Carpenter Technology (CRS)

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See all Bulls Reasons Bulls: Reasons To Buy Declining prices of raw materials to ease burden 0% agree Declining prices of raw materials to ease burden Recently declining nickel and titanium prices will lessen the burden of raw materials on Carpenter's finances. View or Edit Reason 0 votes 0% agree Falling dollar prices makes exports cheaper 0% agree Falling dollar prices makes exports cheaper The falling dollar will work to not only decrease imports of foreign steel products into the U.S., but may also contribute to increased foreign demand for U.S.-made steel products as they become relatively cheaper. View or Edit Reason 0 votes 0% agree Niche Market shields Carpenter from economic cycles 0% agree Niche Market shields Carpenter from economic cycles Carpenter Technology manufactures highly-specialized products for niche markets. This shields the company somewhat from the economic cycles of the end-use markets it serves. For example, while the aerospace and energy industries usually compose a significant portion... read more View or Edit Reason 0 votes 0% agree See all Bears Reasons Bears: Reasons To Sell Focus on niche markets increases pressure to perform 0% agree Focus on niche markets increases pressure to perform While a focus on specialized products for niche markets is beneficial to a certain extent, it also limits the number of potential customers for these products. A severe downturn in one of the end-use markets that Carpenter serves could be a significant obstacle to profitability. References View or Edit Reason 0 votes 0% agree Ongoing economic troubles may lead to slow down in steel industry 0% agree Ongoing economic troubles may lead to slow down in steel industry Ongoing trouble in the domestic automotive industry coupled with the persisting subprime lending crisis may lead to a declining steel industry. View or Edit Reason 0 votes 0% agree Pressure from international competitors 0% agree Pressure from international competitors Increasing international steel production and competition, considering the oftentimes lower labor and energy costs of foreign competitors, will make it harder for domestic steel makers to post great profits. Foreign penetration of the stainless steel market (one of... read more View or Edit Reason 0 votes 0% agree Send the authors a comment or suggestion Be the first to make a suggestion See All Suggestions

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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^[2], use this steel to make products such as aircraft engine blades, hip implants, drill collars for oil exploration, and high-definition televisions.^[3] 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.^[4] These service centers allow Carpenter to build closer relationships with its customers, working with them to customize current products or develop new ones.^[5] Many of these customers are international, as almost 30% of Carpenter's 2007 sales were in foreign markets, and the company hopes to grow this percentage in 2008.^[6]

[edit] Business Financials

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.^[7] 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.^[8] Revenues in 2007 totaled a record $1.94 billion, with operating income reaching a record $323.8 million as well.^[9] International sales grew 16% from 2006 to 2007 to $574.7 million, amounting to 29.6% of total 2007 sales.^[10] The company announced in December 2007 the sale of its ceramics businesses, which was the lowest-performing of Carpenter's operating segments.^[11]

^[12]

[edit] Production by Segment and End-Use Market

Carpenter Technology divides its products into five major classifications: special metal alloys, stainless steels, titanium products, ceramics, and tool and other steels.^[13] For the past two years, the company's special alloys and stainless steel segments have comprised the majority of Carpenter Technology's sales, totaling 82% of 2007 sales.^[14] A breakdown of sales by product class is below.

Source: CRS 2007 10k^[15]

Carpenter Technology produces for a number of markets, with aerospace as the primary customer.^[16] However, the industrial and consumer markets also represents a significant portion of production.^[17] A breakdown of sales by end-use market by revenue generated and by percentage of total sales is below.

Source: CRS 2007 10k^[18]

[edit] Key Trends & Forces

12 month trend in steel prices

Globalization of the Steel Industry

• 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. However, international penetration of the U.S. stainless steel market in calendar year 2006 was very high, totaling 52% for stainless bar, 44% for stainless rod and 58% for stainless wire.^[19] It may be a matter of time before these foreign competitors diversify into specialized products as well.

• Volatile Raw Materials Prices Impact Carpenter's Margins: The steel industry is an input-heavy and energy-intensive industry. Carpenter demands a number of different raw materials, including nickel, ferrochrome, titanium, chromium, iron scrap and other elements of metal alloys.^[20] The prices of these materials, many of which are traditionally extremely volatile, impact profitability of production, and lately prices for all commodities, from oil to iron ore, have been on the rise. Carpenter makes efforts to use diverse sources and to insulate itself from a drastic rise in the price for any one commodity, and much of the materials costs it encounters can be passed onto its customers. Nonetheless the firm must face the reality that while demand for its products is soaring, the raw materials used to make these products are becoming more scarce.

• 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.^[21] 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.

[edit] 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, composed 36% of the company's 2007 revenues.^[22] 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.^[23] Carpenter also competes in the international markets, with international sales comprising 29.6% of total 2007 sales.^[24] The company's domestic competitors in the stainless steel market are:

Source: Company Reports

 Carpenter Technology

	Select All  |  Select None Metrics Revenue by Geography - International Revenue by Geography - Europe Revenue by Geography - Asia Revenue by Geography - Africa Revenue by Geography - South America Gross Profit Net Income Operating Income Average Price of Iron Revenue Revenue by Geography - United States Production - Steel (millions of tonnes) Production - Iron (millions of tonnes) Capacity - Steel (millions of tonnes) Capacity - Iron (millions of tonnes) Average Price of Steel Revenue from Steel Cancel

	Select All  |  Select None Companies AK Steel Holding (AKS) Cleveland-Cliffs (CLF) Commercial Metals Company (CMC) China Precision Steel (CPSL) Carpenter Technology (CRS) Dayton Superior (DSUP) Friedman Industries (FRD) Gerdau S.A. (GGB) Gerdau AmeriSteel (GNA) Great Northern Iron Ore Properties (GNI) Haynes International (HAYN) Harsco (HSC) Insteel Industries (IIIN) METALICO (MEA) Metal Management (MM) Mechel Steel Group OAO (MTL) Nucor (NUE) Northwest Pipe Company (NWPX) Pohang Iron & Steel (PKX) Cia Vale do Rio Doce (RIO) Gibraltar Industries (ROCK) Rio Tinto (RTP) Schnitzer Steel Industries (SCHN) Companhia Siderurgica Nacional S.A. (SID) Grupo Simec, S.A. de C.V. (SIM) Steel Dynamics (STLD) Synalloy (SYNL) Tenaris S.A. (TS) Ternium S.A. (TX) Universal Stainless & Alloy Products (USAP) Worthington Industries (WOR) Olympic Steel (ZEUS) ArcelorMittal (MT) Cancel

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Company	Data From	Average Price of Steel	Revenue from Steel	Revenue	Revenue by Geography - United States	Production - Steel (millions of tonnes)	Production - Iron (millions of tonnes)	Capacity - Steel (millions of tonnes)	Capacity - Iron (millions of tonnes)
AK Steel Holding (AKS)	2007	Add	$3.32B[25]	$7B[26]	$6.09B[27]	6.48[28]	Add	Add	Add
Carpenter Technology (CRS)	2007	Add	$1.65B[29]	$1.94B[30]	$1.37B[31]	Add	Add	Add	Add
Commercial Metals Company (CMC)	2007	$566[32]	$5.37B[33]	$8.33B[34]	$4.93B[35]	Add	Add	Add	Add
Nucor (NUE)	2007	$723[36]	$16.6B[37]	$16.6B[37]	Add	22.1[38]	Add	Add	Add
Steel Dynamics (STLD)	2007	Add	$4.38B[39]	$4.38B[39]	$4.15B[39]	5.47K[39]	Add	Add	Add

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[edit] References

1. ↑ CRS 2007 10k pg 4
2. ↑ CRS 2007 10k pg 21
3. ↑ CRS Company Website
4. ↑ CRS 2007 10k pg 21
5. ↑ CRS 2007 10k pg 21
6. ↑ CRS 2007 10k pg 20-21
7. ↑ CRS Company Website
8. ↑ CRS 2007 10k pg 21
9. ↑ CRS 2007 10k pg 19
10. ↑ CRS 2007 10k pg 21
11. ↑ CRS Company Website
12. ↑ CRS 2007 10k pg 19
13. ↑ CRS 2007 10k pg 20
14. ↑ CRS 2007 10k pg 20
15. ↑ CRS 2007 10k pg 20
16. ↑ CRS 2007 10k pg 21
17. ↑ CRS 2007 10k pg 21
18. ↑ CRS 2007 10k pg 21
19. ↑ CRS 2007 10k pg 7
20. ↑ CRS 2007 10k pg 4
21. ↑ CRS 2007 10k pg 10
22. ↑ CRS 2007 10k pg 20
23. ↑ CRS 2007 10k
24. ↑ CRS 2007 10k pg 21
25. ↑ AKS, 2007 10-K, Item 8 Pg 63
26. ↑ AKS, 2007 10-K, Item 6 Pg 19
27. ↑ AKS, 2007 10-K, Item 8 Pg 63
28. ↑ AKS, 2007 10-K, Item 7 Pg 23
29. ↑ CRS, 2007 10-K, Item 1 Pg 5
30. ↑ CRS, 2007 10-K, Item 6 Pg 19
31. ↑ CRS, 2007 10-K, Item 7 Pg 73
32. ↑ CMC, 2007 10-K, Item 7 Pg 27
33. ↑ CMC, 2007 10-K, Item 8 Pg 62
34. ↑ CMC, 2007 10-K, Item 6 Pg 21
35. ↑ CMC, 2007 10-K, Item 8 Pg 63
36. ↑ NUE, 2007 10-K Exhibit 13, Pg 22
37. ↑ ^{37.0 37.1} NUE, 2007 10-K Exhibit 13
38. ↑ NUE, 2007 10-K Exhibit 13, Pg 13
39. ↑ ^{39.0 39.1 39.2 39.3} STLD, 2007 10-K, Item 6 Pg 36