeah, I wouldn't be I don't want to signal anything to the market. What we what we may or may not do on the pricing side right because I don't think thats appropriate, but I will say that we believe that going forward that the imbalance that we have where demand is going to exceed supply is going to.
Tony R. Thene: But I will say that we believe that going forward, the imbalance that we have, where demand is going to exceed supply, is going to continue for our products, right? I don't see anything that's going to solve that. And, you know, that's going to make that a, you know, an advantageous market for us going forward. Okay, and you may have said it, but what was the fastener sequential growth rate year over year? Yeah, I did not do it.
For our for our products right I don't I don't see anything thats going to solve that.
And.
That's going to make that a.
No.
And avid advantageous market for us going forward and I'll leave it at that.
Okay, and you may have said it but what was the fastener sequential and year over year.
Gautam J. Khanna: So thanks for bringing that up. Fastener sales are up 11% year over year and 8%. Great. Thanks a lot, guys. Appreciate it.
Yes, I did not so thanks for bringing that up fastener sales up 11% year over year and 8% sequentially.
Great. Thanks, a lot guys I appreciate it yes.
Scott Deuschle: Yes, thank you, Gautam. The next question comes from Scott Deuschle with Deutsche Bank on a follow-up. Please go ahead.
Yes. Thank you.
Yeah.
Next question comes from Scott <unk> with Deutsche Bank with a follow up. Please go ahead.
Scott Deuschle: Hey, Tony, you made the point that Carpenter wouldn't be making any big investments in capacity to rock the boat on supply-demand, but just theoretically, if another industry participant were to make a meaningful investment to expand capacity. Do you have a sense for how long it would take for that to come online in a meaningful way? Is seven to eight years a reasonable framework for that duration? Yes, I think it's been seven to 10 years.
Hey, Thanks, Tony you made the point that carpenter wont be making any big investments in capacity.
To rock the boat on supply demand, but just theoretically if another industry participant participant where to make a meaningful investment to expand capacity do you have a sense for how long it would take for that to come online in a meaningful way is it like seven to eight years, a reasonable framework for that duration.
Tony R. Thene: And I think it's important to take a step back if that happens, right? That's, you know, that's still not going to really, as you say, rock the boat, right? That the gap is pretty small. The second piece that I said, I mean, we'll look at ways where we can increase capabilities and capacity. Like we're going to look at ways we can do that. There's not some big bang out there.
Yes, I think it's seven to 10 years.
I think it is important to take a step back if that happened right.
That's that's still not going to really as you say rock the boat right that the gap is pretty is pretty small the second piece of that that I mean.
We will look at ways, where we can increase.
Capabilities and capacity like we're going to look at ways. We can do that theres not some big Bang out there.
Let's build a let's build a new plant so to speak.
And then but back to your original question.
Tony R. Thene: You know, let's let's build a new plant, so to speak. And then, but back to your original question. You know, it's going to take several years to design it, even if it was someone like us that's been around for 140 years. [inaudible] It's going to take several years to design. It's going to take several years, 18 to 24 months, to build the equipment. It's very specialized equipment.
You know it's going to take.
Several years.
To design, even if it was someone like us that's been around for 140 years.
It's going to take several years to design. It takes several years, 18% to 24 months to build the equipment. It's very specialized equipment and then pick your number five years award to qualify there is nobody going to ease the qualification.
Tony R. Thene: And then pick your number, five years or more to qualify. There's nobody going to ease the qualification process. So, yeah, it's a very long runway to get to that. And you'd be, when you talk about is there someone else, you'd be talking about someone that has never done it before. So, you know, the knowledge that's required to run these types of facilities is massive. So you don't just do it and learn how to do that in a couple years.
Requirement so yeah, it's a very long.
One way to get to.
To get to that and.
You'd be.
When you talk about is there someone else you'd be talking about someone that has never done it before so.
The knowledge that's required to run these types of facilities.
Tony R. Thene: It's just not doable. Got it. Do you think those qualification requirements are even tougher now, given the powder metal contamination issue that Pratt had? There's no doubt. There's no doubt that their qualifications are tougher, not just because of that example that you gave, but other examples in the past.
Is massive so you don't just you don't just do that and learn how to do that in a couple of years. It's just not it's just.
Not doable.
Do you think those qualification requirements are even tougher now given the powder metal contamination issue.
Uh huh.
Theres no doubt theres no doubt that their qualifications are tougher not just because of that.
<unk>.
The example that you gave but other examples.
Over the past any type of failure that <unk> had they are more stringent.
Tony R. Thene: Any type of failures that you've had, they are more stringent, and rightly so. Right. I mean, we want this industry to be as safe as possible. That just makes it more and more difficult for other people to say, I'm going to go out and try this in this capacity. It just, you know, it's not a lemonade stand.
And rightly so right I mean, we want this industry to be as safe as possible.
That just makes it more and more difficult for other people say I'm going to go out and put in this capacity and just.
Scott Deuschle: It's it's much more than that. So there's no doubt that the qualification process is more difficult than it was, you know, five or six years ago. Got it. And then, Tony, it looks like a pretty good amount of cash on the balance sheet exiting the year. Is it fair to think you might get started on this buyback sooner rather than later, given that you've got the ability to do so? Sounds like really high confidence in this outlook. I think we're in a good place, right, Scott?
Not eliminate stand.
It's it's much more than that so there is no doubt that the.
Qualification process is more difficult than it was.
Five or six years ago.
Got it and then you Tony it looks like a pretty good amount of cash on the balance sheet exiting the year is it fair to think you might get started on this buyback sooner rather than later given that you've got the ability to do so and it sounds like really high confidence in this outlook.
Tony R. Thene: I don't want to signal when or what levels we would be in the market, but I think we're sitting at a very good place coming out of the year with about $200 million of cash on the balance sheet, and a nice forecast going forward. I just believe it's all about execution for us now, and it's a good time to be a shareholder because we've got great earnings growth. We've got a great free cash flow.
Well I think we're in good good place right, Scott I don't want to signal when or what levels that would be that we'd be in the market but.
I think we're sitting at a very good place coming out of the year with about.
$200 million.
Of cash on the balance sheet, a nice forecast going forward.
I just believe it's all about execution for US now and it's it's a good time to be a shareholder right because.
We've got.
Great earnings growth, we got great free cash flow, we just put out a repurchase program.
It says thats going to be a.
For use of our cash going forward I've, just said, we're going to look at growth capex that can be incremental to us there is not that.
Tony R. Thene: We just put out a repurchase program that says that's going to be a meaningful use of our cash going forward. I've just said we're going to look at growth capex that can be incremental to us. There's not that big thing that's going to flip supply and demand.
Big thing Thats going to flip the supply and demand.
Tony R. Thene: And we look out over the next several years and see a very strong, you know, demand environment. So we're in a good spot right now. But, you know, we know we have to earn it every day.
And we look out over the next several years you can see a very strong <unk>.
Demand environment so.
We're in a good spot right now, but we know we have to earn it every day and that's what that's what our team is focused on.
Tony R. Thene: And that's what our team's focus. Fantastic. And Tim, one question for you. Just anything on free cash flow for the first quarter with calling out? Should we expect a typical seasonal outflow there, or can EBIT strength?
Fantastic and Tim one question for you or just anything on free cash flow for the first quarter worth calling out should we should we expect a typical seasonal outflow there or can the EBIT strength.
Timothy Lain: for guiding to allow first quarter free cash flow to be closer to breakeven or maybe even positive. Yes, Scott. Good morning. Like Tony said, the biggest driver for free cash flow is working capital, specifically inventory. And inventory is going to fluctuate seasonally, as you mentioned. So we're going to manage that as best we can and make good decisions. But our goal overall for the year is to keep inventory relatively flat.
Adding to allow for Scott first quarter free cash flow to be closer to breakeven or maybe even positive.
Operator: Thank you. This concludes our question and answer session. I would like to turn the conference back over to John Huyette for any closing remarks. Thank you, Operator, and thank you, everyone, for joining us today for our conference call. Have a great rest of your day. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Yes, Scott.
Like Tony said.
The biggest driver for free cash flow is working capital specifically inventory that inventory is going to fluctuate seasonally as you mentioned.
So we're going to manage that as best we can and make good decisions.
But our goal for the overall for the year is to keep inventory relatively flat.
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.
Thank you operator, and thank you everyone for joining us today for our conference call have a great rest of your day.
Operator: The conference is now concluded. Thank you for attending today's presentation.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Operator: You may now disconnect.
Okay.
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