Executive Summary

Record quarter: Operating income $137.8M (+61.9% YoY), Diluted EPS $1.88 (+$1.76 YoY), SAO adjusted operating margin reached 29.1%; guidance raised to FY25 operating income of $520–$527M .
Aerospace & Defense drove growth (net sales ex. surcharge $373.2M, +12% QoQ, +18% YoY); engines +16% QoQ; fasteners +25% QoQ; orders up >20% QoQ .
Cash generation and capital return: Adjusted FCF $34.0M; liquidity $500.4M; repurchased $37.5M of stock; quarterly dividend declared $0.20/share (payable Jun 5) .
Tariff exposure manageable: nickel largely from Canada/Norway; surcharges to pass through costs; Q4 consolidated operating income guided to $146–$153M (segments: SAO $160–$165M; PEP $10–$12M; minus ~$24M corporate costs) .
Potential stock catalysts: sustained margin expansion, LTAs and pricing actions, raised guidance, and inventory unwind supporting strong Q4 cash generation .

What Went Well and What Went Wrong

What Went Well

“Most profitable quarter on record” with operating income $137.8M; SAO adjusted margin expanded to 29.1% (13th consecutive quarter of expansion), driven by productivity, mix, and pricing actions .
Aerospace strength: engines +16% sequentially, fasteners +25%; defense urgent demand including direct DoD emergency support; orders up just over 20% QoQ .
Cash and capital return: Adjusted FCF $34.0M; $37.5M repurchases; liquidity $500.4M; FY25 FCF target $250–$300M reaffirmed .

What Went Wrong

Medical sales −14% YoY against a record prior-year comp; management cited likely destocking (expects rebound in Q4) .
SG&A rose to $63.0M (+$4.4M QoQ, +$6.0M YoY); corporate costs ~$24.4M in Q3, similar expected in Q4 .
Volumes remain constrained (pounds sold 46,496 vs. 50,208 prior-year); lead times up to 60 weeks for aerospace engines, with order book capped .

Financial Results

Metric	Q3 2024	Q2 2025	Q3 2025
Net Sales ($M)	$684.9	$676.9	$727.0
Net Sales ex. Surcharge ($M)	$553.8	$548.0	$597.0
Gross Profit ($M)	$147.0	$177.5	$200.8
Operating Income ($M)	$75.9	$118.9	$137.8
Adjusted Operating Margin ex. Surcharge (%)	16.3%	21.7%	23.1%
Net Income ($M)	$6.3	$84.1	$95.4
Diluted EPS ($)	$0.12	$1.66	$1.88

Segment breakdown

Segment	Metric	Q3 2024	Q2 2025	Q3 2025
SAO	Net Sales ($M)	$608.5	$601.5	$642.9
SAO	Net Sales ex. Surcharge ($M)	$483.0	$479.6	$519.4
SAO	Operating Income ($M)	$103.5	$135.6	$151.4
SAO	Adjusted Segment Operating Margin ex. Surcharge (%)	21.4%	28.3%	29.1%
PEP	Net Sales ($M)	$102.4	$95.0	$104.9
PEP	Net Sales ex. Surcharge ($M)	$94.6	$86.2	$96.8
PEP	Operating Income ($M)	$9.2	$7.0	$10.9
PEP	Adjusted Segment Operating Margin ex. Surcharge (%)	9.7%	8.1%	11.3%

End-use markets (Q3 2025, ex. surcharge)

End-Use Market	Net Sales ex. Surcharge ($M)	Mix (%)	Sequential Change vs Q2-25	YoY Change vs Q3-24
Aerospace & Defense	$373.2	63%	+12%	+18%
Medical	$72.4	12%	−1%	−14%
Energy	$35.0	6%	+9%	+26%
Transportation	$21.9	4%	+2%	−17%
Industrial & Consumer	$72.4	12%	+7%	−6%

Key performance indicators

KPI	Q3 2024	Q2 2025	Q3 2025
Pounds Sold (‘000)	50,208	46,170	46,496
Adjusted Free Cash Flow ($M)	—	38.6	34.0
Cash & Equivalents ($M)	—	162.1	151.5
Available Borrowings under Credit Facility ($M)	—	348.9	348.9
Total Liquidity ($M)	—	511.0	500.4
Net Debt / EBITDA (x)	—	—	0.9x
Share Repurchases ($M, quarter)	—	8.2	37.5

Non-GAAP context: Prior-year Q3 2024 included special items (goodwill impairment $14.1M; pension settlement charges $39.5M); adjusted Q3 2024 EPS was $1.19 vs GAAP $0.12 .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Operating Income (Consolidated)	FY25	$500–$520M (as of Q2)	$520–$527M	Raised
Operating Income (SAO)	Q4 FY25	—	$160–$165M	New/Disclosed
Operating Income (PEP)	Q4 FY25	—	$10–$12M	New/Disclosed
Operating Income (Consolidated)	Q4 FY25	—	$146–$153M (segments minus ~$24M corporate costs)	New/Disclosed
Effective Tax Rate	Q4 FY25	~23% normalized	~23% normalized	Maintained
Corporate Costs	Q4 FY25	~$24M	~$24M	Maintained
Adjusted Free Cash Flow	FY25	$250–$300M	$250–$300M	Maintained
Capex	FY25	—	$155–$160M incl. ~$30M for brownfield	New/Clarified
Dividend	Quarterly	$0.20/share declared Oct and Jan	$0.20/share declared Apr 10; payable Jun 5	Maintained

Earnings Call Themes & Trends

Topic	Q1 FY25 (Oct)	Q2 FY25 (Jan)	Q3 FY25 (Apr)	Trend
SAO margin expansion	Adjusted SAO margin 26.3%; 11th consecutive quarter rising	Adjusted SAO margin 28.3%; record; guidance raised	Adjusted SAO margin 29.1%; record; 13th consecutive quarter	Improving
Pricing/LTAs	Pricing actions cited; strong mix/pricing	Continued pricing realization; additive softness	Two new LTAs signed; backlog pricing improving; new LTAs effective Jan 1 for prior agreements	Strengthening
Aerospace supply chain	Navigating near-term aerospace uncertainty	Managing “re-ramp”; A&D up YoY	Engines +16% QoQ; fasteners +25%; orders >20% QoQ; lead times up to 60 weeks	Tight/Constrained supply
Medical	Strong; +66.6 prior year reference	Mixed; steady YoY	−14% YoY; destocking; management expects Q4 rebound	Near-term trough, improving
Energy (IGT)	Up YoY; demand solid	Down QoQ; −13% YoY	+9% QoQ; +26% YoY; power gen strength	Recovering
Additive	Stable Q1	Customer order deferrals; visibility improving	Normalized shipments to strategic customers; supports PEP OI	Normalizing
Tariffs/macro	Not highlighted in Q1 PR	Not highlighted in Q2 PR	Tariff pass-through via surcharge; nickel largely Canada (exempt) and Norway; limited demand impact expected	Managed risk
Brownfield expansion	Announced; investment for capacity	—	>20% ROIC expected; equipment tariffs small portion; funded via cash generation	Long-term accelerator
Capital allocation	Buybacks $32.1M; dividend maintained	Buybacks $8.2M; dividend maintained	Buybacks $37.5M; dividend maintained	Ongoing

Management Commentary

“Our third quarter performance was exceptional, exceeding expectations and delivering the most profitable quarter on record.”
“The SAO segment continues to expand adjusted operating margins, reaching 29.1% in the quarter… The SAO segment reached a record $151.4 million of operating income.”
“We are raising our guidance for the fiscal year to the range of $520 million to $527 million… a nearly 50% increase in earnings over fiscal year 2024.”
“We expect to use surcharge mechanisms to pass through the impact of any incremental tariffs… nickel… is sourced primarily from Canada, and Canadian nickel is currently exempt from tariffs.”
“We are well positioned to navigate the current environment… projecting a strong finish… fourth quarter earnings expected to increase 6% to 11% over our record third quarter.”

Q&A Highlights

Order intake: “Up just a bit over 20% sequentially” with continued accelerated deliveries .
Lead times and capacity: Aerospace engine lead times “up to 60 weeks” with capped order book; not expected to shorten near term .
Pricing and LTAs: Two new LTAs signed with “significant benefit”; price improvements tied to tightening supply-demand; newer LTAs effective Jan 1 benefitted Q3 .
Segment outlook: SAO margin ceiling >30% achievable over time; continued productivity/mix/pricing driving expansion .
Backlog: Healthy (>2x pre-COVID); minor fluctuations not meaningful; order book capping reduces backlog as a demand indicator .
Brownfield capex: Critical equipment mainly Europe; tariffs expected but small portion; timing linked to delivery; included in plan .

Estimates Context

EPS: Actual $1.88 vs. consensus $1.735* (beat by $0.145; +8.4%); 6 estimates* .
Revenue: Actual $727.0M vs. consensus $729.8M* (miss by $2.8M; −0.4%); 6 estimates* .
Values retrieved from S&P Global.*

Metric	Q3 2025 Consensus*	Q3 2025 Actual	Surprise
Primary EPS ($)	1.735*	1.88	+0.145 (+8.4%)*
Revenue ($M)	729.8*	727.0	−2.8 (−0.4%)*
# of EPS Estimates	6*	—	—
# of Revenue Estimates	6*	—	—

Key Takeaways for Investors

Margin story intact and accelerating: SAO adjusted margins reached 29.1% with management targeting >30% over time; mix/pricing/productivity are driving sustainable expansion .
Aerospace momentum: Engines and fasteners accelerating; lead times extended; orders up >20% QoQ—supports continued pricing power and supply tightness .
Guidance raised again: FY25 operating income to $520–$527M; Q4 OI $146–$153M with segment OI implying robust profitability despite corporate costs—watch for delivery and inventory unwind .
Cash generation and returns: FY25 adjusted FCF target $250–$300M; repurchases active ($37.5M in Q3) and dividend maintained—near-term tailwind to per-share metrics .
Tariff risk manageable: Surcharges pass through, nickel largely exempt via Canada; minimal demand impact expected—reduces macro overhang .
PEP improving: Additive shipments normalized; Dynamet strong in medical/aerospace; PEP OI guided $10–$12M in Q4—broadening earnings base .
Medium-term thesis: Brownfield expansion (>20% ROIC) and LTAs bolster pricing/mix, with management forecasting FY26 materially higher and FY27 OI $765–$800M; supports multi-year EPS/FCF compounding .

Additional Notes

Dividend: $0.20/share, payable June 5, 2025; record date April 22, 2025 .
Non-GAAP: Prior-year Q3 special items (goodwill impairment and pension settlements) materially depressed GAAP EPS; adjusted EPS better reflects ongoing operations .
Segment Q4 bridge: SAO $160–$165M and PEP $10–$12M less corporate costs (~$24M) → consolidated OI $146–$153M .

CARPENTER TECHNOLOGY CORP (CRS)·Q3 2025 Earnings Summary