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DATE

Wednesday, April 29, 2026 at 10:00 a.m. ET

CALL PARTICIPANTS

  • Chairman and Chief Executive Officer — Tony Thene
  • Senior Vice President and Chief Financial Officer — Tim Lain
  • President and Chief Operating Officer — Brian Molloy
  • Vice President, Investor Relations — John Huyette

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TAKEAWAYS

  • Operating Income -- $186.5 million, marking a new company record and a 20% sequential increase over the prior quarter.
  • Adjusted Free Cash Flow -- $124.8 million in the quarter, with management raising full-year guidance to at least $350 million.
  • Total Cash from Operating Activities -- $193.5 million in the quarter and $364.9 million year-to-date, approximately double the prior year-to-date level.
  • SAO Segment Operating Income -- $208 million, up 19% sequentially and noted as an all-time segment record.
  • SAO Adjusted Operating Margin -- 35.6%, marking expansion from 33.1% last quarter and 29.1% a year ago.
  • Sales Excluding Surcharge -- Up 10% year over year and 11% sequentially, driven by higher volumes and pricing gains.
  • Total Volume -- Increased 10% sequentially from the prior quarter and 15% year over year.
  • Gross Profit -- $251.8 million, up 25% year over year and 15% sequentially.
  • SG&A Expenses -- $65.3 million, up about $2 million sequentially and year over year; includes $27.3 million in corporate costs.
  • Earnings per Diluted Share -- $2.77 for the quarter.
  • Effective Tax Rate -- 21% for the quarter, with a go-forward expectation of approximately 23% excluding discrete items.
  • Capital Expenditures -- $68.7 million in the quarter and $157.6 million year-to-date; revised full-year spend expected at $260 million due to cash timing.
  • Total Liquidity -- $793.8 million at quarter end, consisting of $294.8 million in cash and $499 million in available credit.
  • Net Debt to EBITDA Ratio -- Remained well below one times as of the most recent quarter.
  • Share Repurchases -- $133.9 million bought back in the fiscal year to date, bringing total buybacks to $235.8 million under the existing authorization.
  • Aerospace & Defense Sales -- Up 13% sequentially and 17% year over year, with jet engine-related sales up 24% sequentially and 44% year over year.
  • Energy Sales -- Rose 32% sequentially and 44% year over year, driven almost entirely by growth in industrial gas turbine demand.
  • Medical Sales -- Down 9% sequentially and 29% year over year, though bookings were significantly higher, supporting management's expectation for a rebound.
  • PEP Segment Net Sales -- $90.6 million, up 17% sequentially but down 6% year over year due to weaker medical titanium product sales offsetting aerospace gains.
  • PEP Segment Operating Income -- $6.7 million, largely flat sequentially.
  • Backlog Insights -- CEO Thene reported backlogs of new plane orders reaching new records every quarter, with Boeing producing 42 737s monthly and targeting further increases.
  • Operating Income Guidance -- Management raised full-year outlook, implying at least a 33% increase over fiscal year 2025, and indicated an updated 2027 view will be provided next quarter.
  • Lead Times and Expedites -- CEO Thene stated, I do anticipate those starting to push out here in the near term. I think as that continues to step up, you will get more and more emergency orders.
  • Brownfield Expansion Project -- Remains on schedule and budget, with key equipment deliveries underway and capital spend delayed only by payment timing, not project progress.
  • LTA Mix -- CEO Thene disclosed 60% to 65% of aerospace revenue is under some type of LTA, with total company LTA mix at approximately 40%, and does not expect material change in those ratios.

SUMMARY

Management highlighted record earnings, free cash flow, and gross profit, reflecting robust operational execution and strengthening demand in high-value markets. Executives emphasized that accelerating aerospace and defense activity—especially OEM production and structural material orders—supports multi-year growth potential, even as emergency order volume for key end markets increases. The company raised its 2026 adjusted free cash flow outlook and stressed its healthy liquidity position, ongoing balanced capital allocation, and confidence in surpassing previously issued 2027 earnings targets.

  • CEO Thene stated, we are delivering record earnings even at a time when the aerospace and defense market is at the beginning of this growth cycle.
  • Management reported that Boeing is now consistently producing 42 737s per month, anticipating higher monthly production ahead.
  • Executives confirmed that SAO segment margins have expanded for seventeen consecutive quarters, with a current margin of 35.6%.
  • Chief Financial Officer Lain affirmed the brownfield expansion project remains on budget and on schedule, with lower capital expenditures for the year due only to the timing of cash payments.
  • CEO Thene detailed that 60% to 65% of aerospace revenue is under some type of LTA, signaling stable contract coverage for forward visibility.
  • Management communicated that recent share repurchases totaled $133.9 million, with $235.8 million cumulative under the current authorization.
  • CEO Thene described clear and accelerating demand signals across the aerospace and defense end-use market, reflected in both OEM production plans and order intake.
  • CFO Lain noted the effective tax rate for the quarter was 21%, below expectations due to discrete tax benefits.
  • Tony Thene projected that structural material order rates, although increasing, are still not enough to support the desired ramp.
  • CEO Thene indicated, the 2027 number as it stands now is outdated, and we will be doing much better than that.

INDUSTRY GLOSSARY

  • SAO (Specialty Alloys Operations): Segment focused on the production and sales of specialty alloys, including titanium, steel, and nickel-based products for aerospace, defense, and energy applications.
  • PEP (Performance Engineered Products): Segment delivering titanium products, powder metals, and highly engineered components primarily for medical, aerospace, and additive manufacturing markets.
  • LTA (Long-Term Agreement): Multi-year contract with fixed or formulaic pricing and volume commitments, offering supply chain visibility for both supplier and customer.
  • SG&A (Selling, General and Administrative Expenses): Overhead costs associated with managing and supporting core business functions.
  • IGT (Industrial Gas Turbine): Large turbine engines used primarily to generate electricity in power plants and other industrial energy operations.

Full Conference Call Transcript

Operator: Hello and welcome. My name is Ellie, and I will be your conference operator for today. At this time, I would like to welcome everyone to the Carpenter Technology Corporation CRS Third Quarter Fiscal Year 2026 Earnings Presentation Call. Please note that this call is being recorded. After the prepared remarks, there will be a question and answer session. If you would like to ask a question during that time, please press [inaudible]. Thank you. I would now like to hand the call over to John Huyette, Vice President of Investor Relations. You may now go ahead, please.

John Huyette: Thank you, operator. Good morning, everyone, and welcome to the Carpenter Technology Corporation Earnings Conference Call for the fiscal 2026 third quarter ended March 31, 2026. This call is also being broadcast over the Internet along with presentation slides. For those of you listening by phone, you may experience a time delay in slide movement. Speakers on the call today are Tony Thene, Chairman and Chief Executive Officer; Tim Lain, Senior Vice President and Chief Financial Officer; and Brian Molloy, President and Chief Operating Officer. Statements made by management during this earnings presentation that are forward-looking statements are based on current expectations.

Risk factors that could cause actual results to differ materially from these forward-looking statements can be found in Carpenter Technology Corporation’s most recent SEC filings, including the company’s report on Form 10-K for the year ended June 30, 2025, Forms 10-Q for the quarters ended September 30, 2025, and December 31, 2025, and the exhibits attached to those filings. Please also note that in the following discussion, unless otherwise noted, when management discusses sales or revenue, that reference excludes surcharge. When referring to operating margins, that is based on adjusted operating income, excluding special items, and sales, excluding surcharge. I will now turn the call over to Tony.

Tony Thene: Thank you, John, and good morning to everyone. I will begin on Slide 4 with a review of our safety performance. We ended the 2026 with a total case incident rate of 1.3. We continue to make progress as a result of targeted actions we have implemented across the organization centered on standardized work and disciplined safety practices. As always, we remain committed to our ultimate goal of a zero-injury workplace. Let us turn to Slide 5 for an overview of our third quarter performance. Carpenter Technology Corporation just delivered another record quarter, reflecting the accelerating demand across our high-value markets and our continued strong operational execution.

This record performance is best understood through four key takeaways that highlight the strength, durability, and trajectory of the business. One, record earnings. In the third quarter, we generated $187 million in operating income, exceeding our previous record set in the second quarter by 20%. We have earned a reputation for setting meaningful financial targets and then exceeding them, and we did it again this quarter. The ability to increase earnings by 20% sequentially over what was a record quarter, and in a market that is still accelerating, must be recognized as superior performance. We are extremely proud of the Carpenter Technology Corporation team for their commitment to performance and their focus on continuous improvement.

Importantly, these record earnings translated directly into another step-change in cash flow generation. In the third quarter, we generated $193.5 million in cash from operating activities and $124.8 million of adjusted free cash flow. Two, expanding operating margins. The SAO segment delivered an adjusted operating margin of 35.6% in the quarter, another new record for the business. This margin compares to 33.1% in the prior quarter and 29.1% a year ago. This meaningful margin expansion clearly demonstrates the impact of ongoing productivity gains, product mix optimization, and pricing actions. As a result of the expanding margins, the SAO segment recorded $208 million in operating income, an increase of 19% sequentially and another all-time record for this segment.

Three, strengthening market demand. We see clear and accelerating demand signals across the aerospace and defense end-use market, reflected in both OEM production plans and order intake. Notably, bookings for aerospace structural materials continue to increase, up substantially this quarter. Remember, the submarket for aerospace structural material has been the most impacted by the OEM build rates. Therefore, increasing orders from our aerospace structural customers is a clear signal that the supply chain is accelerating the ramp to support the expected OEM build rate going forward. And four, pricing continues to be a tailwind. As I have said many times, pricing has been and will continue to be a tailwind for the business.

Against a backdrop of strong demand, customers are prioritizing security of supply, and we are continuing to realize pricing that reflects the value we deliver. While no long-term agreements were completed in the quarter, several are currently in negotiation. These long-term agreements support attractive economics for us while providing our customers with the supply chain certainty they need, making them strategically beneficial for both sides. Now let us turn to Slide 6 and have a closer look at our third quarter sales and market dynamics. In 2026, we delivered strong top-line growth, with total sales excluding raw material surcharge up 10% year-over-year and up 11% sequentially, reflecting higher volumes and continued pricing strength.

The higher volumes were the result of increased operating time, improved productivity, and increasing demand for aerospace materials, primarily in the aerospace structural submarket. Looking ahead, we expect continued productivity improvements and healthy demand across our core end-use markets to support further sales growth. Now let me review our key end-use markets starting with aerospace and defense. Sales in the aerospace and defense end-use market were up 13% sequentially and up 17% year-over-year. Our sales growth reflects accelerating activity across the aerospace supply chain as OEMs continue to push towards higher build rates. Let me give some color on what we see happening in the aerospace market.

With backlogs of new plane orders reaching new records every quarter, Boeing and Airbus are ramping production. Notably, Boeing is now consistently producing 42 737s per month. As reported on their recent earnings call, they are poised to go to 47 per month this summer and have their sights set on 52 and beyond due to the growing demand. As a result, the supply chain is building confidence, and our customer order intake has been increasing. Even with the increasing orders, OEMs are still concerned that the supply chain is not ordering material fast enough. We agree. We have seen order intake increase significantly, but we know from experience that it is still not enough to support the desired ramp.

Over the last three months, we have had customers reach out requesting urgent deliveries to avoid line shutdowns for specific applications. We also continue to have customers across engine programs telling us our material is needed sooner. The Boeing comment that inventories which had been helping with recent output are now coming down is significant, and it will drive urgency to yet another level. We expect this urgency will continue to spread throughout the chain as inventories run short, further tightening the market for our materials. Moving on to the medical end-use market, our sales were down 9% sequentially and 29% compared to the prior-year third quarter.

On a positive note, bookings were up significantly in the quarter, supporting our expectation the medical end-use market will begin to recover and return to growth in the near term. In the energy end-use market, sales increased 32% sequentially and 44% year-over-year, driven by higher volumes supporting industrial gas turbine builds. The demand from our IGT customers, primarily driven by the growing energy needs of data centers, remains strong across multiple platform types and OEMs. Keep in mind that the production flow for the IGT material goes across similar flow paths as aerospace material. As a result, quarterly sales for IGT material can fluctuate due to order timing and production scheduling.

Taking a step back, we are clearly operating in an accelerating demand environment across our highest value end-use markets. Combined with our differentiating capabilities and capacity, this positions Carpenter Technology Corporation for meaningful growth, both in the near term and over the long term. Now I will turn it over to Tim for the financial summary.

Tim Lain: Thanks, Tony, and good morning, everyone. Start on the income statement summary on Slide 8. Starting at the top, sales excluding surcharge increased 10% year-over-year on 15% higher volume. Sequentially, sales were up 11% on 10% higher volume. The improving productivity, product mix, and pricing are evident in our gross profit, which increased to $251.8 million in the current quarter, up 25% from the same quarter last year and up 15% sequentially. Selling, general and administrative, or SG&A, expenses were $65.3 million in the third quarter, up roughly $2 million both sequentially and versus the same quarter last year. The SG&A line includes corporate costs, which were $27.3 million.

This is up $1.1 million sequentially and up $2.9 million from 2025. For the upcoming 2026, we expect corporate costs to be between $25 million to $26 million. Operating income was $186.5 million in the current quarter, which is 35% higher than our 2025 and up 20% from our recent second quarter. As Tony mentioned earlier, this represents another record quarterly operating income result, breaking the previous record set last quarter. Moving on to our effective tax rate, which was 21% in the current quarter. This quarter’s effective tax rate was lower than anticipated, primarily due to discrete tax benefits associated with changes to the estimate for certain tax positions taken in the prior year.

For the upcoming 2026, we expect the effective tax rate, excluding discrete items, to be about 23%. Finally, the earnings per diluted share were $2.77 for the quarter. Now turning to the next slide to talk about our cash generation and capital allocation priorities. In addition to the strong earnings performance, we generated meaningful cash flows driven by higher earnings and ongoing efforts to manage working capital closely, particularly inventory. To date in fiscal year 2026, we generated $364.9 million of cash from operating activities. This is roughly two times the operating cash flows when compared to the same period last year. The cash generated from operations more than supports the capital spending in fiscal year 2026.

To date, we have spent $157.6 million in fiscal year 2026. This includes the annual targeted capital expenditures of $125 million as well as the brownfield capacity expansion project. As anticipated, capital spending ramped in our recent third quarter, totaling $68.7 million as activities around the capacity expansion project accelerated. A brief update on this project: The brownfield capacity expansion project remains on budget and on schedule. The construction phase is well underway, key equipment deliveries have begun, and the project team remains focused on not only completing construction and installation of equipment, but also preparing for activities to ensure a smooth start-up of operations.

As we look to the balance of the year, we expect capital expenditures for fiscal year 2026 to finish at about $260 million. This is below the expectation we set at the beginning of the year based solely on changes in the estimates we made for the timing of cash spending related to the project. This does not change our outlook for the full project that we set out when we announced the expansion. With those details in mind, to date in fiscal year 2026, we have generated $207.3 million in adjusted free cash flow.

We are increasing our outlook for free cash flow and currently expect to generate at least $350 million of adjusted free cash flow in fiscal year 2026. As we have said many times before, our adjusted free cash flow generation is important as it enables us to deploy a balanced capital allocation approach that includes investing cash in attractive and accretive growth projects like the brownfield capacity expansion and returning cash to shareholders. To that end, we continue to execute against our repurchase authorization and repurchased $133.9 million of shares in fiscal year 2026. This brings the total to $235.8 million spent to date against the $400 million authorization that we announced in July 2024.

In addition to the buyback program, we also continue to fund a recurring and long-standing quarterly dividend. Finally, our ability to deploy capital is also supported by our healthy liquidity and strong balance sheet. Last quarter, we talked about the refinancing actions we took to strengthen both our balance sheet and liquidity. As of the most recent quarter end, our total liquidity was $793.8 million, including $294.8 million of cash and $499 million of available borrowings under our credit facility. Our credit metrics remain very strong, with our net debt to EBITDA ratio remaining well below one times.

Altogether, we believe our strong balance sheet and outlook for significant cash generation position us well to fund continued growth and deliver significant shareholder returns. With that, I will turn the call to Brian.

Brian Molloy: Thanks, Tim, and good morning, everyone. I will provide some commentary on each of our segments for the quarter. Starting on Slide 11 with our Specialty Alloys Operations segment. SAO delivered an exceptional third quarter marked by strong top-line growth, record margins, and another step-change in operating income performance. SAO’s performance was supported by continued improvements in productivity across our facilities, pricing realization, product mix optimization, and higher available uptime versus the prior quarter. Net sales excluding surcharge were $585 million in the quarter, up 13% year-over-year and 11% sequentially, with both comparisons driven by higher volumes.

The growth was led by improving demand in the aerospace and defense market, as well as continued strength in energy, especially from IGT customers. Adjusted operating margin increased to a record 35.6% in the quarter, marking the seventeenth consecutive quarter of margin expansion and exceeding the prior record set just last quarter. Keep in mind, there are short-term factors that could impact what operating margins can be in any given quarter, most notably the mix of products. While quarterly margins can vary based on product mix, the underlying trajectory remains clearly upward, supported by our core structural drivers: productivity, mix, and pricing.

As a result of top-line growth and expanding margins, SAO delivered operating income of $208 million in the third quarter, the highest quarterly result in the segment’s history and a significant sequential increase. The SAO team has clearly risen to meet the challenge and is operating at a high level across the organization, from the commercial team working with customers to provide solutions, to our production planning team optimizing our manufacturing system to ensure that the highest margin materials are prioritized across flow path, and to the manufacturing team, the backbone of our operations, improving productivity at each shift to ensure we consistently produce at high levels to meet the growing demand.

But the SAO team is not content with our current success. We believe we can do better and are looking forward to continuing to demonstrate record-breaking performance. Looking ahead to the fourth quarter, SAO remains focused on sustaining this momentum by optimizing product mix for margin, closely managing production planning and capacity, and continuing to drive productivity and cost discipline. Based on current visibility, we expect SAO to generate operating income in the range of $24 million to $228 million in the fourth quarter, representing yet another strong step forward for the segment. Now turning to Slide 12 and our PEP segment results.

Net sales excluding surcharge in 2026 were $90.6 million, up 17% sequentially and down 6% from the same quarter a year ago. The sequential improvement in sales was driven by increasing sales in aerospace and defense. Year-over-year, aerospace and defense sales were also higher but were more than offset by a year-over-year decline in medical sales in our titanium business. The softness in the medical market continues to be in certain titanium products for a specific set of medical distribution customers, which has had an outsized impact on our titanium business. As Tony mentioned in his comments, we are seeing an increase in bookings and are optimistic about a return to a growth trajectory in the medical market.

Our teams in DiaMed continue to focus on what they can control, like productivity, equipment reliability, and overall consistency—very similar to the dynamics in SAO. More recently, although a smaller piece of PEP, a bright spot has been our additive business, where our material solutions continue to benefit from strong demand. The growing demand in additive is driven primarily by the aerospace and defense end-use market, where our value proposition for highly specialized products and capabilities supports our customers’ needs. PEP reported an operating income of $6.7 million in the current quarter, which is, as we expected, largely in line with our recent second quarter.

We currently anticipate the PEP segment’s operating income for the upcoming fourth quarter to be in line with 2026. With that, I will turn the call back to Tony.

Tony Thene: Let me close as I have the last couple of quarters with why Carpenter Technology Corporation is a compelling story for existing and potential shareholders. One, we have an enviable market position in the industry. We are at the beginning of a major growth cycle, especially in the aerospace and defense end-use market, with the accelerating aerospace build rates driving higher demand for our materials. A fundamental supply-demand imbalance in nickel-based superalloys will continue to tighten. Our leading capabilities are differentiated by stringent qualifications necessary to supply advanced materials for aerospace and defense and other key end-use market applications, and our world-class collection of unique manufacturing assets are difficult, if not impossible, to replicate.

Two, we have demonstrated a commitment to a balanced capital allocation approach. As Tim noted, we have a healthy liquidity position and a strong balance sheet combined with an impressive cash flow generation outlook, with a long-standing dividend and a robust share repurchase plan. In addition, our strong performance enables us to invest in highly accretive growth projects that accelerate earnings growth but do not materially impact the nickel-based supply-demand imbalance. And three, we continue to deliver record financial results with a strong earnings outlook. We just completed another record quarter of profitability, driven by significant margin expansion in our SAO segment.

It is important to keep in mind that we are delivering record earnings even at a time when the aerospace and defense market is at the beginning of this growth cycle. Today, we increased our operating income guidance for fiscal year 2026 that implies at least a 33% increase over a record fiscal year 2025. I do not know if anyone in our industry can say they have a stronger earnings outlook than Carpenter Technology Corporation. Looking forward, our current fiscal year 2027 earnings target is outdated and does not reflect our current earnings momentum. Further, with the demand environment accelerating, especially in aerospace and defense, we are confident our financial outlook will continue to improve beyond fiscal year 2027.

We will provide an updated view, including fiscal year 2027 guidance, on our next quarter’s earnings call. Carpenter Technology Corporation checks every important shareholder criteria box. To date, we have created significant shareholder value, but we are only at the beginning of this growth journey. The best is still to come. Thank you for your attention. I will now turn the call back to the operator. Thank you.

Operator: We will now open the call for questions. Your first question comes from the line of Gautam Khanna of TD Cowen. Your line is now open.

Gautam Khanna: Hey, thanks. Good morning, guys. Just wanted to ask if you could comment on lead times—if they changed at all broadly—engine and other key submarkets. Also wanted to get a sense for what you think is possible with respect to increasing output. I know you guys are kind of 24/7 full out, but as we think about 2027 and 2028, outside of pricing, how much tonnage could grow over those couple of years? Thanks.

Tony Thene: Yes, sure. On lead times, they remain fairly consistent quarter over quarter, but I do anticipate those starting to push out here in the near term. As you well know, we kind of cap lead times anyway based on our order activity, but I see those pushing out as we go over the next couple of quarters even higher than they are right now. Your second question is a really good one, and that is one of the reasons I alluded to the fact that we are producing record earnings when the aerospace market specifically is still accelerating. It is also the reason why we have noted a couple of times the order intake acceleration of aerospace structural materials.

Because although you say we are operating 24/7, which is correct on specific process or production flow paths—particularly on the engine side—on some of the other aerospace submarkets, we are not. We have pockets of opportunity there because the structural market was not ordering. So we have a very nice opportunity from a volume standpoint in some of those submarkets over the next couple of quarters and over the next couple of years, as you stated. And I think Brian mentioned in his prepared remarks, we have done a tremendous amount of work on productivity—that just jumps off the page—but there is still a lot more to do there.

So from a volume standpoint, Gautam, to summarize my answer, there is still a lot left in the tank for us.

Gautam Khanna: Thank you. Appreciate it.

Operator: Your next question comes from the line of Scott Deuschle of Deutsche Bank. Your line is now open.

Scott Deuschle: Hey, good morning, Tony. For the transactional price increases that you mentioned in the press release, is that mostly referring to favorable transactional pricing for aerospace structural alloys, or are you seeing those transactional prices creep up more broadly across the portfolio?

Tony Thene: Scott, remind me. I am not sure I specifically mentioned price in my prepared remarks. I talked about order intake increasing in that specific submarket. I will say that we continue to see pricing as a tailwind for us. Again, you know this very well, but if you see our price per pound potentially being flat, that is good news for our overall earnings because you see structural business being a bigger ratio of our total volume. That is good. It does have a relatively lower price point than, for example, engines. But if you look at aerospace in total, you will still see a positive trend there.

So come back with a follow-up if I did not quite answer your question.

Scott Deuschle: Okay, yeah, that is fine. And then has the frequency of expedite requests been increasing pretty steadily each month this year, or have those expedite requests been pretty erratic each month?

Tony Thene: That is an interesting question. There is a feel that they are a little bit unpredictable from that standpoint, but we are getting those on a pretty regular basis. I think those are going to increase if history is any indication. As I said in the prepared remarks, we share the same sentiment as the OEMs, where they do not believe that the order intake, although increasing, is enough yet. There is concern from the OEMs that suppliers are not ordering enough material fast enough. We agree with that, and I think as that continues to step up, you will get more and more emergency orders.

Also, as you all know, I really do not want to be in the emergency order business. I would like for all the customers to order at a nice, consistent pace so we can plan our facilities the best possible way we can. But I do see that increasing for us over the next couple of quarters. I think that is pretty well an absolute.

Scott Deuschle: Okay. And then last question. Tim, can you say how much IGT revenues specifically were up in the quarter? And then can you give us an updated sense of how much of the energy mix is now IGT at this point, as opposed to oil and gas?

Tony Thene: You see on that one slide, you showed the total energy that was almost 100% driven by IGT. Right now, IGT is dominating that space. Oil and gas is rather subdued from quarter to quarter. So IGT was the big driver of this quarter. Keep in mind also, a big increase in IGT—remember last quarter, I believe, you had a pretty material decrease, and that is just the order patterns of IGT. So I do not get too excited if I see a plus 36% because you had a big order come in; you could be minus 20% the next quarter. But over several quarters, we have seen significant and consistent increase in the IGT business.

Scott Deuschle: Thank you.

Operator: Your next question comes from the line of Josh Sullivan of Jones Trading. Your line is now open.

Josh Sullivan: Hey, good morning. Hey, John—wanted to say congratulations, Tony, to the next phase here. Great job taking Carpenter to these heights. And to Brian, congratulations on the next leg here.

Unknown Speaker: Thank you.

Josh Sullivan: To follow up on the aerostructures question, Boeing made some comments that above 47 it would take a bigger investment on the supplier inventory side versus some of the previous jumps. When you talk about supply chain underordering, is it your sense that the supply chain is going to see that and tighten up in the near term, or do you think we need to be at above 47, as Boeing is talking about, to really see the supply chain react?

Tony Thene: That is a really good question. In many ways, that is the million-dollar question—what is that last piece of information that drives that increased behavior? We speak regularly to our customers about that. I would say every month, you see more and more activity. I do not necessarily think that it needs to be 47 before you see a big jump in activity, particularly on the structural side, only because we have already seen a nice jump up. Now, it is not enough. Another really important point that I made there too, Josh, is where Boeing stated that they have basically exhausted their inventory. That is a key piece of information.

Let us see how it plays out, but I do not necessarily think we have to wait for the 47 to see that next push up in orders. Let us see how it goes over the next 30 to 60 days.

Josh Sullivan: Got it. And then relatedly, on the cash flow profile for Carpenter Technology Corporation—whenever that does happen and you start to see that order intake, is there any working capital build? I know you guys are out so far in your lead times, maybe not. Just curious when that bow wave does finally hit, is there any thought process on the cash flow profile, or should it be pretty consistent?

Tony Thene: I will leave that one to Tim.

Tim Lain: I would say it is pretty consistent, Josh, over time. We still think inventory is an opportunity for us. That would be the biggest impact, other than sales increasing and AR and days and things like that. We view all the work that is being done on productivity—inventory is an opportunity. So I do not see us investing heavily in inventory just to meet demand.

Josh Sullivan: Got it. And then just one last one on more of the jet engine aftermarket bookings characteristics for the quarter—more aftermarket-related activity given the broader air traffic environment and maintenance market. Any comments you might have there?

Tony Thene: Usually, Gautam asks me this question. Engines were up sequentially 24% in sales; year-over-year, 44%. So we still see very strong sales on the engine side. Fasteners were up 9% to 10% sequentially, about 20% year-over-year. We see good movement there. Orders were pretty much in line. We had a big quarter last quarter, and another big quarter this quarter in orders. As I have said before, I think you will continue to see that increase over the next couple of quarters.

Josh Sullivan: Thank you.

Operator: Your next question comes from the line of Bennett Moore of JPMorgan. Your line is now open.

Bennett Moore: Good morning, Tony, Tim, Brian. Congrats on the quarter, and thank you for taking my questions. I wanted to come to defense and wondering if you have seen any uptick in defense-related orders since the onset of the conflict, and maybe if you could provide any color on where you might have more exposure within those submarkets—for instance, munitions versus jets, etc.?

Tony Thene: It is a great question. We saw increased activity even in advance of the Middle East conflict with the Department of Defense wanting to revitalize and restock. Just as a reminder, as you start talking about different submarkets there, we are a supplier on many platforms: fixed wing, rotorcraft, naval, missile, armored vehicles. We are across multiple submarkets that are all very program specific. It is a more lumpy order pattern depending on the program. But we see this as a submarket that is going to continue to increase. In many ways, the impact of the conflict has not been felt yet. There could potentially be another push upward on orders just to do that replenishment.

That is not always an immediate signal that we see through the supply chain. I think there is probably more to come on the order intake from a defense standpoint, which was already elevated and could go to the next level.

Bennett Moore: Thanks for that context. I think this quarter’s buybacks were the strongest since the program started, and despite the Athens CapEx, the free cash flow outlook is improving. How might this impact any capital allocation decisions? Could we expect to see a relatively higher quarterly buyback run rate moving forward?

Tony Thene: It is possible. It is a good position to be in. I think it is very important—and I said it in my prepared remarks, and it is critical to our shareholders—that we are going to stay balanced. We are going to have a repurchase program. We are working on our current brownfield—that is our focus. You should anticipate that balance being pretty close to the same going forward. That is how we are going to run the company. I have Brian sitting here right next to me, and he is shaking his head. That is exactly the way he feels as well.

Bennett Moore: Understood. Thanks for the context, and best of luck.

Operator: Your next question comes from the line of Andre Madrid of BTIG. Your line is now open.

Andre Madrid: Tony, Tim, John, thanks for the question, and good morning. I wanted to dig into LTAs a little bit further. I think in the release you talked about, and in your comments as well, a willingness to further advance some of those LTAs. There are some that are in the works right now, really pushing for volume visibility and pricing consistency. Is that an indication that you think LTA mix might increase through the coming quarters and years? I am trying to figure out how that mix might evolve with where we are in the demand environment.

Tony Thene: That is a good question. Total Carpenter—our percent LTA is in the 40% range. If you look at aerospace only, it jumps up quite a bit; you are in the low 60%. So 60% to 65% of aerospace revenue is under some type of LTA. Honestly, I do not see that changing a lot going forward. There are some customers that do not operate under an LTA based on their preference. What is changing is that customers who historically have been doing business with us under an LTA would like for those to be longer—of course.

That is another data point to suggest that they also believe in the tightness of the market, and it is only going to get tighter. That is why they would like to have it longer. We work with each of our customers individually on what is best for both of us. At a high level, I do not see that percentage changing drastically going forward.

Andre Madrid: Got it. Pivoting back to aerostructure orders—what kind of quantifiable color can you give there? I remember last quarter you said January month-to-date orders were higher than any month in ’25. Is there a similar metric you can give now to show where demand is for structures?

Tony Thene: Without getting into specifics on all the submarkets, you had continued strong order demand for structural last quarter, and you saw a similar type of increase this quarter. So no pullback on the structural side. I think that is going to continue, and that is why we made the point that I do not think the order rate that is coming into us, although it is increasing significantly, is enough yet. Speaking on the structural side and those more distribution value-add customers, even though it has increased significantly, I think there is still a lot more to go there.

Andre Madrid: That is really helpful, Tony. I will leave it there and jump back in the queue. Thanks so much.

Operator: Your next question comes from the line of Samuel McKinney of KeyBanc Capital Markets. Your line is now open.

Samuel McKinney: Hey, good morning. It sounds like some of that fiscal year 2026 CapEx has been pushed into next year. Could you give us a little more color on the reasons behind the delayed cash spend at the brownfield expansion?

Tim Lain: Yes, Sam. You are right. We did defer about $40 million of the expected— we set a number for CapEx at the start of the year around $300 million. We are down, and that includes the annual $125 million of targeted CapEx in addition to the brownfield capacity. It is a pretty complex project. You make a set of assumptions on the activities that are going to happen, and then on top of that, you have to project what you think cash payments are going to be relative to different milestones and payment terms—again, a lot of variability. Throughout the year, we were looking relatively positive.

We just finished Q3, and we had a good handle on what is going to happen in the next 90 days. It is an indication of the cash, not necessarily an indication of the progress on the project. The project is still on track from a timing and budget perspective. It is really just the timing of cash payments, which is why we reduced the estimate to $260 million for the year for CapEx.

Samuel McKinney: Okay. Then I asked this because I know we all get asked about it on our end, and I know you said you would touch on it next call, but the release generally talked about continued momentum into next year. Did you give any thought to updating that existing EBIT guide range for next year given the commercial aerospace production momentum has clearly improved meaningfully since you gave that outlook last year?

Tony Thene: It is a good question, Sam—did we give any thought to giving that update this quarter? Yes. We have a very detailed process. I can tell you at a high level what ’27, ’28, ’29, and ’30 numbers are. But I want to drive ownership down throughout the entire organization. We have a process that we do our first cut in the fall. We come back in the spring, and we do a bottoms-up cut of that again—where the commercial team does customer by customer, product by product; operations folks come in piece of equipment by piece of equipment—what the productivity rates are going to be. We are in the process of doing that right now.

Brian and I both know what that number in ’27 needs to be, but I want the ownership of the people out on the shop floor that they are not only going to hit that number but exceed that number. I do not want to interrupt a process that has worked very well for us over the last several years. We will be wrapping that up here shortly, and then the next time we speak publicly will be the fourth quarter. You will get it in the fourth quarter. That is how we have done it the last couple of years. That works for us, and that gets buy-in from our entire organization.

As I said in my notes, it is clear that the 2027 number as it stands now is outdated, and we will be doing much better than that.

Samuel McKinney: That is completely fair. I understand. Thanks, Tony and Tim.

Operator: If you would like to ask a question—your next question comes from the line of Scott Deuschle of Deutsche Bank. Your line is now open.

Scott Deuschle: Tony, did I hear you right that jet engine revenue was up 44% year-over-year? And then was there any submarket within A&D that moved against you in a meaningful way to offset that?

Tony Thene: I did say that. Total A&D was up 17%. You will have different pockets that were plus and minus a little bit. Fasteners were up as well. You had a really, really big structural sales quarter last quarter. This quarter, the structural distribution was actually down from a sales standpoint a little bit, but the orders were high. You know how that works, Scott—it does not always match up in that tight 90-day window.

Scott Deuschle: Okay. That is helpful. Thank you.

Operator: Your next question comes from the line of David Strauss of Wells Fargo. Your line is now open.

David Strauss: Good morning. Thanks for taking my question. The incremental margins that you have been putting up ex-surcharge at SAO have been extraordinary—I think this past quarter, 80-some percent. It looks like you are forecasting or baking in something similar in Q4. How should we think about what might be more normal incremental margins for that business as the structural piece becomes a bigger portion going forward?

Tony Thene: David, number one, welcome to the call. We appreciate you picking up coverage. I am going to get Brian involved here to give a high-level comment on operating margins, and then I can fill back in afterwards.

Brian Molloy: As you have seen, we have delivered steady SAO margins, and we are very happy with the efforts of the commercial and operating teams to achieve the 35.6% this quarter. We have a strong performance mindset and action plans in place to continue to grow from here. Quarter by quarter, the margin expansion is not going to be linear. There are a lot of factors we mentioned in our prepared comments that can impact operating margins in any given quarter, but overall, we see a positive trend upward. I am not going to start forecasting quarterly operating margins, but I will say that my expectation is that 35.6% is not the ceiling.

Expect the dynamics that are driving margins today to only get stronger in the coming years.

Tony Thene: I would just add to that because you mentioned structural specifically, and that is a very good point. Certainly, as the market grows—and we want it all to grow—and you see that structural business get higher, that could have an impact. Now, just because something is at lower price does not necessarily mean it is a lower margin because it has a different process flow. We have been able to offset any of the mix movements with some of our other levers. Hopefully that answers your question.

David Strauss: Yeah, that is helpful. And then on the price per pound discussion with regard to SAO, how do we reconcile flattish price—relatively flat year-over-year—with engine up so much year-over-year? My understanding is engine price per pound would be higher than structural and fastener. How do we reconcile that?

Tony Thene: I do not want to get into a habit of giving price movement by every submarket, but it is a good question. Remember, we are about 65% aerospace. The number you saw was total CRS. You saw some higher sales in some of our non-aerospace markets that have traditionally a lower price. I will give you this: if you look at aero only, year-over-year, price was up almost 10%. That is the real driver. It is so mix dependent. As you see other non-aero submarkets increase in volume—a good thing for overall earnings—that could have a lowering impact on the overall Carpenter total price per pound.

David Strauss: Okay. Got it. Thanks very much.

Operator: Thank you. I would now like to hand the call back to John Huyette for closing remarks.

John Huyette: Thank you, operator, and thank you, everyone, for joining us today for our fiscal year 2026 third quarter conference call. Have a great rest of your day.

Operator: Thank you for attending today’s call. You may now disconnect. Goodbye.