Carpenter Technology Corporation CRS reported adjusted net income of $39.9 million or 82 cents per share in third-quarter fiscal 2020 (ended Mar 31, 2020), which beat the Zacks Consensus Estimate of 77 cents. However, the figure was lower than the year-ago quarter’s net income of $51.1 million or $1.05 per share. This can primarily be attributed to the COVID-19 pandemic, which impacted customer demand.
Net sales of $585 million for the quarter were down 4% year over year. The top line surpassed the Zacks Consensus Estimate of $580 million. Volumes were down 9% on a year-over-year basis.
Cost of goods sold in the fiscal third quarter was down 2% year over year to $476 million. Gross profit declined 11% year over year to $110 million. Operating profit in the reported quarter came in at $58.7 million, down 20% from the prior-year quarter. COVID-19 related disruptions had a negative impact of $5.5 million on the quarter under review. This was on account of disruption in the shipment of certain materials late in the quarter as additional safety measures were implemented across the company’s facilities and as certain customers were unable to accept deliveries due to shutdowns. Operating margin was 10% in the quarter compared with the year-earlier quarter’s 12%.
Carpenter Technology Corporation Price, Consensus and EPS Surprise
Carpenter Technology Corporation price-consensus-eps-surprise-chart | Carpenter Technology Corporation Quote
The company witnessed year-over-year revenue growth of 7% in the Aerospace and Defense end-use market. Revenues in the Medical end-use market inched up 1%. Revenues in the energy, distribution and transportation end-use markets declined 29%, 18% and 17%, respectively. Revenues from the Industrial and consumer end market also decreased 6%.
The SAO segment reported sales of $488 million, reflecting year-over-year decline of 2%. The segment sold 59,052 pounds, 10% lower than the prior-year quarter. Operating profit climbed 4% year over year to $76.4 million.
The Performance Engineered Products’ net sales declined 16% year over year to $109 million in the fiscal third quarter. The segment sold 3,202 pounds, 10% lower than the year-ago quarter figure. The segment reported operating loss of $0.3 million in the fiscal third quarter compared with the operating profit of $16.6 million recorded in the prior-year quarter.
The company had cash and cash equivalents of $93 million at the end of the fiscal third quarter, up from the $27 million recorded at fiscal 2019 end. Long-term debt was $552.4 million as of Mar 31, 2020 compared with $550.6 million as of Jun 30, 2019. Cash provided by operating activities decreased to $95 million in the nine-month period ended Mar 31, 2020 compared with $57 million in the comparable period last year.
Actions in the Wake of COVID-19
The company stated that the COVID-19 pandemic continues to impact global economic conditions and customer demand patterns. In this scenario, Carpenter Technology has undertaken several actions to initiate cost savings and preserve liquidity, which include implementing temporary leave for certain production and maintenance employees across facilities based on planned production scheduling, implementing a global hiring freeze and cutting down capital expenditures for fiscal year 2021 by approximately 25-30% from fiscal year 2020. The company also initiated actions to reduce working capital levels, primarily inventory, to align with customer demand.
The company also recently approved actions to exit the downstream oil and gas (Amega West) business and idle two domestic powder metals production facilities. This move will lead to annual savings of $15 million to $20 million. The company will record associated restructuring charges of $80-$100 million before taxes in fourth-quarter fiscal 2020.
Carpenter Technology’s shares have fallen 58.2% over the past year compared with the industry's decline of 63.3%.
Zacks Rank & Key Picks
Carpenter Technology currently carries a Zacks Rank #5 (Strong Sell).
Some better-ranked stocks in the basic materials space include AngloGold Ashanti Limited AU, Gold Fields Limited GFI and B2Gold Corp. BTG. All of these stocks carry a Zacks Rank of #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
AngloGold Ashanti has a projected earnings growth rate of 112.6% for 2020. Shares of the company have rallied nearly 126% over the past year.
Gold Fields has an estimated earnings growth rate of 29.8% for fiscal 2020. The stock has appreciated roughly 118% in a year’s time.
B2Gold has projected earnings growth rate of 234.3% for the ongoing year. The company’s shares have surged around 100% in the past year.
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