Carpenter Technology Q4 2025 Earnings Report

Carpenter Technology EPS Results

• Actual EPS: $2.21
• Consensus EPS: $2.03
• Beat/Miss: Beat by +$0.18
• One Year Ago EPS: $1.82

Carpenter Technology Revenue Results

• Actual Revenue: $755.60 million
• Expected Revenue: $790.73 million
• Beat/Miss: Missed by -$35.13 million
• YoY Revenue Growth: -5.40%

Carpenter Technology Announcement Details

• Quarter: Q4 2025
• Date: 7/31/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, July 31, 2025
• Conference Call Time: 10:00AM ET

Carpenter Technology (NYSE:CRS) engages in the manufacture, fabrication, and distribution of specialty metals in the United States, Europe, the Asia Pacific, Mexico, Canada, and internationally. It operates in two segments, Specialty Alloys Operations and Performance Engineered Products. The company offers specialty alloys, including titanium alloys, powder metals, stainless steels, alloy steels, and tool steels, as well as additives, and metal powders and parts. It serves to aerospace, defense, medical, transportation, energy, industrial, and consumer markets. The company was founded in 1889 and is headquartered in Philadelphia, Pennsylvania.

Carpenter Technology Q4 2025 Earnings Call Transcript

Key Takeaways

• Neutral Sentiment: Improved safety with a 20% reduction in total case incident rate to 1.4 in FY25, targeting zero injuries.
• Positive Sentiment: Achieved record Q4 adjusted operating income of $151 M (+21% YoY) and expanded SAO segment margin to 30.5% from 25.2% a year ago.
• Positive Sentiment: Generated $201 M in adjusted free cash flow in Q4 (FY25: $287.5 M), repurchased $101.9 M of shares and paid $40 M in dividends.
• Positive Sentiment: End-market sales grew across key segments: Aerospace & Defense +3% QoQ (engines +5%, defense +17%), Energy +27% QoQ (power gen >100% YoY) and Medical +6% QoQ.
• Positive Sentiment: Guided FY26 adjusted operating income of $660 M–$700 M (+26–33%), free cash flow of $240 M–$280 M, and reiterated FY27 target of $765 M–$800 M alongside a $400 M brownfield expansion.

Presentation

[Operator]

Thank you for standing by. My name is Ian, and I will be your conference operator today. At this time, I would like to welcome everyone to the Carpenter Technology CRS Q4 FY 'twenty five Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

[Operator]

Thank you. I would like to hand the call over to John Hewitt, VP, Investor Relations. You may begin your conference.

[John Huyette, VP - IR at Carpenter Technology]

Thank you, operator. Good morning, everyone, and welcome to the Carpenter Technology earnings conference call for the fiscal twenty twenty five fourth quarter ended 06/30/2025. 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. Speakers on the call today are Tony Tain, President and Chief Executive Officer and Tim Lane, Senior Vice President and Chief Financial Officer.

[John Huyette, VP - IR at Carpenter Technology]

Statements made by management during this earnings presentation that are forward looking statements are based on current expectations. Risk factors that could cause actual results to differ materially from these forward looking statements can be found in Carpenter Technology's most recent SEC filings, including the company's report on Form 10 ks for the year ended 06/30/2024, Forms 10 Q for the quarters ended 09/30/2024, 12/31/2024 and 03/31/2025 and the exhibits attached to those filings. Please note that in the following discussion, unless otherwise noted, when management discuss the sales or revenue that reference excludes surcharge. When referring to operating margins, that is based on adjusted operating income, excluding special items and sales, excluding surcharge. I will now turn the call over to Tony.

[Tony Thene, President, CEO & Director at Carpenter Technology]

Thank you, John, and good morning to everyone. I will begin on Slide four with a review of our safety performance. We ended fiscal year twenty twenty five with a total case incident rate of 1.4. This is a notable 20% improvement over fiscal year twenty twenty four. Although this rate would rank as one of the safest metal manufacturing companies, it is not a rate we accept at Carpenter Technology.

[Tony Thene, President, CEO & Director at Carpenter Technology]

As we enter fiscal year twenty twenty six, we remain committed to our ultimate goal, a zero injury workplace driven by a sharp focus, consistent action and continuous improvement. Let's turn to slide five for an overview of our fourth quarter performance. We continued our earnings momentum with strong execution to close out the fiscal year, delivering the most profitable quarter on record. For the 2025, we generated $151,000,000 in adjusted operating income, a 21% increase over our 2024 and a 10% increase over our recent third quarter, which was our previous record for quarterly operating income. The profitability was driven by SAO as the segment continues to expand adjusted operating margins, reaching 30.5% in the quarter compared to 25.2% a year ago and 29.1% in the prior quarter.

[Tony Thene, President, CEO & Director at Carpenter Technology]

You may recall that a year ago, having achieved the 25% adjusted margin milestone in SAO, I said that we had line of sight to 30% margins. And now that we have achieved the 30% milestone, I continue to expect margins to expand further. As the major drivers of our growth, improvements in productivity, product mix optimization and pricing actions continue to be opportunities for our business. The SAO segment reached a record $167,000,000 of operating income, an increase of 19% year over year and 10% sequentially. In addition, with strong earnings and a disciplined working capital management, we generated $201,300,000 in adjusted free cash flow during the quarter.

[Tony Thene, President, CEO & Director at Carpenter Technology]

And we continued returning cash to shareholders through our dividend and repurchase programs, purchasing $24,100,000 of shares in the quarter, raising the total to 101,900,000 for the fiscal year. Turning to slide six and a closer look at fourth quarter sales and market dynamics. In the 2025, sales increased sequentially across all key end use markets. Starting with the aerospace and defense end use market, sales increased 3% sequentially and 2% over our 2024, which at the time was our highest revenue quarter on record for the aerospace and defense end use market. Within aerospace and defense, sales were notably up across engines, fasteners and defense.

[Tony Thene, President, CEO & Director at Carpenter Technology]

Our engine sales were up 5% sequentially as demand for our materials remained strong. Our engine customers continue to be concerned about surety of supply as they navigate high MRO demand while looking forward to the ongoing and accelerating build rate ramp. In fact, sales to our engine customers might have been higher if not for our increased focus on the power generation submarket in the quarter, which I will touch on momentarily. And our defense submarket sales were up 17% sequentially as we continue to see urgent requests for material across multiple platforms. Overall, the aerospace supply chain continues to increase activity as build rates ramp and confidence grows in the OEM's ability to perform. Let me provide some comments from the recent Paris Air Show to further illustrate what we are hearing from our customers. The general theme customers talked about was the ongoing ramp in aerospace demand and how that specifically impacts their business.

[Tony Thene, President, CEO & Director at Carpenter Technology]

Some customers emphasized the need for us to provide more material faster and we discuss ongoing efforts to increase shipments to them. Others, based on where they are positioned in the supply chain, report they are managing their inventory closely and looking for signals of step ups in demand, which we all anticipate, particularly around Boeing build rates. We advanced and completed several long term agreements while in Paris, in line with our expectations and supporting our ongoing growth. Many customers expressed their appreciation for how we have worked with them over the last several quarters as they needed to adjust their schedules to better match aerospace builds. Finally, customers were excited about the brownfield capacity expansion project that we recently announced and wanted to know what it would mean specifically for the products they purchased from us.

[Tony Thene, President, CEO & Director at Carpenter Technology]

Overall, the Paris Air Show was a positive event, and we came away with even higher confidence about the future outlook for Aerospace and Defense. Moving on to the Medical end use market. Our sales were up 6% sequentially and down 16% compared to a record prior year fourth quarter. It's important to note that underlying demand in Medical remains positive with ongoing increases in patient procedures. While our Medical sales have already grown substantially over the last several years, we continue to believe there is significant growth potential. Shifting to the energy end use market, sales were up 27% sequentially and 22% year over year with significant increases in sales to our power generation customers. As has been widely reported, demand for power generation continues to accelerate. Because the alloys that we produce that go into power generation applications, primarily industrial gas turbines, are similar to our aerospace materials, they command similar high margins. They also compete for time on similar assets. Therefore, we are carefully managing our production schedules to slot in the power generation demand.

[Tony Thene, President, CEO & Director at Carpenter Technology]

Looking ahead, we will continue to work closely with the power generation supply chain from OEMs to parts manufacturers to support their growth as this submarket has become a valuable strategic advantage for us. Altogether, the demand outlook for Carpenter Technology remains very positive and should only strengthen in the coming quarters as the aerospace industry continues to ramp, the medical industry remains at high levels and the IGT business continues to aggressively pull for more material. Now I will turn it over to Tim for the financial summary.

[Timothy Lain, Senior VP & CFO at Carpenter Technology]

Thanks, Tony. Good morning, everyone. I'll start on the income statement summary. Starting at the top, sales excluding surcharge decreased 2% year over year on 14% lower volumes. Sequentially, sales were up 4% on 5% higher volume.

[Timothy Lain, Senior VP & CFO at Carpenter Technology]

The improving productivity, product mix and pricing are evident in our gross profit, which increased to $213,900,000 in the current quarter, up 12% from the same quarter last year. SG and A expenses were $62,500,000 in the fourth quarter, essentially flat sequentially and down slightly from the same quarter last year. Adjusted operating income was $151,400,000 in the current quarter, which is 21 percent higher than the $125,200,000 in our 2024 and up 10% from our recent third quarter. As Tony mentioned earlier, this represents another record quarterly operating income result, breaking the previous record, which was just set last quarter. Moving on to our effective tax rate, which was 19.7% in the current quarter.

[Timothy Lain, Senior VP & CFO at Carpenter Technology]

This quarter's effective tax rate was lower than our anticipated rate due to certain discrete tax benefits recorded in the current quarter associated with equity awards. The full fiscal year 2025 effective tax rate was similar to the current Again, the reason the effective tax rate is lower than the normalized rate is primarily due to discrete tax benefits from the impact of equity awards vesting and stock option exercises during the year. For fiscal year twenty twenty six, we expect the effective tax rate to be more in line with our normalized rate of 21% to 23%. Finally, the earnings per diluted share was $2.21 for the quarter. The quarterly results cap off a historic fiscal year 2025.

[Timothy Lain, Senior VP & CFO at Carpenter Technology]

The Carpenter Technology team delivered on our promise of higher profitability driven by actions across the operations to increase productivity, manage the product mix to optimize for profit and realize the benefits of pricing actions that we continue to pursue and capture. Now turning to more detail on each of the segments, starting with our SAO segment results. Net sales excluding surcharge for the fourth quarter were $548,000,000 Sequentially, sales were up 6% on 5% higher volume driven by increases in our key end use markets of aerospace and defense, medical and energy. With adjusted operating margin of 30.5%, a meaningful milestone, SAO reported operating income of $167,000,000 in the fourth quarter. The continued increase in sales, profitability and margin expansion is a result of what we have highlighted over the last several quarters, specifically the SAO team's ability to increase productivity at key work centers to drive an improving mix while realizing higher selling prices.

[Timothy Lain, Senior VP & CFO at Carpenter Technology]

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. Looking ahead to our upcoming 2026, we anticipate SAO will generate operating income in the range of $162,000,000 to $165,000,000 which accounts for the planned maintenance activities to be executed in our upcoming first quarter. Now turning to slide 10 and our PEP segment results. Net sales excluding surcharge in the 2025 were $97,100,000 down 5% from the same quarter a year ago and flat sequentially. In the current quarter, PEP reported operating income of $11,700,000 compared with $10,600,000 in the same quarter a year ago and $10,900,000 in the 2025.

[Timothy Lain, Senior VP & CFO at Carpenter Technology]

The improving profitability is a result of solid results in our titanium business. As we've talked about in the past, our titanium business, Dynamet, is the driver for PAT. Our titanium solutions are an important element of our medical end use market portfolio. Dynamet's medical end use market sales account for more than 60% of Dynamet's net sales in fiscal year twenty twenty five. In addition to Dynamet, the additive business continues to drive higher sales resulting in improved profitability.

[Timothy Lain, Senior VP & CFO at Carpenter Technology]

With that in mind, we currently anticipate that the PEP segment will deliver operating income in the range of 11,000,000 to $12,000,000 in the upcoming 2026. Now turning to the next slide to talk about our cash generation and capital allocation priorities. In the current quarter, we generated $258,000,000 of cash from operating activities and we spent $58,000,000 on capital expenditures, resulting in $201,300,000 of adjusted free cash flow. For the full fiscal year, we generated $287,500,000 in free cash flow. The cash generation results were driven by improving profitability and our disciplined approach to working capital management.

[Timothy Lain, Senior VP & CFO at Carpenter Technology]

The cash generation is the engine driving our capital allocation priorities. At the beginning of fiscal year twenty twenty five, we announced the authorization of a $400,000,000 stock repurchase program. To date, we have purchased $101,900,000 under the program. The share repurchases complement our long standing quarterly dividend and taken together reflect our commitment to return cash to our shareholders. In addition, we are committed to investing in our future growth.

[Timothy Lain, Senior VP & CFO at Carpenter Technology]

We announced the $400,000,000 brownfield capacity expansion back in February, which is now underway. During fiscal year twenty twenty five, we spent $26,000,000 of capital expenditures related to this project over and above the base CapEx, which resulted in $154,300,000 of reported capital expenditures for fiscal year twenty twenty five. As we look ahead to fiscal year twenty twenty six, we expect to spend 300,000,000 to $315,000,000 on capital expenditures. This includes an estimated $175,000,000 to $185,000,000 related to the Brownfield expansion project. We ended the quarter and the fiscal year with $664,400,000 in total liquidity, including $315,500,000 of cash.

[Timothy Lain, Senior VP & CFO at Carpenter Technology]

Our leverage ratio remains at historic lows. In fact, at 06/30/2025, our net debt to EBITDA ratio is 0.5 times and we have no near term debt maturities. Our free cash flow outlook is strong. We expect to generate adjusted free cash flow of $240,000,000 to $280,000,000 in fiscal year twenty twenty six. For clarity, this is net of our anticipated capital expenditures of 175,000,000 to $185,000,000 related to our brownfield capacity expansion project.

[Timothy Lain, Senior VP & CFO at Carpenter Technology]

Before I turn the call back to Tony, I wanted to highlight that as we have done in the past, we have included a slide in the appendix of this presentation that includes selected guidance to help model our anticipated fiscal year twenty twenty six results. With that, I will turn the call back to Tony.

[Tony Thene, President, CEO & Director at Carpenter Technology]

Thanks, Tim. The completion of fiscal year twenty twenty five marked a meaningful milestone in the growth of Carpenter Technology. Just over two years ago, at our Investor Day in May 2023, we communicated a four year goal to reach $460,000,000 to $500,000,000 in operating income, which was double our pre COVID high. We exceeded that original target in just two years. For fiscal year twenty twenty five, we generated 5 and $25,400,000 in adjusted operating income, a 48% increase over fiscal year twenty twenty four, our previous record year and nearly four times our fiscal year twenty twenty three.

[Tony Thene, President, CEO & Director at Carpenter Technology]

And we delivered those record profits at a time when the aerospace supply chain slowed, the medical industry went through a destocking and geopolitical issues continued. It is a testament to our focus on execution, backed by a strong market position, broad solution portfolio and unique capabilities that we were able to deliver such a strong year. In addition, with the record earnings and disciplined working capital management, we generated $287,500,000 in adjusted free cash flow in fiscal year twenty twenty five. That is net of our investment in the Brownfield expansion project as detailed in our recent investor update event, which will be an accelerant to our growth trajectory starting in fiscal year twenty twenty eight. And we continue to return cash to shareholders.

[Tony Thene, President, CEO & Director at Carpenter Technology]

Over the course of the fiscal year, we executed $101,900,000 in share repurchases in addition to $40,000,000 in dividends. Altogether, the results speak for themselves, demonstrating powerful momentum. This is also evident as our market cap increased to over $13,000,000,000 delivering meaningful total shareholder return. But as we communicated in a recent investor update event, we believe this is far from our peak. The same dynamics that drove our success in fiscal year twenty twenty five are only strengthening as we look ahead over the next several years.

[Tony Thene, President, CEO & Director at Carpenter Technology]

With that, let's turn to our fiscal year twenty twenty six outlook. Let's start with the near term. For the first quarter of fiscal year twenty twenty six, we are projecting between $148,000,000 and $152,000,000 in operating income. This is approximately 26% to 30% higher than last year's first fiscal quarter, which was then a record best first fiscal quarter and roughly in line with our just completed record fourth quarter. This represents a strong start to fiscal year twenty twenty six.

[Tony Thene, President, CEO & Director at Carpenter Technology]

For those of you who have been following our story, you know our preventative maintenance program is critical to keeping our assets healthy as we look to grow over the long term. We continue to operate in an increasingly strong demand environment and asset availability is key to our continued success. Already in the 2026, we have completed several preventive maintenance projects and have additional activities planned for the remainder of the quarter. It is a strong testament to our earnings creation momentum that we are able to project record first quarter earnings even while completing strategic preventive maintenance projects. Moving on to how we are thinking about the full fiscal year 2026.

[Tony Thene, President, CEO & Director at Carpenter Technology]

At our recent investor update event in February, we set a target of $765,000,000 to $800,000,000 in adjusted operating income for fiscal year twenty twenty seven. This represents a nearly twenty five percent two year CAGR over our record fiscal year twenty twenty five operating income, and we believe it is the highest growth trajectory of our peers in the industry over that period of time. Our growth will continue to be driven by increasing sales and expanding margins from improving productivity, product mix and pricing actions. It is important to note that we expect operating income to be materially higher in the second half of fiscal year twenty twenty six versus the first half. This is driven by available operating days more heavily weighted towards the second half of our fiscal year due to planned maintenance activities and holidays as well as the anticipated aerospace supply chain ramp continuation that will drive further earnings growth tailwinds in the second half of fiscal year twenty twenty six.

[Tony Thene, President, CEO & Director at Carpenter Technology]

With that said, we project fiscal year twenty twenty six to be a meaningful step on the path towards fiscal year twenty twenty seven operating income goal. Specifically, we expect $660,000,000 to 700,000,000 in adjusted operating income in fiscal year twenty twenty six. This range represents a 26% to 33% increase over our record fiscal year twenty twenty five earnings. And as I stated earlier, we believe this is our highest earnings growth trajectory among our industry peers. In addition, we are projecting approximately $240,000,000 to $280,000,000 in adjusted free cash flow during fiscal year twenty twenty six, net of brownfield capital expenditures, another meaningful step up in our cash flow performance.

[Tony Thene, President, CEO & Director at Carpenter Technology]

Finally, what is now our fiscal year twenty twenty seven target will not be the peak of our earnings growth as the same dynamics that are driving our current performance are expected to only get stronger in the future. Let's turn to the next slide as I believe this point deserves a bit more detail. As I detailed earlier on the market slide, the aerospace and defense, medical and energy markets has strong growth outlooks for years to come. To be successful, both to meet the volume output demand as well as the performance challenges, these markets will rely on our diverse portfolio of products and world class capabilities. We manufacture highly specialized products designed to meet customer and application specific technical needs.

[Tony Thene, President, CEO & Director at Carpenter Technology]

And in many cases, we are the only company in the world able to make the material. As we look to the future in the aerospace market, significantly more planes will need to be built and practically all will have Carpenter Technology content on them as we saw some of the most difficult technological challenges across many areas of the aircraft. Our specialized materials are found on all engine platforms in a wide range of components, including rings and discs, combustors, gearing systems, bearings and fuel nozzles. Beyond the robust outlook for current generation engines, we continue to engage with OEMs to discuss future generation engine design and how our solutions can address the challenges they are facing. In structural applications, our materials are found in high performance parts such as landing gear and wing components.

[Tony Thene, President, CEO & Director at Carpenter Technology]

Given the stress these components must withstand, they require high strength wear and corrosion resistance performance. In avionics, we enable more powerful and efficient electric motors and generators, critical on aircraft where weight and space are at a premium. Our soft magnetic material found in the rotor and stator of an electric motor is critical to realizing those performance requirements. And our broad range of specialized alloys, including titanium, are found in fasteners across the entire plane including the fuselage and the engine. As you can see, we are not overexposed to one particular platform, but instead participate across multiple platforms and OEMs for newbuilds and MRO.

[Tony Thene, President, CEO & Director at Carpenter Technology]

Our relevance to the aerospace OEMs and the overall aerospace supply chain is significant and highly valued by our customers. Shifting to Medical, where our vision of partnering with our customers to solve their challenges has come to life. In working with Medical OEMs, we are inventing new advanced solutions that improve patient outcomes. For example, in orthopedics, we have invented low nickel alloys for use in medical implants. This material virtually eliminates the impact of nickel sensitivities, which can cause complications for a portion of the medical patient population.

[Tony Thene, President, CEO & Director at Carpenter Technology]

Finally, in power generation, as I detailed in the market overview, there is significant demand for industrial gas turbines with rising energy demand from the technology sector. Coffier technology supports the IGT supply chain with multiple material solutions that are similar to materials used in commercial jet engines. These are just a few examples of where some of our most advanced solutions address key application challenges for our customers today and will continue to do so into the future. We believe our capabilities are unmatched and virtually impossible to fully replicate over the course of the next several decades. So when we talk about 2028 and beyond, it is undeniable that we will continue to be an irreplaceable force in helping our customers solve their most critical challenges.

[Tony Thene, President, CEO & Director at Carpenter Technology]

With this strong market outlook and our unique strategic position, we continue to seek opportunities to accelerate our long term earnings growth potential. This mindset drove the recently announced brownfield expansion. The $400,000,000 project will add high purity primary and secondary melt capacity that will feed existing downstream finishing assets. We are in a demand environment where industry capacity for our specialized materials is well short of demand. This enables us to invest in a brownfield expansion without materially changing the industry's fundamental supplydemand imbalance.

[Tony Thene, President, CEO & Director at Carpenter Technology]

We believe Carpenter Technology is best positioned to successfully complete such a project given our capabilities and unique collection of assets. Now let's turn to the final slide to summarize this great story. We just completed a historic fiscal year 2025. For fiscal year twenty twenty five, we generated 5 and $25,400,000 in adjusted operating income, a 48% increase over fiscal year twenty twenty four, our previous record year, and nearly four times our fiscal year 2023, exceeding the original four year target in just two years. We generated $287,500,000 in adjusted free cash flow over the course of the year, net of brownfield capacity expansion expenditures.

[Tony Thene, President, CEO & Director at Carpenter Technology]

We continue to build operating momentum with increased productivity, improved mix and higher realized prices. In the current quarter, we expanded SAO adjusted operating margins to 30.5%, up from 25.2% from the previous year fourth quarter. And we executed $101,900,000 in stock repurchases in fiscal year twenty twenty five against the $400,000,000 authorization, returning cash to shareholders. At our February 2025 investor update, we announced a fiscal year twenty twenty seven operating income target of $765,000,000 to $800,000,000 And today, we provide more insight as we guided to a strong fiscal year twenty twenty six, projecting $660,000,000 to $700,000,000 in operating income. As I stated earlier, this range would represent a 26% to 33% increase over our record fiscal year twenty twenty five earnings and as we believe our highest earnings growth trajectory among our industry peers.

[Tony Thene, President, CEO & Director at Carpenter Technology]

Importantly, we believe fiscal year twenty twenty seven isn't the earnings peak. We are just getting started. As we look out over the long term, Carpenter Technology is well positioned to continue to drive meaningful shareholder value. We are operating in a strong demand environment across our end use markets with the long term outlook even stronger than today. Given our unique assets, capabilities and solutions, we are well positioned to realize this high value demand.

[Tony Thene, President, CEO & Director at Carpenter Technology]

We are actively investing to accelerate that growth with additional strategic brownfield melting capacity, and we are balancing opportunities to invest in future growth with our desire to return cash to shareholders through our repurchase and dividend programs. In closing, 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. And now I will turn the call back to the operator.

[Operator]

Our first question comes from the line of Gautam Khanna with TD Cowen. Your line is open.

[Gautam Khanna, Analyst at TD Cowen]

Hey guys. Thanks for the great explanation and good results.

[Tony Thene, President, CEO & Director at Carpenter Technology]

Good morning, Gautam.

[Gautam Khanna, Analyst at TD Cowen]

Tony and Tim, I was wondering, could you just talk a little bit about lead times, if they've evolved at all in jet engines, fasteners and any other markets you think are important indicators? And then broadly, if you could speak to your expectations of pricing through the cycle over the next couple of years. You may have heard ATI announced a little bit of capacity today or I guess they alluded to it a quarter ago. Just do you think there's any impact to the strong pricing power that you guys have had? Do you think that will endure? Thanks.

[Tony Thene, President, CEO & Director at Carpenter Technology]

Yes. Thanks for your question, Gautam. I'll start with the second one. We said publicly in the past that as we go forward that we see pricing actions continuing to be a tailwind. That's still the case for us.

[Tony Thene, President, CEO & Director at Carpenter Technology]

That hasn't changed. The supply demand gap as you look forward is so large. You remember we made a very concerted effort to talk specifically about that when we announced our brownfield that said that it would not impact that overall supply demand. As you see others put in smaller investments, that's not going to have a big impact to the overall supply and demand. In fact, it's helpful.

[Tony Thene, President, CEO & Director at Carpenter Technology]

It helps us the entire industry build at a higher rate than we are right now. So I think those are complementary more investments and I think they're welcomed in the industry. So I don't see any issue with that going forward. The activity we just had in Paris with some of the contracts would substantiate that. We don't see any change to our position when it comes to pricing actions.

[Tony Thene, President, CEO & Director at Carpenter Technology]

That's number one. Number two, the first part of your question is lead times. They remain extended. We use jet engines as the proxy for the overall lead times and they remain extended and I would assume that they'll stay that. I think going forward, quite frankly Gautam, you're going to see even more tightness than you see now, right?

[Tony Thene, President, CEO & Director at Carpenter Technology]

Because you've got Boeing making good progress right now, that's a major positive, But you still have a subsection of the overall supply chain that was tied very tightly to Boeing and maybe specifically the seven thirty seven. So in their minds, they're probably saying we're holding more inventory than what we'd like. But I think over the next couple of quarters, Gautam, you're going to see that turn dramatically and any of that inventory will be used very, very quickly. On the other hand, you have customers that are broader in their offerings, I mean by more outlets than the seven thirty seven. We see them pulling pretty aggressively on us right now.

[Tony Thene, President, CEO & Director at Carpenter Technology]

So I think you had a very good point right now where you see Boeing producing well, very consistent. And over the next couple of quarters, believe it's going to continue to get tighter. Lead times are going to stay extended. Hopefully, that helps answers your question.

[Gautam Khanna, Analyst at TD Cowen]

Yes. Thanks for the thorough response. I really appreciate it. I'll turn it over.

[Tony Thene, President, CEO & Director at Carpenter Technology]

Yes. Thank you.

[Operator]

Our next question comes from the line of Scott Deuschel with Deutsche Bank. Your line is open.

[Scott Deuschle, Director - Aerospace & Defense Equity Research at Deutsche Bank]

Hey, good morning. Tony, did you approach this initial twenty twenty six EBIT guide with a similar level of conservatism as you initially approached 2025 guide with?

[Tony Thene, President, CEO & Director at Carpenter Technology]

Scott, that's a good question. At a high level, of course, we take a look at what we see internally and when we put a number out there, we want to make sure that we can hit it. So we are not overexposed on that number. We're not that number doesn't include actions that we don't have a line of sight to being able to accomplish. Now there's a lot of hard work, as I know you appreciate, to get to that number.

[Tony Thene, President, CEO & Director at Carpenter Technology]

And obviously, the market is a bit more defined, if you will, than back in May 2023. A lot of things have happened since then. But I think it's fair to say that we take these targets very seriously. We know people rely on them. And in all cases, have line of sight that we're going to be able to achieve that.

[Scott Deuschle, Director - Aerospace & Defense Equity Research at Deutsche Bank]

Thank you. And Tony, are you getting orders today that support a reacceleration in aerospace and defense volumes within the next few quarters or maybe just having conversations to that effect that give you confidence and an acceleration of volumes in that specific end market?

[Tony Thene, President, CEO & Director at Carpenter Technology]

Yes, Scott. So maybe I'll elaborate a little bit further. It's kind of the point I was making there to Gautam, the three if you take a look at Aerospace, Defense if you're on the Defense side, that is very aggressive. So the pulls on the defense side is very aggressive. And I think on the aerospace side, Scott, there are really two subgroups inside of that, right?

[Tony Thene, President, CEO & Director at Carpenter Technology]

And that's and I think that's a real distinction. And again, I'm talking about nickel billet in aerospace. I'm not talking about titanium because I don't play in the titanium aerospace space other than my titanium fasteners. And I think the dynamics between nickel and titanium are significantly different. So I just want to be clear, I'm specifically talking about obviously nickel, the area that we play in.

[Tony Thene, President, CEO & Director at Carpenter Technology]

So on nickel aerospace, there's really two camps. One, there is for sure this camp that has been that is very tied to Boeing and the July. And it wasn't that long ago that they were building two or three quarters ago, when I say not long ago, building inventory for this ramp and then you had the issues with Boeing, obviously. So they might be holding a little bit more than they would like. Certainly, discussions with them or they're looking for that next level of confidence.

[Tony Thene, President, CEO & Director at Carpenter Technology]

I've said this before, we have worked with those customers. We have not forced material on them. We don't think that's the way to do it. So we've been very proactive with them and helping them work through that. But seeing what talking to them recently, the announcement out of Boeing about the rates that they're hitting and where they see themselves going in the next two quarters, let's say, by the fall, I think is how they phrased it.

[Tony Thene, President, CEO & Director at Carpenter Technology]

That's very positive for them. And I think if they see just a little bit more of that, Scott, you'll see that ordering come back from them very quickly, right? And I think probably in two quarters, you might even say urgently. Now the other side of that, the other subgroup that is has content certainly on the seven thirty seven, but that's not the only outlet they have. We've seen them come back more aggressively here over the last couple of months.

[Tony Thene, President, CEO & Director at Carpenter Technology]

I mean, bookings are higher sequentially than they were last quarter. So we see that coming back. I mean, were up 17 to 18% sequentially. So to answer your question that's the number, right? That tells you that yes, you see that type of improvement.

[Tony Thene, President, CEO & Director at Carpenter Technology]

So I think this is all very positive. I know we're in this point now where of course people are looking to see more consistency I think specifically from Boeing, but I think they're delivering that and I believe over the next couple of quarters you'll see that those folks in subgroup come back pretty strongly.

[Scott Deuschle, Director - Aerospace & Defense Equity Research at Deutsche Bank]

That's really helpful. And Tim, sorry if I missed this, but how much were power generation revenues up this quarter year over year?

[Timothy Lain, Senior VP & CFO at Carpenter Technology]

We didn't say that on the call, Scott, but they were up significantly. Remember, power gen is in our energy business and it's power gen and oil and gas that make up energy, But power gen was up significantly both year over year and sequentially.

[Scott Deuschle, Director - Aerospace & Defense Equity Research at Deutsche Bank]

Okay. Thank you. I'll pass it along.

[Operator]

Our next question comes from the line of Josh Sullivan with Benchmark. Your line is opened.

[Josh Sullivan, Equity Research Analyst - Industrial Technology, Aerospace & Defense at The Benchmark Company LLC]

Good morning. Hello. Just on the defense growth, you noted the urgent requests continue to come in, clearly geopolitical operationally, tempo is pretty high globally. But is there a way you can frame the urgent request from defense versus the more regular way? And then what does that urgent versus regular order flow look like over kind of the medium term cycle in your opinion?

[Tony Thene, President, CEO & Director at Carpenter Technology]

Well, Josh, think as you know on the defense side those orders are historically more uneven than aerospace because they're very program specific. They depend on budgets being passed by the Congress. They depend on a lot of different schedules. So by definition, they're more uneven, right? Now you've seen some potential clarity when it comes to the defense budget on what that will be and we've seen those orders increase even more over the last couple of months.

[Tony Thene, President, CEO & Director at Carpenter Technology]

I would suspect going forward that defense based on what's in the new defense budget that lines up very closely to the products that we produce, we supply that you'll see that stay at very elevated order levels.

[Josh Sullivan, Equity Research Analyst - Industrial Technology, Aerospace & Defense at The Benchmark Company LLC]

Got it. And then on the maintenance events coming up, your ability to operate at these historic margins and continue to march higher, You're pretty uncompromising on the maintenance, but it seems to be the very effective tool in managing the system. How can you just talk about how that's an advantage for you guys and maybe how that helps the overall long term margin profile?

[Tony Thene, President, CEO & Director at Carpenter Technology]

Well, you can't make any money if the assets don't run and that's pretty clear. Maybe not everybody operates that way, but we do. We've really moved to be much more over the last couple of years much more data driven using AI tools significantly in this area to predict what may happen. I mean predictive maintenance has been around for decades. What hasn't been around for decades is the AI tool that you can use to even dig even much deeper and to understand what type of preventive maintenance outages you want to take.

[Tony Thene, President, CEO & Director at Carpenter Technology]

I think secondly, Josh, what's the big deal is that for us, the days of these long term shutdowns are behind us, right? I mean we're we keep our outages shorter, more targeted. I mean, that avoids the long ramp ups like others might have when you have that long period of shutdown. So as you look for us over the next couple of quarters, I mean, we have very targeted many outages, if you will, scheduled across melting, remelt, hot working, cold finishing across the entire production flow to keep this thing running at its highest level. I agree with you.

[Tony Thene, President, CEO & Director at Carpenter Technology]

I think it is a strategic advantage on how we manage our operations and how we perform preventive maintenance and it is a focus area for us even going forward to get better.

[Josh Sullivan, Equity Research Analyst - Industrial Technology, Aerospace & Defense at The Benchmark Company LLC]

And maybe just one last one. On the power generation side, are you seeing anything where they're using more of your advanced materials? I mean, there any material change in the IG side? Or is it more replacement cycle of legacy materials for being industrial gas turbines?

[Tony Thene, President, CEO & Director at Carpenter Technology]

Well, I mean, we operate on the high end, right? So the products that we supply are the alloy is very similar to the an aerospace alloy. So we see that being the prominent alloy going forward for us. And Josh, if you don't mind, I hate to disappoint Scott when he asked the question about PowerGen. As Tim said, it's inside of our oil and gas.

[Tony Thene, President, CEO & Director at Carpenter Technology]

Oil and gas was actually down from a quarter over quarter. I mean Power Gen was year over year was over 100% increase. So you see a big play there in power generation. That's a real strategic advantage for us because now we're able to command aerospace like margins. It's a product that we know very well and it really fits well within our overall production flow.

[Tony Thene, President, CEO & Director at Carpenter Technology]

So maybe the percent of revenue is small because we're so dominant on aerospace, but it's very strategic to us and real market growth potential for us going forward.

[Josh Sullivan, Equity Research Analyst - Industrial Technology, Aerospace & Defense at The Benchmark Company LLC]

Great. Okay. Thank you for the time.

[Operator]

Your next question comes from the line of Bennett Moore with JPMorgan. Your line is open.

[Bennett Moore, VP - Equity Research at JPMorgan Chase]

Good morning, Tony and Tim. Thank you for taking my questions and congrats on a record year.

[Tony Thene, President, CEO & Director at Carpenter Technology]

Yes. Thank you. Good morning.

[Bennett Moore, VP - Equity Research at JPMorgan Chase]

Should we think about further mix gains in the fiscal year 2026? More specifically, if you can maintain the rate of A and D mix growth seen over the past twelve to eighteen months, I would think this would be somewhat a function of yield improvements and leveraging latent capacity. If you could comment on that too, please.

[Tony Thene, President, CEO & Director at Carpenter Technology]

Well, make sure I come back with a follow-up if I don't hit your question on the mark. I mean, we go forward, certainly, we see ourselves predominantly as an aerospace company. That's going to be where we that our primary focus or one of our primary focuses are going to be. So we see that continuing to increase. I mean aerospace demand is going to be significantly higher over the next couple of years than it is right now.

[Tony Thene, President, CEO & Director at Carpenter Technology]

I mean that doesn't take a lot to figure that out when you just look at where the OEMs are building today and where they want to be building two years from now. So we see our aerospace business continuing to grow. At the same time, Medical is a market that is very strong for us as well, where you get Aerospace margins and in some cases higher than Aerospace margins. And I think this is really important, right? If you look at our Medical business, Bennett, back in FY twenty nineteen prior to COVID, our Medical sales are 70% higher than they were then.

[Tony Thene, President, CEO & Director at Carpenter Technology]

So this is a market that we've really expanded and we've been able to expand because we're an innovator. This market demands that you are an innovator. This market demands that you invent new alloys to help solve the customers' problems. That's why I mentioned in my prepared remarks this new alloy around nickel sensitivity. That's a major issue in the medical market that we were able to step in and solve.

[Tony Thene, President, CEO & Director at Carpenter Technology]

So this isn't a market that you can step into and step out of whenever you think you have some open capacity. This is a market that you have to be committed to as an inventor and an innovator and a solver of your customers' problems. So that's the way we see it. So that's going to be a continuing driver for us. And then we just talked about power generation.

[Tony Thene, President, CEO & Director at Carpenter Technology]

I mean, in many ways, I think we can push our power generation sales as high as we want. I mean, the demand right now seems really unlimited and the exchanges we have with those customers are extremely positive. So if you take those three pieces right there, I mean you've got aerospace over 60%, you add in medical and power generation, you get over 80%. So it's a very, very strong mix that I see as maybe to specifically answer your question continuing to strengthen or richen that mix over the coming years.

[Bennett Moore, VP - Equity Research at JPMorgan Chase]

Thank you for that. And then I guess coming to shipments, know you mentioned the preventative maintenance in 1Q, think earnings back half weighted. Are you still or is it fair to assume SAO volumes could trend higher this year, maybe more back half weighted?

[Tony Thene, President, CEO & Director at Carpenter Technology]

I think what we have to do, Bennett, when you talk about volumes, I think the days of looking at overall volumes are gone, right? We're just too complex. It's too sophisticated. You need to look specifically at aerospace volumes, medical volumes. Those I will answer yes to.

[Tony Thene, President, CEO & Director at Carpenter Technology]

Some of our other markets that have traditionally been higher volume, lower profit, then you're not going to see the same emphasis there. So going forward, let's talk about volumes by market and I think we'll have a much clearer picture. And that's what we're trying to do. We're trying to drive profitability not volume.

[Bennett Moore, VP - Equity Research at JPMorgan Chase]

Understood. Thank you and best of luck.

[Tony Thene, President, CEO & Director at Carpenter Technology]

Thank you, sir.

[Operator]

Our next question comes from the line of Andre Madrid with BTIG. Your line is open.

[Andre Madrid, VP & Aerospace & Defense Analyst at BTIG]

Good morning. Thanks for taking my question.

[Tony Thene, President, CEO & Director at Carpenter Technology]

Yes. Good morning, Andre.

[Andre Madrid, VP & Aerospace & Defense Analyst at BTIG]

I wanted to ask a bit more pointedly, don't mean to beat a dead horse here, but it kind of ties into your conversation about the two separate camps that we're seeing right now. And I guess when you look at it, if I can ask more pointedly, what are you seeing around airframe demand? And are you seeing significant destocking?

[Tony Thene, President, CEO & Director at Carpenter Technology]

Well, I mean in this whole environment we just produced record quarters. So I mean this is not impacting our ability to produce these types of earnings. My point is that you have some customers, this should be obvious by the way, I mean, that have more inventory than they like because they're very tied to July. That shouldn't be new news, right? That's very common.

[Tony Thene, President, CEO & Director at Carpenter Technology]

And like I said, I think those that inventory will burn off very quickly. But that's not the overall driver to where we're at and what we are able to produce as far as earnings. So the fact that some of those customers are ordering or holding back a little bit on orders, that didn't impact our quarter. And I don't see it it's not going to impact the guidance that we just gave. So I think that's a point in time that should be very obvious to everyone that will with Boeing's continued success be a thing of the past very quickly.

[Andre Madrid, VP & Aerospace & Defense Analyst at BTIG]

Got it. Got it. And then Medical, obviously continued momentum there, the story seems a bit different at one of your peers. They highlighted some inventory destocking there as well, some trade headwinds, some pricing pressure. Are you seeing any of that? Mean, I know

[Tony Thene, President, CEO & Director at Carpenter Technology]

the Yes. Comp No, I mean, listen, I think not everything is the same, right? We just because you're in the medical market doesn't mean that you're competing at the same areas. I mean we compete at the very high end of the medical market, orthopedics, cardiology, dental. And I said before, this is really if you're going to jump in and out of a market, yes, you'll probably have those types of headwinds.

[Tony Thene, President, CEO & Director at Carpenter Technology]

But if you're us, we were a long term player solving these types of highly complex problems, we just don't see that. So we have a different path to market maybe than others. And for us, that's a very high end, very profitable, very strong market today and going to get stronger for us in the future. So not a comparison to what you just stated.

[Andre Madrid, VP & Aerospace & Defense Analyst at BTIG]

Got it. Helpful. Thanks.

[Tony Thene, President, CEO & Director at Carpenter Technology]

Thank you, sir.

[Operator]

Our next question comes from the line of Phil Gibbs with KeyBanc Capital Markets. Your line is open.

[Phil Gibbs, Director & Metals Equity Research Analyst at KeyBanc Capital Markets]

Hey, good morning.

[Tony Thene, President, CEO & Director at Carpenter Technology]

Good morning, Phil.

[Phil Gibbs, Director & Metals Equity Research Analyst at KeyBanc Capital Markets]

So Tony, as I look out to the guidance for fiscal twenty twenty six, is there a way to sort of tether out how much you think within that upside relative to this year is going to be pricing and mix related versus just volume leverage?

[Tony Thene, President, CEO & Director at Carpenter Technology]

Well, I won't tell you the specifics on that Phil, but all three of those are going to be drivers for us going forward. We believe all three of those will take the next step up.

[Phil Gibbs, Director & Metals Equity Research Analyst at KeyBanc Capital Markets]

Okay. Appreciate that. And then I don't know if you mentioned it earlier, but did you provide your jet engine sales growth either sequentially or year over year?

[Tony Thene, President, CEO & Director at Carpenter Technology]

Yes, I'll do that for you, sir. Aero engines plus 5% sequentially and plus 3% year over year. Good quarter And for us there in that

[Phil Gibbs, Director & Metals Equity Research Analyst at KeyBanc Capital Markets]

then lastly, big beautiful bill within your fiscal twenty twenty six free cash flow guidance. Is there any cash tax benefit from accelerated depreciation within that outlook? Thank you.

[Timothy Lain, Senior VP & CFO at Carpenter Technology]

Hey, Phil. This is Tim. I mean, answer is no. We didn't assume that in this in the guidance we just gave. We're working through the impacts as most companies are.

[Timothy Lain, Senior VP & CFO at Carpenter Technology]

You said accelerated depreciation. There's some the other provision that benefits us is the potential to expense R and

[Timothy Lain, Senior VP & CFO at Carpenter Technology]

D, which should have a positive impact on our cash taxes. So more to come on that. We'll talk about that on Q1, but should be a net positive to us and not included in the guidance we just gave.

[Phil Gibbs, Director & Metals Equity Research Analyst at KeyBanc Capital Markets]

Thank you. Good work.

[Operator]

Our next question comes from Andre Madrid with BTIG. Your line is open.

[Andre Madrid, VP & Aerospace & Defense Analyst at BTIG]

Hey, sorry. Just had a follow-up as well. You mentioned completing some LTAs in Paris. I mean, are you seeing any sizable change to your LTA mix?

[Tony Thene, President, CEO & Director at Carpenter Technology]

Sizable change. No, not a sizable change. I mean, these LTAs primarily are re upping of existing prior LTAs, which is the next level. There's been a couple of customers maybe that we signed new LTAs with, but the majority is the renewal of the existing LTAs.

[Andre Madrid, VP & Aerospace & Defense Analyst at BTIG]

Got it. Got it. Thank you.

[Tony Thene, President, CEO & Director at Carpenter Technology]

Thank you.

[Operator]

There are no further questions at this time. I would like to hand the call back over to John Hewitt for some closing remarks.

[John Huyette, VP - IR at Carpenter Technology]

Thank you, operator, and thank you, everyone, for joining us today for our fiscal year twenty twenty five fourth quarter conference call. Have a great rest of your day.

Participants

Executives

• John Huyette, VP - IR
• Tony Thene, President, CEO & Director
• Timothy Lain, Senior VP & CFO

Analysts

• Gautam Khanna, Analyst at TD Cowen
• Scott Deuschle, Director - Aerospace & Defense Equity Research at Deutsche Bank
• Josh Sullivan, Equity Research Analyst - Industrial Technology, Aerospace & Defense at The Benchmark Company LLC
• Bennett Moore, VP - Equity Research at JPMorgan Chase
• Andre Madrid, VP & Aerospace & Defense Analyst at BTIG
• Phil Gibbs, Director & Metals Equity Research Analyst at KeyBanc Capital Markets