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Why Is Carpenter (CRS) Up 6.3% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Carpenter Technology (CRS). Shares have added about 6.3% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Carpenter Technology Q4 Earnings & Sales Top Estimates

Carpenter Technology delivered adjusted net income of $48.9 million or $1.00 per share in the fourth quarter of fiscal 2019 (ended Jun 30, 2019), which beat the Zacks Consensus Estimate of 94 cents. Further, the figure was higher than the year-ago quarter’s net income of $42.8 million or 88 cents per share. Strong operational performance and healthy demand across key end-use markets led to the improvement in quarterly numbers.

Net sales of $641 million for the quarter rose 4% year over year and surpassed the Zacks Consensus Estimate of $628 million. Volumes were down 4% on a year-over-year basis.

Cost of goods sold in the reported quarter improved around 3% year over year to $519 million. Gross profit rose 7% year over year to $123 million in the reported quarter. Operating profit in the quarter was $68 million, advancing 13% from $60 million in the prior-year quarter. Operating margin was 10.6% in the quarter compared with 9.7% in the prior-year quarter. The company generated its strongest quarterly operating income performance since fiscal 2013. 

Segment Performance

The Specialty Alloys Operations segment reported sales of $532 million compared with $498 million in the prior-year-quarter.  The segment sold 70,084 pounds, 4% lower than the prior-year quarter. Operating profit was $87 million, up 17% from the year-ago quarter.
 
The Performance Engineered Products’ net sales rose 8% year over year to $126 million in the reported quarter. The segment sold 4,180 pounds, 59% higher from the prior-year quarter. Operating profit was $1.7 million, down from $7.9 million in the year-ago quarter.
 
Financials
 
Carpenter Technology exited fiscal 2019 with cash and cash equivalents of $27 million compared with $56.2 million at the end of fiscal 2018. The company’s long-term debt rose to $551 million at the end of the fiscal 2019 from $546 million as of fiscal 2018 end. Cash flow from operating activities were $232 million in fiscal 2019 compared with $209 million in the prior fiscal.

Fiscal 2019 Performance

Carpenter Technology’s adjusted net income was $168 million or $3.46 per share in fiscal 2019, up from fiscal 2018’s net income of $120 million or $2.50 per share. Adjusted earnings surpassed the Zacks Consensus Estimate of $3.23.

In fiscal 2019, net sales came in at    $2.38 billion, up 10% from the prior fiscal and also ahead of the Zacks Consensus Estimate of $2.37 billion.

Outlook

For the SAO segment, the company expects continued positive demand across most end-use markets for fourth quarter of fiscal 2019. However, seasonal impact of European customer shutdowns and planned preventative maintenance will impact results.  Operating income will be down 10-15% sequentially but up 40-45% year over year.

For the PEP segment, the company expects continued strong demand for titanium products to drive results in the first quarter of fiscal 2020. Operating income expected to be $3-5 million. The company also plans to make continued investments in additive manufacturing.

How Have Estimates Been Moving Since Then?

Fresh estimates followed an upward path over the past two months. The consensus estimate has shifted 11.25% due to these changes.

VGM Scores

Currently, Carpenter has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Carpenter has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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