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Kennametal Inc. today reported first quarter earnings of $0.43 per diluted share, a decrease of 17 percent, compared with pro forma earnings of $0.52 per diluted share last year, excluding special items in each period. On a reported basis, diluted earnings per share were $0.40 per share against last year's pro forma earnings per share of $0.44, down 9 percent. Pro forma earnings per share for fiscal 2001 reflect the non-amortization provisions of SFAS 142, "Goodwill and Other Intangible Assets" to allow equivalent comparisons.
Kennametal President and Chief Executive Officer, Markos I. Tambakeras, remarked, "We were pleased to deliver consensus results in light of the current environment, and continue to feel good about our relative strong performance in a broad manufacturing recession. Despite continuing diversification in products and geographies, our results declined as expected. Broad economic weakness began to spread to Europe and the rest of the world, while deepening in North America. Nonetheless, the steady progress we have made over the past two years to refocus and revitalize the company continues to yield benefits. We continue to adjust our cost structure in response to declining demand, while supporting programs that have increased our market share. Our steady focus on cash generation and debt reduction delivered a significant reduction in interest expense. This reduction coupled with ongoing tax planning initiatives to generate sustainable incremental benefits to the bottom line. We remain focused on near-term actions to continue to reduce costs while maintaining the core infrastructure and investment required to sustain future growth."
First Quarter Highlights * Sales of $406.7 million declined 10 percent versus $453.6 million last year. Excluding the unfavorable impact of foreign currency (2 percent), the ATS divestiture (1 percent) and a positive benefit from incremental workdays (1 percent), sales were 8 percent below the prior year. Sales growth in Europe in the low-single digits for the quarter and continued growth in Mining and Energy were offset by further weakness in North American industrial markets. * Gross profit margin of 31.9 percent declined 170 basis points versus the first quarter of fiscal 2001. Foreign currency and operating inefficiencies due to low volumes in two business units were the primary drivers of the decline. The impacted units were the Electronics business of our Advanced Materials Solutions Group and the IPG business of our Metalworking Solutions and Services Group. Price increases and incremental productivity improvements from lean enterprise implementation offset sales volume declines and modest increases in raw material costs in the rest of the company. * Operating expense for the quarter was reduced 9 percent to $99.9 million, excluding special charges. The elimination of waste and expense through lean initiatives and other cost-cutting measures nearly kept pace with the revenue decline. Excluding foreign exchange, operating expense declined 7 percent. * As previously announced, special charges of $1.6 million, or $0.03 per diluted share, for the JLK business improvement plan were included in the current quarter's results. Prior-year results included special charges of $3.2 million, or $0.06 per diluted share, related to the JLK business improvement plan and costs primarily related to the tender offer; and $0.6 million, net of tax, or $0.02 per diluted share, associated with the adoption of an accounting standard. * Net interest expense of $9.0 million is 30 percent below the same quarter last year due to ongoing reduction in debt and lower average interest rates. * The effective tax rate for the September 2001 quarter was 32.0 percent compared with pro forma prior year of 35.5 percent. The current rate primarily reflects a reduction of the statutory German tax rate. * Excluding special items, net income was $13.5 million, a 15 percent decrease compared to pro forma net income of $15.9 million last year. Reported net income was $11.5 million. * Free operating cash flow of $1.4 million met expectations as several one-time factors reduced the total for the quarter, while not decreasing expectations for the year. The results reflect lower pro forma profit, cash payments on fiscal 2001 accrued restructuring charges and a one-time tax payment. The tax payment will be recouped, and generate additional savings, later in fiscal 2002. Primary working capital was closely controlled despite the sales decline. This control is evident in the primary working capital as a percent of sales ratio of 27.5 percent, which compares to 28.3 percent in the same period last year. In addition, days in sales outstanding declined and inventory turns improved during the same period. Primary working capital in total of $474.7 million is down 5 percent from the same period last year. * Total debt was $628.1 million, down $44.5 million from September 2000, but up from $607.1 million at the beginning of the year. The increase from June was primarily driven by share repurchases of $12.4 million and the negative impact of currency on foreign-denominated debt. Debt reduction for the remainder of fiscal 2002 is expected to be on track to deliver the 35 percent to 40 percent debt to capital target. Outlook
Looking forward, Tambakeras said, "While we did not experience an acute immediate impact from the terrorist attacks last month, those events clearly slowed an already weak global economy. The resulting economic and political uncertainty limits our visibility over the next few quarters, so we are managing costs very closely. However, we remain determined to exploit business opportunities that still exist, while not compromising our long-term competitiveness by over-reacting to near-term factors. Over the past two years we have implemented a number of steps to make Kennametal a more formidable competitor. We have significantly improved our financial flexibility by improving the balance sheet and formalizing the processes to produce a more lean organization. Disciplined product innovation and strengthened customer relationships have provided market share gains. We will build on this foundation as we continue to execute our long-term strategy."
Given the current economic environment, sales for the second quarter of fiscal 2002 are expected to decline 8 to 15 percent, with diluted earnings per share between $0.30 and $0.40, excluding special charges. The timing of economic improvement remains uncertain. However, based on current assessments, we are forecasting diluted earnings per share for the year to range from $2.30 to $2.60, excluding special charges. Cash flow for the year should still attain the ongoing long-term range of $100 million to $150 million.
First quarter results will be discussed in a live broadcast over the Internet at 10 a.m. today. The live conference can be accessed by visiting the Investor Relations section of Kennametal's corporate web site at http://www.kennametal.com/.
Kennametal also announced its Board of Directors declared a quarterly cash dividend of $0.17 cents per share, payable November 23, 2001, to shareowners of record as of the close of business November 9, 2001.
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 deteriorate or do not improve materially in the second half of our fiscal year, risks associated with integrating and divesting businesses, demands on management resources, risks associated with international markets such as currency exchange rates and social and political environments, competition, commodity prices, risks associated with the implementation of restructuring plans, as well as other risks and uncertainties including those detailed from time to time in the filings of the company with the Securities and Exchange Commission. The company undertakes no obligation to publicly release any revisions to forward-looking statements to reflect events or circumstances occurring after the date hereof.
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 approximately 12,000 employees worldwide, the company's fiscal 2001 annual sales were $1.8 billion, with a third coming from sales outside the United States. Kennametal is a five-time winner of the GM "Supplier of the Year" award 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. For more information, visit the company's web site at http://www.kennametal.com/
Consolidated financial highlights for Kennametal Inc. for the quarters ended September 30, 2001 and 2000 are shown in the following tables (in thousands, except per share amounts). All fiscal year 2002 data is subject to year-end (June 30) adjustment and audit by independent public accountants.
Consolidated Statements of Income Quarter Ended September 30, 2001 2000 Net sales $406,654 $453,635 Cost of goods sold 276,815 301,019 Gross profit 129,839 152,616 Operating expense(1) 99,877 111,286 Restructuring and asset impairment charges 1,578 1,535 Amortization of intangibles 690 6,323 Operating income 27,694 33,472 Interest expense 9,041 12,885 Other expense, net(2) 54 2,868 Income before provision for income taxes and minority interest 18,599 17,719 Provision for income taxes 5,951 7,176 Minority interest 204 602 Income before cumulative effect of change in accounting principle 12,444 9,941 Cumulative effect of change in accounting principle, net of tax(3) -- (599) Net income $12,444 $9,342 Diluted earnings per share $0.40 $0.30 Dividends per share $0.17 $0.17 Diluted weighted average shares outstanding 31,435 30,742
(1) For the quarter ended September 30, 2000, this includes a charge of $1.7 million, primarily related to the tender offer to acquire the outstanding shares of JLK.
(2) For the quarters ended September 30, 2001 and 2000, these amounts include charges of $0.9 million and $1.6 million, respectively, for fees incurred in connection with the company's accounts receivable securitization program.
(3) For the quarter ended September 30, 2000, this amount represents a non-cash charge for the adoption of Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities."
Pro forma SFAS 142 Operating Results - Quarter Ended September 30, 2000: Operating income $38,872 Interest expense 12,885 Other expense, net 2,868 Income before provision for income taxes and minority interest 23,119 Provision for income taxes 8,207 Minority interest 760 Income before cumulative effect of change in accounting principle 14,152 Cumulative effect of change in accounting principle, net of tax (599) Pro forma net income $13,553 Pro forma diluted earnings per share $0.44 Supplemental Data Sheet SELECTED OPERATING DATA: Quarter Ended September 30, 2001 2000(1) Sales:(2) Metalworking Solutions and Services Group $222,957 $248,677 Advanced Materials Solutions Group 83,005 87,511 J&L Industrial Supply 59,121 76,623 Full Service Supply 41,571 40,824 Total Sales $406,654 $453,635 Sales By Geographic Region:(2) Within the United States $265,726 $305,027 International 140,928 148,608 Total Sales $406,654 $453,635 Operating Income (Loss), as reported:(2) Metalworking Solutions and Services Group $24,671 $28,759 Advanced Materials Solutions Group 10,363 11,191 J&L Industrial Supply 732 (1,195) Full Service Supply 1,172 2,007 Corporate and Eliminations (9,244) (7,290) Total Operating Income $27,694 $33,472 Operating Income (Loss), excluding special charges:(2) Metalworking Solutions and Services Group $24,661 $28,727 Advanced Materials Solutions Group 10,363 11,191 J&L Industrial Supply 2,350 1,972 Full Service Supply 1,142 2,157 Corporate and Eliminations (9,244) (7,310) Total Operating Income $29,272 $36,737 Cash Flow Information: Net income $12,444 $9,342 Non-cash items (1,153) 2,989 Depreciation and amortization 18,712 24,566 Change in primary working capital (5,429) 18,554 Change in other working capital (15,747) (7,117) Cash flow from operations 8,827 48,334 Capital expenditures (10,027) (11,471) Proceeds from asset disposals 2,605 84 Free operating cash flows $1,405 $36,947 SELECTED BALANCE SHEET DATA: Quarter Ended 9/30/01 6/30/01 3/31/01 12/31/00 9/30/00 Accounts Receivable $196,003 $206,175 $214,332 $203,344 $218,863 Inventory 382,701 373,221 387,520 389,460 392,741 Accounts Payable (103,993) (118,073) (108,371) (102,217) (111,873) Total Primary Working Capital (PWC) $474,711 $461,323 $493,481 $490,587 $499,731 PWC % Sales(3) 27.5% 27.3% 27.7% 27.8% 28.3% Debt $628,061 $607,115 $654,930 $687,487 $672,593 Debt/Total Capital 43.6% 42.9% 45.1% 46.7% 44.7%
(1) Kennametal reports global business units consisting of Metalworking Solutions and Services 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.
(2) Amounts reflect reclassification of shipping fees charged customers to sales, and freight and handling costs to costs of goods sold, as required by Emerging Issues Task Force 00-10, "Accounting for Shipping and Handling Fees and Costs."
(3) 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,