Carpenter(US:CRS)2025-10-23 15:00Financial Data and Key Metrics Changes - The company reported record earnings with adjusted operating income of $153 million, a 31% increase year-over-year compared to $117.2 million in the same quarter of 2025 [5][17] - Adjusted operating margin for the SAO segment reached 32%, up from 26.3% a year ago and 30.5% in the prior quarter, marking the fifteenth consecutive quarter of margin expansion [6][21] - Earnings per diluted share was $2.43 for the quarter, representing a record quarter for profitability [20] Business Line Data and Key Metrics Changes - SAO segment net sales excluding surcharge were $533.9 million, up 5% year-over-year but down 3% sequentially due to planned maintenance [20] - PEP segment net sales excluding surcharge were $87.2 million, down 10% sequentially and down 6% year-over-year, with operating income of $9.4 million [23][24] - Aerospace and defense sales were up 1% sequentially and 11% year-over-year, with bookings accelerating by 23% sequentially [11][12] Market Data and Key Metrics Changes - The aerospace supply chain is experiencing strengthening demand, particularly in the engine submarket, which saw a 14% sequential increase in sales [11][41] - Medical end-use market sales were down 20% sequentially and 16% year-over-year, primarily due to volatility in medical distribution [12][13] - Energy end-use market sales were down 5% sequentially but up 8% year-over-year, with order intake increasing by 41% in the quarter [14] Company Strategy and Development Direction - The company is focused on expanding profitability and margins through productivity improvements and pricing actions, particularly in the SAO segment [22][48] - The brownfield expansion project is underway, with construction activities on schedule and expected to accelerate in the second half of fiscal year 2026 [26][27] - The company aims to maintain a balanced capital allocation approach, investing in growth while returning cash to shareholders through stock buybacks and dividends [49] Management Comments on Operating Environment and Future Outlook - Management expressed confidence in the full-year earnings guidance, projecting operating income of $660 million to $700 million for fiscal year 2026, representing a 26% to 33% increase over the previous year [46] - The aerospace market is expected to see significant demand increases, driven by higher build rates from OEMs like Boeing and Airbus [48][49] - Management noted that the pricing environment for nickel-based superalloys remains favorable due to supply-demand imbalances [35][36] Other Important Information - The effective tax rate for the quarter was 15.4%, lower than anticipated, with expectations for the full fiscal year to be between 21% to 23% [19] - The company generated $39.2 million in cash from operating activities but reported negative adjusted free cash flow of $3.4 million due to capital expenditures [26][28] Q&A Session Summary Question: What has happened to jet engine alloy lead times? - Lead times remain extended, with expectations for them to push out again due to recent positive developments in the Boeing supply chain [57] Question: How are fastener demand trends tracking? - Fastener sales were down 7% sequentially but up 40% year-over-year, with strong order intake expected for calendar year 2026 [63] Question: Can you elaborate on the duration of the new LTAs? - The five new LTAs range from two to five years, with expectations that contract lengths will remain consistent with current levels [68] Question: What is the outlook for defense demand? - The company is seeing strong demand across various defense segments, with a focus on increasing performance through innovative alloys [74] Question: Is there an expectation for continued growth in aerospace bookings? - Management anticipates continued growth in aerospace bookings, with a strong upward trend expected over the next several quarters [90]