Kennametal Inc. today reported fiscal 2005 second-quarter EPS of $0.74 compared with prior year adjusted EPS of $0.34. Second quarter EPS exceeded October guidance and there were no special items. Reported EPS in last year's second quarter were $0.30 and included special items totaling $0.04. As previously stated, the effective tax rate in the second quarter was 20 percent compared to prior year's rate of 32 percent.

                              EPS Summary
             Company Guidance (10/27/04):  $0.60 to $0.65
                      (Updated to $0.74 on 01/14/05)

           Analyst Estimate Range (01/13/05):  $0.61 to $0.72

                          Reported EPS:  $0.74

For the first six months of fiscal 2005, EPS were $1.35 compared with prior year adjusted EPS of $0.68. Reported EPS for the prior year period were $0.54 and included special items totaling $0.14.

Kennametal Chairman, President and Chief Executive Officer, Markos I. Tambakeras, said, "We were very pleased to deliver record sales and earnings in the December quarter. Broad market momentum exceeded even our robust expectations, with contributions from all geographies and nearly every end market. The return to good growth in Europe was particularly encouraging. Effective execution of our strategy through the deployment of the Kennametal Value Business System is allowing us to leverage improved market conditions into strong penetration of new markets, and the gain of new customers. Metalworking and the J&L distribution business were notable earnings growth drivers."

  Highlights of the Fiscal 2005 Second Quarter

   -- Record sales up 21 percent on 16 percent organic sales growth,
      3 percent benefit from foreign currency exchange and 2 percent from
      acquisitions.
   -- Reported net income was $28 million versus $11 million in the same
      quarter last year, as improved sales volume was leveraged against a
      more productive operating structure and a lower tax rate in the
      current quarter.
   -- Net cash flow from operations was $51 million versus $43 million last
      year.  Free operating cash flow was maintained at the prior year level
      of $34 million.
   -- As of December 31, 2004, total debt was $405 million, down $35 million
      from June 2004 and down $76 million from December 31, 2003.
   -- Debt to capital decreased to 28 percent versus 37 percent at the end
      of the prior year quarter.
   -- Adjusted Return on Invested Capital improved 310 basis points to
      8.6 percent versus 5.5 percent in the prior year.

  Highlights of the Fiscal 2005 First Half

   -- Record sales up 20 percent on 15 percent organic sales growth,
      3 percent benefit from foreign currency exchange and 2 percent from
      acquisitions.
   -- Reported net income was $51 million versus $20 million in the same
      period last year, reflecting the benefits of increased volume and a
      leaner cost structure.
   -- Net cash flow from operations was $83 million versus $55 million last
      year.  Free operating cash flow totaled $51 million for the six-month
      period versus $36 million in last year's comparable period, with
      growth in cash from operations more than offsetting increased capital
      expenditures.

  Acquisition

Kennametal Inc. today separately announced that it has signed a definitive agreement to purchase Extrude Hone Corporation for approximately $137 million, net of acquired cash and estimated direct acquisition costs. The acquisition, which is expected to close by the end of March, remains subject to customary regulatory approval and negotiated conditions of closing.

The acquisition is expected to be modestly accretive to both earnings and margins beginning in the June quarter of FY05. Kennametal plans to fund the acquisition through existing credit facilities.

Outlook

The broad nature of the strong demand experienced through the fiscal first half strengthened expectations of sustained economic strength in global manufacturing sectors throughout the remainder of fiscal 2005.

Tambakeras said, "While we are pleased with our record December quarter, we remain focused on continuing to leverage the market environment for further customer and market penetration. This drive to deliver continued growth remains balanced by a relentless focus on cost control and cash flow."

Organic sales for the third quarter of fiscal 2005 are expected to grow 8 to 10 percent, despite tougher comparisons. Reported EPS is expected to be $0.80 to $0.85. The effective tax rate for the third quarter is expected to be between 37 and 38 percent (this is an increase versus prior expectations of 35 percent). The full year rate is still expected to be approximately 32 percent, consistent with original guidance. As stated previously, the execution of a business strategy, as well as the impact of tax planning, will result in fluctuations of the tax rate from quarter to quarter with a full year rate expected to be approximately 32 percent.

For the full year, organic sales are expected to grow 11 to 13 percent. Reported EPS are expected to be $3.05 to $3.15, up about 40 to 45 percent from the previous year.

Kennametal anticipates net cash flow provided by operating activities of approximately $185 to $215 million, or between 8 and 9 percent of sales, in fiscal 2005. Purchases of property, plant and equipment, net of proceeds from disposals of property, plant and equipment are expected to be approximately $70 to $80 million. Adjusting net cash flow provided by operating activities for the above items, Kennametal expects to generate between $115 and $135 million of free operating cash flow for fiscal 2005.

Kennametal advises shareholders 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 .

Dividend Declared

Kennametal also announced its Board of Directors declared a quarterly cash dividend of $0.17 cents per share, payable February 23, 2005, to shareowners of record as of the close of business on February 8, 2005.

Second quarter results will be discussed in a live Internet broadcast at 10:00 a.m. (Eastern) today. Access the live or archived conference by visiting the Investor Relations section of Kennametal's corporate web site at www.kennametal.com .

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. You can identify these 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. One can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements are likely to relate to, among other things, our goals, plans and projections regarding our financial position, results of operations, market position and product development, 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. Although it is not possible to predict or identify all factors, they may include the following: global economic conditions; future terrorist attacks; epidemics; risks associated with integrating and divesting businesses and achieving the expected savings and synergies; demands on management resources; risks associated with international markets such as currency exchange rates, and social and political environments; competition; labor relations; commodity prices; demand for and market acceptance of new and existing products; and risks associated with the implementation of restructuring plans 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 undertake no obligation to release publicly any revisions to forward-looking statements as a result of future events or developments.

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 about 14,000 employees worldwide, the company's annual sales approximate $2.0 billion, with nearly half 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 www.kennametal.com .

FINANCIAL HIGHLIGHTS

Consolidated financial highlights for Kennametal Inc. for the quarters ended December 31, 2004 and 2003 are shown in the following tables (in thousands, except per share amounts).

  Consolidated Statements of Income (Unaudited)

                                  Quarter Ended        Six Months Ended
                                   December 31,           December 31,
                                 2004      2003         2004       2003

  Sales                       $556,218  $460,778   $1,087,654   $905,353
     Cost of goods sold (1)    374,804   313,146      732,845    613,614
  Gross profit                 181,414   147,632      354,809    291,739
     Operating expense (2)     139,513   124,723      270,462    245,962
     Restructuring and asset
      impairment charges             -     3,120            -      3,670
     Amortization of intangibles   634       486        1,171        956
  Operating income              41,267    19,303       83,176     41,151
     Interest expense            6,121     6,547       12,577     13,147
     Other income, net (3)      (1,240)   (3,855)      (2,814)    (2,518)
  Income before provision
   for income taxes
   and minority interest        36,386    16,611       73,413     30,522
  Provision for income taxes     7,277     5,315       20,607      9,767
  Minority interest                928       404        1,905      1,099
  Net income                   $28,181   $10,892      $50,901    $19,656
  Basic earnings per share       $0.77     $0.31        $1.39      $0.55
  Diluted earnings per share     $0.74     $0.30        $1.35      $0.54
  Dividends per share            $0.17     $0.17        $0.34      $0.34
  Basic weighted average
   shares outstanding           36,744    35,604       36,550     35,470
  Diluted weighted average
   shares outstanding           38,016    36,260       37,702     36,124

  1) For the quarter ended December 31, 2003, these amounts include charges
     of $0.8 million for a pension curtailment. For the six months ended
     December 31, 2003, these amounts include charges of $0.1 million for
     integration activities related to the Widia acquisition, $2.9 million
     related to restructuring programs, and $0.8 million for a pension
     curtailment.

  2) For the quarter ended December 31, 2003, these amounts include charges
     of $1.8 million related to a reserve for a note receivable from a
     divestiture of a business by Kennametal in 2002, and $0.5 million
     related to a pension curtailment.  For the six months ended
     December 31, 2003, these amounts include charges of $1.8 million
     related to a reserve for a note receivable from a divestiture of a
     business by Kennametal in 2002, $0.5 million related to a pension
     curtailment, and $1.4 million for integration activities related to the
     Widia acquisition.

  3) For the quarter and six months ended December 31, 2003, these amounts
     include income of $4.4 million related to a gain on the sale of Toshiba
     Tungaloy investment and a charge of $0.2 million on a reserve for a
     note receivable from a divestiture of a business by Kennametal in 2002.

In addition to reported results under U.S. GAAP, the following financial highlight tables also include, where appropriate, a reconciliation of results excluding special items and free operating cash flow (which are non-GAAP measures), to the most directly comparable GAAP measures. Management believes that each of these non-GAAP financial measures is useful to investors to more easily compare the Company's financial performance period to period.

For the quarter and six months ended December 31, 2004, there were no special items.

  RECONCILIATION TO GAAP - QUARTER ENDED DECEMBER 31, 2003 (Unaudited)

                                                    Other           Diluted
                               Operating Operating (Income)/  Net   Earnings
                   Gross Profit  Expense  Income   Expense  Income Per Share

  2003 Reported
   Results             $147,632 $124,723  $19,303  $(3,855) $10,892  $0.30
     MSSG restructuring       7        -    1,630        -    1,109   0.03
     AMSG restructuring       -        -    1,497        -    1,018   0.03
     Pension curtailment    779     (520)   1,299        -      883   0.02
     Gain on Toshiba
      investment              -        -        -    4,397   (2,990) (0.08)
     Note receivable          -   (1,817)   1,817     (183)   1,360   0.04
  2003 Results, excluding
   special items       $148,418 $122,386  $25,546     $359  $12,272  $0.34

EPS for the quarter ended December 31, 2004 of $0.74 is up 118 percent from adjusted EPS of $0.34 and 147 percent from reported EPS of $0.30 for the quarter ended December 31, 2003.

  RECONCILIATION TO GAAP - SIX MONTHS ENDED DECEMBER 31, 2003 (Unaudited)

                                                    Other           Diluted
                               Operating Operating (Income)/  Net   Earnings
                   Gross Profit  Expense  Income   Expense  Income Per Share

  2003 Reported
   Results             $291,739 $245,962  $41,151  $(2,518) $19,656  $0.54
     MSSG restructuring   2,850        -    5,023        -    3,416   0.10
     AMSG restructuring       -        -    1,497        -    1,018   0.03
     Widia integration
      costs - MSSG           63   (1,448)   1,511        -    1,027   0.03
     Widia integration
      costs - AMSG           48        -       48        -       33      -
     Pension curtailment    779     (520)   1,299        -      883   0.02
     Gain on Toshiba
      investment              -        -        -    4,397   (2,990) (0.08)
     Note receivable          -  ( 1,817)   1,817     (183)   1,360   0.04
  2003 Results, excluding
   special items       $295,479 $242,177  $52,346   $1,696  $24,403  $0.68

  EPS for the period ended December 31, 2004 of $1.35 is up 99 percent from
  adjusted EPS of $0.68 and 150 percent from reported EPS of $0.54 for the
  period ended December 31, 2003.



  SEGMENT DATA (Unaudited):

                                      Quarter Ended        Six Months Ended
                                       December 31,          December 31,
                                     2004      2003        2004       2003
  Outside Sales:
  Metalworking Solutions and
   Services Group                  $336,230  $283,493    $652,100  $554,622
  Advanced Materials Solutions
   Group                            122,327    94,751     240,213   188,382
  J&L Industrial Supply              61,338    50,341     122,755    98,480
  Full Service Supply                36,323    32,193      72,586    63,869
  Total Outside Sales              $556,218  $460,778  $1,087,654  $905,353

  Sales By Geographic Region:
  Within the United States         $301,524  $252,734    $603,307  $501,645
  International                     254,694   208,044     484,347   403,708
  Total Sales by Geographic
   Region                          $556,218  $460,778  $1,087,654  $905,353

  Operating Income (Loss),
   as reported:
  Metalworking Solutions and
   Services Group                   $42,723   $22,684     $81,595   $46,186
  Advanced Materials Solutions
   Group                             13,869     9,407      28,402    21,229
  J&L Industrial Supply               5,866     4,306      11,587     6,991
  Full Service Supply                   546      (159)        666      (440)
  Corporate and eliminations (1)    (21,737)  (16,935)    (39,074)  (32,815)
  Total Operating Income,
   as reported                      $41,267   $19,303     $83,176   $41,151

  Operating Income (Loss),
   excluding special items:
  Metalworking Solutions and
   Services Group                   $42,723   $24,314     $81,595   $52,720
  Advanced Materials Solutions
   Group                             13,869    10,904      28,402    22,774
  J&L Industrial Supply               5,866     4,306      11,587     6,991
  Full Service Supply                   546      (159)        666      (440)
  Corporate and eliminations (1)    (21,737)  (13,819)    (39,074)  (29,699)
  Total Operating Income,
   excluding special items          $41,267   $25,546     $83,176   $52,346

  (1) Includes corporate functional shared services and intercompany
      eliminations.



  OPERATING INCOME (LOSS) RECONCILIATION (Unaudited):

For the quarter and six months ended December 31, 2004, there were no special items.

                                        QUARTER ENDED DECEMBER 31,
                               MSSG    AMSG    J&L   FSS  Corp & Elim  Total
  2003 Reported
   Operating Income (Loss)   $22,684  $9,407 $4,306 $(159) $(16,935) $19,303
     Restructuring             1,630   1,497      -     -         -    3,127
     Pension curtailment           -       -      -     -     1,299    1,299
     Note receivable               -       -      -     -     1,817    1,817
  2003 Operating Income
   (Loss), excluding
   special items             $24,314 $10,904 $4,306 $(159) $(13,819) $25,546



                                       SIX MONTHS ENDED DECEMBER 31,
                               MSSG    AMSG    J&L   FSS  Corp & Elim  Total
  2003 Reported
   Operating Income (Loss)   $46,186 $21,229 $6,991 $(440) $(32,815) $41,151
     Restructuring             5,023   1,497      -     -         -    6,520
     Widia integration
      costs                    1,511      48      -     -         -    1,559
     Pension curtailment           -       -      -     -     1,299    1,299
     Note receivable               -       -      -     -     1,817    1,817
  2003 Operating Income
   (Loss), excluding
   special items             $52,720 $22,774 $6,991 $(440) $(29,699) $52,346



  RECONCILIATION TO FREE OPERATING CASH FLOW INFORMATION (Unaudited):

                                         Quarter Ended     Six Months Ended
                                          December 31,        December 31,
                                         2004      2003      2004     2003

  Net income                           $28,181   $10,892   $50,901  $19,656
  Other non-cash items                  (1,235)    4,746     4,047   11,219
  Depreciation and amortization         16,141    16,489    31,609   31,840
  Change in inventory                      292    11,709   (12,730)  15,437
  Change in accounts receivable         18,050    18,343    14,992   23,397
  Change in accounts payable            (8,171)    3,332   (11,349)  (9,180)
  Change in other assets and
   liabilities                          (1,825)  (22,354)    5,770  (37,027)
  Net cash flow provided by
   operating activities                 51,433    43,157    83,240   55,342

  Purchase of property, plant and
   equipment                           (20,550)  (11,259)  (35,769) (21,853)
  Proceeds from disposals of
   property, plant and equipment         2,827     1,854     3,333    2,388
  Free operating cash flow             $33,710   $33,752   $50,804  $35,877



  CONDENSED BALANCE SHEETS (Unaudited):

                    12/31/04   09/30/04    06/30/04    03/31/04    12/31/03
  ASSETS
  Cash and
   equivalents      $32,168     $28,688     $25,940     $27,528     $15,086
  Trade receivables,
   net of allowance 367,940     369,008     364,725     357,795     324,509
  Receivables
   securitized     (115,253)   (115,309)   (117,480)   (108,916)   (101,422)
  Accounts
   receivable, net  252,687     253,699     247,245     248,879     223,087
  Inventories       421,183     404,478     388,077     387,202     386,250
  Deferred income
   taxes             99,731      96,144      95,240      88,480      88,820
  Other current
   assets            39,605      37,178      40,443      38,803      39,460
     Total current
      assets        845,374     820,187     796,945     790,892     752,703
  Property, plant
   and equipment,
   net              506,253     487,616     484,475     481,793     487,530
  Goodwill and
   intangible
   assets, net      543,062     546,487     542,014     554,614     500,890
  Other assets      133,451     115,733     115,229      57,743      70,970
     Total       $2,028,140  $1,970,023  $1,938,663  $1,885,042  $1,812,093

  LIABILITIES
  Short-term debt,
   including notes
   payable          $28,888    $116,446    $126,807      $8,193     $12,872
  Accounts payable  142,465     146,543     148,216     132,246     112,563
  Accrued
   liabilities      226,568     217,636     211,504     200,304     181,755
     Total current
      liabilities   397,921     480,625     486,527     340,743     307,190
  Long-term debt    376,268     318,989     313,400     486,119     468,455
  Deferred income
   taxes             56,340      65,973      67,426      39,132      37,135
  Other liabilities 174,855     162,627     167,926     192,546     191,585
     Total
      liabilities 1,005,384   1,028,214   1,035,279   1,058,540   1,004,365

  MINORITY INTEREST  19,249      17,377      16,232      16,598      16,286

  SHAREOWNERS'
   EQUITY         1,003,507     924,432     887,152     809,904     791,442

     Total       $2,028,140  $1,970,023  $1,938,663  $1,885,042  $1,812,093



  Debt to Capital Reconciliation (Unaudited):

                                                        December 31,
                                                    2004           2003

  Total debt                                      $405,156       $481,327
  Total shareowners' equity                      1,003,507        791,442

  Debt to equity, GAAP                               40.4%          60.8%

  Total debt                                       405,156       $481,327
  Minority interest                                 19,249         16,286
  Total shareowners' equity                      1,003,507        791,442

  Total capital                                 $1,427,912     $1,289,055

  Debt to Capital                                    28.4%          37.3%



  RETURN ON INVESTED CAPITAL (Unaudited):
  For the Period Ended December 31, 2004

  Invested
   Capital  12/31/2004 9/30/2004  6/30/2004  3/31/2004 12/31/2003   Average

   Debt      $405,156   $435,435   $440,207   $494,312   $481,327   $451,287
   Accounts
    receivable
    securi-
    tized     115,253    115,309    117,480    108,916    101,422    111,676
   Minority
    interest   19,249     17,377     16,232     16,598     16,286     17,148
   Shareowners'
    equity  1,003,507    924,432    887,152    809,904    791,442    883,288
   Total   $1,543,165 $1,492,553 $1,461,071 $1,429,730 $1,390,477 $1,463,399


                                     Quarter Ended
  Interest
   Expense   12/31/2004  9/30/2004 6/30/2004  3/31/2004   Total

    Interest
     expense   $6,121     $6,456     $6,405     $6,332    $25,314
    Securiti-
     zation
     interest     757        580        443        356      2,136
    Total interest
     expense   $6,878     $7,036     $6,848     $6,688    $27,450
    Income tax
     benefit                                                8,784
    Total Interest
     Expense, net
     of tax                                               $18,666


                                 Quarter Ended
  Total
   Income       12/31/2004  9/30/2004  6/30/2004  3/31/2004   Total

    Net Income,
     as reported  $28,181    $22,720    $29,852    $24,070   $104,823

    Minority
     interest
     expense          928        977        (36)       533      2,402
    Total Income,
     excluding
     special
     items        $29,109    $23,697    $29,816    $24,603   $107,225

    Total Income,
     excluding
     special
     items                                                   $107,225
    Total Interest
     Expense, net
     of tax                                                    18,666
                                                             $125,891
    Average invested
     capital                                               $1,463,399
  Adjusted Return
   on Invested Capital                                           8.6%

  Return on Invested Capital
   calculated utilizing Net
   Income, as reported is
   as follows:
    Net Income, as reported                                  $104,823
    Total Interest
     Expense, net of tax                                       18,666
                                                             $123,489
    Average invested
     capital                                               $1,463,399
  Return on
   Invested Capital                                              8.4%



  RETURN ON INVESTED CAPITAL (Unaudited):
  For the Period Ended December 31, 2003

  Invested
   Capital   12/31/2003 9/30/2003 6/30/2003  3/31/2003 12/31/2002   Average

    Debt     $481,327   $520,138   $525,687   $580,135   $617,016   $544,861
    Accounts
     receivable
      securi-
      tized   101,422     95,318     99,316     93,614    100,000     97,934
    Minority
     interest  16,286     16,089     18,880     18,070     17,594     17,384
    Shareowners'
     equity   791,442    746,562    721,577    756,511    737,729    750,764
    Total  $1,390,477 $1,378,107 $1,365,460 $1,448,330 $1,472,339 $1,410,943


                            Quarter Ended
  Interest
   Expense    12/31/2003 9/30/2003 6/30/2003 3/31/2003     Total

   Interest
    expense    $6,547     $6,600     $9,108     $8,979    $31,234
   Securitization
    interest      483        397        413        406      1,699
   Total interest
    expense    $7,030     $6,997     $9,521     $9,385    $32,933
   Income tax
    benefit                                                10,539
   Total interest
    expense, net
    of tax                                                $22,394



                           Quarter Ended
  Total
   Income    12/31/2003 9/30/2003 6/30/2003 3/31/2003     Total

    Net income, as
     reported $10,892      $8,764   $(4,868)    $9,699    $24,487

    Minority
     interest
     expense      404         695        74        739      1,912
    MSSG
     restruct-
     uring      1,109       2,307     2,194        754      6,364
    AMSG
     restruct-
     uring      1,018           -       857        773      2,648
    Corporate
     restruct-
     uring          -           -       (69)       195        126
    J&L restruct-
     uring          -           -       (45)       561        516
    FSS restruct-
     uring          -           -         -          6          6
    Widia integration
     costs - MSSG   -       1,027     1,758      1,337      4,122
    Widia
     integration
     costs - AMSG   -          33       818         13        864
    AMSG electronics
     impairment     -           -    15,269          -     15,269
    Pension
     curtailment  883           -         -          -        883
    Gain on
     Toshiba
     investment(2,990)          -         -          -     (2,990)
    Note
     receivable 1,360           -         -          -      1,360
    Total Income,
     excluding
     special
     items    $12,676     $12,826   $15,988     $14,077   $55,567

    Total Income,
     excluding special
     items                                                $55,567
    Total Interest
     Expense, net
     of tax                                                22,394
                                                          $77,961
    Average invested
     capital                                          $ 1,410,943
  Adjusted Return on
   Invested Capital                                          5.5%

  Return on Invested Capital calculated utilizing
   Net Income, as reported is as follows:
    Net Income,
     as reported                                          $24,487
    Total Interest
     Expense, net
     of tax                                                22,394
                                                          $46,881
    Average
     invested capital                                  $1,410,943
  Return on
   Invested Capital                                          3.3%

SOURCE: Kennametal Inc.