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Kennametal Inc. today reported fiscal 2006 first quarter EPS of $0.72, including expenses related to the adoption of SFAS 123® of $0.05 per share and increased domestic pension expense of $0.04 per share, compared with prior year first quarter EPS of $0.61.
Sales of $569 million were up 7 percent compared to prior year first quarter sales of $531 million.
Kennametal Chairman, President and Chief Executive Officer, Markos I. Tambakeras, said, "First quarter results exceeded our expectations due to favorable sales mix, raw material costs up appreciably over last year but lower than anticipated and better than expected price realization. Each of our three business groups, Metalworking Solutions and Services, Advanced Materials Solutions, and J&L Industrial Supply, is winning in the marketplace and continues to provide superior value to customers through our leadership position in technology and innovation focused on helping customers improve their competitiveness."
Highlights of the Fiscal 2006 First Quarter -- Sales of $569 million were up 7 percent versus the same quarter last year, including 9 percent organic sales growth, 1 percent benefit from foreign currency exchange and partially offset by net impact of acquisitions and divestitures. -- Net income was $28 million compared to $23 million in the prior year, up 24 percent. -- Net cash flow from operations was $27 million versus $32 million in the same quarter last year. -- ROIC was up 230 basis points to 9.9 percent -- a new high. Outlook
Economic indicators project continued growth through fiscal 2006 in North America and the rest-of-the-world markets, and flat to modest growth in European markets. Kennametal continues to expect organic revenue growth in the 7 to 10 percent range, at two to three times the underlying growth rates in industrial production of its addressed end markets.
Tambakeras said, "We were very pleased with our performance for the first quarter of fiscal 2006, and the outlook for our end markets for the remainder of the year remains positive. The major challenge in fiscal year 2006 continues to revolve around raw material costs, especially tungsten. We have demonstrated the ability to meet this challenge and expect to continue doing so for the remainder of the year."
Reported EPS for fiscal year 2006 is now expected to be $3.50 to $3.90, including an approximately $0.25 negative impact from the combination of expensing stock options due to SFAS 123® and the effects of the reduction in the discount rate applied to the company's pension plans. This revised earnings outlook represents an increase from previous 2006 EPS guidance of $3.30 to $3.80. In addition to narrowing the earnings guidance range, the revised outlook establishes a lower range that reflects a 12 percent increase, and a higher range that reflects a 25 percent increase from prior year EPS of $3.13.
Organic sales for the second quarter of fiscal year 2006 are expected to grow 6 to 9 percent, despite tougher comparisons. The company is expecting its top line growth to moderate slightly in the second quarter due to the collective impact of a rising interest rate environment, sustained higher energy costs and the effect of recent hurricanes. In addition, the company anticipates continuing pressure on raw material costs. Reported EPS is forecasted to be in the range of $0.68 to $0.73, consistent with a seasonal pattern and reflects confidence in the company's ability to maintain the momentum of the first quarter. Furthermore, this earnings guidance is based on an effective tax rate of 35 percent compared with 20 percent effective tax rate in the second quarter of last year.
Operating margins and ROIC are expected to reflect continued improvement for the remainder of fiscal year 2006.
As previously discussed, Kennametal anticipates net cash flow provided by operating activities of approximately $200 million to $220 million for fiscal 2006. Adjusting net cash flow provided by operating activities for the impact of purchases of property, plant and equipment ($80 million), Kennametal expects to generate between $120 million to $140 million of free operating cash flow for fiscal 2006.
Kennametal also announced its Board of Directors declared a quarterly cash dividend of $0.19 per share, reflecting a 12% increase recently implemented. The dividend is payable November 21, 2005, to shareowners of record as of the close of business on November 9, 2005.
Kennametal advises shareowners to note monthly order trends, for which the company makes a disclosure ten business days after the conclusion of each month. This information is available on the Investor Relations section of Kennametal's corporate web site at www.kennametal.com.
First quarter results will be discussed in a live Internet broadcast at 10:00 a.m. Eastern time today. This event will be broadcast live on the company's website, www.kennametal.com. Once on the homepage, just click on the link to "Corporate," and then click "Investor Relations." This event also will be available on the company's website through November 9, 2005.
This release contains "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify these forward-looking statements by the fact they use words such as "should," "anticipate," "estimate," "approximate," "expect," "may," "will," "project," "intend," "plan," "believe" and other words of similar meaning and expression in connection with any discussion of future operating or financial performance. One can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements are likely to relate to, among other things, our goals, plans and projections regarding our financial position, results of operations, market position, and product development, which are based on current expectations that involve inherent risks and uncertainties, including factors that could delay, divert or change any of them in the next several years. Although it is not possible to predict or identify all factors, they may include the following: global and regional economic conditions; risks associated with the availability and costs of raw materials; commodity prices; risks associated with integrating and divesting businesses and achieving the expected savings and synergies; competition; demands on management resources; risks associated with international markets, such as currency exchange rates and social and political environments; future terrorist attacks; labor relations; demand for and market acceptance of new and existing products; and risks associated with the implementation of restructuring plans and environmental remediation matters. We can give no assurance that any goal or plan set forth in forward-looking statements can be achieved and readers are cautioned not to place undue reliance on such statements, which speak only as of the date made. We undertake no obligation to release publicly any revisions to forward-looking statements as a result of future events or developments.
Kennametal Inc. is a leading global supplier of tooling, engineered components and advanced materials consumed in production processes. The company improves customers' competitiveness by providing superior economic returns through the delivery of application knowledge and advanced technology to master the toughest of materials application demands. Companies producing everything from airframes to coal, from medical implants to oil wells and from turbochargers to motorcycle parts recognize Kennametal for extraordinary contributions to their value chains. Customers buy over $2 billion annually of Kennametal products and services -- delivered by our 14,000 talented employees in over 60 countries -- with almost 50 percent of these revenues coming from outside the United States. Visit us at www.kennametal.com [KMT-E]
FINANCIAL HIGHLIGHTS Consolidated Statements of Income (Unaudited): (in thousands, except per share amounts) Quarter Ended September 30, 2005 2004 Sales $569,218 $531,436 Cost of goods sold 369,348 358,041 Gross profit 199,870 173,395 Operating expense 147,662 130,949 Amortization of intangibles 1,351 537 Operating income 50,857 41,909 Interest expense 7,829 6,456 Other income, net (876) (1,574) Income before provision for income taxes and minority interest 43,904 37,027 Provision for income taxes 15,059 13,330 Minority interest 748 977 Net income $28,097 $22,720 Basic earnings per share $0.74 $0.62 Diluted earnings per share $0.72 $0.61 Dividends per share $0.19 $0.17 Basic weighted average shares outstanding 37,949 36,373 Diluted weighted average shares outstanding 38,915 37,363 SEGMENT DATA (Unaudited): Quarter Ended September 30, 2005 2004 Outside Sales: Metalworking Solutions and Services Group $346,538 $315,870 Advanced Materials Solutions Group 157,678 117,886 J&L Industrial Supply 65,002 61,417 Full Service Supply - 36,263 Total Outside Sales $569,218 $531,436 Sales By Geographic Region: Within the United States $307,399 $301,783 International 261,819 229,653 Total Sales by Geographic Region $569,218 $531,436 Operating Income (Loss): Metalworking Solutions and Services Group $46,246 $38,872 Advanced Materials Solutions Group 23,328 14,533 J&L Industrial Supply 6,844 5,721 Full Service Supply - 120 Corporate and eliminations (1) (25,561) (17,337) Total Operating Income, as reported $50,857 $41,909 (1) Includes corporate functional shared services and intercompany eliminations. FINANCIAL HIGHLIGHTS (Continued) CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited): September 30, June 30, 2005 2005 ASSETS Cash and equivalents $37,916 $43,220 Trade receivables, net of allowance 389,964 403,097 Receivables securitized (100,445) (109,786) Accounts receivable, net 289,519 293,311 Inventories 420,285 386,674 Deferred income taxes 70,912 70,391 Other current assets 34,004 37,466 Total current assets 852,636 831,062 Property, plant and equipment, net 517,127 519,301 Goodwill and intangible assets, net 644,730 652,791 Other assets 86,633 89,183 Total $2,101,126 $2,092,337 LIABILITIES Short-term debt, including notes payable $6,770 $50,889 Accounts payable 150,269 154,839 Accrued liabilities 221,445 222,930 Total current liabilities 378,484 428,658 Long-term debt 408,480 386,485 Deferred income taxes 54,307 59,551 Other liabilities 232,344 227,321 Total liabilities 1,073,615 1,102,015 MINORITY INTEREST 18,117 17,460 SHAREOWNERS' EQUITY 1,009,394 972,862 Total $2,101,126 $2,092,337 FINANCIAL HIGHLIGHTS (Continued) RETURN ON INVESTED CAPITAL (Unaudited): For the Period Ended September 30, 2005 Invested Capital 09/30/2005 06/30/2005 03/31/2005 Debt $415,250 $437,374 $485,168 Accounts receivable securitized 100,445 109,786 120,749 Minority interest 18,117 17,460 19,664 Shareowners' equity 1,009,394 972,862 1,021,186 Total $1,543,206 $1,537,482 $1,646,767 Invested Capital 12/31/2004 09/30/2004 Average Debt $405,156 $435,435 $435,667 Accounts receivable securitized 115,253 115,309 112,308 Minority interest 19,249 17,377 18,373 Shareowners' equity 1,003,507 924,432 986,276 Total $1,543,165 $1,492,553 $1,552,635 Quarter Ended 09/30/05 06/30/05 03/31/05 12/31/04 Total Interest Expense Interest expense $7,829 $7,897 $6,803 $6,121 $28,650 Securitization interest 1,065 981 868 757 3,671 Total interest expense $8,894 $8,878 $7,671 $6,878 $32,321 Income tax benefit 11,086 Total Interest Expense, net of tax $21,235 Quarter Ended 09/30/05 06/30/05 03/31/05 12/31/04 Total Total Income Net Income, as reported $28,097 $37,740 $30,650 $28,181 $124,668 Restructuring and asset impairment charges - - 3,306 - 3,306 Loss on assets held for sale - - 1,086 - 1,086 Minority interest expense 748 238 1,449 928 3,363 Total Income, excluding special items $28,845 $37,978 $36,491 $29,109 $132,423 Total Income, excluding special $132,423 items Total Interest Expense, net of tax 21,235 $153,658 Average invested capital $1,552,635 Adjusted Return on Invested Capital 9.9% Return on Invested Capital calculated utilizing Net Income, as reported is as follows: Net Income, as reported $124,668 Total Interest Expense, net of tax 21,235 $145,903 Average invested capital $1,552,635 Return on Invested Capital 9.4% FINANCIAL HIGHLIGHTS (Continued) RETURN ON INVESTED CAPITAL (Unaudited): For the Period Ended September 30, 2004 Invested Capital 09/30/2004 06/30/2004 03/31/2004 Debt $435,435 $440,207 $494,312 Accounts receivable securitized 115,309 117,480 108,916 Minority interest 17,377 16,232 16,598 Equity 924,432 887,152 809,904 Total $1,492,553 $1,461,071 $1,429,730 Invested Capital 12/31/2003 09/30/2003 Average Debt $481,327 $520,138 $474,284 Accounts receivable securitized 101,422 95,318 107,689 Minority interest 16,286 16,089 16,516 Equity 791,442 746,562 831,899 Total $1,390,477 $1,378,107 $1,430,388 Quarter Ended 09/30/04 06/30/04 03/31/04 12/31/03 Total Interest Expense Interest expense $6,456 $6,405 $6,332 $6,547 $25,740 Securitization interest 580 443 356 483 1,862 Total interest expense $7,036 $6,848 $6,688 $7,030 $27,602 Income tax benefit 9,109 Total Interest Expense, net of tax $18,493 Quarter Ended 09/30/04 06/30/04 03/31/04 12/31/03 Total Total Income Net Income, as reported $22,720 $29,852 $24,070 $10,892 $87,534 Minority Interest Expense 977 (36) 533 404 1,878 MSSG Restructuring - - - 1,109 1,109 AMSG Restructuring - - - 1,018 1,018 Pension Curtailment - - - 883 883 Gain on Toshiba Investment - - - (2,990) (2,990) Strong Tool Note Receivable - - - 1,360 1,360 Total Income, excluding special items $23,697 $29,816 $24,603 $12,676 $90,792 Total Income, excluding special items $90,792 Total Interest Expense, net of tax 18,493 $109,285 Average Invested Capital $1,430,388 Adjusted Return on Invested Capital 7.6% Return on Invested Capital calculated utilizing Net Income, as reported is as follows: Net Income, as reported $87,534 Total Interest Expense, net of tax 18,493 $106,027 Average invested capital $1,430,388 Return on Invested Capital 7.4%
SOURCE: Kennametal Inc.
CONTACT: Investor Relations, Quynh McGuire, +1-724-539-6559, or Media
Relations, Joy Chandler, +1-724-539-4618, both of Kennametal Inc.
Web site: http://www.kennametal.com/