Carpenter Technology Corporation

Thank you for standing by. At this time, I would like to welcome everyone to today's Carpenter Technology Q1 Fiscal Year 26 earnings presentation. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. Once again, star one. And if you'd like to withdraw your question, simply press star one again. Thank you. I would now like to turn the call over to John Hewitt, Vice President, Investor Relations. John.

Thank you, Operator. Good morning, everyone, and welcome to the Carpenter Technology Earnings Conference call for the fiscal 2026 first quarter ended September 30th, 2025. 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 Tain, Chairman 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, 2025, and the exhibits attached to that filing. Please also 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. I will begin on slide four with a review of our safety performance. We ended the quarter with a total case incident rate of 1.6. As we continue to drive improvement in multiple reading indicators, I expect to see continued progress. As always, we remain committed to our ultimate goal, a zero injury workplace. Let's turn to slide five for an overview of our first quarter performance. First quarter was a great start to fiscal year 2026. Let me highlight the four major takeaways. One, record earnings. In the quarter, we generated 153 million in adjusted operating income, exceeding the fourth quarter of fiscal year 2025, which was then a record quarter. And it is a 31% increase over first quarter of fiscal year 2025, a meaningful step up year over year. The earnings exceeded our strong first quarter guidance, driven by increased productivity, product mix optimization, and pricing actions, a positive step towards our full fiscal year 2026 earnings outlook. Two, expanding operating margins. The SAO segment continued to expand margins, reaching an adjusted margin of 32 percent in the quarter. The 32 percent margin compares to 26.3 percent a year ago and 30.5 percent in the prior quarter. And we don't believe this is the peak margin level over the long term. Our ability to continue to expand margins can be attributed to our solid execution, strong market position, and unique capacity and capabilities. As a result of the expanding margins, the SAO segment recorded 170.7 million and operating income, an increase of 27% year-over-year, and an all-time record for the segment. Three, strengthening market demand. We continue to see demand environment strengthen, especially in the aerospace supply chain, as it gains confidence in the Boeing and Airbus build rate ramp. As a result, September was the highest order intake month in over a year. Specifically in the quarter, we saw bookings for aerospace and defense accelerate up 23% over the previous quarter. Four, pricing continues to be a tailwind. In this strengthening demand environment, our pricing remains elevated and consistently increasing as evidenced by our financial results. Our customers continue to be focused on securing their supply of our critical materials. As evidenced, In the last quarter, we negotiated five large LTAs with aerospace customers with significant price increases, reflecting their strong outlook on the market. If I were to write the headline for this quarter's performance, it would be, Carpenter Technology delivers all-time record quarterly earnings, driving SAO margins to an impressive 32%, even in a quarter where they smartly completed planned maintenance activities. In addition, they shattered the narrative held by some of a seasonally weak quarter, a weakening demand environment, and decreasing pricing power by achieving record earnings, strong sequential growth in aerospace and defense orders, and negotiating five aerospace LTAs with substantial price increases. Let's turn to slide six and a closer look at first quarter sales and market dynamics. In the first quarter of fiscal year 2026, our total sales excluding raw material surcharge were up 4% over the first quarter of fiscal year 2025 and down 3% sequentially. As expected, the sequential sales decline was driven by the planned maintenance outages we discussed on the last earnings call, offset by increased productivity, improved product mix, and pricing actions. Sales in the aerospace and defense in-use market were up 1% sequentially and up 11% year over year. Notably, sales in the engine sub-market were up 14% sequentially. Our engine customers continue to be concerned about surety of supply as they navigate high MRO demand while managing the ongoing and accelerating build rate ramp. Across all sub-markets, the aerospace supply chain continues to increase activity as build rates ramp and confidence grows in the OEM's ability to perform. As evidence of this, we saw aerospace and defense bookings accelerate in the quarter, increasing 23% sequentially. And as I mentioned earlier, we also completed five LTA negotiations with aerospace customers in the quarter, all with significant price increases. Moving on to the medical in-use market, our sales were down 20% sequentially and 16% compared to the prior year first quarter. The large majority of the sequential decrease is from medical distribution customers as they continue to see quarter-over-quarter volatility. Recall that coming out of COVID, there was a rapid recovery in patient procedures, generating significant activity in the supply chain. As the medical field caught up on the backlog of procedures and growth rates normalized, the supply chain, especially our distribution customers, has been working to manage working capital levels. As we've highlighted in previous quarters, this has impacted a portion of our medical business, and it is continuing longer than anticipated. Even so, we have still been able to produce record quarterly earnings and see the medical market as an increasing tailwind going forward. Our medical customers reported positive long-term outlook on the market as the fundamental demand drivers remain strong. Further, our broad portfolio of medical alloys is unique and critical to our customers' focus on improving patient outcomes. Shifting to the energy end-use market, sales were down 5% sequentially and up 8% year-over-year. As discussed during our last several earnings calls, the energy market is currently driven by the accelerating demand for power generation. And we see this only getting stronger with order intake up 41% in the quarter. As we have stated before, sales in the power generation sub-market will fluctuate quarter to quarter due to the frequency of orders and our practice of strategically slotting them into our production process. Of course, the key in-use market for our increasing profitability is aerospace and defense, where we see demand strengthening as evidenced by accelerating order intake and increasing pricing actions. Altogether, we are operating in a strengthening demand environment across the high-value, in-use markets that we believe will drive meaningful growth in both the near-term and long-term. Now, I will turn it over to Tim for the financial summary.