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Carpenter Technology (CRS) |
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WIKI ANALYSIS
Carpenter Technology (NYSE:CRS) manufactures and distributes specialty metals and engineered products. The company earned $1.36 billion in revenue and $47 million in net income in 2009.[1]
The company focuses on niche steel alloys that can withstand extreme pressure and heat or have a specific appearance or chemical properties. The company's customers, which include the aerospace, industrial, consumer, automotive, medical, and energy industries, use this steel to make products such as aircraft engine blades, hip implants, drill collars for oil exploration, and high-definition televisions.[2] The specialized nature of its products allows Carpenter to charge higher prices.
Unlike most specialty steel makers, Carpenter manufactures but also distributes its products through its own worldwide network of service centers. These service centers allow Carpenter to build closer relationships with its customers, working with them to customize current products or develop new ones. Many of these customers are international, as about one-third of Carpenter's sales were come from foreign markets.
Company Overview
Carpenter Technology manufactures highly specialized products for niche markets. Many of these products are intended for use in high-stress and extreme-heat environments. The high specialization that characterizes Carpenter's product lines allows the company to demand premium prices for its products. Carpenter manufactures materials used in a wide range of projects, including industrial tools, jet engines, fuel injectors and medical implants.[3] Over the past few years, a shift in corporate strategy, including production of higher value materials, cost-cutting and increased international sales, has led to financial success for Carpenter Technology.[4]
Production by Segment and End-Use Market
Carpenter Technology divides its products into five major classifications: special metal alloys, stainless [screw tht company's special alloys and stainless steel segments have comprised the majority of Carpenter Technology's sales. A breakdown of sales by product class is below.[5]
- Special Alloys - 51% of net sales
- Stainless Steel - 34% of net sales
- Titanium Products - 10% of net sales
- Other Materials - 5% of net sales
Carpenter Technology produces for a number of markets, with aerospace as the primary customer. However, the industrial and consumer markets also represents a significant portion of production. A breakdown of sales by end-use market by revenue generated and by percentage of total sales is below:[6]
- Aerospace - 42% of net sales
- Industrial - 24% of net sales
- Energy - 11% of net sales
- Medical - 8% of net sales
- Consumer - 8% of net sales
- Automotive - 7% of net sales
Business Growth
FY 2009 (ended June 30, 2009)[1]
- Net sales fell 30% to $1.36 billion. The company attributes the decline to the sluggish global economy as revenue decreased by more than 18% in all of its end-use markets, with the automotive segment suffering the greatest decline at 56%. Revenue in all of the company's product segments also fell by double digits with Special Alloys having the greatest drop at 32%. International sales fell by 26% for the year.
- Net income decreased 83% to $48 billion.
Trends and Forces
- Increasing competition in the Global Steel Industry :Rising international demand for steel, specifically from developing economies like China and India, has resulted in increases in the price of steel. If demand were to slow or stall, this would have negative effects on steel prices and revenues posted by the steel industry. Likewise, if demand continues to rise CRS will continue to enjoy revenue growth. International production has increased along with the rapid growth of international demand, and this threatens Carpenter's economic niche. China's growing role in the steel industry is still undetermined, but rapid growth in both demand and supply imply an ever-increasing role for the country. Carpenter has an advantage over other domestic steel producers in that its products are highly-specialized and directed towards niche markets, and new competitors are unlikely to quickly build the capacity to make products like Carpenter's.
- The Airline Industry Must Continue to Demand Carpenter's Products: A growing proportion of the company's sales are directed towards the commercial aerospace market. This end market has recently experienced significant turbulence, especially since the terrorist attacks of 9/11. Increased apprehension about flying coupled with record high oil prices and frequent labor issues may make the future difficult for the airline industry. A decrease in demand from this sector would negatively impact Carpenter's sales.
Competition
Carpenter Technology distinguishes itself from its competitors by focusing on highly-specialized products rather than traditional commodity-type products. Still, stainless steel, traditionally a commodity product, composes one-third of the company's revenues. However, Carpenter manufactures only long and bar stainless steel, whereas close competitors such as AK Steel Holding (AKS) focus on the manufacture of flat-rolled products because of the larger US market. Carpenter also competes in the international markets, with international sales comprising about one-third of net sales. The company's domestic competitors in the stainless steel market are:[7]
References
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