Carpenter Technology Corporation, headquartered in Philadelphia, Pennsylvania, USA, has announced a set of company-wide restructuring actions which it states aim to strengthen performance. The plan builds upon targeted initiatives previously announced by the corporation in conjunction with its fiscal third-quarter 2020 results.
The plan includes reducing approximately 20% of Carpenter Technology’s total global salaried positions, which is expected to generate approximately $30–35 million in annual cost savings. The company expects to record a pre-tax charge of approximately $10 million in the fourth quarter of the fiscal year 2020 as a result of implementing these reductions.
In addition, Carpenter Technology states that it has taken other significant actions to position itself to manage through the market disruption caused by COVID-19 and strengthen its foundation for sustainable long-term growth and value creation. These measures include:
- Reviewing and prioritising capital investments to target existing and future growth markets. This action is expected to improve cash flow by $50 million in the fiscal year 2021
- Implementing a global hiring freeze and deferring annual merit increases for most salaried employees
- Effecting temporary furloughs for certain production, maintenance and salaried employees
- Executing targeted portfolio actions, including the decision to exit the Amega West oil & gas business and the idling of powder facilities in Rhode Island and West Virginia.
Collectively, these actions are expected to generate $60 to $70 million of annual cost savings, in addition to the significant cash benefits expected to be realised.
“The COVID-19 pandemic has created challenges that we have met head on,” stated Tony R Thene, President and CEO, Carpenter Technology Corporation. “Our business remains firmly on the foundation that has been built over 130 years as a recognised leader in high-performance speciality alloy-based materials and process solutions for critical applications. The actions we are announcing today, as well as those already deployed, are expected to make us even stronger.”
“Although difficult, we have taken thoughtful and aggressive actions to combat the uncertainty in the near-term environment,” he continued. “Our actions are focused on the future and are expected to have a significant impact on profitability and free cash flow in fiscal year 2021 and beyond.”
“We have an impressive manufacturing footprint that includes unique assets capable of producing products that only a few in the world can match,” he added. “Our facilities have been continuously operating during the crisis, as our safety culture provided a solid foundation for quickly adapting to the current challenges. The long-term outlook for our key end-use markets remains solid and we have significantly bolstered our position during these uncertain times by demonstrating our resilience in support of our customers’ needs.”
The company is also withdrawing its previously provided segment operating income outlook for the current quarter. In the near-term, Carpenter Technology explains that visibility is limited as its customers and related supply chains adjust to the economic disruption caused by the COVID-19 pandemic. Customer demand patterns also continue to be impacted by uncertainty in the aerospace supply chain as a result of changing expectations for aeroplane build rates.
Additionally, the near-term uncertainty in demand patterns and the rigorous protocols implemented to ensure the safety of all its employees is reportedly impacting production output. The company states that its current focus remains on protecting employees and maintaining strong liquidity in the near term. With that focus, Carpenter Technology expects to generate a meaningful amount of cash flow in the fourth quarter of the fiscal year 2020 to bolster an already healthy liquidity position.
As of March 31, 2020, the company had $317 million of total liquidity including $93 million of cash and $224.1 million of available borrowings under the company’s credit facility.
Thene further stated, “Carpenter Technology has a long and proud history that has included successfully responding to and navigating many challenges. We have taken decisive action to address the impact of COVID-19 and will continue to actively manage our business to drive long-term value creation. We believe the actions we announced today, together with the actions we have initiated over the last several months, will further strengthen the company’s foundation for future growth.”