Good morning, and welcome to Carpenter's Fiscal Fourth Quarter and Full Fiscal Year Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Brad Edwards. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to Carpenter's earnings conference call for the fourth quarter and fiscal year ended June 30, 2017. 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, 2016 Form 10-K, Form 10-Q for the quarters ended September 30, 2016, December 31, 2016 and March 31, 2017, 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 surcharge, 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 we will begin with a review of our safety performance on slide number 4. We finished fiscal year 2017 with a total case incident rate or TCIR of 2.0. While this is an improvement compared to last year, much progress and work remains to be done. Our goal, a zero injury workplace will not change and our commitment to achieving this will not waiver. During fiscal year 2017, we successfully rolled out targeted training programs and increased communication engagement initiatives to address areas of concern at our facilities. This included a focus on hand safety which continues to account for many of our total reportable injuries. One of our employee engagement initiatives included launching hand safe teams at our facilities. Together with our employees we have developed tools, methods and communication channels to address and reduce hand and finger injuries. We expect the program to lead to reduced hand injuries in the year ahead and beyond. We also placed a concerted focus on utilizing plant supervisors through leadership development programs aimed at developing safety ambassadors that monitor and interact with employees every day. Through these interactions we are having candid one-on-one discussions with employees to discuss our core safety values as well as reinforce the personal responsibility to contribute to the creation of an injury free workplace. Part of eliminating injuries is thoroughly examining processes and working to eliminate deviations in air that increase the chances of someone being hurt. During fiscal year 2017 we launched our human performance initiative to strengthen our ability to recognize these situations and move to implement countermeasures. One result of our focus on safety has been the identification of multiple injury employees who to date have not embraced our safety initiatives and core value.…

Thank you, Tony. Good morning, everyone. Turning to Slide 9 and the income statement summary. We finished fiscal year 2017 with solid financial results during our fourth quarter highlighted by sequential revenue growth, operating income increasing almost 30%, and in operating margin above 12%. Overall a strong finish to the year. From a top line perspective, net sales in the fourth quarter were $508 million, or $439 million excluding surcharge. Sales excluding surcharge increased 6% sequentially on a 4% higher volume driven by healthy 8% revenue gains in our aerospace and defense end-use market. As well as gains in three of our four remaining end-use markets which included double-digit increases in our medical and industrial and consumer end-use markets. Excluding the power generation submarket, our energy end-use market would have also been up double digits. On a year-over-year basis, net sales excluding surcharge increased $33 million or 8% on flat volume, as we benefited from an improved product mix given growth in higher margin areas like aerospace engines and medical. The improved performance reflects both strengthening market conditions as well as strong execution from our commercial team as we seek to broaden our customer base and expand applications for our high-end solutions. As Tony highlighted, we are realizing the benefits of our new go to market strategy. SG&A expenses declined $2.4 million on a sequential basis and were in line with our expectations at approximately $45 million. Going forward, we would expect SG&A expense to be in the range of $45 million to $47 million per quarter in fiscal year 2018. Operating income as a percent of sales was 12.2% in the quarter when excluding pension EID and a special item of $3.2 million which I will address in a moment. The 12.2% margin represents considerable improvement from the 10%…

Thank you, Damon. Moving to slide number 15. Carpenter had a notable presence at this year's Paris Air Show. It was a very successful event for Carpenter and the feedback and activity from our customers reaffirmed to me that our strategy of focusing on differentiated products, and process and solutions is resonating in the market. Each customer I spoke with was excited and enthusiastic about our solutions approach and our goal of becoming irreplaceable partners in their supply chain. They see the value our solutions bring, whether in engines, structural or other aerospace submarkets. One thing that was clear was the continuing strength of the breadth of our offering. We had over 125 meetings with customers and these were not concentrated on anyone submarket, product area, or geography. We met with customers throughout the supply chain from OEMs to tiers across all geographies from Asia, North and South America to Europe, and covering all of our application areas from engines and fasteners to structural and avionics. Some, for example, were eager to talk with us about our announcement of the additive manufacturing alliance with Burloak to explore how they could take advantage of our joint services. Others wanted to understand more about our soft magnetic product capabilities. Specifically, how they might be applied and integrated as customers design their next generation of avionics. As a result, we are now engaged to begin an in-depth exploratory technology roadmap determining how we work together to achieve the next level of performance in our applications and to explore new material solutions. While there we met with key aerospace customers with whom we recently secured or formalized deals that are expected to be worth more than half a billion dollars in revenue over the next five years. These include agreements with customers throughout the…

[Operator Instructions] Our first question is from Gautam Khanna at Cowen & Company.

I had a couple of questions. I was wondering if you could give us an update on how Athens utilization has trended and what the mix was like down there. Is it more premium? May be the utilization and then maybe if you can give us some quantification of how much of that reflects the mix you hopefully will end up with as the cycle progresses.

Okay. Good morning, Gautam. So the update for Athens is much like it was last quarter. Last quarter I said the utilization was about 30%. I could tell you that that’s ticked up 2 or 3 percentage point. Last quarter I said that the material that was running there was not incremental to Carpenter. Now I would say that there is material down there that we are running that is incremental to our overall results. So I believe we are at where we need to be from a qualification standpoint. There is no update on what I told you last quarter and even the quarter before that. I believe we are on track. We are making progress and continue to work it and it has been one of our top priorities.

All right. That’s helpful. And one other thing I was curious about, one of your competitors announced a very large contract with the United Technologies, the Pratt and Whitney businesses. And I know you guys have been an incumbent supplier with UTC, I was just wondering if in your view this reveals any share shift or should we think about the relationship you have with UTC differently than we did going into ATI's announcement.

A couple of comments. I mean I did see that press release as I prepped through this earnings call and I would say that it has zero impact on Carpenter. It's my opinion that the high majority of that contract is associated with isothermal forging and as you know, [indiscernible] wheel. We don’t produce product in that area. I could also say that it had no impact at all on high-value super alloy powder that we are currently qualifying for Pratt and Whitney at our Athens facility. It's safe to say that Carpenter will be just one of two people producing that powder, the second being the internal Pratt supply. So no impact for us.

Okay. That’s helpful. And maybe Damon, could you also just give us some color on the pension EID expense this year and what the service cost is running through the two segments.

Yes. So Gautam, as you saw the total pension expense for the full year is the $14 million. The majority of that, about $12 million of that will be service cost related. EID is only going to be about $2 million for the full year. So very small. The vast majority of the service cost will stick in SAO. I would also remind you to see on the footnote. If you have incremental defined contribution cost in fiscal year '18 relative to '17, Q4 to Q1, there is really no change. But for the full year of '18 as a result of the pension freeze, we will have about $9 million of defined contribution cost going into the BC plan.

Okay. That’s helpful. And last question on CapEx. It goes up a little bit year to year. I was just curious, can you remind us sort of what the long-term trajectory at CapEx is going to be beyond fiscal '18?

Yes. I think Gautam for us here, we watch CapEx from a maintenance standpoint along with our long-term investments. But I think for the foreseeable future we are sort of in that range of around $120 million. We don’t see anything on the horizon at least that would require us to change that in the near-term.

The next question is from Chris Olin at Longbow Research.

Damon, quick question on the SSS divestment. Did you give a revenue impact for that going forward?

Not in my scripted remarks, Chris. But for us SSS was not a material part of our overall business as the revenue last year was about $17 million and from an OI perspective it was flat to a slight loss in fiscal year '17. So doesn’t have a real impact on the overall PEP business going forward.

Okay. Question on the aerospace markets. Do you get the sense that the excess inventory that has impacted your fasteners related business, has that inventory been balanced yet? Or, I guess, can you say that the production cuts on the wide-body market have been fully absorbed by the channel where we will see some growth in calendar 2018.

Thanks, Chris. Maybe I will take the last one there first. I would say on the wide-body cuts, especially on the A-380 that was just announced. That’s not a surprise to us nor do I think it's a surprise to the industry. I think everyone expected that to happen. We have exposure across all platforms. Obviously, including the A-380. And for us and I would say for all suppliers, that cut is negative just because of the large amount of material that that platform consumes. I think the important point here is, as you kind of alluded to, the projected growth across all the other platforms we believe will more than make up for this in a supply chain that I will say is tight and becoming tighter at multiple points. To your first question on fasteners, I would tell you that our visibility is mixed at best. As we hear from some of our customers, they are de-stocking some or ordering. So I think we are going to be like we have over the last -- since I have been involved, whatever words you will use, choppy, lumpy, in terms of fasteners going forward.

Okay. Just final question. I was looking at the transportation segment. Could you give us an idea of what the mix is between heavy truck and all the other vehicles? I guess I am wondering if you have seen any impact from the improving build rates on the Class B truck market.

I would say roughly that heavy truck is about 25% of our total transportation market. 70% being light vehicle and then the remaining 5% from different markets like rail and marine etcetera.

[Operator Instructions] Next question is from Josh Sullivan at Seaport Global.

Just following upon what Airbus said this morning, signaling that delivering the 200 A-320 NEOs might be more challenging just given some of GTF issues. Is Carpenter involved with the high pressure turbine on the GTF at all?

Of course.

Do you see any impact to your outlook or are you guys in a position in the supply chain where you don’t think it will have much of an impact.

I think when you have such a massive ramp, there is going to be issues across the supply chain. There's thousands and thousands of vendors that input into that engine. We feel very comfortable, very confident that a large amount of the engines are going to be produced. And I think the important point here, again, is that I believe it's a supply chain -- at least the way we see it and what we supply is going to become tighter and tighter. It's one of the main reasons why I think this company had the foresight several years ago to build Athens. And I think some of the comments you and some of your colleagues have made plays right into Athens hands and the need to really qualify that sooner rather than later.

Okay. Great. And on the conversation around your growing powders business. One of the long-term push backs is that buy to fly ratios are going to come down with powders. Can you comment on how that might play out? How much higher value are these next generation powders versus some of the traditional products?

Yes. Well, I think it's a wider range. I mean I would really tell you that I think pretty high confidence level that you are going to see the move to AEM parts in aerospace because it's just too attractive, especially on the structural side. I mean I think there is a lot of opportunity there. You are going to see that from powder and quite frankly from wires that are manufactured as well. Both which we participate in. And our goal really is, we believe that powder is the strategic feedstock that makes this entire supply chain attractive. Right from a [indiscernible] flow ability and that’s where we play and some of the alliances that we are building with some of the part manufacturers, we can now go to customers and offer an end to end solution that we can supply a powder or a wire that meets those specifications. It performs the way you want it to perform and it meets the end product specifications that are so important.

The next question is from Phil Gibbs at KeyBanc Capital Markets.

Damon, the inventory number, the gross number on the balance sheet I thought went down nearly $30 million but I think you had said it was down 14. So I was just trying to put those two together.

Yes. Phil, the delta between what I reported and what we showed on the cash flow statement versus the balance sheet is mainly the inventory that we sold with the SSS divestiture at the end of the quarter.

Okay. And did you, I may have missed it in your prepared remarks, but did you guys provide any color on what your targets are, if any, for fiscal '18?

For inventory?

Yes.

Yes. Towards the end of my comments, Phil, we said based on the market conditions and sort of reinforcing the inventory discussion last quarter that based on current market conditions we would expect inventory to come down in the range of $30 million to $50 million for fiscal year '18.

Okay. I think that’s what I missed because I think it was at the very tail end of what you had said. Tony, in terms of the energy markets, your point being, we are cautiously optimistic or we are a little cautious here on this given the fact that the rig count is starting to level out. I mean help me pair that with Amega finally having a really good quarter and energy finally starting to inflect in, from a volume standpoint being well away from where we were a couple of years ago.

Yes. Thanks, Phil. I am very proud of the Amega West team because that was a -- two years that were pretty tough. And they worked really hard from the cost side as well as staying in very close contact with their customers. So I think, listen, when it comes to energy, I am probably always going to be cautiously optimistic. I think a lot of the influence is shifting to North America with what they are doing out there in the field. I was lucky enough two weeks ago to visit many of our customers out in the field. And I will tell you right now, the Amega West business, they are placing orders. And in some cases you are seeing lead times increase in the oil and gas. Which is, we want to decrease those lead times but it's a sign that the demand is there. Now inventory has got very low for some of our customers and there is some replenishment. But I see -- we are primarily in North America. We have operations across the world but our focus at least from a percentage of revenue is in North America. And I see a lot of excitement but I guess that I am probably always going to remain cautiously optimistic.

Okay. How are you seeing the U.S. side relative to the international piece in that business? On just the energy business in general.

Yes. I think the growth areas, at least over the next four quarters will be more in North America as opposed to international offshore areas.

Okay. And I don’t know if you made the comments in your release or not and I know you provide just a broad aerospace bucket. But any color in terms of the engine, the engine sales, maybe relative to last quarter or relative to last year. Anything that you guys could help us with there?

Yes. I can tell you this, we just finished our fiscal year and if you take a look at FY '17 versus FY '16, our engine portfolio was up 8%, year-over-year. So that’s quite strong and as we look forward to FY' '18 and I have said this externally before that you can expect something in the higher single digits. If you would say for us FY '18, 7% or 8% is extremely doable on the engine side.

Okay. So that’s effectively base sales or volume?

That’s on the sales. That on a revenue standpoint.

Okay. I appreciate that. And one last question for Damon and I know it will be in the K when it comes out, but do you have the change in the LIFO reserve this year versus last year handy?

I don’t have the exact number, Phil, but I think it's going to be a minimal change.

The next question is from Gautam Khanna at Cowen & Company.

Tony, I was wondering if you had any better sense now of how much your content has expanded on the LEAP engine versus the CFM and any color on the GTF as well, relative to predecessor platform [indiscernible] V2500 and CFM56.

Yes. Without getting into a lot of detail I would say it's roughly the same to slightly more across those platforms.

Okay. And so, with slightly more meaning 10% more or just marginally?

I think it's pretty tough to get into those specifics but I would say in single digits.

Okay. And so the ramp that you are seeing that is mostly just volume driven as the rates move up, as opposed to a big content gain story.

Yes. I think it's important to say, yes, I mean that’s correct. Remember for us, engines, again very very important but a lot of our growth is on the avionics side on the structural side where you see share gains as well. So we are focused on engines, structural, avionics, you put all those together and I think you see a very strong trend going forward.

Okay. And I was wondering you have come a long way on the productivity improvements since you took over as CEO. Just curious, in a nine-inning game where would you characterize this as being in right now? Where we are [indiscernible] for?

Yes. I appreciate the question, Gautam. As you know, I mean, I spend a lot of time out in our operating facilities and getting to meet the folks that do this every day. And I am blown away every time I am out on the shop floor seeing the improvements that we have made. And they are just one after another. But with that said, I would tell you that we have just scratched the surface. So in your analogy, I would tell you we are still in the first or second innings with a lot of upside that we can go get. It's hard work. It's going to take some time but I think the evidence over the last two years is pretty strong as you have seen what we have done on the variable cost side. 6% in year one, 3% this year. But there is a hidden factor out there in many cases and a ton of opportunity. And I think that’s a big plus for Carpenter going forward is that we have such opportunity there.

Absolutely. And one last one. Could you remind us how much industrial gas turbines represent as a percentage of Carpenter's sales?

I would say 1% or 2%.

This concludes the question-and-answer session. I would like to turn the conference back over to Brad Edwards for closing remarks.

Thanks, Amy, and thanks to everyone for joining us today. Have a great day.