Carpenter Technology Corporation

Hello and welcome. My name is Ellie and I will be your conference operator for today. At this time, I would like to welcome everyone to the Carpenter Technology CRS third quarter fiscal year 2026 earnings presentation call. Please note that this call is being recorded. After the prepared remarks, there will be a question and answer session. If you'd like to ask a question during that time, please press star followed by one on your telephone keypad. Thank you. I would now like to hand the call over to John Hewitt, Vice President of Investment Relations. You may now go ahead, please.

Thank you, operator. Good morning, everyone, and welcome to the Carpenter Technology Earnings Conference call for the fiscal 2026 third quarter ended March 31st, 2026. 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, Tim Lane, Senior Vice President and Chief Financial Officer, and Brian Malloy, President and Chief Operating 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, Forms 10-Q for the quarters ended September 30, 2025, and December 31, 2025, 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. We ended the third quarter of fiscal year 2026 with a total case incident rate of 1.3. We continue to make progress as a result of targeted actions we've implemented across the organization, centered on standardized work and disciplined safety practices. As always, we remain committed to our ultimate goal of a zero-injury workplace. Let's turn to slide five for an overview of our third quarter performance. Carpenter Technology just delivered another record quarter. reflecting the accelerating demand across our high-value markets and our continued strong operational execution. This record performance is best understood through four key takeaways that highlight the strength, durability, and trajectory of the business. One, record earnings. In the third quarter, we generated 187 million in operating income, exceeding our previous record set in the second quarter by 20%. Certainly, we have earned a reputation of setting meaningful financial targets and then exceeding them. And we did it again in this quarter. But it must be noted, the ability to increase earnings by 20% sequentially over what was a record quarter and in a market that is still accelerating must be recognized as superior performance. We are extremely proud of the Carpenter Technology team for their commitment to performance and their focus on continuous improvement. Importantly, these record earnings translated directly into another step change in cash flow generation. In the third quarter, we generated $193.5 million in cash from operating activities and $124.8 million of adjusted free cash flow. Expanding operating margins. The SAO segment delivered an adjusted operating margin of 35.6% in the quarter, another new record for the business. This margin compares to 33.1% in the prior quarter and 29.1% a year ago. This meaningful margin expansion clearly demonstrates the impact of ongoing productivity gains product mix optimization, and pricing actions. As a result of the expanding margins, the SAO segment recorded $208 million in operating income, an increase of 19% sequentially, and another all-time record for this segment. Three, strengthening market demand. We see clear and accelerating demand signals across the aerospace and defense in-use market. reflected in both OEM production plans and order intake. Notably, bookings for aerospace structural materials continue to increase, up substantially this quarter. Remember, the submarket for aerospace structural material has been the most impacted by the OEM build rates. Therefore, increasing orders from our aerospace structural customers is a clear signal that the supply chain is accelerating the ramp. to support the expected OEM build rates going forward. And four, pricing continues to be a tailwind. As I've said many times, pricing has been and will continue to be a tailwind for the business. Against a backdrop of strong demand, customers are prioritizing security of supply, and we are continuing to realize pricing that reflects the value we deliver. While no long-term agreements were completed in the quarter, several are currently in negotiation. These long-term agreements support attractive economics for us while providing our customers with the supply chain certainty they need, making them strategically beneficial for both sides. Now let's turn to slide six and have a closer look at our third quarter sales and market dynamics. In the third quarter of fiscal year 2026, we delivered strong top-line growth, with total sales excluding raw material surcharge up 10% year-over-year and up 11% sequentially, reflecting higher volumes and continued pricing strength. The higher volumes were the result of increased operating time, improved productivity, and increasing demand for aerospace materials, primarily in the aerospace structural submarket. Looking ahead, We expect continued productivity improvements and healthy demand across our core in-use markets to support further sales growth. Now let me review our key in-use markets, starting with aerospace and defense. Sales in the aerospace and defense in-use market were up 13% sequentially and up 17% year over year. Our sales growth reflects accelerating activity across the aerospace supply chain. as OEMs continue to push towards higher build rates. Let me give some color on what we see happening in the aerospace market. With backlogs of new plane orders reaching new records every quarter, Boeing and Airbus are ramping production. Notably, Boeing is now consistently producing 42 737s per month. As reported on their recent earnings call, they are poised to go to 47 per month this summer. and have their sites set on 52 and beyond due to the growing demand. As a result, the supply chain is building confidence, and our customer order intake has been increasing. Even with the increasing orders, OEMs are still concerned that the supply chain is not ordering material fast enough. We agree. As we have seen order intake increase significantly, but we know from experience that it is still not enough. to support the desired ramp. Over the last three months, we've had customers reach out requesting urgent deliveries to avoid line shutdowns for specific applications. We also continue to have customers across engine programs telling us our material is needed sooner. The Boeing comment inventories that had been helping with recent output are now coming down is significant. and it will drive urgency to yet another level. We expect this urgency will continue to spread throughout the supply chain as inventories run short, further tightening the market for our materials. Moving on to the medical in-use market, our sales were down 9% sequentially and 29% compared to the prior year third quarter. On a positive note, bookings were up significantly in the quarter. Supporting our expectation, the medical end-use market will begin to recover and return to growth in the near term. In the energy end-use market, sales increased 32% sequentially and 44% year over year, driven by higher volumes supporting industrial gas turbine bills. The demand from our IGT customers, primarily driven by the growing energy needs of data centers, remain strong across multiple platform types and OEMs. Keep in mind that the production flow for the IGT material goes across similar flow paths as aerospace material. As a result, quarterly sales for IGT material can fluctuate due to order timing and production scheduling. Taking a step back, we are clearly operating in an accelerated demand environment across our highest value in-use markets. Combined with our differentiating capabilities and capacity, this positions Carpenter Technology for meaningful growth, both in the near term and over the long term. Now, I will turn it over to Tim for the financial summary.