Kennametal Inc. today reported fiscal 2008 second quarter EPS of $0.64, an increase of 68 percent from the prior year quarter reported EPS of $0.38. EPS increased 52 percent compared with prior year quarter adjusted EPS of $0.42. All EPS amounts presented in this announcement reflect the impact of a 2-for-1 stock split completed by the company in December 2007.

For the first six months of fiscal 2008, reported EPS was $1.08, an increase of 40 percent from the prior year reported EPS of $0.77. The current year reported EPS included a non-cash special charge of $0.08 per share for the impact of a German tax reform bill enacted in July 2007. Adjusted EPS of $1.16 for the first half of fiscal 2008 were up 40 percent from the prior year adjusted EPS of $0.83.

Carlos Cardoso, Kennametal's Chairman, President and Chief Executive Officer said, "We continued to make further progress during the December quarter in terms of EPS and ROIC, despite lower than expected organic sales growth. Sluggish conditions in North America along with lower demand in certain market sectors provided a particular challenge in the quarter. However, we grew our sales in several geographic regions and end markets, reflecting the strength and diversity of our global business. We will remain focused on driving ongoing sales growth, while moving forward with programs and initiatives to generate margin expansion and earnings growth in line with our long-term goals."

Reconciliations of all non-GAAP financial measures are set forth in the attached tables.

  Highlights of Fiscal 2008 Second Quarter
  -- Sales for the quarter were $647 million, compared with $569 million in
     the same quarter last year. Sales grew 14 percent year-over-year and
     included 2 percent growth on an organic basis, 6 percent from
     acquisitions and 6 percent from foreign currency effects.
  -- Income from continuing operations was $50 million, compared with $34
     million in the prior year quarter, an increase of 49 percent. This
     increase was driven by organic sales growth, controlled operating
     expenses, favorable foreign currency effects, the impact of
     acquisitions and a lower effective tax rate.
  -- The effective tax rate for the current quarter was 17.3 percent
     compared to 30.5 percent in the prior year quarter. The current quarter
     rate benefited from a continued increase in earnings under the
     company's pan-European business strategy, the combined effects of other
     international operations and a tax benefit associated with a dividend
     reinvestment plan in China. The above were partially offset by a
     benefit recorded in the prior year quarter from the extension of the
     research, development and experimental tax credit.
  -- Reported EPS increased 68 percent to $0.64, compared with prior year
     quarter reported EPS of $0.38, and increased 52 percent compared with
     prior year quarter adjusted EPS of $0.42.  A reconciliation follows:


                  Earnings Per Diluted Share Reconciliation

  Second Quarter FY 2008          Second Quarter FY 2007
  Reported EPS        $0.64       Reported EPS                       $0.38
  No Special Items                Electronics impairment and
                                   divestiture-related charges        0.04
                      $0.64       Adjusted EPS                       $0.42


  -- Adjusted ROIC was 12.3 percent, up 120 basis points from 11.1 percent
     in the prior year quarter.

  Highlights of Fiscal 2008 First Half
  -- Sales of $1.3 billion increased 14 percent from $1.1 billion in the
     same period last year. Sales grew 3 percent on an organic basis, 6
     percent from acquisitions and 5 percent from foreign currency effects.
  -- Income from continuing operations was $85 million, compared with $63
     million in the prior year period, an increase of 35 percent. Income
     from continuing operations, excluding special items was $92 million, an
     increase of 43 percent compared with $64 million in the prior year
     period.
  -- The effective tax rate for the first half of fiscal 2008 was 27.1
     percent, which included the unfavorable impact of a $6.6 million non-
     cash special charge for income taxes related to a German tax reform
     bill enacted in July 2007. Excluding this special charge, the effective
     tax rate for the first half of fiscal 2008 was 21.6 percent, compared
     with 31.1 percent in the prior year period. The lower effective tax
     rate versus last year was driven by a continued increase in earnings
     under the company's pan-European business strategy and tax benefits
     from the dividend reinvestment plan in China.
  -- Reported EPS increased 40 percent to $1.08, compared with prior year
     reported EPS of $0.77. Adjusted EPS increased 40 percent to $1.16,
     compared with prior year period adjusted EPS of $0.83. A reconciliation
     follows:


                  Earnings Per Diluted Share Reconciliation

  First Half FY 2008              First Half FY 2007
  Reported EPS        $1.08       Reported EPS                       $0.77
  Impact of German                Adjustment on J&L divestiture
   tax reform bill     0.08        and transaction-related charges    0.02
                                  Electronics impairment and
                                   divestiture-related charges        0.04
  Adjusted EPS        $1.16       Adjusted EPS                       $0.83


  -- Cash flow from operating activities was $69 million for the first half
     of fiscal 2008, compared with $36 million in the prior year period.
     Adjusted free operating cash outflow was $4 million versus adjusted
     free operating cash inflow of $78 million in the prior year period.
     The year-over-year change in adjusted free operating cash flow was
     primarily driven by a $35 million increase in capital expenditures for
     enhanced manufacturing capabilities and geographic expansion as well as
     changes in working capital.

  Business Segment Highlights of Fiscal 2008 Second Quarter

Metalworking Solutions & Services Group (MSSG) delivered further top-line growth in the December quarter driven by organic sales gains as well as favorable foreign currency effects and the impact of acquisitions. Areas of strength included the general engineering, machine tools and distribution sectors, while weakness continued in the automotive market. The Asia Pacific, Indian, Latin American and European markets remained strong. The North American market declined slightly compared with the prior year quarter.

In the December quarter, MSSG sales were higher by 16 percent as a result of 4 percent organic growth, 7 percent favorable foreign currency effects and 5 percent from acquisitions. India and Asia Pacific organic sales increased 15 percent and 11 percent, respectively. Latin America organic sales increased 9 percent and Europe organic sales increased 6 percent. North America organic sales declined 2 percent.

MSSG operating income increased by 37 percent and the operating margin increased 220 basis points from the same quarter last year. The current quarter results benefited from organic growth, continued cost containment, favorable foreign currency effects and the impact of acquisitions. In addition, the prior year quarter included costs associated with a plant closure.

Advanced Materials Solutions Group (AMSG) sales also increased during the December quarter, driven by the effects of acquisitions and favorable foreign currency effects. Organic sales were lower due to softness in certain markets.

AMSG sales increased by 9 percent over the December quarter last year. Of the year-over-year increase in sales, 7 percent came from acquisitions and 5 percent from favorable foreign currency effects. Organic sales declined by 3 percent on lower sales of energy products and surface finishing machines and services, offset partially by higher construction, mining and engineered product sales.

AMSG operating income was down 20 percent and the operating margin was lower than the prior year quarter due primarily to sales mix and higher raw material costs.

Outlook

Worldwide market conditions support Kennametal's expectation for continued but somewhat lower top-line growth during the remainder of fiscal 2008. The company believes that the softness in the North American market will persist. The company also expects ongoing variability in the demand level among certain individual market sectors. The company also believes that the European market will remain favorable, and that business conditions will continue to be strong in developing economies. While there are some inherent and changing uncertainties and risks within the current macro-economic environment, it appears that fundamental drivers will continue to provide a platform for ongoing growth in global demand.

Kennametal expects total sales growth in the range of 11 to 12 percent for fiscal 2008, including organic sales growth of 3 to 4 percent. This growth rate is slightly lower than previously expected in view of the outlook for more moderate expansion in global demand.

The company has revised adjusted EPS guidance for fiscal 2008 to a range of $2.71 to $2.77 (from $2.80 to $2.85) due to the expectations for more moderate organic sales growth as well as the outlook for sales mix, raw material costs and a lower overall effective tax rate. This guidance represents 19 percent to 21 percent growth, compared with fiscal 2007 adjusted EPS of $2.28. In the third quarter of fiscal 2008, Kennametal expects total sales growth to be in the range of 12 to 13 percent, including organic sales growth of 2 to 3 percent, and EPS to be in the range of $0.72 to $0.75.

Kennametal anticipates cash flow from operating activities of approximately $250 million to $270 million for fiscal 2008. Based on anticipated capital expenditures of $145 million to $155 million, the company expects to generate between $105 million to $115 million of free operating cash flow for fiscal 2008.

Dividend Declared

Kennametal announced today that its Board of Directors declared a regular quarterly cash dividend of $0.12 per share. The dividend is payable February 20, 2008 to shareowners of record as of the close of business on February 5, 2008.

Kennametal advises shareowners to note monthly order trends, for which the company makes a disclosure ten business days after the conclusion of each month. This information is available on the Investor Relations section of Kennametal's corporate web site at www.kennametal.com.

Second quarter results for fiscal 2008 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 "Corporate," and then "Investor Relations." The replay of this event will also be available on the company's website through February 22, 2008.

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 event. Forward looking statements in this release concern, among other things, Kennametal's expectations regarding future growth, end markets, and financial performance for future periods, all of which are based on current expectations that involve inherent risks and uncertainties. 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: global and regional economic conditions; availability and cost of the raw materials we use to manufacture our products; our ability to protect our intellectual property in foreign jurisdictions; our foreign operations and international markets, such as currency exchange rates, different regulatory environments, trade barriers, exchange controls, and social and political instability; energy costs; commodity prices; competition; integrating recent acquisitions, as well as any future acquisitions, and achieving the expected savings and synergies; business divestitures; demands on management resources; future terrorist attacks or acts of war; labor relations; demand for and market acceptance of new and existing products; and implementation of restructuring plans and environmental remediation matters. 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. 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.

Kennametal Inc. is a leading global supplier of tooling, engineered components and advanced materials consumed in production processes. The company improves customers' competitiveness by providing superior economic returns through the delivery of application knowledge and advanced technology to master the toughest of materials application demands. Companies producing everything from airframes to coal, from medical implants to oil wells and from turbochargers to motorcycle parts recognize Kennametal for extraordinary contributions to their value chains. Customers buy approximately $2.4 billion annually of Kennametal products and services - delivered by our 14,000 talented employees in over 60 countries - with approximately 50 percent of these revenues coming from outside the United States. Visit us at www.kennametal.com [KMT-E]

                           FINANCIAL HIGHLIGHTS

      CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

                                 Three Months Ended     Six Months Ended
                                    December 31,          December 31,
      (in thousands, except per
       share amounts)                2007      2006        2007        2006

      Sales                      $647,423  $569,321  $1,262,499  $1,112,132
      Cost of goods sold          426,485   371,171     829,470     726,951
         Gross profit             220,938   198,150     433,029     385,181
      Operating expense           147,921   140,329     292,953     275,373
      Loss on divestiture               -         -           -       1,686
      Amortization of
       intangibles                  3,626     1,955       6,571       3,895
         Operating income          69,391    55,866     133,505     104,227
      Interest expense              8,531     7,286      16,330      14,713
      Other income, net              (993)     (625)     (2,096)     (3,631)
         Income from continuing
          operations before
          income taxes and
          minority interest        61,853    49,205     119,271      93,145
      Provision for income taxes   10,670    15,006      32,337      28,935
      Minority interest expense     1,037       642       1,909       1,199
      Income from continuing
       operations                  50,146    33,557      85,025      63,011
      Income from discontinued
       operations (a)                   -    (3,506)          -      (2,599)
      Net income                  $50,146   $30,051     $85,025     $60,412
      Basic earnings
       per share: (b)
         Continuing operations      $0.65     $0.44       $1.10       $0.82
         Discontinued
          operations (a)              -       (0.05)        -         (0.03)
                                    $0.65     $0.39       $1.10       $0.79
      Diluted earnings per
       share: (b)
         Continuing operations      $0.64     $0.43       $1.08       $0.80
         Discontinued
          operations(a)               -       (0.05)        -         (0.03)
                                    $0.64     $0.38       $1.08       $0.77
      Dividends per share (b)       $0.12     $0.10       $0.23       $0.19
      Basic weighted average
       shares outstanding (b)      77,111    76,662      77,272      76,540
      Diluted weighted average
       shares outstanding (b)      78,647    78,450      78,821      78,284


  (a)  Income from discontinued operations reflects divested results of the
       Kemmer Praezision Electronics business (Electronics) - AMSG and the
       consumer retail product line, including industrial saw blades (CPG) -
       MSSG.
  (b)  Per share amounts and shares outstanding have been restated to
       reflect the company's 2-for-1 stock split completed in December 2007.


      CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

                                              December 31,          June 30,
      (in thousands)                                 2007              2007

      ASSETS
      Cash and cash equivalents                   $63,473           $50,433
      Accounts receivable, net                    440,069           466,690
      Inventories                                 463,341           403,613
      Other current assets                         96,462            95,766
         Total current assets                   1,063,345         1,016,502
      Property, plant and equipment, net          694,745           614,019
      Goodwill and intangible assets, net         840,598           834,290
      Other assets                                127,968           141,416
         Total                                 $2,726,656        $2,606,227

      LIABILITIES
      Current maturities of long-term
       debt and capital leases,
       including notes payable                    $60,965            $5,430
      Accounts payable                            161,802           189,301
      Other current liabilities                   249,601           292,506
         Total current liabilities                472,368           487,237
      Long-term debt and capital leases           385,991           361,399
      Other liabilities                           284,724           255,500
         Total liabilities                      1,143,083         1,104,136

      MINORITY INTEREST IN CONSOLIDATED
       SUBSIDIARIES                                20,276            17,624
      SHAREOWNERS' EQUITY                       1,563,297         1,484,467
         Total                                 $2,726,656        $2,606,227


      SEGMENT DATA (Unaudited)

                                   Three Months Ended     Six Months Ended
                                      December 31,           December 31,
      (in thousands)                 2007      2006        2007        2006

      Outside Sales:
      Metalworking Solutions
       and Services Group        $434,733  $373,995    $842,430    $731,079
      Advanced Materials
       Solutions Group            212,690   195,326     420,069     381,053
      Total outside sales        $647,423  $569,321  $1,262,499  $1,112,132

      Sales By Geographic
       Region:
      United States              $278,238  $268,299    $561,318    $535,162
      International               369,185   301,022     701,181     576,970
      Total sales by geographic
       region                    $647,423  $569,321  $1,262,499  $1,112,132

      Operating Income (Loss):
      Metalworking Solutions and
       Services Group             $61,986   $45,208    $117,338     $90,874
      Advanced Materials
       Solutions Group             27,197    33,993      57,177      61,379
      Corporate and
       eliminations(c)            (19,792)  (23,335)    (41,010)    (48,026)
      Total operating income      $69,391   $55,866    $133,505    $104,227


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

In addition to reported results under generally accepted accounting principles in the United States of America (GAAP), the following financial highlight tables also include, where appropriate, a reconciliation of gross profit, operating expense, operating income, effective tax rate, income from continuing operations, net income and diluted earnings per share (which are GAAP financial measures), in each case excluding special items, as well as adjusted free operating cash flow and adjusted return on invested capital (which are non-GAAP financial measures), to the most directly comparable GAAP measures. Management believes that the investor should have available the same information that management uses to assess operating performance, determine compensation and assess the capital structure of the company. These non-GAAP measures should not be considered in isolation or as a substitute for the most comparable GAAP measures. Investors are cautioned that non-GAAP financial measures utilized by the company may not be comparable to non-GAAP financial measures used by other companies.

  RECONCILIATION TO GAAP - THREE MONTHS ENDED DECEMBER 31, 2006 (Unaudited)
  (in thousands, except per share amounts)

                                                Income from
                   Gross   Operating  Operating Continuing   Net   Diluted
                   Profit   Expense   Income    Operations  Income   EPS(d)

  2007 Reported
   Results        $198,150  $140,329 $55,866     $33,557   $30,051  $ 0.38
    Electronics
     impairment
     and divestiture-
     related charges     -         -       -           -     3,213    0.04
  2007 Results,
   excl. special
   items          $198,150  $140,329 $55,866     $33,557   $33,264  $ 0.42


  RECONCILIATION TO GAAP - SIX MONTHS ENDED DECEMBER 31, 2007 (Unaudited)
  (in thousands, except percents
    and per share amounts)
                                          Income from
                              Effective    Continuing     Net    Diluted
                              Tax Rate     Operations   Income     EPS(d)

  2008 Reported Results         27.1%        $85,025   $85,025    $1.08
    Impact of German
     tax reform bill            (5.5)          6,594     6,594     0.08
  2008 Adjusted Results         21.6%        $91,619   $91,619    $1.16


  RECONCILIATION TO GAAP - SIX MONTHS ENDED DECEMBER 31, 2006 (Unaudited)
  (in thousands, except per share amounts)

                                                Income from
                   Gross   Operating  Operating Continuing   Net   Diluted
                   Profit   Expense   Income    Operations  Income   EPS(d)

  2007 Reported
   Results        $385,181 $275,373  $104,227    $63,011   $60,412  $ 0.77
    Adjustment on
     J&L divestiture
     and transaction-
     related charges     -     (333)    2,019      1,252     1,252    0.02
    Electronics
     impairment
     and divestiture-
     related charges     -         -        -          -     3,213    0.04
  2007 Adjusted
   Results        $385,181 $275,040  $106,246    $64,263   $64,877  $ 0.83

  (d) Per share amounts have been restated to reflect the company's 2-for-1
      stock split completed in December 2007.


  RECONCILIATION OF ADJUSTED FREE OPERATING CASH FLOW (Unaudited)

                                                        Six Months Ended
                                                           December 31,
              (in thousands)                         2007              2006

      Net cash flow provided by operating
       activities                                 $68,934           $35,820
      Purchases of property, plant and
       equipment                                  (79,559)          (44,929)
      Proceeds from disposals of property,
       plant and equipment                          1,891               781
      Free operating cash flow                     (8,734)           (8,328)
      Adjustments:
        Income taxes paid during first quarter      4,659            86,236
      Adjusted free operating cash flow           $(4,075)          $77,908


       RETURN ON INVESTED CAPITAL (Unaudited)

       December 31, 2007 (in thousands, except percents)

        Invested Capital                 12/31/2007  09/30/2007  06/30/2007
        Debt                               $446,956    $377,051    $366,829
        Minority interest                    20,276      19,122      17,624
        Shareowners' equity               1,563,297   1,531,051   1,484,467
        Total                            $2,030,529  $1,927,224  $1,868,920

        Invested Capital                 03/31/2007  12/31/2006     Average
        Debt                               $371,521    $376,472    $387,766
        Minority interest                    16,896      15,807      17,945
        Shareowners' equity               1,431,235   1,369,748   1,475,960
        Total                            $1,819,652  $1,762,027  $1,881,670


                                           Three Months Ended
                           12/31/2007 9/30/2007 6/30/2007 3/31/2007  Total
      Interest Expense
      Interest expense        $8,531   $7,799     $7,513  $6,915     $30,758
      Securitization fees          5        8          5       5          23
      Total interest expense  $8,536   $7,807     $7,518  $6,920     $30,781
      Income tax benefit                                               8,434
      Total interest
       expense, net of tax                                           $22,347

      Total Income         12/31/2007 9/30/2007 6/30/2007 3/31/2007   Total
      Net income, as
       reported              $50,146  $34,879    $62,093  $51,738   $198,856
      Impact of German tax
       reform bill                 -    6,594          -        -      6,594
      Minority interest
       expense                 1,037      872        229      757      2,895
      Total income,
       adjusted              $51,183  $42,345    $62,322  $52,495   $208,345
      Total interest
       expense, net of tax                                            22,347
                                                                    $230,692

      Average invested capital                                    $1,881,670
      Adjusted Return on Invested Capital                              12.3%
      Return on invested capital calculated utilizing net income,
       as reported is as follows:
      Net income, as reported                                       $198,856
      Total interest expense, net of tax                              22,347
                                                                    $221,203
      Average invested capital                                    $1,881,670
      Return on Invested Capital                                       11.8%


      RETURN ON INVESTED CAPITAL (Unaudited)

      December 31, 2006 (in thousands, except percents)

       Invested Capital                  12/31/2006  09/30/2006  06/30/2006
       Debt                                $376,472    $409,592    $411,722
       Accounts receivable securitized            -           -           -
       Minority interest                     15,807      15,177      14,626
       Shareowners' equity                1,369,748   1,319,599   1,295,365
       Total                             $1,762,027  $1,744,368  $1,721,713


       Invested Capital                  03/31/2006  12/31/2005   Average
       Debt                                $365,906    $410,045    $394,748
       Accounts receivable securitized      106,106     100,295      41,280
       Minority interest                     18,054      16,918      16,116
       Shareowners' equity                1,115,110   1,045,974   1,229,159
       Total                             $1,605,176  $1,573,232  $1,681,303


                                            Three Months Ended
                         12/31/2006 9/30/2006 6/30/2006 3/31/2006    Total
      Interest Expense
      Interest expense       $7,286   $7,427    $7,478    $7,728    $29,919
      Securitization fees         6       22     1,288     1,241      2,557
      Total interest
       expense               $7,292   $7,449    $8,766    $8,969    $32,476
      Income tax benefit                                             11,237
      Total interest
       expense, net of tax                                          $21,239

      Total Income       12/31/2006 9/30/2006 6/30/2006 3/31/2006    Total
      Net income, as
       reported             $30,051  $30,361  $164,196   $32,903   $257,511
      Gain on divestiture
       of J&L                     -    1,045  (132,001)        -   (130,956)
      J&L transaction-
       related charges            -      207     2,796     1,160      4,163
      Loss on divestiture of
       Electronics,
       impairment and
       transaction-related
       charges                3,213        -    15,366         -     18,579
      Tax impact of cash
       repatriation under
       AJCA                       -        -    11,176         -     11,176
      Loss on divestiture of
       CPG, goodwill
       impairment and
       transaction-related
       charges                    -      368    (2,192)    5,030      3,206
      Loss on divestiture
       of Presto                  -        -     1,410     8,047      9,457
      Favorable resolution
       of tax contingencies       -        -   (10,873)        -    (10,873)
      Minority interest
       expense                  642      557       525       782      2,506
      Total income,
       adjusted             $33,906  $32,538   $50,403   $47,922   $164,769
      Total interest
       expense, net of tax                                           21,239
                                                                   $186,008
      Average invested capital                                   $1,681,303
      Adjusted Return on Invested Capital                             11.1%
      Return on invested capital calculated utilizing net income,
       as reported is as follows:
      Net income, as reported                                      $257,511
      Total interest expense, net of tax                             21,239
                                                                   $278,750
      Average invested capital                                   $1,681,303
      Return on Invested Capital                                      16.6%

First Call Analyst:
FCMN Contact: deborah.mikeska@kennametal.com

SOURCE: Kennametal Inc.