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    CRS
    Earnings call· Jun 2026(Q4 FY26)

    CARPENTER TECHNOLOGY Q4 FY26 earnings call CRS

    Jul 30, 2026 Source

    Executive summary

    Carpenter Technology Q4 FY26 — Record Operating Income and Strong FY27/FY29 Outlook

    Carpenter Technology delivered a record-breaking Q4 FY26, driven by strong operational execution and accelerating demand in high-value markets, particularly Aerospace and Defense. The company achieved record operating income and SAO segment margins, translating into robust cash flow and continued shareholder returns. Management provided strong FY27 and FY29 operating income targets, expressing confidence in sustained growth beyond FY29, supported by market dynamics and the brownfield expansion project.

    Highlights

    5

    • Generated $206.9 million in operating income, exceeding previous record by 11%.

    • SAO segment achieved a record adjusted operating margin of 37.8%.

    • Generated $240.1 million in cash from operating activities and $155 million of adjusted free cash flow in Q4.

    • Executed $179.1 million in share repurchases for FY26, part of a $400 million authorization.

    • Aerospace and Defense sales up 17% year-over-year and 3% sequentially, reaching an all-time high for the quarter.

    Concerns

    3

    • Medical end-use market sales down 30% compared to prior year Q4, despite a 5% sequential increase.

    • Energy end-use market sales down 22% sequentially and 12% year-over-year due to order timing fluctuations.

    • Some structural customers remain cautious in ordering patterns, acknowledging they are ordering below expected demand rates.

    Guidance & targets

    8
    CategoryTargetConfidence
    Total Operating Income
    $195 million to $200 million
    high materiality
    High
    SAO Operating Income
    $218 million to $222 million
    medium materiality
    High
    PEP Operating Income
    $6 million to $7 million
    low materiality
    High
    Corporate Costs
    approximately $29 million
    low materiality
    High
    Operating Income
    $850 million and $880 million
    high materiality
    High
    Adjusted Free Cash Flow
    $400 million and $430 million
    high materiality
    High
    Operating Income
    approximately $1.2 billion to $1.3 billion
    high materiality
    High
    Brownfield Project Incremental Operating Income
    $150 million
    high materiality
    High

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Specialty Alloys Operations (SAO)
    Net sales excluding surcharge. Year-over-year growth on 23% higher volume. Sequential growth on 11% higher volume. Adjusted operating margin is a new record, reflecting active management of production schedules, increased productivity, cost management, and planned maintenance. Lower average base price per pound due to higher proportion of lower-priced products in the mix, which carry comparable average profit margins.
    Operating income: $229.7 million
    		$607.4 million11%4%37.8%
    Performance Engineered Products (PEP)
    Net sales excluding surcharge. Sales increased across most end-use markets sequentially, notably titanium products in the medical end-use market. Additive business continues year-on-year and sequential sales growth driven by aerospace and defense demand.
    Operating income: $7.1 million
    		$98.2 million1%8%—

    Operational metrics

    35
    Operating Income
    $206.9 millionup 11% sequentially, up 37% YoY
    Q4 FY26

    Exceeded previous record set in Q3 FY26.

    Operating Income
    $702 millionup 34% over FY25, more than 5x FY23
    FY26

    Record-breaking year profitability.

    Cash from operating activities
    $240.1 million
    Q4 FY26
    Cash from operating activities
    $605 million37% increase over FY25
    FY26
    SG&A expenses
    $62 millionroughly flat YoY, down $3.3 million sequentially
    Q4 FY26
    Corporate costs
    $28.6 millionup $1.3 million sequentially, up $1.7 million from Q4 FY25
    Q4 FY26
    Effective tax rate
    20.7%
    Q4 FY26

    Lower than anticipated primarily due to discrete tax benefits associated with certain equity awards.

    Earnings per diluted share
    $3.23
    Q4 FY26
    Capital spending
    $242.7 million
    FY26

    Includes the brownfield capacity expansion project.

    Capital spending
    $85.1 million
    Q4 FY26

    Ramped up as activities around the capacity expansion project accelerated.

    Total liquidity
    $892.4 million
    Q4 FY26 end
    Net debt-to-EBITDA ratio
    well below 1x
    Q4 FY26 end

    Credit metrics remain very strong.

    Share repurchases
    $45.2 million
    Q4 FY26
    Share repurchases
    $179.1 million
    FY26
    Share repurchase authorization
    $400 million$281 million spent to date
    authorized July 2024
    Dividends paid
    $40.3 million
    FY26
    Aerospace and Defense sales growth
    3%sequentially
    Q4 FY26
    Aerospace and Defense sales growth
    17%year-over-year
    Q4 FY26
    Medical end-use market sales growth
    5%sequentially
    Q4 FY26

    First sequential increase in this fiscal year.

    Medical end-use market sales growth
    -30%year-over-year
    Q4 FY26
    Energy end-use market sales growth
    -22%sequentially
    Q4 FY26
    Energy end-use market sales growth
    -12%year-over-year
    Q4 FY26
    Industrial and Consumer end-use market sales growth
    19%sequentially
    Q4 FY26
    Industrial and Consumer end-use market sales growth
    22%year-over-year
    Q4 FY26
    Total Case Incident Rate (TCIR)
    1.4
    FY26 end
    SAO volume growth
    23%year-over-year
    Q4 FY26
    SAO volume growth
    11%sequentially
    Q4 FY26
    Aero engines sales growth
    almost 30%year-over-year
    Q4 FY26

    Second highest in history, despite sequential decline.

    Aero engines sales growth
    low single digitsdown sequentially
    Q4 FY26
    Aerospace fasteners sales growth
    10%sequentially
    Q4 FY26
    Aerospace fasteners sales growth
    12%year-over-year
    Q4 FY26
    Structural distribution sales growth
    25%quarter-over-quarter
    Q4 FY26
    Structural distribution sales growth
    8%year-over-year
    Q4 FY26
    Defense sales growth
    about 10%down sequentially
    Q4 FY26

    Normal fluctuation related to program-specific nature of the submarket.

    Free cash flow conversion
    85% to 90%
    FY26 and FY27

    Demonstrated and projected conversion ratio, excluding growth investments, expected to be attainable in the future.

    Industry KPIs

    4
    MetricValueDetails
    Total company backlogapproximately 16,000 aircraftunits
    Aftermarket services split—
    Unit deliveries by programRate 47 per monthunits
    Production rates by programRate 47 per monthunits

    Orderbook & backlog

    1
    Boeing and Airbus aircraft backlogapproximately 16,000 aircraftQ4 FY26

    OEMs continue to push towards higher build rates.

    Capital programs

    1
    Brownfield capacity expansion projectunderway
    Period spend: $85.1 million
    Spent to date: $242.7 million

    Benefit: incremental operating income

    Remains on budget and on schedule. Construction phase well underway with key equipment delivered and on-site assembly and installation progressing. Expected to contribute approximately $150 million of incremental OI by 2030.

    Risks & headwinds

    3
    Cautious ordering from structural customersnear term

    ordering below expected demand rates

    Mitigation: Expect demand to accelerate further as caution phases and ordering aligns with expected production rates, potentially in the next quarter or two.

    Fluctuations in Energy end-use market salesquarterly

    down 22% sequentially and 12% year-over-year

    Mitigation: Due to order timing and production scheduling; demand from IGT customers remains strong.

    Elevated preventive maintenance levelsQ1 FY27

    reduces operating time in the quarter

    Mitigation: Offset a portion of the loss in operating time with improved productivity and portfolio optimization.

    What to watch in Q1 FY27

    5

    SAO Operating Income

    Q1 FY27
    Current$229.7 million (Q4 FY26)
    Target$218 million to $222 million (Q1 FY27 guidance)

    Why it matters

    To verify the company's ability to meet or exceed its Q1 FY27 guidance, especially given the CEO's 'floor' comment.

    As we look ahead to our first quarter of fiscal year 2027, we anticipate SAO will generate operating income in the range of $218 million to $222 million.

    Q&A highlights

    7

    Clarify how much of the FY29 EBIT guide is attributed to the brownfield project and if the $150M 2030 target is still valid given pricing trends.

    The brownfield project comes online early FY28, ramps production through FY28, and is expected to be incremental. The $150M incremental OI target for 2030 is still valid, though management is more confident and it could drive higher. The FY29 contribution is weighted more towards the $150M than a linear progression from zero.

    “It won't quite be linear between that first year and the $150 million in 2030. We'd expect it probably actually to be a little bit more weighted towards the 30% number, but that's all baked into the current guide.”

    asked by Scott Deuschle · answered by Timothy Lain

    2 min read6 chapters

    Detailed Narrative

    01

    Leadership Transition

    Tony Thene was reappointed Chairman, President, and CEO following the sudden passing of Brian Malloy. Thene clarified that this is not an interim assignment and no external search for a new CEO will be launched, providing stability and continuity in leadership. He emphasized the company's commitment to its strategic priorities and long-term success under his continued leadership.

    02

    Safety Performance

    Carpenter Technology concluded fiscal year 2026 with a total case incident rate of 1.4, reinforcing its commitment to a zero-injury workplace. The company views safety as its number one value and a prerequisite for superior, sustainable operational performance, striving for continuous improvement towards this ultimate goal.

    03

    Aerospace & Defense Market Dynamics

    Sales in the Aerospace and Defense end-use market increased 3% sequentially and 17% year-over-year, marking an all-time high for the quarter. This growth is driven by accelerating activity across the aerospace supply chain, with OEMs like Boeing and Airbus pushing for higher build rates. Engine manufacturers are focused on securing supply for both increasing production rates and elevated MRO demand, while fastener and structural customers anticipate further acceleration in demand.

    04

    Non-Aerospace Market Trends

    The Medical end-use market saw a 5% sequential sales increase, indicating improving demand across orthopedics, dental, and cardiology, despite a 30% year-over-year decline. Energy end-use market sales slipped 22% sequentially due to order timing fluctuations, though demand from IGT customers remains strong. Industrial and Consumer sales surged 19% sequentially and 22% year-over-year, primarily fueled by increasing demand from the semiconductor industry.

    05

    Brownfield Capacity Expansion Progress

    The brownfield capacity expansion project remains on budget and on schedule for completion by early fiscal year 2028. Construction is well underway, with key equipment being delivered and on-site assembly and installation progressing. This project is expected to be incremental to operating income in FY28 and contribute approximately $150 million of incremental operating income by 2030, supporting the company's long-term growth targets.

    06

    Capital Allocation Strategy

    Carpenter Technology maintains a balanced capital allocation philosophy, prioritizing investments in attractive growth projects like the brownfield expansion, while consistently returning cash to shareholders. This includes a long-standing quarterly dividend and an active share repurchase program, with $179.1 million repurchased in FY26 against a $400 million authorization. The company's strong balance sheet and cash generation provide flexibility for future growth and shareholder returns.

    AI-generated summary of the company’s earnings call. Not investment advice.