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CARPENTER TECHNOLOGY CORP (CRS)·Q1 2026 Earnings Summary

Executive Summary

  • Record quarter: operating income $153.3M and diluted EPS $2.43, with SAO adjusted operating margin at 32.0% (15th consecutive quarterly expansion) .
  • Versus Wall Street: EPS beat S&P Global consensus ($2.43 vs $2.160*) while revenue was slightly below ($733.7M vs $747.5M*)—solid profitability on mix/pricing amid modest top-line shortfall .
  • Guidance: Q2 FY26 operating income guided to $152–$156M; FY26 operating income outlook maintained at $660–$700M with “line of sight” to the high end; FY26 adjusted FCF $240–$280M; FY27 target reaffirmed at $765–$800M .
  • Demand signals: Aerospace & Defense bookings +23% sequentially; engine submarket sales +14% sequentially; five aerospace LTAs completed with significant price increases, supporting sustained pricing power and backlog quality .

What Went Well and What Went Wrong

  • What Went Well

    • SAO delivered record profitability: operating income $170.7M; adjusted operating margin ex-surcharge 32.0% (from 26.3% y/y) and 15th straight quarterly expansion; management emphasized further upside potential .
    • A&D momentum strengthened: +23% sequential bookings; engine sales +14% q/q; five LTAs with significant price increases reflect supply/demand tightness and pricing power .
    • Capital allocation and balance sheet: $49.1M share repurchases in Q1 against $400M program; liquidity $556.9M; net debt/EBITDA well below 1x (management comment) .

  • What Went Wrong

    • Medical softness: sales down 20% sequentially and 16% y/y due to distribution destocking; management expects medical to be a tailwind longer term but noted inventory normalization taking longer than anticipated .
    • Free cash flow: adjusted FCF was -$3.4M as capex rose (brownfield expansion); capex $42.6M vs $26.9M a year ago .
    • Volume: consolidated pounds sold declined y/y (46,424K vs 51,568K), reflecting product mix optimization and planned maintenance, though margins expanded .

Financial Results

Overall performance vs prior year, prior quarter, and estimates

MetricQ1 FY2025Q4 FY2025Q1 FY2026Q1 FY2026 Consensus
Net Sales ($M)$717.6 $755.6 $733.7 $747.5*
Net Sales ex Surcharge ($M)$577.4 $623.7 $603.1 —
Operating Income ($M)$113.6 $151.4 $153.3 —
Adjusted Operating Income ($M)$117.2 $151.4 $153.3 —
Diluted EPS ($)$1.67 $2.21 $2.43 $2.160*
Net Income ($M)$84.8 $111.7 $122.5 —
Gross Profit ($M)$176.3 $—$216.4 —
Operating Margin % (GAAP)15.8% —20.9% —
Adjusted Op Margin ex Surcharge %20.3% —25.4% —

Estimate values marked with * are from S&P Global consensus.

Segment performance

SegmentMetricQ1 FY2025Q1 FY2026
SAOPounds Sold (000s)50,100 44,750
SAONet Sales ex Surcharge ($M)$510.9 $533.9
SAOSurcharge ($M)$134.2 $125.7
SAONet Sales ($M)$645.1 $659.6
SAOOperating Income ($M)$134.5 $170.7
SAOOp Margin % (GAAP)20.8% 25.9%
SAOAdjusted Op Margin ex Surcharge %26.3% 32.0%
PEPPounds Sold (000s)2,634 2,284
PEPNet Sales ex Surcharge ($M)$92.4 $87.2
PEPSurcharge ($M)$8.4 $6.4
PEPNet Sales ($M)$100.8 $93.6
PEPOperating Income ($M)$7.3 $9.4
PEPOp Margin % (GAAP)7.2% 10.0%
PEPAdjusted Op Margin ex Surcharge %7.9% 10.8%

End-use mix (ex surcharge)

End-UseQ1 FY2025 ($M)Q1 FY2026 ($M)
Aerospace & Defense$349.9 $388.3
Medical$73.4 $61.6
Energy$39.4 $42.5
Transportation$21.1 $17.9
Industrial & Consumer$72.4 $75.0
Distribution$21.2 $17.8
Total ex Surcharge$577.4 $603.1
Surcharge$140.2 $130.6
Total Net Sales$717.6 $733.7

Key cash and balance sheet KPIs

KPIQ1 FY2025Q4 FY2025Q1 FY2026
Cash from Operations ($M)$40.2 $258.0 $39.2
Capex ($M)$26.9 $58.0 $42.6
Adjusted Free Cash Flow ($M)$13.3 $201.3 -$3.4
Share Repurchases ($M)$32.1 $24.1 $49.1
Liquidity ($M)—$664.4 $556.9
Cash & Equivalents ($M)$150.2 $315.5 $208.0

Estimate comparison (Q1 FY2026)

MetricActualConsensus
Revenue ($M)$733.7 $747.5*
Diluted EPS ($)$2.43 $2.160*

Estimate values marked with * are from S&P Global consensus.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Operating Income ($M)Q2 FY2026N/A$152–$156 New
SAO Operating Income ($M)Q2 FY2026N/A$168–$172 New
Corporate Costs ($M)Q2 FY2026~24 (FY25 quarterly) ~$25 New
Effective Tax RateFY202621%–23% (normalized) 22%–23% run-rate; full-year at low end of 21%–23% Maintained (tilted low end)
Operating Income ($M)FY2026$660–$700 $660–$700 (line-of-sight to high end) Maintained
Adjusted Free Cash Flow ($M)FY2026$240–$280 $240–$280 Maintained
Brownfield Capex ($M)FY2026$175–$185 (within $300–$315 total) $175–$185 (spend to accelerate 2H) Maintained
Operating Income ($M)FY2027$765–$800 $765–$800 (commitment reaffirmed) Maintained

Earnings Call Themes & Trends

TopicQ-2 (Q3 FY2025)Q-1 (Q4 FY2025)Current (Q1 FY2026)Trend
Pricing & LTAsClosed 2 LTAs; pricing actions continue amid tightening supply/demand Several LTAs advanced/completed at Paris Air Show 5 aerospace LTAs completed with significant price increases; transactional pricing generally higher than LTA; no spot pricing Strengthening
A&D Bookings MomentumOrders up just over 20% sequentially Bookings up ~17%–18% sequentially Bookings up 23% sequentially; September highest intake in 12+ months Accelerating
Engine Demand & Lead TimesEngine sales +16% q/q; lead times up to 60 weeks Engine sales +5% q/q; lead times extended Engine sales +14% q/q; lead times extended and likely to push out Tight capacity persists
Medical End-MarketFlat seq; -14% y/y; destocking noted +6% seq; still below prior year; long-term positive -20% seq; -16% y/y; distribution inventory normalization continues Mixed/near-term soft
Power GenerationEnergy +26% y/y; strong IGT Power gen >100% y/y in Q&A; strategic tailwind Energy +8% y/y; power gen order intake +41% Growing
Tariffs/MacroPass-through via surcharges; limited cost exposure; Canadian nickel exempt No force majeure; pass-through intact Not a focal point this quarterStable/managed
Brownfield Expansion$400M project; initial spend; FY26 capex plan On plan; FY26 capex $300–$315M incl. $175–$185M for project Construction underway, on budget/schedule; spend accelerates 2H FY26; completion late FY27/early FY28 On track
Ops/AI & MaintenanceEmphasized predictive maintenance and AI tools to shorten outages Continued targeted outages strategy Planned maintenance executed while delivering record results Operational discipline

Management Commentary

  • “The first quarter of fiscal year 2026 was another earnings record, generating $153.3 million of operating income… Notably, the SAO segment expanded their adjusted operating margin to 32.0 percent… representing the fifteenth consecutive quarterly margin increase.” — Tony Thene, CEO .
  • “We saw bookings for the Aerospace and Defense end-use market accelerate, increasing 23 percent sequentially… completed negotiations on several long-term agreements with aerospace customers, realizing significant value.” — Tony Thene, CEO .
  • “Adjusted operating income was $153.3 million… our effective tax rate… 15.4%… For the balance of the fiscal year, we expect the effective tax rate to be between 22% to 23%… Earnings per diluted share was $2.43 for the quarter.” — Tim Lain, CFO .
  • “We anticipate total operating income of $152 million to $156 million [for Q2]. This includes SAO at $168 million to $172 million, PEP roughly at $9 million, and corporate costs at $25 million.” — Tim Lain, CFO .
  • “Transactional business pricing is generally higher than LTA pricing… we do not entertain spot pricing… we completed five LTAs with significant price increases.” — Tony Thene, CEO .

Q&A Highlights

  • Pricing dynamics and customer mix: Management clarified there is no “spot” business; transactional pricing tends to be higher than LTA; LTA renewals remain focused on surety of supply with ongoing price increases .
  • Aerospace cadence: A&D bookings expected to continue growing; customers receptive to ordering “now” given supply/demand tightness; management sees further sequential expansion in order intake over coming quarters .
  • LTA duration: Five new aerospace LTAs ranged 2–5 years; contract lengths likely to stay in this range vs historical 10-year constructs .
  • Engine and fasteners: Engine sales +14% sequentially in Q1; fasteners -7% sequentially but +40% y/y; orders for calendar 2026 being placed now, indicating strong demand visibility .
  • Brownfield timeline and capex: Construction underway (Athens site foundations); project on budget/on schedule with heavier spend in 2H FY26; completion late FY27/early FY28 .

Estimates Context

  • Q1 FY2026: EPS $2.43 vs $2.160* consensus (beat); revenue $733.7M vs $747.5M* (slight miss) .
  • Q2 FY2026 (consensus context): EPS $2.221*; revenue $733.8M* (company guided operating income $152–$156M for Q2) .

Estimate values marked with * are from S&P Global consensus.

Key Takeaways for Investors

  • SAO-driven profitability continues to outrun volume trends; record 32% segment margin underscores durable pricing/mix and productivity tailwinds even with maintenance headwinds .
  • The narrative is pivoting to accelerating A&D demand: sequential bookings re-accelerated to +23% and engine sales +14% q/q; five aerospace LTAs with significant price increases reinforce pricing power and surety-of-supply advantage .
  • EPS beat vs consensus despite revenue modestly below; strong gross profit and operating discipline were offsets—watch for estimate revisions upward on margins and EPS durability .
  • Guidance intact with upside bias: FY26 OI $660–$700M maintained with “line of sight” to high end; Q2 OI guide $152–$156M effectively in line with record Q1; FX/tax and holiday/downtime acknowledged in the outlook .
  • Medical destocking persists near term (-20% q/q, -16% y/y), but management continues to call medical a medium-term tailwind given portfolio positioning and innovation .
  • Power generation is a meaningful incremental lever (order intake +41% in quarter), carrying aerospace-like margins and competing for similar assets—supportive to mix and margin resilience .
  • Capital structure and liquidity are supportive: $556.9M liquidity and continued buybacks; subsequent $700M 5.625% 2034 senior notes priced to refinance 2028/2030 notes lowers rate stack and extends maturities (post-quarter press release) .

Additional Materials Reviewed

  • 8-K and Exhibit 99.1 earnings press release for Q1 FY2026, including detailed financials and non-GAAP reconciliations .
  • Q1 FY2026 earnings call transcript (prepared remarks and Q&A) .
  • Prior quarter earnings calls for trend analysis: Q4 FY2025 and Q3 FY2025 .
  • Related press releases: conference call schedule; subsequent $700M 2034 senior notes offering (for capital structure context) .