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COVID-19: How Kennametal is responding

LATROBE, Pa., May 1, 2014 /PRNewswire/ -- Kennametal Inc. (NYSE: KMT) today reported results for the fiscal third quarter 2014, with earnings per diluted share (EPS) of $0.64, compared with the prior year quarter EPS of $0.67. The current quarter adjusted EPS were $0.74, absent nonrecurring charges and the results of the Tungsten Materials Business (TMB).

"We delivered solid results in the March quarter," said Kennametal Chairman, President and CEO Carlos Cardoso. "We continued to experience growth in industrial markets such as general engineering and transportation. Customer demand related to our served infrastructure markets have stabilized in certain areas, but remain somewhat mixed. As always, we will stay focused on further improving margins and cash flows."

Cardoso added, "The integration of our Tungsten Materials Business is on-track to deliver key objectives. The related restructuring actions are expected to result in productivity improvements as well as significant cost savings. We remain dedicated to building on our respective strengths to bring even greater value for the combined entity."

Fiscal 2014 Third Quarter Key Developments

  • Sales were $755 million, compared with $655 million in the same quarter last year. Sales increased by 15 percent, reflecting a 12 percent increase from the TMB acquisition, a 3 percent organic increase and a 1 percent increase from more business days, partially offset by a 1 percent decrease from unfavorable currency exchange.
  • Operating income was $77 million, compared with $75 million in the same quarter last year. Excluding nonrecurring charges and TMB results, adjusted operating income was $86 million. Operating margin was 10.2 percent, compared with an operating margin of 11.4 percent in the prior year. Adjusted operating margin was 12.7 percent.
  • The reported effective tax rate was 24.1 percent compared to 18.5 percent in the prior year quarter. The prior year rate was favorably impacted by the extension of the credit for increasing research activities contained in the American Taxpayer Relief Act of 2012 that was enacted in the March 2013 quarter.
  • During the quarter, TMB contributed sales of $78 million and on-going operating income of $3 million or $0.01 per share, excluding the inventory step-up purchase accounting impact of $8 million or $0.07 per share. Integration efforts are on-track related to the acquisition.
  • Restructuring and related charges of $3 million pre-tax or $0.02 per share were incurred during the current quarter.
  • EPS were $0.64, compared with the prior year quarter EPS of $0.67. Adjusted EPS were $0.74 in the current year period.
  • Adjusted return on invested capital (ROIC) was 7.8 percent as of March 31, 2014 due to increased debt related to acquisitions.
  • Year-to-date, the company generated $153 million in cash flow from operating activities, compared with $150 million in the prior year period. Net capital expenditures were $85 million and $52 million for the nine months ended March 31, 2014 and 2013, respectively. The company realized free operating cash flow of $68 million compared with $98 million for the same period last year.

Segment Developments for the Fiscal 2014 Third Quarter

  • Industrial segment sales of $400 million increased 13 percent from $353 million in the prior year quarter. This increase was due to 8 percent growth related to the TMB acquisition, 5 percent organic growth and a 1 percent increase due to more business days, partially offset by a 1 percent decrease from unfavorable currency exchange.
  • Excluding TMB, Industrial sales increased 8 percent in general engineering and 5 percent in transportation, partially offset by a 3 percent decrease in aerospace and defense. General engineering increased due to continued demand from distribution channels and the transportation market benefited from increased demand in the light vehicle markets world-wide. Aerospace and defense reflected higher comparables related to government orders in the prior year quarter. Sales increased in all geographies. On a regional basis sales increased 11 percent in Asia, 9 percent in Europe and 1 percent in the Americas due to the weather effects in North America.
  • Industrial segment operating income was $51 million for both the current and prior year periods. Excluding nonrecurring charges and TMB results, adjusted operating income was $58 million. Industrial adjusted operating margin was 15.6 percent compared with 14.5 percent in the prior year.
  • Infrastructure segment sales of $356 million increased 18 percent from $303 million in the prior year. The increase was driven by 16 percent growth related to the TMB acquisition and a 3 percent favorable impact from more business days, partially offset by a 1 percent decrease due to unfavorable currency exchange. Organic growth was flat.
  • Excluding TMB, Infrastructure sales increased by 9 percent in energy, partially offset by a decrease of 6 percent in earthworks. Energy sales continued to improve year over year, reflecting improving demand in oil and gas drilling activity in the U.S., coupled with continued gains in production, completion and process applications. Earthworks sales decreased due to persistently weak underground coal and surface mining markets in the U.S. and China. On a regional basis sales grew 4 percent in Europe and 3 percent in the Americas even with the weather impacts in North America, partially offset by a decrease of 9 percent in Asia.
  • Infrastructure segment operating income was $28 million, compared with $26 million in the same quarter of the prior year. Excluding nonrecurring charges and TMB results, adjusted operating income was $31 million. Infrastructure adjusted operating margin was 10.2 percent compared with 8.6 percent in the prior year.

As previously disclosed, segment results were restated for certain sales reclassifications based on products and technologies.

Fiscal 2014 Year-To-Date Key Developments

  • Sales were $2,065 million, compared with $1,918 million in the same period last year. Sales increased by 8 percent, driven by 6 percent growth related to the TMB acquisition and 2 percent increase due to more business days.
  • Operating income was $185 million, compared with $206 million in the same period last year. Excluding nonrecurring charges and TMB results, adjusted operating income was $208 million. Operating margin was 9.0 percent compared with an operating margin of 10.7 percent in the prior year. Adjusted operating margin was 10.7 percent.
  • Restructuring and related charges of $5 million pre-tax or $0.04 per share were recorded year-to-date.
  • EPS were $1.42, compared with the prior year period EPS of $1.76. Adjusted EPS was $1.74 in the current year period.

Earnings Per Diluted Share Reconciliation for the Quarter and Year-To-Date Periods ended March 31, 2014

 

FY 2014

Third Quarter

Year-To-Date

Reported EPS

$

0.64


$

1.42


TMB results:



     Base operating income

(0.04)


(0.05)


     Depreciation and amortization step-up

0.03


0.05


     On-going operating income

(0.01)






     Inventory step-up

0.07


0.14


Acquisition-related charges

0.02


0.05


Restructuring and related charges

0.02


0.04


Tax repatriation expense


0.09


Adjusted EPS

$

0.74


$

1.74


 

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

The company now expects fiscal 2014 total sales growth in the range of 10 to 11 percent. TMB is estimated to contribute 7 to 8 percent sales growth. Organic sales growth is projected to range from 2 to 3 percent. Previously, the company had forecast total sales growth ranging from 12 to 13 percent, with organic sales growth ranging from 2 to 4 percent.

With one quarter remaining in fiscal 2014, Kennametal is tightening its EPS guidance to range from $2.60 to $2.70, compared with previous expectations of $2.60 to $2.75. These ranges exclude the impact of the TMB acquisition and nonrecurring items.

Below is a detail of the fiscal year 2014 guidance related to the Kennametal base business, the TMB acquisition impact and nonrecurring items.

 

Fiscal Year 2014 Guidance:


KMT base business

$2.60 - $2.70



TMB results:


     Base operating income

$0.10 - $0.15

     Depreciation and amortization step-up

($0.07 - $0.09)

Total on-going operations

$2.63 - $2.76



Nonrecurring charges:


     TMB Inventory step-up

($0.14)

     Acquisition-related charges

($0.03 - $0.06)

     Restructuring and related charges

($0.10 - $0.15)

     Tax repatriation expense

($0.09)

     Total nonrecurring charges

($0.36 - $0.44)

 

The company continues to expect to generate cash flow from operations ranging from $280 million and $310 million for fiscal 2014. Based on anticipated capital expenditures of approximately $130 million to $140 million, the company expects to generate between $150 million and $170 million of free operating cash flow for the fiscal year.

Dividend Declared

Kennametal also announced that its board of directors declared a quarterly cash dividend of $0.18 per share. The dividend is payable May 28, 2014 to shareowners of record as of the close of business on May 13, 2014.

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 2014 third quarter results in a live webcast at 10:00 a.m. Eastern Time 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 June 2, 2014.

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 2014 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; global or regional catastrophic events; energy costs; commodity prices; labor relations; demand for and market acceptance of new and existing products; 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 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.

Celebrating more than 75 years as an industrial technology leader, Kennametal Inc. delivers productivity to customers seeking peak performance in demanding environments. The company provides innovative wear-resistant products, application engineering and services backed by advanced material science, serving customers in 60 countries across diverse sectors of aerospace, earthworks, energy, industrial production, transportation and infrastructure. With approximately 14,000 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

March 31,

Nine Months Ended

March 31,

(in thousands, except per share amounts)

2014


2013

2014


2013

Sales

$

755,242



$

655,360


$

2,064,986



$

1,917,963


Cost of goods sold

516,287



446,865


1,420,823



1,301,673


     Gross profit

238,955



208,495


644,163



616,290


Operating expense

152,298



128,328


434,983



394,967


Restructuring charges

2,703




5,013




Amortization of intangibles

7,124



5,194


18,791



15,501


     Operating income

76,830



74,973


185,376



205,822


Interest expense

8,883



7,504


24,001



20,430


Other expense (income), net

(561)



749


906



502


     Income from continuing operations before income taxes

68,508



66,720


160,469



184,890


     Provision for income taxes

16,514



12,344


45,750



40,158


Net income

51,994



54,376


114,719



144,732


Less: Net income attributable to noncontrolling interests

1,129



460


1,808



2,285


Net income attributable to Kennametal

$

50,865



$

53,916


$

112,911



$

142,447


PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL SHAREOWNERS




Basic earnings per share

$

0.65



$

0.68


$

1.44



$

1.79


Diluted earnings per share

$

0.64



$

0.67


$

1.42



$

1.76


Dividends per share

$

0.18



$

0.16


$

0.54



$

0.48


Basic weighted average shares outstanding

78,718



79,294


78,631



79,744


Diluted weighted average shares outstanding

79,744



80,619


79,622



80,912


 

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)










(in thousands)

March 31, 2014


June 30, 2013

 ASSETS




Cash and cash equivalents

$

161,819



$

377,316


Accounts receivable, net

528,454



445,322


Inventories

738,857



578,795


Other current assets

109,919



98,040


Total current assets

1,539,049



1,499,473


Property, plant and equipment, net

885,627



741,482


Goodwill and other intangible assets, net

1,323,749



944,520


Other assets

126,818



115,564


Total assets

$

3,875,243



$

3,301,039


 LIABILITIES




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

     payable

$

113,424



$

44,319


Accounts payable

203,669



190,623


Other current liabilities

272,245



232,651


Total current liabilities

589,338



467,593


Long-term debt and capital leases

1,022,129



703,626


Other liabilities

329,218



317,527


Total liabilities

1,940,685



1,488,746


KENNAMETAL SHAREOWNERS' EQUITY

1,901,801



1,781,826


NONCONTROLLING INTERESTS

32,757



30,467


Total liabilities and equity

$

3,875,243



$

3,301,039


















SEGMENT DATA (UNAUDITED)

Three Months Ended

March 31,

Nine Months Ended

March 31,

(in thousands)

2014


2013

2014


2013

Outside Sales:







Industrial

$

399,669



$

352,793


$

1,108,546



$

1,023,994


Infrastructure

355,573



302,567


956,440



893,969


Total outside sales

$

755,242



$

655,360


$

2,064,986



$

1,917,963


Sales By Geographic Region:







North America

$

351,532



$

289,508


$

923,100



$

852,675


Western Europe

238,260



199,225


641,548



559,812


Rest of World

165,450



166,627


500,338



505,476


Total sales by geographic region

$

755,242



$

655,360


$

2,064,986



$

1,917,963


Operating Income:







Industrial

$

51,403



$

51,173


$

124,441



$

131,177


Infrastructure

28,012



26,120


68,305



81,623


Corporate (1)

(2,585)



(2,320)


(7,370)



(6,978)


Total operating income

$

76,830



$

74,973


$

185,376



$

205,822


(1) Represents unallocated corporate expenses.


NOTE: Previously disclosed segment results were restated for certain sales reclassifications based on products and technologies.

 

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, net income, diluted EPS, Industrial sales, Industrial operating income and margin, Infrastructure sales, Infrastructure 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 used 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 MARCH 31, 2014 - (UNAUDITED)







(in thousands, except percents)

Sales

Operating Income

Net Income (2)

Diluted EPS

2014 Reported Results

$

755,242


76,830


$

50,865


$

0.64


2014 Reported Operating Margin


10.2 %




TMB results:





     Base results

(77,667)


(7,380)


(3,892)


(0.04)


     Depreciation & amortization step-up


3,917


2,488


0.03


     Inventory step-up


7,721


5,769


0.07


Acquisition-related charges


2,446


1,703


0.02


Restructuring and related charges


2,779


1,747


0.02


2014 Adjusted Results

$

677,575


$

86,313


$

58,680


$

0.74


2014 Adjusted Operating Margin


12.7 %




(2) Represents amounts attributable to Kennametal Shareowners.















THREE MONTHS ENDED MARCH 31, 2014 - (UNAUDITED)







(in thousands, except percents)

Industrial

Sales

Infrastructure

Sales

Industrial

Operating Income

Infrastructure

Operating Income

2014 Reported Results

$

399,669


$

355,573


$

51,403


$

28,012


2014 Reported Operating Margin



12.9 %


7.9 %


TMB results:





     Base sales and operating income

(28,394)


(49,273)


(2,858)


(4,522)


     Depreciation & amortization step-up



1,279


2,638


     Inventory step-up



5,412


2,309


Acquisition-related charges



955


1,491


Restructuring and related charges



1,569


1,210


2014 Adjusted Results

$

371,275


$

306,300


$

57,760


$

31,138


2014 Adjusted Operating Margin



15.6 %


10.2 %
















NINE MONTHS ENDED MARCH 31, 2014 - (UNAUDITED)








(in thousands, except percents)

Sales

Operating Income

Net Income (2)

Diluted EPS

2014 Reported Results

$

2,064,986


$

185,376


$

112,911


$

1.42


2014 Reported Operating Margin


9.0 %




TMB results:





     Base results

(122,493)


(9,267)


(3,801)


(0.05)


     Depreciation & amortization step-up


5,990


3,816


0.05


     Inventory step-up


15,420


11,518


0.14


Acquisition-related charges


5,278


3,734


0.05


Restructuring and related charges


5,091


3,482


0.04


Tax repatriation expense



7,170


0.09


2014 Adjusted Results

$

1,942,493


$

207,888


$

138,830


$

1.74


2014 Adjusted Operating Margin


10.7 %














FREE OPERATING CASH FLOW (UNAUDITED)


Nine Months Ended



March 31,

(in thousands)


2014


2013

Net cash flow from operating activities


$

153,242



$

150,358


Purchases of property, plant and equipment


(85,961)



(53,808)


Proceeds from disposals of property, plant and equipment


928



1,763


Free operating cash flow


$

68,209



$

98,313


 

RETURN ON INVESTED CAPITAL (UNAUDITED)

March 31, 2014 (in thousands, except percents)



























Invested Capital


3/31/2014


12/31/2013


9/30/2013


6/30/2013


3/31/2013


Average

Debt


$

1,135,553



$

1,145,729



$

706,331



$

747,945



$

751,030



$

897,318


Total equity


1,934,558



1,903,304



1,873,194



1,812,293



1,753,834



1,855,437


Total


$

3,070,111



$

3,049,033



$

2,579,525



$

2,560,238



$

2,504,864



$

2,752,755






Three Months Ended

Interest Expense




3/31/2014


12/31/2013


9/30/2013


6/30/2013


Total

Interest expense




$

8,883



$

8,037



$

7,081



$

7,042



$

31,043


Income tax benefit












7,792


Total interest expense, net of tax










$

23,251


Net Income




3/31/2014


12/31/2013


9/30/2013


6/30/2013


Total

Net income attributable to

     Kennametal, as reported




$

50,865



$

24,209



$

37,837



$

60,818



$

173,729


Acquisition-related

     charges




1,703



1,258



775





3,736


Restructuring and related

     charges




1,747



1,733







3,480


Tax repatriation expense






7,170







7,170


Noncontrolling interest




1,129



(42)



721



1,366



3,174


Net income, adjusted




$

55,444



$

34,328



$

39,333



$

62,184



$

191,289


Total interest expense, net of tax










23,251














$

214,540


Average invested capital












$

2,752,755


Adjusted Return on Invested Capital










7.8 %


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



Net income attributable to Kennametal, as reported


$

173,729


Total interest expense, net of tax


23,251




$

196,980


Average invested capital


$

2,752,755


Return on Invested Capital


7.2 %


 

SOURCE Kennametal Inc.