Kennametal Inc. today reported fiscal 2010 third quarter earnings per diluted share (EPS) of $0.12, compared with prior year quarter reported loss per diluted share of $1.90. The current quarter reported EPS included restructuring and related charges amounting to $0.27 per share. The prior year quarter reported loss per diluted share included non-cash charges for impairment of goodwill and other intangible assets of $1.40 per share, as well as restructuring and divestiture related charges of $0.51 per share. Absent these charges, adjusted EPS for the current quarter was $0.39, compared with the prior year quarter adjusted EPS of $0.01.
"We are pleased with our results for the fiscal 2010 third quarter as they clearly demonstrate the positive effects of our strategies," said Carlos Cardoso, Kennametal's Chairman, President and Chief Executive Officer. "We are encouraged that growth in industrial activity is continuing across a range of end markets and geographies. Our global team has been disciplined in its efforts to streamline our business and lower our cost structure. The strong operating leverage reflected in our March quarter performance is consistent with our strategies to reposition Kennametal to fully maximize our growth potential."
Cardoso added, "Moving forward, we remain focused on generating strong cash flows, maintaining a solid financial position, managing our portfolio and growing our business. We will continue to further expand our profitability, which will help to differentiate Kennametal as economic conditions continue to improve."
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.
Fiscal 2010 Third Quarter Key Developments
-- Sales were $493 million, compared with $424 million in the same
quarter last year. Sales increased 16 percent due to an organic
increase of 11 percent and a 5 percent favorable impact from foreign
currency effects.
-- Sales improved sequentially by 11 percent, representing the third
consecutive quarter of sequential sales growth. The improvement in
sales was driven by continued expansion in industrial activity in the
majority of our end markets and all geographies.
-- The company recognized pre-tax restructuring and related charges of
$23 million, or $0.27 per share. Total benefits from restructuring
programs were approximately $36 million in the current quarter.
-- Operating income was $26 million compared with an operating loss of
$150 million in the same quarter last year. Absent restructuring
actions in both periods and asset impairment charges recorded in the
prior year quarter, operating income was $49 million, compared with an
operating loss of $6 million in the prior year quarter. On an
adjusted basis, operating margin reached 10 percent, driven by higher
sales, increased capacity utilization, continued permanent savings
from restructuring programs and ongoing cost discipline. The current
quarter also included the partial salary and incentive compensation
restorations. Incremental margins were very strong on both a
year-over-year and sequential basis. The adjusted operating income for
the current quarter improved sequentially by $30 million from the
December 2009 quarter.
-- Reported EPS were $0.12 compared with prior year quarter reported loss
per diluted share of $1.90. Adjusted EPS was $0.39 compared with
prior year quarter adjusted EPS of $0.01. A reconciliation follows:
Earnings (Loss) Per Diluted Share Reconciliation
Third Quarter FY 2010 Third Quarter FY 2009
Reported loss per diluted
Reported EPS $0.12 share $(1.90)
Restructuring and related Restructuring and related
charges 0.27 charges 0.50
Divestiture related charges 0.01
Asset impairment charges 1.40
----
Adjusted EPS $0.39 Adjusted EPS $0.01
===== =====
Segment Highlights for the Fiscal 2010 Third Quarter
-- Metalworking Solutions & Services Group (MSSG) sales increased by 19
percent from the prior year quarter, driven by organic growth of 13
percent and favorable foreign currency effects of 6 percent.
Sequentially, sales increased by 12 percent as global industrial
production continued to improve in all regions. This represents the
third consecutive quarter of sequential sales growth for MSSG.
Regionally, on an organic basis, India and Asia Pacific had sales
increases of 64 percent and 45 percent, respectively. North America,
Europe and Latin America each reported organic sales increases of 7
percent compared with the prior year quarter.
-- MSSG operating income was $31 million compared with an operating loss
of $39 million for the same quarter of the prior year. Absent
restructuring and related charges recorded in both periods, MSSG
operating income was $36 million compared with an operating loss of
$14 million in the prior year quarter. The primary drivers of the
increase in operating income were higher sales volumes, increased
capacity utilization, cost savings from restructuring programs and
continued cost containment. MSSG adjusted operating margin improved
sequentially from the December quarter by 870 basis points from 3.6
percent to 12.3 percent. Compared to the December quarter, MSSG
adjusted operating income increased $26 million on a sales increase of
$30 million.
-- Advanced Materials Solutions Group (AMSG) sales increased 13 percent
from the prior year quarter, driven by 9 percent organic growth and 4
percent favorable foreign currency effects. The organic increase was
primarily driven by higher sales of mining and construction products,
as well as increased demand for energy related and engineered
products. Sequentially, sales increased by 11 percent, driven by
higher sales in all AMSG end markets, except for capital equipment.
-- AMSG operating income was $25 million, compared with an operating loss
of $103 million in the same quarter of the prior year. Absent
restructuring and related charges recorded in both periods and asset
impairment charges in the prior year quarter, AMSG operating income
was $37 million in the current quarter compared with $18 million in
the prior year quarter. The year-over-year increase in operating
income was primarily due to higher sales volumes, increased capacity
utilization, cost savings from restructuring programs and continued
cost reduction actions. AMSG adjusted operating margin increased
sequentially by 150 basis points to 18.4 percent from 16.9 percent in
the December quarter.
Fiscal 2010 Year-to-Date Key Developments
-- Sales were $1.3 billion compared to $1.6 billion in the same period
last year. Sales decreased 20 percent on an organic basis, partially
offset by a 2 percent favorable impact from foreign currency effects
and a 1 percent increase from a business acquisition made in the prior
fiscal year.
-- The company recognized pre-tax restructuring and related charges of
$36 million, or $0.40 per share. Total benefits from restructuring
programs were approximately $98 million year-to-date.
-- Operating income was $32 million, compared with an operating loss of
$75 million in the same period last year. Absent restructuring
actions recorded in both periods and asset impairment charges recorded
in the prior year, operating income was $68 million, compared with $88
million for the prior year period.
-- Reported EPS were $0.07, compared with prior year reported loss per
diluted share of $1.18. Adjusted EPS were $0.49, compared with prior
year adjusted EPS of $0.94. A reconciliation follows:
Earnings (Loss) Per Diluted Share Reconciliation
First Nine Months of FY 2010 First Nine Months of FY 2009
Reported loss per diluted
Reported EPS $0.07 share $(1.18)
Restructuring and related Restructuring and related
charges 0.40 charges 0.73
Divestiture related charges 0.02 Divestiture related charges 0.01
Asset impairment charges 1.38
Adjusted EPS $0.49 Adjusted EPS $0.94
===== =====
-- Cash flow from operating activities was $93 million, compared with
$164 million in the prior year period. Net capital expenditures were
$26 million year-to-date. The company generated free operating cash
flow of $66 million compared with $73 million in the prior year
period.
Restructuring Actions
Kennametal's restructuring programs are on track to deliver the anticipated annual ongoing pre-tax permanent savings of $155 million to $160 million once all programs are fully implemented. The combined total pre-tax charges are expected to be approximately $160 million to $165 million, a slight increase from the previously announced range of $155 million to $160 million. This increase is due to recent legislative changes that retroactively extended the period for benefit coverage under COBRA to certain previously terminated employees. Total restructuring and related charges recorded inception to date were $115 million and corresponding annualized benefits were approximately $144 million.
Outlook
Management currently believes that global industrial activity and the corresponding demand for the company's products will continue to improve through the remainder of the current fiscal year. As a result of better than anticipated global sales growth, including some effects of customer inventory rebuilding, we expect our organic sales to be 37 percent to 40 percent higher in the June quarter compared with the prior year period, resulting in fiscal 2010 organic sales that would be 7 percent to 8 percent lower than last year. Under these assumed conditions, Kennametal is increasing its EPS guidance for fiscal 2010 from a range of $0.65 to $0.75 per share to a range of $1.03 to $1.08 per share, excluding restructuring actions and divestiture related charges. The increased EPS guidance also takes into consideration the final salary restoration for remaining locations and a slightly higher effective tax rate due to anticipated jurisdictional mix of earnings. Cash flow from operations is expected to be in the range of $145 million to $155 million for fiscal 2010. Based on net capital expenditures of approximately $55 million, the free operating cash flow range was increased from a range of $40 million to $50 million to a range of $90 million to $100 million for fiscal 2010.
Dividend Declared
Kennametal also announced today that its Board of Directors declared a regular quarterly cash dividend of $0.12 per share. The dividend is payable May 26, 2010 to shareowners of record as of the close of business on May 11, 2010.
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 website at www.kennametal.com.
Third quarter results for fiscal 2010 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, select "Investor Relations" and then "Events." The replay of this event will also be available on the company's website through May 29, 2010.
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 or events. Forward looking statements in this release concern, among other things, Kennametal's outlook for earnings for its fourth quarter and full fiscal year 2010, and its expectations regarding restructuring initiatives, future growth and financial performance, all of which are based on current expectations 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, actual outcomes could vary materially from those indicated. Among the factors that could cause the actual results to differ materially from those indicated in the forward-looking statements are risks and uncertainties related to: the recent downturn in our industry; deepening or prolonged economic recession; restructuring and related actions (including associated costs and anticipated benefits); changes in our debt ratings; compliance with our debt arrangements; 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; availability and cost of the raw materials we use to manufacture our products; global or regional catastrophic events, including terrorist attacks or acts of war; integrating acquisitions and achieving the expected savings and synergies; business divestitures; potential claims relating to our products; energy costs; commodity prices; labor relations; demand for and market acceptance of new and existing products; and implementation of environmental remediation matters. These 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 undertake no obligation to release publicly any revisions to forward-looking statements as a result of future events or developments.
Kennametal Inc. delivers productivity to customers seeking peak performance in demanding environments by providing innovative custom and standard wear-resistant solutions. This proven productivity is enabled through our advanced materials sciences and application knowledge. Our commitment to a sustainable environment provides additional value to our customers. Companies operating in everything from airframes to coal mining, from engines to oil wells and from turbochargers to construction recognize Kennametal for extraordinary contributions to their value chains. In fiscal year 2009, customers bought approximately $2.0 billion of Kennametal products and services - delivered by our nearly 12,000 talented employees doing business in more than 60 countries - with more than 50 percent of these revenues coming from outside North America. Visit us at www.kennametal.com. [KMT-E]
FINANCIAL HIGHLIGHTS
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended
March 31, March 31,
(in thousands,
except per
share amounts) 2010 2009 (1) 2010 2009 (1)
--------------- ---- ------- ---- -------
Sales $493,165 $424,387 $1,345,425 $1,613,822
Cost of goods
sold 322,841 321,959 917,212 1,136,112
------------- ------- ------- ------- ---------
Gross profit 170,324 102,428 428,213 477,710
Operating
expense 120,062 106,469 354,126 385,543
Restructuring
and asset
impairment
charges 20,720 142,826 31,898 157,442
Amortization of
intangibles 3,239 3,196 9,946 9,874
--------------- ----- ----- ----- -----
Operating income
(loss) 26,303 (150,063) 32,243 (75,149)
Interest expense 6,531 6,658 18,856 21,741
Other income,
net (1,496) (5,319) (6,314) (9,949)
------------- ------ ------ ------ ------
Income (loss)
from continuing
operations
before income
taxes 21,268 (151,402) 19,701 (86,941)
Provison
(benefit) for
income taxes 11,065 (14,281) 11,026 (1,203)
-------------- ------ ------- ------ ------
Income (loss)
from continuing
operations 10,203 (137,121) 8,675 (85,738)
Loss from
discontinued
operations - (592) (1,423) (165)
------------- --- ---- ------ ----
Net income
(loss) 10,203 (137,713) 7,252 (85,903)
Less: Net
income
attributable to
noncontrolling
interests 518 161 1,417 845
---------------- --- --- ----- ---
Net income
(loss)
attributable to
Kennametal $9,685 $(137,874) $5,835 $(86,748)
================ ====== ========= ====== ========
Amounts
Attributable to
Kennametal
Common
Shareowners:
Income (loss)
from continuing
operations $9,685 $(137,282) $7,258 $(86,583)
Loss from
discontinued
operations - (592) (1,423) (165)
------------- --- ---- ------ ----
Net income
(loss)
attributable to
Kennametal $9,685 $(137,874) $5,835 $(86,748)
================ ====== ========= ====== ========
PER SHARE DATA
ATTRIBUTABLE TO
KENNAMETAL
Basic earnings
(loss) per
share:
Continuing
operations $0.12 $(1.89) $0.09 $(1.18)
Discontinued
operations - (0.01) (0.02) -
------------ --- ----- ----- ---
$0.12 $(1.90) $0.07 $(1.18)
===== ====== ===== ======
Diluted earnings
(loss) per
share:
Continuing
operations $0.12 $(1.89) $0.09 $(1.18)
Discontinued
operations - (0.01) (0.02) -
------------ --- ----- ----- ---
$0.12 $(1.90) $0.07 $(1.18)
===== ====== ===== ======
Dividends per
share $0.12 $0.12 $0.36 $0.36
============= ===== ===== ===== =====
Basic weighted
average shares
outstanding 81,358 72,673 80,756 73,238
=============== ====== ====== ====== ======
Diluted weighted
average shares
outstanding 82,189 72,673 81,397 73,238
================ ====== ====== ====== ======
(1) Amounts have been restated to reflect discontinued operations
related to the divestiture of the high speed steel drills and
related products business.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, June 30,
(in thousands) 2010 2009
-------------- ---- ----
ASSETS
Cash and cash equivalents $110,893 $69,823
Accounts receivable, net 317,136 278,977
Inventories 372,594 381,306
Other current assets 93,716 145,798
-------------------- ------ -------
Total current assets 894,339 875,904
Property, plant and equipment, net 681,594 720,326
Goodwill and other intangible assets, net 662,004 677,436
Other assets 73,372 73,308
Total assets $2,311,309 $2,346,974
============ ========== ==========
LIABILITIES
Current maturities of long-term debt and capital
leases, including notes payable $18,689 $49,365
Accounts payable 94,256 87,176
Other current liabilities 264,314 242,428
------------------------- ------- -------
Total current liabilities 377,259 378,969
Long-term debt and capital leases 317,486 436,592
Other liabilities 242,243 263,958
----------------- ------- -------
Total liabilities 936,988 1,079,519
KENNAMETAL SHAREOWNERS' EQUITY 1,352,932 1,247,443
NONCONTROLLING INTERESTS 21,389 20,012
Total liabilities and equity $2,311,309 $2,346,974
============================ ========== ==========
Three Months
SEGMENT DATA (UNAUDITED) Ended Nine Months Ended
March 31, March 31,
(in thousands) 2010 2009 (1) 2010 2009 (1)
-------------- ---- ------- ---- -------
Outside Sales:
Metalworking Solutions
and Services Group $291,571 $245,530 $784,049 $972,932
Advanced Materials
Solutions Group 201,594 178,857 561,376 640,890
Total outside sales $493,165 $424,387 $1,345,425 $1,613,822
=================== ======== ======== ========== ==========
Sales By Geographic
Region:
United States $220,340 $206,311 $593,397 $732,289
International 272,825 218,076 752,028 881,533
Total sales by
geographic region $493,165 $424,387 $1,345,425 $1,613,822
================== ======== ======== ========== ==========
Operating Income (Loss):
Metalworking Solutions
and Services Group $30,988 $(39,062) $25,015 $10,221
Advanced Materials
Solutions Group 24,816 (102,502) 77,851 (53,075)
Corporate and
eliminations (29,501) (8,499) (70,623) (32,295)
Total operating income
(loss) $26,303 $(150,063) $32,243 $(75,149)
====================== ======= ========= ======= ========
(1) Amounts have been restated to reflect discontinued operations
related to the divestiture of the high speed steel drills and
related products business.
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 gross profit, operating expense, operating income, Corporate operating loss, MSSG operating income and margin, AMSG operating income and margin, income from continuing operations, net income and diluted earnings per share and free operating cash flow (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, 2010 (UNAUDITED)
(in thousands, except Gross Operating Operating
per share amounts) Profit Expense Income
--------------------- ------ --------- ---------
2010 Reported Results $170,324 $120,062 $26,303
Restructuring and
related charges 1,595 (635) 22,950
----------------- ----- ---- ------
2010 Adjusted Results $171,919 $119,427 $49,253
===================== ======== ======== =======
(in thousands, except Income from
per share amounts) Continuing Net Income Diluted
--------------------- ----------- ---------- -------
Operations EPS
---------- ---
2010 Reported Results $10,203 $9,685 $0.12
Restructuring and
related charges 22,329 22,329 0.27
----------------- ------ ------ ----
2010 Adjusted Results $32,532 $32,014 $0.39
===================== ======= ======= =====
(in thousands, except Corporate
percents) Operating Loss MSSG AMSG
--------------------- -------------- Operating Operating
Income Income
------ ------
2010 Reported Results $(29,501) $30,988 $24,816
2010 Reported Operating
Margin 10.6% 12.3%
Restructuring and
related charges 5,797 4,954 12,199
----------------- ----- ----- ------
2010 Adjusted Results $(23,704) $35,942 $37,015
===================== ======== ======= =======
2010 Adjusted Operating
Margin 12.3% 18.4%
======================= ==== ====
THREE MONTHS ENDED MARCH 31, 2009 (UNAUDITED)
(in thousands, except Gross Operating Operating
per share amounts) Profit Expense Loss
--------------------- ------ --------- ---------
2009 Reported Results $102,428 $106,469 $(150,063)
Restructuring and
related charges 2,249 1,145 32,888
Divestiture related
charges - - -
Asset Impairment
charges - - 111,042
---------------- --- --- -------
2009 Adjusted Results $104,677 $107,614 $(6,133)
===================== ======== ======== =======
(in thousands, except Net (Loss)
per share amounts) (Loss) Income Income Diluted
--------------------- ------------- ---------- -------
from
Continuing EPS
----------- ---
Operations
----------
2009 Reported Results $(137,121) $(137,874) $(1.90)
Restructuring and
related charges 36,770 36,770 0.50
Divestiture related
charges - 397 0.01
Asset Impairment
charges 101,200 101,200 1.40
---------------- ------- ------- ----
2009 Adjusted Results $849 $493 $0.01
===================== ==== ==== =====
THREE MONTHS ENDED MARCH 31, 2010 (UNAUDITED)
(in thousands, except
percents) Corporate MSSG AMSG
--------------------- --------- Operating Operating
Operating Loss (Loss) Income
--------- ---- -------------
Loss
----
2009 Reported Results $(8,499) $(39,062) $(102,502)
2009 Reported Operating
Margin (15.9%) (57.3%)
Restructuring and
related charges (1,355) 24,779 9,464
Asset impairment charges - - 111,042
------------------------ --- --- -------
2009 Adjusted Results $(9,854) $(14,283) $18,004
===================== ======= ======== =======
2009 Adjusted Operating
Margin (5.8%) 10.1%
======================= ====== ====
NINE MONTHS ENDED MARCH 31, 2010 (UNAUDITED)
(in thousands, except Gross Operating Operating
per Profit Expense Income
share amounts) ------ --------- ---------
--------------
2010 Reported Results $428,213 $354,126 $32,243
Restructuring and
related charges 2,613 (1,099) 35,610
Divestiture related
charges - - -
------------------- --- --- ---
2010 Adjusted Results $430,826 $353,027 $67,853
===================== ======== ======== =======
Income from
(in thousands, except Continuing Net
per Operations Income Diluted
share amounts) ----------- ------ -------
-------------- EPS
---
2010 Reported Results $8,675 $5,835 $0.07
Restructuring and
related charges 32,732 32,732 0.40
Divestiture related
charges - 1,340 0.02
------------------- --- ----- ----
2010 Adjusted Results $41,407 $39,907 $0.49
===================== ======= ======= =====
NINE MONTHS ENDED MARCH 31, 2009 (UNAUDITED)
Operating
(in thousands, except Gross Operating (Loss)
per share amounts) Profit Expense Income
--------------------- ------ --------- ---------
2009 Reported Results $477,710 $385,543 $(75,149)
Restructuring and
related charges 6,899 1,178 52,121
Divestiture related
charges - - -
Asset impairment charges - - 111,042
------------------------ --- --- -------
2009 Adjusted Results $484,609 $386,721 $88,014
===================== ======== ======== =======
(in thousands, except Net (Loss)
per share amounts) (Loss) Income Income Diluted
--------------------- ------------- ---------- -------
from
Continuing
Operations EPS
----------- ---
2009 Reported Results $(85,738) $(86,748) $(1.18)
Restructuring and
related charges 53,957 53,957 0.73
Divestiture related
charges - 397 0.01
Asset impairment charges 101,200 101,200 1.38
------------------------ ------- ------- ----
2009 Adjusted Results $69,419 $68,806 $0.94
===================== ======= ======= =====
Nine Months
FREE OPERATING CASH FLOW (UNAUDITED) Ended
March 31,
(in thousands) 2010 2009
-------------- ---- ----
Net cash flow provided by operating
activities $92,637 $163,739
Purchases of property, plant and
equipment (30,438) (92,712)
Proceeds from disposals of property,
plant and equipment 4,087 2,386
------------------------------------ ----- -----
Free operating cash flow $66,286 $73,413
======================== ======= =======
First Call Analyst:
FCMN Contact: deborah.mullen@kennametal.com
SOURCE: Kennametal Inc.
CONTACT: Investor Relations, Quynh McGuire, +1-724-539-6559, or Media
Relations, Joy Chandler, +1-724-539-4618, both of Kennametal Inc.
Web Site: http://www.kennametal.com/