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CARPENTER TECHNOLOGY CORP (CRS)·Q4 2025 Earnings Summary

Executive Summary

  • Record profitability: Adjusted operating income $151.4M and diluted EPS $2.21; SAO margin expanded to 30.5%, the 14th straight quarter of margin expansion .
  • Mixed headline vs estimates: EPS beat consensus, but revenue missed; management attributes strength to productivity, richer mix, and pricing actions despite 14% lower volumes YoY .
  • Guidance catalyst: Q1 FY26 operating income guided to $148–$152M and FY26 operating income to $660–$700M with $240–$280M adjusted FCF; SAO/PEP segment OI ranges provided, and tax rate, capex, and interest guidance detailed .
  • Strategic growth drivers: Defense urgency, aero engines +5% QoQ, power generation >100% YoY; bookings up 17–18% sequentially; continued share repurchases ($24.1M in Q4, $101.9M FY25) .
  • Stock reaction catalysts: Record SAO margins, strong FY26 outlook, power-gen ramp and bookings acceleration; balanced capital allocation with buybacks and dividend .

What Went Well and What Went Wrong

  • What Went Well

    • SAO delivered record operating income ($167.0M) and 30.5% adjusted segment margin on improved productivity, mix, and pricing .
    • Cash generation surged: $258.0M CFO and $201.3M adjusted FCF in Q4; liquidity at $664.4M; net debt/EBITDA ~0.5x .
    • Management closed/renewed LTAs and highlighted confidence post-Paris Air Show; “we don’t see any change to our position when it comes to pricing actions” .

  • What Went Wrong

    • Top-line miss vs consensus as net sales fell 5% YoY to $755.6M on 14% lower volumes despite profitability improvements .
    • Medical sales down 16% YoY on tough comp and prior destocking, though demand underlying remains positive; transportation down 17% YoY .
    • Boeing-linked sub-supply chain remains cautious; lead times remain extended; spot pricing noise exists (non-structural) but long-term pricing tailwind intact .

Financial Results

MetricQ4 2024Q3 2025Q4 2025
Net Sales ($M)$798.7 $727.0 $755.6
Net Sales ex. Surcharge ($M)$635.8 $597.0 $623.7
Surcharge Revenue ($M)$162.9 $130.0 $131.9
Gross Profit ($M)$190.6 $200.8 $213.9
Operating Income ($M)$108.3 $137.8 $151.4
Adjusted Op Margin ex. Surcharge (%)19.7% 23.1% 24.3%
Diluted EPS ($)$1.85 $1.88 $2.21
Pounds Sold (000s)56,782 46,496 48,746
Estimates vs ActualsQ3 2025Q4 2025
EPS (Consensus vs Actual)$1.7345* vs $1.88 $2.0628* vs $2.21
Revenue (Consensus vs Actual, $M)$729.8* vs $727.0 $790.8* vs $755.6
# EPS Estimates6*6*
# Revenue Estimates6*6*

Values retrieved from S&P Global.*
Notes: EPS beat both quarters; revenue slight miss in Q3 and larger miss in Q4.

Segment Breakdown

SegmentMetricQ4 2024Q3 2025Q4 2025
SAONet Sales ($M)$715.8 $642.9 $674.1
SAONet Sales ex. Surcharge ($M)$559.5 $519.4 $548.0
SAOOperating Income ($M)$140.9 $151.4 $167.0
SAOAdjusted Margin ex. Surcharge (%)25.2% 29.1% 30.5%
PEPNet Sales ($M)$111.2 $104.9 $104.6
PEPNet Sales ex. Surcharge ($M)$102.3 $96.8 $97.1
PEPOperating Income ($M)$10.6 $10.9 $11.7
PEPAdjusted Margin ex. Surcharge (%)10.4% 11.3% 12.0%

End-Use Markets (Net Sales ex. Surcharge)

MarketQ4 2024 ($M)Q3 2025 ($M)Q4 2025 ($M)
Aerospace & Defense$376.3 $373.2 $383.8
Medical$91.7 $72.4 $76.8
Energy$36.5 $35.0 $44.6
Transportation$26.6 $21.9 $22.0
Industrial & Consumer$82.8 $72.4 $76.0
Distribution$21.9 $22.1 $20.5
Total$635.8 $597.0 $623.7

KPIs and Cash/Liquidity

KPIQ4 2024Q3 2025Q4 2025
Adjusted Free Cash Flow ($M)$142.4 $34.0 $201.3
CFO ($M)$169.5 $74.2 $258.0
Cash ($M)$199.1 $151.5 $315.5
Total Liquidity ($M)$547.9 $500.4 $664.4
Available Revolver ($M)$348.8 $348.9 $348.9
Net Debt/EBITDA (x)n/a0.9x ~0.5x

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Operating Income (Adj)Q1 FY26—$148–$152M New
SAO Operating IncomeQ1 FY26—$162–$165M New
PEP Operating IncomeQ1 FY26—$11–$12M New
Operating Income (Adj)FY26—$660–$700M New
Adjusted Free Cash FlowFY26—$240–$280M New
Effective Tax RateFY26Normalized ~21–23% (prior commentary) 21–23% Maintained
Depreciation & Amort.FY26—$143M New
CapexFY26—$300–$315M; includes $175–$185M brownfield New
Interest Expense (net)FY26—$40–$42M New
DividendOngoingQuarterly $0.20/share Quarterly $0.20/share Maintained

Earnings Call Themes & Trends

TopicQ-2 (Q2 2025)Q-1 (Q3 2025)Current (Q4 2025)Trend
Pricing actionsLong-term pricing tailwind; LTAs effective Jan 1; SAO price/mix up Continued margin expansion; SAO 29.1% Pricing tailwind intact despite small industry adds; confidence post Paris Improving
Lead times/supply chainEngine lead times pulled in slightly via productivity; still ~low 60 weeks Lead times up to ~60 weeks; extended Extended; expected to remain tight as Boeing progress builds Tight
Boeing dynamicsCaution among Boeing-tied customers; backlog ~$1.9B, optionality to pull other demand Confidence improving; bookings +20% QoQ in Q3 Bookings +17–18% QoQ; expect tighter supply next quarters Improving
Defense demandUrgent requests; strong outlook Urgent; elevated order levels Defense +17% QoQ in Q4; urgency continues Strong
MedicalDestocking noted; underlying demand strong Down 16% YoY; expect Q4 rebound +6% QoQ; still -16% YoY; positive procedures trend Stabilizing
Power Generation (IGT)Small % of sales; strategic to fill capacity gaps Significant increases; strategy advantage >100% YoY increase; aerospace-like margins Accelerating
Maintenance/AIData-driven preventive maintenance; AI for predictive —Targeted, shorter outages across flow; strategic advantage Institutionalized

Management Commentary

  • “We delivered the most profitable quarter on record… SAO adjusted operating margins reaching 30.5%” – Tony Thene (CEO) .
  • “In the current quarter, we generated $258 million of cash from operating activities… $201.3 million of adjusted free cash flow” – Tim Lain (CFO) .
  • “Q1 FY26 outlook… $148–$152M in operating income… roughly in line with our just completed record fourth quarter” – Tony Thene .
  • “We expect $660–$700M in adjusted operating income in FY26… a 26%–33% increase over record FY25” – Tony Thene .
  • “Power gen year over year was over 100% increased… aerospace-like margins” – Tony Thene .

Q&A Highlights

  • Pricing/lead times: Pricing tailwind persists given large supply-demand gap; lead times remain extended, likely tightening as Boeing ramps .
  • Bookings momentum: Sequential bookings up ~17–18%; expect reacceleration as inventory burns down in Boeing-tied subchains .
  • Power generation: >100% YoY growth; strategic use of assets with aerospace-like margins; oil & gas down QoQ but offset by IGT surge .
  • Maintenance strategy: AI-enabled predictive maintenance; shorter, targeted outages across melting/remelt/hot/cold finishing to sustain high margins .
  • LTAs: Primarily renewals; no sizable mix change; reinforces pricing durability .

Estimates Context

  • EPS beat: Q4 EPS $2.21 vs $2.0628 consensus (bold positive surprise); Q3 EPS $1.88 vs $1.7345 (beat) .
  • Revenue miss: Q4 revenue $755.6M vs $790.8M consensus (bold negative surprise); Q3 $727.0M vs $729.8M (slight miss) .
  • Context: Management emphasized productivity, richer mix, and pricing actions offsetting volume declines and driving margin expansion .
    Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Margin-led story: SAO margin at 30.5% with continued potential; mix/pricing/productivity outweigh volume headwinds .
  • Durable demand drivers: Defense urgency, aero engine and MRO strength, and accelerating IGT power generation pull-through .
  • Guidance supports upward revisions: FY26 operating income +26–33% vs FY25 and Q1 FY26 in line with record Q4; potential upside as second-half weighting kicks in .
  • Cash returns + balance sheet: Strong FCF ($201.3M Q4), buybacks ($24.1M in Q4; $101.9M FY25), and liquidity ($664.4M) provide optionality .
  • Pricing power intact: LTAs renewed and management confidence on pricing tailwinds amid industry capacity constraints .
  • Watch Boeing cadence: As confidence improves and inventories burn down, expect tighter supply and order acceleration; bookings trend already positive .
  • Execution edge: AI-enabled preventive maintenance and targeted outages sustain asset availability and margins amid ramping demand .