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Solution Name: {{SolutionName}}Kennametal Inc. today reported a fiscal 2004 first quarter earnings of $0.24 per diluted share compared with earnings of $0.31 per diluted share last year. Excluding special items in each period, diluted earnings per share were $0.34 for the quarter, at the high end of guidance, against last year's earnings per share of $0.32. Sales of $445 million were 10 percent above prior year, driven by the Widia acquisition.
Earnings Per Share Excluding Special Items
Company Guidance (07/30/03) $0.30 to $0.35
Analyst Estimate Range (10/23/03) $0.32 to $0.35
Earnings, Excluding Special Items $0.34
Kennametal Chairman, President and Chief Executive Officer, Markos I. Tambakeras, said, "We were pleased to deliver earnings near the top of our guidance, with our global markets developing largely as we expected. Our results reflect a nascent recovery in our key North American markets, and continued strong growth in the developing regions of Asia-Pacific and South America. Our confidence in the sustainability of the North American recovery was encouraged by the return to growth of our Light and General Engineering end market. Historically, this market segment has been a good proxy for the health of the broad industrial markets. Persistent weakness in our European markets was somewhat worse than we expected. During the quarter, we were focused on the final phases of the Widia integration and on accelerating investments in our global sales and marketing activities."
Highlights
First Quarter - FY04
-- Sales of $444.6 million were 10 percent above last year's
$404.2 million. Sales results include an 8 percent addition from the
Widia acquisition, a 4 percent benefit from foreign currency exchange,
and a 2 percent decline in organic sales volume.
-- Reported net income was $8.8 million against net income of
$10.8 million in the same quarter last year. Excluding special items,
net income was $12.1 million for the quarter, an 8 percent increase
compared to net income of $11.2 million last year reflecting the
benefits of Widia synergies, cost reductions, and foreign currency
exchange.
-- The current quarter included net special charges of $3.4 million, or
$0.10 per diluted share, primarily associated with the previously
announced Widia integration efforts. Prior-year quarter included net
special charges of $0.4 million, or $0.01 per diluted share, also
largely related to the Widia integration.
-- As expected, net cash flow from operations was $12.2 million, versus
$38.3 million for the prior year. Free operating cash flow was
$2.1 million, versus $28.4 million in the same period last year due to
higher tax and restructuring payments this quarter.
-- Total debt was $520 million, down $6 million from June 2003, and
$96 million below September 2002.
-- Debt to capital decreased to 40.5 percent, from 45.5 percent at the end
of September in the prior year.
Outlook
Performance in certain key North American markets toward the end of the September quarter corroborated positive macroeconomic indicators, and increased the probability of a sustained recovery in North American industrial markets. The strength of the North American recovery has yet to be established. While a North American recovery was expected to precede improvement in Europe, the weakness in Europe is greater than previously anticipated.
Tambakeras said, "On balance, we remain confident in our ability to deliver against our original earnings guidance for the year. While Europe is weaker than anticipated, North America is encouraging, and our earnings outlook was based on modest growth assumptions for the second half of our fiscal year. We will continue to manage costs and spending, as appropriate, for evolving market performance."
Sales for the second quarter of fiscal 2004 are expected to grow 4 to 5 percent year-over-year, including the impact of currency. Organic volume is anticipated to be flat to down 2 percent year-over-year, compared to a 2 percent decline in the first quarter. Reported diluted earnings per share are expected to be $0.19 to $0.26 per share. This includes an estimate for special charges associated with the completion of the Widia integration of approximately $0.06 to $0.08 per share, consistent with previously announced integration assumptions. Excluding these charges, diluted earnings per share are forecasted to range from $0.27 to $0.32 per share.
Guidance for the full year remains essentially unchanged. Sales are expected to grow 6 to 8 percent year-over-year. Reported diluted earnings per share are expected to be $1.72 to $2.04 per share. This includes an estimate for special charges associated with the completion of the Widia integration of approximately $0.16 to $0.18 per share. Excluding these charges, diluted earnings per share are forecasted to range from $1.90 to $2.20 per share. The earnings forecast includes $0.12 to $0.15 of accretion from Widia, slightly lower than prior guidance on reduced expectations for the performance of European markets.
Kennametal anticipates net cash flow provided by operating activities of approximately $165 to $185 million in fiscal 2004. Purchases of property, plant and equipment and proceeds from disposals of property, plant and equipment are expected to be $60 to $70 million, net. Adjusting net cash flow provided by operating activities for the above items, Kennametal expects to generate between $100 and $125 million of free operating cash flow.
Kennametal advises shareholders 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 .
Dividend Declared
Kennametal also announced its Board of Directors declared a quarterly cash dividend of $0.17 cents per share, payable November 25, 2003, to shareowners of record as of the close of business November 10, 2003.
First quarter results will be discussed in a live Internet broadcast at 10:00 a.m. today. Access the live or archived conference by visiting the Investor Relations section of Kennametal's corporate web site at www.kennametal.com .
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 others 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 economic conditions; future terrorist attacks; epidemics; risks associated with integrating and divesting businesses and achieving the expected savings and synergies; demands on management resources; risks associated with international markets such as currency exchange rates, and social and political environments; competition; labor relations; commodity prices; 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. 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 about 14,000 employees worldwide, the company's annual sales approximate $1.8 billion, with nearly half 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 www.kennametal.com .
FINANCIAL HIGHLIGHTS
Consolidated financial highlights for Kennametal Inc. for the quarter ended September 30, 2003 and 2002 are shown in the following tables (in thousands, except per share amounts).
Consolidated Statements of Income (Unaudited)
Quarter Ended
September 30,
2003 2002
Sales $444,575 $404,218
Cost of goods sold (A) 300,468 273,249
Gross profit 144,107 130,969
Operating expense (B) 121,239 104,835
Restructuring and asset impairment
charges 550 (181)
Amortization of intangibles 470 814
Operating income 21,848 25,501
Interest expense 6,600 8,485
Other expense, net 1,337 594
Income before provision for income
taxes and minority interest 13,911 16,422
Provision for income taxes 4,452 5,255
Minority interest 695 338
Net income $8,764 $10,829
Basic earnings per share $0.25 $0.31
Diluted earnings per share $0.24 $0.31
Dividends per share $0.17 $0.17
Basic weighted average share outstanding 35,336 35,045
Diluted weighted average shares outstanding 35,989 35,344
(A) For the quarter ended September 30, 2003, these amounts include
charges of $0.1 million for integration activities related to the
Widia acquisition and $2.8 million related to restructuring programs.
(B) For the quarters ended September 30, 2003 and 2002, these amounts
include charges of $1.4 million and $0.7 million, respectively, for
integration activities related to the Widia acquisition.
FINANCIAL HIGHLIGHTS (Continued)
In addition to reported results under U.S. GAAP for the fiscal periods, the following financial highlight tables also include, where appropriate, a reconciliation of results excluding special items, free operating cash flow and debt to capital (which are non-GAAP measures), to the most directly comparable GAAP measures. Management believes that each of these non-GAAP financial measures is useful to investors to more easily compare the Company's financial performance period to period.
RECONCILIATION TO GAAP - QUARTER ENDED SEPTEMBER 30 (Unaudited)
Diluted
Earnings
Gross Operating Operating Net Per
Profit Expense Income Income Share
2003 Reported Results $144,107 $121,239 $21,848 $8,764 $0.24
MSSG Restructuring 2,843 - 3,393 2,307 0.07
Widia Integration Costs -
MSSG 63 (1,448) 1,511 1,027 0.03
Widia Integration Costs -
AMSG 48 - 48 33 -
2003 Results Excluding
Special Items $147,061 $119,791 $26,800 $12,131 $0.34
2002 Reported Results $130,969 $104,835 $25,501 $10,829 $0.31
AMSG Restructuring - - (181) (123) -
Widia Integration Costs -
MSSG - (711) 711 483 0.01
2002 Results Excluding
Special Items $130,969 $104,124 $26,031 $11,189 $0.32
FINANCIAL HIGHLIGHTS (Continued)
SEGMENT DATA (Unaudited):
Quarter Ended
September 30,
2003 2002*
Sales:
Metalworking Solutions and Services Group $271,129 $240,422
Advanced Materials Solutions Group 93,631 83,409
J&L Industrial Supply 48,139 48,606
Full Service Supply 31,676 31,781
Total Sales $444,575 $404,218
Sales By Geographic Region:
Within the United States $232,614 $239,124
International 211,961 165,094
Total Sales $444,575 $404,218
Operating Income (Loss), as reported:
Metalworking Solutions and Services Group $23,502 $23,473
Advanced Materials Solutions Group 11,822 11,385
J&L Industrial Supply 2,685 2,301
Full Service Supply (281) (19)
Corporate and Eliminations (15,880) (11,639)
Total Operating Income $21,848 $25,501
Operating Income (Loss), excluding
special charges:
Metalworking Solutions and Services
Group $28,406 $24,184
Advanced Materials Solutions Group 11,870 11,204
J&L Industrial Supply 2,685 2,301
Full Service Supply (281) (19)
Corporate and Eliminations (15,880) (11,639)
Total Operating Income $26,800 $26,031
*Prior year segment data has been restated for organizational changes
FINANCIAL HIGHLIGHTS (Continued)
OPERATING INCOME (LOSS) RECONCILIATION (Unaudited):
QUARTER ENDED SEPTEMBER 30,
Corp &
MSSG AMSG J&L FSS Elim. Total
2003 Reported
Operating Income
(Loss) $23,502 $11,822 $2,685 $(281) $(15,880) $21,848
Restructuring 3,393 - - - - 3,393
Widia Integration
Costs 1,511 48 - - - 1,559
2003 Operating Income
(Loss) Excluding
Special Charges $28,406 $11,870 $2,685 $(281) $(15,880) $26,800
2002 Reported
Operating Income
(Loss) $23,473 $11,385 $2,301 $(19) $(11,639) $25,501
Restructuring - (181) - - - (181)
Widia Integration
Costs 711 - - - - 711
2002 Operating Income
(Loss) Excluding
Special Charges $24,184 $11,204 $2,301 $(19) $(11,639) $26,031
FINANCIAL HIGHLIGHTS (Continued)
RECONCILIATION TO OPERATING CASH FLOW INFORMATION (Unaudited)
Quarter Ended
September 30,
2003 2002
Net income $8,764 $10,829
Other non-cash items 6,473 2,005
Depreciation and amortization 15,351 19,066
Change in inventory 3,728 10,121
Change in accounts receivable 5,054 5,938
Change in accounts payable (12,512) (14,099)
Change in other assets and
liabilities (14,673) 4,454
Net cash flow provided by operating
activities 12,185 38,314
Purchase of property, plant and equipment (10,594) (10,475)
Proceeds from disposals of property,
plant and equipment 534 605
Free operating cash flow $2,125 $28,444
CONDENSED BALANCE SHEETS (Unaudited)
Quarter Ended
09/30/03 06/30/03 03/31/03
ASSETS
Cash and equivalents $14,720 $15,093 $17,250
Accounts receivable, net of allowance 232,146 235,648 235,908
Inventories 387,877 392,255 408,996
Deferred income taxes 114,619 79,564 81,651
Other current assets 47,003 42,119 44,286
Total current assets 796,365 764,679 788,091
Property, plant and equipment, net 489,242 493,373 476,208
Goodwill and Intangible assets, net 483,165 473,932 491,987
Other assets 39,736 47,108 107,159
Total $1,808,508 $1,779,092 $1,863,445
LIABILITIES
Short-term debt, including notes
payable $11,375 $10,845 $15,068
Accounts payable 107,653 119,853 120,981
Accrued liabilities 195,761 205,649 208,816
Total current liabilities 314,789 336,347 344,865
Long-term debt 508,763 514,842 565,067
Deferred income taxes 42,047 8,748 38,382
Other liabilities 180,258 178,698 140,550
Total liabilities 1,045,857 1,038,635 1,088,864
MINORITY INTEREST 16,089 18,880 18,070
SHAREOWNERS' EQUITY 746,562 721,577 756,511
Total $1,808,508 $1,779,092 $1,863,445
Quarter Ended
12/31/02 09/30/02
ASSETS
Cash and equivalents $18,155 $14,300
Accounts receivable, net of allowance 199,261 221,313
Inventories 403,530 403,590
Deferred income taxes 80,204 71,084
Other current assets 53,868 40,110
Total current assets 755,018 750,397
Property, plant and equipment, net 480,066 480,696
Goodwill and Intangible assets, net 478,060 467,140
Other assets 104,937 109,225
Total $1,818,081 $1,807,458
LIABILITIES
Short-term debt, including notes
payable $17,591 $16,992
Accounts payable 92,114 101,823
Accrued liabilities 171,726 171,045
Total current liabilities 281,431 289,860
Long-term debt 599,425 599,615
Deferred income taxes 46,801 53,475
Other liabilities 135,101 125,816
Total liabilities 1,062,758 1,068,766
MINORITY INTEREST 17,594 17,685
SHAREOWNERS' EQUITY 737,729 721,007
Total $1,818,081 $1,807,458
DEBT TO EQUITY RECONCILIATION (Unaudited)
Quarter
Forecasted Quarter Ended Ended
June 30, September 30, June 30,
2004 2003 2002 2003
Total Debt $431,920 $520,138 $616,607 $525,687
Total Shareowners' Equity 799,500 746,562 721,007 721,577
Debt to Equity, GAAP 35.1% 41.1% 46.1% 42.1%
Total Debt $431,900 $520,138 $616,607 $525,687
Minority Interest 18,800 16,089 17,685 18,880
Total Shareowners' Equity 799,500 746,562 721,007 721,577
Total Capital $1,250,200 $1,282,789 $1,355,299 $1,266,144
Debt to Capital 34.5% 40.5% 45.5% 41.5%
RECONCILIATION OF FORECASTED GAAP CASH FLOW INFORMATION (Unaudited)
Twelve Months Ended
June 30, 2004
Forecasted net cash flow provided by
operating activities $165,000 - 185,000
Forecasted purchases and disposals of
property, plant and equipment (60,000) - (70,000)
Forecasted free operating cash flow $100,000 - 125,000
SOURCE: Kennametal Inc.
CONTACT: Investor Relations, Beth A. Riley, +1-724-539-6141, or Media
Relations, Riz Chand, +1-724-539-4662, both of Kennametal Inc.
Web site: http://www.kennametal.com/