Carpenter(US:CRS)2025-10-23 15:02Financial Data and Key Metrics Changes - The company achieved record earnings with adjusted operating income of $153 million, a 31% increase year-over-year compared to $117.2 million in Q1 FY2025 [4][15] - Adjusted operating margin for the SAO segment reached 32%, up from 26.3% a year ago and 30.5% in the prior quarter [5][17] - Earnings per diluted share was $2.43 for the quarter, marking another record for profitability [16] 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 [17] - PEP segment net sales were $87.2 million, down 10% sequentially and down 6% year-over-year [19] - Aerospace and defense sales were up 1% sequentially and 11% year-over-year, with bookings accelerating by 23% over the previous quarter [9][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 [9][12] - Medical market sales were down 20% sequentially and 16% year-over-year, primarily due to volatility in medical distribution [10] - Energy market sales were down 5% sequentially but up 8% year-over-year, driven by increasing demand for power generation [11] Company Strategy and Development Direction - The company is focused on expanding profitability and margins, particularly in the SAO segment, which is expected to continue driving growth [17][20] - The Brownfield expansion project is underway, with construction activities on schedule and on budget, expected to accelerate in the second half of FY2026 [21][22] - The company is committed to a balanced capital allocation approach, focusing on growth investments and returning cash to shareholders through dividends and share repurchases [39] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving the high end of the fiscal year 2026 operating income guidance of $660 million to $700 million, driven by increased volume, pricing actions, and productivity [36][37] - The aerospace market is expected to see significant demand growth, with management advising customers to place orders now to avoid being last in line [33][34] - The company anticipates continued favorable pricing trends due to supply-demand imbalances in nickel-based super alloys [28][29] Other Important Information - The effective tax rate for the quarter was 15.4%, lower than anticipated, with expectations for the full fiscal year 2026 to be between 21%-23% [16] - The company generated $39.2 million in cash from operating activities but had negative adjusted free cash flow of $3.4 million due to capital expenditures [21][23] - The company repurchased $49.1 million of shares during the quarter, with a cumulative total of $151 million under its $400 million stock buyback authorization [22][23] Q&A Session Summary Question: What has happened with jet engine alloy lead times? - Lead times remain extended, with expectations for further increases in orders following recent positive news from Boeing [48][50] Question: How did fastener demand trends track in the quarter? - Fastener sales were down 7% sequentially but up 40% year-over-year, with strong order intake expected for calendar year 2026 [54][55] Question: Can you speak to 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 [62] 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 [65] Question: Are customers receptive to increasing order intake? - Customers are very receptive to increasing order intake, with a notable sequential increase in aerospace bookings [71][72] Question: What is the expected timeline for the Brownfield expansion project? - Construction is expected to be complete by late fiscal 2027 or early fiscal 2028, with current activities focused on site preparation [90]