It has been about a month since the last earnings report for Carpenter Technology (CRS). Shares have lost about 13.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Carpenter due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Carpenter Technology Q2 Earnings Miss Estimates, Up Y/Y
Carpenter Technology reported adjusted net income of $52.8 million or 83 cents per share in the second quarter of fiscal 2020 (ended Dec 31, 2019), missing the Zacks Consensus Estimate of 87 cents. The figure, however, comes in higher than the year-ago quarter’s net income of $46.4 million or 76 cents per share.
Including one-time items, earnings per share came in at 79 cents compared with the prior-year quarter’s 73 cents.
Net sales of $573 million for the quarter were up 3% year over year. However, the reported figure missed the Zacks Consensus Estimate of $576 million. Volumes were down 7% on a year-over-year basis.
Cost of goods sold in the fiscal second quarter was up 2.4% year over year to $460.4 million. Gross profit rose 5.2% year over year to $112.6 million. Operating profit in the quarter remained flat at $55 million from the year-ago quarter. Operating margin was 9.6% in the quarter compared with the year-earlier quarter’s 9.9%.
The quarterly results mark the 12th consecutive quarter of year-on-year earnings growth, backlog expansion and record operating performance at Specialty Alloys Operations (SAO) business. The company generated double-digit year-over-year revenue growth in the Aerospace and Defense end-use market. Additionally, the company witnessed double-digit growth in the Medical end-use market compared with the prior-year level, as demand for high-value solutions remains robust.
Segment Performance
The SAO segment reported sales of $483 million, reflecting year-over-year growth of 4.6%. The segment sold 56,564 pounds, 8.2% lower than the prior-year quarter. Operating profit climbed 10.5% year over year to $76.3 million. The segment delivered record fiscal second-quarter operating income on richer product mix.
The Performance Engineered Products’ net sales declined 6.2% year over year to $106 million in the December-end quarter. The segment sold 3,424 pounds, 3.7% higher than the year-ago quarter figure. The segment reported operating profit of $0.4 million in the fiscal second quarter compared with the $4.4 million recorded in the prior-year quarter.
Financials
The company had cash and cash equivalents of $29.9 million in the fiscal second quarter, up from the $28.5 million recorded at the prior-year quarter’s end. Long-term debt was $550.6 million as of Dec 31, 2019, remain flat with the end of fiscal 2019. Cash provided by operating activities decreased to $21.8 million for the quarter from the year-earlier quarter’s $37.8 million.
How Have Estimates Been Moving Since Then?
Estimates review followed a downward path over the past two months. The consensus estimate has shifted -21.24% due to these changes.
VGM Scores
Currently, Carpenter has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren’t focused on one strategy, this score is the one you should be interested in.
Outlook
Carpenter has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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