Mar 22 2009
Carpenter Technology Corporation (NYSE:CRS) today announced it will close its Crawley, UK, metal strip manufacturing facility as part of an overall plan designed to reduce fixed costs and more efficiently utilize its production capabilities.
The Company also announced that sales and operating margins for the second half of its fiscal year are expected to fall below its previous estimate that revenues (excluding raw material surcharges) would be 20-25% lower than the second half of FY2008 with low double-digit operating margins.
Facility Closure
The operations of Carpenter’s UK strip facility will wind down during the next several months with final closure targeted for June 30, 2009. The UK facility employs 33 workers and manufactures soft magnetic nickel-iron and cobalt-iron alloys in strip and bar form. The facility’s customers will be serviced by operations in Reading, Pennsylvania, and through arrangements with other suppliers.
The closure of the U.K. strip operation is expected to have a one-time profit impact of approximately $8 million. The cash cost of the shutdown is projected to be $2 million, which should be offset next year by expected savings from the closure. Part of the charges associated with the plant closing will impact the third fiscal quarter with the majority of the costs affecting fourth quarter results.
Revised Outlook
Carpenter’s overall outlook for the remainder of its fiscal year has been adjusted downward. "Revenue declines, excluding the impact of raw material surcharges, are expected to be at the low end of the 20-25% range we previously projected for the third quarter,” said Anne L. Stevens, chairman and chief executive officer. “Based on our current view of end market conditions and customer inventories through the end of our fiscal year, revenues will likely decline further, resulting in a fourth quarter operating loss.”
Stevens said third quarter operating performance showed improvement in a number of areas, and management continued to reduce expenses and adjust manufacturing costs to the lower production levels. “However, the combination of lower volume and aggressive actions being taken to reduce our second half inventory levels have hurt our margins more than previously expected,” Stevens said. “These, together with costs associated with closing the UK facility, will likely result in a third quarter operating margin below our prior estimate.”
“In the 4th quarter, we expect to report an operating loss due to the higher impact of the U.K. facility closing costs, and increasing effects from the lower volume and accelerated inventory reduction activities on operating inefficiencies and accounting effects under LIFO.”
Stevens said the Company has moved aggressively to reduce overhead and discretionary costs, and drive actions on labor and other manufacturing costs to respond to the lower volume level. “Still, the fixed portions of our cost structure combined with the aggressive reductions in inventory levels are having a particularly negative impact on profit in the second half.”
Carpenter continues to preserve its strong balance sheet and to focus on its cash position. “We are reducing our costs everywhere we can, lowering inventory levels and cutting back on capital expenditures. Our objective continues to be to generate positive free cash flow for this fiscal year,” Stevens said.