CARPENTER TECHNOLOGY CORP SEC 10-K Report

Carpenter Technology Corporation, a leading producer and distributor of specialty alloys, has released its annual 10-K report for fiscal year 2025. The report highlights the company's robust financial performance, strategic initiatives, and the challenges it faces in a competitive industry. Carpenter Technology operates primarily in the Aerospace and Defense, Medical, and Energy markets, with a focus on premium alloy and stainless steel manufacturing.

Financial Highlights

Net Sales: $2,877.1 million, reflecting a 4% increase from fiscal year 2024, driven by price increases and stronger product demand in Aerospace and Defense and Energy markets.

Gross Profit: $768.6 million, or 26.7% of net sales, up from $584.3 million, or 21.2% of net sales in fiscal year 2024, due to improved product mix and operational efficiencies.

Operating Income: $521.8 million, or 18.1% of net sales, compared to $323.1 million, or 11.7% of net sales in fiscal year 2024, reflecting ongoing improvement in product mix and higher realized prices.

Net Income: $376.0 million, compared to $186.5 million in fiscal year 2024, reflecting improved earnings momentum and operational efficiencies.

Diluted Earnings Per Share: $7.42, compared to $3.70 in fiscal year 2024, driven by higher net income and improved financial performance.

Business Highlights

Revenue Segments: The company operates in two main segments: Specialty Alloys Operations (SAO) and Performance Engineered Products (PEP). The SAO segment focuses on premium alloy and stainless steel manufacturing, while the PEP segment includes the Dynamet titanium business, Carpenter Additive, and distribution businesses in Latrobe and Mexico.

Geographical Performance: Sales outside the United States, including export sales, were $1,177.2 million in fiscal year 2025, showing a 4% increase from the previous year. The increase was driven by strong performance in the Aerospace and Defense market in Europe and Mexico, as well as the Energy market in Europe.

Sales Units: Total pounds sold decreased by 6% to 192,980 thousand pounds in fiscal year 2025, with the SAO segment experiencing an 11% decrease in shipment volume.

New Production Launches: The company announced a brownfield expansion project in Athens, Alabama, aimed at increasing primary and secondary melt capacity to support growth in high-value markets.

Future Outlook: The company anticipates continued strong performance in the Aerospace and Defense, Medical, and Energy markets, driven by a multi-year outlook and investments in capacity expansion. The company is also focused on improving product mix and operational efficiencies to drive future growth.

Strategic Initiatives

Strategic Initiatives: The company has focused on strategic acquisitions and joint collaborations to broaden its market offerings. It has also announced a brownfield expansion project in Athens, Alabama, to increase production capacity. The company is actively managing its product mix to optimize margins and is investing in high-growth end-use markets such as Aerospace and Defense, Medical, and Energy.

Capital Management: During fiscal year 2025, the company generated $440.4 million in cash from operating activities and achieved an adjusted free cash flow of $287.5 million. It repurchased 575,000 shares of its common stock for $101.9 million and paid dividends totaling $40.3 million. The company maintains a strong balance sheet with a total liquidity of $664.4 million, including cash and cash equivalents of $315.5 million and available borrowing capacity of $348.9 million under its Credit Facility. Capital expenditures increased to $154.3 million, partly due to the Athens expansion project.

Future Outlook: The company plans to continue its balanced approach to capital allocation, focusing on sustaining its asset base, returning cash to shareholders, and investing in growth initiatives. It expects capital expenditures to be between $280.0 million and $300.0 million in fiscal year 2026, driven by the Athens expansion. The company aims to leverage its strong liquidity position to support strategic growth and maintain financial flexibility.

Challenges and Risks

Industry Competition: Carpenter Technology operates in a highly competitive industry, producing and distributing specialty alloys. The company is organized into two segments: Specialty Alloys Operations (SAO) and Performance Engineered Products (PEP).

Raw Material Supply: The business is subject to risks related to the availability and pricing of critical raw materials such as nickel, cobalt, and titanium, which are subject to market volatility and geopolitical factors. The company employs mechanisms like pricing surcharges and forward contracts to mitigate these risks, but there can be delays in realizing the benefits of these actions.

Cyclical Demand: The demand for products in the aerospace, defense, and energy markets is cyclical and sensitive to economic conditions, which can lead to significant fluctuations in financial performance.

Expansion Challenges: Delays or cost overruns in capital projects aimed at expanding production capacity could adversely affect financial results.

Environmental and Regulatory Compliance: Compliance with extensive environmental, health, and safety regulations poses potential liabilities and costs.

Cybersecurity Threats: Increasing cybersecurity threats could disrupt operations and compromise sensitive data.

Geopolitical Risks: International operations expose the company to risks such as tariffs, political instability, and exchange rate fluctuations.

Workforce Challenges: The ability to hire and retain skilled personnel is crucial, and union activities could lead to work stoppages.

Market Dynamics: The company is experiencing strong demand in the aerospace and defense markets, with a positive long-term outlook. However, the medical and transportation markets face challenges due to inventory management and supply chain disruptions.

Operational Efficiency: The company is focusing on improving product mix and operational efficiencies to drive profitability.

Tariff Impacts: The company uses surcharge mechanisms to pass through raw material cost increases, including tariffs, to customers.

Capital Allocation: With strong cash flow, the company is investing in growth initiatives, including a brownfield expansion project in Alabama.

Market Risks: The company is exposed to market risks, including raw material price volatility, interest rate risk, and foreign exchange risk. The use of the LIFO inventory method can lead to fluctuations in cost of sales due to raw material price changes. Changes in interest rates could affect the cost of borrowing and financial results. Sales outside the United States are subject to currency exchange rate fluctuations, which can impact financial performance.

SEC Filing: CARPENTER TECHNOLOGY CORP [ CRS ] - 10-K - Aug. 12, 2025