Kennametal Inc. today reported solid second-quarter earnings, once more leveraging incremental benefits from operational improvements to achieve targets. Despite weakening North American economic conditions, Kennametal's earnings per share (EPS) increased by 15 percent to $0.47 per share, excluding special items, compared to $0.41 per share last year. On a reported basis, earnings per share were $0.44 against $0.27 last year.

Kennametal President and Chief Executive Officer Markos I. Tambakeras said, "We continue to deliver strong earnings growth despite the weakening economy. This is the result of an intense focus on sales programs, increased operational flexibility and improved efficiency in our balance sheet. We quickly recognized the potential for softening market conditions and activated contingency plans to mitigate any earnings impact from top-line shortfall. Furthermore, although we have reduced expenses significantly, we continue to fund our key growth programs. We also continue to generate cash at a higher- than-expected rate and maintain our unyielding focus on managing debt. I am also particularly pleased that despite top-line pressure our gross margins continue to expand. Finally, we have further continued our management development with the addition of two new executives; Michael P. Wessner as COO at J&L Industrial Supply and Michael R. Gallagher to lead our global metalworking marketing and sales organization. We remain focused on the ongoing transformation of Kennametal; investing in strategic initiatives to drive consistent growth, optimizing our cost structure and the revitalization of JLK."

  Second-Quarter Highlights

  -- Excluding the unfavorable impact of foreign currency (4 percent) and
      fewer business days (3 percent) sales grew 4 percent.  Actual sales
      were $440.5 million, a decrease of 3 percent compared to last year.
      The organic growth in sales was delivered despite weakening in North
      American end markets, particularly automotive, and benefited from
      significant growth in Europe and Asia.

  -- The gross profit margin was 37.9 percent, an improvement of 70 basis
      points from the second quarter of fiscal 2000 or 140 basis points
      excluding unfavorable foreign currency impact.  The improvement in
      the gross margin reflects significant progress in improving the
      efficiency and effectiveness of operations.  Specific benefits were
      derived from lean manufacturing initiatives and price discipline
      despite highly competitive markets.

  -- Operating expense for the quarter, excluding special charges, was
      reduced 2 percent to $121.6 million.  Cost control and productivity
      improvement efforts reduced operating expense on an absolute basis.
      This decrease was secured despite incremental funding of key growth
      initiatives.  Excluding this funding, which includes our e-commerce
      initiatives and the global inventory turns improvement program;
      operating expense would have declined nearly
      4 percent.

  -- The effective tax rate for the second quarter was 38.8 percent
      compared to 44.5 percent last year, reflecting the combined benefit
      of successful tax-planning programs in Europe and the extension of
      the Foreign Sales Corporation tax benefit in the United States.
      Correspondingly, the full-year tax rate is now forecast to be 39.5
      percent.

  -- Excluding special items, net income was $14.2 million, an increase of
      14 percent compared to $12.4 million last year.

  -- Special charges of $1.1 million, or $0.03 per share, were included in
      the quarter's results related primarily to the J&L business
      improvement plan. Prior-year results included special charges of $7.5
      million, or $0.14 per share related to business improvement programs
      in the core businesses and a charge for environmental remediation.

  -- Cash flow and balance sheet management continued to generate
      incremental benefit ahead of expectations. Free operating cash flow
      of $38 million benefited from a 290-basis-point reduction in primary
      working capital as a percent of sales to 28 percent.  Total debt was
      $687 million, down from $699 million at the beginning of the year
      despite the unforecasted investment in a share repurchase program
      ($16.5 million), and the JLK buy-in ($40.4 million).

  Outlook

In recognition of the weakened economic environment, Kennametal is revising its outlook for the year. Sales are now anticipated to be level with last year based on softer North American markets, and the significant decline in the automotive sector in particular. Nonetheless, earnings are anticipated to increase significantly, with EPS expected to be up between 8 percent and 13 percent.

Tambakeras added, "The second quarter results, in the face of rapidly declining end-markets, demonstrate Kennametal's discipline, flexibility and organizational resolve. Looking ahead to the remainder of our fiscal year, it is prudent to moderate our top-line expectations due to the uncertain outlook for the manufacturing sector in North America. We are confident in our new earnings guidance and fully determined not to be distracted from the implementation of our business strategies."

JLK

In commenting on the company's recent reacquisition of its subsidiary JLK Direct Distribution Inc., Tambakeras added, "We have already completed the integration of JLK and have realigned the organization to optimize efficiencies. Full Service Supply (FSS) will now be managed as a separate unit. J&L Industrial Supply will return to its traditional focus as a catalog and showroom distribution business. The new management team is fully engaged and is continuing the execution of the ongoing business improvement plan. As previously announced, the business improvement plan for both units is expected to incur charges at the high end of our original $15 to $20 million guidance, and we anticipate annual savings of $6 to $8 million. The program will begin to generate the full level of savings by the second half of fiscal 2002. To date, we have already seen significant operational improvements at J&L, but these benefits are dampened by weak sales due to poor conditions in the automotive market. We have a clear strategy in place and are now focused on implementation."

Dividend Announcement

Kennametal also announced its Board of Directors declared a quarterly cash dividend of 17 cents per share, payable February 23, 2001, to holders of record as of February 9, 2001.

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 13,000 employees worldwide, the company's annual sales are approximately $1.9 billion, with a third coming from sales outside the United States. Kennametal has been named one of the Best Places to Work in Pennsylvania and has operations in more than 60 countries. Kennametal operations in Europe are headquartered in Furth, Germany. Kennametal Asia Pacific operations are headquartered in Singapore.

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 do not change materially, risks associated with integrating businesses and restructuring programs, demands on management resources, risks associated with international markets such as currency exchange rates, and competition. The company undertakes no obligation to publicly release any revisions to forward- looking statements to reflect events or circumstances occurring after the date hereof.

FINANCIAL HIGHLIGHTS

Consolidated financial highlights for Kennametal Inc. for the quarter and six months ended December 31, 2000 and 1999 are shown in the following tables (in thousands, except per share amounts). All fiscal year 2001 data is subject to year-end (June 30) adjustment and audit by independent public accountants.

  Consolidated Statements of Income

                                 Quarter Ended         Six Months Ended
                                  December 31             December 31
                                2000        1999       2000        1999
  Operations:

  Net sales                   $440,521   $453,928    $891,226    $896,871

    Cost of goods sold         273,583    285,061     555,635     564,675

  Gross profit                 166,938    168,867     335,591     332,196

    Operating expense(A)       121,823    126,702     250,247     249,189

    Restructuring and asset
     impairment charges            812      3,981       2,347       3,981

    Amortization of
     intangibles                 6,147      6,597      12,470      13,600

  Operating income              38,156     31,587      70,527      65,426

    Interest expense            13,400     13,753      26,595      28,280

    Other expense, net(B)        1,200        510       2,657         252

  Income before provision for
   income taxes and minority
   interest                     23,556     17,324      41,275      36,894

  Provision for income taxes     9,128      7,709      16,304      16,418

  Minority interest                904      1,104       1,506       2,052

  Income before extraordinary
   loss and cumulative effect
   of change in accounting
   principle                    13,524      8,511      23,465      18,424

  Extraordinary loss on early
   extinguishments of debt,
   net of tax                        -       (267)          -        (267)

  Cumulative effect of change
   in accounting principle,
   net of tax                        -          -        (599)          -

  Net income                   $13,524     $8,244     $22,866     $18,157

  Per Share Data:
  Diluted earnings per share     $0.44      $0.27       $0.75       $0.60

  Dividends per share            $0.17      $0.17       $0.34       $0.34

  Diluted weighted average
   shares outstanding           30,548     30,330      30,639      30,255

  (A) For the quarter and six months ended December 31, 2000, these amounts
       include charges of $0.3 million and $2.0 million, respectively,
       primarily related to the tender offer to acquire the outstanding
       shares of JLK.  For the quarter and six months ended December 31,
       1999, these amounts include a charge of $3.0 million for
       environmental remediation.

  (B) For the quarters ended December 31, 2000 and 1999, these amounts
       include charges of $1.6 million and $1.3 million, respectively, for
       fees incurred in connection with the company's accounts receivable
       securitization program.  For the six months ended December 31, 2000
       and 1999, these amounts include similar charges of $3.2 million and
       $2.5 million, respectively.  For the six months ended December 31,
       1999, these amounts include one-time gains of $1.4 million from the
       sales of underutilized assets.


                         Supplemental Data Sheet

  SELECTED OPERATING DATA:
                                 Quarter Ended         Six Months Ended
                                  December 31             December 31
                                2000       1999(A)     2000        1999(A)
  Sales:
  Metalworking Services and
   Solutions Group            $244,065   $253,450    $490,881    $495,614
  Advanced Materials
   Solutions Group              83,613     82,936     170,392     167,736
  JLK/Industrial Supply        112,843    117,542     229,953     233,521
  Total                       $440,521   $453,928    $891,226    $896,871

  Sales By Geographic Region:
  Within the United States    $293,037   $296,687    $595,470    $592,782
  International                147,484    157,241     295,756     304,089
  Total                       $440,521   $453,928    $891,226    $896,871

  Operating Income (Loss),
   including special charges:
  Metalworking Services and
   Solutions Group             $31,014    $26,049     $58,936     $55,306
  Advanced Materials
   Solutions Group               8,735      7,941      19,922      18,564
  JLK/Industrial Supply          4,352      7,089       4,904      14,068
  Corporate and Eliminations    (5,945)    (9,492)    (13,235)    (22,512)
  Total                        $38,156    $31,587     $70,527     $65,426

  Operating Income (Loss),
   excluding special charges:
  Metalworking Services and
   Solutions Group             $31,051    $29,568     $58,940     $58,825
  Advanced Materials
   Solutions Group               8,760      8,312      19,948      18,935
  JLK/Industrial Supply          5,364      7,089       9,233      14,068
  Corporate and Eliminations    (5,944)    (6,301)    (13,254)    (19,321)
  Total                        $39,231    $38,668     $74,867     $72,507

  Diluted EPS excluding
   special charges and
   amortization expense          $0.67      $0.63       $1.25       $1.19

  Diluted EPS excluding
   special charges               $0.47      $0.41       $0.84       $0.74

  Free Operating Cash Flow:
  Net Income                   $13,524     $8,244     $22,866     $18,157
  Non-cash Items                  (997)     6,401       1,992       6,481
  Depreciation & Amortization   24,499     25,221      49,065      51,285
  Change in Working Capital     12,655     22,560      30,159      47,717
  Capital Expenditures         (11,509)   (10,897)    (22,980)    (21,676)
  Free Operating Cash Flow     $38,172    $51,529     $81,102    $101,964


                   Supplemental Data Sheet (Continued)

  SELECTED BALANCE SHEET DATA:

                                             Quarter Ended
                             12/31/2000  09/30/2000 06/30/2000  12/31/1999

  Accounts Receivable         $203,344   $218,863    $231,917    $224,022
  Inventory                    389,460    392,741     410,885     417,473
  Accounts Payable            (102,217)  (111,873)   (118,908)   (111,056)
  Total Primary Working
   Capital (PWC)              $490,587   $499,731    $523,894    $530,439
  PWC % Sales(B)                 28.0%      28.5%       29.4%       30.9%
  Debt                        $687,487   $672,593    $699,242    $771,417
  Debt/Total Capital             46.7%      44.7%       45.6%       48.9%


  (A) Kennametal now reports three global business units consisting of
       Metalworking Services and Solutions Group, Advanced Materials
       Solutions Group and JLK/Industrial Supply, and corporate functional
       shared services.  Certain amounts in prior year sales and operating
       income (loss) have been restated to conform to this new reporting
       structure.

  (B) 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.