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 2025 Form 10-K. Our discussions here focus on our results during or as of the three and six month periods ended December 31, 2025, and the comparable periods of fiscal year 2025, and to the extent applicable, on material changes from information discussed in the 2025 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 2025 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 2025 Form 10-K. Our discussions here focus on our results during or as of the three and nine month periods ended March 31, 2026, and the comparable periods of fiscal year 2025, and to the extent applicable, on material changes from information discussed in the 2025 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 2025 Form 10-K for detailed background information and with any such intervening Form 8-K.

Previous wording

During the six months ended December 31, 2025 approximately 43 percent of our net sales were 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

During the nine months ended March 31, 2026, approximately 43 percent of our net sales were 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, 2025 and December 31, 2024:

Current wording

The following is the net pension expense for the three and nine months ended March 31, 2026 and March 31, 2025:

Previous wording

Net pension expense is recorded in accounts that are included in cost of sales, selling, general and administrative expenses and other (income) 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, 2025 and 2024:

Current wording

Net pension expense is recorded in accounts that are included in cost of sales, selling, general and administrative expenses and other expense (income), 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, 2026 and 2025:

Previous wording

As of December 31, 2025 and June 30, 2025, service cost amounts related to the net pension expense capitalized in gross inventory were $1.2 million and $1.6 million, respectively.

Current wording

As of March 31, 2026 and June 30, 2025, service cost amounts related to the net pension expense capitalized in gross inventory were $1.1 million and $1.6 million, respectively.

Previous wording

In the quarter ended December 31, 2025, we reported operating income of $155.2 million compared to $118.9 million in the prior year same quarter. The results for the quarter ended December 31, 2025, represent an increase of 31 percent over the previous second fiscal quarter and surpassed our first quarter of fiscal year 2026, which at that time was a record. The SAO segment realized $174.6 million of operating income with an operating margin of 26.4 percent, or adjusted operating margin of 33.1 percent, an increase over the prior year same quarter of 22.5 percent, or adjusted operating margin of 28.3 percent. The SAO performance, its best quarter on record, was driven by higher sales and expanding margins and marks the sixteenth consecutive quarter with increasing adjusted operating margins in the SAO segment.

Current wording

In the quarter ended March 31, 2026, we reported operating income of $186.5 million compared to $137.8 million in the prior year same quarter. The results for the quarter ended March 31, 2026, represent an increase of 35 percent over the prior year third quarter and surpassed our second quarter of fiscal year 2026 by 20 percent, which at that time was a record. The SAO segment realized $208.0 million of operating income with an operating margin of 28.3 percent, or adjusted operating margin of 35.6 percent. This compares to $151.4 million of operating income with an operating margin of 23.5 percent, or adjusted operating margin of 29.1 percent, during the quarter ended March 31, 2025. The SAO margin expansion was driven by a combination of continued productivity gains, pricing realization and improved product mix. These factors enabled SAO to deliver its strongest quarterly operating performance to date.

Previous wording

In addition to the strong operating performance, we generated $171.4 million of cash from operating activities in the six months ended December 31, 2025, as compared with cash generated from operating activities of $108.1 million in the six months ended December 31, 2024. Adjusted free cash flow was positive $82.5 million in the six months ended December 31, 2025, as compared with positive adjusted free cash flow of $51.9 million in the six months ended December 31, 2024. With a strong balance sheet and meaningful cash provided from operations, we will continue to take a balanced approach to capital allocation: sustaining our current asset base and investing in high value growth initiatives while returning cash to shareholders. As such, we are investing to accelerate our growth with our brownfield expansion project which is expected to add primary and secondary melt capacity. Additionally, during the six months ended December 31, 2025, we repurchased 300,000 shares of our common stock on the open market for an aggregate of $81.2 million and funded dividend payments of $20.1 million.

Current wording

The record operating performance was accompanied by strong cash generation, reflecting higher earnings and continued discipline in working capital management. We generated $364.9 million of cash from operating activities in the nine months ended March 31, 2026, as compared with cash provided from operating activities of $182.3 million in the nine months ended March 31, 2025. Adjusted free cash flow was $207.3 million in the nine months ended March 31, 2026, as compared with adjusted free cash flow of $86.1 million in the nine months ended March 31, 2025. With a strong balance sheet and meaningful cash provided from operations, we will continue to take a balanced approach to capital allocation by sustaining our current asset base and investing in high value growth initiatives while returning cash to shareholders. As such, we are investing to accelerate our growth with our brownfield expansion project which is expected to add primary and secondary melt capacity. Additionally, during the nine months ended March 31, 2026, we repurchased 445,000 shares of our common stock on the open market for an aggregate of $133.9 million and funded dividend payments of $30.2 million.

Previous wording

We continue to closely monitor the evolving tariff news as well as engage with our customers and suppliers to analyze how tariffs could impact our business. We, as well as others in our industry, have established long-standing surcharge mechanisms to pass through changes in raw material prices to our customers. We are using and will continue to use these surcharge mechanisms to pass through the impact of any incremental tariffs on our raw material costs to our customers. As such, at this time and based on current information, we believe that tariffs will not have a material impact on the Company.

Current wording

We continue to closely monitor the evolving conflict among the United States, Israel and Iran and its impact to the end-use markets we serve. We also continue to monitor the ongoing tariff changes and engage with our customers and suppliers to analyze how these items could impact our business. We, as well as others in our industry, have established long-standing surcharge mechanisms to pass through changes in raw material prices to our customers. We are using and will continue to use these surcharge mechanisms to pass through the impact of any incremental tariffs on our raw material costs to our customers. As such, at this time and based on current information, we believe these items will not have a material impact on the Company.

Previous wording

For the three months ended December 31, 2025, we reported net income of $105.3 million, or $2.09 earnings per diluted share. During the three months ended December 31, 2025, we recorded debt extinguishment losses of $15.6 million, or $12.0 million net of tax. Excluding this special item, adjusted earnings per diluted share was $2.33 for the three months ended December 31, 2025. This compares with net income for the three months ended December 31, 2024, of $84.1 million, or $1.66 earnings per diluted share. The results for the three months ended December 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 December 31, 2024.

Current wording

For the three months ended March 31, 2026, we reported net income of $139.6 million, or $2.77 earnings per diluted share. This compares with net income for the three months ended March 31, 2025, of $95.4 million, or $1.88 earnings per diluted share. The results for the three months ended March 31, 2026, reflect an ongoing 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, 2025.

Previous wording

Net sales for the three months ended December 31, 2025, were $728.0 million, which is an 8 percent increase over the three months ended December 31, 2024. Excluding surcharge revenue, sales increased 8 percent from the three months ended December 31, 2024. The results excluding surcharge revenue reflect realized price increases and improving product mix during the three months ended December 31, 2025, compared to the three months ended December 31, 2024. Excluding surcharge revenue, sales in the Aerospace and Defense end-use market increased 15 percent compared to the three months ended December 31, 2024.

Current wording

Net sales for the three months ended March 31, 2026, were $811.5 million, which is a 12 percent increase over the three months ended March 31, 2025. Excluding surcharge revenue, sales increased 10 percent from the three months ended March 31, 2025. The results excluding surcharge revenue reflect realized price increases and improving product mix during the three months ended March 31, 2026, compared to the three months ended March 31, 2025. Excluding surcharge revenue, sales in the Aerospace and Defense end-use market increased 17 percent compared to the three months ended March 31, 2025.

Previous wording

Geographically, domestic net sales increased 4 percent from the three months ended December 31, 2024, to $434.0 million. Excluding surcharge revenue, domestic sales increased 4 percent from the three months ended December 31, 2024, driven by stronger sales in the Aerospace and Defense, Industrial and Consumer and Energy end-use markets. Sales outside the United States increased 14 percent from the three months ended December 31, 2024, to $294.0 million for the three months ended December 31, 2025. Excluding surcharge revenue, sales outside the United States increased 13 percent from the three months ended December 31, 2024, reflecting higher sales in Aerospace and Defense and Energy end-use markets in the European region offset by lower shipments in the Energy end-use market in the Asia Pacific region and lower sales in the Aerospace and Defense end-use market in the Mexico and South America regions compared to the three months ended December 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 $0.9 million increase in net sales during the three months ended December 31, 2025, compared to the three months ended December 31, 2024. Net sales outside the United States represented 40 percent and 38 percent of net sales for the three months ended December 31, 2025 and 2024, respectively.

Current wording

Geographically, domestic net sales increased 9 percent from the three months ended March 31, 2025, to $473.9 million. Excluding surcharge revenue, domestic sales increased 8 percent from the three months ended March 31, 2025, driven by higher sales in the Aerospace and Defense, Energy and Industrial and Consumer end-use markets, partially offset by lower sales in the Medical end-use market. Sales outside the United States increased 15 percent from the three months ended March 31, 2025, to $337.6 million for the three months ended March 31, 2026. Excluding surcharge revenue, sales outside the United States increased 13 percent from the three months ended March 31, 2025. This reflects higher sales in the Aerospace and Defense end-use market in all regions and higher sales in the Energy end-use market in the European region offset by lower sales in the Energy end-use market in the Asia Pacific region and the Medical end-use market in the European region compared to the three months ended March 31, 2025. 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 $1.3 million increase in net sales during the three months ended March 31, 2026, compared to the three months ended March 31, 2025. Net sales outside the United States represented 42 percent and 40 percent of net sales for the three months ended March 31, 2026 and 2025, respectively.

Previous wording

Aerospace and Defense end-use market sales increased 14 percent from the three months ended December 31, 2024, to $472.0 million. Excluding surcharge revenue, sales increased 15 percent from the three months ended December 31, 2024. The results for the three months ended December 31, 2025 reflect double-digit increases in the Aerospace engine and fastener sub-markets driven by the need to maintain and replace aging fleets. The three months ended December 31, 2025 also reflect higher sales in the Defense end-use market for program specific applications.

Current wording

Aerospace and Defense end-use market sales increased 17 percent from the three months ended March 31, 2025, to $534.2 million. Excluding surcharge revenue, sales increased 17 percent from the three months ended March 31, 2025. The results for the three months ended March 31, 2026, reflect strong demand driven by increasing build rates and the need to maintain aging fleets. The three months ended March 31, 2026, also reflect higher sales in the Defense end-use market for program specific applications.

Previous wording

Medical end-use market sales decreased 18 percent from the three months ended December 31, 2024 to $70.7 million. Excluding surcharge revenue, sales decreased 22 percent from the three months ended December 31, 2024. For the three months ended December 31, 2025, results reflect lower shipments as a result of the medical supply chain managing inventory levels closely, partially offset by realized price increases particularly in the dental sub-market compared to the three months ended December 31, 2024.

Current wording

Medical end-use market sales decreased 23 percent from the three months ended March 31, 2025, to $65.8 million. Excluding surcharge revenue, sales decreased 29 percent from the three months ended March 31, 2025. For the three months ended March 31, 2026, results reflect lower shipments as a result of the medical supply chain managing inventory levels closely, partially offset by realized price increases particularly in the dental sub-market compared to the three months ended March 31, 2025.

Previous wording

Energy end-use market sales of $50.8 million in the three months ended December 31, 2025 reflect a 17 percent increase from the three months ended December 31, 2024. Excluding surcharge revenue, sales increased 19 percent from the three months ended December 31, 2024. The results reflect higher demand in the power generation sub-market for both new and refurbished industrial gas turbines primarily driven by demand for data centers partially offset by decreased rig counts and decreased shipments for material used in the oil and gas sub-market compared to the three months ended December 31, 2024.

Current wording

Energy end-use market sales of $69.0 million in the three months ended March 31, 2026, reflect a 49 percent increase from the three months ended March 31, 2025. Excluding surcharge revenue, sales increased 44 percent from the three months ended March 31, 2025. The results reflect higher sales in the power generation sub-market for material used in new and refurbished industrial gas turbines primarily driven by the demand for data centers compared to the three months ended March 31, 2025.

Previous wording

Transportation end-use market sales decreased 20 percent from the three months ended December 31, 2024 to $22.8 million. Excluding surcharge revenue, sales decreased 19 percent from the three months ended December 31, 2024. The results reflect weaker consumer demand and shifting supply chain dynamics for light-duty vehicles compared to the three months ended December 31, 2024.

Current wording

Transportation end-use market sales decreased 12 percent from the three months ended March 31, 2025, to $24.7 million. Excluding surcharge revenue, sales decreased 12 percent from the three months ended March 31, 2025. The results reflect weaker production rates for light-duty vehicles and lower build rates for medium and heavy-duty vehicles compared to the three months ended March 31, 2025.

Previous wording

Our gross profit in the three months ended December 31, 2025 increased to $218.3 million, or 30.0 percent of net sales, as compared with $177.5 million, or 26.2 percent of net sales in the three months ended December 31, 2024. Excluding the impact of surcharge revenue, our adjusted gross margin in the three months ended December 31, 2025 was 37.1 percent as compared to 32.4 percent in the three months ended December 31, 2024. The increased gross profit for the three months ended December 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.

Current wording

Our gross profit in the three months ended March 31, 2026, increased to $251.8 million, or 31.0 percent of net sales, as compared with $200.8 million, or 27.6 percent of net sales in the three months ended March 31, 2025. Excluding the impact of surcharge revenue, our adjusted gross margin in the three months ended March 31, 2026, was 38.4 percent as compared to 33.6 percent in the three months ended March 31, 2025. The increased gross profit for the three months ended March 31, 2026, reflects an ongoing improvement in product mix in the Aerospace and Defense and Energy end-use markets 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, 2025 were $63.1 million or 8.7 percent of net sales (10.7 percent of net sales excluding surcharge) as compared with $58.6 million or 8.7 percent of net sales (10.7 percent of net sales excluding surcharge) in the three months ended December 31, 2024. The selling, general and administrative expenses for the three months ended December 31, 2025 reflect higher salary, benefit and variable compensation costs and an increase in professional service fees compared to the three months ended December 31, 2024.

Current wording

Selling, general and administrative expenses in the three months ended March 31, 2026, were $65.3 million or 8.0 percent of net sales (10.0 percent of net sales excluding surcharge) as compared with $63.0 million or 8.7 percent of net sales (10.6 percent of net sales excluding surcharge) in the three months ended March 31, 2025. The selling, general and administrative expenses for the three months ended March 31, 2026, reflect higher salary, benefit and variable compensation costs compared to the three months ended March 31, 2025.

Previous wording

Our operating income in the three months ended December 31, 2025 was $155.2 million, or 21.3 percent of net sales, as compared with operating income of $118.9 million, or 17.6 percent of net sales, in the three months ended December 31, 2024. Excluding surcharge revenue, adjusted operating margin was 26.3 percent for the three months ended December 31, 2025, as compared with 21.7 percent for the three months ended December 31, 2024. The operating results for the three months ended December 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 December 31, 2024.

Current wording

Our operating income in the three months ended March 31, 2026, was $186.5 million, or 23.0 percent of net sales, as compared with operating income of $137.8 million, or 19.0 percent of net sales, in the three months ended March 31, 2025. Excluding surcharge revenue, adjusted operating margin was 28.4 percent for the three months ended March 31, 2026, as compared with 23.1 percent for the three months ended March 31, 2025. The operating results for the three months ended March 31, 2026, reflect an ongoing improvement in product mix in the Aerospace and Defense and Energy end-use markets 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, 2025.

Previous wording

Interest expense, net for the three months ended December 31, 2025, was $10.2 million compared with $12.2 million in the three months ended December 31, 2024. Capitalized interest reduced interest expense by $1.5 million for the three months ended December 31, 2025, and $0.5 million for the three months ended December 31, 2024. The lower interest expense, net in the three months ended December 31, 2025, is due to higher capitalized interest and a lower interest rate on the 2034 Notes as compared to the notes that were prepaid and redeemed in full in November 2025.

Current wording

Interest expense, net for the three months ended March 31, 2026, was $8.7 million compared with $12.0 million in the three months ended March 31, 2025. Capitalized interest reduced interest expense by $1.9 million for the three months ended March 31, 2026, and $0.7 million for the three months ended March 31, 2025. The lower interest expense, net in the three months ended March 31, 2026, is due to higher capitalized interest and a lower interest rate on the 2034 Notes as compared to the notes that were prepaid and redeemed in full in November 2025.

Previous wording

Other income, net for the three months ended December 31, 2025, was $0.6 million as compared with $1.6 million of other expense, net for the three months ended December 31, 2024. The three months ended December 31, 2025, reflect $1.4 million of expense from pension earnings, interest and deferrals compared to $3.9 million of expense from pension earnings, interest and deferrals in the three months ended December 31, 2024.

Current wording

Other expense, net for the three months ended March 31, 2026, was $1.1 million as compared with $3.8 million of other expense, net for the three months ended March 31, 2025. The three months ended March 31, 2026, reflect $1.4 million of expense from pension earnings, interest and deferrals compared to $3.9 million of expense in the three months ended March 31, 2025, driven primarily by greater expected returns on plan assets during fiscal year 2026.

Previous wording

Income tax expense was $24.7 million, or 19.0 percent of income before income taxes for the three months ended December 31, 2025, as compared with income tax expense of $21.0 million, or 20.0 percent of income before income taxes for the three months ended December 31, 2024.

Current wording

Income tax expense was $37.1 million, or 21.0 percent of income before income taxes for the three months ended March 31, 2026, as compared with income tax expense of $26.6 million, or 21.8 percent of income before income taxes for the three months ended March 31, 2025.

Previous wording

Income tax expense for the six months ended December 31, 2025, includes discrete tax benefits of $15.4 million attributable to employee share-based compensation and $3.6 million associated with the debt prepayment costs. 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.

Current wording

Income tax expense for the three months ended March 31, 2026, includes discrete tax benefits of $1.6 million attributable to employee share-based compensation and $2.5 million as a result of changes in the Company's prior year tax positions. Income tax expense for the three months ended March 31, 2025 included discrete tax benefits of $3.2 million attributable to employee share-based compensation.

Previous wording

Net sales for the three months ended December 31, 2025 for the SAO segment increased 10 percent to $661.6 million, as compared with $601.5 million in the three months ended December 31, 2024. Excluding surcharge revenue, net sales for the three months ended December 31, 2025 increased 10 percent compared to the three months ended December 31, 2024. The higher sales are driven by realized price increases and improving product mix in the Aerospace and Defense and Energy end-use markets compared to the three months ended December 31, 2024.

Current wording

Net sales for the three months ended March 31, 2026, for the SAO segment increased 14 percent to $735.1 million, as compared with $642.9 million in the three months ended March 31, 2025. Excluding surcharge revenue, net sales for the three months ended March 31, 2026 increased 13 percent compared to the three months ended March 31, 2025. The higher sales are driven by realized price increases and improving product mix in the Aerospace and Defense and Energy end-use markets compared to the three months ended March 31, 2025.

Previous wording

Operating income for the SAO segment was $174.6 million or 26.4 percent of net sales (33.1 percent of net sales excluding surcharge revenue) in the three months ended December 31, 2025, as compared with operating income of $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. This marks the sixteenth consecutive quarter with increasing adjusted operating margins in SAO. The operating income for the three months ended December 31, 2025, reflects the impact of product mix optimization and operational efficiency gains compared to the three months ended December 31, 2024.

Current wording

Operating income for the SAO segment was $208.0 million or 28.3 percent of net sales (35.6 percent of net sales excluding surcharge revenue) in the three months ended March 31, 2026, as compared with operating income of $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. This marks the seventeenth consecutive quarter with increasing adjusted operating margins in SAO. The operating income for the three months ended March 31, 2026, reflects a combination of continued productivity gains, pricing realization and improved product mix compared to the three months ended March 31, 2025.

Previous wording

Net sales for the three months ended December 31, 2025 for the PEP segment decreased 12 percent to $83.2 million, as compared with $95.0 million in the three months ended December 31, 2024. Excluding surcharge revenue, net sales for the three months ended December 31, 2025, decreased 10 percent compared to the three months ended December 31, 2024. The current quarter results reflect lower sales in Medical and Distribution end-use markets partially offset by growth in the Aerospace and Defense and Industrial and Consumer end-use markets.

Current wording

Net sales for the three months ended March 31, 2026, for the PEP segment decreased 7 percent to $97.7 million, as compared with $104.9 million in the three months ended March 31, 2025. Excluding surcharge revenue, net sales for the three months ended March 31, 2026, decreased 6 percent compared to the three months ended March 31, 2025. The current quarter results reflect lower sales in the Medical and Distribution end-use markets partially offset by growth in the Aerospace and Defense and Industrial and Consumer end-use markets.

Previous wording

For the six months ended December 31, 2025, we reported net income of $227.8 million, or $4.52 earnings per diluted share. During the six months ended December 31, 2025, we recorded debt extinguishment losses of $15.6 million, or $12.0 million net of tax. Excluding this special item, adjusted earnings per diluted share was $4.76 for the six months ended December 31, 2025. This compares with net income for the six months ended December 31, 2024, of $168.9 million, or $3.33 earnings per diluted share. During the six months ended December 31, 2024, we recorded restructuring and asset impairment charges of $3.6 million as a result of actions taken to streamline operations in the Carpenter Additive business as announced during the quarter ended June 30, 2024. Excluding this special item, adjusted earnings per diluted share was $3.39 for the six months ended December 31, 2024. The results for the six months ended December 31, 2025, reflect stronger product mix, pricing actions and improved operational efficiencies compared to the six months ended December 31, 2024.

Current wording

For the nine months ended March 31, 2026, we reported net income of $367.4 million, or $7.29 earnings per diluted share. During the nine months ended March 31, 2026, we recorded debt extinguishment losses of $15.6 million, or $12.0 million net of tax. Excluding this special item, adjusted earnings per diluted share was $7.53 for the nine months ended March 31, 2026. This compares with net income for the nine months ended March 31, 2025, of $264.3 million, or $5.21 earnings per diluted share. During the nine months ended March 31, 2025, we recorded restructuring and asset impairment charges of $3.6 million as a result of actions taken to streamline operations in the Carpenter Additive business as announced during the quarter ended June 30, 2024. Excluding this special item, adjusted earnings per diluted share was $5.27 for the nine months ended March 31, 2025. The results for the nine months ended March 31, 2026, reflect stronger product mix, pricing actions and improved operational efficiencies compared to the nine months ended March 31, 2025.

Previous wording

Net sales for the six months ended December 31, 2025, were $1,461.7 million, a 5 percent increase over the six months ended December 31, 2024. Excluding surcharge revenue, sales increased 6 percent from the six months ended December 31, 2024. The results reflect the impact of price increases in the Aerospace and Defense and Energy end use markets partially offset by lower product demand for materials used in the Medical end-use market compared to the six months ended December 31, 2024.

Current wording

Net sales for the nine months ended March 31, 2026, were $2,273.2 million, a 7 percent increase over the nine months ended March 31, 2025. Excluding surcharge revenue, sales increased 7 percent from the nine months ended March 31, 2025. The results reflect the impact of price increases in the Aerospace and Defense and Energy end-use markets partially offset by lower product demand for materials used in the Medical end-use market compared to the nine months ended March 31, 2025.

Previous wording

Geographically, sales in the United States increased 3 percent from the six months ended December 31, 2024, to $866.4 million. Excluding surcharge revenue, domestic sales increased 4 percent from the six months ended December 31, 2024, driven by stronger sales in the Aerospace and Defense, Industrial and Consumer and Energy end-use markets. Sales outside the United States increased 7 percent from the six months ended December 31, 2024, to $595.3 million for the six months ended December 31, 2025. Excluding surcharge revenue, international sales increased 9 percent from the six months ended December 31, 2024, driven by stronger demand in the Aerospace and Defense and Energy end-use markets in the European region partially offset by lower demand for Medical materials in the European region and lower demand in the Energy end-use market in the Asia Pacific region compared to the six months ended December 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 $1.4 million increase in sales during the six months ended December 31, 2025, compared to the six months ended December 31, 2024. Net sales outside the United States represented 41 percent and 40 percent of net sales for the six months ended December 31, 2025 and 2024, respectively.

Current wording

Geographically, sales in the United States increased 5 percent from the nine months ended March 31, 2025, to $1,340.3 million. Excluding surcharge revenue, domestic sales increased 5 percent from the nine months ended March 31, 2025, driven by higher sales in the Aerospace and Defense, Energy and Industrial and Consumer end-use markets partially offset by lower sales in the Medical and Transportation end-use markets. Sales outside the United States increased 10 percent from the nine months ended March 31, 2025, to $932.9 million for the nine months ended March 31, 2026. Excluding surcharge revenue, international sales increased 10 percent from the nine months ended March 31, 2025, driven by stronger demand in the Aerospace and Defense and Energy end-use markets in the European and Asia Pacific regions partially offset by lower demand for Medical materials in all regions except South America compared to the nine months ended March 31, 2025. 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 $2.7 million increase in sales during the nine months ended March 31, 2026, compared to the nine months ended March 31, 2025. Net sales outside the United States represented 41 percent and 40 percent of net sales for the nine months ended March 31, 2026 and 2025, respectively.

Previous wording

Aerospace and Defense end-use market sales increased 11 percent from the six months ended December 31, 2024, to $942.9 million. Excluding surcharge revenue, sales increased 13 percent from the six months ended December 31, 2024. The results for the six months ended December 31, 2025, reflect double-digit increases in the Aerospace engine and fastener sub-markets driven by increasing build rates and the need to maintain and replace aging fleets compared to the six months ended December 31, 2024. The six months ended December 31, 2025, also reflect higher sales in the Defense end-use market for program specific applications.

Current wording

Aerospace and Defense end-use market sales increased 13 percent from the nine months ended March 31, 2025, to $1,477.2 million. Excluding surcharge revenue, sales increased 14 percent from the nine months ended March 31, 2025. The results for the nine months ended March 31, 2026, reflect strong demand driven by increasing build rates and the need to maintain and replace aging fleets compared to the nine months ended March 31, 2025. The nine months ended March 31, 2026, also reflect higher sales in the Defense end-use market for program specific applications.

Previous wording

Medical end-use market sales decreased 16 percent from the six months ended December 31, 2024, to $145.2 million. Excluding surcharge revenue, sales decreased 19 percent from the six months ended December 31, 2024. The results for the six months ended December 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 dental sub-market compared to the six months ended December 31, 2024.

Current wording

Medical end-use market sales decreased 18 percent from the nine months ended March 31, 2025, to $211.0 million. Excluding surcharge revenue, sales decreased 22 percent from the nine months ended March 31, 2025. The results for the nine months ended March 31, 2026, reflect lower shipments as a result of the medical supply chain managing inventory levels closely, partially offset by realized price increases particularly in the dental sub-market compared to the nine months ended March 31, 2025.

Previous wording

Energy end-use market sales of $105.5 million reflect a 10 percent increase from the six months ended December 31, 2024. Excluding surcharge revenue, sales increased 13 percent from the six months ended December 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 six months ended December 31, 2024.

Current wording

Energy end-use market sales of $174.5 million reflect a 23 percent increase from the nine months ended March 31, 2025. Excluding surcharge revenue, sales increased 23 percent from the nine months ended March 31, 2025. The results reflect higher demand in the power generation sub-market for both new and refurbished industrial gas turbines partially offset by decreased shipments for material used in the oil and gas sub-market compared to the nine months ended March 31, 2025.

Previous wording

Transportation end-use market sales decreased 20 percent from the six months ended December 31, 2024, to $45.6 million. Excluding surcharge revenue, sales decreased 17 percent from the six months ended December 31, 2024. The results for the six months ended December 31, 2025, reflect weaker consumer demand for light-duty vehicles compared to the six months ended December 31, 2024.

Current wording

Transportation end-use market sales decreased 17 percent from the nine months ended March 31, 2025, to $70.2 million. Excluding surcharge revenue, sales decreased 15 percent from the nine months ended March 31, 2025. The results for the nine months ended March 31, 2026, reflect lower production rates for both light-duty vehicles and medium and heavy-duty trucks compared to the nine months ended March 31, 2025.

Previous wording

Our gross profit in the six months ended December 31, 2025, increased $80.9 million to $434.7 million, or 29.7 percent of net sales, as compared with $353.8 million, or 25.4 percent of net sales in the six months ended December 31, 2024. Excluding the impact of surcharge revenue, our gross margin in the six months ended December 31, 2025, was 36.5 percent as compared to 31.4 percent in the six months ended December 31, 2024. The increased gross profit for the six months ended December 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 six months ended December 31, 2024.

Current wording

Our gross profit in the nine months ended March 31, 2026, increased $132.0 million to $686.6 million, or 30.2 percent of net sales, as compared with $554.6 million, or 26.1 percent of net sales in the nine months ended March 31, 2025. Excluding the impact of surcharge revenue, our gross margin in the nine months ended March 31, 2026, was 37.2 percent as compared to 32.2 percent in the nine months ended March 31, 2025. The increased gross profit for the nine months ended March 31, 2026, 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, 2025.

Previous wording

Selling, general and administrative expenses of $126.1 million were 8.6 percent of net sales (10.6 percent of net sales excluding surcharge) for the six months ended December 31, 2025, as compared with $117.7 million or 8.4 percent of net sales (10.5 percent of net sales excluding surcharge) in the six months ended December 31, 2024. The selling, general and administrative expenses for the six months ended December 31, 2025, reflect higher salary, benefit and variable compensation costs compared to the six months ended December 31, 2024.

Current wording

Selling, general and administrative expenses of $191.5 million were 8.4 percent of net sales (10.4 percent of net sales excluding surcharge) for the nine months ended March 31, 2026, as compared with $180.6 million or 8.5 percent of net sales (10.5 percent of net sales excluding surcharge) in the nine months ended March 31, 2025. The selling, general and administrative expenses for the nine months ended March 31, 2026, reflect higher salary, benefit and variable compensation costs compared to the nine months ended March 31, 2025.

Previous wording

During the six months ended December 31, 2025, there were no restructuring and asset impairment charges compared to $3.6 million of restructuring and asset impairment charges in the six months ended December 31, 2024. The restructuring and asset impairment 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, 2026, there were no restructuring and asset impairment charges compared to $3.6 million of restructuring and asset impairment charges in the nine months ended March 31, 2025. The restructuring and asset impairment 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, 2025, was $308.6 million, or 21.1 percent of net sales, as compared with operating income of $232.5 million, or 16.7 percent of net sales, in the six months ended December 31, 2024. Excluding surcharge revenue, operating margin was 25.9 percent for the six months ended December 31, 2025, and 21.0 percent for the six months ended December 31, 2024, when excluding surcharge revenue and the special item identified below. The operating results for the six months ended December 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 six months ended December 31, 2024. The six months ended December 31, 2024 include restructuring and asset impairment charges of $3.6 million.

Current wording

Our operating income in the nine months ended March 31, 2026, was $495.1 million, or 21.8 percent of net sales, as compared with operating income of $370.4 million, or 17.5 percent of net sales, in the nine months ended March 31, 2025. Excluding surcharge revenue, operating margin was 26.8 percent for the nine months ended March 31, 2026, and 21.7 percent for the nine months ended March 31, 2025, when excluding surcharge revenue and the special item identified below. The operating results for the nine months ended March 31, 2026, 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, 2025. The nine months ended March 31, 2025 include restructuring and asset impairment charges of $3.6 million.

Previous wording

Interest expense, net for the six months ended December 31, 2025, was $21.7 million compared with $24.6 million in the six months ended December 31, 2024. Capitalized interest reduced interest expense by $2.8 million for the six months ended December 31, 2025, and $0.9 million for the six months ended December 31, 2024. The lower interest expense, net in the six months ended December 31, 2025 is due to higher capitalized interest and a lower interest rate on the 2034 Notes as compared to the notes that were prepaid and redeemed in full in November 2025.

Current wording

Interest expense, net for the nine months ended March 31, 2026, was $30.3 million compared with $36.6 million in the nine months ended March 31, 2025. Capitalized interest reduced interest expense by $4.7 million for the nine months ended March 31, 2026, and $1.6 million for the nine months ended March 31, 2025. The lower interest expense, net in the nine months ended March 31, 2026, is due to higher capitalized interest and a lower interest rate on the 2034 Notes as compared to the notes that were prepaid and redeemed in full in November 2025.

Previous wording

Debt extinguishment losses for the three months ended December 31, 2025, were $15.6 million related to the prepayment, in full, of the senior unsecured notes due July 2028 and March 2030. This consisted of $11.4 million of debt prepayment costs and $4.2 million of accelerated issue costs. There were no debt extinguishment losses for the three months ended December 31, 2024.

Current wording

Debt extinguishment losses for the nine months ended March 31, 2026, were $15.6 million related to the prepayment, in full, of the senior unsecured notes due July 2028 and March 2030. This consisted of $11.4 million of debt prepayment costs and $4.2 million of accelerated issue costs. There were no debt extinguishment losses for the nine months ended March 31, 2025.

Previous wording

Other income, net was $3.5 million for the six months ended December 31, 2025, compared to other expense, net of $1.6 million in the six months ended December 31, 2024. The six months ended December 31, 2025, reflect interest income of $4.1 million compared to $3.9 million in the six months ended December 31, 2024. The six months ended December 31, 2025, includes $2.9 million of expense from pension earnings, interest and deferrals compared to expense of $7.8 million in the six months ended December 31, 2024, driven primarily by greater expected returns on plan assets during fiscal year 2026.

Current wording

Other income, net was $2.3 million for the nine months ended March 31, 2026, compared to other expense, net of $5.6 million in the nine months ended March 31, 2025. The nine months ended March 31, 2026, reflect interest income of $6.1 million compared to $5.5 million in the nine months ended March 31, 2025. The nine months ended March 31, 2026, includes $4.3 million of expense from pension earnings, interest and deferrals compared to expense of $11.6 million in the nine months ended March 31, 2025, driven primarily by greater expected returns on plan assets during fiscal year 2026.

Previous wording

Income tax expense for the six months ended December 31, 2025, was $47.0 million, or 17.1 percent of income before income taxes as compared with income tax expense of $37.4 million, or 18.1 percent of income before income taxes for the six months ended December 31, 2024.

Current wording

Income tax expense for the nine months ended March 31, 2026, was $84.1 million, or 18.6 percent of income before income taxes as compared with income tax expense of $63.9 million, or 19.5 percent of income before income taxes for the nine months ended March 31, 2025.