Carpenter Technology Corporation

Good day, and welcome to the Carpenter Technologies Corporation second quarter 2025 earnings conference call. All participants will be in a 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 and then two. Please note that this event is being recorded. I would now like to turn the conference over to John Hewitt, Vice President, Investor Relations. Please go ahead.

Thank you, Operator. Good morning, everyone, and welcome to the Carpenter Technology Earnings Conference call for the fiscal 2025 second quarter into December 31, 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 movement. Speakers on the call today are Tony Ting, 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, 2024, Form 10-Q for the fiscal quarter ended September 30, 2024, and the exhibits attached to those filings. Please also note that in the following discussion, unless otherwise noted, when management discuss 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. I will begin on slide four with a review of our safety performance. Through the second quarter of fiscal year 2025, our total case incident rate was 1.1. We continue to see improvements as our newer employees gain experience and develop in our safety first culture. But we still have more to do to achieve our goal of a zero-injury workplace. We continue to invest in training for all employees with a focus on proactively identifying risks and hazards. Let's turn to slide five for an overview of our second quarter performance. Building on our strong start to fiscal year 2025, we continued our earnings momentum with a record second quarter. and our second most profitable quarter on record. Specifically, in the second quarter of fiscal year 2025, we generated $119 million in operating income, a 70% increase over our second quarter of fiscal year 2024. Notably, the SAO segment continues to expand adjusted operating margins, reaching 28.3% in a quarter, compared to 20% a year ago and 26.3% in the prior quarter. The impressive margin expansion is a result of continued improvements in productivity, product mix optimization, and pricing actions. Further, we generated $38.6 million in adjusted free cash flow during the quarter, and we continue to return cash to shareholders through our repurchase program, a part of our balanced approach to capital allocation. Our strong second quarter performance was driven by our continued ability to execute and our strong market position. Further, our strong performance gives us confidence to again increase our guidance for the full fiscal year 2025. For those of you that have been following us, you know that we have demonstrated remarkable growth over the last two years. This has resulted in regular increases to our financial outlook each of the last several quarters. In our last earnings call, after pulling in our fiscal 2027 target two full years into fiscal year 2025, we raised our fiscal year 2025 guidance to approximately $500 million in operating income. On that call, we said we had line of sight to activities that could push operating income even higher. Well, we've continued to execute. improving productivity, and working with customers to optimize our production plan. As a result, we are raising our guidance for the full fiscal year 2025 again to the range of $500 million to $520 million. And we have confidence that fiscal year 2025 isn't the peak of our earnings, as we have line of sight to continued robust earnings growth in the years ahead. The same market forces that are driving our current performance are expected to only get stronger in the future. Customers remain focused on surety of supply of our highly specialized material solutions to meet their long-term growth needs. And we remain focused on continuing to improve our operational performance to meet that demand. While today's discussion is focused on our second quarter performance and the fiscal year 2025 outlook, We are excited to share our outlook beyond fiscal year 2025 at an upcoming investor event. At that time, we will also provide a business update, including our view of the end-use markets and our operations. That event is scheduled for Tuesday, February the 18th, and will be held virtually. Now let's turn to slide six and take a closer look at our second quarter sales and market dynamics. In the second quarter of fiscal year 2025, sales increased 13% year over year and decreased 5% sequentially. The modest sequential sales decline was driven by conscious actions we took at the end of the quarter. First, some customers closed operations earlier than usual for their end of year, and we agreed to hold that material for them. Secondly, as you know, we operate 24-7. every day of the year. This year, we decided to stop operations on Christmas Eve, Christmas Day, and New Year's Eve to give our employees the opportunity to enjoy more time with their families. I will also note that the sequential change in our energy market, where we're coming off a strong quarter, was related to the timing of certain shipments to power generation customers. Also keep in mind that power generation only accounts for approximately 2% to 3% of our total net sales. Most importantly, looking forward to the third quarter, we expect a healthy increase in total net sales. This will be primarily driven by higher volumes with more operating days in the quarter, as well as continued productivity gains, product mix optimization, and higher realized pricing. Let me take a couple minutes to zoom out a bit and talk generally about what we are seeing in terms of demand signals and what we are hearing from our customers. As it is approximately 60% of our net sales, I will start with the aerospace and defense in-use market. For the commercial aerospace market, it is important to keep in mind that we are a key supplier with broad exposure to aerospace platforms. This includes Boeing and Airbus, narrow body and wide body, MRO and OE activity. This broad exposure gives us visibility across the supply chain. and positions us to support the supply chain wherever the activity is focused. Across the board, our aerospace customers continue to expect significant ramps in output from the OEMs. However, some customers with direct exposure to specific platforms, particularly the 737, are still in a wait and see mode in terms of their specific plans for the next few quarters as they assess how quickly Boeing can ramp production and provide confidence to the supply chain that they are on the path to a credible and stable increase in build rates. With this in mind, we continue to work with those customers where we can to manage their priorities for orders as we plan our production schedules. Even though those customers are more cautious today, they are actively talking to us about securing additional material from us as the demand conditions accelerate. Conversely, for platforms where the customer has greater clarity and confidence, they continue to push ahead. And correspondingly, we continue to see strong demand in those areas. In addition, many of our customers have shifted focus to satisfy extremely high MRO demand, where our material solutions are critical. We also have a strong portfolio of program-specific defense applications. where demand remains strong as we are currently receiving urgent requests for more material faster. In our other in-use markets, such as medical, which accounts for roughly 13% of net sales, we continue to see strong demand as our material solutions play an important role in solving their complex needs. Looking at our total order backlog, we continue to see improvements in the mix and pricing, which supports our expectations for ongoing sales increases. From our connected vantage point, we see clear signs that demand will continue to strengthen into the future. Now I will turn it over to Tim for the financial summary.