Carpenter Technology Q4 FY25 slides: Record profits and expanding margins despite revenue miss

Introduction & Market Context

Carpenter Technology Corporation (NYSE:CRS) reported record quarterly profits in its Q4 FY25 earnings presentation on July 31, 2025, despite revenue falling short of analyst expectations. The specialty alloys producer saw its stock rise 2.25% in pre-market trading to $290, reflecting investor confidence in the company’s profitability and future guidance, though the stock later retreated during regular trading.

The company’s performance comes amid strong demand in the aerospace sector, which represents 62% of Carpenter’s sales. While the company missed revenue forecasts of $790.79 million, posting $755.6 million for the quarter, its earnings per share of $2.21 exceeded analyst expectations of $2.06 by 7.28%.

Quarterly Performance Highlights

Carpenter Technology delivered record quarterly profits in Q4 FY25, with adjusted operating income reaching $151.4 million, a 21% increase compared to Q4 FY24. The company’s Specialty Alloys Operations (SAO) segment continued to expand its margins, reaching 30.5% in Q4 FY25, up from 29.1% in Q3 FY25 and 25.2% in Q4 FY24.

As shown in the following chart of quarterly performance metrics, the company has demonstrated consistent improvement in key financial indicators:

The company’s revenue breakdown by market reveals the dominance of the Aerospace & Defense sector, which accounted for $383.8 million or 62% of sales (excluding surcharge). This segment grew 3% sequentially and 2% year-over-year. The Medical (TASE:BLWV) and Energy sectors also showed sequential growth of 6% and 27% respectively, though Medical declined 16% year-over-year.

As illustrated in this market breakdown:

CEO Tony Thene emphasized the company’s unique market position, stating in the earnings call that Carpenter’s capabilities are "unmatched and virtually impossible to fully replicate over the course of the next several decades."

Detailed Financial Analysis

Carpenter Technology’s income statement revealed strong bottom-line performance despite the revenue challenges. Net income for Q4 FY25 reached $111.7 million, up from $93.6 million in Q4 FY24, while diluted earnings per share increased to $2.21 from $1.85 in the same period last year.

The comprehensive financial results are detailed in the following table:

Cash generation accelerated significantly in Q4 FY25, with the company generating $201.3 million in adjusted free cash flow, contributing to a full-year total of $287.5 million. This strong cash performance occurred despite investments in the company’s brownfield capacity expansion project.

The SAO segment, which represents the bulk of Carpenter’s business, delivered record operating income of $167.0 million in Q4 FY25, up 10% sequentially and 19% year-over-year. The segment achieved its fourteenth consecutive quarter of margin expansion, reaching a record 30.5% adjusted operating margin.

Strategic Initiatives & Growth Strategy

Carpenter Technology is investing $400 million in a brownfield capacity expansion project to increase its critical, high-purity melt capacity. Management expects this investment to be accretive by FY28 and to generate approximately $150 million in incremental operating income by FY30, with a projected return on capital exceeding 20%.

The company’s growth strategy focuses on critical applications in strengthening markets, particularly in aerospace engines, structural components, avionics, fasteners, medical implants, and power generation. As illustrated in the presentation:

The company has also been actively returning cash to shareholders, repurchasing $24.1 million in stock during Q4 FY25 and $101.9 million throughout FY25 as part of its $400 million share repurchase authorization. Additionally, Carpenter paid $40.3 million in dividends during FY25, maintaining its 55-year streak of consecutive dividend payments.

Forward-Looking Statements

Carpenter Technology provided an optimistic outlook for FY26, projecting adjusted operating income between $660 million and $700 million, representing a 26-33% increase over FY25’s record performance. The company also expects to generate $240-280 million in adjusted free cash flow in FY26, net of brownfield expansion expenditures.

The company’s guidance for Q1 FY26 suggests a strong start to the fiscal year, with operating income expected to be in line with the record Q4 FY25 results at $148-152 million. Looking further ahead, Carpenter has set a target of $765-800 million in operating income for FY27.

As shown in this forward-looking chart of projected operating income growth:

Management emphasized that FY27 is not expected to be the peak of earnings power, with market dynamics continuing to strengthen and additional capacity coming online. The company’s key takeaways highlight both its recent achievements and ambitious future plans:

Carpenter Technology’s market capitalization has expanded from $5.5 billion to $13.7 billion, reflecting strong investor confidence in the company’s strategy and execution. With a healthy balance sheet showing Net Debt/EBITDA at just 0.5x and no near-term debt maturities, the company appears well-positioned to fund its growth initiatives while continuing to return capital to shareholders.

Despite the revenue miss in Q4 FY25, Carpenter’s strong profitability metrics and positive outlook suggest the company is successfully navigating market challenges while capitalizing on robust demand in its core aerospace segment.

Full presentation:

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