Kennametal Inc. today reported fiscal 2006 first quarter EPS of $0.72, including expenses related to the adoption of SFAS 123® of $0.05 per share and increased domestic pension expense of $0.04 per share, compared with prior year first quarter EPS of $0.61.
Sales of $569 million were up 7 percent compared to prior year first quarter sales of $531 million.
Kennametal Chairman, President and Chief Executive Officer, Markos I. Tambakeras, said, "First quarter results exceeded our expectations due to favorable sales mix, raw material costs up appreciably over last year but lower than anticipated and better than expected price realization. Each of our three business groups, Metalworking Solutions and Services, Advanced Materials Solutions, and J&L Industrial Supply, is winning in the marketplace and continues to provide superior value to customers through our leadership position in technology and innovation focused on helping customers improve their competitiveness."
Highlights of the Fiscal 2006 First Quarter
-- Sales of $569 million were up 7 percent versus the same quarter last
year, including 9 percent organic sales growth, 1 percent benefit from
foreign currency exchange and partially offset by net impact of
acquisitions and divestitures.
-- Net income was $28 million compared to $23 million in the prior year,
up 24 percent.
-- Net cash flow from operations was $27 million versus $32 million in the
same quarter last year.
-- ROIC was up 230 basis points to 9.9 percent -- a new high.
Outlook
Economic indicators project continued growth through fiscal 2006 in North America and the rest-of-the-world markets, and flat to modest growth in European markets. Kennametal continues to expect organic revenue growth in the 7 to 10 percent range, at two to three times the underlying growth rates in industrial production of its addressed end markets.
Tambakeras said, "We were very pleased with our performance for the first quarter of fiscal 2006, and the outlook for our end markets for the remainder of the year remains positive. The major challenge in fiscal year 2006 continues to revolve around raw material costs, especially tungsten. We have demonstrated the ability to meet this challenge and expect to continue doing so for the remainder of the year."
Reported EPS for fiscal year 2006 is now expected to be $3.50 to $3.90, including an approximately $0.25 negative impact from the combination of expensing stock options due to SFAS 123® and the effects of the reduction in the discount rate applied to the company's pension plans. This revised earnings outlook represents an increase from previous 2006 EPS guidance of $3.30 to $3.80. In addition to narrowing the earnings guidance range, the revised outlook establishes a lower range that reflects a 12 percent increase, and a higher range that reflects a 25 percent increase from prior year EPS of $3.13.
Organic sales for the second quarter of fiscal year 2006 are expected to grow 6 to 9 percent, despite tougher comparisons. The company is expecting its top line growth to moderate slightly in the second quarter due to the collective impact of a rising interest rate environment, sustained higher energy costs and the effect of recent hurricanes. In addition, the company anticipates continuing pressure on raw material costs. Reported EPS is forecasted to be in the range of $0.68 to $0.73, consistent with a seasonal pattern and reflects confidence in the company's ability to maintain the momentum of the first quarter. Furthermore, this earnings guidance is based on an effective tax rate of 35 percent compared with 20 percent effective tax rate in the second quarter of last year.
Operating margins and ROIC are expected to reflect continued improvement for the remainder of fiscal year 2006.
As previously discussed, Kennametal anticipates net cash flow provided by operating activities of approximately $200 million to $220 million for fiscal 2006. Adjusting net cash flow provided by operating activities for the impact of purchases of property, plant and equipment ($80 million), Kennametal expects to generate between $120 million to $140 million of free operating cash flow for fiscal 2006.
Dividend Declared
Kennametal also announced its Board of Directors declared a quarterly cash dividend of $0.19 per share, reflecting a 12% increase recently implemented. The dividend is payable November 21, 2005, to shareowners of record as of the close of business on November 9, 2005.
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.
First quarter results 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, just click on the link to "Corporate," and then click "Investor Relations." This event also will be available on the company's website through November 9, 2005.
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. You can identify these 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. One can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements are likely to relate to, among other things, our goals, plans and projections regarding our financial position, results of operations, market position, and product development, which are based on current expectations that involve inherent risks and uncertainties, including factors that could delay, divert or change any of them in the next several years. Although it is not possible to predict or identify all factors, they may include the following: global and regional economic conditions; risks associated with the availability and costs of raw materials; commodity prices; risks associated with integrating and divesting businesses and achieving the expected savings and synergies; competition; demands on management resources; risks associated with international markets, such as currency exchange rates and social and political environments; future terrorist attacks; labor relations; demand for and market acceptance of new and existing products; and risks associated with the implementation of restructuring plans and environmental remediation matters. We can give no assurance that any goal or plan set forth in forward-looking statements can be achieved and readers are cautioned not to place undue reliance on such statements, which speak only as of the date made. 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 over $2 billion annually of Kennametal products and services -- delivered by our 14,000 talented employees in over 60 countries -- with almost 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):
(in thousands, except per share amounts) Quarter Ended
September 30,
2005 2004
Sales $569,218 $531,436
Cost of goods sold 369,348 358,041
Gross profit 199,870 173,395
Operating expense 147,662 130,949
Amortization of intangibles 1,351 537
Operating income 50,857 41,909
Interest expense 7,829 6,456
Other income, net (876) (1,574)
Income before provision for income taxes
and minority interest 43,904 37,027
Provision for income taxes 15,059 13,330
Minority interest 748 977
Net income $28,097 $22,720
Basic earnings per share $0.74 $0.62
Diluted earnings per share $0.72 $0.61
Dividends per share $0.19 $0.17
Basic weighted average shares outstanding 37,949 36,373
Diluted weighted average shares outstanding 38,915 37,363
SEGMENT DATA (Unaudited):
Quarter Ended
September 30,
2005 2004
Outside Sales:
Metalworking Solutions and Services Group $346,538 $315,870
Advanced Materials Solutions Group 157,678 117,886
J&L Industrial Supply 65,002 61,417
Full Service Supply - 36,263
Total Outside Sales $569,218 $531,436
Sales By Geographic Region:
Within the United States $307,399 $301,783
International 261,819 229,653
Total Sales by Geographic Region $569,218 $531,436
Operating Income (Loss):
Metalworking Solutions and Services Group $46,246 $38,872
Advanced Materials Solutions Group 23,328 14,533
J&L Industrial Supply 6,844 5,721
Full Service Supply - 120
Corporate and eliminations (1) (25,561) (17,337)
Total Operating Income, as reported $50,857 $41,909
(1) Includes corporate functional shared services and intercompany
eliminations.
FINANCIAL HIGHLIGHTS (Continued)
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited):
September 30, June 30,
2005 2005
ASSETS
Cash and equivalents $37,916 $43,220
Trade receivables, net of allowance 389,964 403,097
Receivables securitized (100,445) (109,786)
Accounts receivable, net 289,519 293,311
Inventories 420,285 386,674
Deferred income taxes 70,912 70,391
Other current assets 34,004 37,466
Total current assets 852,636 831,062
Property, plant and equipment, net 517,127 519,301
Goodwill and intangible assets, net 644,730 652,791
Other assets 86,633 89,183
Total $2,101,126 $2,092,337
LIABILITIES
Short-term debt, including notes payable $6,770 $50,889
Accounts payable 150,269 154,839
Accrued liabilities 221,445 222,930
Total current liabilities 378,484 428,658
Long-term debt 408,480 386,485
Deferred income taxes 54,307 59,551
Other liabilities 232,344 227,321
Total liabilities 1,073,615 1,102,015
MINORITY INTEREST 18,117 17,460
SHAREOWNERS' EQUITY 1,009,394 972,862
Total $2,101,126 $2,092,337
FINANCIAL HIGHLIGHTS (Continued)
RETURN ON INVESTED CAPITAL (Unaudited):
For the Period Ended September 30, 2005
Invested Capital 09/30/2005 06/30/2005 03/31/2005
Debt $415,250 $437,374 $485,168
Accounts receivable securitized 100,445 109,786 120,749
Minority interest 18,117 17,460 19,664
Shareowners' equity 1,009,394 972,862 1,021,186
Total $1,543,206 $1,537,482 $1,646,767
Invested Capital 12/31/2004 09/30/2004 Average
Debt $405,156 $435,435 $435,667
Accounts receivable securitized 115,253 115,309 112,308
Minority interest 19,249 17,377 18,373
Shareowners' equity 1,003,507 924,432 986,276
Total $1,543,165 $1,492,553 $1,552,635
Quarter Ended
09/30/05 06/30/05 03/31/05 12/31/04 Total
Interest Expense
Interest expense $7,829 $7,897 $6,803 $6,121 $28,650
Securitization interest 1,065 981 868 757 3,671
Total interest expense $8,894 $8,878 $7,671 $6,878 $32,321
Income tax benefit 11,086
Total Interest Expense, net of
tax $21,235
Quarter Ended
09/30/05 06/30/05 03/31/05 12/31/04 Total
Total Income
Net Income, as
reported $28,097 $37,740 $30,650 $28,181 $124,668
Restructuring and
asset impairment
charges - - 3,306 - 3,306
Loss on assets held
for sale - - 1,086 - 1,086
Minority interest
expense 748 238 1,449 928 3,363
Total Income,
excluding special
items $28,845 $37,978 $36,491 $29,109 $132,423
Total Income,
excluding special $132,423
items
Total Interest
Expense, net of tax 21,235
$153,658
Average invested
capital $1,552,635
Adjusted Return on
Invested Capital 9.9%
Return on Invested
Capital calculated
utilizing Net Income,
as reported is as
follows:
Net Income, as
reported $124,668
Total Interest
Expense, net of tax 21,235
$145,903
Average invested
capital $1,552,635
Return on Invested
Capital 9.4%
FINANCIAL HIGHLIGHTS (Continued)
RETURN ON INVESTED CAPITAL (Unaudited):
For the Period Ended September 30, 2004
Invested Capital 09/30/2004 06/30/2004 03/31/2004
Debt $435,435 $440,207 $494,312
Accounts receivable
securitized 115,309 117,480 108,916
Minority interest 17,377 16,232 16,598
Equity 924,432 887,152 809,904
Total $1,492,553 $1,461,071 $1,429,730
Invested Capital 12/31/2003 09/30/2003 Average
Debt $481,327 $520,138 $474,284
Accounts receivable
securitized 101,422 95,318 107,689
Minority interest 16,286 16,089 16,516
Equity 791,442 746,562 831,899
Total $1,390,477 $1,378,107 $1,430,388
Quarter Ended
09/30/04 06/30/04 03/31/04 12/31/03 Total
Interest Expense
Interest expense $6,456 $6,405 $6,332 $6,547 $25,740
Securitization interest 580 443 356 483 1,862
Total interest expense $7,036 $6,848 $6,688 $7,030 $27,602
Income tax benefit 9,109
Total Interest Expense,
net of tax $18,493
Quarter Ended
09/30/04 06/30/04 03/31/04 12/31/03 Total
Total Income
Net Income, as
reported $22,720 $29,852 $24,070 $10,892 $87,534
Minority Interest
Expense 977 (36) 533 404 1,878
MSSG Restructuring - - - 1,109 1,109
AMSG Restructuring - - - 1,018 1,018
Pension Curtailment - - - 883 883
Gain on Toshiba
Investment - - - (2,990) (2,990)
Strong Tool Note
Receivable - - - 1,360 1,360
Total Income,
excluding special
items $23,697 $29,816 $24,603 $12,676 $90,792
Total Income, excluding
special items $90,792
Total Interest Expense,
net of tax 18,493
$109,285
Average Invested
Capital $1,430,388
Adjusted Return on Invested
Capital 7.6%
Return on Invested
Capital calculated
utilizing Net Income,
as reported is as
follows:
Net Income, as
reported $87,534
Total Interest
Expense, net of tax 18,493
$106,027
Average invested
capital $1,430,388
Return on Invested Capital 7.4%
SOURCE: Kennametal Inc.
CONTACT: Investor Relations, Quynh McGuire, +1-724-539-6559, or Media
Relations, Joy Chandler, +1-724-539-4618, both of Kennametal Inc.
Web site: http://www.kennametal.com/