- Record Q4 Profitability Delivered the most profitable quarter on record with $151 million in adjusted operating income, a 21% increase over Q4 FY '24.
- SAO Segment Performance SAO segment reached a record $167 million operating income with margins expanding to 30.5%.
- Sales Growth Across Markets Sequential sales increases across all key end-use markets, with Aerospace and Defense up 3% sequentially and 2% year-over-year.
- FY '26 Outlook Adjusted operating income projected to grow 26%-33% over FY '25, with $660 million to $700 million expected in FY '26.
- Strong Cash Flow Expectations Anticipated adjusted free cash flow of $240 million to $280 million for FY '26, supporting investments in growth initiatives.
Segment Performance
The Aerospace and Defense sales were up 3% sequentially and 2% year-over-year, driven by strong demand in Aero Engines, which grew 5% sequentially and 3% year-over-year. As Tony R. Thene, President and CEO, noted, "We're seeing aerospace remain a prominent alloy for us going forward." The medical segment also showed significant growth, with sales 70% higher than pre-COVID levels, driven by innovation and solving customer problems.
Outlook and Guidance
For fiscal year 2026, Carpenter Technology expects to generate adjusted free cash flow of $240 million to $280 million and anticipates SAO will generate operating income in the range of $162 million to $165 million in Q1 FY '26. The company projects $660 million to $700 million in adjusted operating income in fiscal year 2026, representing a 26% to 33% increase over fiscal year 2025 earnings. With a current P/E Ratio of 34.98 and an EV/EBITDA of 22.3, the market is pricing in a certain level of growth, which is expected to be driven by the aerospace, defense, medical, and energy markets.
Valuation and Return Metrics
The company's return on equity (ROE) stands at 21.09%, indicating a strong ability to generate profits from shareholder equity. The return on invested capital (ROIC) is also respectable at 14.5%. With a Net Debt / EBITDA ratio of 0.95, the company's debt levels appear manageable. The Free Cash Flow Yield is 1.83%, which, while not exceptionally high, is still a positive indicator of the company's ability to generate cash.