Carpenter Technology’s Earnings Call: Order Recovery Timelines and FY29 Peak Status Don’t Match

Date of Call: Jul 30, 2026

Financials Results

• Revenue: Sales excluding surcharge increased 9% year-over-year and 4% sequentially.
• EPS: $3.23 per diluted share.
• Gross Margin: Not explicitly provided; implied from operating margin context.
• Operating Margin: SAO segment adjusted operating margin of 37.8% in Q4, a record, up from 35.6% sequentially and 30.5% a year ago.

Guidance:

• Q1 FY27 operating income projected between $195M-$200M, implying 27%-30% growth vs. prior year.
• Full-year FY27 operating income expected between $850M-$880M, representing 21%-25% growth over record FY26.
• FY29 operating income target of $1.2B-$1.3B, reflecting >20% three-year CAGR from FY26.
• FY27 adjusted free cash flow anticipated at $400M-$430M.

Business Commentary:

Record Financial Performance:

• Carpenter Technology Corp delivered a record operating income of $206.9 million in Q4 FY26, exceeding the previous record by 11%.
• This was driven by the SAO segment, which reported an adjusted operating margin of 37.8%, marking a new record for the segment.

Aerospace and Defense Market Strength:

• Sales in the aerospace and defense in-use market increased 3% sequentially and 17% year-over-year.
• The growth reflects accelerating activity across the aerospace supply chain and increased production rates by Boeing and Airbus.

Cash Flow Generation and Shareholder Returns:

• The company generated $240.1 million in cash from operating activities and $155 million of adjusted free cash flow in Q4.
• Cash was returned to shareholders through dividends and repurchase programs, with $179.1 million in share repurchases executed in fiscal year 2026.

Volume and Mix Impact on Pricing:

• SAO segment sales increased by 11% year-over-year on 23% higher volume, but the average base price per pound decreased due to a higher proportion of lower-priced products.
• Despite the lower average price, margins expanded due to improved productivity and mix management.

Outlook and Growth Projections:

• For Q1 FY27, total operating income is projected to be between $195 million and $200 million, indicating a 27% to 30% increase year-on-year.
• The positive outlook is supported by anticipated strengthening demand in key markets and ongoing productivity improvements.

Sentiment Analysis:

Overall Tone: Positive

• Management described delivering "record quarterly profits," "record-breaking year of profitability," and "strongest earnings growth trajectories within our industry." Outlook emphasizes "accelerating demand environment," "clear path to significant earnings growth," and "we believe our current record results are far from our peak."

Q&A:

• Question from Scott Dushley (Deutsche Bank): Tim, can you share what the FY29 EBIT guide assumes with respect to the brownfields contribution to earnings?
  Response: The FY29 target includes the brownfield project's contribution, expected to ramp in FY28 and reach ~$150M incremental OI by FY30, with the 2029 number weighted closer to that 2030 level.

• Question from Scott Dushley (Deutsche Bank): Why would the EBIT growth moderate from the recent acceleration implied by the guidance?
  Response: Management viewed the FY27 guide as a floor, emphasizing focus on overachievement, and attributed the guidance to confidence in underlying demand drivers like Boeing/Airbus build rates and market recovery.

• Question from Gautam Khanna (TD Cowan): Tim, were you trying to say the brownfield contribution will be closer to the $150M in 2030, not break-even?
  Response: Confirmed it will be closer to the $150M target, though not exactly linear, and maintained that figure as it reflects a confident, achievable baseline.

• Question from Gautam Khanna (TD Cowan): What contributors rank order for FY27 operating income growth?
  Response: Primary drivers are aerospace build rates from Boeing/Airbus, followed by price, volume in non-aerospace markets, and ongoing productivity initiatives.

• Question from David Strauss (Wells Fargo): Does defense growth accelerate in FY27 relative to FY26?
  Response: Defense growth is expected to be meaningfully higher in FY27 due to increased aerospace build rates, though the exact rate depends on Boeing's progress.

• Question from David Strauss (Wells Fargo): What is the outlook for SAO incremental margins from here?
  Response: Management believes there is more margin growth potential, particularly from productivity, though it gets tougher at higher levels.

• Question from Bennett Moore (JP Morgan): What is causing structural customers to remain cautious in ordering?
  Response: Cautiousness is primarily due to past ordering patterns and Boeing's build rate progress; a significant uptick is expected as confidence returns.

• Question from Bennett Moore (JP Morgan): Is the 85-90% free cash flow conversion rate still applicable, and what is the capex cadence?
  Response: Yes, the conversion rate is achievable after removing growth investments; capex is expected to be rateable throughout the year as the brownfield project is in full swing.

• Question from Josh Sullivan (Jones Trading): Does the FY29 guide assume cautious structural customers have returned to expected build rates?
  Response: Yes, those customers are expected to become more aggressive earlier than FY29, contributing to the outlook.

• Question from Andre Madrid (BTIG): What is implied in the FY29 outlook at a sub-market level?
  Response: All key markets (aerospace, medical, IGT) are expected to be higher in FY29, with no concerns about OEM/MRO mix, supported by positive macro demand.

• Question from Andre Madrid (BTIG): Is M&A on the table given the liquidity?
  Response: M&A is not ruled out but would be difficult to prioritize over attractive organic projects; the focus remains on balanced capital allocation including dividends and buybacks.

Contradiction Point 1

Timeline for Structural Customer Ordering Recovery

Inconsistent timeline for when cautious structural customers will ramp orders.

Bennett Moore (JP Morgan) - Bennett Moore (JP Morgan)

2026Q4: As Boeing improves and build rates rise, ordering is expected to uptick significantly. - Tony Tain(CFO)

What factors are causing structural customers to order cautiously, and what measures will drive them to increase orders? - Josh Sullivan (Jones Trading)

2026Q4: Yes, the guide assumes that cautious customers will have become more aggressive much earlier than FY 2029. - Tony Thene(CFO)

Contradiction Point 2

FY29 as a Peak Year

Contradictory statements on whether FY29 represents the highest earnings and margin point.

Andre Madrid (BTIG) - Andre Madrid (BTIG)

2026Q4: FY 2029 is viewed as a peak on both a nominal earnings and margin basis. - Tony Thene(CFO)

Is FY29 the peak earnings year, and if not, what is the highest margin achieved? - Andre Madrid (BTIG)

2026Q4: It is not the peak—both nominal earnings and margins are expected to continue growing beyond FY29. - Tony Tain(CFO)

Contradiction Point 3

Capital Expenditure Cadence for Brownfield Project

Contradiction on the timing of capital spending for the brownfield expansion.

Bennett Moore (JP Morgan) - Bennett Moore (JP Morgan)

2026Q4: Capital spending is expected to be rateable throughout FY27 as the brownfield project is in full swing. - Tony Tain(CEO)

What is the expected free cash flow conversion rate for FY27 and the capex cadence? - Samuel McKinney (KeyBanc)

2026Q3: The $40M delay in CapEx is due to the timing of cash payments related to project milestones, not a delay in construction progress. - Timothy Lain(CFO) & Tony Thene(CEO)

Contradiction Point 4

Long-Term Agreement (LTA) Mix and Contract Renewals

Contradiction on the expected stability and aerospace focus of the LTA portfolio.

Scott Dushley (Deutsche Bank) - Scott Dushley (Deutsche Bank)

2026Q4: Management is more confident in the $150M target now but chooses not to increase it because product mix on the new assets is still uncertain. - Tim Lane(CFO) and Tony Tain(CEO)

Is the $150M incremental OI target for FY30 still accurate or overestimated due to recent pricing trends? - Andre Madrid (BTIG)

2026Q3: The LTA mix is already high in aerospace (low 60-65%) and not expected to change drastically, though customers may seek longer agreements due to market tightness. - Tony Thene(CEO)

Contradiction Point 5

Aerospace Lead Time Outlook

Contradiction on whether lead times have already extended or are expected to extend.

Gautam Khanna (TD Cowan) - Gautam Khanna (TD Cowan)

2026Q4: A significant acceleration is expected in the coming quarters. - Tony Tain(CFO)

Have lead times changed significantly? - Bennett Moore (JPMorgan)

2026Q2: Lead times have extended across aerospace and are expected to push back up to previous levels. - Tony Thene(CFO)