• First quarter net sales of $413.7 million, down 8% from prior year
• First quarter income from continuing operations of $25.8 million or $0.58 per share, compared to $55.4 million or $1.07 per share last year
• Changes implemented to reduce upper management positions by 20%

Carpenter Technology Corporation (NYSE:CRS) today reported net income from continuing operations of $25.8 million or $0.58 per diluted share for the fiscal first quarter ended September 30, 2008. This compares with record first quarter income from continuing operations of $55.4 million or $1.07 per diluted share for the same quarter a year earlier.

Carpenter also announced that several layers of its upper management have been restructured, reducing positions at those levels by 20 percent.

"Our first quarter earnings were disappointing,” said Anne Stevens, chairman, president and chief executive officer. “While we anticipated a slow start to the fiscal year, our results reflect higher operating costs than expected, including inflationary pressures and unanticipated difficulties in bringing our upgraded rolling mill to full production. In addition, the effects from our raw material surcharge and hedging activities, and a leaner product mix, compared unfavorably to last year.

“Later in the quarter we also saw aerospace and oil and gas customers pushing out some orders in response to the strike at Boeing and other aerospace market conditions, and a buildup of inventory in the oil and gas supply chain,” said Stevens. “As the domestic and international economies soften, we recognize the potential for a downturn in overall market conditions as we move through the year and have taken actions internally to streamline our business and reduce our costs.”

First Quarter Results

Financial highlights in the first quarter include:

Net sales for the first quarter were $413.7 million, down 8 percent from the prior year. Excluding surcharge revenue, net sales were $301.9 million, 3 percent lower than last year.

Pounds sold in the first quarter were 1 percent lower than the first quarter a year ago. Volumes shipped by the Premium Alloys Operations segment increased 5 percent, due to continued strong demand from power generation. Pounds sold by the Advanced Metals Operations segment decreased 3 percent due to lower automotive demand.

Gross profit in the first quarter declined to $73.7 million from $115.3 million a year earlier. Gross margin was 17.8 percent in the first quarter, compared to 25.7 percent in the first quarter of 2008. Excluding surcharge revenue, gross margin for this quarter was 24.4 percent, down from 37.1 percent last year. The results reflect a weaker product mix, overall higher operating costs, including significant equipment upgrade activity that caused manufacturing inefficiencies in the quarter, and the impact of raw material price differences and a lower surcharge lag benefit year-to-year.

Operating income for the first quarter was $40.3 million, down 51 percent compared with $82.1 million a year earlier. The operating margin for the first quarter was 9.7 percent compared to 18.3 percent in the prior year. Excluding surcharge revenue, operating margin for this quarter was 13.3 percent, down from 26.4 percent last year. Selling, general and administrative expenses were $33.4 million. Excluding the SG&A portion of the year over year increase in net pension expense, SG&A improved by 3 percent.

Other Income was $3.9 million for the first quarter compared to $6.4 million last year. The difference primarily reflects lower interest income on invested cash due to general market conditions and a more conservative investment portfolio.

The income tax provision for continuing operations in the first quarter was $13.9 million or 35.0 percent of pre-tax income, compared with an income tax provision of $27.6 million or 33.2 percent a year ago. The company expects its full-year effective tax rate to be approximately 34 percent.

Net income for the quarter was $25.8 million or $0.58 per diluted share, compared with income from continuing operations of $55.4 million or $1.07 per diluted share for the first quarter of fiscal 2008.

Free cash flow was $12.7 million in the first quarter compared to $24.1 million in the first quarter last year. The change reflected higher inventory levels, lower earnings and increased capital expenditures.

Markets

Energy market sales were $53.4 million, up 12 percent compared with a year ago. Excluding surcharge revenue, energy market sales increased 19 percent on higher volume of 21 percent. The growth in energy largely reflects continued strong sales of materials used in industrial gas turbines for the U.S. and the Middle East. Oil and gas sales growth has slowed somewhat in response to excess inventory conditions in the supply chain.

Aerospace market sales were $157.4 million in the first quarter, a decline of 3 percent compared with the same period a year ago. Excluding surcharge revenue, aerospace sales were flat with the first quarter a year earlier on higher volume of 3 percent. Aerospace results reflect the strike at Boeing, as well as the cumulative impact of production postponements of 787 and A380 airliners and reductions in the U.S. domestic fleet.

Industrial market sales were $103.5 million, down 7 percent compared with the first quarter a year earlier. Excluding surcharge, industrial sales rose 2 percent on 2 percent higher volume. The results reflect growth in general industrial applications offset by slowing demand for materials used in semiconductors and in valves and fittings.

Consumer market sales were $35.6 million, a decrease of 8 percent from the first quarter of fiscal 2008. Excluding surcharge revenue, sales were down 6 percent with volume up 1 percent. The decline in revenues reflected lower sales primarily in electronics and housing.

Medical market sales in the first quarter were $27.9 million, a decline of 10 percent from a year ago. Excluding surcharge revenue, medical sales were down 15 percent, while shipments rose 1 percent. The decline in sales primarily reflects the effects of substantially lower titanium raw material prices compared to last year as well as a weaker mix of products.

Automotive market sales were $35.9 million, a decrease of 37 percent from a year earlier. Excluding surcharge revenue, sales to the automotive sector were down 32 percent on 29 percent lower volume. An already weak auto sector deteriorated further in the first quarter as consumer demand declined significantly and OEMs prepared to accelerate the timing of planned plant closings and force reductions.

Sales outside the United States in the first quarter were $152.9 million, an increase of 3 percent compared with the first quarter of fiscal 2008. The sales increase reflected strength in Europe and Mexico, partially offset by lower sales in Asia-Pacific.

Outlook:

“Given the unprecedented upheaval in the equity and credit markets, coupled with the pronounced recent decline in economic activity and the extended Boeing strike, we are preparing for a potential downturn in our markets during this fiscal year,” said Stevens. “Even so, with Carpenter’s strong cash position and balance sheet and diverse market and geographic reach, we are in a good position to manage through a declining economic outlook. We intend to stay the course through this downturn, maintaining our strategic focus on research and development investment, international growth, and improving the operating performance in our mills.

“At the same time, we have taken actions to reduce our upper management positions by 20% and to lower all elements of our costs,” said Stevens. “As part of the restructuring, Mike Shor assumed new responsibility as Executive Vice President to lead Carpenter’s total business and operations, both domestically and internationally.

“Even after these actions, with near-term economic conditions where they are, it is quite difficult for us to project our results over the balance of the year,” said Stevens. “Considering the current outlook, it is unlikely that we will achieve last year’s operating margin level or meet our growth targets for revenue and earnings this year. Nonetheless, we are well positioned financially and in our end markets to maintain good profit levels during the downturn and to resume strong revenue and earnings growth once conditions improve.”

Pension Effects

Based primarily on the decline in the market value of the securities in the Company’s defined benefit pension plans' as of June 30, 2008, the Company will experience a pre-tax net pension expense during fiscal 2009 of $20.1 million. This is a non-cash expense that will be amortized equally during the fiscal year. The pension expense equates to a year-to-year difference in reported earnings of $0.28 per share, with a first quarter pre-tax impact of $5.1 million or $0.06 per share. The defined benefit plans were fully funded as of June 30, 2008.

Share Repurchase Program

Carpenter repurchased 1.2 million shares of its common stock during the first quarter for a total of $46.1 million under the $250 million share repurchase plan that was authorized by the Board of Directors on December 21, 2007. As of September 30, 2008, the Company had fully completed the share repurchases authorized under this program and the previously completed $250 million share repurchase program. In total, the Company repurchased 8.8 million shares or 17 percent of the outstanding shares. As of September 30, 2008, there were 44.1 million shares of common stock outstanding.

Sales Excluding Surcharge

This press release includes discussions of net sales as adjusted to exclude the impact of raw material surcharges, which represents a financial measure that has not been determined in accordance with U.S. generally accepted accounting principles ("GAAP"). The Company provides this additional financial measure because management believes removing the impact of raw material surcharges from net sales provides a more consistent basis for comparing results of operations from period to period.

Conference Call

Carpenter will host a conference call and webcast today, October 28, at 10:00 a.m., ET, to discuss financial results and operations for the fiscal first quarter. Please call 610-208-2800 for details of the conference call. Access to the call will also be made available at Carpenter's web site (www.cartech.com) and through CCBN (www.ccbn.com). A replay of the call will be made available at www.cartech.com or at www.ccbn.com.

About Carpenter Technology

Carpenter produces and distributes specialty alloys, including stainless steels, titanium alloys, and superalloys, and various engineered products. Information about Carpenter can be found on the Internet at www.cartech.com.

Except for historical information, all other information in this news release consists of forward-looking statements within the meaning of the Private Securities Litigation Act of 1995. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ from those projected, anticipated or implied. The most significant of these uncertainties are described in Carpenter's filings with the Securities and Exchange Commission including its annual report on Form 10-K for the year ended June 30, 2008 and the exhibits attached to that filing. They include but are not limited to: 1) the cyclical nature of the specialty materials business and certain end-use markets, including aerospace, industrial, automotive, consumer, medical, and energy, or other influences on Carpenter's business such as new competitors, the consolidation of customers, and suppliers or the transfer of manufacturing capacity from the United States to foreign countries; 2) the ability of Carpenter to achieve cost savings, productivity improvements or process changes; 3) the ability to recoup increases in the cost of energy, raw materials, freight or other factors; 4) domestic and foreign excess manufacturing capacity for certain metals; 5) fluctuations in currency exchange rates; 6) the degree of success of government trade actions; 7) the valuation of the assets and liabilities in Carpenter's pension trusts and the accounting for pension plans; 8) possible labor disputes or work stoppages; 9) the potential that our customers may substitute alternate materials or adopt different manufacturing practices that replace or limit the suitability of our products; 10) the ability to successfully acquire and integrate acquisitions; 11) the ability of Carpenter to implement and manage material capital expansion projects in a timely and efficient manner, 12) the availability of credit facilities to Carpenter, its customers or other members of the supply chain, 13) the ability to obtain energy or raw materials, especially from suppliers located in countries that may be subject to unstable political or economic conditions and 14) our manufacturing processes are dependent upon highly specialized equipment which are located primarily in one facility in Reading, Pennsylvania for which there may be limited alternatives if there are significant equipment failures or catastrophic events. Any of these factors could have an adverse and/or fluctuating effect on Carpenter's results of operations. The forward-looking statements in this document are intended to be subject to the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Carpenter undertakes no obligation to update or revise any forward-looking statements.

Certain reclassifications of prior year's amounts have been made to conform with current year's presentation.

Certain reclassifications of prior year's amounts have been made to conform with current year's presentation.

Carpenter Technology Corporation
Investor and Media Inquiries:
David A. Christiansen, 610-208-3065
dchristiansen@cartech.com