Carpenter Technology Q4 Earnings Call Highlights

Key Points

• Record results: Carpenter Technology reported fiscal Q4 operating income of $206.9 million, up 37% year over year, while Specialty Alloys Operations achieved a record 37.8% adjusted operating margin.
• Strong demand and outlook: Aerospace and defense sales rose 17% year over year, and the company forecasts fiscal 2027 operating income of $850 million to $880 million, up approximately 21% to 25% from fiscal 2026.
• Expansion and leadership: Tony Thene was reappointed CEO indefinitely following Brian Malloy’s death. Carpenter said its Brownfield expansion remains on schedule for fiscal 2028 completion and could add roughly $150 million in annual operating income by fiscal 2030.

Carpenter Technology NYSE: CRS reported record fourth-quarter and full-year profitability for fiscal 2026, citing stronger demand across aerospace, defense and other high-value markets, continued margin expansion and disciplined operational execution.

The company also announced that Chairman, President and Chief Executive Officer Tony Thene had been reappointed as CEO following the sudden death of Brian Malloy, who had assumed the role on July 1. Thene said his appointment was not interim and that the board was not conducting an external search.

“The plan is for me to remain as the CEO for an indefinite period of time,” Thene said, while offering condolences to Malloy’s family and describing him as a respected leader who had helped advance Carpenter’s strategic priorities since joining the company in 2015.

Record quarterly earnings and SAO margin

For the fiscal fourth quarter ended June 30, Carpenter reported operating income of $206.9 million, up 37% from the prior-year period and 11% sequentially. The result surpassed the company’s prior quarterly record, set in the third quarter.

Sales excluding surcharge increased 9% year over year on 22% higher volume, and rose 4% sequentially on 11% higher volume, according to Chief Financial Officer Tim Lain. Gross profit reached $268.9 million, up 26% from a year earlier, while SG&A expense was roughly flat year over year at $62 million.

Diluted earnings per share were $3.23, while the effective tax rate was 20.7%. Lain said the tax rate was lower than anticipated because of discrete tax benefits associated with certain equity awards.

The company’s Specialty Alloys Operations, or SAO, segment generated $607.4 million in sales excluding surcharge and $229.7 million in operating income, both reflecting strong volume and profitability. SAO’s adjusted operating margin rose to a record 37.8%, compared with 35.6% in the preceding quarter and 30.5% a year earlier.

Lain said the segment’s lower average reported base price per pound reflected a higher mix of lower-priced products rather than declining prices. Those products can carry comparable margins, he said, and the segment’s margin expansion reflected productivity gains, production scheduling, cost management and planned maintenance execution.

The Performance Engineered Products, or PEP, segment reported fourth-quarter sales excluding surcharge of $98.2 million, up 1% year over year and 8% sequentially. Operating income was $7.1 million, compared with $11.7 million a year earlier and $6.7 million in the third quarter.

Demand trends across end markets

Aerospace and defense sales increased 3% sequentially and 17% year over year in the fourth quarter. Thene said aircraft manufacturers continue pursuing higher production rates against a backlog of about 16,000 aircraft, while engine manufacturers remain focused on securing supply for both production and maintenance demand.

He said aerospace engine sales increased nearly 30% year over year, though they declined by low single digits sequentially following a strong prior quarter. Aerospace fastener sales rose 10% sequentially and 12% year over year, while the company’s structural and distribution category increased 25% sequentially.

Some structural customers remain cautious in their ordering patterns despite acknowledging that orders are below expected demand rates, Thene said. He expects a significant pickup once those customers adjust purchases to anticipated production levels. The company also continued to see urgent defense-material requests across multiple platforms.

Medical sales rose 5% sequentially but fell 30% year over year. Management said the sequential improvement, the first of fiscal 2026 for the market, reflected improving demand across orthopedic, dental and cardiology applications. PEP’s titanium products also contributed to the sequential medical sales improvement.

Energy sales declined 22% sequentially and 12% year over year, reversing a large increase in the prior quarter. Thene said demand from industrial gas turbine customers remains strong, driven primarily by data-center energy needs, but quarterly sales can fluctuate with order timing and production scheduling.

Industrial and consumer sales increased 19% sequentially and 22% from a year earlier, led by semiconductor demand. Carpenter said it continues to see strong investment in fabrication facilities, equipment and related infrastructure.

Fiscal 2027 and Brownfield expansion outlook

For the first quarter of fiscal 2027, Carpenter expects total operating income of $195 million to $200 million. The forecast includes SAO operating income of $218 million to $222 million, PEP operating income of $6 million to $7 million, and corporate costs of approximately $29 million.

The company expects full-year fiscal 2027 operating income of $850 million to $880 million, representing projected growth of about 21% to 25% from fiscal 2026’s record $702 million. Thene said pricing, volume and productivity actions are expected to support the outlook, with aircraft production rates representing a major input.

Management also reiterated its fiscal 2029 operating-income target of approximately $1.2 billion to $1.3 billion. Thene said Carpenter does not view fiscal 2029 as the peak of its earnings potential, as its Brownfield capacity expansion will still be ramping production and underlying markets are expected to remain strong.

The Brownfield project remains on budget and on schedule for completion by the start of fiscal 2028, Lain said. The company expects the project to be operating-income accretive in fiscal 2028 and has maintained its estimate that it could contribute roughly $150 million of incremental operating income in fiscal 2030.

Cash flow, capital spending and shareholder returns

Carpenter generated $240.1 million in cash from operating activities and $155 million in adjusted free cash flow during the fourth quarter. For the full fiscal year, operating cash flow increased 37% to $605 million, while adjusted free cash flow reached $362.3 million after $242.7 million in capital spending.

Capital expenditures included $85.1 million in the fourth quarter as activity accelerated on the Brownfield project. The company expects adjusted free cash flow of $400 million to $430 million in fiscal 2027, including the remaining investment for the expansion.

The company repurchased $45.2 million of shares in the fourth quarter and $179.1 million over the full fiscal year. Total repurchases since Carpenter announced its $400 million authorization in July 2024 reached $281 million. It also paid $40.3 million in dividends during fiscal 2026.

At quarter-end, Carpenter had total liquidity of $892.4 million, including $393.3 million in cash and $499.1 million available under its credit facility. Lain said net debt to EBITDA remained well below one times.

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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