Kennametal Inc. today reported first quarter earnings of $0.43 per diluted share, a decrease of 17 percent, compared with pro forma earnings of $0.52 per diluted share last year, excluding special items in each period. On a reported basis, diluted earnings per share were $0.40 per share against last year's pro forma earnings per share of $0.44, down 9 percent. Pro forma earnings per share for fiscal 2001 reflect the non-amortization provisions of SFAS 142, "Goodwill and Other Intangible Assets" to allow equivalent comparisons.
Kennametal President and Chief Executive Officer, Markos I. Tambakeras, remarked, "We were pleased to deliver consensus results in light of the current environment, and continue to feel good about our relative strong performance in a broad manufacturing recession. Despite continuing diversification in products and geographies, our results declined as expected. Broad economic weakness began to spread to Europe and the rest of the world, while deepening in North America. Nonetheless, the steady progress we have made over the past two years to refocus and revitalize the company continues to yield benefits. We continue to adjust our cost structure in response to declining demand, while supporting programs that have increased our market share. Our steady focus on cash generation and debt reduction delivered a significant reduction in interest expense. This reduction coupled with ongoing tax planning initiatives to generate sustainable incremental benefits to the bottom line. We remain focused on near-term actions to continue to reduce costs while maintaining the core infrastructure and investment required to sustain future growth."
First Quarter Highlights
* Sales of $406.7 million declined 10 percent versus $453.6 million last
year. Excluding the unfavorable impact of foreign currency (2 percent),
the ATS divestiture (1 percent) and a positive benefit from incremental
workdays (1 percent), sales were 8 percent below the prior year. Sales
growth in Europe in the low-single digits for the quarter and continued
growth in Mining and Energy were offset by further weakness in North
American industrial markets.
* Gross profit margin of 31.9 percent declined 170 basis points versus the
first quarter of fiscal 2001. Foreign currency and operating
inefficiencies due to low volumes in two business units were the primary
drivers of the decline. The impacted units were the Electronics
business of our Advanced Materials Solutions Group and the IPG business
of our Metalworking Solutions and Services Group. Price increases and
incremental productivity improvements from lean enterprise
implementation offset sales volume declines and modest increases in raw
material costs in the rest of the company.
* Operating expense for the quarter was reduced 9 percent to
$99.9 million, excluding special charges. The elimination of waste and
expense through lean initiatives and other cost-cutting measures nearly
kept pace with the revenue decline. Excluding foreign exchange,
operating expense declined 7 percent.
* As previously announced, special charges of $1.6 million, or $0.03 per
diluted share, for the JLK business improvement plan were included in
the current quarter's results. Prior-year results included special
charges of $3.2 million, or $0.06 per diluted share, related to the JLK
business improvement plan and costs primarily related to the tender
offer; and $0.6 million, net of tax, or $0.02 per diluted share,
associated with the adoption of an accounting standard.
* Net interest expense of $9.0 million is 30 percent below the same
quarter last year due to ongoing reduction in debt and lower average
interest rates.
* The effective tax rate for the September 2001 quarter was 32.0 percent
compared with pro forma prior year of 35.5 percent. The current rate
primarily reflects a reduction of the statutory German tax rate.
* Excluding special items, net income was $13.5 million, a 15 percent
decrease compared to pro forma net income of $15.9 million last year.
Reported net income was $11.5 million.
* Free operating cash flow of $1.4 million met expectations as several
one-time factors reduced the total for the quarter, while not decreasing
expectations for the year. The results reflect lower pro forma profit,
cash payments on fiscal 2001 accrued restructuring charges and a
one-time tax payment. The tax payment will be recouped, and generate
additional savings, later in fiscal 2002. Primary working capital was
closely controlled despite the sales decline. This control is evident
in the primary working capital as a percent of sales ratio of
27.5 percent, which compares to 28.3 percent in the same period last
year. In addition, days in sales outstanding declined and inventory
turns improved during the same period. Primary working capital in total
of $474.7 million is down 5 percent from the same period last year.
* Total debt was $628.1 million, down $44.5 million from September 2000,
but up from $607.1 million at the beginning of the year. The increase
from June was primarily driven by share repurchases of $12.4 million and
the negative impact of currency on foreign-denominated debt. Debt
reduction for the remainder of fiscal 2002 is expected to be on track to
deliver the 35 percent to 40 percent debt to capital target.
Outlook
Looking forward, Tambakeras said, "While we did not experience an acute immediate impact from the terrorist attacks last month, those events clearly slowed an already weak global economy. The resulting economic and political uncertainty limits our visibility over the next few quarters, so we are managing costs very closely. However, we remain determined to exploit business opportunities that still exist, while not compromising our long-term competitiveness by over-reacting to near-term factors. Over the past two years we have implemented a number of steps to make Kennametal a more formidable competitor. We have significantly improved our financial flexibility by improving the balance sheet and formalizing the processes to produce a more lean organization. Disciplined product innovation and strengthened customer relationships have provided market share gains. We will build on this foundation as we continue to execute our long-term strategy."
Given the current economic environment, sales for the second quarter of fiscal 2002 are expected to decline 8 to 15 percent, with diluted earnings per share between $0.30 and $0.40, excluding special charges. The timing of economic improvement remains uncertain. However, based on current assessments, we are forecasting diluted earnings per share for the year to range from $2.30 to $2.60, excluding special charges. Cash flow for the year should still attain the ongoing long-term range of $100 million to $150 million.
First quarter results will be discussed in a live broadcast over the Internet at 10 a.m. today. The live conference can be accessed by visiting the Investor Relations section of Kennametal's corporate web site at http://www.kennametal.com/.
Dividend Declared
Kennametal also announced its Board of Directors declared a quarterly cash dividend of $0.17 cents per share, payable November 23, 2001, to shareowners of record as of the close of business November 9, 2001.
This release contains "forward-looking statements" as defined by Section 21E of the Securities Exchange Act of 1934, as amended. Actual results may differ materially from those expressed or implied in the forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, the extent that global economic conditions deteriorate or do not improve materially in the second half of our fiscal year, risks associated with integrating and divesting businesses, demands on management resources, risks associated with international markets such as currency exchange rates and social and political environments, competition, commodity prices, risks associated with the implementation of restructuring plans, as well as other risks and uncertainties including those detailed from time to time in the filings of the company with the Securities and Exchange Commission. The company undertakes no obligation to publicly release any revisions to forward-looking statements to reflect events or circumstances occurring after the date hereof.
Kennametal Inc. aspires to be the premier tooling solutions supplier in the world with operational excellence throughout the value chain and best-in-class manufacturing and technology. Kennametal strives to deliver superior shareowner value through top-tier financial performance. The company provides customers a broad range of technologically advanced tools, tooling systems and engineering services aimed at improving customers' manufacturing competitiveness. With approximately 12,000 employees worldwide, the company's fiscal 2001 annual sales were $1.8 billion, with a third coming from sales outside the United States. Kennametal is a five-time winner of the GM "Supplier of the Year" award and is represented in more than 60 countries. Kennametal operations in Europe are headquartered in Furth, Germany. Kennametal Asia Pacific operations are headquartered in Singapore. For more information, visit the company's web site at http://www.kennametal.com/
FINANCIAL HIGHLIGHTS
Consolidated financial highlights for Kennametal Inc. for the quarters ended September 30, 2001 and 2000 are shown in the following tables (in thousands, except per share amounts). All fiscal year 2002 data is subject to year-end (June 30) adjustment and audit by independent public accountants.
Consolidated Statements of Income
Quarter Ended
September 30,
2001 2000
Net sales $406,654 $453,635
Cost of goods sold 276,815 301,019
Gross profit 129,839 152,616
Operating expense(1) 99,877 111,286
Restructuring and asset
impairment charges 1,578 1,535
Amortization of intangibles 690 6,323
Operating income 27,694 33,472
Interest expense 9,041 12,885
Other expense, net(2) 54 2,868
Income before provision for income
taxes and minority interest 18,599 17,719
Provision for income taxes 5,951 7,176
Minority interest 204 602
Income before cumulative effect of
change in accounting principle 12,444 9,941
Cumulative effect of change in
accounting principle, net of tax(3) -- (599)
Net income $12,444 $9,342
Diluted earnings per share $0.40 $0.30
Dividends per share $0.17 $0.17
Diluted weighted average shares
outstanding 31,435 30,742
(1) For the quarter ended September 30, 2000, this includes a charge of $1.7 million, primarily related to the tender offer to acquire the outstanding shares of JLK.
(2) For the quarters ended September 30, 2001 and 2000, these amounts include charges of $0.9 million and $1.6 million, respectively, for fees incurred in connection with the company's accounts receivable securitization program.
(3) For the quarter ended September 30, 2000, this amount represents a non-cash charge for the adoption of Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities."
Pro forma SFAS 142 Operating Results - Quarter Ended September 30, 2000:
Operating income $38,872
Interest expense 12,885
Other expense, net 2,868
Income before provision for income
taxes and minority interest 23,119
Provision for income taxes 8,207
Minority interest 760
Income before cumulative effect of
change in accounting principle 14,152
Cumulative effect of change in
accounting principle, net of tax (599)
Pro forma net income $13,553
Pro forma diluted earnings per share $0.44
Supplemental Data Sheet
SELECTED OPERATING DATA:
Quarter Ended
September 30,
2001 2000(1)
Sales:(2)
Metalworking Solutions and Services
Group $222,957 $248,677
Advanced Materials Solutions Group 83,005 87,511
J&L Industrial Supply 59,121 76,623
Full Service Supply 41,571 40,824
Total Sales $406,654 $453,635
Sales By Geographic Region:(2)
Within the United States $265,726 $305,027
International 140,928 148,608
Total Sales $406,654 $453,635
Operating Income (Loss), as
reported:(2)
Metalworking Solutions and Services
Group $24,671 $28,759
Advanced Materials Solutions Group 10,363 11,191
J&L Industrial Supply 732 (1,195)
Full Service Supply 1,172 2,007
Corporate and Eliminations (9,244) (7,290)
Total Operating Income $27,694 $33,472
Operating Income (Loss), excluding
special charges:(2)
Metalworking Solutions and Services
Group $24,661 $28,727
Advanced Materials Solutions Group 10,363 11,191
J&L Industrial Supply 2,350 1,972
Full Service Supply 1,142 2,157
Corporate and Eliminations (9,244) (7,310)
Total Operating Income $29,272 $36,737
Cash Flow Information:
Net income $12,444 $9,342
Non-cash items (1,153) 2,989
Depreciation and amortization 18,712 24,566
Change in primary working capital (5,429) 18,554
Change in other working capital (15,747) (7,117)
Cash flow from operations 8,827 48,334
Capital expenditures (10,027) (11,471)
Proceeds from asset disposals 2,605 84
Free operating cash flows $1,405 $36,947
SELECTED BALANCE SHEET DATA:
Quarter Ended
9/30/01 6/30/01 3/31/01 12/31/00 9/30/00
Accounts Receivable $196,003 $206,175 $214,332 $203,344 $218,863
Inventory 382,701 373,221 387,520 389,460 392,741
Accounts Payable (103,993) (118,073) (108,371) (102,217) (111,873)
Total Primary Working
Capital (PWC) $474,711 $461,323 $493,481 $490,587 $499,731
PWC % Sales(3) 27.5% 27.3% 27.7% 27.8% 28.3%
Debt $628,061 $607,115 $654,930 $687,487 $672,593
Debt/Total Capital 43.6% 42.9% 45.1% 46.7% 44.7%
(1) Kennametal reports global business units consisting of Metalworking Solutions and Services Group, Advanced Materials Solutions Group, Full Service Supply and J&L Industrial Supply, and corporate functional shared services. Certain amounts in prior year sales and operating income (loss) have been restated to conform to this reporting structure.
(2) Amounts reflect reclassification of shipping fees charged customers to sales, and freight and handling costs to costs of goods sold, as required by Emerging Issues Task Force 00-10, "Accounting for Shipping and Handling Fees and Costs."
(3) Calculated by averaging the current and the previous four quarter-end balances for PWC, divided by sales for the most recent 12-month period.
SOURCE: Kennametal Inc.
Contact: Beth A. Riley, Director, Investor Relations of Kennametal,
+1-724-539-3470
Website: http://www.kennametal.com/