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    CRS
    Earnings call· Dec 2025(Q2 FY26)

    CARPENTER TECHNOLOGY CORP 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

    10
    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

    2
    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

    19
    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
    $63.1Mflat sequentially, up $4.5M YoY
    Q2 FY26
    Corporate Costs
    $26.2Mflat sequentially, up $2.6M YoY
    Q2 FY26

    Included in SG&A.

    Gross Profit
    $218.3Mup 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
    strongnear 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 tons7% increase over 2019 shipments
    Future

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

    Industry KPIs

    3
    MetricValueDetails
    Unit deliveries by program42units
    Production rates by program42aircraft per month
    Production capacity expansion9,000tons

    Orderbook & backlog

    4
    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 Ordersdown materiallyQ2 FY26

    sequentially

    Due to government shutdown and budget uncertainty.

    Deals & partnerships

    1
    Aerospace customersLong-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

    1
    Brownfield capacity expansion projectunderway
    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

    2
    Defense submarket orders impacted by government shutdownQ2 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 declineQ2 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

    5

    SAO Operating Margin Trajectory

    next 2 quarters of FY26
    Current33.1%
    Targetincreasing

    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

    8

    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 read5 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    05

    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.