Q2 2025 Carpenter Technology Corp Earnings Call
Speaker Change: Morning, everyone and welcome to the Carpenter Technology earnings Conference call for the fiscal 2025 second quarter ended December 31 2024.
Speaker Change: This call is also being broadcast over the internet along with presentation slides.
Speaker Change: For those of you listening by phone you may experience a time delay in slide movement.
Tony <unk>: Speakers on the call today are Tony <unk>, President and Chief Executive Officer, and Tim Lain, Senior Vice President and Chief Financial Officer.
Tony <unk>: Statements made by management. During this earnings presentation that are forward looking statements are based on current expectations.
Tony <unk>: Risk factors that could cause actual results to differ materially from these forward looking statements.
Tony <unk>: We began incorporating technology's most recent SEC filings, including the company's report on Form 10-K for the year ended June 32024.
Tony <unk>: Form 10-Q for the fiscal quarter ended September 32024, and.
And the exhibits attached to those filings.
Tony <unk>: Please also note that in the following discussion unless otherwise noted when management discuss the sales or revenue that reference excludes surcharge.
Tony <unk>: When referring to operating margins that is based on adjusted operating income excluding special items and sales excluding surcharge.
Tony <unk>: I will now turn the call over to Tony.
Tony <unk>: Thank you John and good morning to everyone.
Tony <unk>: I will begin on slide four with a review of our safety performance.
Tony <unk>: Through the second quarter of fiscal year 2025, our total case incident rate was 1.1.
Tony <unk>: We continue to see improvement as our newer employees gain experience and develop and our safety first culture.
Tony <unk>: But we still have more to do to achieve our goal of a zero injury workplace. We continue to invest in training for all employees with a focus on proactively identifying risks and hazards.
Tony <unk>: Let's turn to slide five for an overview of our second quarter performance.
Tony <unk>: Yeah.
Tony <unk>: Building on our strong start to fiscal year 2025, we continued our earnings momentum with a record second quarter and our second most profitable quarter on record specifically.
Tony <unk>: Specifically in the second quarter of fiscal year, 2025, we generated $119 million and operating income.
Tony <unk>: 70% increase over our second quarter of fiscal year 2024.
Tony <unk>: Notably the <unk> segment continues to expand adjusted operating margins, reaching 28, 3% in the quarter compared to 20% a year ago and 26, 3% in the prior quarter.
Tony <unk>: The impressive margin expansion as a result of continued improvements in productivity product mix optimization and pricing actions.
Tony <unk>: Further we generated $38 6 million and adjusted free cash flow during the quarter and we continued to return cash to shareholders through our repurchase program a part of our balanced approach to capital allocation.
Tony <unk>: Our strong second quarter performance was driven by our continued ability to execute and our strong market position.
Tony <unk>: Further our strong performance gives us confidence to again increase our guidance for the full fiscal year 2025.
Tony <unk>: For those of you that have been following US you know that we have demonstrated remarkable growth over the last two years.
Tony <unk>: This is resulted in regular increases to our financial outlook each over the last several quarters.
Tony <unk>: In the last earnings call after pulling in our fiscal 2027 target two full years into fiscal year 2025, we raised our fiscal year 2025 guidance to approximately 500 million and operating income.
Tony <unk>: On that call. We said, we had line of sight to activities that could push operating income even higher well, we've continued to execute improving productivity and working with customers to optimize our production plan.
Tony <unk>: As a result, we are raising our guidance for the full fiscal year 2025, again to the range of 500 million to $520 million.
Tony <unk>: And we have confidence that fiscal year 2025 isn't the peak of our earnings as we have line of sight to continued robust earnings growth in the years ahead.
Tony <unk>: The same market forces that are driving our current performance are expected to only get stronger in the future.
Customers remain focused on surety of supply of our highly specialized material solutions to meet their long term growth needs.
Tony <unk>: And we remain focused on continuing to improve our operational performance to meet that demand.
Tony <unk>: While today's discussion is focused on our second quarter performance and our fiscal year 2025 outlook. We are excited to share our outlook beyond fiscal year 2025 at an upcoming investor event.
Tony <unk>: At that time, we will also provide a business update including our view of the end use markets and our operations.
That event is scheduled for Tuesday February the 18th and will be held virtually.
Tony <unk>: Now, let's turn to slide six and take a closer look at our second quarter sales and market dynamics.
Tony <unk>: In the second quarter of fiscal year, 2025 sales increased 13% year over year and decreased 5% sequentially.
Tony <unk>: Modest sequential sales decline was driven by conscious actions, we took at the end of the quarter.
Tony <unk>: First some customers closed operations earlier than usual for their end of year, and we agreed to hold that material for them.
Tony <unk>: As you know we operate 24 seven every day of the year.
Tony <unk>: This year, we decided to stop operations on Christmas Eve Christmas Day, and New year's Eve to give our employees the opportunity to enjoy more time with their families.
Tony <unk>: I'll also note that the sequential change in our energy market, where we're coming off a strong quarter was related to the timing of certain shipments to power generation customers also keep in mind that power generation only accounts for approximately 2% to 3% of our total net sales.
Tony <unk>: Most importantly, looking forward to the third quarter, we expect a healthy increase in total net sales.
This will be primarily driven by higher volumes with more operating days in the quarter as well as continued productivity gains product mix optimization and higher realized pricing.
Tony <unk>: Let me take a couple of minutes to zoom out a bit and talk generally about what we're seeing in terms of demand signals and what we're hearing from our customers.
Tony <unk>: As it is approximately 60% of our net sales I will start with the aerospace and defense end use market.
Tony <unk>: But the commercial aerospace market. It is important to keep in mind that we are a key supplier with broad exposure to aerospace platforms. This includes Boeing and Airbus narrow body and wide body MRO and OE activity.
Tony <unk>: This broad exposure gives us visibility across the supply chain and positions us to support the supply chain wherever the activity is focused.
Tony <unk>: Across the board our aerospace customers continue to expect significant ramps in output from the Oems.
Tony <unk>: However, some customers with direct exposure to specific platforms, particularly the 737 are still in a wait and see mode in terms of their specific plans for the next few quarters.
Tony <unk>: Assess how quickly we can ramp production and provide confidence to the supply chain that they are on the path to a credible and stable increase in build rates.
Tony <unk>: With this in mind, we continue to work with those customers, where we can to manage their priorities for orders as we plan our production schedules.
Tony <unk>: Even though those customers are more cautious today, they are actively talking to us about securing additional material from us as the demand conditions accelerate.
Tony <unk>: Conversely for platforms, where the customer has greater clarity and confidence they continue to push ahead and correspondingly we continued to see strong demand in those areas.
Tony <unk>: In addition, many of our customers have shifted focus to satisfy extremely high MRO demand, where our material solutions are critical.
Tony <unk>: We also have a strong portfolio of program specific defense applications, where demand remains strong and we are currently receiving urgent requests for more material faster.
Tony <unk>: Our other end use markets, such as medical which accounts for roughly 13% of net sales. We continue to see strong demand as our material solutions play an important role in solving their complex needs.
Tony <unk>: Looking at our total order backlog, we continue to see improvements in the mix and pricing, which supports our expectations for ongoing sales increases.
Tony <unk>: From our connected vantage point, we see clear signs that demand will continue to strengthen into the future.
Tony <unk>: Now I'll turn it over to Tim for the financial summary.
Tim: Thanks, Tony Good morning, everyone.
Tim: I'll start on slide eight the income statement summary.
Tim: Starting at the top sales, excluding surcharge increased 13% year over year on 6% lower volume.
Sequentially sales were down 5% on 10% lower volume.
Tim: The year over year growth in net sales was driven by increasing productivity necessary to drive a stronger product mix as we focus our capacity on our most profitable products and the realization of higher prices.
Tim: The improving productivity product mix and pricing are evident in our gross profit, which increased to $177 5 million in the current quarter up 45% from the same quarter last year.
Tim: SG&A expenses were $58 6 million in the second quarter, which includes $23 6 million of corporate costs.
Tim: As we said last quarter, we expect corporate costs to be approximately 23 million to $24 million per quarter for the balance of fiscal year 2025.
Tim: Operating income was $118 9 million in the current quarter, which is 70% higher than the $69 8 million in our second quarter of fiscal year 2024.
Tim: As Tony mentioned earlier this represents our second best quarterly operating income result on record.
Tim: Moving on to our effective tax rate, which was 20% in the current quarter.
Tim: This quarter's effective tax rate was lower than our normalized tax rate due to certain discrete tax benefits recorded in the current quarter.
Tim: For the upcoming quarters of fiscal year 2025, with no further discrete benefits anticipated, we expect the effective tax rate to be more in line with our normalized rate up 23% each quarter.
Tim: In summary, the earnings per diluted share results for the quarter up $1.66 demonstrates.
Tim: Demonstrate solid execution against the goal we laid out for this quarter.
Tim: Now turning to slide nine in our <unk> segment results.
Tim: Net sales excluding surcharge for the second quarter were $479 6 million.
Tim: On a year over year basis sales were up 15% on 11% lower volume.
Tim: The increase in sales on lower volume reflects the impacts of higher realized prices and an improving product mix relative to a year ago.
Sequentially sales were down 6% on 11% lower volume.
Tim: As Tony mentioned the shipments were influenced by the actions we took at the end of the quarter associated with customer year end shutdowns and reducing our operations on holidays.
Tim: Moving to operating results.
Tim: Reported operating income of $135 6 million in the second quarter of fiscal year 2025.
Tim: As Tony mentioned, the adjusted operating margin of 28, 3% in the second quarter is a significant achievement.
Tim: The continued margin expansion as a result of our team's focus on executing actions to further increase and maintain consistent production levels.
Tim: To closely manage operating costs and to optimize the product mix to maximize capacity for our most profitable products.
Tim: These areas are as relevant as ever as we actively manage our production schedules to adjust to changing customer priorities and seek to increase our overall output.
Tim: Looking ahead to our upcoming third quarter of fiscal year 2025, we anticipate <unk> will generate operating income in the range of 140 million to 145 million, which represents another step up in profitability.
Tim: Now turning to slide 10 in our Pep segment results.
Tim: Net sales excluding surcharge in the second quarter of fiscal year, 2025 were $86 2 million down 2% from the same quarter, a year ago and down 7% sequentially.
Tim: In the current quarter Pep reported operating income of 7 million compared with $7 1 million in the same quarter, a year ago and $7 3 million in the first quarter of fiscal year 2025.
Tim: As we have said previously dynamed isn't the driver of the Pep segment, representing a significant portion of Pep sales and an even greater percentage of perhaps profitability.
Tim: Dynamed fundamentals are very comparable sale, including a strong market demand backdrop in the medical and aerospace end use markets, which together account for approximately 95% of Dynamed sales.
Tim: Like I say, Oh, the focus of dynamite remains on improving productivity and expanding capacity to increase our output, which has driven improved results.
Tim: With that said <unk> is not the only business and Pat our additive business, although not material to overall Carpenter technology has seen a deferral of orders over the last two quarters from certain key strategic customers.
Tim: Given the size and cost structure of the additive business such deferrals can be impactful on the business and the segment, even if it does not have a material impact on the overall company.
Tim: The additive demand outlook and customer order visibility is improving.
Tim: We anticipate that the additive results will improve beginning in our upcoming third quarter.
Tim: With that in mind, we currently anticipate that in the upcoming third quarter of fiscal year 2025. The Pep segment will deliver operating income in the range of 10 to 12 months.
Tim: Okay.
Tim: Now turning to slide 11, and a review of cash flow.
Tim: In the current quarter, we generated $67 9 million of cash from operating activities. The.
Tim: The results were driven by improving profitability and disciplined working capital management.
Tim: Although we increased inventory in our recent second quarter, we view that growth is temporary and tied to our strong order backlog.
Tim: The second quarter increase is also well below the amount of inventory. We built at this time last year, which reflects the impacts of our efforts to improve productivity.
Tim: The cash generation in the current quarter is an important step towards delivering our full fiscal year 2025, adjusted free cash flow target of $250 million to $300 million.
Tim: For the current quarter, we spent just over 29 million on capital expenditures.
Tim: With those details in mind, we reported adjusted free cash flow of $38 6 million in the second quarter of fiscal year 2025.
Tim: We also continued executing against the share repurchase program.
Tim: In the second quarter of fiscal year 'twenty, five we purchased $8 2 million of shares against the 400 million authorization.
Tim: The share repurchase program reflects our balanced approach to capital allocation and complements the longstanding quarterly dividend.
Finally, our liquidity remains healthy and we ended the second quarter of fiscal year 2025, with total liquidity of $511 million, which includes $162 1 million of cash and $348 9 million of available borrowings under our credit facility with that I will turn the call back to Tony.
Tim: Yeah.
Tony <unk>: Thanks, Tim.
Tim: What an exciting time to be part of Carpenter technology as.
Tim: As we are delivering record profits, while projecting a future of even higher earnings growth potential.
Tim: Technology, just delivered a record second quarter and our second most profitable quarter in the history of the company.
Tim: We increased adjusted operating margins in our <unk> segment again, reaching 28, 3%.
Tim: A new all time high.
Tim: We continued to execute against our share repurchase program that complements our longstanding quarterly dividend.
Tim: <unk>, our commitment to return cash to our shareholders.
Tim: And we've increased our operating income guidance again to the range of 500 million to $520 million for fiscal year 2025.
Tim: We are delivering strong record results.
Tim: Even as the aerospace supply chain is transitioning and only at the beginning of its aggressive build rate ramp.
Tim: This is a very important point because it means demand for our material will only get stronger and our earnings growth potential we will continue to expand.
Tim: We continue to believe we are in the early stages of our growth journey and we look forward to updating our long term outlook at our virtual investor event on February the 18th.
Tim: Thank you for your attention and I will now turn the call back to the operator.
Tim: Thank you.
Tim: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Tim: If you are using a speakerphone. Please pick up your handset before pressing the keys if at any time that your question has been addressed and you would like to withdraw. Your question. Please press Star and then two at this time, we will pause for just a moment to assemble our own.
Gautam Khanna: And your first question today will come from Gautam Khanna with TD Cowen. Please go ahead.
Tim: Yeah.
Speaker Change: Hey, good morning, guys. Thank.
Tim: Hey, good morning Gautam.
Tim: Tony.
Tim: Unfortunately, I missed the first couple of minutes of the call, but I was wondering if you could comment on lead times and the engine channel if they've changed and.
Tim: I know you talked a little bit about some of the customer perturbations in terms of when they want stuff yeah.
Tim: Was there any kind of impact from Destocking on the Boeing side.
Tim:
Tim: That manifested this quarter relative to last quarter. If you could just talk about what youre seeing in that.
Tim: And that Boeing channel as well thank you.
Tim: Yes.
Tim: Thanks for the question.
Tim: First on lead times. This is a good news story for us in terms of lead times as specifically for the aerospace material, which you're referring to we've actually been able to pull in our lead times slightly not significantly but by a couple of weeks and thats, 100% due to the great productivity improvements we've had primarily.
Tim: The primary melt operation. So as you know those high production rates translate into higher shipments and that's going to allow us to get.
Tim: Critical product to our customers quicker so thats a good news story I might take this time to.
Gautam Khanna: Gautam just to kind of give a couple of other points that you might ask about.
Gautam Khanna: In terms of orders and sales and maybe this will answer your question without getting into too specific figures. We did see orders this quarter be slightly down from what they were the quarter before now interestingly the sub market Arrow engine.
Gautam Khanna: Orders were slightly up sequentially, but that's really not a surprise when you think Boeing for example was on strike from what was it mid September until early November and probably Didnt really start producing even at low levels until December so we knew that impacted the order activity of our customers, especially those.
Gautam Khanna: That are very tied.
To Boeing I think it's also important to note the answer as you know we also limit our order intake. So that were not the case, our backlog and certainly orders could be higher but.
It's clear that we have seen some pause from customers that are specifically connected to.
Gautam Khanna: <unk>.
Gautam Khanna: Okay, that's interested and just to follow up on that.
Gautam Khanna: And your point it sounds like is that outside of the engine busy.
Gautam Khanna: Business, So that's more on.
Gautam Khanna: Structural and fasteners is that what youre, saying.
Gautam Khanna: Yeah, yes, mostly on the structural side I mean.
Gautam Khanna: It's always interesting to note what fasteners.
Gautam Khanna: Do quarter to quarter I believe you asked me. This question last quarter, if I remember right fasteners were down sequentially, 12%.
Gautam Khanna: Our net sales for fasteners were actually up about two 5% this quarter, so that whipsaw this back and forth from quarter to quarter, but actually had a little bit of an increase in <unk>.
Gautam Khanna: Fastener net sales.
Gautam Khanna: And then naturally that's going to lead people to wonder about the pricing environment because it has been.
Gautam Khanna: Supply constrained environment for a number of years.
Gautam Khanna: I'm just curious have you seen any slack in kind of spot pricing activity or has that remained.
Gautam Khanna: Well I'm sure the spot market. If there is somebody out there that has capacity.
Gautam Khanna: Maybe in some of these alloys that.
Gautam Khanna: Somebody can get.
Gautam Khanna: <unk>.
Gautam Khanna: Some.
Gautam Khanna: Discount if you will but that's not long term right. I mean, you got to remember you're in an environment, where one of your top.
Gautam Khanna: Air Framers.
Gautam Khanna: Aren't making any planes effectively right and we're still.
Delivering these type of record profit, so youre going to come very quickly to a point, where I think this market comes back really quickly and you're going to be right back into this.
Gautam Khanna: Really tight demand and a lot of the emergency phone calls I can tell you. This got them every discussion we had with customers is always long term. It's a long term focused it's about surety of supply.
Gautam Khanna: And.
Gautam Khanna: We're just.
Gautam Khanna: We're going to stay focused on that.
Great. Thanks, Tony.
Gautam Khanna: Thank you.
Speaker Change: Your next question today will come from Josh Sullivan with benchmark. Please go ahead.
Josh Sullivan: Hey, good morning.
Gautam Khanna: Josh Good morning, Josh.
Speaker Change: Whats your perspective on the potential for the tempo of global conflicts to obey.
Gautam Khanna: Right.
Gautam Khanna: The indication pull on defense related materials is reflecting any customer expectation that things might change either in the near medium term.
Speaker Change: I think you've noted defense was still strong in your comments, but just curious if there's any any change in the forward look.
Speaker Change: I don't think so Josh I think that's going to stay strong.
Speaker Change: In the coming years, regardless of what goes on in the conflicts and I hope they're resolved as soon as possible, but I think we have a rebuilding of the military and to get to a different level and so I sense that that will be strong for us over the coming years, that's the feedback that we're getting.
Speaker Change: From people in that space.
Speaker Change: And then I know entering answering jonathan's question. There you talked about the long term perspective with customers. Obviously Boeing suppliers are judiciously kind of are in the ramp here, but longer term theres still does seem to be some tightness in the industry.
Speaker Change: How is that conversation versus maybe what theyre going to need it two or three years versus.
Speaker Change: What they necessarily need to pull today.
Speaker Change: And I imagine youre, having an investor event here coming up but it's a question on capacity longer term. How are you addressing those are what are those conversations like right now.
Speaker Change: Well theres been no change for us I mean, this isn't something that happened last week I mean, certainly.
Speaker Change: Boeing has had some challenges now for quite some time and those companies that are very closely tied to them.
Speaker Change: Are looking for some type of push out in those orders and we're willing to accommodate them as much as we can because we have other optionality Josh I mean, we've got a backlog. That's at 2 billion half of that is aerospace I would say that the majority of that is wanted sooner. So we're able to pull that in.
Speaker Change: And Phil we've had some increases in power Gen, where we've able to pull those Ian so that that broad exposure. We have we've been able to run at very high levels. So this has not impacted us and now I really believe you know.
I think you could go through the next couple of quarters, where we're waiting through the implications of Boeing.
Speaker Change: What type of progress, they're going to make it in their build rates and I think we'll be right back into these daily emergency requests for materials.
Speaker Change: That's going to come sooner than what you think so for months, we're still running at 100%. There is no plans to change that and.
Speaker Change: I think thats, a really important point to make that there is no.
Speaker Change: There is no weakness from that standpoint.
Josh Sullivan: And we're much better now than we were at our last earnings call Josh When Boeing was on strike I mean.
Speaker Change: Boeing is back and looks like.
Speaker Change: Me, making good credible sound improvements going forward. So I think we're going to get right back into a big snap up and theres going to be.
Speaker Change: A lot of demand as well.
Speaker Change: Sure I'll keep it to two.
Speaker Change: Thank you.
Speaker Change: Your next question today will come from Scott <unk> with Deutsche Bank. Please go ahead.
Scott: Hey, good morning, Tony It looks like the price per pound at <unk> was up about 29%. This quarter I guess can you can you roughly characterize how much of that was just straight price on like for like alloys first how much of that was mix.
Scott: As you, presumably tilted more of the capacity to high priced alloys.
Scott: Tough question, Scott a good one but a tough one.
Scott: So I'm going to I'm going to.
Scott: Respectively punt, a little bit on saying, how much was price and how much was mix because it is a very fluid concept is we're running.
Scott: Our production process.
Speaker Change: I will say this you are 100% correct. We are not a commodity supplier. So I am not trying to maximize tons I am trying to maximize profit right. So we are always looking at how we can make more of the higher valued material.
Speaker Change: As you well know almost 100% of the time the higher priced the material the longer it takes to go through the production process. So that's why you see the difference and say Wow, why arent volumes going out well because we're not a commodity player that's why and we're going to maximize profit. So I mean youre spot on with the with the price increases certain.
Speaker Change: <unk> we've seen.
Speaker Change: New contracts come on place that were effective.
Speaker Change: In our Q2 Youll see more that will become effective in our Q3.
Speaker Change: But don't underestimate the impact of us actively manage that.
Speaker Change: Mix optimization as well.
Speaker Change: Okay. Thank you and then consensus is projecting about 16% EBIT growth in 2026, Tony versus the 45%.
Speaker Change: You're guiding to for this year.
Speaker Change: Not trying to get ahead of Investor day, or maybe I am but I guess does that type of deceleration in your EBIT growth makes sense to you, particularly Boeing does get to <unk> 38.
Speaker Change: Well I'm going to I'm going to make you wait till February the 18th right. I mean, certainly as you look out over the next couple of years.
Speaker Change: It might be difficult.
Speaker Change: The rate of growth that we've had over the last couple of years has been off the charts right you probably not had any.
Speaker Change: Company that you've covered that had that type of increase right. So.
Speaker Change: But we think there's still a lot more in the tank going going forward for us and we look forward to.
Speaker Change: February the 18th to give you more insight there I would be surprised if youre disappointed.
Speaker Change: Okay, and then sorry last question.
Speaker Change: I may have missed this but it seems like medical has seen some destocking over the last few quarters do you have a sense for when that ends.
Speaker Change: Yes, I think you're always going to be in a constant state of some type of destocking in the medical market right. I mean, there's always going to be some some ups and downs, but let me give you a couple examples.
Speaker Change: For medical what that makes us state.
Speaker Change: Very positive.
Speaker Change: About it as we talk to those customers they still feel like they have a very positive demand outlook related to patient.
Speaker Change: Surgical rates and that's where we play right in.
Speaker Change: Orthopedic and cardiology cardiology. So that's positive for US also we have seen.
Speaker Change: All of our customers proactively coming to us asking to shift even more of their business to us and Scott. What's interesting is not just more of the business that we do but asking us to get involved in products that historically, we have not made and can we get in to those types of areas.
Speaker Change: And make it may.
Speaker Change: Make it for them and the last thing I'll say in medical that gives us a lot of <unk>.
Speaker Change: Confidence is.
Speaker Change: That nets level customer in the supply chain is now working even more closely with us and talking about potential long term contracts long term agreement and thats a bit of a new development as well and very positive. So I mean medical is roughly 15% of our business.
Speaker Change: You got aerospace type margins in some cases higher so we remain very confident very positive in that market.
Speaker Change: Thank you.
Speaker Change: Yes. Thanks.
Speaker Change: And if you have a question. Please press star and then one.
Speaker Change: And your next question today will come from Andre Madrid with BTG. Please go ahead.
Speaker Change: Tony Tim John Thanks for taking the question.
Speaker Change: Sure.
Speaker Change: I want to start first.
Speaker Change: Given the new administration coming in this month.
Speaker Change: Lot of talks around tariffs, especially on the material front.
Speaker Change: I know a lot of what you guys used in recycled from your own plants, but I mean, if we were to see any pressure whereby did materialize.
Speaker Change: Good question.
Speaker Change: As always we're closely monitoring that transition we believe.
Speaker Change: As always we're well positioned.
Speaker Change: Regardless of direction that the administration might go as you said you know if you remember wasn't too long ago, we had the last call.
Speaker Change: Tariff regime.
Speaker Change: And that had little impact on our on our business. We anticipate the same and even if there are any types of tariffs that would be applied.
Speaker Change: In addition to maybe what they were in the past to any of our inputs.
Speaker Change: That correspondingly could increase our cost.
Speaker Change: Pass those through to the customer.
Speaker Change: Yes that makes a lot of sense and if I can follow up there.
Speaker Change: Looking at sales volumes in our previous conversations I know you guys say you are still below pre COVID-19 levels on sale volumes.
Speaker Change: Is there any expectation to get back above that or will most of it just be driven on pricing and mix moving forward no.
Speaker Change: I think youll see increases in volume for sure.
Speaker Change: You've got this.
Speaker Change: This type of build.
Speaker Change: Build rate.
Speaker Change: Expectation of our build rate plans for.
Speaker Change: For the Boeing and Airbus has to get to there'll be there'll be more volume coming that's going to be a big player for us over the next several years.
Speaker Change: As far as as we continue to increase our profitability volume price and mix.
Speaker Change: Got it got it and if I can sneak just one more and I know you said lead times are coming down in some regard, but last I heard you know in some exotic theres still lead times extending out over a 100 weeks I mean this was conversations I had probably last month is that the case or are you seeing those coming down as well.
Speaker Change: Well it is dependent on the product when I gave that.
Speaker Change: The answer to that question earlier I was talking mainly on engine materials, where you've seen some type of.
Speaker Change: Pool in that we've been able to maybe not the entire industry whether that be on engine structural some of those other.
Speaker Change: Aerospace materials, we're able to pull those in because we're performing so well out in the plan right. Both our reading facility facility and our <unk> facility doing a very good job on the primary melting rates and that allows us to make more material and that allows us to push more through so that was that is the dry.
Speaker Change: Her of why we've been able to pull those in and not not drastically I mean theyre not cut in half.
Speaker Change: They were at 65, plus weeks may be youre in the low $60 now so but two or three weeks is a is a big deal.
Tony <unk>: Yes, definitely now Tony Thanks, so much for the color I'll leave it there. Thanks. Thank.
Speaker Change: Thank you.
Speaker Change: And your next question today will come from Ben It more with J P. Morgan. Please go ahead.
Ben: Good morning, Tony and Tim Thank you for taking my questions.
Ben: Based on the order backlog and a growing A&D and medical mix is there a level at which you'd look to cap. This and I guess given these products require more time on the assets could we see shipments remain.
Ben: It's somewhat flat to down this year as was the case last year I know youre expecting growth in volume longer term, but thinking more just this year.
Ben: Well, it's a tough paradigm to break right because I know that everybody wants to to look at volumes and say that is the driver of this company and it's just not right.
Ben: Some of those products.
Ben: On Submarkets like transportation some of the industrial products.
Very very high tons, but low margin and those are the ones that you see us moving away from if we can use any of the assets within that.
Ben: Production process flow for other higher in materials. So you can see big changes in volume because we've moved away some products and see a corresponding large increasing and profit because we've chosen to use parts of those assets in that production process.
Ben: To increase our profitability, we're going to keep doing that because.
Ben: We think thats. The reason people buy our shares is to increase profitability not to increase volume.
Ben: Thank you for that and I can turn to energy I realize that.
Speaker Change: That comes through tough sequentially, but could you shed any additional color on the puts and takes.
Speaker Change: What's the decline entirely IGT, driven and I appreciate its early but given all the recent noise around potentially being less power intensive has just come up at all in customer conversation here.
Speaker Change: Yes. Good question it is.
Speaker Change: Energy, especially the power generation sub market inside of the energy is an interesting sub.
Speaker Change: Our sub market for us, it's a little it's a little confusing because on one hand, we will say well its only two years or 3% of our total revenue, which is true but on the other hand, that's an alloy that we like to make right. That's an alloy that we can pull into our system, we get aerospace like margins and we use.
Speaker Change: Use that at times when for example, when I was talking earlier, a customer thats very.
Speaker Change: Dependent on Boeing.
<unk> wants to take a bit of a pause while we were able to move those products in and run them across the same primary mill assets. So we like that product and we like that business or that point, we have customers inside that business, let's say.
Speaker Change: Whenever you have a gap in production just make material for us we will take it.
Speaker Change: That's the that's the type of demand that we have in that in that area.
Speaker Change: Certainly <unk> got a lot of attention when you heard about AI and these data centers.
Speaker Change: We couldn't make enough material for them before that so that was just a whole another level. So I believe over the next several years this sub market, although small for us will.
Speaker Change: It will be a very nice market for us and to be able to pick up very nice very nice margins.
Speaker Change: Thanks, Tony Best of luck.
Speaker Change: Thank you.
Speaker Change: Your next question today will come from Phil Gibbs with Keybanc capital markets. Please go ahead.
Phil Gibbs: Hey, good morning, Congrats on all the progress.
Speaker Change: Morning.
Speaker Change: Morning.
Speaker Change: Tony first question is just on the jet engine sales as I typically ask any color on what those did specifically either sequentially or year over year.
Speaker Change: They.
Speaker Change: Engines were down.
Speaker Change: Sequentially, because really the production plan and our second quarter was focus more on some some other markets. So we can move things back and forth based on what's going on specifically with Boeing but as we look to our third quarter.
Speaker Change: I don't want to start getting into the business of forecasting what sales are going to be by market going forward.
Speaker Change: But we see a pretty meaningful increase in in Aero engines going into our third quarter.
Speaker Change: I can say that any okay any specificity for the model just.
Speaker Change: Down 5%.
Speaker Change: Downtown NIM relative to Q1.
Speaker Change: Relative to our Q1, they were down I'll get Tim to give you. The exact number I think it was about 10 or 11%.
Speaker Change: But I think Q1 that was that was.
Speaker Change: I can't remember the exact number but I think it was about that.
Phil Gibbs: Phil exactly down 14%, but up.
Speaker Change: Up 22% year.
Speaker Change: Perfect. Thank you so much.
Speaker Change: And then just on the backlog Tony I think you said you had a two $2 billion backlog is that is that kind of the approximate number right now I know, it's been running a little over $2 two.
Speaker Change: I think it is about to be honest I think it's $1 9 billion.
Speaker Change: Remember its EBIT of $1 nine I believe it's like two five times, what it was prior to Covid.
Speaker Change: I've said this this is an important point.
Speaker Change: That backlog is a significant advantage for us because it allows us to pool.
Speaker Change: Zero in and Thats, one of the things I mean, how can carpenter technology make this type of profit if boeing's not building planes well, there's other people that are building planes.
Speaker Change: There is other people that are that are making products, we talked about power Gen and were able to pull that backlog in because the majority of that backlog.
Speaker Change: Two thirds of it three quarters of it or is material. That's wanted earlier, so we're able to pull that in and manage that so that's it.
Speaker Change: Very strategic.
Source for us.
Speaker Change: And then lastly from me on the defense side can you.
Speaker Change: Kind of elaborate on what.
Speaker Change: What youre seeing there just in terms of the maybe the customer.
Speaker Change: Conversations if there is.
Speaker Change: Positive benefits from this administration on one hand, but then you have potential the escalation of war on on the other hopefully so.
Speaker Change: So just just we're trying to think about that as we as we look ahead I'm curious what your what you highlight what you said.
Speaker Change: Obviously.
Speaker Change: Our conversations.
Speaker Change: And with with the Dod.
Speaker Change: Is something we keep confidential, but I would say.
Speaker Change: Demand.
Speaker Change: And that's not going to change with this administration I hope all of these conflicts or salt I don't think that urgent demand will change. This is a re a repositioning of the I think the U S. Military that that that demand is going to stay there, but conversations right now in that area I would use the word urgent.
Speaker Change: Thank you so much.
Speaker Change: Thank you.
Speaker Change: Lose our question and answer session I would like to turn the conference back over to John Hewitt, Vice President Investor Relations for any closing remarks.
Speaker Change: Thank you operator, and thank you everyone for joining us today for our fiscal year 2025 second quarter conference call have a great rest of your day.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Okay.
Okay.
Speaker Change: [music].