Kennametal Inc. today reported fiscal 2002 second quarter earnings of $0.32 per diluted share, a decrease of 49 percent, compared with earnings of $0.63* per diluted share last year, excluding special items in each period. On the same basis through the first six months, diluted earnings per share were $0.75, 35 percent below last year's earnings of $1.15*.
Earnings Per Share Excluding Special Items Company Guidance (10/31/01) $0.30 to $0.40 Analyst Estimate Range (01/29/02) $0.31 to $0.35 Earnings, Excluding Special Items $0.32
On a reported basis, diluted loss per share was ($0.08) for the quarter against last year's earnings per share of $0.61*. For the first six months, reported diluted earnings per share were $0.32 against last year's earnings per share of $1.05*.
* Fiscal 2001 earnings per share quoted in this release exclude goodwill amortization as defined by SFAS 142, "Goodwill and Other Intangible Assets" to allow equivalent comparisons. A table reconciling the fiscal 2001 impact of goodwill amortization is included later in this release.
Kennametal President and Chief Executive Officer, Markos I. Tambakeras, said, "By executing our business strategy with relentless focus on cost control, cash management and the Kennametal Lean Enterprise, we delivered second quarter earnings consistent with our estimates and a 68 percent year- over-year increase in free cash flow - despite weaker than expected end markets. Sales in the December quarter were significantly depressed by customer production slowdowns over the year-end holidays that were considerably more severe than usual. However, determined performance by our sales force, including a steady flow of new products, allowed us to still deliver targeted earnings. The sustained strength of our relative performance is a powerful testimony to the skills and passion of Kennametal employees worldwide."
Tambakeras noted that further slowing of industrial activity underscored the value of the company's early and decisive restructuring and cost reduction actions. As the manufacturing recession extended well into its second year in the United States, and spread to Europe, the company responded with several additional steps. These included a further $20 million restructuring program announced in November 2001, to reduce costs but preserve the infrastructure to sustain competitiveness in deteriorating global markets.
Second Quarter Highlights
-- Sales of $380.3 million declined 14 percent, versus $443.6 million
last year. Continued sales growth in Mining and Construction and Asia
Pacific was more than offset by broad weakness in other North American
served markets and the onset of decline in European economies.
-- Gross profit margin, excluding special charges, of 30.9 percent
declined 320 basis points compared with the second quarter of fiscal
2001. The realization of incremental manufacturing efficiencies from
lean initiatives offset raw material increases and unfavorable
customer and product mix, but could not absorb the under-utilization
of capacity caused by volume declines.
-- Operating expense for the quarter was reduced 11 percent, to $93.1
million, excluding special charges. Ongoing cost-cutting and lean
initiatives, combined with several short-term savings actions, reduced
expenses in step with sales declines. Moreover, the reduction was
achieved even as spending on growth programs and R&D was sustained.
-- The current quarter included special charges of $18.3 million, or
$0.40 per diluted share, associated with previously announced
restructurings. The charges were divided approximately evenly among
the J&L/FSS business improvement plan, the closure of two IPG drill
plants and the closure of the Chicago, IL Electronics plant. Prior-
year results included special charges of $1.1 million, or $0.03 per
share, related primarily to the J&L business improvement plan.
-- Interest expense of $8.3 million is 38 percent below the same quarter
last year due to ongoing debt reduction and lower average borrowing
rates.
-- The effective tax rate for the December 2001 quarter was 32.0
percent, compared with prior year of 32.5 percent.
-- Excluding special items, net income was $10.0 million, a 48 percent
decrease compared with net income of $19.3 million last year. On a
reported basis, the company had a loss of $2.5 million against net
income of $18.5 million in the same quarter last year.
-- Free operating cash flow was $47.1 million, versus $28.1 million in
the same period last year, with working capital improvements as the
strongest contributor. Primary working capital remained tightly
controlled with the primary working capital as a percent of sales
ratio improving 10 basis points to 27.7 percent. In addition, days in
sales outstanding declined and inventory turns improved against the
same period. Primary working capital of $428.8 million was down 13
percent from the same period last year.
-- Total debt was $580.2 million, down $107.3 million from December 2000
and down $26.9 million from the beginning of the fiscal year. Three
years of focused debt reduction has lowered total debt by more than
40%.
Outlook
Considering the remaining two fiscal quarters, Tambakeras said, "Although we remain optimistic that the economy will show signs of rebound by mid-year, our previous outlook has been dampened. External indicators that we track include forecasts for US GDP and industrial production, and European GDP. The forecasts for each of these indices for the March and June 2002 quarters have been reduced since October 2001. Further, there is no conclusive evidence that the March quarter will rebound from the prior quarter's lows, and the eventual return to growth in the industrial markets is broadly expected to be quite slow. Therefore, for the remainder of our fiscal year we will continue our successful focus on things we can control -- costs, cash flow, debt and gaining market share with new products and continuing investments in our sales force and marketing initiatives."
Looking forward, Tambakeras continued, "We have completed the repositioning of Kennametal that was begun over two years ago. Consequently, we are very confident in our ability to accelerate growth and shareowner value as the global economy improves."
Based on assumptions that the first half of calendar 2002 will be weaker than predicted earlier, sales for the third quarter of fiscal 2002 are expected to decline 10 to 15 percent, with diluted earnings per share between $0.50 and $0.55, excluding special charges. For the year ending in June 2002, diluted earnings per share are forecasted to range from $1.90 to $2.10, excluding special charges. Despite the reduction in earnings expectations, cash flow for the year should still attain the ongoing long-term range of $100 million to $150 million.
Second quarter results will be discussed in a live Internet broadcast at 10 a.m. today. Access the live or archived conference 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 February 25, 2002, to shareowners of record as of the close of business February 8, 2002.
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 impact of the terrorist attacks on September 11, 2001 and their aftermath, the extent that global economic conditions deteriorate or do not improve materially in the second half of our fiscal 2002 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, demand for and market acceptance of new and existing products, risks associated with the implementation of restructuring plans and environmental remediation, 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 and six-month periods ended December 31, 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 Six Months Ended
December 31, December 31,
2001 2000 2001 2000
Net sales $380,338 $443,565 $786,992 $897,200
Cost of goods sold 263,873 292,149 540,688 593,168
Gross profit 116,465 151,416 246,304 304,032
Operating expense(1) 93,139 105,166 193,016 216,452
Restructuring and asset
impairment charges 17,128 812 18,706 2,347
Amortization of
intangibles 689 6,147 1,379 12,470
Operating income 5,509 39,291 33,203 72,763
Interest expense 8,290 13,400 17,655 26,595
Other expense (income),
net(2) 105 2,335 (165) 4,893
Income (loss) before provision for
income taxes and minority
interest (2,886) 23,556 15,713 41,275
Provision for income taxes (923) 9,128 5,029 16,304
Minority interest 497 904 701 1,506
Income (loss) before cumulative
effect of change in accounting
principle (2,460) 13,524 9,983 23,465
Cumulative effect of change in
accounting principle, net of tax - - - (599)
Net income (loss) $(2,460) $13,524 $9,983 $22,866
Diluted earnings (loss) per share $(0.08) $0.44 $0.32 $0.75
Dividends per share $0.17 $0.17 $0.34 $0.34
Diluted weighted average shares
outstanding 31,380 30,548 31,405 30,639
(1) For the quarter and six-months ended December 31, 2000, this
includes a charge of $0.3 million and $2.0 million, respectively,
primarily related to the tender offer to acquire the outstanding
shares of JLK.
(2) For the quarters ended December 31, 2001 and 2000, these amounts
include charges of $0.6 million and $1.6 million, respectively, for
fees incurred in connection with the company's accounts receivable
securitization program. For the six-months ended December 31, 2001
and 2000, these amounts include similar charges of $1.5 million and
$3.2 million, respectively.
Pro forma Fiscal 2001 Operating Results Excluding Goodwill Amortization:
Period Ended
December 31, 2000
Quarter Six Months
Operating income $44,668 $83,540
Interest expense 13,400 26,595
Other expense, net 2,335 4,893
Income before provision for income
taxes and minority interest 28,933 52,052
Provision for income taxes 9,432 17,639
Minority interest 967 1,727
Income before cumulative
effect of change in
accounting principle 18,534 32,686
Cumulative effect of change in
accounting principle,
net of tax - (599)
Pro forma net income $18,534 $32,087
Pro forma diluted
earnings per share $0.61 $1.05
The following tables provide a comparison of the company's reported results, and the results excluding special items, for fiscal 2002 and fiscal 2001.
Quarter Ended December 31,
Diluted
Earnings
Net (Loss)
Gross Operating Income Per
Profit Income (Loss) Share
2001 Reported Results $116,465 $5,509 $(2,460) $(0.08)
MSSG Restructuring (IPG) - 6,247 4,248 0.14
AMSG Restructuring (Electronics) 750 5,954 4,049 0.13
Corporate Restructuring - 157 107 -
Total Core Business 750 12,358 8,404 0.27
J&L Restructuring 399 5,853 3,980 0.13
FSS Restructuring - 66 44 -
Total Non-Core Business 399 5,919 4,024 0.13
2001 Results Excluding Special Items $117,614 $23,786 $9,968 $0.32
2000 Reported Results $151,416 $39,291 $13,524 $0.44
MSSG Restructuring - 37 23 -
AMSG Restructuring - 26 17 -
Total Core Business - 63 40 -
J&L Restructuring & Other - 1,012 643 0.03
Total Non-Core Business - 1,012 643 0.03
2000 Results Excluding Special Items $151,416 $40,366 $14,207 $0.47
Six Months Ended December 31,
Diluted
Earnings
(Loss)
Gross Operating Net Per
Profit Income Income Share
2001 Reported Results $246,304 $33,203 $9,983 $0.32
MSSG Restructuring (IPG) - 6,237 4,241 0.14
AMSG Restructuring (Electronics) 750 5,954 4,049 0.13
Corporate Restructuring - 157 107 -
Total Core Business 750 12,348 8,397 0.27
J&L Restructuring 399 7,471 5,079 0.16
FSS Restructuring - 36 25 -
Total Non-Core Business 399 7,507 5,104 0.16
2001 Results Excluding Special Items $247,453 $53,058 $23,484 $0.75
2000 Reported Results $304,032 $72,763 $22,866 $0.75
MSSG Restructuring - 5 3 -
AMSG Restructuring - 26 14 -
Corporate Restructuring - (20) (11) -
Total Core Business - 11 6 -
J&L Restructuring & Other - 4,179 2,187 0.09
FSS Restructuring - 150 81 -
Total Non-Core Business - 4,329 2,268 0.09
Adoption of SFAS 133 - - 599 0.02
2000 Results Excluding Special Items $304,032 $77,103 $25,739 $0.86
SEGMENT DATA:
Quarter Ended Six Months Ended
December 31, December 31,
2001 2000(1) 2001 2000(1)
Sales:(2)
Metalworking Solutions and
Services Group $218,078 $245,984 $441,035 $494,661
Advanced Materials Solutions Group 71,614 84,377 154,619 171,888
J&L Industrial Supply 56,003 73,581 115,124 150,204
Full Service Supply 34,643 39,623 76,214 80,447
Total Sales $380,338 $443,565 $786,992 $897,200
Sales By Geographic Region:(2)
Within the United States $242,509 $295,736 $508,235 $600,763
International 137,829 147,829 278,757 296,437
Total Sales $380,338 $443,565 $786,992 $897,200
Operating Income (Loss), as
reported:(2)
Metalworking Solutions and
Services Group $17,410 $31,853 $42,081 $60,612
Advanced Materials Solutions Group (652) 8,739 9,711 19,930
J&L Industrial Supply (3,665) 2,832 (2,933) 1,637
Full Service Supply 247 1,812 1,419 3,819
Corporate and Eliminations (7,831) (5,945) (17,075) (13,235)
Total Operating Income $5,509 $39,291 $33,203 $72,763
Operating Income, excluding
special charges:(2)
Metalworking Solutions and
Services Group $23,657 $31,890 $48,318 $60,617
Advanced Materials Solutions Group 5,302 8,765 15,665 19,956
J&L Industrial Supply 2,188 3,844 4,538 5,816
Full Service Supply 313 1,812 1,455 3,969
Corporate and Eliminations (7,674) (5,945) (16,918) (13,255)
Total Operating Income $23,786 $40,366 $53,058 $77,103
Operating Income, excluding
special charges and
goodwill amortization:(2)(3)
Metalworking Solutions and
Services Group $34,229 $65,306
Advanced Materials Solutions Group 10,994 24,417
J&L Industrial Supply 4,561 7,220
Full Service Supply 1,827 3,999
Corporate and Eliminations (5,868) (13,062)
Total Operating Income $45,743 $87,880
(1) Kennametal reports global business units consisting of Metalworking
Solutions and Services Group, Advanced Materials Solutions Group,
J&L Industrial Supply, Full Service 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) As reported amounts for fiscal 2002 are reflective of the non-
amortization provision of SFAS 142, "Goodwill and Other Intangible
Assets."
CASH FLOW INFORMATION
Quarter Ended Six Months Ended
December 31, December 31,
2001 2000(1) 2001 2000(1)
Net income (loss) $(2,460) $13,524 $9,983 $22,866
Non-cash items 13,472 (997) 12,319 1,992
Depreciation and amortization 18,591 24,499 37,303 49,065
Change in primary working capital 43,645 15,364 38,216 29,425
Change in other working capital (16,996) (13,548) (32,742) (16,172)
Cash flow from operations 56,252 38,842 65,079 87,176
Capital expenditures (10,087) (11,509) (20,114) (22,980)
Proceeds from asset disposals 920 760 3,525 844
Free operating cash flows $47,085 $28,093 $48,490 $65,040
(1) Certain amounts have been reclassified to be consistent with the
current year presentation.
CONDENSED BALANCE SHEETS
Quarter Ended
12/31/01 9/30/01 6/30/01
ASSETS
Cash and equivalents $10,414 $10,722 $12,940
Accounts receivables, net of allowance 162,916 196,003 206,175
Inventories 367,724 382,701 373,221
Deferred income taxes 67,215 64,673 57,452
Other current assets 24,728 25,036 31,408
Total current assets 632,997 679,135 681,196
Property, plant and equipment, net 448,263 467,268 472,874
Goodwill, net 616,113 616,527 615,263
Intangible assets, net 7,945 8,716 9,497
Other assets 60,797 50,943 46,612
Total $1,766,115 $1,822,589 $1,825,442
LIABILITIES
Short-term debt $406,677 $418,448 $24,530
Accounts payable 101,817 103,993 118,073
Accrued liabilities 131,656 137,055 151,882
Total current liabilities 640,150 659,496 294,485
Long-term debt 173,514 209,613 582,585
Deferred income taxes 54,204 50,945 53,844
Other liabilities 89,880 90,716 87,898
Total liabilities 957,748 1,010,770 1,018,812
MINORITY INTEREST 9,271 10,187 9,861
SHAREOWNERS' EQUITY 799,096 801,632 796,769
Total $1,766,115 $1,822,589 $1,825,442
Quarter Ended
3/31/01 12/31/00
ASSETS
Cash and equivalents $19,987 $18,293
Accounts receivables, net of allowance 214,332 203,344
Inventories 387,520 389,460
Deferred income taxes 52,610 52,552
Other current assets 31,899 34,374
Total current assets 706,348 698,023
Property, plant and equipment, net 474,015 482,493
Goodwill, net 628,104 634,247
Intangible assets, net 9,529 10,682
Other assets 39,177 36,107
Total $1,857,173 $1,861,552
LIABILITIES
Short-term debt $8,786 $10,210
Accounts payable 108,371 102,217
Accrued liabilities 174,378 171,036
Total current liabilities 291,535 283,463
Long-term debt 646,144 677,277
Deferred income taxes 37,531 31,261
Other liabilities 84,312 85,773
Total liabilities 1,059,522 1,077,774
MINORITY INTEREST 10,708 10,514
SHAREOWNERS' EQUITY 786,943 773,264
Total $1,857,173 $1,861,552
SOURCE: Kennametal Inc.
Contact: Beth A. Riley, Investor Relations, +1-724-539-6141, or Steve
Halvonik, Media Relations, +1-724-539-4618, both of Kennametal
Website: http://www.kennametal.com/