Carpenter Technology Corporation
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Item 1. Business
(a) General Development of Business:
Carpenter Technology Corporation, founded in 1889, is engaged in the manufacturing, fabrication and distribution of specialty metals. As used throughout this report, unless the context requires otherwise, the terms "Carpenter," "Carpenter Technology," "Company," "Registrant," "Issuer," "we" and "our" refer to Carpenter Technology Corporation.
(b) Financial Information About Segments:
We are organized in two reportable business segments: Specialty Alloys Operations ("SAO") and Performance Engineered Products ("PEP"). See Note 20 to our consolidated financial statements included in Item 8. "Financial Statements and Supplementary Data" for additional segment reporting information.
(c) Narrative Description of Business:
(1) General:
We are a producer and distributor of premium specialty alloys, including titanium alloys, powder metals, stainless steels, alloy steels, and tool steels. We are a recognized leader in high-performance specialty alloy-based materials and process solutions for critical applications in the aerospace, defense, medical, transportation, energy, industrial and consumer markets. We have evolved to become a pioneer in premium specialty alloys, including titanium, nickel, and cobalt, as well as alloys specifically engineered for additive manufacturing processes and soft magnetics applications.
Reportable Segments
The SAO segment is comprised of the Company's major premium alloy and stainless steel manufacturing operations. This includes operations performed at mills primarily in Reading and Latrobe, Pennsylvania and surrounding areas as well as South Carolina and Alabama. The combined assets of the SAO segment are managed in an integrated manner to optimize efficiency and profitability across the total system.
The PEP segment is comprised of the Company's differentiated operations. This segment includes the Dynamet titanium business, the Carpenter Additive business and the Latrobe and Mexico distribution businesses. The businesses in the PEP segment are managed with an entrepreneurial structure to promote flexibility and agility to quickly respond to market dynamics.
(2) Raw Materials:
Our business depends on continued receipt of critical raw materials for our day to day operations. These raw materials include nickel, cobalt, chromium, manganese, molybdenum, titanium, iron and scrap containing the named alloys. Some of the sources of these raw materials, many of which are international, could be subject to potential interruptions of supply as a result of political events, labor unrest or other reasons. These potential interruptions could cause material shortages and affect availability and price. We have arrangements with certain vendors to provide consigned materials at our manufacturing facilities available for our consumption as necessary.
We have long-term relationships with major suppliers who provide availability of material at competitive prices. Purchase prices of certain raw materials have historically been volatile, including the impact of tariffs. We use pricing surcharges, indexing mechanisms, base price adjustments and raw material forward contracts to reduce the impact on our business of changing prices for the most significant of these materials. There can be delays between the time of the increase in the price of raw materials and the realization of the benefits of such mechanisms or actions that could have a short-term impact on our results and could affect the comparability of our results from period to period.
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(3) Patents and Licenses:
We own a number of United States and international patents and have granted licenses under some of them. In addition, certain products that we produce are covered by patents held or owned by other companies from whom licenses have been obtained. The duration of a patent issued in the United States is between 14 and 20 years from the date of filing a patent application or issuance of the patent. The duration of a patent issued outside of the United States varies from country to country. Generally, patent licenses are structured to match the duration of the underlying patent. Although these patents and licenses are believed to be of value, we do not consider our business to be materially dependent upon any single such item or related group of such items.
(4) Seasonality of Business:
Our sales can be influenced by seasonal factors with the first six months of the fiscal year typically being lower, principally because of increased maintenance shutdowns by us, as well as by many of our customers. However, the timing of major changes in the general economy or the markets for certain products can alter this pattern.
(5) Customers:
On a consolidated basis, we are not dependent upon a single customer, or very few customers, such that the loss of any one or more particular customers would have a materially adverse effect on our consolidated statement of operations. No single customer accounted for 10 percent or more of total net sales for the years ended June 30, 2026, June 30, 2025 and June 30, 2024. No single customer accounted for 10 percent or more of the accounts receivable outstanding at June 30, 2026 or June 30, 2025. See Note 20 to our consolidated financial statements included in Item 8. "Financial Statements and Supplementary Data" for additional information.
(6) Competition:
We are leaders in specialty materials for critical applications with over 135 years of metallurgical and manufacturing expertise. Our business is highly competitive. We manufacture and supply materials to a variety of end-use market sectors and compete with various companies depending on the end-use market, product or geography. A significant portion of the products we produce are highly engineered materials for demanding applications. There are less than ten companies producing one or more similar products that we consider our major competitors for our high-value products used in demanding applications. Many of our products are generally required to meet complex customer product specifications and often require the materials to be qualified prior to supplying the customer. Our experience, technical capabilities, product offerings and research and development efforts represent barriers to existing and potential competitors.
For other products, there are several dozen smaller producing companies and converting companies that are also competitors, as well as several hundred independent distributors of products similar to those distributed by us. Additionally, numerous foreign companies produce various specialty metal products similar to those produced by us. Furthermore, a number of different products may, in certain instances, be substituted for our finished products.
(7) Research, Product and Process Development:
Our expenditures for Company-sponsored research and development were $27.7 million, $26.1 million and $25.6 million in fiscal years 2026, 2025 and 2024, respectively. We believe that our ability to be an innovator in special material development and manufacturing processes has been and will continue to be an important factor in the success of the Company. Our worldwide staff of expert metallurgists, research and development scientists, engineers and service professionals work closely with our customers to identify and provide innovative solutions to specific product requirements.
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(8) Environmental Regulations:
We are subject to various stringent federal, state, local and international environmental laws and regulations relating to pollution, protection of public health and the environment, natural resource damages and occupational safety and health. Management evaluates the liability for future environmental remediation costs on a quarterly basis. We accrue amounts for environmental remediation costs representing management's best estimate of the probable and reasonably estimable costs relating to environmental remediation. For further information on environmental remediation, see the Contingencies section included in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the notes to our consolidated financial statements included in Item 8. "Financial Statements and Supplementary Data."
Our costs of maintaining and operating environmental control equipment were $18.7 million, $18.0 million and $17.4 million for fiscal years 2026, 2025 and 2024, respectively. The capital expenditures for environmental control equipment were $1.6 million, $1.1 million and $0.7 million for fiscal years 2026, 2025 and 2024, respectively. We anticipate spending approximately $3.1 million on environmental capital projects over the next five fiscal years. This includes approximately $0.8 million in fiscal year 2027. Due to the possibility of future regulatory developments, the amount of future capital expenditures may vary from these estimates.
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(9) Human Capital Resources:
We maintain a high-performance work environment that supports our vision to be the preferred solutions provider in specialty materials. We value our employees and help them build careers that are as resilient, innovative and valuable as our work for our customers. We are committed to increasing employee engagement by leveraging the diversity and drive of our people, maximizing their talents, empowering them and supporting their career aspirations.
Health and Safety: Safety is our number one Core Value. We believe that a Zero Injury workplace is achievable and relentlessly pursue measures to increase safety and accountability for our employees. We are proactive in our approach to safety, working to eliminate hazards before causing injury or harm. We invest in our employees by providing appropriate tools, resources and education necessary to achieve a Zero Injury workplace.
Talent Acquisition: We are always looking for nimble, smart, growth-minded people – regardless of background – to help our organization continue to succeed. We strive to be an employer of choice in the communities that we operate. We have built an organizational culture that seeks to be transparent, supportive of work/life balance, welcoming of diverse viewpoints, treating all with dignity and respect and supporting each individual's needs for professional growth and development.
Performance Management: Our formalized bi-annual performance review process accelerates employee growth and development at every stage of the process: (1) objectives and goal setting, (2) ongoing performance check-ins and coaching, as well as (3) performance evaluation and review. We also have Structured Individual Development Plans to assist managers in effectively setting targeted development activities for their direct reports and aligning those activities with business priorities.
Engagement: We regularly conduct a company-wide Employee Engagement Survey to collect tangible data to make our Company even better. The survey is conducted across the organization to seek input from all employees. The survey questions are updated regularly and cover a wide variety of topics, including safety, culture, belonging, work/life balance and leadership and career development. Using the feedback provided by the Employee Engagement Survey, specific action plans are developed to address areas of concern or opportunities for improvement across the organization.
Professional Development: Our employees enjoy a wide variety of rewards that assist with engagement and development ranging from traditional items such as compensation to less traditional aspects such as work-life balance, hybrid and remote work arrangements, future career opportunities, and innovative work.
Belonging: We have a culture that blends our different backgrounds, experiences and perspectives from all employees. We seek to ensure that all our employees feel welcomed. Our values underlie our goal to ensure all employees are treated equally with dignity and respect regardless of their race, age, gender identity, or sexual orientation. Our Belonging Committee plays a critical role in advancing us to the next level of awareness and engagement.
Governance: Our policy is to comply with the letter and spirit of all laws that govern our operations and to adhere to the highest standards of business ethics. Our "Code of Conduct" includes general legal and ethical guidelines. The guidelines apply to all employees and majority-owned affiliates, including subsidiaries, both in the United States and other countries.
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Financial statements
data from SEC XBRL filings. Values are as-reported; restatements supersede originals. Values reported in .
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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Background and General
Our discussions below in this Item 7 should be read in conjunction with our consolidated financial statements, including the notes thereto, included in this Annual Report on Form 10-K.
We are a producer and distributor of premium specialty alloys, including titanium alloys, powder metals, stainless steels, alloy steels and tool steels. We are a recognized leader in high-performance specialty alloy materials and process solutions for critical applications in the aerospace and defense, medical, energy, transportation and industrial and consumer markets. Founded in 1889, we have evolved to become a pioneer in premium specialty alloys, including nickel, cobalt, and titanium and material process capabilities that solve our customers' current and future material challenges. We primarily process basic raw materials such as nickel, cobalt, titanium, manganese, chromium, molybdenum, iron scrap and other metal alloying elements through various melting, hot forming and cold working facilities to produce finished products in the form of billet, bar, rod, wire and narrow strip in many sizes and finishes. We also produce certain metal powders and parts. Our sales are distributed directly from our production plants and distribution network as well as through independent distributors. Unlike many other specialty steel producers, we operate our own worldwide network of service and distribution centers. These service centers, located in the United States, Canada, Mexico, Europe and Asia allow us to work more closely with customers and to offer various just-in-time stocking programs.
As part of our overall business strategy, we have sought out and considered opportunities related to strategic acquisitions and joint collaborations as well as possible business unit dispositions aimed at broadening our offering to the marketplace. We have participated with other companies to explore potential terms and structures of such opportunities and expect that we will continue to evaluate these opportunities.
While we prepare our financial statements in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"), we also utilize and present certain financial measures that are not based on or included in U.S. GAAP (we refer to these as "Non-GAAP financial measures"). Please see the section "Non-GAAP Financial Measures" below for further discussion of these financial measures, including the reasons why we use such financial measures and reconciliations of such financial measures to the nearest U.S. GAAP financial measures.
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Business Trends
Selected financial results for the past three fiscal years are summarized below:
| Years Ended June 30, | |||||||||||||||||||
| ($ in millions, except per share data) | 2026 | 2025 | 2024 | ||||||||||||||||
| Net sales | $ | 3,124.2 | $ | 2,877.1 | $ | 2,759.7 | |||||||||||||
| Net sales excluding surcharge revenue (1) | $ | 2,527.5 | $ | 2,346.1 | $ | 2,167.7 | |||||||||||||
| Operating income | $ | 702.0 | $ | 521.8 | $ | 323.1 | |||||||||||||
| Adjusted operating income (1) | $ | 702.0 | $ | 525.4 | $ | 354.1 | |||||||||||||
| Net income | $ | 529.8 | $ | 376.0 | $ | 186.5 | |||||||||||||
| Diluted earnings per share | $ | 10.52 | $ | 7.42 | $ | 3.70 | |||||||||||||
| Adjusted diluted earnings per share (1) | $ | 10.76 | $ | 7.48 | $ | 4.74 | |||||||||||||
| Purchases of property, plant, equipment and software | $ | 242.7 | $ | 154.3 | $ | 96.6 | |||||||||||||
| Adjusted free cash flow (1) | $ | 362.3 | $ | 287.5 | $ | 179.0 | |||||||||||||
| Pounds sold (in thousands) (2) | 207,874 | 192,980 | 206,302 | ||||||||||||||||
(1) See the section "Non-GAAP Financial Measures" below for further discussion of these financial measures.
(2) Pounds sold data includes Specialty Alloys Operations segment and Dynamet and Additive businesses from the Performance Engineered Products segment.
Our sales are across diverse end-use markets. The table below summarizes our sales by end-use market over the past three fiscal years:
| Years Ended June 30, | |||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | 2024 | |||||||||||||||||||||||||||||||||||
| ($ in millions) | Net Sales | % of Total | Net Sales | % of Total | Net Sales | % of Total | |||||||||||||||||||||||||||||||
| Aerospace and Defense | $ | 2,035.2 | 65 | % | $ | 1,768.6 | 62 | % | $ | 1,538.8 | 56 | % | |||||||||||||||||||||||||
| Medical | 278.4 | 9 | % | 351.2 | 12 | % | 375.6 | 14 | % | ||||||||||||||||||||||||||||
| Energy | 230.6 | 7 | % | 200.3 | 7 | % | 185.8 | 7 | % | ||||||||||||||||||||||||||||
| Transportation | 100.4 | 3 | % | 113.3 | 4 | % | 149.1 | 5 | % | ||||||||||||||||||||||||||||
| Industrial and Consumer | 401.8 | 13 | % | 359.5 | 12 | % | 415.3 | 15 | % | ||||||||||||||||||||||||||||
| Distribution | 77.8 | 3 | % | 84.2 | 3 | % | 95.1 | 3 | % | ||||||||||||||||||||||||||||
| Total net sales | $ | 3,124.2 | 100 | % | $ | 2,877.1 | 100 | % | $ | 2,759.7 | 100 | % | |||||||||||||||||||||||||
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Impact of Raw Material Prices and Product Mix
We value most of our inventory utilizing the LIFO inventory costing methodology. Under the LIFO inventory costing method, changes in the cost of raw materials and production activities are recognized in cost of sales in the current period even though these materials may have been acquired at potentially significantly different values due to the length of time from the acquisition of the raw materials to the sale of the processed finished goods to the customers. In a period of rising raw material costs, the LIFO inventory valuation normally results in higher cost of sales. Conversely, in a period of decreasing raw material costs, the LIFO inventory valuation normally results in lower cost of sales.
The volatility of the costs of raw materials has impacted our operations over the past several years. We, and others in our industry, generally have been able to pass cost increases on major raw materials through to our customers using surcharges that are structured to recover increases in raw material costs including the impact of tariffs. Generally, the formula used to calculate a surcharge is based on published prices of the respective raw materials for the previous month which correlates to the prices we pay for our raw material purchases. However, a portion of our surcharges to customers may be calculated using a different surcharge formula or may be based on the raw material prices at the time of order, which creates a lag between surcharge revenue and corresponding raw material costs recognized in cost of sales. The surcharge mechanism protects our net income on such sales except for the lag effect discussed above. However, surcharges have had a dilutive effect on our gross margin and operating margin percentages as described later in this report.
During fiscal year 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 may 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) ("AOCI") 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.
We produce hundreds of grades of materials, with a wide range of pricing and profit levels depending on the grade. In addition, our product mix within a period is subject to the fluctuating order patterns of our customers as well as decisions we may make on participation in certain products based on available capacity including the impacts of capacity commitments we may have under existing customer agreements. While we expect to see positive contribution from a more favorable product mix in our margin performance over time, the impact by period may fluctuate, and period to period comparisons may vary.
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Net Pension Expense
Net pension expense, as we define it below, includes the net periodic benefit costs related to both our pension and other postretirement plans. The net periodic benefit costs are determined annually based on beginning of year balances and are recorded ratably throughout the fiscal year, unless a significant re-measurement event occurs.
During the fiscal year ended June 30, 2024, we executed a buy-out annuity transaction for our largest defined benefit plan. We determined that the annuity settlement and lump-sum payments exceeded the threshold of service cost and interest cost components and therefore settlement accounting was required. We recorded a noncash settlement charge of $51.9 million in the year ended June 30, 2024, within other expense, net.
The following is a summary of the net pension expense for the years ended June 30, 2026, 2025 and 2024:
| Years Ended June 30, | |||||||||||||||||||
| ($ in millions) | 2026 | 2025 | 2024 | ||||||||||||||||
| Pension plans | $ | 18.3 | $ | 26.3 | $ | 78.0 | |||||||||||||
| Other postretirement plans | (3.7) | (1.5) | (2.0) | ||||||||||||||||
| Net pension expense | $ | 14.6 | $ | 24.8 | $ | 76.0 | |||||||||||||
The service cost component of net pension expense represents the estimated cost of future pension liabilities earned associated with active employees. The pension earnings, interest and deferrals are comprised of the expected return on plan assets, interest costs on the projected benefit obligations of the plans and amortization of actuarial gains and losses and prior service costs and benefits.
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 years ended June 30, 2026, 2025 and 2024:
| Years Ended June 30, | |||||||||||||||||||
| ($ in millions) | 2026 | 2025 | 2024 | ||||||||||||||||
| Service cost included in Cost of sales | $ | 7.5 | $ | 8.1 | $ | 8.4 | |||||||||||||
| Service cost included in Selling, general and administrative expenses | 0.8 | 1.2 | 1.3 | ||||||||||||||||
| Pension earnings, interest and deferrals included in Other (income) expense, net | 6.0 | 15.5 | 14.4 | ||||||||||||||||
| Settlement charge included in Other (income) expense, net | 0.3 | — | 51.9 | ||||||||||||||||
| Net pension expense | $ | 14.6 | $ | 24.8 | $ | 76.0 | |||||||||||||
As of June 30, 2026 and 2025, service cost amounts related to the net pension expense capitalized in gross inventory were $1.0 million and $1.6 million, respectively.
Operating Performance Overview
Carpenter Technology completed fiscal year 2026 as the most profitable year in the Company’s history, realizing $702.0 million in operating income. This represents an increase in adjusted operating income of $176.6 million, or 34 percent, from fiscal year 2025 when excluding the $3.6 million of restructuring charges discussed below. The SAO segment drove results, exceeding expectations with $782.9 million of operating income and an operating margin of 27.7 percent of net sales (34.7 percent of net sales excluding surcharge revenue) compared to operating income of $588.6 million, or 23.0 percent of net sales (28.6 percent of net sales excluding surcharge revenue), for fiscal year 2025. Margin expansion in fiscal year 2026 was driven by a combination of continued productivity gains and pricing realization across both long-term and transactional business. These factors enabled SAO to deliver its strongest operating performance to date.
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The profitability improvement was accompanied by meaningful cash generation, reflecting the higher earnings and continued discipline in working capital management. We generated $605.0 million of cash from operating activities in fiscal year 2026, as compared with cash generated from operating activities of $440.4 million in fiscal year 2025. Adjusted free cash flow was $362.3 million in fiscal year 2026, as compared with $287.5 million in fiscal year 2025. With a strong balance sheet and adjusted free cash flow, we will continue to take a balanced approach to capital allocation: sustaining our current asset base to achieve our targets, returning cash to stockholders through our stock buyback and dividend programs and investing in incremental growth initiatives, including the brownfield expansion project in Athens, Alabama. During fiscal year 2026, we repurchased 545,000 shares of our common stock in the open market for an aggregate $179.1 million and paid dividends of $40.3 million.
Over the last several years, Carpenter Technology has fundamentally transformed itself, becoming stronger, more focused and more profitable. We remain confident in our strategy, which has driven our transformation and positions us well to capture even greater opportunities ahead. We are focused on serving attractive, high-value end-use markets with applications where performance matters and failure is simply not an option. The combination of our current performance, visible growth opportunities, and long-term strategic positioning creates a compelling value creation story. We delivered record results in fiscal year 2026, we have a clear path to significant earnings growth over the next several years, and we are positioned to create substantial long-term value for our shareholders. Most importantly, we believe our greatest opportunities remain ahead of us.
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 have in the past used and plan to continue using 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.
Results of Operations — Fiscal Year 2026 Compared to Fiscal Year 2025
For fiscal year 2026, we reported net income of $529.8 million, or $10.52 earnings per diluted share. This compares with net income of $376.0 million, or $7.42 earnings per diluted share, in fiscal year 2025. Excluding special items, as identified below, adjusted earnings per diluted share was $10.76 in fiscal year 2026, and $7.48 in fiscal year 2025. The results for fiscal year 2026 compared to fiscal year 2025 reflect continued productivity gains and pricing realization across both long-term and transactional business.
During fiscal year 2026, we recorded debt extinguishment losses of $15.6 million. Special items included in our fiscal year 2025 results included restructuring and asset impairment charges of $3.6 million as a result of actions taken to streamline operations in the Carpenter Additive business in the PEP segment, as announced in the quarter ended June 30, 2024.
Net Sales
Net sales for fiscal year 2026 were $3,124.2 million, which represents a 9 percent increase from fiscal year 2025. Excluding surcharge revenue, sales were 8 percent higher than fiscal year 2025 on 8 percent higher volume. The results primarily reflect the impact of price increases and stronger product demand for materials used in the end-use markets of Aerospace and Defense and Energy compared to fiscal year 2025.
Geographically, domestic net sales increased 7 percent from fiscal year 2025. Excluding surcharge revenue, domestic sales increased 6 percent driven by increases in the Aerospace and Defense, Energy and Industrial and Consumer end-use markets. Net sales outside the United States increased 10 percent from fiscal year 2025 to $1,300.0 million for fiscal year 2026. Excluding surcharge revenue, sales outside the United States increased 10 percent, driven by higher sales in the Aerospace and Defense end-use market in all regions, higher Energy end-use markets sales in the European region offset by lower Energy end-use market sales in the Asia Pacific region compared to fiscal year 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 $3.4 million increase in sales during fiscal year 2026 compared to fiscal year 2025. International sales as a percentage of our total net sales represented 42 percent and 41 percent for fiscal year 2026 and 2025, respectively.
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Sales by End-Use Markets
We sell to customers across diversified end-use markets. We believe that presenting net sales by end-use markets is helpful supplemental information in analyzing the performance of the business from period to period. The following table includes comparative information for our net sales, which includes surcharge revenue, by principal end-use markets:
| Fiscal Year | $ Increase (Decrease) | % Increase (Decrease) | |||||||||||||||||||||
| ($ in millions) | 2026 | 2025 | |||||||||||||||||||||
| Aerospace and Defense | $ | 2,035.2 | $ | 1,768.6 | $ | 266.6 | 15 | % | |||||||||||||||
| Medical | 278.4 | 351.2 | (72.8) | (21) | % | ||||||||||||||||||
| Energy | 230.6 | 200.3 | 30.3 | 15 | % | ||||||||||||||||||
| Transportation | 100.4 | 113.3 | (12.9) | (11) | % | ||||||||||||||||||
| Industrial and Consumer | 401.8 | 359.5 | 42.3 | 12 | % | ||||||||||||||||||
| Distribution | 77.8 | 84.2 | (6.4) | (8) | % | ||||||||||||||||||
| Total net sales | $ | 3,124.2 | $ | 2,877.1 | $ | 247.1 | 9 | % | |||||||||||||||
The following table includes comparative information for our net sales by the same principal end-use markets, but excluding surcharge revenue:
| Fiscal Year | $ Increase (Decrease) | % Increase (Decrease) | |||||||||||||||||||||
| ($ in millions) | 2026 | 2025 | |||||||||||||||||||||
| Aerospace and Defense | $ | 1,658.4 | $ | 1,440.7 | $ | 217.7 | 15 | % | |||||||||||||||
| Medical | 224.3 | 296.1 | (71.8) | (24) | % | ||||||||||||||||||
| Energy | 170.7 | 151.3 | 19.4 | 13 | % | ||||||||||||||||||
| Transportation | 77.1 | 86.4 | (9.3) | (11) | % | ||||||||||||||||||
| Industrial and Consumer | 320.3 | 288.1 | 32.2 | 11 | % | ||||||||||||||||||
| Distribution | 76.7 | 83.5 | (6.8) | (8) | % | ||||||||||||||||||
| Total net sales excluding surcharge revenue | $ | 2,527.5 | $ | 2,346.1 | $ | 181.4 | 8 | % | |||||||||||||||
Sales to the Aerospace and Defense end-use market increased 15 percent from fiscal year 2025 to $2,035.2 million. Excluding surcharge revenue, sales increased 15 percent. The fiscal year 2026 results 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 fiscal year 2025. The fiscal year 2026 results also reflect higher sales in the Defense end-use market for program specific applications, in particular, materials used in missile applications.
Sales to the Medical end-use market decreased 21 percent to $278.4 million from fiscal year 2025. Excluding surcharge revenue, sales decreased 24 percent. The fiscal year 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 fiscal year 2025.
Sales to the Energy end-use market of $230.6 million reflect a 15 percent increase from fiscal year 2025. Excluding surcharge revenue, sales increased 13 percent. The fiscal year 2026 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 fiscal year 2025.
Transportation end-use market sales of $100.4 million reflect an 11 percent decrease from fiscal year 2025. Excluding surcharge revenue, sales decreased 11 percent. The fiscal year 2026 results reflect lower production rates for internal combustion engines in the light-duty sub-market compared to fiscal year 2025.
Industrial and Consumer end-use market sales of $401.8 million increased 12 percent from fiscal year 2025. Excluding surcharge revenue, sales increased 11 percent. The fiscal year 2026 results reflect higher demand in numerous Industrial sub-markets, primarily semiconductor materials, compared to fiscal year 2025.
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Gross Profit
Gross profit in fiscal year 2026 increased to $955.5 million, or 30.6 percent of net sales, from $768.6 million, or 26.7 percent of net sales for fiscal year 2025. The fiscal year 2026 results reflect 9 percent increased sales with an ongoing improvement in the SAO segment with a shift in capacity to more complex, higher value materials as well as pricing actions and expanding operational efficiencies compared to fiscal year 2025. Excluding the impact of surcharge revenue, our adjusted gross margin in fiscal year 2026 was 37.8 percent. This compares to adjusted gross margin of 32.8 percent in fiscal year 2025.
Our surcharge mechanism is structured to recover increases in raw material costs, although in certain cases with a lag effect as discussed above. While the surcharge generally protects the absolute gross profit dollars, it does have a dilutive effect on gross margin as a percent of sales. We present and discuss these financial measures because management believes removing the impact of these items provides a more consistent and meaningful basis for comparing results of operations from period to period. See the section "Non-GAAP Financial Measures" below for further discussion of these financial measures. The following represents a summary of the dilutive impact of the surcharge on gross margin:
| Fiscal Year | |||||||||||||
| ($ in millions) | 2026 | 2025 | |||||||||||
| Net sales | $ | 3,124.2 | $ | 2,877.1 | |||||||||
| Less: surcharge revenue | 596.7 | 531.0 | |||||||||||
| Net sales excluding surcharge revenue | $ | 2,527.5 | $ | 2,346.1 | |||||||||
| Gross profit | $ | 955.5 | $ | 768.6 | |||||||||
| Gross margin | 30.6 | % | 26.7 | % | |||||||||
| Gross margin excluding surcharge revenue | 37.8 | % | 32.8 | % | |||||||||
Selling, General and Administrative Expenses
Selling, general and administrative expenses in fiscal year 2026 were $253.5 million, or 8.1 percent of net sales (10.0 percent of net sales excluding surcharge revenue), compared to $243.2 million, or 8.5 percent of net sales (10.4 percent of net sales excluding surcharge revenue), in fiscal year 2025. The higher selling, general and administrative expenses in fiscal year 2026 reflect higher salary, benefit, and variable compensation charges compared to fiscal year 2025.
Restructuring and Asset Impairment Charges
During fiscal year 2026, there were no restructuring and asset impairment charges compared to $3.6 million in fiscal year 2025. The charges in fiscal year 2025 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. This included $2.5 million of noncash pre-tax inventory impairment charges and $1.1 million of costs related to the decommissioning of property, plant and equipment previously impaired.
Operating Income
Our operating income in fiscal year 2026 was $702.0 million, or 22.5 percent of net sales (27.8 percent of net sales excluding surcharge revenue). Operating income in fiscal year 2025 was $521.8 million, or 18.1 percent of net sales and excluding special items, adjusted operating income was $525.4 million (22.4 percent of net sales excluding surcharge revenue). Results for fiscal year 2026 reflect ongoing improvement in the SAO segment with higher realized prices, as well as expanded operating efficiencies compared to fiscal year 2025.
25
The special items included in fiscal year 2025 operating income represent restructuring and asset impairment charges of $3.6 million as a result of actions taken to streamline operations in the Carpenter Additive business, as announced in the quarter ended June 30, 2024.
The following presents our operating income and operating margin, in each case excluding the impact of surcharge on net sales and special items. We present and discuss these financial measures because management believes removing the impact of these items provides a more consistent and meaningful basis for comparing results of operations from period to period. See the section "Non-GAAP Financial Measures" below for further discussion of these financial measures.
| Fiscal Year | |||||||||||||
| ($ in millions) | 2026 | 2025 | |||||||||||
| Net sales | $ | 3,124.2 | $ | 2,877.1 | |||||||||
| Less: surcharge revenue | 596.7 | 531.0 | |||||||||||
| Net sales excluding surcharge revenue | $ | 2,527.5 | $ | 2,346.1 | |||||||||
| Operating income | $ | 702.0 | $ | 521.8 | |||||||||
Special item: | |||||||||||||
| Restructuring and asset impairment charges | — | 3.6 | |||||||||||
| Adjusted operating income excluding special item | $ | 702.0 | $ | 525.4 | |||||||||
| Operating margin | 22.5 | % | 18.1 | % | |||||||||
| Adjusted operating margin excluding surcharge revenue and special item | 27.8 | % | 22.4 | % | |||||||||
Interest Expense, Net and Debt Extinguishment Losses
Fiscal year 2026 interest expense, net was $37.8 million compared to $48.4 million in fiscal year 2025. The lower interest expense, net in fiscal year 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 compared to fiscal year 2025. Capitalized interest reduced interest expense by $7.9 million for fiscal year 2026 and by $2.6 million in fiscal year 2025.
Debt extinguishment losses for the fiscal year ended June 30, 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 fiscal year ended June 30, 2025.
Other (Income) Expense, Net
Other income, net for fiscal year 2026 was $7.6 million compared with other expense, net of $6.1 million in fiscal year 2025. Fiscal year 2026 reflects $6.0 million of expense from pension earnings, interest and deferrals compared to $15.5 million of expense in fiscal year 2025, driven by higher than expected returns on plan assets. Interest income in fiscal year 2026 is $8.8 million, as compared to $7.5 million in fiscal year 2025.
Income Taxes
Our effective tax rate (income tax expense (benefit) as a percent of income (loss) before taxes) for fiscal year 2026 was 19.3 percent as compared to 19.5 percent for fiscal year 2025. Tax expense in fiscal year 2026 and 2025 includes tax benefits attributable to employee share-based compensation of $19.6 million and $14.2 million, respectively.
The One Big Beautiful Bill Act ("OBBBA") was signed into law on July 4, 2025. The provisions of the OBBBA have varying effective dates. The OBBBA allows an elective deduction for domestic research and development expenses, a reinstatement of elective 100 percent first-year bonus depreciation and modifies the tax rates on Foreign-Derived Deduction Eligible Income and income from non-U.S. subsidiaries (Net CFC Tested Income), among other provisions. The impact of the provisions in the OBBBA will depend on our facts in each fiscal year and anticipated guidance from the Internal Revenue Service; however, we do not expect they will have a material impact on our effective tax rate.
26
On October 8, 2021, the Organization for Economic Co-operation and Development ("OECD") released a statement on the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting, which agreed to a two-pillar solution to address tax challenges of the digital economy. On December 20, 2021, the OECD released Pillar Two model rules defining a 15 percent global minimum tax rate for large multinational corporations. The OECD continues to release additional guidance and countries are implementing legislation with widespread adoption of the Pillar Two Framework. In June 2025, the U.S. and the G-7 countries announced the intention to reach an agreement that would exempt U.S. parented multinationals from certain of the Pillar Two rules. In January 2026, additional guidance, the "Side-by Side Package", was released. We are currently evaluating the guidance. The Pillar Two Framework as it exists today does not have a significant impact on our financial position, results of operations or cash flows.
We assert that substantially all undistributed earnings from foreign subsidiaries are not considered permanently reinvested. The potential tax implications from the distribution of these earnings are expected to be limited to withholding taxes in certain foreign jurisdictions and are not expected to materially impact the consolidated financial statements.
See Note 18 to the consolidated financial statements in Item 8. "Financial Statements and Supplementary Data" for a full reconciliation of the statutory federal tax rate to the effective tax rates.
Business Segment Results
Summary information about our operating results on a segment basis is set forth below. For more detailed segment information, see Note 20 to the consolidated financial statements included in Item 8. "Financial Statements and Supplementary Data."
The following table includes comparative information for our volumes by business segment:
| Pounds sold | Fiscal Year | ||||||||||||
Recent insider activity
| Date | Insider | Role | Action | Shares | Price | Value |
|---|---|---|---|---|---|---|
| 2026-09-04 | KAROL STEVEN E | Director | Sell | -3,275 | $474.08 | -$1,552,618 |
| 2026-08-25 | Thene Tony R indirect | Chairman, President and CEO | Sell | -57,456 ×10 | $483.90 | -$27,803,013 |
| 2026-08-25 | Thene Tony R | Chairman, President and CEO | Sell | -51,827 ×11 | $483.78 | -$25,072,740 |
| 2026-08-21 | Younessi Ramin | Director | Sell | -438 | $493.15 | -$216,001 |
Source: SEC Form 4 filings.
Next expected filings
- ~2026-10-22 10-Q expected by 2026-11-05 (in 39 days)
- ~2027-01-28 10-Q expected by 2027-02-11 (in 137 days)
- ~2027-04-28 10-Q expected by 2027-05-12 (in 227 days)
- ~2027-08-11 10-K expected by 2027-08-26 (in 332 days)
Predicted from historical filing cadence; not an SEC commitment.
Recent SEC filings
- 2026-09-11 DEF 14A Proxy Statement
- 2026-08-12 10-K Annual Report
- 2026-08-12 8-K Officer/Director Change; Regulation FD Disclosure; Financial Statements and Exhibits
- 2026-07-30 8-K Earnings Release; Financial Statements and Exhibits
- 2026-07-30 8-K Earnings Release; Financial Statements and Exhibits
- 2026-07-28 8-K Officer/Director Change; Regulation FD Disclosure; Financial Statements and Exhibits
- 2026-04-29 10-Q Quarterly Report
- 2026-04-29 8-K Earnings Release; Financial Statements and Exhibits
- 2026-04-29 8-K Earnings Release; Financial Statements and Exhibits
- 2026-04-17 8-K Officer/Director Change; Financial Statements and Exhibits
- 2026-02-17 8-K Officer/Director Change; Regulation FD Disclosure; Financial Statements and Exhibits
- 2026-01-29 10-Q Quarterly Report
- 2026-01-29 8-K Earnings Release; Financial Statements and Exhibits
- 2026-01-29 8-K Earnings Release; Financial Statements and Exhibits
- 2025-11-20 8-K Material Agreement Entered; Material Financial Obligation; Regulation FD Disclosure; Financial Statements and Exhibits