PHILADELPHIA – With some grim numbers to follow, Tony R. Thene, the president and CEO of Carpenter Technology, opened his presentation to analysts Thursday with a bit of good news.
"I'm happy to report that we recorded the first official injury-free month in company history in September," he said. "Safety is always issue number one."
It is a notable achievement in a heavy manufacturing business.
Hit hard by the impact of COVID-19 across its end-user markets, Carpenter, which has several manufacturing facilities in Berks County, focused its efforts in the first quarter of fiscal 2021 on managing costs and reducing inventory to further strengthen liquidity, said Thene.
The company's liquidity was further enhanced by a bond refinancing completed in the quarter. Carpenter issued $400 million of senior unsecured notes and used the net proceeds from the offering to repay, in full, $250 million of its 5.2% senior notes, due July 2021, with the remaining proceeds available for general corporate purposes.
These actions helped to increase total liquidity, including $218.9 million cash and $394 million of credit facility borrowings, to $612.9 million at the end of the first quarter of fiscal 2021.
"During the first quarter, we further strengthened our liquidity position through solid operating and free cash-flow generation," said Thene. "While our targeted inventory reduction efforts impacted profitability, we believe managing for cash flow in the current environment is prudent and helped us finish the first quarter with over $600 million in total liquidity. As anticipated, our operating results in the quarter were also impacted by lower volume due to challenging conditions in the aerospace and defense and medical end-use markets that continue to be pressured as a result of COVID-19."
First quarter financial results
Revenues continue to slide downward due to the coronavirus impact.
Net sales for the first quarter of fiscal year 2021 were $353.3 million, compared with $585.4 million in the first quarter of fiscal year 2020, a decrease of $232.1 million (40%), on 29% lower volume. Net sales for the fourth quarter of fiscal 2020 were $437.3 million.
Adjusted operating loss, excluding special items, was $30.9 million in the recent first quarter, compared with a gain of $59.8 million in the first quarter a year ago. Special items excluded from adjusted operating loss in the current quarter include restructuring and asset impairment charges totaling $10 million, primarily associated with recent portfolio actions in the company's additive business unit and $7.9 million of costs associated with COVID-19.
Those COVID-19 related costs principally include direct incremental operating costs, including outside services to execute enhanced cleaning protocols, additional personal protective equipment, isolation pay for production employees potentially exposed to COVID-19 and various operating supplies necessary to maintain the operations while keeping employees safe against possible exposure to COVID-19 in the company's facilities. The COVID-19 costs in the current quarter also include $3.1 million related to costs associated with an aerospace customer bankruptcy as a result of COVID-19.
Net income in the quarter was a loss of $47.1 million, compared to a profit of $41.2 million in the first quarter of fiscal 2020. Basic earnings per share (EPS) showed a loss of $0.98 in the quarter, compared to a gain of $0.85 in the prior year's first quarter.
Cash provided from operating activities in the first quarter of fiscal year 2021 was $88 million, compared to $0.7 million in the same quarter last year. In addition, capital expenditures were $33.3 million in the first quarter of fiscal year 2021, compared to $47.5 million in the same quarter last year. The company also completed the divestiture of its Amega West oil and gas business, which resulted in $17.6 million of proceeds in the current quarter's cash flow results.
Business segment results
The company has two reportable segments, specialty alloys operations (SAO) and performance engineered products (PEP).
The SAO segment sold 43.368 million pounds in the fiscal first quarter, down from 60.044 million pounds in fiscal 2020 first quarter. PEP sold 1.466 million pounds in the quarter, down from 3.250 million pounds in fiscal 2020 first quarter.
In dollar terms, SAO net sales were $300.7 million in the quarter, down $190.4 million from 2020 first quarter sales. Net sales for PEP were $61.8 million, a decrease of $47.6 million from fiscal first quarter 2020 sales.
"While we continue to actively manage our business given the current challenges," Thene commented, "we are also maintaining a focus on the future and further advancing our position in critical emerging technologies. We recently launched our Carpenter Electrification brand and see a number of attractive growth opportunities for our proprietary soft magnetics solutions across all of our key end-use markets. We believe our soft magnetics and additive manufacturing solutions are pivotal to addressing the future of our industry and best positioning Carpenter Technology for sustainable growth over the long-term.
"Despite the near-term challenges related to COVID-19, the long-term outlook for our end-use markets is solid and we will continue working closely with our customers to strengthen our established supply chain position and extend key strategic supply agreements. We remain confident that a recovery in demand conditions across our key end-use markets will begin to take shape in our third quarter of fiscal year 2021."