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Kennametal Inc. today reported third quarter fiscal 2007 EPS of $1.32. This represents an increase of 61 percent from the prior year quarter reported EPS of $0.82 and a 13 percent increase compared with prior year adjusted EPS of $1.17.
For the first nine months of fiscal 2007, reported EPS increased 22 percent to $2.86 compared with prior year reported EPS of $2.34. Adjusted EPS for the first nine months of fiscal 2007 increased 11 percent to $2.99 compared with prior year adjusted EPS of $2.69.
Carlos M. Cardoso, Kennametal's President and Chief Executive Officer said, "I am very pleased with our company's performance in the third quarter of fiscal 2007. We delivered solid organic sales growth as well as record earnings per share and return on invested capital, in spite of a challenging economic environment in North America. These strong results are on top of tough comparisons from the prior year."
Cardoso added, "This performance is evidence of the strength of our strategy, which we execute by applying the principles of the Kennametal Value Business System, our management operating system. As we move forward, we continue to leverage our global infrastructure to drive additional growth. We remain committed to growing the top line of both our Metalworking and Advanced Materials businesses, accelerating our margin expansion opportunities and generating strong cash flow."
Reconciliation of all non-GAAP financial measures are set forth in the attached tables.
Highlights of Fiscal 2007 Third Quarter -- Sales for the quarter were $616 million, compared with $609 million in the same quarter last year. Sales grew 7 percent on an organic basis and also benefited 3 percent from favorable foreign currency effects. This growth was mostly offset by the net impact of acquisitions and divestitures of 9 percent, primarily the divestiture of J&L Industrial Supply (J&L). J&L sales were $74 million in the March quarter last year. -- Income from continuing operations was $52 million, compared with $38 million in the prior year quarter, an increase of 38 percent despite the J&L divestiture. J&L contributed $9 million in operating income in the March quarter last year. The current year quarter results benefited from strong organic sales growth and an ongoing reduction in operating expenses. Additionally, the March quarter results benefited from lower interest expense and lower securitization fees. -- During the March quarter, Kennametal completed its strategic analysis and plan for the Widia brand. As a key element of the company's channel and brand strategy, the company will leverage the strength of the Widia brand to accelerate growth in the distribution market. This analysis resulted in a non-cash impairment charge of $6 million related to the trademark intangible asset. -- The effective tax rate for the March quarter was 26 percent, compared with 34 percent in the prior year quarter. The current year rate benefited from increased earnings from the company's pan-European business strategy. In addition, the prior year rate was unfavorably impacted by special charges that did not provide a tax benefit. -- Reported EPS increased 61 percent to $1.32, compared with prior year quarter reported EPS of $0.82. Reported EPS increased 13 percent, compared with prior year quarter adjusted EPS of $1.17. A reconciliation follows: Earnings Per Diluted Share Reconciliation Third Quarter FY 2007 Third Quarter FY 2006 Reported EPS $1.32 Reported EPS $0.82 No special items Loss on divestiture of Presto 0.20 CPG goodwill impairment charge 0.12 J&L transaction-related charges 0.03 $1.32 Adjusted EPS $1.17 -- Cash flow from operating activities was $113 million for the first nine months of fiscal 2007, compared with $117 million in the prior year period. Free operating cash flow was $47 million for the current year period, compared with $70 million in the prior year period. Included in the current year period free operating cash flow were income tax payments of $86 million, primarily due to tax payments related to the gain on the sale of J&L and cash repatriated in 2006 under the American Jobs Creation Act. Adjusted free operating cash flow, excluding the effects of these income tax payments, was $133 million versus $69 million in the prior year period. -- Adjusted return on invested capital (ROIC) increased 30 basis points to 11.0 percent, a record March quarter, from 10.7 percent in the prior year. Highlights of First Nine Months of Fiscal 2007 -- Sales of $1.7 billion were unchanged with the same period last year. Sales grew 6 percent on an organic basis and 3 percent due to favorable foreign currency effects. This growth was mostly offset by the net impact of acquisitions and divestitures of 8 percent, primarily the J&L divestiture. J&L sales were $205 million in the prior year period. -- Income from continuing operations was $115 million, compared with $97 million in the prior year period, an increase of 19 percent despite the J&L divestiture. J&L contributed $23 million in operating income in the prior year period. The current year period results benefited from strong organic sales growth and an ongoing reduction in operating expenses. Amortization expense increased $2 million due to recent acquisitions. Additionally, the current period results benefited from lower interest expense and lower securitization fees. -- During the March quarter, Kennametal completed its strategic analysis and plan for the Widia brand which resulted in a non-cash impairment charge of $6 million as described above. -- The first nine months of fiscal 2007 also reflected a lower effective tax rate of 29 percent compared with the prior year period of 33 percent. The current year rate benefited from increased earnings from the company's pan-European business strategy and the extension of the research, development and experimental tax credit. In addition, the prior year rate was unfavorably impacted by special charges that did not provide a tax benefit. -- Reported EPS of $2.86 increased 22 percent compared with prior year reported EPS of $2.34. Adjusted EPS of $2.99 increased 11 percent compared with prior year adjusted EPS of $2.69. A reconciliation follows: Earnings Per Diluted Share Reconciliation First Nine Months of FY 2007 First Nine Months of FY 2006 Reported EPS $2.86 Reported EPS $2.34 Loss on divestiture of CPG and Loss on divestiture of transaction-related charges 0.01 Presto 0.20 Adjustment on J&L divestiture and CPG goodwill impairment transaction-related charges 0.03 charge 0.12 Electronics impairment and J&L transaction-related divestiture-related charges 0.09 charges 0.03 Adjusted EPS $2.99 Adjusted EPS $2.69 Business Segment Highlights for the Fiscal 2007 Third Quarter
Metalworking Solutions & Services Group (MSSG) continued to deliver top-line growth in the third quarter, led by year-over-year expansion in the distribution, general engineering and machine tool markets and the effect of an acquisition. The European market continued to be favorable. Asia Pacific and India delivered double-digit growth, while the North American market showed flat-to-modest growth.
In the March quarter, MSSG sales were up 7 percent on an organic basis. Europe sales increased 8 percent. Asia Pacific and India sales grew by 22 percent and 25 percent, respectively. North America sales increased 2 percent.
MSSG operating income was up 23 percent and the operating margin of 15 percent increased over the same period last year. The third quarter results benefited from top-line growth and ongoing cost containment, and included a non-cash impairment charge of $6 million. The prior year results included divestiture-related charges of $8 million.
Advanced Materials Solutions Group (AMSG) continued to deliver top-line growth in the March quarter, driven by favorable international market conditions and the effect of acquisitions. Strong growth in the energy and mining markets continued to contribute to AMSG's results.
AMSG sales grew 6 percent on an organic basis. Energy product sales were up 18 percent, mining and construction product sales were higher by 4 percent and engineered product sales increased 4 percent.
AMSG operating income and margin were lower than the prior year due primarily to higher raw material costs in the current quarter, partially offset by the effects of acquisitions and new product introductions.
Worldwide market conditions support Kennametal's expectations of continued top-line growth during the fourth quarter of fiscal year 2007. Based on global economic indicators, the company believes that the moderation in the North American market will persist in the near term. The company also believes that the European market will continue to be favorable, and that business conditions will continue to be strong in developing economies. While there remain some uncertainties and risks related to the macro-economic environment, fundamental drivers for global demand appear to be stable.
The company anticipates that many of its end markets will continue to operate at favorable levels for the remainder of the fiscal year, with moderating growth rates for some regions and market sectors. This supports the company's projections of 6 to 7 percent organic sales growth for the fourth quarter of fiscal 2007. This would provide organic revenue growth in the 6 to 7 percent range for fiscal 2007, which would extend Kennametal's track record of consistently outpacing worldwide industrial production rates by two to three times.
The company expects fourth quarter 2007 EPS to be in the range of $1.45 to $1.50. The company's guidance for adjusted EPS for the full fiscal year is in the range of $4.45 to $4.50. On a comparable basis, the fiscal 2007 guidance midpoint represents a 31 percent growth rate, a substantial increase over prior year adjusted EPS from continuing operations of $3.41.
Kennametal expects to achieve its goal of 12 percent EBIT margin, and ROIC is on track for the projected 11 to 12 percent range for fiscal year 2007.
Kennametal anticipates reported cash flow from operations of approximately $190 million to $200 million for fiscal 2007. Based on anticipated capital expenditures of $90 million, the company expects to generate between $100 million to $110 million of free operating cash flow for fiscal 2007. Included in this amount are income tax payments of $86 million, as mentioned above. Adjusted free operating cash flow is expected to be approximately $185 million to $195 million.
Kennametal announced today that its Board of Directors declared a regular quarterly cash dividend of $0.21 per share. The dividend is payable May 22, 2007 to shareowners of record as of the close of business on May 7, 2007.
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.
Third quarter results for fiscal 2007 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, click "Corporate," and then "Investor Relations." The replay of this event will also be available on the company's website through May 9, 2007.
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. Forward-looking statements are statements that do not relate strictly to historical or current facts. You can identify 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. These statements are likely to relate to, among other things, our strategy, goals, plans and projections regarding our financial position, results of operations, market position, and product development, all of 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. It is not possible to predict or identify all factors; however, they may include the following: global and regional economic conditions; energy costs; risks associated with the availability and costs of raw materials; commodity prices; risks associated with integrating recent acquisitions, as well as any future acquisitions, and achieving the expected savings and synergies; risks relating to business divestitures, including those described in the above release; competition; demands on management resources; risks associated with international markets, such as currency exchange rates and social and political environments or instability; future terrorist attacks or acts of war; labor relations; demand for and market acceptance of new and existing products; and risks associated with the implementation of restructuring plans, cost-reduction initiatives 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 provide additional information about many of the specific risks our Company faces in the "Risk Factors" Section of our Annual Report on Form 10-K, as well as in our other securities filings. 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 $2.3 billion annually of Kennametal products and services - delivered by our approximately 13,500 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) Three Months Ended Nine Months Ended March 31, March 31, 2007 2006(a) 2007 2006(a) Sales $615,884 $609,159 $1,728,016 $1,717,461 Cost of goods sold(b) 395,046 395,076 1,121,997 1,109,329 Gross profit 220,838 214,083 606,019 608,132 Operating expense 136,933 146,016 412,306 433,591 Asset impairment charge 5,970 - 5,970 - Loss on divestitures - 692 1,686 692 Amortization of intangibles 1,808 1,409 5,703 4,198 Operating income 76,127 65,966 180,354 169,651 Interest expense 6,915 7,728 21,628 23,541 Other (income) expense, net (1,803) 145 (5,435) (1,912) Income from continuing operations before income taxes and minority interest 71,015 58,093 164,161 148,022 Provision for income taxes 18,520 19,684 47,457 49,366 Minority interest expense 757 782 1,956 2,041 Income from continuing operations 51,738 37,627 114,748 96,615 Loss from discontinued operations(c) - (4,724) (2,599) (4,528) Net income $51,738 $32,903 $112,149 $92,087 Basic earnings (loss) per share: Continuing operations $1.35 $0.97 $3.00 $2.52 Discontinued operations(c) - (0.12) (0.07) (0.11) $1.35 $0.85 $2.93 $2.41 Diluted earnings (loss) per share: Continuing operations $1.32 $0.94 $2.93 $2.45 Discontinued operations(c) - (0.12) (0.07) (0.11) $1.32 $0.82 $2.86 $2.34 Dividends per share $0.21 $0.19 $0.61 $0.57 Basic weighted average shares outstanding 38,428 38,832 38,318 38,283 Diluted weighted average shares outstanding 39,232 39,978 39,176 39,396 (a) Amounts have been reclassified to reflect discontinued operations related to the divestitures of Electronics - AMSG and CPG - MSSG. (b) For the three and nine months ended March 31, 2006, cost of goods sold includes a charge of $7,355 related to the Presto divestiture. (c) Loss from discontinued operations reflects divested results of Electronics - AMSG and CPG - MSSG. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited): (in thousands) March 31, June 30, 2007 2006 ASSETS Cash and cash equivalents $94,246 $233,976 Accounts receivable, net 427,308 386,714 Inventories 378,893 334,949 Current assets of discontinued operations held for sale - 24,280 Other current assets 99,378 106,938 Total current assets 999,825 1,086,857 Property, plant and equipment, net 577,864 530,379 Goodwill and intangible assets, net 736,920 618,423 Assets of discontinued operations held for sale - 11,285 Other assets 190,199 188,328 Total $2,504,808 $2,435,272 LIABILITIES Current maturities of long-term debt and capital leases, including notes payable $6,175 $2,214 Accounts payable 145,524 124,907 Current liabilities of discontinued operations held for sale - 3,065 Other current liabilities 265,996 332,013 Total current liabilities 417,695 462,199 Long-term debt and capital leases 365,346 409,508 Other liabilities 273,636 253,574 Total liabilities 1,056,677 1,125,281 MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 16,896 14,626 SHAREOWNERS' EQUITY 1,431,235 1,295,365 Total $2,504,808 $2,435,272 SEGMENT DATA (Unaudited): (in thousands) Three Months Ended Nine Months Ended March 31, March 31, 2007 2006(d) 2007 2006(d) Outside Sales: Metalworking Solutions and Services Group $415,525 $360,161 $1,146,604 $1,027,938 Advanced Materials Solutions Group 200,359 174,612 581,412 484,798 J&L Industrial Supply - 74,386 - 204,725 Total outside sales $615,884 $609,159 $1,728,016 $1,717,461 Sales By Geographic Region: United States $292,742 $330,570 $827,904 $916,546 International 323,142 278,589 900,112 800,915 Total sales by geographic region $615,884 $609,159 $1,728,016 $1,717,461 Operating Income (Loss): Metalworking Solutions and Services Group $60,784 $49,609 $151,658 $138,135 Advanced Materials Solutions Group 31,970 33,563 93,349 86,997 J&L Industrial Supply - 9,454 - 22,610 Corporate and eliminations(e) (16,627) (26,660) (64,653) (78,091) Total operating income $76,127 $65,966 $180,354 $169,651 (d) Amounts have been reclassified to reflect discontinued operations related to the divestitures of Electronics - AMSG and CPG - MSSG. (e) Includes corporate functional shared services and intercompany eliminations.
In addition to reported results under generally accepted accounting principles in the United States of America (GAAP), the following financial highlight tables also include, where appropriate, a reconciliation of gross profit, operating expense, operating income, income from continuing operations, net income and diluted earnings per share (which are GAAP financial measures), in each case excluding special items, as well as adjusted free operating cash flow and adjusted return on invested capital (which are non-GAAP financial measures), to the most directly comparable GAAP measures. Management believes that the investor 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 used by other companies.
There were no special items for the three months ended March 31, 2007. RECONCILIATION TO GAAP - THREE MONTHS ENDED MARCH 31, 2006 (Unaudited) Income from (in thousands, except Gross Operating Operating Continuing Net Diluted per share amounts) Profit Expense Income Operations Income EPS 2006 Reported Results $214,083 $146,016 $65,966 $37,627 $32,903 $0.82 Loss on divestiture of Presto 7,355 - 8,047 8,047 8,047 0.20 CPG goodwill impairment charge - - - - 5,030 0.12 J&L transaction- related charge - (1,871) 1,871 1,160 1,160 0.03 2006 Results, excl. special items $221,438 $144,145 $75,884 $46,834 $47,140 $1.17 RECONCILIATION TO GAAP - NINE MONTHS ENDED MARCH 31, 2007 (Unaudited) Income from (in thousands, except Gross Operating Operating Continuing Net Diluted per share amounts) Profit Expense Income Operations Income EPS 2007 Reported Results $606,019 $412,306 $180,354 $114,748 $112,149 $2.86 Electronics impairment and divestiture- related charges - - - - 3,213 0.09 Loss on divestiture of CPG and transaction- related charges - - - - 368 0.01 Adjustment on J&L divestiture and transaction- related charges - (333) 2,019 1,252 1,252 0.03 2007 Results, excl. special items $606,019 $411,973 $182,373 $116,000 $116,982 $2.99 RECONCILIATION TO GAAP - NINE MONTHS ENDED MARCH 31, 2006 (Unaudited) Income from (in thousands, except Gross Operating Operating Continuing Net Diluted per share amounts) Profit Expense Income Operations Income EPS 2006 Reported Results $608,132 $433,591 $169,651 $96,615 $92,087 $2.34 Loss on divestiture of Presto 7,355 - 8,047 8,047 8,047 0.20 CPG goodwill impairment charge - - - - 5,030 0.12 J&L transaction- related charge - (1,871) 1,871 1,160 1,160 0.03 2006 Results, excl. special items $615,487 $431,720 $179,569 105,822 106,324 2.69 RECONCILIATION TO GAAP - YEAR ENDED JUNE 30, 2006 (Unaudited) Income Diluted from EPS from Continuing Continuing (in thousands, except per share amounts) Operations Operations 2006 Reported Results $272,251 $6.88 Gain on divestiture of J&L recorded at corporate level (1,091) (0.03) J&L transaction-related charges recorded at corporate level 3,956 0.10 Tax impact of cash repatriation under AJCA 11,176 0.28 Loss on divestiture of Presto 9,457 0.24 Favorable resolution of tax contingencies (10,873) (0.27) Divestiture impact of J&L(f) (149,971) (3.79) 2006 Adjusted Results $134,905 $3.41 (f) Excludes the impact of commercial relationships entered into in connection with the divestiture transaction. RECONCILIATION OF ADJUSTED FREE OPERATING CASH FLOW INFORMATION (Unaudited): Nine Months Ended March 31, (in thousands) 2007 2006 Net cash flow provided by operating activities $113,442 $117,253 Purchases of property, plant and equipment (67,129) (49,458) Proceeds from disposals of property, plant and equipment 1,021 1,900 Free operating cash flow 47,334 69,695 Income taxes paid (refunded) during first quarter 86,236 (572) Adjusted free operating cash flow $133,570 $69,123 RETURN ON INVESTED CAPITAL (Unaudited): March 31, 2007 (in thousands, except percents) Invested Capital 3/31/2007 12/31/2006 9/30/2006 6/30/2006 3/31/2006 Average Debt $371,521 $376,472 $409,592 $411,722 $365,906 $387,043 Accounts receivable securitized - - - - 106,106 21,221 Minority interest 16,896 15,807 15,177 14,626 18,054 16,112 Shareowners' equity 1,431,235 1,369,748 1,319,599 1,295,365 1,115,110 1,306,211 Total $1,819,652 $1,762,027 $1,744,368 $1,721,713 $1,605,176 $1,730,587 Three Months Ended Interest Expense 3/31/2007 12/31/2006 9/30/2006 6/30/2006 Total Interest expense $6,915 $7,286 $7,427 $7,478 $29,106 Securitization fees 5 6 22 1,288 1,321 Total interest expense $6,920 $7,292 $7,449 $8,766 $30,427 Income tax benefit 9,843 Total interest expense, net of tax $20,584 Total Income 3/31/2007 12/31/2006 9/30/2006 6/30/2006 Total Net Income, as reported $51,738 $30,051 $30,361 $164,196 $276,346 Gain on divestiture of J&L - - 1,045 (132,001) (130,956) J&L transaction- related charges - - 207 2,796 3,003 Loss on divestiture of Electronics, impairment and transaction-related charges - 3,213 - 15,366 18,579 Tax impact of cash repatriation under AJCA - - - 11,176 11,176 Loss on divestiture of CPG, goodwill impairment and transaction-related charges - - 368 (2,192) (1,824) Loss on divestiture of Presto - - - 1,410 1,410 Favorable resolution of tax contingencies - - - (10,873) (10,873) Minority interest expense 757 642 557 525 2,481 Total Income, excluding special items $52,495 $33,906 $32,538 $50,403 $169,342 Total interest expense, net of tax 20,584 $189,926 Average invested capital $1,730,587 Adjusted Return on Invested 11.0% Capital Return on invested capital calculated utilizing net income, as reported is as follows: Net income, as reported $276,346 Total interest expense, net of tax 20,584 $296,930 Average invested capital $1,730,587 Return on Invested Capital 17.2% RETURN ON INVESTED CAPITAL (Unaudited): March 31, 2006 (in thousands, except percents) Invested Capital 3/31/2006 12/31/2005 9/30/2005 6/30/2005 3/31/2005 Average Debt $365,906 $410,045 $415,250 $437,374 $485,168 $422,749 Accounts receivable securi- tized 106,106 100,295 100,445 109,786 120,749 107,476 Minority interest 18,054 16,918 18,117 17,460 19,664 18,043 Share- owners' equity 1,115,110 1,045,974 1,009,394 972,862 1,021,186 1,032,905 Total $1,605,176 $1,573,232 $1,543,206 $1,537,482 $1,646,767 $1,581,173 Three Months Ended Interest Expense 3/31/2006 12/31/2005 9/30/2005 6/30/2005 Total Interest expense $7,728 $7,984 $7,829 $7,897 $31,438 Securitization fees 1,241 1,170 1,065 981 4,457 Total interest expense $8,969 $9,154 $8,894 $8,878 $35,895 Income tax benefit 12,599 Total interest expense, net of tax $23,296 Total Income 3/31/2006 12/31/2005 9/30/2005 6/30/2005 Total Net income, as reported $32,903 $31,087 $28,097 $37,740 $129,827 Loss on divesti- ture of Presto 8,047 - - - 8,047 CPG goodwill impairment charge 5,030 - - - 5,030 J&L transaction- related charges 1,160 - - - 1,160 Minority interest expense 782 511 748 238 2,279 Total income, excluding special items $47,922 $31,598 $28,845 $37,978 $146,343 Total interest expense, net of tax 23,296 $169,639 Average invested capital $1,581,173 Adjusted Return on Invested Capital 10.7% Return on invested capital calculated utilizing net income, as reported is as follows: Net income, as reported $129,827 Total interest expense, net of tax 23,296 $153,123 Average invested capital $1,581,173 Return on Invested Capital 9.7%
FCMN Contact: email@example.com
SOURCE: Kennametal Inc.
CONTACT: Investors, Quynh McGuire, +1-724-539-6559, or media, Joy
Chandler, +1-724-539-4618, both for Kennametal Inc.
Web site: http://www.kennametal.com/