Kennametal Inc. reported today that it achieved new records for sales, adjusted EPS and adjusted ROIC for both the quarter and fiscal year ended June 30, 2008. Sales increased over the prior year by 15 percent for the June quarter and by 13 percent for the fiscal year, including organic sales growth of 4 percent for both periods. This marked the company's 18th consecutive quarter of year-over-year organic sales growth.

Reported fiscal 2008 fourth quarter diluted earnings per share (EPS) were $0.77, compared with the prior year quarter EPS of $0.79, a decrease of 3 percent. Reported EPS included charges of $0.08 per share related to its previously announced restructuring actions. Absent these charges, adjusted EPS of $0.85 increased 8 percent compared with prior year quarter EPS.

Fiscal 2008 reported EPS decreased 3 percent to $2.15, compared with prior year reported EPS of $2.22. Fiscal 2008 adjusted EPS were $2.76, compared with prior year adjusted EPS of $2.28, an increase of 21 percent. Adjusted ROIC was 12.3 percent, up 100 basis points from 11.3 percent in the prior year.

Carlos Cardoso, Kennametal's Chairman, President and Chief Executive Officer said, "We are pleased with our results for the quarter as well as for fiscal year 2008. For both periods, we delivered record sales and achieved new milestones for adjusted EPS and ROIC despite weaker market conditions in North America and higher raw material costs. During fiscal 2008, we again generated strong cash flow supported by initiatives in the June quarter aimed at reducing inventory and further shaping our business portfolio by divesting two non-core businesses. We continued to invest in our business and began to implement our previously announced restructuring actions to reduce costs and improve operating efficiencies. Our strong performance in the fourth quarter and throughout fiscal 2008 validates both our strategies and our ability to execute them, while showcasing the resilience and balance of our business."

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

Highlights of Fiscal 2008 Fourth Quarter

-- Sales for the quarter were $753 million, compared with $657 million in the same quarter last year. Sales grew 15 percent year-over-year and included 4 percent organic growth, 1 percent from acquisitions and 7 percent from foreign currency effects. The current quarter had more workdays than the prior year quarter which increased the overall sales growth by 3 percent.

-- As previously announced, the company began implementing certain restructuring actions to reduce costs and improve efficiencies in its operations. During the June quarter, the company recognized pre-tax charges related to these initiatives of $8 million, or $0.08 per share. Including these charges, the company expects to recognize a total of $40 million to $50 million of pre-tax charges related to these restructuring actions. The remaining charges are expected to be incurred over the next nine to fifteen months. Approximately 90 percent of these charges are expected to be cash expenditures. Annual ongoing benefits from these actions, once fully implemented, are expected to be in the range of $20 million to $25 million.

-- The company divested two non-core businesses within its metalworking segment during the June quarter and recognized a combined pre-tax loss on divestitures of $0.6 million. Cash proceeds received were $20 million.

-- Income from continuing operations was $60 million, compared with $62 million in the prior year quarter. Absent the charges related to restructuring actions, income from continuing operations increased 7 percent to $66 million from $62 million in the prior year quarter. This increase was driven by organic sales growth, favorable foreign currency effects and a lower effective tax rate.

-- The effective tax rate for the current quarter was 20.1 percent compared with 27.0 percent in the prior year quarter. The prior year rate included a provision for a tax uncertainty. In addition, the current quarter rate benefited from the effect of divestitures and a tax benefit associated with a dividend reinvestment plan in China.

-- Reported EPS were $0.77, compared with prior year quarter EPS of $0.79. Adjusted EPS of $0.85 increased 8 percent, compared with prior year quarter EPS of $0.79. A reconciliation follows:

                Earnings Per Diluted Share Reconciliation
  Fourth Quarter FY 2008                  Fourth Quarter FY 2007
  Reported EPS           $0.77            Reported EPS         $0.79
    Restructuring and
     related charges      0.08
  Adjusted EPS           $0.85                                 $0.79

-- During the June quarter, the company reduced its inventory by $34 million or 7 percent from the March quarter, of which $10 million was related to divestitures.

-- Adjusted ROIC was 12.3 percent, up 100 basis points from 11.3 percent in the prior year.

-- Cash flow from operating activities was $280 million in fiscal 2008, compared with $199 million in the prior year. Adjusted free operating cash flow for the current year was $124 million compared with $197 million in the prior year. The change in adjusted free operating cash flow was primarily driven by a $71 million increase in capital expenditures for enhanced manufacturing capabilities and geographic expansion, as well as changes in working capital.

Highlights of Fiscal 2008

-- Sales of $2.7 billion increased 13 percent from $2.4 billion in the prior year. Sales grew 4 percent on an organic basis, 3 percent from acquisitions and 6 percent from foreign currency effects.

-- Income from continuing operations was $168 million, compared with $177 million in the prior year, a decrease of 5 percent. Adjusted income from continuing operations was $216 million, an increase of 21 percent, compared with $178 million in the prior year.

-- The reported effective tax rate was 27.3 percent. On an adjusted basis, the effective tax rate was 21.2 percent, compared with 28.2 percent reported in the prior year. The lower adjusted rate compared with the rate for the prior year was driven by an increase in earnings under the company's pan-European business strategy, the effects of other international operations and benefits from a dividend reinvestment plan in China.

-- Reported EPS decreased 3 percent to $2.15, compared with prior year reported EPS of $2.22. Adjusted EPS increased 21 percent to $2.76, compared with prior year adjusted EPS of $2.28. A reconciliation follows:

                Earnings Per Diluted Share Reconciliation
  FY 2008                              FY 2007
  Reported EPS                $2.15    Reported EPS                   $2.22
  Impact of German tax                 Electronics impairment and
   reform bill                 0.08     transaction-related charges    0.04
  Goodwill impairment charge   0.45    Adjustment on J&L divestiture
  Restructuring and                     and transaction-related
   related charges             0.08     charges                        0.02
  Adjusted EPS                $2.76    Adjusted EPS                   $2.28


  Business Segment Highlights of Fiscal 2008 Fourth Quarter

Metalworking Solutions & Services Group (MSSG) delivered further top-line growth in the June quarter, driven primarily by organic sales gains and favorable foreign currency effects. Industrial activity remained positive in most industry and market sectors on a global basis. Areas of particular strength included aerospace, machine tools and general engineering. On a regional basis, continued growth in Europe, as well as ongoing strength in developing economies, particularly Asia Pacific and India, more than offset continued weakness in the North American market.

In the June quarter, MSSG sales grew by 13 percent as a result of 2 percent organic growth, 8 percent favorable foreign currency effects, 1 percent from acquisitions and 2 percent from more workdays. Asia Pacific and India organic sales increased 13 percent and 18 percent, respectively. Europe and Latin America organic sales increased 4 percent and 6 percent, respectively. North American organic sales declined by 5 percent.

MSSG operating income decreased by 3 percent and the operating margin decreased 230 basis points from the same quarter last year. During the June quarter, MSSG recognized restructuring and related charges of $5 million. Absent these charges, MSSG operating income increased 4 percent and operating margin decreased 130 basis points. The primary drivers of the decline in operating margin were lower manufacturing production to reduce inventory and divestiture-related charges offset somewhat by current quarter benefits from organic growth and favorable foreign currency effects.

Advanced Materials Solutions Group (AMSG) sales increased 17 percent during the June quarter, driven by 8 percent organic growth, 5 percent from favorable foreign currency effects, 2 percent from acquisitions and 2 percent from more workdays. Organic sales increased on stronger construction and mining sales and higher energy-related sales, slightly offset by lower engineered product sales.

AMSG operating income was down 13 percent and operating margin was 430 basis points lower than for the prior year quarter. During the June quarter, AMSG recognized restructuring and related charges of $3 million. Absent these charges, AMSG operating income decreased 6 percent and the operating margin decreased 320 basis points. The decline in operating margin was due to higher raw material costs and lower performance in the surface finishing machines and services business.

Outlook

Global market indicators support Kennametal's expectation for continued but more moderate top-line growth during fiscal 2009. The company believes that the North American economy will remain challenging for at least the next six to nine months. The company also believes that the European market will continue to grow, but at a slower pace. Growth in India is also expected to moderate while other developing economies should continue to show resilience. 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 moderate growth in global demand.

Kennametal expects total sales growth of 5 percent to 7 percent for fiscal 2009, including organic sales growth of 2 percent to 4 percent.

The company expects fiscal 2009 EPS to be in the range of $3.00 to $3.15, excluding charges that occur relating to the previously announced restructuring actions. Consistent with historical seasonal patterns, the company expects approximately 65 percent of the forecasted EPS to be realized in the second half of the fiscal year.

In the first quarter of fiscal 2009, Kennametal expects total sales growth to be in the range of 7 percent to 8 percent, including organic growth of 2 percent to 3 percent, and EPS to be in the range of $0.50 and $0.55, excluding charges that occur relating to the previously announced restructuring actions.

Kennametal anticipates cash flow from operating activities of approximately $310 million to $330 million for fiscal 2009. Based on anticipated capital expenditures of $155 million, the company expects to generate between $155 million and $175 million of free operating cash flow for fiscal 2009.

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 August 20, 2008 to shareowners of record as of the close of business on August 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.

Fourth quarter and full year 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 "Investor Relations" and then "Events." The replay of this event will also be available on the company's website through August 23, 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, financial performance for future periods and its intended restructuring activities, 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; implementation of restructuring plans and environmental remediation matters; demand for and market acceptance of new and existing products; future terrorist attacks or acts of war; and labor relations. 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. We undertake no obligation to release publicly any revisions to forward-looking statements as a result of future events or developments.

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 $2.7 billion annually of Kennametal products and services -- delivered by our 14,000 talented employees in over 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


  CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

                                 Three Months Ended        Year Ended
                                      June 30,              June 30,
  (in thousands, except per
   share amounts)                  2008      2007        2008        2007

  Sales                          $752,961  $657,477  $2,705,129  $2,385,493
  Cost of goods sold              500,616   421,934   1,781,889   1,543,931

     Gross profit                 252,345   235,543     923,240     841,562

  Operating expense               161,590   142,328     605,004     554,634
  Restructuring and asset
   impairment charges               4,891         -      39,891       5,970
  Loss on divestitures                582         -         582       1,686
  Amortization of intangibles       3,806     4,149      13,864       9,852

     Operating income              81,476    89,066     263,899     269,420

  Interest expense                  7,393     7,513      31,728      29,141
  Other income, net                  (930)   (3,783)     (2,641)     (9,217)

     Income from continuing
      operations before income
      taxes and minority interest  75,013    85,336     234,812     249,496

  Provision for income taxes       15,104    23,014      64,057      70,469

  Minority interest expense           329       229       2,980       2,185

  Income from continuing
   operations                      59,580    62,093     167,775     176,842
  Loss from discontinued
   operations (a)                       -         -           -      (2,599)

  Net income                      $59,580   $62,093    $167,775    $174,243

  Basic earnings (loss) per
   share: (b)
     Continuing operations          $0.78     $0.80       $2.18       $2.30
     Discontinued operations (a)        -         -           -       (0.03)
                                    $0.78     $0.80       $2.18       $2.27

  Diluted earnings (loss) per
   share: (b)
     Continuing operations          $0.77     $0.79       $2.15       $2.25
     Discontinued operations (a)        -         -           -       (0.03)
                                    $0.77     $0.79       $2.15       $2.22

  Dividends per share (b)           $0.12     $0.10       $0.47       $0.41
  Basic weighted average shares
   outstanding (b)                 76,346    77,235      76,811      76,788
  Diluted weighted average
   shares outstanding (b)          77,614    78,977      78,201      78,545

(a) Loss 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) Share and per share amounts have been restated to reflect the company's 2-for-1 stock split completed in December 2007.

  CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

                                                June 30,          June 30,
  (in thousands)                                   2008              2007

  ASSETS
  Cash and cash equivalents                      $67,986           $50,433
  Accounts receivable, net                       512,794           466,690
  Inventories                                    460,800           403,613
  Other current assets                            91,914            95,766
     Total current assets                      1,133,494         1,016,502
  Property, plant and equipment, net             749,755           614,019
  Goodwill and intangible assets, net            802,722           834,290
  Other assets                                    79,884           141,416
     Total                                    $2,765,855        $2,606,227

  LIABILITIES
  Current maturities of long-term debt
   and capital leases, including
   notes payable                                 $15,106            $5,430
  Accounts payable                               189,050           189,301
  Other current liabilities                      298,661           292,506
     Total current liabilities                   502,817           487,237
  Long-term debt and capital leases              313,052           361,399
  Other liabilities                              280,552           255,500
     Total liabilities                         1,096,421         1,104,136

  MINORITY INTEREST IN CONSOLIDATED
   SUBSIDIARIES                                   21,527            17,624
  SHAREOWNERS' EQUITY                          1,647,907         1,484,467
     Total                                    $2,765,855        $2,606,227


  SEGMENT DATA (Unaudited)
                                 Three Months Ended        Year Ended
                                      June 30,              June 30,
  (in thousands)                     2008      2007        2008        2007

  Outside Sales:
  Metalworking Solutions and
   Services Group                $488,022  $430,630  $1,789,859  $1,577,234
  Advanced Materials Solutions
   Group                          264,939   226,847     915,270     808,259
    Total outside sales          $752,961  $657,477  $2,705,129  $2,385,493

  Sales By Geographic Region:
  United States                  $318,405  $306,848  $1,174,003  $1,134,752
  International                   434,556   350,629   1,531,126   1,250,741
    Total sales by geographic
     region                      $752,961  $657,477  $2,705,129  $2,385,493

  Operating Income (Loss):
  Metalworking Solutions and
   Services Group                 $67,727   $69,729    $260,744    $221,387
  Advanced Materials Solutions
   Group                           32,858    37,974      83,925     131,323
  Corporate and eliminations ( c )(19,109)  (18,637)    (80,770)    (83,290)
    Total operating income        $81,476   $89,066    $263,899    $269,420

( 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 include, where appropriate, a reconciliation of adjusted results including gross profit, operating expense, operating income, MSSG operating income, AMSG operating income, effective tax rate, income from continuing operations, net income and diluted earnings per share (which are GAAP financial measures), 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 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.

  RECONCILIATION TO GAAP - THREE MONTHS ENDED JUNE 30, 2008 (Unaudited)

  (in thousands,                                Income from
   except per       Gross   Operating Operating  Continuing   Net    Diluted
   share amounts)   Profit   Expense   Income    Operations  Income    EPS
  2008 Reported
   Results         $252,345  $161,590  $81,476    $59,580   $59,580   $0.77
     Restructuring
      and related
      charges         1,441    (1,916)   8,248      6,635     6,635    0.08
  2008 Adjusted
   Results         $253,786  $159,674  $89,724    $66,215   $66,215   $0.85

                                                       MSSG         AMSG
                                                     Operating    Operating
  (in thousands)                                       Income      Income
  2008 Reported Results                                $67,727     $32,858
     Restructuring and related charges                   4,856       3,012
  2008 Adjusted Results                                $72,583     $35,870


  RECONCILIATION TO GAAP - YEAR ENDED JUNE 30, 2008 (Unaudited)

  (in thousands,
   except
   percents    Effect-
   and per      ive                                Income from
   share        Tax    Gross   Operating Operating Continuing   Net  Diluted
   amounts)     Rate   Profit   Expense    Income  Operations Income  EPS(d)
  2008 Reported
   Results      27.3% $923,240  $605,004  $263,899  $167,775  $167,775 $2.15
    Impact of
     German tax
     reform
     bill       (2.4)        -         -         -     6,594     6,594  0.08
    Goodwill
     impairment
     charge     (3.6)        -         -    35,000    35,000    35,000  0.45
    Restructuring
     and related
     charges    (0.1)    1,441    (1,916)    8,248     6,635     6,635  0.08
  2008 Adjusted
   Results      21.2% $924,681  $603,088  $307,147  $216,004  $216,004 $2.76


  RECONCILIATION TO GAAP - YEAR ENDED JUNE 30, 2007 (Unaudited)


  (in thousands,                                 Income from
   except per                Operating Operating Continuing   Net    Diluted
   share amounts)             Expense    Income  Operations  Income   EPS(d)
  2007 Reported Results       $554,634  $269,420  $176,842  $174,243  $2.22
  Electronics impairment and
   transaction-related charges       -         -         -     3,213   0.04
  Adjustment on J&L
   divestiture and
   transaction-related
   charges                        (333)    2,019     1,252     1,252   0.02
  2007 Adjusted Results       $554,301  $271,439  $178,094  $178,708  $2.28

  (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):

                                                        Year Ended
                                                          June 30,
     (in thousands)                                 2008              2007

     Net cash flow provided by
      operating activities                      $279,786          $199,006
     Purchases of property, plant and
      equipment                                 (163,489)          (92,001)
     Proceeds from disposals of
      property, plant and equipment                2,839             3,455
        Free operating cash flow                 119,136           110,460
     Adjustments:
        Income taxes paid during first
         quarter                                   4,659            86,236
     Adjusted free operating cash flow          $123,795          $196,696


  RETURN ON INVESTED CAPITAL (Unaudited)

  June 30, 2008 (in thousands, except percents)

  Invested
   Capital  6/30/2008  3/31/2008 12/31/2007  9/30/2007  6/30/2007   Average
  Debt       $328,158   $428,456   $446,956   $377,051   $366,829   $389,490
  Minority
   interest    21,527     21,879     20,276     19,122     17,624     20,086
  Share-
   owners'
   equity   1,647,907  1,615,568  1,563,297  1,531,378  1,484,467  1,568,523
  Total    $1,997,592 $2,065,903 $2,030,529 $1,927,551 $1,868,920 $1,978,099

                                      Three Months Ended
  Interest Expense     6/30/2008  3/31/2008  12/31/2007  9/30/2007   Total
  Interest expense       $7,393     $8,005     $8,531      $7,799   $31,728
  Securitization
   fees                       4          5          5           8        22
  Total interest
   expense               $7,397     $8,010     $8,536      $7,807   $31,750
  Income tax
   benefit                                                            6,731
  Total interest
   expense, net of tax                                              $25,019

  Total Income         6/30/2008  3/31/2008  12/31/2007  9/30/2007   Total
  Net income,
   as reported          $59,580    $23,170    $50,146     $34,879  $167,775
  Impact of German
   tax reform bill            -          -          -       6,594     6,594
  Goodwill
   impairment
   charge                     -     35,000          -           -    35,000
  Restructuring and
   related charges        6,635          -          -           -     6,635
  Minority interest
   expense                  329        742      1,037         872     2,980
  Total income,
   adjusted             $66,544    $58,912    $51,183     $42,345  $218,984
  Total interest
   expense,
   net of tax                                                        25,019
                                                                   $244,003
  Average invested
   capital                                                       $1,978,099
  Adjusted Return on
   Invested Capital                                                    12.3%

  Return on invested capital calculated
   utilizing net income, as reported is
   as follows:
  Net income, as reported                                          $167,775
  Total interest expense, net of tax                                 25,019
                                                                   $192,794
  Average invested capital                                       $1,978,099
  Return on Invested Capital                                            9.7%


  RETURN ON INVESTED CAPITAL (Unaudited)

  June 30, 2007 (in thousands, except percents)

  Invested
   Capital  6/30/2007 3/31/2007  12/31/2006  9/30/2006  6/30/2006    Average
  Debt       $366,829  $371,521    $376,472   $409,592   $411,722   $387,227
  Minority
   interest    17,624    16,896      15,807     15,177     14,626     16,026
  Share-
   owners'
   equity   1,484,467  1,431,235  1,369,748  1,319,599  1,295,365  1,380,083
  Total    $1,868,920 $1,819,652 $1,762,027 $1,744,368 $1,721,713 $1,783,336


                                          Three Months Ended
  Interest Expense      6/30/2007  3/31/2007  12/31/2006  9/30/2006   Total
  Interest expense        $7,513     $6,915     $7,286      $7,427  $29,141
  Securitization fees          5          5          6          22       38
  Total interest expense  $7,518     $6,920     $7,292      $7,449  $29,179
  Income tax benefit                                                  8,258
  Total interest expense,
   net of tax                                                       $20,921

  Total Income          6/30/2007  3/31/2007  12/31/2006  9/30/2006   Total
  Net income,
   as reported           $62,093    $51,738    $30,051     $30,361 $174,243
  Adjustment on J&L
   divestiture and
   transaction-
   related charges             -          -          -       1,252    1,252
  Electronics impairment
   and transaction-
   related charges             -          -      3,213           -    3,213
  Loss on divestiture
   of CPG and
   transaction-related
   charges                     -          -          -         368      368
  Minority interest
   expense                   229        757        642         557    2,185
  Total income,
   adjusted              $62,322    $52,495    $33,906     $32,538 $181,261
  Total interest
   expense, net of tax                                               20,921
                                                                   $202,182
  Average invested
   capital                                                       $1,783,336
  Adjusted Return on
   Invested Capital                                                    11.3%

  Return on invested capital calculated utilizing net income,
   as reported is as follows:
  Net income, as reported                                          $174,243
  Total interest expense, net of tax                                 20,921
                                                                   $195,164
  Average invested capital                                       $1,783,336
  Return on Invested Capital                                           10.9%

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

SOURCE: Kennametal Inc.