Why Is Carpenter (CRS) Up 23.2% Since Last Earnings Report?

Zacks Equity Research
·4 min read

It has been about a month since the last earnings report for Carpenter Technology (CRS). Shares have added about 23.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Carpenter due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Carpenter Technology Reports Q2 Loss, Revenues Down Y/Y

Carpenter Technology reported adjusted loss per share of 61 cents in second-quarter fiscal 2021. The loss matched the Zacks Consensus Estimate. Ongoing targeted inventory reduction and COVID-19 related volume headwinds led to the dismal results. The company had reported adjusted earnings per share of 83 cents in the year-ago quarter.

Including one-time items, the company reported loss per share of $1.76 against the year-ago quarter’s earnings per share of 79 cents.

Net sales plunged 39% year over year to $349 million in the reported quarter. Volumes were down 33% on a year-over-year basis in the quarter under review.

The company witnessed year-over-year revenue decline of 47% in the Aerospace and Defense end-use market. Revenues in the Energy end-market slumped 34% year-over-year due to challenging conditions in North America. Revenues in Medical end-use markets plunged 33% year-over-year as customers continue to manage inventory levels as concerns around hospital capacity and potential resurgence of coronavirus cases weighed on the supply chain. Revenues in the distribution, transportation and industrial end-use markets went down 20%, 16% and 12%, respectively.

Operational Results

Cost of goods sold in second-quarter fiscal 2021 was down 26% year over year to $343 million. Gross profit nosedived 95% year over year to $6 million. Adjusted operating loss in the reported quarter was $32.3 million, against the operating income of $57.3 million in the prior-year quarter.

Segment Performance

The SAO segment reported sales of $300 million, reflecting a year-over-year decline of 38%. The segment sold 38,602 pounds, 32% lower than the prior-year quarter. The segment reported an operating loss of $11.6 million against an operating profit of $76 million in the prior-year quarter.

The Performance Engineered Products’ net sales plunged 48% year over year to $55 million in the fiscal second quarter. The segment sold 1,534 pounds, 55% lower than the year-ago quarter figure. The segment reported operating loss of $7.2 million in the quarter under review against an operating profit of $0.4 million in the prior-year quarter.

Financials

Carpenter Technology exited second-quarter fiscal 2021 with cash and cash equivalents of $271 million compared with the $193 million at fiscal 2020 end. Long-term debt was $694 million at the end of the reported quarter compared with $552 million as of fiscal 2020 end. Cash flow from operating activities was $172 million in the six-month period ended Dec 31, 2020 compared $23 million in the prior year comparable period.

Free cash flow in the six-month period ended Dec 31, 2020 was $114 million against an outflow of $91 million in year-ago comparable period.

Outlook

Carpenter Technology has been implementing cost reduction initiatives and portfolio realignments that are expected to lead to significant costs savings. In the Aerospace and Defense end-use market, the company has recently secured multiple, beneficial long-term contracts with key customers, which positions it well for growth. With states lifting restrictions on elective surgeries, it will lead to restocking actions at distributors supporting the medical device market. The company’s earnings will gain from the recovery in demand in the medical  end-use market.

In transportation, global light vehicle conditions are strengthening as pent-up demand continues to drive a recovery. The North American light-vehicle market remains on track to further improve during calendar 2021. Global heavy-duty truck demand remains steady and is recovering from historic lows. The company also noted demand remains strong for fluid control and semiconductor applications. Consumer sales have also gained on strong demand signal across all applications. Overall, end-use market conditions are expected to gradually improve during the second half of fiscal year 2021, which is likely to reflect on the company’s results.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.


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