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Carpenter Tech, Rolls-Royce in Supply Pact

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Specialty alloy maker Carpenter Technology Corp. (CRS) has landed a supply deal with Rolls-Royce, which will provide the latter with advanced technology materials used to make jet engine components.

The five-year agreement, which runs through 2017, is worth roughly $75 million. The materials, to be supplied under the contract, will be utilized on existing and future Rolls-Royce engine platforms in applications including rings, blades, vanes, and airfoils.

Rolls-Royce will be responsible for generating demand for the materials in the UK and the U.S. These materials will be made at Carpenter’s Reading, Pa., and Athens, Ala., specialty steelmaking plants.

Carpenter, which is among the leading players in the specialty steel industry along with Allegheny Technologies Inc. (ATI), Haynes International, Inc. (HAYN) and RTI International (RTI), recently reported adjusted earnings (barring one-time items) of 69 cents per share for third-quarter fiscal 2013 (ended Mar 31, 2013), missing the Zacks Consensus Estimate by 7 cents.

Profit, as reported, was essentially flat year over year at $32.9 million or 62 cents a share. Contributions of the Latrobe Specialty Steel unit, which Carpenter bought in Feb 2012, were neutralized by lower earnings in the Specialty Alloy Operations (:SAO) division due to weak mix and increased customer deferrals.

Carpenter raked in net sales of $581.4 million in the quarter, up roughly 8% year over year. However, it missed the Zacks Consensus Estimate of $636 million.

Sales were boosted by double-digit gains across the aerospace and defense and energy markets. Growth in aerospace and defense was aided by higher aircraft build rates while energy sales were driven by a rise in ultra-premium materials sales. However, lower titanium prices and high OEM inventories hurt sales in the medical market.

Carpenter continues to sees a double-digit year over year expansion in adjusted operating income for fiscal 2013. However, it noted that achieving this target will be difficult if the fourth quarter experiences similar in-quarter mix and deferrals as witnessed in the third quarter.

Carpenter currently retains a Zacks Rank #5 (Strong Sell).

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