Carpenter Technology Corp. Reports Operating Results (10-Q)
Carpenter Technology Corporation has a market cap of $2.73 billion; its shares were traded at around $51.73 with a P/E ratio of 18.9394 and P/S ratio of 1.197. The dividend yield of Carpenter Technology Corporation stocks is 1.39%. Carpenter Technology Corporation had an annual average earning growth of 2.9% over the past 10 years.
Highlight of Business Operations:The consolidated net sales for the three months and six months ended December 31, 2012 includes approximately $95.2 million and $209.8 million, respectively of net sales related to the Latrobe business. The Companys operating income for the three months and six months ended December 31, 2012 includes approximately $13.2 million and $29.5 million, respectively related to the operations of the acquired Latrobe business.
Fair Value Hedging - Interest rate swaps: The Company uses interest rate swaps to achieve a level of floating rate debt relative to fixed rate debt where appropriate. The Company has designated fixed to floating interest rate swaps as fair value hedges. Accordingly, the changes in the fair value of these instruments are immediately recorded in earnings. The mark-to-market values of both the fair value hedging instruments and the underlying debt obligations are recorded as equal and offsetting gains and losses in interest expense in the Consolidated Statements of Income. As of both December 31, 2012 and June 30, 2012, the total notional amount of floating interest rate contracts was $45.0 million. For the three months ended December 31, 2012 and 2011, net gains of $0.4 million and $0.4 million, respectively, were recorded as a reduction to interest expense. For the six months ended December 31, 2012 and 2011, net gains of $0.9 million and $0.7 million, respectively, were recorded as a reduction to interest expense. These amounts include the impact of previously terminated swaps which are being amortized over the remaining term of the underlying debt.
There are several initiatives that will have an impact on our results this fiscal year, including costs associated with the following: (i.) the start-up of our Athens, Alabama premium products manufacturing facility, (ii.) manufacturing footprint optimization opportunities, and (iii.) an inventory reduction initiative. See below for further discussion of these costs. During the three months and six months ended December 31, 2012, these initiatives impacted our operating margin excluding surcharge by 0.6 percent ($2.5 million) and 0.5 percent ($4.1 million), respectively and negatively impacted our diluted earnings per share by $0.03 per diluted share and $0.05 per diluted share, respectively.
Net sales for the six months ended December 31, 2012 for the Latrobe segment were $235.8 million, as compared with $19.6 million in the same period a year ago. Excluding surcharge revenue, net sales were $207.6 million in the current six month period. The sales in the Latrobe segment are concentrated in the aerospace and defense, industrial and consumer, and energy end-use markets as well as distribution.
We continue to look at options to proactively deal with pension plan funding impacts as well as the earnings impacts associated with our pension plans. During the six months ended December 31, 2012, we made $57.9 million in cash contributions to our pension plans and expect to make approximately $24.0 million of cash contributions to the pension plans for the remainder of fiscal year 2013. Over the next five years, current estimates indicate that we could be required to contribute approximately $400.0 million to our pension plans in minimum required contributions, subject to market returns and interest rate assumptions. If market conditions allow, we currently anticipate a debt refinancing during the second half of fiscal year 2013 that could combine a discretionary pension cash contribution up to approximately $165.0 million and the $101.0 million current portion of long-term debt that matures in May 2013 and take advantage of current favorable credit market conditions.
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