Good morning, and welcome to the Carpenter Technology Corporation Third Quarter Fiscal 2016 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the call conference over to Brad Edwards of Investor relations. Please go ahead, sir.

Thank you, operator. Good morning, everyone, and welcome to Carpenter's earnings conference call for the third quarter ended March 31, 2016. This call is also being broadcast over the Internet along with presentation slides. Please note, for those of you listening by phone, you may experience a time delay in slide movement. Speakers on the call today are Tony Thene, President and Chief Executive Officer; and Damon Audia, Senior Vice President and Chief Financial 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 those forward-looking statements can be found in Carpenter's most recent SEC filings, including the Company's June 30, 2015 10-K, Form 10-Q for the quarter ended September 30, 2015 and December 31, 2015, 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 discussing operating income, that reference excludes pension, earnings, interest and deferrals or EID and special items. When referring to operating margins, that is based on sales excluding surcharges and operating income excluding pension EID and special items. I will now turn the call over to Tony.

Thank you, Brad, and good morning to everyone. As always, let’s begin on Slide 4 with an update on our safety results. Our third quarter Total Case Incident Rate, or TCIR, was 2.2 up from 1.9 in the previous quarter. This gives us a TCIR of 2.2 year-to-date, effectively flat with our 2015 fiscal year. In terms of safety performance, there is only one acceptable target, and that is a zero injury workplace. I firmly believe it is possible and it is our highest priority goal. We have spent a significant amount of effort in driving required change in the Carpenter’s safety culture. Through the first nine months of fiscal 2016, we conducted over 69,000 safety audits and observations across our facilities, which is approximately 5-times as many as we conducted over the same period last year. We will continue to utilize safety training, education and increased audits in an effort to drive a reduction in our incident rate and ultimately a zero injury workplace. Now, turning to a summary of the third quarter on Slide 5. With $0.30 of adjusted earnings per share, we have delivered another strong quarter. Our operating results reflect the continued rollout of our new carpenter operating model, our unwavering approach to cost management and our product diversification of high-end premium alloys across a broad range of critical applications. As a result of our focused efforts, we increased our operating income margin by 110 basis points versus last year’s third quarter on significantly lower volume. In our specialty alloys operations, or SAO segment, margins were increased 390 basis points versus last year’s third quarter. We continue to aggressively reduce the cost base in our business with improved efficiencies and cost reductions. In this quarter, we executed yet another action by reducing production and maintenance positions…

Thank you, Tony, and good morning everyone. Turning to Slide 8, and the income statement summary. Net sales in the quarter were $456 million or $402 million excluding surcharge. Sales excluding surcharge were up $23 million or 6% sequentially. The 6% sequential increase was on approximately 8% higher volume, which was influenced by a meaningful increase related to our power generation materials included in our energy end use market. Operating income, as a percent of sales when excluding pension EID and special items, was 8.7%. This is up versus the 7.6% last year as a result of the improved product mix we are selling and the improvements we have made in our cost over the last one year. The increase versus the 7.7% last quarter is result of our continued efforts to reduce cost while seeing the benefit of the incremental sequential volume. We remains focused on growing our premium product offerings and expanding our exposure to higher margin businesses going forward. At the same time, we continue to seek opportunities to increase operating efficiencies and reduce our cost, particularly as we navigate this challenging environment in certain end use markets. In the third quarter, effective tax rate was 27.6%, up from 23.8% in the second quarter, reflecting the completion of the sale of an equity method investment in India as well as the tax impact of the special items. Adjusting for these items our tax rate would have been 34% in the quarter. We continue to expect our tax rate to be in the range of 31 to 32% for the fiscal year. Net loss for the quarter was 24 million or $0.51 per share. On an adjusted basis excluding special items that I will cover in a moment, net income would have been 14.3 million or $0.30 per…

Thank you, Damon. Moving to Slide 16. As previously highlighted, Carpenter is a leader in the development and production of high value specialty alloys used in demanding application. We serve highly attractive end use markets with strong long-term growth outlooks. Our aim is to further strengthen and capitalize on our position as a preferred solutions provider of mission critical materials to a broad range of strategic manufacturers. Looking through the future, we are executing on our plan to better leverage our technology and resources to deepen our presence and expand our revenue base across several attractive end use markets. This requires the right investment and focus across our products, our processes and our people. In terms of our technology and product portfolio, we see a number of growth opportunities that we can capitalize on, including further growth in aerospace where our revenue for engine is increasing our next generation engine platforms and increased penetration in the transportation market. In addition, we are actively enhancing our product capabilities including investment in new technologies such as superalloys and titanium powder. With regard to our Athens facility, Carpenter has made the significant investment to add state of the art capacity to serve primarily the aerospace market, which participants and supply chain experts agree is poised for a substantial increase over the coming years. It is important to remember that although the facility is currently running at low utilization levels, our financial results reflect the full operational cost of approximately $8 million to $10 million per quarter. As the facility becomes VAP qualified and as the engine build rate increase significantly, we believe Athens will deliver important incremental earnings to our financial results and value to our shareholders. With regard to our powder products, we are one of the world’s most diverse producers of…

Thank you, we will now begin the question and answer session, [Operator Instructions] and the first question will come from Gautam Khanna of Cowen & Company, please go ahead.

Hi, good morning guys.

Hello Gautam, how are you?

Doing well, thanks. Tony I wanted to ask you a couple of questions on what you're seeing in the aerospace supply chain, you mentioned there's some perturbation of some sort as engines transition. I was wondering if you could expand on that and secondly if you could talk, you know ATI reported today they had very strong sequential gains in engine related shipments I wondered what you're seeing and why if anything your shipments are not tracking at the same rate that theirs are.

Okay, thank you Gautam. From an aerospace standpoint I think we've been relatively strong throughout the last three or four quarters. If you start comparing quarter-over-quarter or year-over-year as I said in my remarks, we did have a large order come in third quarter of last year that hurt that comp a little bit. From our standpoint Gautam it's been pretty consistent over the last couple of quarters. I don't have anything really new to report this quarter versus last and we look forward and we see similar performance going forward.

Have you guys ever been able to quantify what your content is on the Leap engines or the gear turbo fans versus the predecessor engine CFM and new 2500.

Yes, we're working on that. It's more difficult for us as opposed to someone that's closer to that end customer because we're supplying the feedstock into the forgeries. But we have done that work we do believe or we do know that on these new platforms we will have a higher content and I think I've said that multiple times in the past.

And the last one. In terms of the buyback I mean what should we anticipate, what should we model in over the next couple of quarters. I know you're not going to get to 500 but what are you expecting to get to.

Obviously we're not giving any forward looking guidance on our station to repurchase shares but as we said we're going to focus on our cash flow generation here and between now and October to the extent we feel we have surplus cash we will be opportunistic in repurchasing but there's no specific amount that we're looking to purchase between now and the end of the expiration in October.

Alright, thanks guys, I'll get back in the queue.

Thank you.

The next question will come from Phil Gibbs of KeyBanc Capital Markets, please go ahead.

Hey, good morning. Just had a question on the inventory guidance, are we thinking there then that the quarter-on-quarter move here will be relatively flattish, is that what you're trying to portray at this point in time.

No, Phil. So as I -- in the second quarter we said that we expected inventory levels to be flat with year end, you saw an improvement of about 17 million in inventory coming down from the second quarter to the third quarter here. That would leave us about 18 million or so directionally of inventory reduction between the third quarter and the fourth quarter.

Okay, so further reductions in inventory in the fourth quarter, okay.

And that should leave us about -- that will leave us flat effectively when you think about year-end versus year end.

And just some -- some overall thoughts on the backlog. Can you help us in terms of what the -- with the backlog right now either within SAO or cumulatively between SAO and PAP looks like. Looks like today maybe relative to the end of 2015.

Well if you look at it from a sequential standpoint Phil, our backlog whether it's in tons or dollars is pretty flat, it’s about the same. Certainly if you look year over year so March last year you'll see a decrease and that's primarily driven by the energy market as well as industrial and that’s you know the oil and gas business that we supply to the industrial market.

And then just lastly if I could, on your typical mix of business that you either sell through, what’s the distribution or OEM direct, what typically is that mix? And then secondarily, what are the distributors broadly telling you guys right now in terms of where they are in inventory positioning, you’re writing this to order, lean-heavy, that sort of things. So just looking for the typical breakout, and then what the distribution guys and potentially even some of the forgers assigned? Thanks so much.

Thanks Phil. I can tell you this, and I answered the question. From a distribution standpoint, we’re seeing some increased activity in the market, some positive signs right now where our distributors are looking to build back some of their inventory levels. So, for us, we see that as a positive going forward.

[Operator Instructions] The next question will come from Andrew Lane of Morningstar. Please go ahead.

I am trying to get a sense of where inventories will settle over a longer time horizon? And along those lines, do you have a sense as to how much developmental product inventory you’re currently carrying for qualification purposes?

Andrew, I’ll answer the first part and then maybe come back on the second part. For us, we haven’t given any specific guidance for longer term inventory. We have said that we’ll come down to be flat for the end of this fiscal year. As we’ve tried to talk about, as we continue to implement the Carpenter operating model, our goal is to improve the efficiency of our mills here and that is leaning out our inventories. As we talked about in our last quarter call, we expect our work in process levels to come down year-over-year. Although inventory levels will stay flat year-over-year it's because we’ll see an increase in our raw materials and we’ll see a slight increase in our finished goods. But what we’re doing with our operating model is improving that flow through to the factory and through the mills here, we’re taking waste out of the system, reducing the surplus inventory, sitting at different sets. So as we continue to execute that model, we continue to believe that the inventory levels will come down. We don’t have a specific number as to what that will be, but our expectations are that as that continues to decline and as volumes in our end markets continue increase, we should be able to improve the turns of our finished goods, which should allow inventory to continue reduce over the next periods, year or two.

And Andrew, this is Tony, if I could just add. Certainly, our goal is to take inventory down. We think we have means to do that over the next two year from a -- you asked the question around development or inventory. We do have development inventory on hand primarily at Athens, but it's not a significant amount of our total inventory. And we hold that relatively flat quarter-on-quarter.

And then will you be able to update us as to the current utilization rate at Athens in the quarter, please.

It's I think last quarter I said 20%, and is very close to that number as we speak now.

And the next question will be a follow up from Gautam Khanna of Cowen & Company. Please go ahead.

Tony, when you took over last year, I remember you talked about getting to root cause on some of the operating inefficiencies you discovered. And I just wondered where you are in that progression? Have you station by station worked out what the issues are or do you still have a lot of discovery ahead of you?

Well, I will tell you that we have a lot of discovery ahead of us, which means we have a tremendous amount of opportunity. Some of the -- over the last three quarters, the results that you’ve seen has been a direct impact from the work that we’re doing and the items that we’re solving to root cause. So, I am very confident and very pleased with the work that we done over the last two or three quarters. And quite frankly without this the results would not be what they are today. But we’re, as I said in my remarks, we’re just getting started and potential quite frankly is significant moving forward.

And not to hold just to numbers, but do you anticipate been able to get SAO ex-surcharge EBIT margins to the 20% range again without recovery in the energy market. Can you do it just given the mix you currently have but with better operating controls?

I’ll answer it this way. And that is in our journey to get to a shop floor that is efficient in operating under the principals of the corporate operating system. If you -- we’re in the first inning. So is a lot of opportunity that’s out there.

And last one, just on acquisitions or divestitures. As you look at the portfolio, what do you think is -- I mean, are there are opportunities for M&A that you’re looking at? And if so, maybe if you can give some color on size and market focus, and/or are there parts of the portfolio that you don’t think fit as well, now that you’ve been at the helm for about a year, just under a year?

Well, no specific comments obviously. But as we have articulated been a solutions provider and connecting with the customers, there are opportunities that could present itself, in many ways we can do that organically with the titanium powder project but going forward possibly there are some opportunities, quite frankly our focus right now is dealing with the operational challenges that we have and the opportunities in front of us and working our commercial and marketing team to branch out into the new applications where Carpenter products can solve critical problems for our customers in areas that we haven't participated in, in the past.

And Tony do you feel like your predecessor did that vertically integrating you're forward integrating downstream is not a wise idea or just when you look around at your competitors many are integrated whether it be FNC with precision cast parts or [indiscernible] I guess is a little bit less integrated but still has some upstream nickel capability now with [indiscernible]. Just look at is ATI obviously with [indiscernible], is the merchant supplier model still the best one in your view or.

I look at it a little bit differently Gautam as I speak with all of our customers and our customers' customers in some cases. They understand the value and the unique position that Carpenter has in the market and what we want to do is we think we can build going forward by understanding their needs and then filling out our portfolio to best support that, and that will take us wherever it takes us.

Fair enough, thanks a lot.

Thank you.

And our next question will be a follow up from Phil Gibbs of KeyBanc Capital Markets, please go ahead.

Thanks so much, Tony did you say that the Athens overhead was $8 million to $10 million a quarter.

Yes.

Quarter, okay.

Yes, 8 million to 10 million a quarter, so just to clarify Phil I mean that includes basically depreciation of fixed cost and the variable cost that we have. We have a full workforce in Athens right now, right that we've trained, and we're running at 20% utilization, the point to make there is as the volume starts coming in it's basically going to drop right to the bottom line ex the raw materials. There are no other costs that need to be added as we increase the volume in that facility that already in our numbers, so thanks for bringing that up.

Sure, and how much of that bucket the $8 million to $10 million bucket is fixed versus variable if you had an idea, is it half and half, something along those lines.

75% is fixed that number and 25% then is the variable piece. And when I say variable it's certainly not variable now because we're not running much volume through there, but it’s those, once you have a plant up and running those are the operators on the shop floor. So 75% fixed of that 8 to 10, 25% variable.

And then it also sounds like broadly across Carpenter you’re changing your go-to-market or commercial strategy and this is something new, can you elaborate a little more on that and how that maybe different than how you approach the market from a commercial discipline prior to this move, it just sounded different to me than what you'd been doing, thanks.

Yes, it's very different and what Carpenter had done in the past is very product specific so we sold a product, and what we're doing now going forward is we're going to sell a solution and what that does is that opens up a lot more applications for us as we talk to customers now, we have a much more robust and rich conversation of what their challenges are and how the Carpenter products and alloys and help solve that. So it opens us up significantly outside our traditional applications in markets. It’s a different discussion now that we have with the customer.

Thank you.

You're welcome.

And at this time, we will conclude the question and answer and session, I would like to hand the conference back over to Brad Edwards for his closing comments.

Thank you operator, and thanks everyone for joining us today, we look forward to speaking to you again this summer when we report fourth quarter, have a great day.

Ladies and gentlemen the conference has now concluded thank you for attending today's presentation, you may now disconnect your line.