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Kennametal Inc. today reported solid third-quarter earnings, despite significant weakness across North American industrial markets. Kennametal's diluted earnings per share increased by 3 percent to $0.73 per share compared to $0.71 per share last year, excluding special items in each period. On a reported basis, diluted earnings per share were $0.66 per share against $0.46 per share last year.
Kennametal President and Chief Executive Officer Markos I. Tambakeras said, "We were very pleased to deliver even modest growth in the current economic environment. We demonstrated that our unyielding focus on results delivers tangible benefits. Cost-cutting programs were accelerated as we scaled the business for reduced demand, and gross margins were maintained despite top-line pressure. More importantly, short-term responses to reduced demand did not compromise our continued investment in programs that will improve our efficiency and effectiveness in the marketplace in the future. The programs that we have previously detailed continue to be funded."
Third-Quarter Highlights -- Excluding the unfavorable impact of foreign currency (2 percent) and fewer business days (2 percent), sales were flat compared to the prior year. Actual sales were $464.7 million, a decrease of 4 percent. Relative strength in organic sales was sustained on significant growth in Europe and Asia, despite weakening in several key North American markets. -- Gross profit margin of 38.9 percent, excluding special charges, was essentially flat to the third quarter of fiscal 2000 despite the weak top-line performance. Foreign currency reduced gross profit by 60 basis points. The pressure of reduced sales volume was offset by incremental efficiencies from lean manufacturing techniques and the Inventory Turns Initiative. -- Operating expense for the quarter, excluding special charges, was reduced 2 percent to $123.7 million. Continuing cost reduction and productivity programs were augmented by early actions from the resizing program as detailed in the company's recent release. Funding of key growth initiatives continued in the quarter. -- As anticipated, the effective tax rate for the third quarter was 39.5 percent compared to 43.3 percent last year. The expected full-year tax rate remains 39.5 percent. -- Interest expense declined 9 percent during the quarter compared to last year due primarily to lower average borrowings. -- Excluding special items, net income was $22.3 million, an increase of 3 percent compared to $21.6 million last year. -- Special charges of $3.2 million, or $0.07 per share, were included in the quarter's results related to the J&L and FSS business improvement plans and the core business resize program. Prior-year results included special charges of $13.3 million, or $0.25 per share related to operational improvement programs in the core businesses. -- Cash flow and balance sheet management continued to generate incremental benefits ahead of expectations. Free operating cash flow of $34.5 million benefited from a 210-basis-point reduction in primary working capital versus prior year. This reduction yielded primary working capital as a percent of sales of 27.9 percent. Total debt was $654.9 million, down from $699.2 million at the beginning of the year despite the unforecasted investment in a share repurchase program ($16.5 million), and the acquisition of JLK ($41.7 million). -- Sales of $1,355.9 million for the first nine months of the year were up 3 percent compared to last year, excluding unfavorable foreign currency translation effects and the impact of fewer business days, which affected the year by 3 and 2 percent, respectively. Net income for the first nine months was $48.1 million or $1.57 per share compared to $43.9 million or $1.45 per share for the same period last year, excluding special items in each period. Including special items, reported net income for the first nine months was $43.3 million or $1.41 per share compared to $32.3 million or $1.06 per share for the first nine months of last year. Outlook
As previously announced, the company expects sales for the full year to be slightly down (2-3 percent), with modest earnings growth (1-3 percent) due to pervasive weakening in the North American industrial economy. Diluted earnings per share, excluding special charges, are anticipated to be $2.15-$2.20 for the full year versus $2.13 in fiscal 2000.
Tambakeras concluded, "I continue to be impressed by the organization's ability to rapidly adapt to shifting market conditions, as demonstrated by our third-quarter performance. In response to a reduced and uncertain market outlook for the remainder of our fiscal year, we remain focused on mitigating short-term earnings impacts while still executing our long-term strategies."
Kennametal also announced its Board of Directors declared a quarterly cash dividend of $0.17 cents per share, payable May 25, 2001, to holders of record as of May 10, 2001.
Kennametal Inc. aspires to be the premier tooling solutions supplier in the world with operational excellence throughout the value chain and best-in-class manufacturing and technology. Kennametal strives to deliver superior shareowner value through top-tier financial performance. The company provides customers a broad range of technologically advanced tools, tooling systems and engineering services aimed at improving customers' manufacturing competitiveness. With 13,000 employees worldwide, the company's annual sales are approximately $1.8 billion, with a third coming from sales outside the United States. Kennametal has been named one of the Best Places to Work in Pennsylvania and is represented in more than 60 countries. Kennametal operations in Europe are headquartered in Furth, Germany. Kennametal Asia Pacific operations are headquartered in Singapore.
This release contains "forward-looking statements" as defined by Section 21E of the Securities Exchange Act of 1934 as amended. Actual results may differ materially from those expressed or implied in the forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, the extent that global economic conditions do not change materially, risks associated with integrating businesses and restructuring programs, demands on management resources, risks associated with international markets such as currency exchange rates, and competition. The company undertakes no obligation to publicly release any revisions to forward- looking statements to reflect events or circumstances occurring after the date hereof.
Consolidated financial highlights for Kennametal Inc. for the quarter and nine months ended March 31, 2001 and 2000 are shown in the following tables (in thousands, except per share amounts). All fiscal year 2001 data is subject to year-end (June 30) adjustment and audit by independent public accountants.
Consolidated Statements of Income Quarter Ended Nine Months Ended March 31, March 31, 2001 2000 2001 2000 Net sales $464,650 $483,019 $1,355,876 $1,379,890 Cost of goods sold 284,416 294,567 840,051 859,242 Gross profit 180,234 188,452 515,825 520,648 Operating expense(A) 123,807 125,830 374,054 375,019 Restructuring and asset impairment charge 2,286 13,323 4,633 17,304 Amortization of intangibles 6,063 6,517 18,533 20,117 Operating income 48,078 42,782 118,605 108,208 Interest expense(B) 12,496 13,668 39,091 41,948 Other expense, net© 579 1,269 3,236 1,521 Income before provision for income taxes and minority interest 35,003 27,845 76,278 64,739 Provision for income taxes 13,824 12,067 30,128 28,485 Minority interest 785 1,681 2,291 3,733 Income before extraordinary loss and cumulative effect of change in accounting principle 20,394 14,097 43,859 32,521 Extraordinary loss on early extinguishments of debt, net of tax -- -- -- (267) Cumulative effect of change in accounting principle, net of tax -- -- (599) -- Net income $20,394 $14,097 $43,260 $32,254 Per Share Data: Diluted earnings per share $0.66 $0.46 $1.41 $1.06 Dividends per share $0.17 $0.17 $0.51 $0.51 Diluted weighted average shares outstanding 30,692 30,418 30,656 30,307 (A) For the quarter and nine months ended March 31, 2001, these amounts include charges of $0.1 million and $2.1 million, respectively, primarily related to the tender offer to acquire the outstanding shares of JLK. For the nine months ended March 31, 2000, this amount includes a charge of $3.0 million for environmental remediation. (B) Includes $0.3 million charges related to the recognition of a portion of deferred financing fees as a result of the reduction in the availability under the company's U.S. credit facility. © For the quarters ended March 31, 2001 and 2000, these amounts include charges of $1.5 million and $1.3 million, respectively, for fees incurred in connection with the company's accounts receivable securitization program. For the nine months ended March 31, 2001 and 2000, these amounts include similar charges of $4.7 million and $3.7 million, respectively. For the nine months ended March 31, 2000, this amount includes one-time gains of $1.4 million from the sales of underutilized assets. Supplemental Data Sheet SELECTED OPERATING DATA: Quarter Ended Nine Months Ended March 31, March 31, 2001 2000(A) 2001 2000(A) Sales: Metalworking Services and Solutions Group $257,747 $265,878 $748,628 $761,492 Advanced Materials Solutions Group 91,095 85,814 261,487 253,550 J&L Industrial Supply 77,646 96,215 242,457 270,958 Full Service Supply 38,162 35,112 103,304 93,890 Total $464,650 $483,019 $1,355,876 $1,379,890 Sales By Geographic Region: Within the United States $299,545 $321,945 $895,015 $914,727 International 165,105 161,074 460,861 465,163 Total $464,650 $483,019 $1,355,876 $1,379,890 Operating Income (Loss), including special charges: Metalworking Services and Solutions Group $37,369 $34,658 $96,305 $89,964 Advanced Materials Solutions Group 12,184 8,001 32,106 26,565 J&L Industrial Supply 2,663 7,060 4,488 16,479 Full Service Supply 2,017 3,303 5,096 7,952 Corporate and Eliminations (6,155) (10,240) (19,390) (32,752) Total $48,078 $42,782 $118,605 $108,208 Operating Income (Loss), excluding special charges: Metalworking Services and Solutions Group $38,380 $42,373 $97,320 $101,198 Advanced Materials Solutions Group 11,920 12,376 31,868 31,311 J&L Industrial Supply 4,576 7,060 10,580 16,479 Full Service Supply 2,187 3,303 5,416 7,952 Corporate and Eliminations (6,155) (9,007) (19,409) (28,328) Total $50,908 $56,105 $125,775 $128,612 Diluted EPS excluding special charges and amortization expense $0.92 $0.92 $2.17 $2.11 Diluted EPS excluding special charges $0.73 $0.71 $1.57 $1.45 Free Operating Cash Flow: Net Income $20,394 $14,097 $43,260 $32,254 Non-cash Items 4,774 7,062 6,766 13,543 Depreciation & Amortization 24,375 25,165 73,440 76,450 Change in Working Capital 2,118 22,376 32,277 70,093 Capital Expenditures (17,141) (12,447) (40,121) (34,123) Free Operating Cash Flow $34,520 $56,253 $115,622 $158,217 Supplemental Data Sheet (Continued) SELECTED BALANCE SHEET DATA: Quarter Ended 3/31/01 12/31/00 9/30/00 6/30/00 Accounts Receivable $214,332 $203,344 $218,863 $231,917 Inventory 387,520 389,460 392,741 410,885 Accounts Payable (108,371) (102,217) (111,873) (118,908) Total Primary Working Capital (PWC) $493,481 $490,587 $499,731 $523,894 PWC % Sales(B) 27.9% 28.0% 28.5% 29.4% Debt $654,930 $687,487 $672,593 $699,242 Debt/Total Capital 45.1% 46.7% 44.7% 45.6% (A) Kennametal reports global business units consisting of Metalworking Services and Solutions Group, Advanced Materials Solutions Group, Full Service Supply and J&L Industrial Supply, and corporate functional shared services. Certain amounts in prior year sales and operating income (loss) have been restated to conform to this reporting structure. (B) Calculated by averaging the current and the previous four quarter-end balances for PWC, divided by sales for the most recent 12-month period.
SOURCE: Kennametal Inc.
Contact: Beth A. Riley, Director, Investor Relations of Kennametal,