Carpenter Technology Corporation

In Q4 FY2026, sales excluding surcharge increased 9% year over year on 22% higher volume and 4% sequentially on 11% higher volume. Gross profit was $268.9 million, up 26% from the same quarter last year and up 7% sequentially. Operating income was a record $206.9 million, up 37% year over year and 11% sequentially, and EPS was $3.23; the effective tax rate was 20.7%. SAO net sales excluding surcharge were $607.4 million, up 11% year over year and 4% sequentially, with a record 37.8% adjusted operating margin and $229.7 million of operating income. PEP net sales excluding surcharge were $98.2 million, up 1% year over year and 8% sequentially, with operating income of $7.1 million. For FY2026, adjusted operating income was $702 million, up 34% year over year, and adjusted free cash flow was $362.3 million. For FY2027, management guided to total operating income of $850 million to $880 million, including SAO of $218 million to $222 million, PEP of $6 million to $7 million, and corporate costs of about $29 million; adjusted free cash flow is expected to be $400 million to $430 million. Management also reiterated FY2029 operating income of approximately $1.2 billion to $1.3 billion, and said the brownfield project remains on budget and on schedule to be completed by the start of FY2028.

Tony Thene emphasized that the company is operating in an accelerating demand environment, led by aerospace and defense, where Boeing and Airbus build-rate increases should support further growth. He repeatedly framed FY2027 guidance as conservative and said he would view it as a floor, not a ceiling, while stressing the company sets targets it can confidently achieve and then works to exceed them. He also highlighted the long-term runway from productivity, mix, pricing, and the brownfield expansion, and said FY2029 is not expected to be the peak of earnings power.

Tim Lain focused on the financial leverage in the quarter: sales excluding surcharge were up 9% year over year, gross profit rose to $268.9 million, operating income reached $206.9 million, and EPS was $3.23. He said FY2026 cash from operations was $605 million, up 37%, and adjusted free cash flow was $362.3 million, supported by disciplined working capital management; liquidity stood at $892.4 million, including $393.3 million of cash and $499.1 million of available borrowings, with net debt-to-EBITDA well below 1x. On capital allocation, he noted $179.1 million of buybacks in FY2026, $281 million spent to date under the $400 million authorization, $242.7 million of capex in FY2026, and $85.1 million of Q4 capex as the brownfield project ramped.

Analysts pressed management on why FY2027 guidance implies some moderation in EBIT growth, and Tony responded that he does not necessarily disagree and would treat the guide as a floor. Questions also focused on the brownfield project, where Tim said the project is on schedule, on budget, and expected to be OI-accretive in FY2028, with the prior $150 million incremental OI target for 2030 still held out, though they are more confident it could be higher. Management was also asked about cautious structural customers, and Tony said they are holding back mainly because they have been burned before, but he expects a significant pickup as Boeing continues to improve. On LTAs, Tony said a couple of significant contracts will renew over the next two years, including one currently being worked on, and confirmed there are still a small number of pre-COVID agreements left.