January 30, 2025 CARPENTER TECHNOLOGY CORPORATION 2 nd Quarter Fiscal Year 2025 Earnings Call © 2025 CRS Holdings, LLC. All rights reserved. Cautionary Statement Forward-looking statements This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Act of 1995. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ from those projected, anticipated or implied. The most significant of these uncertaint ...

Core Insights - Carpenter Technology (CRS) reported revenue of $676.9 million for the quarter ended December 2024, marking an 8.4% year-over-year increase, with an EPS of $1.66 compared to $0.85 a year ago [1] - The revenue fell short of the Zacks Consensus Estimate of $708.84 million by 4.51%, while the EPS exceeded the consensus estimate of $1.56 by 6.41% [1] Financial Performance Metrics - Carpenter's stock has returned +23.2% over the past month, outperforming the Zacks S&P 500 composite's +1.2% change, and currently holds a Zacks Rank 2 (Buy) [3] - Specialty Alloys Operations sold 44.71 million pounds, below the average estimate of 50.09 million pounds [4] - Total volumes sold were 46.17 million pounds, compared to the average estimate of 50.94 million pounds [4] - Net Sales for the End-Use Market Excluding Surcharge Revenue totaled $548 million, slightly below the average estimate of $568.39 million, representing a 12.9% year-over-year increase [4] - Performance Engineered Products net sales were $95 million, compared to the average estimate of $101.55 million, reflecting a -0.7% year-over-year change [4] - Specialty Alloys Operations net sales reached $601.50 million, compared to the average estimate of $632.96 million, showing a 9.5% year-over-year increase [4] - Operating Income for Corporate was -$23.60 million, better than the average estimate of -$33.83 million [4] - Operating Income for Performance Engineered Products was $7 million, slightly above the average estimate of $6.95 million [4] - Operating Income for Specialty Alloys Operations was $135.60 million, compared to the average estimate of $138.13 million [4]

Group 1 - Carpenter Technology (CRS) reported quarterly earnings of $1.66 per share, exceeding the Zacks Consensus Estimate of $1.56 per share, and showing a significant increase from $0.85 per share a year ago, representing an earnings surprise of 6.41% [1] - The company posted revenues of $676.9 million for the quarter ended December 2024, which was 4.51% below the Zacks Consensus Estimate, but an increase from $624.2 million in the same quarter last year [2] - Carpenter has surpassed consensus EPS estimates in all four of the last quarters and has topped consensus revenue estimates twice during the same period [2] Group 2 - The stock has gained approximately 23.2% since the beginning of the year, significantly outperforming the S&P 500's gain of 2.7% [3] - The current consensus EPS estimate for the upcoming quarter is $1.65, with expected revenues of $744.41 million, and for the current fiscal year, the consensus EPS estimate is $6.74 on revenues of $2.94 billion [7] - The Steel - Specialty industry, to which Carpenter belongs, is currently ranked in the top 10% of over 250 Zacks industries, indicating a favorable outlook for the sector [8]

Core Insights - Carpenter Technology Corporation reported a record operating income of $118.9 million for the second quarter of fiscal year 2025, representing a 70% increase year-over-year, with earnings per diluted share at $1.66, up from $0.85 in the same quarter last year [1][5][8] - The Specialty Alloys Operations (SAO) segment achieved $135.6 million in operating income, with an adjusted operating margin of 28.3%, up from 20.0% a year ago, marking the twelfth consecutive quarter of increasing margins in this segment [4][5][8] - The company generated $67.9 million in cash from operations and $38.6 million in adjusted free cash flow, a significant improvement from negative cash flow in the previous year [9][32] - Carpenter Technology has increased its fiscal year 2025 operating income outlook to a range of $500 million to $520 million, up from the previous high end of $460 million to $500 million, and projects adjusted free cash flow of $250 million to $300 million [4][5][6] Financial Performance - Net sales for the second quarter of fiscal year 2025 were $676.9 million, an increase of 8% from $624.2 million in the same quarter of fiscal year 2024, despite a 6% decrease in shipment volume [7][8] - The company reported net income of $84.1 million for the quarter, compared to $42.7 million in the prior year [7][17] - Cash provided from operating activities increased to $67.9 million from $14.6 million year-over-year, reflecting improved earnings and operational efficiencies [9][18] Shareholder Returns and Capital Allocation - Carpenter Technology repurchased $8.2 million worth of shares under its $400 million share repurchase authorization, with $359.7 million remaining for future purchases [9][10] - The company continues to return cash to shareholders through dividends, maintaining a dividend of $0.20 per share [17][19] Future Outlook - The company anticipates continued growth beyond fiscal year 2025, driven by strong market demand for its specialized products and a focus on productivity and pricing optimization [6][10] - An investor update event is scheduled for February 18, 2025, to discuss market demand trends and long-term financial outlook [12][6]

Core Viewpoint - Carpenter Technology Corporation (CRS) is expected to report strong revenue and earnings growth in its upcoming fiscal Q2 2025 results, driven by demand in aerospace, defense, and medical applications, despite facing challenges from labor and chip shortages [2][7][8]. Financial Performance - The Zacks Consensus Estimate for CRS's revenues is $718 million, reflecting a 15% increase from the previous year [2]. - The earnings estimate for CRS is $1.58 per share, indicating a significant year-over-year increase of 85.9% [2]. - CRS has a history of beating earnings estimates, with an average surprise of 14.1% over the last four quarters [3]. Segment Performance - The Specialty Alloys Operations segment is projected to generate sales of $620 million, a 12.8% increase from the same quarter last year, with an expected operating profit of $139 million, up from $83.3 million [9]. - Performance Engineered Products' net sales are anticipated to rise by 11.1% year over year to $106 million, with an estimated operating profit of $6.9 million [10]. Stock Performance - Carpenter Technology's stock has increased by 208.4% over the past year, significantly outperforming the industry average growth of 72% [11].

Core Viewpoint - Carpenter Technology Corporation (CRS) has experienced significant stock performance, achieving a 209.7% increase over the past year, driven by strong demand in key end-use markets and solid financial results [1][3]. Group 1: Stock Performance - CRS shares reached a new 52-week high of $207.99 before closing at $206.58, with a market capitalization of $10.3 billion [1]. - The company's stock has outperformed the industry growth of 65.4% and the S&P 500 index's rise of 26.5% over the past year [1]. Group 2: Financial Performance - In the first quarter of fiscal 2025, CRS reported an adjusted operating income of $117 million, marking its most profitable first quarter on record [4]. - The company anticipates operating income to be at the high end of its revised target of $460-$500 million for fiscal 2025, previously set for fiscal 2027 [7]. Group 3: Market Demand and Growth - Carpenter Technology is experiencing strong demand recovery in aerospace, defense, and medical end-use markets, which is expected to continue through fiscal 2025 [5]. - The aerospace sector is benefiting from increased global travel, with demand accelerating across all aerospace submarkets [6]. Group 4: Backlog and Future Outlook - The company reported near-record backlog levels in the first quarter of fiscal 2025, supported by strong booking growth, indicating positive near and long-term outlooks for its end-use markets [3]. - The anticipated growth will be driven by higher prices, improved product mix, and increased shipment volumes [8]. Group 5: Financial Health - At the end of the first quarter of fiscal 2025, Carpenter Technology had total liquidity of $499 million, consisting of $150 million in cash and $349 million in available borrowings [9]. - The company has authorized a share repurchase program of up to $400 million, reflecting confidence in its financial position [9].

Market Overview - U.S. stock markets have experienced significant volatility since the start of 2025, with concerns surrounding inflation and interest rates [1] - The Federal Reserve reduced the benchmark lending rate by 1% in 2024 and indicated another potential 1% cut in 2025, but strong economic indicators have raised doubts about further cuts this year [1] Stock Performance - Several stocks have shown price strength, particularly those on a recent bull run, indicating potential for continued momentum [2] - Five highlighted stocks include OppFi Inc. (OPFI), DXP Enterprises Inc. (DXPE), Carpenter Technology Corp. (CRS), United Airlines Holdings Inc. (UAL), and Gulfport Energy Corp. (GPOR) [2] Stock Screening Criteria - Stocks must show a percentage change in price greater than zero over the last four weeks, indicating upward movement [4] - A percentage change in price greater than 10% over the last 12 weeks is required to ensure sustained momentum [4] - Stocks should have a Zacks Rank of 1 (Strong Buy) and an average broker rating of 1 or 2, indicating strong future performance expectations [5] - Current stock prices must be above $5 and trading near their 52-week highs, with a price/52-week high-low range greater than 85% [6] Individual Stock Highlights - **OppFi Inc. (OPFI)**: Stock price increased by 28.5% in the past four weeks, with expected earnings growth of 16.3% for the current year [8][7] - **DXP Enterprises Inc. (DXPE)**: Stock price rose by 13.6% in the past four weeks, with expected earnings growth of 5.9% for the current year [10][9] - **Carpenter Technology Corp. (CRS)**: Stock price surged by 10.1% in the past four weeks, with an expected earnings growth rate of 42.8% for the current year [13][12] - **United Airlines Holdings Inc. (UAL)**: Stock price advanced by 9.7% in the past four weeks, with expected earnings growth of 20.3% for the current year [15][14] - **Gulfport Energy Corp. (GPOR)**: Stock price gained 6.8% in the past four weeks, with expected earnings growth of 51% for the current year [17][16]

Group 1: DXP Enterprises - DXP Enterprises is a leading products and service distributor providing value and cost-saving solutions to industrial customers across the United States, Canada, Mexico, and Dubai [1] - The company has a Zacks Rank of 1 (Strong Buy) and its current year earnings estimate has increased by 14.3% over the last 60 days [1] - DXP Enterprises' shares have gained 47.5% over the last three months, significantly outperforming the S&P 500's gain of 5.4% [2] Group 2: Dolby Laboratories - Dolby Laboratories develops audio and imaging technologies that enhance entertainment across user-generated content, TV shows, films, music, and gaming [2] - The company also holds a Zacks Rank of 1 and has seen a 2.9% increase in its current year earnings estimate over the last 60 days [2] - Dolby Laboratories' shares have increased by 8.6% over the last three months, again outperforming the S&P 500's gain of 5.4% [3] Group 3: Carpenter Technology - Carpenter Technology is a producer and distributor of premium specialty alloys, including titanium alloys, powder metals, stainless steels, alloy steels, and tool steels, as well as drilling tools [4] - The company has a Zacks Rank of 1 and its current year earnings estimate has risen by 6.7% over the last 60 days [4] - Carpenter Technology's shares have appreciated by 11.5% over the last three months, also surpassing the S&P 500's gain of 5.4% [5]

Industry Overview - The steel industry has experienced a loss of momentum after a strong performance earlier in the year, with steel prices undergoing a sharp downward correction both in the United States and globally [1][3] - A significant pullback in steel prices has been observed, with benchmark hot-rolled coil (HRC) prices dropping over 40% from $1,200 per short ton at the start of 2024 to around $700 per short ton [3][4] - Factors contributing to the downturn include oversupply, reduced demand from key industries, economic uncertainties, and sluggish industrial production and construction activities [4][5] Demand Dynamics - Steel demand in China has softened due to a slowdown in the economy, particularly following a protracted property crisis, which has significantly impacted the real estate sector that accounts for approximately 40% of China's steel consumption [5] - The global automotive production slowdown has also curtailed steel consumption, while high interest rates have dampened demand in the U.S. construction sector [6] - Despite challenges, demand from non-residential construction remains strong, driven by government initiatives for infrastructure projects, which are expected to continue into 2025 [6] Company Performances - Certain steel companies have shown resilience and delivered impressive performances in 2024, including Carpenter Technology Corporation, Universal Stainless & Alloy Products, L.B. Foster Company, and Worthington Steel [2][7] - Carpenter Technology has a strong financial position and is benefiting from demand in aerospace and defense, with expected earnings growth of 42.2% for fiscal 2025 and a share price increase of 156.5% year to date [10][11] - Universal Stainless & Alloy Products is experiencing significant growth in the aerospace market, with an expected earnings growth rate of 522.4% for 2024 and a share price increase of 120.2% year to date [12][13] - L.B. Foster is seeing growth in its Rail Technologies and Precast Concrete businesses, with an expected earnings growth of 3,146.2% for 2024 and a share price increase of 31.5% year to date [14][15][16] - Worthington Steel is focused on value-added solutions and investments in the electrical steel market, with stable earnings estimates and a share price increase of 57.5% year to date [16][17]

Group 1: Market Overview - U.S. stock markets have shown renewed momentum in 2024 following a strong performance in 2023, with a bull run lasting 21 months, excluding minor fluctuations [1] - Market participants anticipate a 70% chance of a 25 basis points rate hike by the Fed in December, which could lead to a 1% reduction in the benchmark lending rate in 2024 [1] Group 2: Mid-Cap Stocks Performance - The S&P 400 index, focused on mid-cap stocks, has rallied 21.4% year to date, indicating strong performance in this segment [2] - Five mid-cap stocks with potential to transition to large-cap status by 2025 include MACOM Technology Solutions Holdings Inc. (MTSI), Masimo Corp. (MASI), Leonardo DRS Inc. (DRS), Ingredion Inc. (INGR), and Carpenter Technology Corp. (CRS) [2] Group 3: Investment Rationale for Mid-Cap Stocks - Mid-cap stocks are recognized for their portfolio diversification benefits, combining attributes of both small and large-cap stocks, with high potential for profitability and market share growth [3] - In a slowing economy, mid-cap stocks are less vulnerable to losses compared to large-cap stocks due to lower international exposure [4] - Conversely, in a thriving economy, mid-cap stocks are expected to outperform small caps due to established management, broad distribution networks, brand recognition, and access to capital markets [4] Group 4: Company-Specific Insights MACOM Technology Solutions Holdings Inc. (MTSI) - MTSI is experiencing strong momentum across telecom, data center, and defense markets, driven by 5G deployments and demand for RF and microwave products [6][7] - Expected revenue and earnings growth rates for MTSI are 22.5% and 31.3%, respectively, for the current year ending September 2025, with a 3.7% improvement in earnings estimates over the last 30 days [8] Masimo Corp. (MASI) - MASI focuses on patient monitoring and has a strong product suite supported by ongoing R&D efforts, enhancing its global business presence [11] - Expected revenue and earnings growth rates for MASI are 6.1% and 12.8%, respectively, for the next year, with a 0.2% improvement in earnings estimates over the last seven days [12] Leonardo DRS Inc. (DRS) - DRS provides defense electronic products and systems, with a focus on advanced sensing and military support services [15] - Expected revenue and earnings growth rates for DRS are 7.4% and 16.9%, respectively, for the next year, with a 0.9% improvement in earnings estimates over the last seven days [16] Ingredion Inc. (INGR) - INGR specializes in nature-based sweeteners and nutrition ingredients, serving various sectors including food and pharmaceuticals [19] - Expected revenue and earnings growth rates for INGR are 1.3% and 6.1%, respectively, for the next year, with a 3.7% improvement in earnings estimates over the last 30 days [20] Carpenter Technology Corp. (CRS) - CRS has a strong backlog indicating high demand and is positioned to benefit from ongoing momentum across its end-use markets [22][23] - Expected revenue and earnings growth rates for CRS are 6.9% and 42.2%, respectively, for the current year ending June 2025, with a 2% improvement in earnings estimates over the last seven days [25]