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COVID-19: How Kennametal is responding

LATROBE, Pa., July 25, 2013 /PRNewswire/ -- Kennametal Inc. (NYSE: KMT) today reported fiscal 2013 and fourth-quarter results. For fiscal 2013, the company reported earnings per diluted share (EPS) of $2.52 on $2.6 billion in sales, compared with EPS of $3.77 earned on $2.7 billion in sales during the prior year. The current year included $0.03 per share in earnings accretion from Stellite, while the prior year included acquisition-related dilution of $0.09 per share.

For the fiscal fourth quarter, the company reported EPS of $0.76 on $671 million in sales, compared with EPS of $1.06 on $739 million in sales for the same period last year.

"In the June quarter—and for every quarter during fiscal 2013—Kennametal delivered double-digit profitability despite market challenges.  We demonstrated greater agility in this cycle and elevated our financial performance," said Kennametal Chairman, President and Chief Executive Officer Carlos Cardoso

"In addition, we generated all-time record free operating cash flow of $204 million; nearly 100 percent of net income.  Our company-specific initiatives, proven cost disciplines and strong balance sheet provide opportunities for Kennametal to maximize revenues and earnings, while continuing to generate strong cash flows.  Going forward, we will remain intensely focused on generating profitable growth."

Fiscal 2013 Fourth Quarter Key Developments

  • Sales were $671 million, compared with $739 million in the same quarter last year. Sales decreased by 9 percent, reflecting an 8 percent organic decline and a 1 percent unfavorable effect from currency exchange.
  • Operating income was $91 million, compared with $117 million in the same quarter last year. Operating income declined due to lower sales volume and unfavorable inventory adjustments, partially offset by favorable operating expense and absorption benefits associated with slightly higher inventory. Operating margin was 13.5 percent compared with 15.9 percent in the prior year.
  • The effective tax rate was 23.9 percent in the period, compared with 20.3 percent in the prior year. The prior year rate benefited from a settlement of an income tax audit in Europe, partially offset by the impacts of stronger earnings in the U.S.
  • EPS were $0.76, compared with the prior year quarter EPS of $1.06.
  • Adjusted return on invested capital (ROIC) was 9.5 percent as of June 30, 2013.
  • For the fiscal year, the company realized an all-time annual free operating cash flow record of $204 million compared with $193 million for last year, driven by improved working capital performance.
  • Capital stock repurchased during the quarter was approximately 1.0 million shares and totaled approximately 3.1 million shares for the fiscal year.

Segment Developments for the Fiscal 2013 Fourth Quarter

  • Industrial segment sales of $384 million declined 9 percent from $421 million in the prior year quarter. The results reflect an 8 percent organic decline and a 1 percent unfavorable effect from currency exchange. On an organic basis, sales declined 8 percent in general engineering, 7 percent in transportation and 6 percent in aerospace and defense. On a regional basis, sales declined approximately 12 percent in the Americas, 6 percent in Europe and 5 percent in Asia.
  • Industrial segment operating income was $56 million compared with $76 million in the prior year. Industrial operating income decreased primarily due to lower sales volume and unfavorable inventory adjustments, partially offset by lower operating expense and absorption benefits associated with slightly higher inventory. Industrial operating margin was 14.6 percent compared with 18.2 percent in the prior year.
  • Infrastructure segment sales of $288 million, declined 10 percent from $318 million in the prior year. The decrease was driven by an 8 percent organic decline, a 1 percent decline from fewer business days and a 1 percent unfavorable effect from currency exchange. On an organic basis, sales declined by 12 percent in the energy and 6 percent in the earthworks markets. Energy sales continued to reflect low drilling activity in oil and gas. Earthworks sales remained weak globally due to depressed levels of underground coal mining activity. On a regional basis, sales decreased approximately 11 percent in the Americas, 8 percent in Europe and 3 percent in Asia.
  • Infrastructure segment operating income was $35 million, compared with $42 million in the same quarter of the prior year. Stellite contributed $1 million of operating income in the current year quarter, compared with $1 million of net acquisition-related loss in the prior year period. Operating income decreased primarily due to the effects of the organic sales decline and unfavorable inventory adjustments, partially offset by lower operating expense and absorption benefits associated with slightly higher inventory. Excluding Stellite, Infrastructure operating margin was 14.8 percent compared with 17.0 percent in the prior year.

Fiscal 2013 Key Developments

  • Sales were $2.6 billion, compared with $2.7 billion last year. Sales decreased by 5 percent, driven by an 8 percent organic decline, a 2 percent unfavorable effect from currency exchange and a 1 percent decline due to fewer business days, partially offset by a 6 percent increase from Stellite.
  • Operating income was $296 million, compared with $416 million last year. Stellite contributed $12 million of operating income, compared with $5 million of net operating loss for the four months owned in the prior year. Operating income decreased primarily due to lower sales volume, lower absorption of manufacturing costs related to reduced sales volume and an inventory reduction initiative, as well as unfavorable currency exchange. The decrease was lessened by reduced operating expense, driven by lower employment costs, favorable currency exchange, a decrease in Stellite acquisition-related costs and containment of discretionary spending. Excluding Stellite, fiscal year adjusted operating margin was 12.1 percent, compared with 15.9 percent in the prior year.
  • EPS were $2.52, compared with the prior year EPS of $3.77. The current year includes $0.03 per share accretion from Stellite. Prior year included acquisition-related dilution of $0.09 per share from Stellite.

Reconciliations of all non-GAAP financial measures are set forth in the tables attached, and corresponding descriptions are contained in the company's report on Form 8-K, to which this news release is attached.

Outlook

For fiscal year 2014, Kennametal's outlook reflects expectations of continued macro-economic improvement, with worldwide industrial production building momentum. While manufacturing and industrial sectors are projected to expand over the next 12 months, underground coal mining will likely remain weak globally as well as some near-term project delays in the energy markets.

As a result of these factors, the company expects organic sales growth to range from 5 to 7 percent, and total sales to grow between 4 and 6 percent in fiscal 2014. This growth rate is expected to outpace global industrial production by more than double through company-specific initiatives.

The company expects EPS to range from $2.90 to $3.10 in fiscal 2014. The mid-point of this range represents a 19 percent increase from EPS of $2.52 in fiscal 2013.

Kennametal expects to generate cash flow from operating activities in the range of $330 million to $380 million in fiscal 2014. Based on anticipated capital expenditures of approximately $130 million to $150 million, the company expects to generate free operating cash flow in the range of $200 million to $230 million for fiscal year 2014.

Amended Share Repurchase Program

Kennametal announced today that its Board of Directors authorized a second amended multi-year repurchase program of up to 17 million shares of the company's outstanding capital stock (previously 12 million shares). The purchases may be made from time to time, at the company's discretion, in the open market, in private transactions or through Rule 10b5-1 Plans, in accordance with applicable securities laws taking into consideration the market price of the stock, other investment opportunities, and cash flows from operations, general economic conditions and other relevant factors. Currently, there are 10.4 million shares available for repurchase under this second amended authorization.

Increased Dividend Declared

Kennametal also announced that its Board of Directors declared a quarterly cash dividend of $0.18 per share, which represents an increase of 12.5 percent, or $0.02 per share. This action marks the company's sixth increase to the annual dividend over a nine-year period. The dividend is payable August 21, 2013 to shareowners of record as of the close of business on August 6, 2013.

Enhanced Operating Structure Implemented as of July 1, 2013

At the start of fiscal 2014, Kennametal enhanced its organizational structure to align a broader base management team with customer-facing products and technology platforms, as well as to further increase cross-selling opportunities. This operating structure supports the company's stated growth objectives across diverse market sectors, preserves the focus on customers and increases product innovation.

Kennametal will continue to report results in each of the Industrial and Infrastructure segments, as well as by served end markets, while also providing expanded disclosures discussing technology-based sales for each segment. Consistent with previous allocation methodologies, corporate expenses related to each segment will be classified accordingly.

Previously disclosed segment results will be recast for certain sales reclassifications based on products and technologies and disclosed in future filings as appropriate.

Kennametal advises shareowners to note monthly order trends, for which the company generally makes a disclosure ten business days after the conclusion of each month. This information is available via the Investor Relations section of Kennametal's corporate website at www.kennametal.com.

The company will discuss its fiscal 2013 fourth-quarter results in a live webcast at 10:00 a.m. ET today. This event will be broadcast live on the company's website, www.kennametal.com.  To access the webcast, select "Investor Relations" and then "Events." A recorded replay of this event also will be available on the company's website through August 26, 2013.

Certain statements in this release may be forward-looking in nature, or "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. Forward-looking statements are statements that do not relate strictly to historical or current facts. For example, statements about Kennametal's outlook for earnings, sales volumes, and cash flow for fiscal year 2013 and our expectations regarding future growth and financial performance are forward-looking statements. Any forward looking statements are based on current knowledge, expectations and estimates that involve inherent risks and uncertainties. Should one or more of these risks or uncertainties materialize, or should the assumptions underlying the forward-looking statements prove incorrect, our actual results could vary materially from our current expectations. There are a number of factors that could cause our actual results to differ from those indicated in the forward-looking statements. They include: economic recession; availability and cost of the raw materials we use to manufacture our products; our foreign operations and international markets, such as currency exchange rates, different regulatory environments, trade barriers, exchange controls, and social and political instability; changes in the regulatory environment in which we operate, including environmental, health and safety regulations; our ability to protect and defend our intellectual property; competition; our ability to retain our management and employees; demands on management resources; demand for and market acceptance of our products; integrating acquisitions and achieving the expected savings and synergies; business divestitures; and implementation of environmental remediation matters. Many of these risks and other risks are more fully described in Kennametal's latest annual report on Form 10-K and its other periodic filings with the Securities and Exchange Commission. We undertake no obligation to release publicly any revisions to forward-looking statements as a result of future events or developments.

Celebrating its 75th year as an industrial technology leader, Kennametal Inc. delivers productivity to customers seeking peak performance in demanding environments. The company provides innovative wear-resistant products and application engineering backed by advanced material science, serving customers in 60 countries across diverse sectors of aerospace, earthworks, energy, industrial production, transportation and infrastructure. With approximately 13,000 employees and nearly $3 billion in sales, the company realizes half of its revenue from outside North America, and 40% globally from innovations introduced in the past five years. Recognized among the "World's Most Ethical Companies" (Ethisphere); "Outstanding Corporate Innovator" (Product Development Management Association); and "America's Safest Companies" (EHS Today) with a focus on 100% safety, Kennametal and its foundation invest in technical education, industrial technologies and material science to deliver the promise of progress and economic prosperity to people everywhere. For more information, visit the company's website at www.kennametal.com.






FINANCIAL HIGHLIGHTS


CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


















Three Months Ended
June 30,


Twelve Months Ended
June 30,

(in thousands, except per share amounts)

2013


2012


2013


2012

Sales

$

671,410



$

739,216



$

2,589,373



$

2,736,246

Cost of goods sold

442,696



474,359



1,744,369



1,741,996

     Gross profit

228,714



264,857



845,004



994,250

Operating expense

132,883



142,030



527,850



561,490

Amortization of intangibles

5,258



5,369



20,760



16,351

     Operating income

90,573



117,458



296,394



416,409

Interest expense

7,042



8,469



27,472



27,215

Other expense (income), net

1,812



394



2,313



(775)

    Income from continuing operations before income taxes

81,719



108,595



266,609



389,969

    Provision for income taxes

19,535



22,043



59,693



79,136

Net income

62,184



86,552



206,916



310,833

Less: Net income attributable to noncontrolling interests

1,366



504



3,651



3,603

Net income attributable to Kennametal

$

60,818



$

86,048



$

203,265



$

307,230

PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL SHAREOWNERS





Basic earnings per share

$

0.77



$

1.07



$

2.56



$

3.83

Diluted earnings per share

$

0.76



$

1.06



$

2.52



$

3.77

Dividends per share

$

0.16



$

0.14



$

0.64



$

0.54

Basic weighted average shares outstanding

78,615



80,323



79,463



80,216

Diluted weighted average shares outstanding

79,866



81,554



80,612



81,439



CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)









(in thousands)

June 30,
2013


June 30, 
2012

 ASSETS




Cash and cash equivalents

$

377,316



$

116,466

Accounts receivable, net

445,322



478,989

Inventories

578,795



585,856

Other current assets

98,040



101,651

Total current assets

1,499,473



1,282,962

Property, plant and equipment, net

741,482



742,201

Goodwill and other intangible assets, net

944,520



962,837

Other assets

115,564



46,188

Total assets

$

3,301,039



$

3,034,188

 LIABILITIES




Current maturities of long-term debt and capital leases, including notes payable

$

44,319



$

75,137

Accounts payable

190,623



219,475

Other current liabilities

232,651



284,010

Total current liabilities

467,593



578,622

Long-term debt and capital leases

703,626



490,608

Other liabilities

317,527



296,737

Total liabilities

1,488,746



1,365,967

KENNAMETAL SHAREOWNERS' EQUITY

1,781,826



1,643,850

NONCONTROLLING INTERESTS

30,467



24,371

Total liabilities and equity

$

3,301,039



$

3,034,188
































SEGMENT DATA (UNAUDITED)

Three Months Ended
June 30,


Twelve Months Ended
June 30,

(in thousands)

2013


2012


2013


2012

Outside Sales:








Industrial

$

383,727



$

421,173



$

1,471,882



$

1,667,434

Infrastructure

287,683



318,043



1,117,491



1,068,812

Total outside sales

$

671,410



$

739,216



$

2,589,373



$

2,736,246

Sales By Geographic Region:








North America

$

293,048



$

332,207



$

1,145,722



$

1,250,124

Western Europe

202,168



218,479



768,276



781,683

Rest of World

176,194



188,530



675,375



704,439

Total sales by geographic region

$

671,410



$

739,216



$

2,589,373



$

2,736,246

Operating Income:








Industrial

$

56,193



$

76,455



$

173,744



$

283,233

Infrastructure

35,288



41,713



130,537



141,640

Corporate (1)

(908)



(710)



(7,887)



(8,464)

Total operating income

$

90,573



$

117,458



$

296,394



$

416,409


(1) Represents unallocated corporate expenses

In addition to reported results under generally accepted accounting principles in the United States of America (GAAP), the following financial highlight tables include, where appropriate, a reconciliation of adjusted results including, sales, operating income and margin; Infrastructure sales, operating income and margin; free operating cash flow and return on invested capital (which are non-GAAP financial measures), to the most directly comparable GAAP measures. For those adjustments that are presented 'net of tax', the tax effect of the adjustment can be derived by calculating the difference between the pre-tax and the post-tax adjustments presented. The tax effect on adjustments is calculated by preparing an overall tax calculation including the adjustments and then a tax calculation excluding the adjustments. The difference between these calculations results in the tax impact of the adjustments.

Management believes that investors should have available the same information that management uses to assess operating performance, determine compensation and assess the capital structure of the company. These non-GAAP measures should not be considered in isolation or as a substitute for the most comparable GAAP measures. Investors are cautioned that non-GAAP financial measures utilized by the company may not be comparable to non-GAAP financial measures utilized by other companies. Reconciliations of all non-GAAP financial measures are set forth in the attached tables and descriptions of certain non-GAAP financial measures are contained in our report on Form 8-K to which this release is attached.














THREE MONTHS ENDED JUNE 30, 2013 - (UNAUDITED)




(in thousands, except percents)

Infrastructure Sales

Infrastructure
Operating Income

2013 Reported Results

$

287,683


$

35,288

2013 Reported Operating Margin


12.3%

  Stellite (2)

(57,140)


(1,150)

2013 Adjusted Results

$

230,543


$

34,138

2013 Adjusted Operating Margin


14.8%


(2) Includes three months of Stellite operations (Stellite was acquired March 1, 2012).








THREE MONTHS ENDED JUNE 30, 2013 - (UNAUDITED)




(in thousands, except percents)

Sales

Operating Income

2013 Reported Results

$

671,410


$

90,573

2013 Reported Operating Margin


13.5%

  Stellite (2)

(57,140)


(1,150)

2013 Adjusted Results

$

614,270


$

89,423

2013 Adjusted Operating Margin


14.6%








THREE MONTHS ENDED JUNE 30, 2012 - (UNAUDITED)




(in thousands, except percents)

Infrastructure Sales

Infrastructure
Operating Income

2012 Reported Results

$

318,043


$

41,713

2012 Reported Operating Margin


13.1%

  Acquisition impact (3)

(67,537)


857

2012 Adjusted Results

$

250,506


$

42,570

2012 Adjusted Operating Margin


17.0%


(3) Includes the impact of Stellite operations and integration charges








THREE MONTHS ENDED JUNE 31, 2012 - (UNAUDITED)




(in thousands, except percents)

Sales

Operating Income

2012 Reported Results

$

739,216


$

117,458

2012 Reported Operating Margin


15.9%

  Acquisition impact (3)

(67,537)


857

2012 Adjusted Results

$

671,679


$

118,315

2012 Adjusted Operating Margin


17.6%








YEAR ENDED JUNE 30, 2013 - (UNAUDITED)




(in thousands, except percents)

Sales

Operating Income

2013 Reported Results

$

2,589,373


$

296,394

2013 Reported Operating Margin


11.4%

  Stellite (4)

(238,004)


(12,293)

2013 Adjusted Results

$

2,351,369


$

284,101

2013 Adjusted Operating Margin


12.1%


(4) Includes twelve months of Stellite operations (Stellite was acquired March 1, 2012). The eight months of acquisition impact included sales of $160.4 million and operating income of $10.7 million.








YEAR ENDED JUNE 30, 2012 - (UNAUDITED)




(in thousands, except percents)

Sales

Operating Income

2012 Reported Results

$

2,736,246


$

416,409

2012 Reported Operating Margin


15.2%

  Acquisition impact (3)

(90,096)


5,463

2012 Adjusted Results

$

2,646,150


$

421,872

2012 Adjusted Operating Margin


15.9%








FREE OPERATING CASH FLOW (UNAUDITED)

Year Ended


June 30,

(in thousands)

2013

2012

Net cash flow from operating activities

$

284,150


$

289,580

Purchases of property, plant and equipment

(82,835)


(103,036)

Proceeds from disposals of property, plant and equipment

3,016


6,886

Free operating cash flow

$

204,331


$

193,430



RETURN ON INVESTED CAPITAL (UNAUDITED)
June 30, 2013 (in thousands, except percents)


























Invested Capital


6/30/2013


3/31/2013


12/31/2012


9/30/2012


6/30/2012 


Average

Debt


$

747,945



$

751,030



$

706,859



$

601,124



$

565,745



$

674,541

Total equity


1,812,293



1,753,834



1,744,443



1,712,532



1,668,221



1,738,265

Total


$

2,560,238



$

2,504,864



$

2,451,302



$

2,313,656



$

2,233,966



$

2,412,806





Three Months Ended

Interest Expense




6/30/2013


3/31/2013


12/31/2012


9/30/2012


Total

Interest expense




$

7,042



$

7,504



$

6,970



$

5,956



$

27,472

Income tax benefit












6,154

Total interest expense, net of tax










$

21,318

Net Income




6/30/2013


3/31/2013


12/31/2012


9/30/2012


Total

Net income attributable to  
  Kennametal, as reported




$

60,818



$

53,916



$

42,142



$

46,390



$

203,265

Noncontrolling interest




1,366



460



1,167



657



3,651

Net income, adjusted




$

62,184



$

54,376



$

43,309



$

47,047



$

206,916

Total interest expense, net of tax










21,318













$

228,234

Average invested capital


$

2,412,806

Adjusted Return on Invested
Capital



9.5%

Return on invested capital calculated utilizing net income, as reported is as follows:



Net income attributable to Kennametal, as reported


$

203,265

Total interest expense, net of tax


21,318



$

224,583

Average invested capital


$

2,412,806

Return on Invested Capital


9.3%


 

 



 

SOURCE Kennametal Inc.