Good day, and welcome to the Carpenter Technology Corporation fourth-quarter fiscal-year 2019 financial results conference call. [Operator Instructions] Please note this event is being recorded. Now, I would like to turn the conference over to Mr. Brad Edwards, investor relations. Please go ahead, sir..

Thank you, operator. Good morning, everyone, and welcome to the Carpenter Technology earnings conference call for the fiscal fourth quarter and year ended June 30, 2019. 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 Tim Lain, 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 Technology's most recent SEC filings, including the company's report on Form 10-K for the year ended June 30, 2018, Form 10-Q for the quarters ended September 30, 2018, December 31, 2018, and March 31, 2019, 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 operating income and sales, excluding surcharge. I will now turn the call over to Tony..

Thank you, Brad, and good morning to everyone on the call today. Let's begin on Slide 4 and a review of our safety performance. Our total case incident rate or TCIR was 1.3 overall in fiscal year 2019, up slightly from 1.2 last fiscal year.

When we drill down to the details, the PEP segment achieved 0.9 TCIR for this fiscal-year 2019, breaking through the 1.0 performance level while the SAO segment performed below the 1.0 TCIR level during the second half of the fiscal year.

Our powder, CalRAM and distribution businesses achieved zero injuries for the fiscal-year 2019, evidence that a zero-injury workplace is possible. We continue to drive the deployment of our safety system in areas such as hand safety and hand injury currently represent 55% of our total recordable injuries.

Given performance we're over 80% of our employees have been trained in this program and the hazard elimination and action tracking team. This program has increased engagement and will continue in fiscal-year 2020, focusing on implementing operators suggestions or improvement. Finally, the goal remains a zero-injury workplace.

And through employee engagement, system improvement and leadership commitment, we will be successful. Now let's turn to Slide 5 and a review of our fiscal year 2019. Before we discuss the fourth-quarter results, I will take a few minutes to cover our impressive fiscal-year 2019 results.

In terms of total company year-over-year financial performance, sales excluding surcharge increased 8%. Operating income increased 28%, the highest operating income in six years. Adjusted operating margin improved by 190 basis points and adjusted earnings per share increased 38%.

In summary, the past year was one of the best in Carpenter Technology's history. As we delivered strong year-over-year earnings performance, consistent backlog growth and significantly strengthened our position as an irreplaceable supply chain partner for our customers.

Without a doubt, the impressive performance was driven by our solutions based commercial strategy and the manufacturing discipline via the Carpenter operating model. Our commercial teams executed at a high level throughout the year and captured notable share gains that drove strong year-over-year backlog growth across our key end-use markets.

This includes aerospace and defense, where our backlog finished up 59% compared to last year. And the medical market, where our backlog was up 27% compared to fiscal year of 2018. This solid performance by our commercial team was supported by enhanced production processes and incremental capacity, unlocked through the Carpenter operating model.

These improvements allowed us to capitalize on strong market conditions and meet emerging customer demand. This past year, we also made significant progress obtaining the necessary aerospace qualifications for our Athens facility.

One clear example of the value Athens bring to aerospace industry is the long-term supply agreement recently signed with Safran, who will be taking the bulk of its material from our Athens facility.

Another area I am excited about is how we have advanced our customer relationship buy deepening existing ones, unlocking new markets for our applications and adding new customers after demonstrating the value of our solutions.

Today, Carpenter Technology is collaborating with customers in ways we never have before, and bringing our expertise and leading solutions portfolio to help elevate the product and address the material challenges.

This progress is important and will serve as a foundation as we look to the future and build leadership positions in key emerging technology that will reshape our industry and the markets we serve. These investments are critical to position in Carpenter Technology for transformative growth and long-term value creation.

To that end, during fiscal-year 2019, we took several key strategic steps to strengthen our existing additive manufacturing platform and capability as follows.

We acquired LPW Technology, which added power management life cycle solutions to our existing additive manufacturing capabilities; we began the construction of our emerging technology center on our Athens campus, which is scheduled to open this fall; We strengthened our additive manufacturing team through the addition of experienced industry veterans and thought leaders; we demonstrated our additive manufacturing capabilities at the recent Paris Airshow through two strategic collaborations; and lastly, we became one of the founding partners of GE additives manufacturing partner network, which we believe is a validation of the expertise and capabilities we have built in this space.

In addition to additive manufacturing, we're also taking steps to expend our self-magnetics capabilities, given the disruptive impact of electrification across several of our end-use markets.

The construction of the Hartsville mill in Reading remains on track and will allow us to significantly build on our existing presence in the aerospace and consumer electronics market. As I said in the past, at Carpenter Technology, we understand the urgency to deliver quality earnings every quarter.

We have successfully accomplished that by delivering our 10th consecutive quarter of the year-over-year earnings growth. We're also executing against this strategic long-term vision that includes maximizing our attractive core business through share gains, innovative solutions, increased productivity and additional capacity from our Athens facility.

And investing in game-changing markets and technologies, such as soft magnetics and additive manufacturing. Not all of these investments will be immediately accretive, but is essential that we take those steps now to ensure sustained, profitable revenue growth in the years to come.

Notably, we have done both concurrently, investment in our future while also deliver consistent quarter-over-quarter earnings growth. We have done so, while maintaining a strong balance sheet and providing direct returns to our shareholders as evidenced by the 11% increase to the quarterly dividend this past year.

Now let's move to Slide 6 and a review of the fourth quarter. Our fourth-quarter results marked a solid finish to a successful year and reflect a continuation of a several key trends.

First, strong financial performance as we delivered our strongest quarterly operating income since the fourth quarter of fiscal-year 2013 and as I said earlier, the 10th consecutive quarter of year-over-year earnings growth. Second, this was also our 10th consecutive quarter of year-over-year sales growth.

And third, the fourth quarter was our 12th consecutive quarter of sequential backlog growth, up 2% sequentially and 41% year over year. In the fourth quarter, SAO delivered adjusted operating margins of 20.4%. This was SAO's best margin performance since the first quarter of fiscal-year 2014.

The results reflects the impact of improving product mix, increased productivity via our Carpenter operating model and the benefits of the additional capacity at Athens. We also generated $116 million in free cash flow in the fourth quarter, primarily driven by inventory reduction.

From a market perspective, demand patterns remain strong across our key end-use markets and we continue to benefit from the breadth of our high-value solutions portfolio. This includes aerospace and defense, where we generated double-digit sequential and year-over-year revenue growth.

In addition, the aerospace and defense backlog increased sequentially for the 12th consecutive quarter with growth across all of our aerospace submarket. In a medical market, we generate solid top-line growth as sales were up 9% sequentially and 25% year over year.

We continue to benefit from share gains from our leading titanium, cobalt and stainless solutions, as well as incremental capacity gains across our Dynamet facilities. In fact, the fourth quarter marked Dynamet's best performance since the fourth quarter of fiscal 2015.

We see ongoing momentum at Dynamet, given strong market demand for our solution, as well as the benefit of our capacity expansions. At Athens, customer engagement and dialogue remain elevated.

During the fourth quarter, we significantly advanced the qualification process with key customers as they understand the critical incremental capacity Athens can offer the aerospace industry.

Lastly, during the quarter, we further advanced our leadership in emerging technology, particularly in additive manufacturing through the launch of our Carpenter additive brand and several important announcements made at the recent Paris Airshow. I'll speak to those in a few minutes. Now let's move to Slide 7 and the end-use market update.

Looking first at aerospace and defense where we generate strong growth with sales up 17% compared to last year and 11% sequentially. Overall, aerospace demand remains strong and we are benefiting from our submarket diversity and broad platform exposure.

This is clearly demonstrated by sales and backlog increasing both sequentially and year over year across all our aerospace submarkets. Specifically, in the engine submarket, demand remains at high levels, with sales up 8% year over year and 9% sequentially.

Our aerospace and defense market accounts for more than 50% of our total sales due to the significance of this end market and the evolving situation concerning the 737 Max. Let me take a bit more time to discuss our aerospace business.

Fundamentally, the underlying aerospace market remains very strong with a large backlog of plane orders, seven to eight years' worth. And significant growth projected in air travel miles, especially in developing economies.

Carpenter Technology is very well positioned to take advantage with key material solutions across multiple applications on an aircraft, such as engines that includes disk, rings, gears, bearings and shafts, fasteners, landing gears, actuations and avionics.

And key material solutions across virtually every plane platform via widebody or narrowbody, Boeing or Airbus. Yes. There are shifts in platforms builds as we see unfolding with the 737 max grounding or the cancellation of the A380, as another example. However, those shifts or disruptions do not detract from the points I just made.

There is strong underlying demand, and Carpenter Technology has multiple products on virtually every platform. Our aerospace and defense market just completed its best fiscal year on record due to long-term share wins with major customers and increased productivity in our manufacturing facilities.

We see continued growth as we unlock additional capacity via our Athens facility, which is worth noting, the only new capacity coming to the market.

In addition, our R&D efforts are well-positioned to serve the current industry challenges such as development of hotter, more fuel-efficient engines, light-weighting the planes with ultra-strong materials and development of the next generation platforms in defense.

Our expertise and resources within Carpenter additive are already involved with many serial produced parts today and we are leading the way in the conversion of additional parts to additive manufacturing as supported by the announcements we made at the Paris Airshow.

Our soft-magnetic expertise positions us to support industry and its shift to increase electrification, with current application benefits offering strong value translations to newer more efficient alternatives.

Moving on to the medical end-use market, where we generated solid sales growth in the fourth quarter, up 25% year over year and 9% sequentially. As I noted, our medical backlog is up 27% year over year and the planned expansion at Dynamet will enable us to better capitalize on attractive growth opportunities we see in this end-use market.

We project strong forward demand in this market given the ongoing interest in our high-value titanium and cobalt solution, as well as positive underlying trends in the orthopedic and cardiology markets. Now moving to the energy market and our oil and gas and power generation submarkets.

Total energy sales declined 1% year over year and 3% on a sequential basis. In the U.S., the North America rig count declined 10% sequentially and was down 6% compared to last year. The notable decline in drilling activity, particularly in the Permian basin continues to result in pricing pressure in the tour service and rental markets.

These market headwinds negatively impacted our Amega West business and the adoption rate of certain new tools, which Tim will discuss in more detail later in the presentation. While the North American market is currently challenging, we are seeing strengthening demand in the international and offshore markets.

In the power generation submarket, we see ongoing signs of increasing activity. Although it continues to come off a low base. In the transportation market, sales were down 4% on both a year-over-year and sequential basis.

The decline in both periods was driven lower light vehicle production levels due to the impact of global economic uncertainty and trade actions.

The decline in the light vehicle market was partially mitigated by higher heavy duty truck and adjacent market sales as we continue working to expand the market applications for our high-temperature solutions.

The work we are doing to expand our addressable market in transportation also contributed to an expanding backlog, which show healthy gains on both year-over-year and sequential basis. In the industrial and consumer end-use market, revenues were down year over year but up 4% sequentially.

The year-over-year decline was primarily due to portfolio shifts in our industrial business. Sequential growth was driven by improved demand for select industrial applications, as well as broad application demand in the consumer market. Now I'll turn it over to Tim for the financial review..

Thank you, Tony. Good morning, everyone. I'll start on Slide 9, the income statement summary. As Tony covered in his comments, our results marked the best fourth-quarter operating performance since fiscal-year 2013.

The recent fourth-quarter results reflect the continuous execution of our solutions focused commercial strategy, combined line with the strong demand environment in our key end-use markets and improvements in key operational processes.

From a top-line perspective, net sales in the fourth quarter were $641 million, our highest quarterly sales revenue in seven years. Sales excluding surcharge were $533 million, representing a 6% sequential increase on 3% higher volume.

On a year-over-year basis, sales excluding surcharge increased 8% on 4% lower volume due to double gains in our aerospace and defense and medical end-use markets. The strength and demand for our products can be seen our growing backlog, our total backlog grew 2% sequentially and 41% year over year.

This quarter marked the 12th quarter of sequential backlog growth and the 10th quarter of year-over-year growth. SG&A expenses increased by $5 million on a sequential basis and were flat when compared to the fourth quarter of last year.

Going forward, in fiscal 2020, we would expect SG&A expenses to be in the range of $55 million to $60 million per quarter as we increase our strategic efforts in growth areas like additive manufacturing. Adjusted operating income as a percentage of sales were 12.7% in the quarter, compared to 14.6% in Q3.

For reference, the Q3 '19 operating income included an $11.4 million insurance recovery related to a fire at one of our Dynamet facilities in 2018. When normalizing for the insurance recovery benefit in Q3, operating income margin improved by 40 basis points sequentially. Year over year, adjusted operating income margin improved by 60 basis points.

Our effective tax rate for the fourth quarter was 21.9%. I'll provide some high-level kindness on the tax rate for fiscal '20 in a few minutes. Net income for the quarter was $48.9 million or $1 per share. Adjusted earnings per share grew by 15% both year over year and sequentially when excluding the insurance recovery benefit in Q3 of '19.

Now turning to Slide 10 and a review of free cash flow. Free cash flow in the fourth quarter was $116 million, which is an improvement of $153 million sequentially. Our significant free cash flow generation in the current quarter is a result of strong earnings performance coupled with a $74 million reduction in inventory.

For the fiscal year, free cash flow was negative $54 million, which includes $79 million for the acquisition of LPW in Q2 and $180 million of capital expenditures for the year.

The $180 million of capital expenditures for the year was consistent with historic expenditures coupled with strategic investments from both additive manufacturing and soft magnetic.

Our financial position remains solid with $401 million of total liquidity at the close of the year, including $27 million of cash and $374 million available under our credit facility. As we've said consistently, our financial position is important as it allows us the flexibility to invest in our future growth.

Now turning to Slide 11 and our SAO segment results. SAO delivered a record fourth quarter, demonstrating the continued momentum in the business across our key end-use markets. Net sales for the quarter were $532 million or $426 million excluding surcharge. This represents a sequential increase of $32 million or 8% on 2% higher shipment volume.

On a year-over-year basis, sales excluding surcharge increased $30 million or 8% on 5% lower shipment volume. Both sequential and year over year, the sales increase outpaced volume growth, which demonstrates the impacts of an improving product mix.

Demand signals remain strong as we've highlighted and our backlog increase on both a sequential and year-over-year basis. SAO operating income was $87 million, up $13 million compared to both the recent third quarter and the prior-year quarter.

As I noted, this quarter marked a quarterly record for SAO operating income performance and its best since Q4 of fiscal-year 2013. Adjusted operating margin was 20.4%, compared to 18.7% in both the third quarter of fiscal-year 2019 and last year's fourth quarter.

The current quarter's performance marks the highest quarterly margin performance since the first quarter of 2014. We continue to capture manufacturing improvements to drive incremental capacity via execution of the Carpenter operating model.

We also continue to realize benefit associated with moving additional production at Athens, as qualifications are received. As we have mentioned, this is becoming increasingly important given current market conditions, our going backlog and our strategic focus on a richer mix, driven by our expanding complex solutions portfolio.

Looking ahead to Q1, we continue to see strong demand trends in our key end-use markets as evidenced by our strong backlog. Consistent with prior years, our results in the upcoming first quarter will be impacted by planned annual preventative maintenance shutdowns, as well as the typical summer shutdowns at certain European customers.

In terms of the preventative maintenance shutdowns, the manufacturing teams have worked diligently to phase the outages at critical work centers throughout late Q4 and during Q1 to reduce potential start-up risks and increase operating availability in Q1.

We are currently expecting operating income to decrease 10% to 15% sequentially in our upcoming Q1. With that said, our expectations for the upcoming Q1 when implying an increase of 40% to 45% over Q1 of fiscal 2019, and would result in the best first quarter in recent history. Now turning to Slide 12 and our PEP segment results.

Net sales, excluding surcharge, were $124 million, representing growth of 9% year over year but lower by 2% on a sequential basis. Operating income for the quarter was $1.7 million. As I mentioned earlier, the Q3 operating results included a benefit of $11.4 million related to an insurance recovery at our Dynamet business.

PEP's performance for the fourth quarter fell short of expectations primarily due to market conditions affecting our Amega West and distribution units, which I will cover. PEP's recent results were also negatively impacted by some inventory writedowns in our powder business.

In terms of the individual business unit performance, Amega West continues to be challenged by ongoing headwinds in their niche within the oil and gas submarket, specifically in the Permian Basin. Amega's customers are concentrated in the Permian where about 50% of the active rigs in North America are located.

As background, Amega rents and manufactures down-hole drilling tools and components to oilfield service drilling companies. In the current market environment, these service companies are managing their spending closely. This environment has put pressure on Amega's ability to grow profitably.

Also, within PEP, our distribution business has been negatively impacted by current trade environment. Over the course of the last several months, we've applied for multitude of exemptions from tariffs on the products bought and in turn, sold by our distribution business. Recently, we've seen an uptick in the number of exceptions being granted.

As such, we believe the margin headwinds from tariffs will begin to dissipate in the second half of our upcoming fiscal year. On the positive side, we're excited about the opportunities we have in our Dynamet titanium business. In the recent Q4, Dynamet drove its best operating income performance since Q4 of '15.

We are expecting continued strength in Dynamet's titanium solutions, especially in the medical end-use market. Several capacity expansion projects will be completed during the second quarter of fiscal year 2020, and we believe Dynamet can elevate its performance even further by leveraging strong demand with expanding capacity.

As we look ahead to Q1, we expect PEP to deliver a operating income of $3 million to $5 million, representing improved sequential results of below Q1 of fiscal-year 2019, given the headwinds at our Amega West and distribution business units. Now turning to Slide 13 and some selected guidance for fiscal year 2020.

We expect depreciation and amortization to be approximately $128 million for the year or about $6 million higher than fiscal-year 2019. As I mentioned last year, we are in the midst of a project to build a Hub strip mill, which will help us capture expected market growth and increase our capabilities to support growth in soft magnetics.

In addition, we are continuing to make investments in additive manufacturing via our emerging technology center that is currently under construction on our Athens, Alabama campus.

The timing of this spend on these significant multiyear projects coupled with our historical run rate of capital expenditures will result in full-year planned spend of about $170 million. Required minimum pension contributions for fiscal year 2020 are expected to be similar to fiscal 2019 at about $6 million.

Pension expense is expected to increase to $15 million in fiscal 2020. It's important to note that of this amount, about $12 million is service cost and will be included in operating income with the balance of $3 million to be recorded below operating income in other income or expense.

We currently expect interest expense to be approximately $5 million favorable to fiscal year 2019 at $21 million, driven by an increase from capitalized interest on large capital projects. And finally, the full-year effective tax rate for fiscal 2020 is expected to be in the range of 23% to 25%. I will now turn the call back over to Tony..

Thanks, Tim. As I noted earlier, we have worked diligently in the last several years to strengthen our established supply chain position and elevate Carpenter Technology as a complete solutions provider to our customers.

Those efforts are clearly evident in our consistent year-over-year earnings growth, stronger product mix and deep collaboration with customers across all of our end-use markets.

With that said, we must execute with an eye toward helping our customers solve their materials challenges, not just today but for years to come, particularly as key emerging trends disrupt the markets we serve. To that end, we have built a leading end-to-end additive manufacturing platform through strategic acquisitions and organic expertise.

During the fourth quarter, we formally launched our Carpenter additive business unit, which offers our complete spectrum of products, services and capabilities to meet the growing additive market needs.

These capabilities include highly engineered gas atomized powders, metal powder life cycle management solutions, finished component production offering and complete post-processing capabilities. It's worth noting, we are not standing still in the additive manufacturing space.

For instance, a key development project we are currently executing on is a powder handling and characterization system that will improve the performance of an additive manufactured part, as well as deliver reduced production cost for our customers.

Our leadership in this space was validated by our inclusion in GE additive manufacturing partner network, as well as the large number of partnering discussions we had with customers and industry participants at this year's Paris Airshow.

During the event, we announced multiple strategic partnerships and we introduced a new 3D printed part for the aerospace market. Together with BMT Aerospace, we redesigned an aerospace pinion and then produced the part using our custom 465 stainless material.

The result was an optimized and simplified manufacturing process for an aerospace AM part, and offers the opportunity to expand part production across the multiple aerospace applications.

During the Paris Airshow, we also announced in collaboration with Israel Aerospace Industries or IAI to produce additive manufacturing components for a serial production commercial aircraft. The partnership will result in IAI's first metallic additive-produced parts.

This collaboration and development speaks to our leadership in the AEM space, as well as the manufacturing benefit, design improvement and overall enhancement that additive manufacturing production offers.

It's important to note these developments represent only two of a growing number of AM projects we are involved in across the aerospace, medical, energy and industrial markets. The increasing focus on additive manufacturing and our involvement demonstrates two key points.

First, conversion of the component manufacturing market to AM production is and will continue to happen. And second, the Carpenter Technology has the capability to drive that activity and help shape the market. Now turning to the next slides and my closing comments. In closing, let me highlight the 10 key takeaways from today's call.

Number one, we continue to generate consistent year-over-year sales and earnings growth through solid execution of our commercial strategy and our ongoing focus on enhanced manufacturing disciplines via the Carpenter operating model.

For example, for total Carpenter Technology, the fourth quarter marked our best quarterly operating income performance in six years, the 10th consecutive quarter of year-over-year earnings growth. And the full-year operating income performance was also the best in six years, up 28% from the prior year.

In the fourth quarter, SAO delivered adjusted operating margin of 20.4%, and the best quarterly operating income in its history. Number two, the long-term demand in aerospace and defense remains robust and our broad platform exposure and leading position across multiple attractive submarket offer strong future growth opportunities. Number three.

The 737 Max situation is obviously a major issue for the industry, but we continue to believe it will eventually be resolved.

Carpenter Technology has not reduced production rate and has no current plans to reduce production rate as these are longer lead times products and our solutions are utilized across multiple aircraft applications and platforms. Number four.

Our medical end-use market is thriving with sales up 25% year over year, and we project strong core demand that we'll be well positioned to fulfill as a result of the Dynamet capacity expansion projects. Number five. Our Amega West business is facing some headwind, but the overall financial impact to Carpenter Technology is not material.

Amega West was approximately breakeven in terms of profit in fiscal-year 2019, and represents only 3% of total Carpenter Technology revenue. Number six. We're benefiting from the additional capacity provided by Athens and continue to achieve incremental VAP qualification. Number seven.

Today, we operate a leading end-to-end additive manufacturing platform and are partnering with customers and forging new collaborations as strategic discussions in this space accelerate. Accordingly, we plan to increase our R&D spending during fiscal-year 2020 in this area. Number eight.

The first-quarter fiscal-year 2020 guidance that we just provided demonstrates continued solid earnings growth. Specifically, the SAO guidance, if achieved, would deliver one of the best quarters in the history of SAO and certainly, the best first quarter ever. Number nine.

Today, we presented our best financial quarter in full year in six years, but we are confident that we are only at the beginning in terms of the productivity that we can achieve and the customer relationships we can further expand.

Over the last couple of years, Carpenter Technology has flown a bit under the radar as we have quietly put together solid quarter after solid quarter results, but at the same time investing in the next-generation growth opportunities that will benefit Carpenter Technology for years to come.

At number ten, our balance sheet remains strong and we have no near-term financial obligations. This gives us the continued flexibility to invest in transformative growth and best position Carpenter Technology for increasing returns to shareholders. Thank you for your attention, and I'll turn it back to the operator to field your questions..

[Operator Instructions] And the first question comes from Gautam Khanna with Cowen and Company..

Just had a couple of questions.

First, I was wondering, was there anything one-time in the SAO margins that was a positive that may not recur as we move into next year? Or was it just mix and performance?.

This is Tim Lain. There is nothing to call out. No kind of one-time items in this quarter..

And then just as you look into the backlog and what have you, is there -- obviously, there's the sequential step down, we get that, but this is not -- if it were going to be potentially exceeding 20% as we move into the second half of next year? Or how do you feel about that today at SAO?.

Gautam, this is Tony. I'm not sure, really, the specifics of your question. But as I said, I think 20% for SAO is the starting point. I mean we believe, as I said in my comments, there's more productivity we can get. I think we can do more with our relationships and our customers.

Now will it be 20% every quarter going forward? Maybe not, but I think over a long trend, SAO has the potential to be at margin higher than 20%..

That's helpful. And then if you could just talk a little bit about any additional Athens part qualifications you received in the quarter and maybe what the pipeline looks like with respect to additional qualifications..

I mean, as you know Gautam, not every specific qualification is -- has the equal weight, right? Some have -- there's differences in volumes, there's differences in supply chain complexity.

So this past quarter, although we didn't announce any qualifications, we achieve significant progress on what I'd call high-profile items that are critical to the success of Athens. So we did not have a specific qualification. But I'm very pleased with the activity we've had in the last quarter.

In fact, I would say that was some one of the most highest-content activity in this quarter to date..

Thank you. And the next question comes from Chris Olin with Longbow Research..

Tony, in the beginning of your presentation, I believe you attributed three things to the better operating performance at SAO. It was like mixed, the Carpenter operating model and Athens.

My question is, is there a way we could think about it in terms of the contribution from each and maybe in percentages or numbers?.

Yes, Chris. This is Tim. I'll take that. I mean, I think as you know, that's a difficult question to answer. I think where we are in this environment with the activity as high as it is, capacity makes a big difference.

So by bringing those incremental capacities both through the operating model and unlocking incremental capacity, as well as moving more materials through Athens. As we talked about, Athens is about increased pounds. So the more materials we can get through Athens, the better for us.

And then, I think, just from a mix and top-line perspective, you can see the growth in sales, especially in aerospace where some of high mix exist. So like I said, to carve out each of those individually is difficult so it's a combination of all three..

This is Tony. Just to add, I think I'm very happy because we're following our strategy. We're implementing the Carpenter operating model, we're seeing increases in productivity. Not just from a cost reduction standpoint, but just as importantly, an increase in capacity.

The commercial team is doing fantastic in this type of environment to cement long-term relationships. We've said from the beginning, four years ago, we were going to increase the richness of the mix, if you will. We are a specialty high-end company, and that is where we're going to live.

So we have done that, we've improved our pricing in areas that it makes sense to do it. So listen, we bridge quarter over quarter, and I can tell you exactly what each one of the values were of those, but I don't think it's conducive really for us to get in to a habit of doing that quarter over quarter..

Okay. There was a point where we used to think about Athens as a separate entity with utilization numbers. That seems to be merging with the entire, I guess, portfolio. How do I think about now, capacity utilization and your ability to take on existing contracts.

Is there a way we can frame up the success of Athens?.

Well, Chris, you know we tried in the past to give a utilization number. I think that was more confusing than helpful. You're exactly right, we now operate this as a fully integrated mill. Some of the parts that they moved to Athens may or may not be in this VAP qualification mode.

I think the key thing is to think, there is more capacity at Athens to come online, but this idea that at some quarter in the future, there is going to be this loud noise and Athens is going to be 100% utilized isn't going to happen. It is going to be incremental every quarter as we move a next tranche of tons to Athens.

And last quarter and this quarter, you've see improvements because we have been able to increase our shipments, utilize Athens. And the last thing I will say is, from a customer standpoint, when you've talked before about lead times and those being pushed out.

If you order a product through Athens today, the lead times are about 60% of what they are for a product going through the normal process of the production cycle. So hopefully, that helps..

Okay. That does, actually. And then just lastly, and I get what you're saying on the 737 Max program, and you're a little bit unique in terms of like, it's a little bit tougher read. But what I'm trying to do is correlate near-term visibility with the communications that came from, I guess, Boeing yesterday or the day before.

I guess, my question is when Boeing tells its suppliers to shift down to 42 per month or get in line with the master schedule, is there a way to think about it in terms of how that impacts you over the three- to six-month period? Like from a revenue point of view or anything like that?.

Chris, I would look at it this way. There is a difference between production rate and booking rate.

And with these products at these types of lead times, let's call them 35 to 40 weeks depending on the product, you're not going to change production rates just because, and also, I would say, we've had increases in expedite because of some issues in the supply chain elsewhere.

So no one at this time is willing to get out of line, and that's why we're very bold to say that we have no plans of changing our production rates. Now, of course, if the 737 Max is not resolved, that's a different story. But I don't believe there's anyone in the industry that doesn't think that's, that think that's going to be the case..

Awesome. Thank you..

Thank you. [Operator instructions] And the next question comes from Josh Sullivan with Seaport Global..

Hey, good morning. Congratulations on the quarter. Just touching on PEP, medical side seems to be growing pretty aggressively here. But how is the aerospace side on the titanium fastener and how does that look over the next couple of years..

Well, for us, aerospace is strong whether it's in the SAO business or in the PEP business. Right now, we talk about Dynamet inside of our PEP business because the medical area is growing quite rapidly over the last couple of years. We're expanding our two facilities in Dynamet primarily because of the medical market.

So maybe the aerospace speed to Dynamet goes a little bit unnoticed, but it is still a very strong driver for us..

And then within PEP, are there any franchises which don't necessarily fit the portfolio anymore? Or the strategies just moved away from?.

Well, Dynamet, lets just go through each one of them. Dynamet is largest business inside of PEP. Where we are expanding, we're putting capital in to Dynamet and see a great future with that product in that business. It's very exciting that we just launched Carpenter Additives.

So when I talked about that multiple times, that has a great meaningful growth story going forward. We have a distribution business that has, although they're dealing right now with the headwinds of tariffs, this has been a consisting operating income producing business for us.

And it's a distribution business, maybe in name only because approximately 90% of the material that goes through that distribution business has some type of value add that we attach to it whether it is in cutting or whatever sizing we might do. The last business is Amega West. And yes, we struggled there. I think it's a good business.

It makes sense to be inside of Carpenter, but we have got to find a way to break out and become more than a breakeven business. And we're looking now at some really pointed strategic actions we can do to enable that business, to be a real solid contributor to Carpenter for the long term..

And then just one on the soft magnetics opportunity.

What's the ASP of the current soft magnetic offering that you're in relative to the overall portfolio? And then do you have any new proprietary alloys as you build out this new strip mill that might even drive that ASP higher over time?.

I don't want to give -- the answer to your second question is yes. To the first one, we're not giving you any specific, the average selling price could be as much as 5x the normal price..

Thank you. And the next question comes from Phil Gibbs with KeyBanc Capital Markets..

Tony, just sticking with the engine discussion here and then I had a follow-up.

Any color you can give us on growth and engine revenues either quarter over quarter or year over year?.

I should have put that in my prepared remarks because I remember you asked me that every quarter. On the engine side, on sales, revenue was up 8% year over year and 9% quarter over quarter..

And then are there any opportunities for repricing of any of your legacy engine contracts over the next several months, call it, 12 to 18 months with either -- with any of the major OEMs?.

The one-word answer is yes..

And then also help me reconcile something. I think maybe it was Tim mentioned there was a write down in the powder side of the business, and wanted a little bit of clarity on that given the fact that you're seemingly very bullish and very entrenched now and in the additive path to growth.

So why was there a need to take a write down in the powder side of the equation?.

Yes. Phil, I called that powder write down. I mean, that -- one is in there of our existing powder business, not necessarily in the additive side. And two, it's getting normal, I'd say, it's normal -- given that we missed on PEP, we've got a explain a lot of kind of smaller dollar amounts.

So we're calling that out, and that's just kind of a normal -- I'd say it's normal year-end adjustment as we reconcile inventories and look at reserves and things like that. But not necessarily a big number to overall Carpenter, but big enough that we're talking about in the context of PEP..

So it's more -- it was more of an inventory obsolescence charge in PEP for some of the powder that you had? Is that the way to think about it?.

Yes..

And as there are no more questions, I would like to return to conference to Brad Edwards for any closing comment..

Thanks, Keith. And thanks for everyone for joining us today on our fourth-quarter and full-year conference call. Have a great rest of your day and rest of your summer. Take care..

Thank you. The conference has now concluded. Thank you for attending today's presentation. You many now disconnect your lines..