Carpenter Technology NYSE: CRS reported record fiscal third-quarter 2026 results as management pointed to accelerating demand in key end markets—particularly Aerospace and Defense—alongside continued pricing strength and productivity gains. The quarter ended March 31, 2026.
Record operating income and cash generation
Chairman and CEO Tony Thene said the company “just delivered another record quarter,” highlighting four takeaways that included record earnings, expanding operating margins, strengthening market demand, and pricing momentum.
Carpenter generated $187 million in operating income in the quarter, which Thene said exceeded the prior quarter’s record by 20%. CFO Tim Lain reported operating income of $186.5 million, up 35% from the year-ago quarter and up 20% sequentially. Earnings per diluted share were $2.77.
Cash performance also improved. Thene said Carpenter generated $193.5 million in cash from operating activities and $124.8 million of adjusted free cash flow during the quarter. Lain added that year-to-date fiscal 2026 operating cash flow totaled $364.9 million, “roughly 2x” the same period last year, with $207.3 million of adjusted free cash flow generated year to date. The company raised its outlook, saying it now expects to generate at least $350 million of adjusted free cash flow in fiscal 2026.
SAO posts record margins; management says 35.6% is “not the ceiling”
Carpenter’s Specialty Alloys Operations (SAO) segment delivered record profitability. Thene said SAO’s adjusted operating margin reached 35.6%, up from 33.1% in the prior quarter and 29.1% a year ago, attributing the expansion to “ongoing productivity gains, product mix optimization and pricing actions.”
President and COO Brian Malloy said SAO results reflected “strong top-line growth, record margins, and another step change in operating income performance,” supported by productivity improvements, pricing realization, product mix optimization, and higher uptime.
- SAO net sales excluding surcharge: $585 million, up 13% year-over-year and up 11% sequentially
- SAO adjusted operating margin: 35.6%, the 17th consecutive quarter of margin expansion, according to Malloy
- SAO operating income: $208 million, a segment record
For the fiscal fourth quarter, Malloy guided SAO operating income to a range of $224 million to $228 million and said the segment will stay focused on optimizing mix, managing production planning and capacity, and maintaining productivity and cost discipline.
When asked about the sustainability of SAO incremental margins and mix as aerospace structural grows, Malloy said quarter-to-quarter margin expansion “isn’t gonna be linear,” but added, “my expectation is that 35.6 is not the ceiling.” Thene also noted that lower price points in certain products do not necessarily mean lower margins because process flows differ, and said the company has been able to offset mix shifts with “other levers.”
Market demand: aerospace strength, medical softness, IGT-driven energy growth
Thene said total sales excluding surcharge rose 10% year-over-year and 11% sequentially, driven by higher volumes and pricing. Lain added that sales excluding surcharge increased 10% year-over-year on 15% higher volume, and rose 11% sequentially on 10% higher volume. Gross profit increased to $251.8 million, up 25% from a year ago and up 15% sequentially, which Lain said reflected improving productivity, mix, and pricing.
By end market, management described the quarter as an “accelerated demand environment” across the highest-value segments.
Aerospace and Defense: Thene said sales in Aerospace and Defense rose 13% sequentially and 17% year-over-year, reflecting accelerating activity as OEMs push toward higher build rates. He cited Boeing’s production, saying the company is “consistently producing 42 737s per month” and is “poised to go to 47 per month this summer,” with “their sights set on 52 and beyond.” Thene said Carpenter has seen increasing order intake and noted that customers have requested urgent deliveries “to avoid line shutdowns for specific applications,” adding that engine-program customers are also asking for earlier deliveries.
In Q&A, Thene said lead times have been “fairly consistent quarter-over-quarter,” but he anticipates lead times will begin to push out in coming quarters. He also said that while some process paths run “24/7,” Carpenter has “pockets of opportunity” in certain aerospace sub-markets where it is not running full out, and he described “a lot left in the tank” for volume growth alongside continued productivity work.
Medical: Thene said Medical sales declined 9% sequentially and 29% year-over-year, but he noted bookings were up significantly and said the company expects the market to begin recovering and return to growth “in the near term.” Malloy said the medical softness is concentrated in “certain titanium products for a specific set of Medical distribution customers,” which has had an “outsized impact” on the titanium business within the Performance Engineered Products segment.
Energy: Thene said Energy sales increased 32% sequentially and 44% year-over-year, driven by higher volumes supporting industrial gas turbine (IGT) builds. He attributed IGT demand to “the growing energy needs of data centers” and said demand remains strong across multiple platforms and OEMs. In response to a question on mix, Thene said the quarter’s energy growth was “almost 100% driven by IGT,” while oil and gas remained “rather subdued.” He cautioned that quarterly IGT sales can fluctuate based on order timing and production scheduling, though he said the longer-term trend has been consistently higher.
PEP results steady; additive cited as a bright spot
In the Performance Engineered Products (PEP) segment, Malloy reported net sales excluding surcharge of $90.6 million, up 17% sequentially and down 6% year-over-year. The sequential improvement was driven by higher Aerospace and Defense sales, while the year-over-year decline reflected medical weakness in titanium that more than offset aerospace gains.
PEP operating income was $6.7 million, which Malloy said was largely in line with the prior quarter. He said the company anticipates PEP operating income in the fiscal fourth quarter will be in line with the third quarter. Malloy also noted that while it is a smaller part of PEP, the additive business has been a “bright spot” driven primarily by Aerospace and Defense demand for highly specialized products and capabilities.
Capital spending, buybacks, and outlook updates
Lain said capital spending increased in the third quarter to $68.7 million as the Brownfield capacity expansion accelerated. He said the project remains “on budget and on schedule,” with construction underway and key equipment deliveries beginning. Carpenter now expects fiscal 2026 capital expenditures of about $260 million, below the earlier estimate of around $300 million, which Lain attributed to the “timing of cash payments” rather than a change in project progress.
On capital returns, Lain said Carpenter repurchased $133.9 million of shares in fiscal 2026, bringing total spending to $235.8 million to date under the $400 million authorization announced in July 2024. He also highlighted a “recurring and long-standing quarterly dividend.”
Liquidity at quarter end totaled $793.8 million, including $294.8 million of cash and $499 million of available borrowings under the credit facility, and Lain said net debt to EBITDA remained “well below 1x.”
Thene said the company increased its operating income guidance for fiscal 2026, which he said implies “at least a 33% increase over a record fiscal year 2025.” He also said the current fiscal 2027 earnings target is “outdated” given recent momentum and that the company will provide an updated view, including fiscal 2027 guidance, on the next quarter’s call.
About Carpenter Technology NYSE: CRS
Carpenter Technology Corporation 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.
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