Carpenter Technology Corporation

Good day, and welcome to the Carpenter Technology Fiscal Fourth Quarter and Full Year 2024 Earnings Call. All participants will be in the listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to John Hewitt, Vice President of Investor Relations. Please go ahead.

Thank you, Operator. Good morning, everyone, and welcome to the Carpenter Technology Earnings Conference call for the fiscal 2024 fourth quarter ended June 30, 2024. This call is also being broadcast over the Internet along with presentation slides. For those of you listening by phone, you may experience a time delay in slide movements. Speakers on the call today are Tony Tain, President and Chief Executive Officer, and Tim Lane, Senior Vice President and Chief Financial Officer. Statements made by management during this earnings presentation that are forward-looking statements are based on current expectations. Risk factors that could cause actual results to differ materially from these forward-looking statements can be found in Carpenter Technologies' most recent SEC filings including the company's report on Form 10-K for the year ended June 30, 2023, Forms 10-Q for the quarters ended September 30, 2023, December 31, 2023, and March 31, 2024, and the exhibits attached to those filings. Please note that in the following discussion, unless otherwise noted, when management discussed the sales or revenue, that reference excludes surcharge. When referring to operating margins, that is based on adjusted operating income, excluding special items, and sales, excluding surcharge. I will now turn the call over to Tony.

Thank you, John, and good morning to everyone on the call today. I will begin on slide four with a review of our safety performance. For fiscal year 2024, our total case incident rate was 1.8. Although a 1.8 injury rate would rank as one of the safest metal manufacturing companies, it is not a rate we accept at Carpenter Technology. Our goal is to be a zero injury workplace. As we enter fiscal year 2025, we continue to believe our zero injury goal is possible, and we will continue to invest and work tirelessly to achieve that goal. Now let's turn to slide five for an overview of our fourth quarter performance. Carpenter Technology continues to exceed growth expectations. In the fourth quarter of fiscal year 2024, we generated $125 million in adjusted operating income, the most profitable quarter on record, beating our previous guidance by approximately 12%. To put this in perspective, It is a 39% increase over our then-record sequential third quarter and double our fourth quarter a year ago. Further, we generated $142.4 million of adjusted free cash flow during the quarter. The strong fourth quarter performance is a result of continued improvement in productivity, product mix optimization, and pricing actions. The SAO segment exceeded expectations. delivering $140.9 million in operating income, well above the outlook we provided on last quarter's call, and 36% above the sequential third quarter performance. Notably, SAO achieved adjusted operating margin of 25.2%. This is a meaningful step up from the 21.4% in the previous quarter and our pre-COVID best of approximately 20%. With this exceptional performance, we finished fiscal year 2024 with $354.1 million in adjusted operating income, an annual earnings record for Carpenter Technology. Let's turn to slide six and take a closer look at our fourth quarter sales and market dynamics. In the fourth quarter of fiscal year 2024, sales increased 15% sequentially on higher volumes improving product mix, and higher realized pricing. Notably, the SAO segment saw a sequential increase in shipments of 13%, the result of increased productivity across facilities, particularly at key melt work centers. You may recall that we previously identified these productivity efforts as a driver of our anticipated second half performance. We were able to accelerate these efforts, as seen in our third quarter performance. and then exceed them again for the fourth quarter. With demand for our premium material solutions well above supply levels across our in-use markets, we continue to remain focused on allocating capacity to where customers value it most. In the fourth quarter, sales to our largest in-use market, aerospace and defense, were up 19% sequentially and up 28% year over year. Let me dive a bit deeper into the aerospace market. First, it's important to note that industry demand remains robust as measured by passenger traffic, airline miles, and airline operators' desire for new planes. The backlog for commercial airplane bills reported by Boeing and Airbus is now over 15,000 planes, or roughly nine years of demand. Again, fundamental dynamics are driving demand. More people than ever in history want to travel. And airline operators want the newest generation of airplanes to replace aging fleets, to realize the fuel efficiency they provide, and to meet the additional needed capacity for more airline miles. Today, there's some noise in the supply chain about build rate attainment and regular news about the timing of production goals. Let me talk about what all that means as we think about our outlook. Carpenter Technology is a key supplier into the aerospace supply chain with broad exposure to aerospace platforms. This includes narrowbody and widebody, Airbus and Boeing, and MRO and OEM. We, like the rest of the supply chain, are managing through the current build rate adjustments. Often, even before information is broadly communicated externally, our customers are talking to us about issues they are facing and changes they may need to make. For example, as new bills have lagged, MRO demand remains elevated. As a result, customers may prioritize a different portfolio of products in the near term. We also have a large backlog of orders, both in aerospace and other markets like defense, energy, and medical. Our broad supply chain exposure and visibility into future customer needs gives us the flexibility to adjust our production schedules to meet the evolving demands of our customers. Further, despite ongoing increases in our production rate, we still have substantial portions of our backlog wanted earlier by customers, which gives us the opportunity to pull in orders when needed. Changes to near-term build rates are clearly something we are aware of and will continue to react to and adjust for if and when needed. To bring it all together, there are four important points you should take away from my comments. Due to our broad reach of products and capabilities, we are currently able to navigate any near-term adjustments in the aerospace supply chain due to build rate changes. Two, our backlog remains at record levels, and despite ongoing efforts to limit orders to maintain lead times, we had high order intake across markets in the fourth quarter. Three, even with modest assumptions for build rate increases over the next 12 months, we are still increasing our earnings outlook. as I will discuss shortly. And four, looking beyond the next 12 months, we see significantly higher demand on the horizon. We and most others in the industry are confident that there will be ongoing build rate increases, given an extraordinary current and increasing future demand. Moving to the defense market, our customers continue to request emergency orders to support elevated military activity levels due to ongoing world events. We will continue to prioritize these orders given the essential nature of our support. In our medical in-use market, we saw another record quarter, with sales up 9% sequentially and 38% year-over-year. Our customers continue to see strong market demand based on robust procedure backlogs. Like aerospace, our medical customers are focused on securing their much-needed supply given the strong demand environment and view specialty materials as a key strategic area. In addition, customer engagement on new products remains high, driven by innovation in the use of robotics, increasing adoption of less invasive surgeries and alloy sensitivities, among others. As a result, we continue to see high growth opportunities in the medical industry. Taken together, our aerospace and defense and medical in-use markets are nearly three-quarters of our overall business and continue to grow and share. Across our other in-use markets, customer engagement is high, and demand for our premium solutions remains positive. For example, we are seeing strong demand for power generation, which drove a 31% sequential sales increase in the energy in-use market. Bottom line is that we are operating in a strong market, and we anticipate that to continue and expand in the long term. Now I will turn it over to Tim for the financial summary.