CARPENTER TECHNOLOGY CORP

Previous wording

Our discussions below in this Item 2 are based upon the more detailed discussions about our business, operations and financial condition included in Item 7 of our 2024 Form 10-K. Our discussions here focus on our results during or as of the three and six-month periods ended December 31, 2024 and the comparable periods of fiscal year 2024, and to the extent applicable, on material changes from information discussed in the 2024 Form 10-K and other important intervening developments or information that we have reported on Form 8-K. These discussions should be read in conjunction with the 2024 Form 10-K for detailed background information and with any such intervening Form 8-K.

Current wording

Our discussions below in this Item 2 are based upon the more detailed discussions about our business, operations and financial condition included in Item 7 of our 2024 Form 10-K. Our discussions here focus on our results during or as of the three and nine month periods ended March 31, 2025, and the comparable periods of fiscal year 2024, and to the extent applicable, on material changes from information discussed in the 2024 Form 10-K and other important intervening developments or information that we have reported on Form 8-K. These discussions should be read in conjunction with the 2024 Form 10-K for detailed background information and with any such intervening Form 8-K.

Previous wording

Approximately 39 percent of our net sales are sales to customers under firm price sales arrangements. Firm price sales arrangements involve a risk of profit margin fluctuations, particularly when raw material prices are volatile. In order to reduce the risk of fluctuating profit margins on these sales, we enter into commodity forward contracts to purchase certain critical raw materials necessary to produce the related products sold. Firm price sales arrangements generally include certain annual purchasing commitments and consumption schedules agreed to by the customers at selling prices based on raw material prices at the time the arrangements are established. If a customer fails to meet the volume commitments (or the consumption schedule deviates from the agreed-upon terms of the firm price sales arrangements), we may need to absorb the gains or losses associated with the commodity forward contracts on a temporary basis. Gains or losses associated with commodity forward contracts are reclassified to earnings (loss) when earnings are impacted by the hedged transaction. Because we value most of our inventory under the LIFO costing methodology, changes in the cost of raw materials and production activities are recognized in cost of sales in the current period attempting to match the most recently incurred costs with revenues. Gains and/or losses on the commodity forward contracts are reclassified from accumulated other comprehensive income (loss) together with the actual purchase price of the underlying commodities when the underlying commodities are purchased and recorded in inventory. To the extent that the total purchase price of the commodities, inclusive of the gains or losses on the commodity forward contracts, are higher or lower relative to the beginning of year costs, our cost of goods sold reflects such amounts. Accordingly, the gains and/or losses associated with commodity forward contracts may not impact the same period that the firm price sales arrangements revenue is recognized, and comparisons of gross profit from period to period may be impacted. These firm price sales arrangements are expected to continue as we look to strengthen our long-term customer relationships by expanding, renewing and, in certain cases, extending to a longer term, our customer arrangements.

Current wording

Approximately 40 percent of our net sales are sales to customers under firm price sales arrangements. Firm price sales arrangements involve a risk of profit margin fluctuations, particularly when raw material prices are volatile. In order to reduce the risk of fluctuating profit margins on these sales, we enter into commodity forward contracts to purchase certain critical raw materials necessary to produce the related products sold. Firm price sales arrangements generally include certain annual purchasing commitments and consumption schedules agreed to by the customers at selling prices based on raw material prices at the time the arrangements are established. If a customer fails to meet the volume commitments (or the consumption schedule deviates from the agreed-upon terms of the firm price sales arrangements), we may need to absorb the gains or losses associated with the commodity forward contracts on a temporary basis. Gains or losses associated with commodity forward contracts are reclassified to earnings (loss) when earnings are impacted by the hedged transaction. Because we value most of our inventory under the LIFO costing methodology, changes in the cost of raw materials and production activities are recognized in cost of sales in the current period attempting to match the most recently incurred costs with revenues. Gains and/or losses on the commodity forward contracts are reclassified from accumulated other comprehensive income (loss) together with the actual purchase price of the underlying commodities when the underlying commodities are purchased and recorded in inventory. To the extent that the total purchase price of the commodities, inclusive of the gains or losses on the commodity forward contracts, are higher or lower relative to the beginning of year costs, our cost of goods sold reflects such amounts. Accordingly, the gains and/or losses associated with commodity forward contracts may not impact the same period that the firm price sales arrangements revenue is recognized, and comparisons of gross profit from period to period may be impacted. These firm price sales arrangements are expected to continue as we look to strengthen our long-term customer relationships by expanding, renewing and, in certain cases, extending to a longer term, our customer arrangements.

Previous wording

The following is the net pension expense for the three and six months ended December 31, 2024 and December 31, 2023:

Current wording

The following is the net pension expense for the three and nine months ended March 31, 2025 and March 31, 2024:

Previous wording

Net pension expense is recorded in accounts that are included in cost of sales, selling, general and administrative expenses and other expense, net, based on the function of the associated employees and nature of expense. The following is a summary of the classification of net pension expense for the three and six months ended December 31, 2024 and 2023:

Current wording

Net pension expense is recorded in accounts that are included in cost of sales, selling, general and administrative expenses and other expense, net, based on the function of the associated employees and nature of expense. The following is a summary of the classification of net pension expense for the three and nine months ended March 31, 2025 and 2024:

Previous wording

In the quarter ended December 31, 2024, we reported operating income of $118.9 million, an increase of $49.1 million, or 70 percent, compared to the prior year same quarter. During the six months ended December 31, 2024, we reported operating income of $232.5 million compared to operating income of $138.8 million in the six months ended December 31, 2023. This represents the most profitable second fiscal quarter and first half of a fiscal year in the Company's history. We believe our ability to deliver these financial results while navigating the current Aerospace supply chain environment speaks to our strong market position and intense focus on execution.

Current wording

In the quarter ended March 31, 2025, we reported operating income of $137.8 million, an increase of $61.9 million, or 82 percent, compared to the prior year same quarter. During the nine months ended March 31, 2025, we reported operating income of $370.4 million compared to operating income of $214.8 million in the nine months ended March 31, 2024. This represents the most profitable third fiscal quarter and first nine months of a fiscal year in the Company's history. We continue to deliver record results, despite disruptions in the supply chains where we participate. We offer a broad portfolio of highly specialized alloys, serving high value applications in high growth end-use markets.

Previous wording

During the quarter ended December 31, 2024, we continued to drive earnings momentum through improved productivity, product mix optimization and pricing actions. The SAO segment realized $135.6 million of operating income with an operating margin of 22.5 percent, or adjusted operating margin of 28.3 percent, an increase over the prior year same quarter of 15.2 percent, or adjusted operating margin of 20.0 percent. The SAO performance was driven by higher sales and expanding margins and marks the twelfth consecutive quarter with increasing adjusted operating margins in the SAO segment.

Current wording

During the quarter ended March 31, 2025, we continued to drive earnings momentum through improved productivity, product mix optimization and pricing actions. The SAO segment realized $151.4 million of operating income with an operating margin of 23.5 percent, or adjusted operating margin of 29.1 percent, an increase over the prior year same quarter of 17.0 percent, or adjusted operating margin of 21.4 percent. The SAO performance was driven by higher sales and expanding margins and marks the thirteenth consecutive quarter with increasing adjusted operating margins in the SAO segment.

Previous wording

In addition to the strong operating performance, we generated $108.1 million of cash from operating activities in the six months ended December 31, 2024, as compared with cash generated from operating activities of $21.9 million in the six months ended December 31, 2023. Adjusted free cash flow was $51.9 million in the six months ended December 31, 2024, as compared with negative adjusted free cash flow of $25.4 million in the six months ended December 31, 2023. With a strong balance sheet and adjusted free cash flow, we will continue to take a balanced approach to capital allocation: sustaining our current asset base to achieve our targets, investing in incremental growth initiatives, and returning cash to stockholders. During the six months ended December 31, 2024, we repurchased 275,000 shares of our common stock on the open market for an aggregate of $40.3 million.

Current wording

In addition to the strong operating performance, we generated $182.3 million of cash from operating activities in the nine months ended March 31, 2025, as compared with cash generated from operating activities of $105.4 million in the nine months ended March 31, 2024. Adjusted free cash flow was $86.1 million in the nine months ended March 31, 2025, as compared with adjusted free cash flow of $36.6 million in the nine months ended March 31, 2024. With a strong balance sheet and adjusted free cash flow, we will continue to take a balanced approach to capital allocation: sustaining our current asset base to achieve our targets, returning cash to stockholders through our stock buyback and dividend programs and investing in incremental growth initiatives, including the recently announced brownfield expansion project in Athens, Alabama. During the nine months ended March 31, 2025, we repurchased 475,000 shares of our common stock on the open market for an aggregate of $77.8 million.

Previous wording

For the three months ended December 31, 2024, we reported net income of $84.1 million, or $1.66 earnings per diluted share. This compares with net income for the three months ended December 31, 2023 of $42.7 million, or $0.85 per diluted share. The results for the three months ended December 31, 2024 reflect an ongoing improvement in product mix with a shift in capacity to more complex, higher value materials as well as pricing actions and expanding operational efficiencies compared to the three months ended December 31, 2023.

Current wording

For the three months ended March 31, 2025, we reported net income of $95.4 million, or $1.88 earnings per diluted share. This compares with net income for the three months ended March 31, 2024, of $6.3 million, or $0.12 earnings per diluted share. Excluding the special items, as identified below, adjusted earnings per diluted share was $1.19 for the three months ended March 31, 2024. The results for the three months ended March 31, 2025, reflect an ongoing improvement in product mix with a shift in capacity to more complex, higher value materials as well as pricing actions and expanding operational efficiencies compared to the three months ended March 31, 2024. During the three months ended March 31, 2024, we recorded a noncash goodwill impairment charge of $14.1 million related to our Latrobe Distribution reporting unit. The fiscal year 2024 results also include a noncash pension settlement charge of $51.9 million.

Previous wording

Net sales for the three months ended December 31, 2024 were $676.9 million, which is an 8 percent increase over the three months ended December 31, 2023. Excluding surcharge revenue, sales increased 13 percent on a 6 percent decrease in shipment volume from the three months ended December 31, 2023. The results excluding surcharge revenue reflect realized price increases, improving product mix as well as higher shipments in the Aerospace and Defense end-use market during the three months ended December 31, 2024, compared to the three months ended December 31, 2023. Excluding surcharge revenue, sales in the Aerospace and Defense end-use market increased 35 percent compared to the three months ended December 31, 2023.

Current wording

Net sales for the three months ended March 31, 2025, were $727.0 million, which is a 6 percent increase over the three months ended March 31, 2024. Excluding surcharge revenue, sales increased 8 percent on a 7 percent decrease in shipment volume from the three months ended March 31, 2024. The results excluding surcharge revenue reflect realized price increases and improving product mix during the three months ended March 31, 2025, compared to the three months ended March 31, 2024. Excluding surcharge revenue, sales in the Aerospace and Defense end-use market increased 18 percent compared to the three months ended March 31, 2024.

Previous wording

Geographically, sales in the United States increased 12 percent from the three months ended December 31, 2023, to $419.2 million. Excluding surcharge revenue, domestic sales increased 16 percent from the three months ended December 31, 2023, driven by stronger sales in the Aerospace and Defense end-use market. Sales outside the United States increased 3 percent from the three months ended December 31, 2023, to $257.7 million for the three months ended December 31, 2024. Excluding surcharge revenue, sales outside the United States increased 8 percent from the three months ended December 31, 2023, reflecting stronger demand in the Aerospace and Defense end-use market in all regions as well as higher sales in the Medical end-use market in the European region compared to the three months ended December 31, 2023. A portion of our sales outside the United States are denominated in foreign currencies. The fluctuations in foreign currency exchange rates resulted in a $0.3 million decrease in net sales during the three months ended December 31, 2024, compared to the three months ended December 31, 2023. Net sales outside the United States represented 38 percent and 40 percent of total net sales for the three months ended December 31, 2024 and 2023, respectively.

Current wording

Geographically, sales in the United States increased 13 percent from the three months ended March 31, 2024, to $433.6 million. Excluding surcharge revenue, domestic sales increased 14 percent from the three months ended March 31, 2024, driven by stronger sales in the Aerospace and Defense end-use market. Sales outside the United States decreased 3 percent from the three months ended March 31, 2024, to $293.4 million for the three months ended March 31, 2025. Excluding surcharge revenue, sales outside the United States decreased 1 percent from the three months ended March 31, 2024, reflecting lower shipments in the Medical end-use market in the Asia Pacific region partially offset by the Energy end-use market in the European region compared to the three months ended March 31, 2024. A portion of our sales outside the United States are denominated in foreign currencies. The fluctuations in foreign currency exchange rates resulted in an $0.8 million decrease in net sales during the three months ended March 31, 2025, compared to the three months ended March 31, 2024. Net sales outside the United States represented 40 percent and 44 percent of net sales for the three months ended March 31, 2025 and 2024, respectively.

Previous wording

Sales to the Aerospace and Defense end-use market increased 29 percent from the three months ended December 31, 2023, to $413.4 million. Excluding surcharge revenue, sales increased 35 percent from the three months ended December 31, 2023, on a 9 percent increase in shipment volume. The results for the three months ended December 31, 2024 reflect realized price increases and balanced activity levels across the aerospace supply chain driven by the need to maintain and replace aging fleets to meet increasing passenger travel demand. The three months ended December 31, 2024, also reflect higher sales in the Defense end-use market for program specific applications.

Current wording

Aerospace and Defense end-use market sales increased 16 percent from the three months ended March 31, 2024, to $454.7 million. Excluding surcharge revenue, sales increased 18 percent from the three months ended March 31, 2024, on flat shipment volume. The results for the three months ended March 31, 2025, reflect realized price increases and balanced activity levels across the aerospace supply chain driven by the need to maintain and replace aging fleets, particularly in the engine, fastener and distribution sub-markets. The three months ended March 31, 2025, also reflect higher sales in the Defense end-use market for program specific applications.

Previous wording

Transportation end-use market sales decreased 23 percent from the three months ended December 31, 2023, to $28.5 million. Excluding surcharge revenue, sales decreased 20 percent on a 14 percent decrease in shipment volume from the three months ended December 31, 2023. The results reflect lower demand across light, medium and heavy-duty vehicle applications offset partially by higher demand in specialty transportation applications compared to the three months ended December 31, 2023.

Current wording

Transportation end-use market sales decreased 18 percent from the three months ended March 31, 2024, to $28.1 million. Excluding surcharge revenue, sales decreased 17 percent on a 5 percent decrease in shipment volume from the three months ended March 31, 2024. The results reflect lower shipments across light-duty vehicle and specialty transportation applications compared to the three months ended March 31, 2024.

Previous wording

Industrial and Consumer end-use market sales decreased 18 percent from the three months ended December 31, 2023, to $85.2 million. Excluding surcharge revenue, sales decreased 16 percent on 19 percent lower shipment volume from the three months ended December 31, 2023. The results reflect lower demand for most applications in the Industrial and Consumer end-use market compared to the three months ended December 31, 2023.

Current wording

Industrial and Consumer end-use market sales decreased 7 percent from the three months ended March 31, 2024, to $90.5 million. Excluding surcharge revenue, sales decreased 6 percent on 17 percent lower shipment volume from the three months ended March 31, 2024. The results reflect lower shipments for most applications in the Industrial and Consumer end-use market compared to the three months ended March 31, 2024.

Previous wording

Our gross profit in the three months ended December 31, 2024, increased to $177.5 million, or 26.2 percent of net sales, as compared with $122.6 million, or 19.6 percent of net sales in the three months ended December 31, 2023. Excluding the impact of surcharge revenue, our adjusted gross margin in the three months ended December 31, 2024, was 32.4 percent as compared to 25.3 percent in the three months ended December 31, 2023. The increased gross profit for the three months ended December 31, 2024 reflects an ongoing improvement in product mix with a shift in capacity to more complex, higher value materials as well as pricing actions and expanding operational efficiencies.

Current wording

Our gross profit in the three months ended March 31, 2025, increased to $200.8 million, or 27.6 percent of net sales, as compared with $147.0 million, or 21.5 percent of net sales in the three months ended March 31, 2024. Excluding the impact of surcharge revenue, our adjusted gross margin in the three months ended March 31, 2025, was 33.6 percent as compared to 26.5 percent in the three months ended March 31, 2024. The increased gross profit for the three months ended March 31, 2025, reflects an ongoing improvement in product mix with a shift in capacity to more complex, higher value materials as well as pricing actions and expanding operational efficiencies.

Previous wording

Selling, general and administrative expenses in the three months ended December 31, 2024, were $58.6 million or 8.7 percent of net sales (10.7 percent of net sales excluding surcharge) as compared with $52.8 million or 8.5 percent of net sales (10.9 percent of net sales excluding surcharge) in the three months ended December 31, 2023. The selling, general and administrative expenses for the three months ended December 31, 2024 reflect higher salary, benefit and variable compensation costs compared to the three months ended December 31, 2023.

Current wording

Selling, general and administrative expenses in the three months ended March 31, 2025, were $63.0 million or 8.7 percent of net sales (10.6 percent of net sales excluding surcharge) as compared with $57.0 million or 8.3 percent of net sales (10.3 percent of net sales excluding surcharge) in the three months ended March 31, 2024. The selling, general and administrative expenses for the three months ended March 31, 2025, reflect a charge for doubtful accounts and costs related to higher salary, benefit and variable compensation costs compared to the three months ended March 31, 2024.

Previous wording

Our operating income in the three months ended December 31, 2024, was $118.9 million, or 17.6 percent of net sales, as compared with operating income of $69.8 million, or 11.2 percent of net sales, in the three months ended December 31, 2023. Excluding surcharge revenue, adjusted operating margin was 21.7 percent for the three months ended December 31, 2024, as compared with 14.4 percent for the three months ended December 31, 2023. The operating results for the three months ended December 31, 2024 reflect an ongoing improvement in product mix with a shift in capacity to more complex, higher value materials as well as pricing actions and expanding operational efficiencies compared to the three months ended December 31, 2023.

Current wording

Our operating income in the three months ended March 31, 2025, was $137.8 million, or 19.0 percent of net sales, as compared with operating income of $75.9 million, or 11.1 percent of net sales, in the three months ended March 31, 2024. Excluding surcharge revenue, adjusted operating margin was 23.1 percent for the three months ended March 31, 2025. Excluding surcharge revenue and the noncash special item, adjusted operating margin was 16.3 percent for the three months ended March 31, 2024. The operating results for the three months ended March 31, 2025, reflect an ongoing improvement in product mix with a shift in capacity to more complex, higher value materials as well as pricing actions and expanding operational efficiencies compared to the three months ended March 31, 2024, in which we recognized a noncash goodwill impairment charge of $14.1 million related to our Latrobe Distribution reporting unit.

Previous wording

Interest expense, net for the three months ended December 31, 2024, was $12.2 million compared with $13.0 million in the three months ended December 31, 2023. Capitalized interest reduced interest expense by $0.5 million for the three months ended December 31, 2024, and $0.3 million for the three months ended December 31, 2023. The lower interest expense, net is due to no short-term borrowings under our Credit Facility in the three months ended December 31, 2024, compared to interest on borrowings in the three months ended December 31, 2023.

Current wording

Interest expense, net for the three months ended March 31, 2025, was $12.0 million compared with $12.9 million in the three months ended March 31, 2024. Capitalized interest reduced interest expense by $0.7 million for the three months ended March 31, 2025, and $0.4 million for the three months ended March 31, 2024. The lower interest expense, net is due to no short-term borrowings under our Credit Facility in the three months ended March 31, 2025, compared to interest on borrowings in the three months ended March 31, 2024.

Previous wording

Other expense, net for the three months ended December 31, 2024, was $1.6 million as compared with $1.6 million of other expense, net for the three months ended December 31, 2023. The three months ended December 31, 2024, reflects $3.9 million of expense from pension earnings, interest and deferrals partially offset by interest income and favorable market returns on investments used to fund Company-owned life insurance contracts and investments held in rabbi trusts. The three months ended December 31, 2023 includes $3.5 million of expense from pension earnings, interest and deferrals.

Current wording

Other expense, net for the three months ended March 31, 2025, was $3.8 million as compared with $52.9 million of other expense, net for the three months ended March 31, 2024. The three months ended March 31, 2025, reflect $3.9 million of expense from pension earnings, interest and deferrals. The three months ended March 31, 2024, included a noncash pension settlement charge of $51.9 million.

Previous wording

Income tax expense was $21.0 million, or 20.0 percent of pre-tax income for the three months ended December 31, 2024, as compared with income tax expense of $12.5 million, or 22.6 percent of pre-tax income for the three months ended December 31, 2023. Income tax expense for the three months ended December 31, 2024 includes discrete tax benefits of $3.0 million attributable to employee share-based compensation.

Current wording

Income tax expense was $26.6 million, or 21.8 percent of pre-tax income for the three months ended March 31, 2025, as compared with income tax expense of $3.8 million, or 37.6 percent of pre-tax income for the three months ended March 31, 2024.

Previous wording

On October 8, 2021, the Organization for Economic Co-operation and Development ("OECD") released a statement on the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting, which agreed to a two-pillar solution to address tax challenges of the digital economy. On December 20, 2021, the OECD released Pillar Two model rules defining a 15 percent global minimum tax rate for large multinational corporations. The OECD continues to release additional guidance and countries are implementing legislation with widespread adoption of the Pillar Two Framework expected by calendar year 2024. We determined the Pillar Two Framework does not have a significant impact on our financial position, results of operations or cash flows.

Current wording

On October 8, 2021, the Organization for Economic Co-operation and Development ("OECD") released a statement on the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting, which agreed to a two-pillar solution to address tax challenges of the digital economy. On December 20, 2021, the OECD released Pillar Two model rules defining a 15 percent global minimum tax rate for large multinational corporations. The OECD continues to release additional guidance and countries are implementing legislation with widespread adoption of the Pillar Two Framework. We determined the Pillar Two Framework does not have a significant impact on our financial position, results of operations or cash flows.

Previous wording

Net sales for the three months ended December 31, 2024 for the SAO segment increased 9 percent to $601.5 million, as compared with $549.4 million in the three months ended December 31, 2023. Excluding surcharge revenue, net sales for the three months ended December 31, 2024 increased 15 percent on 11 percent lower shipment volume compared to the three months ended December 31, 2023. The higher sales excluding surcharge revenue in the SAO segment reflect double-digit percentage growth in the Aerospace and Defense end-use market driven by productivity gains, stronger product mix and pricing actions compared to the three months ended December 31, 2023.

Current wording

Net sales for the three months ended March 31, 2025, for the SAO segment increased 6 percent to $642.9 million, as compared with $608.5 million in the three months ended March 31, 2024. Excluding surcharge revenue, net sales for the three months ended March 31, 2025 increased 8 percent on 12 percent lower shipment volume compared to the three months ended March 31, 2024. The higher sales excluding surcharge revenue in the SAO segment reflect double-digit percentage growth in the Aerospace and Defense and Energy end-use markets driven by productivity gains, stronger product mix and pricing actions compared to the three months ended March 31, 2024.

Previous wording

Operating income for the SAO segment was $135.6 million or 22.5 percent of net sales (28.3 percent of net sales excluding surcharge revenue) in the three months ended December 31, 2024, as compared with operating income of $83.3 million or 15.2 percent of net sales (20.0 percent of net sales excluding surcharge revenue) in the three months ended December 31, 2023. This marks the twelfth consecutive quarter with increasing adjusted operating margins in SAO. The operating income for the three months ended December 31, 2024 reflects stronger product mix and improved operational efficiencies compared to the three months ended December 31, 2023.

Current wording

Operating income for the SAO segment was $151.4 million or 23.5 percent of net sales (29.1 percent of net sales excluding surcharge revenue) in the three months ended March 31, 2025, as compared with operating income of $103.5 million or 17.0 percent of net sales (21.4 percent of net sales excluding surcharge revenue) in the three months ended March 31, 2024. This marks the thirteenth consecutive quarter with increasing adjusted operating margins in SAO. The operating income for the three months ended March 31, 2025 reflects stronger product mix and improved operational efficiencies compared to the three months ended March 31, 2024.

Previous wording

Net sales for the three months ended December 31, 2024 for the PEP segment decreased 1 percent to $95.0 million, as compared with $95.7 million in the three months ended December 31, 2023. Excluding surcharge revenue, net sales for the three months ended December 31, 2024 decreased 2 percent on 5 percent lower shipment volume compared to the three months ended December 31, 2023. The current quarter results reflect lower sales in most end-use markets partially offset by higher sales in the Medical end-use market.

Current wording

Net sales for the three months ended March 31, 2025, for the PEP segment increased 2 percent to $104.9 million, as compared with $102.4 million in the three months ended March 31, 2024. Excluding surcharge revenue, net sales for the three months ended March 31, 2025, increased 2 percent on 1 percent lower shipment volume compared to the three months ended March 31, 2024. The current quarter results reflect stronger demand in the Medical and Energy end-use markets partially offset by lower sales in the Industrial and Consumer end-use market.

Previous wording

For the six months ended December 31, 2024, we reported net income of $168.9 million, or $3.33 earnings per diluted share. Excluding the special item, as identified below, adjusted earnings per diluted share was $3.39 for the six months ended December 31, 2024. This compares with net income for the six months ended December 31, 2023 of $86.6 million, or $1.73 earnings per diluted share. The results for the six months ended December 31, 2024 reflect stronger product mix, pricing actions and improved operational efficiencies compared to the six months ended December 31, 2023.

Current wording

For the nine months ended March 31, 2025, we reported net income of $264.3 million, or $5.21 earnings per diluted share. Excluding the special item, as identified below, adjusted earnings per diluted share was $5.27 for the nine months ended March 31, 2025. This compares with net income for the nine months ended March 31, 2024 of $92.9 million, or $1.85 earnings per diluted share. Excluding the special items, as identified below, adjusted earnings per diluted share was $2.92 for the nine months ended March 31, 2024. The results for the nine months ended March 31, 2025 reflect stronger product mix, pricing actions and improved operational efficiencies compared to the nine months ended March 31, 2024. The nine months ended March 31, 2025, include restructuring and asset impairment charges of $3.6 million. During the nine months ended March 31, 2024, we recorded a noncash goodwill impairment charge of $14.1 million related to our Latrobe Distribution reporting unit. The fiscal year 2024 results also included a noncash pension settlement charge of $51.9 million.

Previous wording

Net sales for the six months ended December 31, 2024 were $1,394.5 million, a 9 percent increase over the six months ended December 31, 2023. Excluding surcharge revenue, sales increased 15 percent on 2 percent lower shipment volume from the six months ended December 31, 2023. The results reflect the impact of price increases and stronger product demand for materials used in the end-use markets of Aerospace and Defense and Energy compared to the six months ended December 31, 2023.

Current wording

Net sales for the nine months ended March 31, 2025, were $2,121.5 million, an 8 percent increase over the nine months ended March 31, 2024. Excluding surcharge revenue, sales increased 12 percent on 4 percent lower shipment volume from the nine months ended March 31, 2024. The results reflect the impact of price increases and stronger product demand for materials used in the end-use markets of Aerospace and Defense and Energy compared to the nine months ended March 31, 2024.

Previous wording

Geographically, sales in the United States increased 9 percent from the six months ended December 31, 2023, to $840.3 million. Excluding surcharge revenue, domestic sales increased 15 percent from the six months ended December 31, 2023, driven by stronger demand in the Aerospace and Defense end-use market. Sales outside the United States increased 9 percent from the six months ended December 31, 2023, to $554.2 million for the six months ended December 31, 2024. Excluding surcharge revenue, international sales increased 14 percent from the six months ended December 31, 2023, driven by stronger demand in the end-use markets of Aerospace and Defense, Medical and Energy in most regions compared to the six months ended December 31, 2023. A portion of our sales outside the United States are denominated in foreign currencies. The impact of fluctuations in foreign currency exchange rates resulted in a $0.3 million decrease in sales during the six months ended December 31, 2024, compared to the six months ended December 31, 2023. Net sales outside the United States represented 40 percent of total net sales for each of the six months ended December 31, 2024 and 2023, respectively.

Current wording

Geographically, sales in the United States increased 11 percent from the nine months ended March 31, 2024, to $1,273.9 million. Excluding surcharge revenue, domestic sales increased 15 percent from the nine months ended March 31, 2024, driven by stronger demand in the Aerospace and Defense end-use market. Sales outside the United States increased 5 percent from the nine months ended March 31, 2024, to $847.6 million for the nine months ended March 31, 2025. Excluding surcharge revenue, international sales increased 9 percent from the nine months ended March 31, 2024, driven by stronger demand in the Aerospace and Defense end-use market in the European region and Mexico and the Energy end-use market in the European and Asia Pacific regions compared to the nine months ended March 31, 2024. A portion of our sales outside the United States are denominated in foreign currencies. The impact of fluctuations in foreign currency exchange rates resulted in a $1.0 million decrease in sales during the nine months ended March 31, 2025, compared to the nine months ended March 31, 2024. Net sales outside the United States represented 40 percent and 41 percent of net sales for the nine months ended March 31, 2025 and 2024, respectively.

Previous wording

Sales to the Aerospace and Defense end-use market increased 26 percent from the six months ended December 31, 2023, to $850.8 million. Excluding surcharge revenue, sales increased 35 percent from the six months ended December 31, 2023, on 17 percent higher shipment volume. The results for the six months ended December 31, 2024 reflect double-digit increases in the Aerospace engine, fastener and structural components sub-markets driven by the need to maintain and replace aging fleets to meet increasing passenger travel demand compared to the six months ended December 31, 2023. The six months ended December 31, 2024 also reflect higher sales in the Defense end-use market for program specific applications.

Current wording

Aerospace and Defense end-use market sales increased 23 percent from the nine months ended March 31, 2024, to $1,305.6 million. Excluding surcharge revenue, sales increased 28 percent from the nine months ended March 31, 2024, on 11 percent higher shipment volume. The results for the nine months ended March 31, 2025 reflect double-digit increases in the Aerospace engine and fastener sub-markets driven by the need to maintain and replace aging fleets compared to the nine months ended March 31, 2024. The nine months ended March 31, 2025, also reflect higher sales in the Defense end-use market for program specific applications.

Previous wording

Medical end-use market sales decreased 2 percent from the three months ended December 31, 2023, to $86.3 million. Excluding surcharge revenue, sales increased 1 percent on 29 percent lower shipment volume from the three months ended December 31, 2023. For the three months ended December 31, 2024, results reflect realized price increases particularly in the orthopedic sub-market offset by lower shipments in the cardiology and dental sub-markets compared to the three months ended December 31, 2023.

Current wording

Medical end-use market sales decreased 3 percent from the nine months ended March 31, 2024, to $258.1 million. Excluding surcharge revenue, sales decreased 2 percent on 29 percent lower shipment volume from the nine months ended March 31, 2024. The results for the nine months ended March 31, 2025, reflect lower shipments as a result of the medical supply chain managing inventory levels closely, partially offset by realized price increases particularly in the orthopedic and dental sub-markets compared to the nine months ended March 31, 2024.

Previous wording

Sales to the Energy end-use market of $96.0 million reflect a 1 percent decrease from the six months ended December 31, 2023. Excluding surcharge revenue, sales increased 8 percent on 3 percent higher shipment volume from the six months ended December 31, 2023. The results reflect higher demand in the power generation sub-market for industrial gas turbine refurbishments partially offset by decreased rig counts and demand for material used in the oil and gas sub-market compared to the six months ended December 31, 2023.

Current wording

Energy end-use market sales of $142.3 million reflect a 5 percent increase from the nine months ended March 31, 2024. Excluding surcharge revenue, sales increased 14 percent on 2 percent higher shipment volume from the nine months ended March 31, 2024. The results reflect higher demand in the power generation sub-market for both new and refurbished industrial gas turbines partially offset by decreased rig counts and decreased shipments for material used in the oil and gas sub-market compared to the nine months ended March 31, 2024.

Previous wording

Our gross profit in the six months ended December 31, 2024, increased $107.1 million to $353.8 million, or 25.4 percent of net sales, as compared with $246.7 million, or 19.3 percent of net sales in the six months ended December 31, 2023. Excluding the impact of surcharge revenue, our gross margin in the six months ended December 31, 2024, was 31.4 percent as compared to 25.2 percent in the six months ended December 31, 2023. The increased gross profit for the six months ended December 31, 2024, reflects an ongoing improvement in product mix with a shift in capacity to more complex, higher value materials as well as pricing actions and expanding operational efficiencies compared to the six months ended December 31, 2023.

Current wording

Our gross profit in the nine months ended March 31, 2025, increased $160.9 million to $554.6 million, or 26.1 percent of net sales, as compared with $393.7 million, or 20.1 percent of net sales in the nine months ended March 31, 2024. Excluding the impact of surcharge revenue, our gross margin in the nine months ended March 31, 2025, was 32.2 percent as compared to 25.7 percent in the nine months ended March 31, 2024. The increased gross profit for the nine months ended March 31, 2025, reflects an ongoing improvement in product mix with a shift in capacity to more complex, higher value materials as well as pricing actions and expanding operational efficiencies compared to the nine months ended March 31, 2024.

Previous wording

Selling, general and administrative expenses of $117.7 million were 8.4 percent of net sales (10.5 percent of net sales excluding surcharge) for the six months ended December 31, 2024, as compared with $107.9 million or 8.5 percent of net sales (11.0 percent of net sales excluding surcharge) in the six months ended December 31, 2023. The selling, general and administrative expenses for the six months ended December 31, 2024 reflect higher salary, benefit and variable compensation costs compared to the six months ended December 31, 2023.

Current wording

Selling, general and administrative expenses of $180.6 million were 8.5 percent of net sales (10.5 percent of net sales excluding surcharge) for the nine months ended March 31, 2025, as compared with $164.8 million or 8.4 percent of net sales (10.8 percent of net sales excluding surcharge) in the nine months ended March 31, 2024. The selling, general and administrative expenses for the nine months ended March 31, 2025 reflect higher salary, benefit and variable compensation costs compared to the nine months ended March 31, 2024.

Previous wording

During the six months ended December 31, 2024, restructuring and asset impairment charges were $3.6 million, compared to no restructuring and asset impairment charges in the six months ended December 31, 2023. Additional restructuring charges were a result of actions taken to streamline operations in our Carpenter Additive business in the PEP segment, as announced in the quarter ended June 30, 2024.

Current wording

During the nine months ended March 31, 2025, restructuring and asset impairment charges were $3.6 million, compared to no restructuring and asset impairment charges in the nine months ended March 31, 2024. The additional restructuring charges were a result of actions taken to streamline operations in our Carpenter Additive business in the PEP segment, as announced in the quarter ended June 30, 2024.

Previous wording

Our operating income in the six months ended December 31, 2024 was $232.5 million, or 16.7 percent of net sales, as compared with operating income of $138.8 million, or 10.9 percent of net sales in the six months ended December 31, 2023. Excluding surcharge revenue and the special item, operating margin was 21.0 percent for the six months ended December 31, 2024, and 14.2 percent for the six months ended December 31, 2023. The operating results for the six months ended December 31, 2024 reflect an ongoing improvement in product mix with a shift in capacity to more complex, higher value materials as well as pricing actions and expanding operational efficiencies compared to the six months ended December 31, 2023.

Current wording

Our operating income in the nine months ended March 31, 2025, was $370.4 million, or 17.5 percent of net sales, as compared with operating income of $214.8 million, or 11.0 percent of net sales in the nine months ended March 31, 2024. Excluding surcharge revenue and the special items identified below, operating margin was 21.7 percent for the nine months ended March 31, 2025, and 14.9 percent for the nine months ended March 31, 2024. The operating results for the nine months ended March 31, 2025, reflect an ongoing improvement in product mix with a shift in capacity to more complex, higher value materials as well as pricing actions and expanding operational efficiencies compared to the nine months ended March 31, 2024. The nine months ended March 31, 2025 include restructuring and asset impairment charges of $3.6 million. The results for the nine months ended March 31, 2024, reflect a noncash goodwill impairment charge of $14.1 million recognized for our Latrobe Distribution reporting unit.

Previous wording

The following presents our operating income and operating margin, in each case excluding the impact of surcharge revenue on net sales. We present and discuss these financial measures because management believes removing these items provides a more consistent and meaningful basis for comparing ongoing results of operations from period to period. See the section "Non-GAAP Financial Measures" below for further discussion of these financial measures.

Current wording

The following presents our operating income and operating margin, in each case excluding the impact of surcharge revenue on net sales and special items. We present and discuss these financial measures because management believes removing these items provides a more consistent and meaningful basis for comparing ongoing results of operations from period to period. See the section "Non-GAAP Financial Measures" below for further discussion of these financial measures.

Previous wording

Interest expense, net for the six months ended December 31, 2024, was $24.6 million compared with $25.7 million in the six months ended December 31, 2023. Capitalized interest reduced interest expense by $0.9 million for the six months ended December 31, 2024, and $0.8 million for the six months ended December 31, 2023. The lower interest expense, net is due to no short-term borrowings under our Credit Facility during the six months ended December 31, 2024, compared to interest on borrowings during the six months ended December 31, 2023.

Current wording

Interest expense, net for the nine months ended March 31, 2025, was $36.6 million compared with $38.6 million in the nine months ended March 31, 2024. Capitalized interest reduced interest expense by $1.6 million for the nine months ended March 31, 2025, and $1.2 million for the nine months ended March 31, 2024. The lower interest expense, net is due to no short-term borrowings under our Credit Facility during the nine months ended March 31, 2025, compared to interest on borrowings during the nine months ended March 31, 2024.

Previous wording

Other expense, net was $1.6 million for the six months ended December 31, 2024, compared to other expense, net of $5.5 million in the six months ended December 31, 2023. The six months ended December 31, 2024, includes $7.8 million of expense from pension earnings, interest and deferrals compared to $6.9 million of expense from pension earnings, interest and deferrals in the six months ended December 31, 2023, driven by lower than expected returns on plan assets. The six months ended December 31, 2024, reflect interest income of $3.9 million compared to $0.3 million in the six months ended December 31, 2023.

Current wording

Other expense, net was $5.6 million for the nine months ended March 31, 2025, compared to other expense, net of $58.5 million in the nine months ended March 31, 2024. The nine months ended March 31, 2025, reflect interest income of $5.5 million compared to $0.4 million in the nine months ended March 31, 2024. The nine months ended March 31, 2025, includes $11.6 million of expense from pension earnings, interest and deferrals compared to $10.6 million in the nine months ended March 31, 2024, driven by lower than expected returns on plan assets. The nine months ended March 31, 2024 included a noncash pension settlement charge of $51.9 million.

Previous wording

Income tax expense for the six months ended December 31, 2024 was $37.4 million, or 18.1 percent of pre-tax income as compared with income tax expense of $21.0 million, or 19.5 percent of pre-tax income for the six months ended December 31, 2023.

Current wording

Income tax expense for the nine months ended March 31, 2025 was $63.9 million, or 19.5 percent of pre-tax income as compared with income tax expense of $24.8 million, or 21.1 percent of pre-tax income for the nine months ended March 31, 2024.

Previous wording

Income tax expense for the six months ended December 31, 2024, includes discrete tax benefits of $9.8 million attributable to employee share-based compensation and $0.9 million for the impact of restructuring charges. Income tax expense for the six months ended December 31, 2023 included discrete tax benefits of $4.7 million attributable to employee share-based compensation.

Current wording

Income tax expense for the nine months ended March 31, 2025, includes discrete tax benefits of $13.0 million attributable to employee share-based compensation. Income tax expense for the nine months ended March 31, 2024 included the unfavorable impacts of the $14.1 million non-deductible goodwill impairment charge and losses in certain foreign jurisdictions for which no tax benefit can be recognized. Also included were discrete tax benefits of $12.4 million associated with the pension settlement charge, $1.4 million as a result of changes in our prior year tax positions and $4.7 million attributable to employee share-based compensation.

Previous wording

On October 8, 2021, the OECD released a statement on the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting, which agreed to a two-pillar solution to address tax challenges of the digital economy. On December 20, 2021, the OECD released Pillar Two model rules defining a 15 percent global minimum tax rate for large multinational corporations. The OECD continues to release additional guidance and countries are implementing legislation with widespread adoption of the Pillar Two Framework expected by calendar year 2024. We determined the Pillar Two Framework does not have a significant impact on our financial position, results of operations or cash flows.

Current wording

On October 8, 2021, the OECD released a statement on the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting, which agreed to a two-pillar solution to address tax challenges of the digital economy. On December 20, 2021, the OECD released Pillar Two model rules defining a 15 percent global minimum tax rate for large multinational corporations. The OECD continues to release additional guidance and countries are implementing legislation with widespread adoption of the Pillar Two Framework. We determined the Pillar Two Framework does not have a significant impact on our financial position, results of operations or cash flows.

Previous wording

Net sales for the six months ended December 31, 2024 for the SAO segment increased 11 percent to $1,246.6 million, as compared with $1,119.4 million in the six months ended December 31, 2023. Excluding surcharge revenue, net sales increased 19 percent on 5 percent lower shipment volume from the six months ended December 31, 2023. The SAO segment results reflect realized price increases, improving product mix as well as higher demand in the end-use markets of Aerospace and Defense and Energy compared to the six months ended December 31, 2023. In particular, sales excluding surcharge increased 37 percent for the Aerospace and Defense end-use market in the six months ended December 31, 2024, compared to the six months ended December 31, 2023.

Current wording

Net sales for the nine months ended March 31, 2025 for the SAO segment increased 9 percent to $1,889.5 million, as compared with $1,728.0 million in the nine months ended March 31, 2024. Excluding surcharge revenue, net sales increased 15 percent on 8 percent lower shipment volume from the nine months ended March 31, 2024. The SAO segment results reflect realized price increases, improving product mix as well as higher demand in the end-use markets of Aerospace and Defense and Energy compared to the nine months ended March 31, 2024. In particular, sales excluding surcharge increased 30 percent for the Aerospace and Defense end-use market in the nine months ended March 31, 2025, compared to the nine months ended March 31, 2024.