With Boeing's (BA, Financial) safety and production issues making headlines and its shares trading at 52-week lows, it's surprising to see aerospace supplier Carpenter Tech (CRS, Financial) reaching all-time highs. On a slow news day, let's delve into this lesser-known company ahead of its Q1 (Sep) results next month.
- Carpenter Tech (CRS, Financial), a supplier of premium specialty alloys like titanium, nickel, and cobalt, ended FY24 on a high note. In late July, CRS reported a significant EPS beat for Q4 (Jun) and authorized a $400 million share buyback plan. The Aerospace & Defense segment, its largest, saw revenue jump 28% year-over-year and 19% sequentially to $376.3 million.
- Industry demand remains robust, as indicated by passenger traffic, airline miles, and airline operators' need for new planes. Boeing and Airbus have a backlog of over 15,000 commercial airplane builds, equating to roughly nine years of demand. Airline operators are eager to replace aging fleets with newer, fuel-efficient planes to meet additional capacity needs.
- While there is some noise in the supply chain about build rates, CRS counters this with its broad exposure to various aerospace platforms, including narrow-body and widebody planes, Airbus and Boeing, as well as MRO (maintenance, repair, overhaul) and OEM. For instance, MRO demand has remained elevated even as new builds have lagged, leading customers to prioritize different products in the near term.
- Looking forward, CRS anticipates significantly higher demand. The company is confident in ongoing airplane build rate increases due to extraordinary current and future demand. CRS has a large backlog of orders in aerospace and other markets like defense, energy, and medical.
- Defense customers continue to request emergency orders to support elevated military activity due to ongoing world events. CRS prioritizes these orders. In the medical sector, CRS saw another record quarter in June with sales up 9% sequentially and 38% year-over-year. Robust procedure backlogs drive strong market demand. Additionally, demand for power generation remains strong.
Overall, CRS is not overly concerned about near-term build rates. The company is focusing more on its MRO business, which is logical as airlines manage with existing planes while waiting for new ones. Furthermore, the defense, medical, and energy markets are performing well. Investors should note that even with modest build rate increases, CRS expects a significant rise in operating income for FY25 ($460-500 million vs. $354.1 million in FY24).
