CRS
Earnings call · Dec 2025 (Q2 FY26)

CARPENTER TECHNOLOGY Q2 FY26 earnings call CRS

Jan 29, 2026 Source

Executive summary

Carpenter Technology Q2 FY26 — Record Earnings and Raised FY26 Guidance

Carpenter Technology delivered record Q2 FY26 earnings, driven by strong SAO segment performance and expanding margins, despite typical year-end seasonality. The company raised its full-year operating income guidance, citing accelerating aerospace demand and a persistent supply-demand imbalance for nickel-based superalloys. Management expressed confidence in exceeding its FY27 targets and plans to provide longer-term guidance.

Highlights

5

  • Generated record operating income of $155 million in Q2 FY26, a 31% increase over Q2 FY25.

  • SAO segment achieved a record adjusted operating margin of 33.1%, marking its 16th consecutive quarter of margin expansion.

  • Commercial aerospace bookings increased 23% sequentially, contributing to an 8% sequential rise in overall aerospace and defense bookings.

  • Completed 3 additional long-term agreements with aerospace customers, securing significant price increases.

  • Raised FY26 operating income guidance to $680 million to $700 million, representing a 30% to 33% increase over FY25.

Concerns

2

  • Defense submarket orders were materially down in the quarter due to government shutdown and budget uncertainty.

  • Medical end-use market sales decreased 7% sequentially and 22% year-over-year, isolated to certain titanium products for specific distribution customers.

Guidance & targets

CategoryTargetConfidence
SAO Operating Income
$195M-$200M
medium materiality
High
PEP Operating Income
~$7M
low materiality
Medium
Corporate Costs
~$25M
low materiality
High
Total Operating Income
$177M-$182M
high materiality
High
Effective Tax Rate
22%-23%
medium materiality
High
Effective Tax Rate
Low end of 21%-23%
medium materiality
High
Adjusted Free Cash Flow
At least $280M
high materiality
High
Total Capital Expenditures
$300M-$315M
medium materiality
High
Operating Income
$680M-$700M
high materiality
High
Operating Income
$765M-$800M
high materiality
High

Segment performance

SegmentRevenueYoYQoQMargin
SAO
Record operating income and adjusted operating margin, driven by product mix optimization, pricing actions, and increased productivity. Sales were up 10% YoY on 5% higher volume, but down 1% sequentially on 5% higher volume due to planned maintenance and holidays.
Operating income: $174.6MVolume growth YoY: +5%Volume growth QoQ: +5%Margin expansion: 16th consecutive quarter
$527.3M+10%-1%33.1%
PEP
Sales decline primarily driven by lower demand for titanium products from specific medical distribution customers. Operating income was $6.9 million, down from $9.4 million sequentially. Year-over-year improvement in operating margin reflects growth in the additive business and cost benefits from prior actions.
Operating income: $6.9M
$77.2M-10%-11%$6.9M

Operational metrics

Adjusted EPS
$2.33
Q2 FY26

Excludes the impact of debt refinancing.

Capital Expenditures
$46.3M
Q2 FY26
Share Repurchases
$32.1M
Q2 FY26

Part of the ongoing share repurchase authorization.

Total Liquidity
$730.8M
Q2 FY26

Includes cash and available borrowings.

Cash Balance
$231.9M
Q2 FY26
Available Borrowings under Credit Facility
$498.9M
Q2 FY26

Credit facility increased from $350M to $500M and term extended.

Net Debt-to-EBITDA Ratio
well below 1x
Q2 FY26

Credit metrics remain very strong.

Effective Tax Rate
19%
Q2 FY26

Lower than anticipated due to discrete tax benefits from equity awards.

SG&A Expenses
$63.1M flat sequentially, up $4.5M YoY
Q2 FY26
Corporate Costs
$26.2M flat sequentially, up $2.6M YoY
Q2 FY26

Included in SG&A.

Gross Profit
$218.3M up slightly sequentially, up 23% YoY
Q2 FY26

Reflects improving productivity, product mix, and pricing.

Aerospace Engine Materials Order Intake
+30% sequentially
Q2 FY26

Signaling continued growing strength in demand.

Commercial Aerospace Bookings
+23% sequentially
Q2 FY26

Fourth consecutive quarter of sequential order intake increases for the aerospace and defense end-use market.

Aerospace and Defense Bookings
+8% sequentially
Q2 FY26

Overall increase, despite defense submarket orders being down.

Aerospace Structural Customers Order Placement
ramping up order placement
Q2 FY26

Recently placed first large orders in several quarters and preparing for larger, more urgent next rounds.

Aerospace Fastener Customers Projections
projecting big increases
CY26

Working closely with customers to ensure material needs are met.

Medical Orthopedic and Dental Submarkets Sales
strong near an all-time record
Q2 FY26

Bright spots in the medical end-use market.

Power Generation Demand
accelerating
Q2 FY26

Driven primarily by immense energy needs of data centers.

Nickel-Based Superalloy Capacity Expansion
9,000 additional tons 7% increase over 2019 shipments
Future

From brownfield capacity expansion, a modest increase for the industry relative to projected demand deficit.

Industry KPIs

MetricValueDetails
Unit deliveries by program42 units
Production rates by program42 aircraft per month
Production capacity expansion9,000 tons

Orderbook & backlog

Aerospace and Defense Bookings +8% Q2 FY26

sequentially

Commercial Aerospace Bookings +23% Q2 FY26

sequentially

Aerospace Engine Materials Order Intake +30% Q2 FY26

sequentially

Defense Submarket Orders down materially Q2 FY26

sequentially

Due to government shutdown and budget uncertainty.

Deals & partnerships

Aerospace customers Long-term agreements for material supply

Completed 3 additional long-term agreements with aerospace customers during the quarter, securing surety of supply for customers and favorable pricing for Carpenter.

Capital programs

Brownfield capacity expansion project underway
Period spend: $175M-$185M
Spent to date: over $80M through H1 FY26
Funding: Company funds

Benefit:9,000 additional tons of primary melt capacity (7% increase over 2019 shipments)

Focused on primary melt, specifically a new vacuum induction melting furnace. Currently on budget and on schedule. Capital spending expected to accelerate in H2 FY26.

Risks & headwinds

Defense submarket orders impacted by government shutdown Q2 FY26

materially down

Mitigation:Pent-up order demand is expected to return very rapidly, with orders already picking back up in January.

Medical titanium sales decline Q2 FY26

down 7% sequentially and 22% YoY

Mitigation:The decrease is isolated to certain titanium products for specific medical distribution customers within the PEP segment. January order intake for this submarket was the highest in 2025, suggesting a potential bottoming out.

What to watch in Q3 FY26

SAO Operating Margin Trajectory

next 2 quarters of FY26
Current 33.1%
Target increasing

Why it matters

Continued margin expansion in the SAO segment is a key driver of overall profitability and earnings growth.

Our current outlook calls for increasing SAO margins over the next 2 quarters of fiscal year 2026.

Q&A highlights

How broad-based is airframe customer participation in ordering, and is it primarily driven by confidence in Boeing's build rates after previous destocking?

Aerospace submarkets (engine, fastener, structural) show increased activity. Engine orders were up 30% sequentially. Structural customers, previously on the sidelines due to Boeing issues, are now placing significant orders and anticipating larger, more urgent follow-on orders, driven by renewed confidence in Boeing's performance.

“Maybe you could argue even more significant is what our structural customers did in the quarter. And you rightly said, Gautam, the impact of Boeing really put them on the sidelines. Prior to those issues, they had been probably the top submarket in terms of ordering quantity. So they had a lot of inventory to see them now come off the sidelines and 2 things, not only one place some significant orders, but then immediately come back to us and say, there's more coming and they're going to be bigger and more urgent. That's a big positive sign.”

asked by Gautam Khanna · answered by Tony Thene

2 min read 5 chapters

Detailed narrative

Aerospace Demand Acceleration

The aerospace market is experiencing one of its largest build ramps ever, with Boeing reaffirming increased build rates for calendar year 2026, significantly higher than deliveries. This is driving accelerating demand across all aerospace submarkets, including engines, structural components, and fasteners. Aerospace engine materials order intake was up 30% sequentially, and structural customers are moving off the sidelines, placing their first large orders in several quarters and preparing for larger, more urgent follow-on orders.

Nickel-Based Superalloy Supply-Demand Imbalance

There has been no meaningful increase in qualified nickel-based superalloy supply since 2019, other than internal productivity improvements. This is despite surging demand from aerospace (OEM and MRO), defense, space, and power generation, particularly for data centers. Carpenter's brownfield expansion will add 9,000 additional tons, representing a 7% increase over its 2019 shipments, but this is expected to account for only a small single-digit percentage of the total projected industry supply-demand deficit.

Favorable Pricing Environment and Long-Term Agreements

The persistent supply-demand gap for nickel-based superalloys is driving a favorable pricing environment, which management expects to continue as a positive tailwind. Carpenter completed three new long-term agreements with aerospace customers in the quarter, securing significant price increases. These agreements provide surety of supply for customers in a high-demand environment, benefiting both parties.

Capital Allocation and Balance Sheet Strength

The company generated $85.9 million in adjusted free cash flow in Q2 FY26 and repurchased $32.1 million in shares, bringing the total to $183.1 million against a $400 million authorization. Carpenter also refinanced its long-term debt to 2034 with a reduced interest rate and increased its revolving credit facility from $350 million to $500 million, extending the term to 2030. Total liquidity stands at $730.8 million, with a net debt-to-EBITDA ratio well below 1x.

Medical Market Dynamics and PEP Segment Performance

The decline in medical sales was isolated to specific titanium products for distribution customers within the PEP segment, not impacting the overall earnings outlook. Orthopedic and dental submarkets remain strong, with sales near all-time records. The PEP segment's operating income was $6.9 million, reflecting the impact of these titanium sales but also benefiting from growth in the additive business and cost reductions.

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