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COVID-19: How Kennametal is responding

LATROBE, Pa., Oct. 27, 2011 /PRNewswire/ -- Kennametal Inc. (NYSE: KMT) today reported a record fiscal 2012 first quarter earnings per diluted share (EPS) of $0.88 compared with prior year quarter reported EPS of $0.42.  The prior year EPS included restructuring and related charges of $0.05. Prior September quarter record EPS were $0.57 at September 30, 2008.

Carlos Cardoso, Kennametal's Chairman, President and Chief Executive Officer said "Organic revenue growth of 17 percent for the quarter reflects ongoing customer demand on top of strong growth from the prior year quarter.  For the September quarter, Kennametal again delivered record financial results, driven by increased sales volumes across our served end markets and geographies.  At the same time, our company-specific initiatives provided additional sources of top-line growth and margin expansion during the period. This performance demonstrates that Kennametal's global team continues to successfully execute our strategies, further strengthen our foundation and position the company to achieve higher levels of profitability and earnings."

Fiscal 2012 First Quarter Key Developments

  • Sales were $659 million, compared with $529 million in the same quarter last year. Sales increased as a result of organic growth of 17 percent, a 7 percent favorable impact from foreign currency effects and a favorable impact from more business days.
  • Record operating income was $102 million compared with $58 million in the same quarter last year.  The prior year operating income included restructuring and related charges of $4 million. Operating margin reached a first quarter record of 15.4 percent compared to the prior year previous quarterly record for adjusted operating margin of 11.7 percent. The improved margin was driven by higher sales volume and price realization, continued focus on cost containment and incremental restructuring benefits, partially offset by higher raw material costs.  
  • First quarter record reported EPS were $0.88 compared with prior year quarter reported EPS of $0.42.  The prior year EPS included restructuring and related charges of $0.05.
  • Cash outflow from operating activities was $7 million, compared with cash inflow of $26 million in the prior year. Net capital expenditures were $11 million for the quarter.  Free operating cash flow for the current quarter was an outflow of $18 million compared with an inflow of $16 million in the prior year quarter. The primary drivers of the outflow were higher inventory levels and higher payments related to incentive compensation.
  • The company purchased 2 million shares of its common stock under a previously announced share repurchase program.
  • Adjusted ROIC was 16.2 percent as of September 30, 2011 and was an all-time company record. The previous all-time record for adjusted ROIC was 14.8 percent as of June 30, 2011.

Segment Developments for the Fiscal 2012 First Quarter

  • Industrial segment sales of $418 million increased by 26 percent from $331 million in the prior year quarter, driven by organic growth of 17 percent, favorable foreign currency effects of 8 percent and favorable impact of more business days.  On an organic basis, sales increased in all served market sectors led by growth in general engineering of 22 percent and a 14 percent increase in transportation. On a regional basis, sales increased by approximately 24 percent in Europe, 19 percent in the Americas and 7 percent in Asia.
  • Industrial segment operating income was $73 million compared with $36 million for the same quarter of the prior year. Absent restructuring and related charges, Industrial operating income was $39 million in the prior year quarter.  The primary drivers of the increase in operating income were higher sales volumes and price realization, partially offset by an increase in raw material costs. Industrial operating margin increased substantially from the prior year quarter to 17.4 percent from an adjusted operating margin of 11.8 percent in the prior year period.
  • Infrastructure segment sales of $241 million increased 21 percent from $199 million in the prior year quarter, driven by 17 percent organic growth and favorable foreign currency effects of 4 percent.  The organic increase was driven by 19 percent higher sales of energy and related products, as well as a 14 percent increase in demand for earthworks products. On a regional basis, sales increased by approximately 25 percent in Asia, 16 percent in the Americas and 14 percent in Europe.
  • Infrastructure segment operating income was $33 million, compared with $27 million in the same quarter of the prior year. Absent restructuring and related charges, Infrastructure operating income was $28 million in the prior year quarter.   Operating income grew primarily due to higher sales volumes and price realization, despite significantly higher raw material costs. Infrastructure operating margin was 13.5 percent compared to an adjusted operating margin of 14.0 percent in the prior year quarter.

Reconciliations of all non-GAAP financial measures are set forth in the attached tables, and the corresponding descriptions are contained in our report on Form 8-K to which this release is attached.

Recent Actions to Enhance Liquidity and Further Strengthen Financial Position

In October 2011, Kennametal further enhanced liquidity and strengthened its financial position by amending the company's existing revolving bank credit facility. The amendment provides additional liquidity by increasing the size of the facility from $500 million to $600 million and extending the terms to October 2016.  The amendment also provides for improved pricing.  Financial covenants and other key provisions remain unchanged.

Outlook

Global economic conditions and worldwide industrial production are expected to continue to reflect moderate expansion. As such, Kennametal has maintained its fiscal 2012 organic sales growth guidance range of 10 percent to 12 percent and total sales growth range of 9 percent to 11 percent.

The company has increased its EPS guidance for fiscal 2012 to the range of $3.60 to $3.85 per share from the previous range of $3.50 to $3.80 per share.

Cash flow from operations is expected to be in the range of $330 million to $360 million for fiscal 2012 as compared to the previous range of $360 million to $380 million.  Based on capital expenditures of approximately $100 million, the company expects to generate between $230 million to $260 million of free operating cash flow for the full fiscal year, from the previous range of $260 million to $280 million.

Dividend Increase Declared

Kennametal also announced that its Board of Directors declared a quarterly cash dividend of $0.14 per share, which represents an increase of 17 percent, or $0.02, per share.  The dividend is payable November 29, 2011 to shareowners of record as of the close of business on November 8, 2011.

Kennametal advises shareowners to note monthly order trends, for which the company generally 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 website at www.kennametal.com.

First quarter results for fiscal 2012 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 November 28, 2011.

Certain statements in this release may be forward-looking in nature, or "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. For example, statements about Kennametal's outlook for earnings, sales volumes, and cash flow for fiscal year 2012 and our expectations regarding future growth and financial performance are forward-looking statements. These statements are based on current estimates that involve inherent risks and uncertainties.  Should one or more of these risks or uncertainties materialize, or should the assumptions underlying the forward-looking statements prove incorrect, our actual results could vary materially from our current expectations.  There are a number of factors that could cause our actual results to differ from those indicated in the forward-looking statements.  They include: economic recession; availability and cost of the raw materials we use to manufacture our products; our foreign operations and international markets, such as currency exchange rates, different regulatory environments, trade barriers, exchange controls, and social and political instability; changes in the regulatory environment in which we operate, including environmental, health and safety regulations; our ability to protect and defend our intellectual property; competition; our ability to retain our management and employees; demands on management resources; demand for and market acceptance of our products; integrating acquisitions and achieving the expected savings and synergies; business divestitures; and implementation of environmental remediation matters. Many of these 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. (NYSE: KMT) delivers productivity to customers seeking peak performance in demanding environments by providing innovative custom and standard wear-resistant solutions. This proven productivity is enabled through our advanced materials sciences and application knowledge. Our commitment to a sustainable environment provides additional value to our customers. Companies operating in everything from airframes to coal mining, from engines to oil wells and from turbochargers to construction recognize Kennametal for extraordinary contributions to their value chains. In fiscal year 2011, customers bought approximately $2.4 billion of Kennametal products and services – delivered by our approximately 11,000 talented employees doing business in more than 60 countries – with more than 50 percent of these revenues coming from outside North America. Visit us at www.kennametal.com.

FINANCIAL HIGHLIGHTS




CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)







Three Months Ended


September 30,

(in thousands, except per share amounts)

2011

2010




Sales

$   658,877

$   529,158

Cost of goods sold

407,817

340,418




  Gross profit

251,060

188,740




Operating expense

145,989

125,020

Restructuring charges

-

3,260

Amortization of intangibles

3,461

2,948




  Operating income

101,610

57,512




Interest expense

5,487

5,963

Other expense, net

574

1,911




  Income from continuing operations before income taxes

95,549

49,638




Provision for income taxes

21,976

13,682




Net income

73,573

35,956

Less:  Net income attributable to noncontrolling interests

1,587

1,035




Net income attributable to Kennametal

$     71,986

$     34,921




PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL



Basic earnings per share

$         0.89

$         0.43




Diluted earnings per share

$         0.88

$         0.42




Dividends per share

$         0.12

$         0.12




Basic weighted average shares outstanding

80,659

82,105




Diluted weighted average shares outstanding

81,808

82,689



CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)




September 30,

June 30,

(in thousands)

2011

2011




ASSETS



Cash and cash equivalents

$          102,547

$          204,565

Accounts receivable, net

420,704

447,835

Inventories

559,525

519,973

Other current assets

107,859

115,212

  Total current assets

1,190,635

1,287,585

Property, plant and equipment, net

668,403

697,062

Goodwill and other intangible assets, net

645,689

663,607

Other assets

106,791

106,215

  Total assets

$       2,611,518

$       2,754,469




LIABILITIES



Current maturities of long-term debt and capital leases, including notes payable

$          310,987

$          310,963

Accounts payable

186,805

222,678

Other current liabilities

263,105

307,880

  Total current liabilities

760,897

841,521

Long-term debt and capital leases

1,734

1,919

Other liabilities

260,142

252,388

  Total liabilities

1,022,773

1,095,828




KENNAMETAL SHAREOWNERS' EQUITY

1,568,290

1,638,072

NONCONTROLLING INTERESTS

20,455

20,569

  Total liabilities and equity

$       2,611,518

$       2,754,469



SEGMENT DATA (UNAUDITED)

Three Months Ended


September 30,

(in thousands)

2011

2010




Outside Sales:



Industrial

$          417,819

$          330,658

Infrastructure

241,058

198,500

Total outside sales

$          658,877

$          529,158




Sales By Geographic Region:



United States

$          286,736

$          242,436

International

372,141

286,722

Total sales by geographic region

$          658,877

$          529,158




Operating Income:



Industrial

$            72,685

$            36,108

Infrastructure

32,554

26,503

Corporate (1)

(3,629)

(5,099)

Total operating income

$          101,610

$            57,512




(1) Represents unallocated corporate expenses



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, Industrial operating income and margin, Infrastructure operating income and margin, net income and diluted earnings per share, free operating cash flow and return on invested capital (which are non-GAAP financial measures), to the most directly comparable GAAP measures. For those adjustments that are presented 'net of tax', the tax effect of the adjustment can be derived by calculating the difference between the pre-tax and the post-tax adjustments presented.  The tax effect on adjustments is calculated by preparing an overall tax calculation including the adjustments and then a tax calculation excluding the adjustments.  The difference between these calculations results in the tax impact of the adjustments.

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. Reconciliations of all non-GAAP financial measures are set forth in the attached tables and descriptions of certain non-GAAP financial measures are contained in our report on Form 8-K to which this release is attached.

THREE MONTHS ENDED SEPTEMBER 30, 2010 (UNAUDITED)





(in thousands, except per share amounts)

Gross
Profit

Operating
Expense

Operating
Income

Net
Income(2)

Diluted EPS

2011 Reported Results


$     188,740

$    125,020

$         57,512

$       34,921

$                  0.42

2011 Reported Operating Margin




10.9%



  Restructuring and related charges

971

(22)

4,253

3,751

0.05

2011 Adjusted Results


$     189,711

$    124,998

$         61,765

$       38,672

$                  0.47

2011 Adjusted Operating Margin




11.7%










(in thousands, except percents)





Industrial

Operating

Income

Infrastructure

Operating

Income

2011 Reported Results





$       36,108

$              26,503

2011 Reported Operating Margin





10.9%

13.4%

  Restructuring and related charges




2,913

1,340

2011 Adjusted Results





$       39,021

$              27,843

2011 Adjusted Operating Margin





11.8%

14.0%








(2) Represents amounts attributable to Kennametal shareowners
























THREE MONTHS ENDED SEPTEMBER 30, 2008 (UNAUDITED)












(in thousands, except per
share amounts)

Gross
Profit

Operating
Expense

Operating
Income

Net
Income

Diluted EPS

2009 Reported Results


$     218,778

$    153,682

$         53,275

$       35,467

$                  0.47

  Restructuring and related charges

723

(10)

9,145

7,408

0.10

2009 Adjusted Results


$     219,501

$    153,672

$         62,420

$       42,875

0.57



FREE OPERATING CASH FLOW (UNAUDITED)

Three Months Ended


September 30,

(in thousands)

2011

2010




Net cash flow (used for) provided by operating activities

$       (7,238)

$              26,428

Purchases of property, plant and equipment

(11,607)

(10,062)

Proceeds from disposals of property, plant and equipment

545

90

  Free operating cash flow

$      (18,300)

$              16,456



RETURN ON INVESTED CAPITAL (UNAUDITED) 

September 30, 2011 (in thousands, except percents)








Invested Capital

9/30/2011

6/30/2011

3/31/2011

12/31/2010

9/30/2010

Average

Debt

$    312,721

$    312,882

$    316,843

$    316,379

$    318,819

$    315,529

Total equity

1,588,745

1,658,641

1,562,387

1,476,427

1,437,616

1,544,763

Total

$ 1,901,466

$ 1,971,523

$ 1,879,230

$ 1,792,806

$ 1,756,435

$ 1,860,292



Three Months Ended

Interest Expense


9/30/2011

6/30/2011

3/31/2011

12/31/2010

Total

Interest expense


$        5,487

$        5,466

$        5,767

$        5,564

$      22,284

Income tax benefit






5,125

Total interest expense, net of tax 





$      17,159

Total Income


9/30/2011

6/30/2011

3/31/2011

12/31/2010

Total

Net income attributable to
 Kennametal, as reported

$      71,986

$      86,655

$      64,683

$      43,469

$    266,793

Restructuring and related charges

-

5,588

4,379

4,366

14,333

Noncontrolling interest

1,587

174

520

821

3,102

Total income, adjusted


$      73,573

$      92,417

$      69,582

$      48,656

$    284,228

Total interest expense, net of tax 





17,159







$    301,387

Average invested capital






$ 1,860,292

Adjusted Return on Invested Capital





16.2%








Return on invested capital calculated utilizing net income, as reported is as follows:


Net income attributable to Kennametal, as reported 



$    266,793

Total interest expense, net of tax 





17,159







$    283,952

Average invested capital 





$ 1,860,292

Return on Invested Capital 





15.3%



RETURN ON INVESTED CAPITAL (UNAUDITED) 

June 30, 2011 (in thousands, except percents)








Invested Capital

6/30/2011

3/31/2011

12/31/2010

9/30/2010

6/30/2010

Average

Debt

$    312,882

$    316,843

$    316,379

$    318,819

$    337,668

$    320,518

Total equity

1,658,641

1,562,387

1,476,427

1,437,616

1,333,443

1,493,703

Total

$ 1,971,523

$ 1,879,230

$ 1,792,806

$ 1,756,435

$ 1,671,111

$ 1,814,221



Three Months Ended

Interest Expense


6/30/2011

3/31/2011

12/31/2010

9/30/2010

Total

Interest expense


$        5,466

$        5,767

$        5,564

$        5,963

$      22,760

Income tax benefit






4,757

Total interest expense, net of tax 





$      18,003

Total Income


6/30/2011

3/31/2011

12/31/2010

9/30/2010

Total

Net income attributable to
 Kennametal, as reported

$      86,655

$      64,683

$      43,469

$      34,920

$    229,727

Restructuring and related charges 

5,588

4,379

4,366

3,751

18,084

Noncontrolling interest expense  

174

520

821

1,035

2,550

Total income, adjusted


$      92,417

$      69,582

$      48,656

$      39,706

$    250,361

Total interest expense, net of tax 





18,003







$    268,364

Average invested capital






$ 1,814,221

Adjusted Return on Invested Capital





14.8%

Return on invested capital calculated utilizing net income, as reported is as follows:


Net income attributable to Kennametal, as reported 


$    229,727

Total interest expense, net of tax 





18,003







$    247,730

Average invested capital 





$ 1,814,221

Return on Invested Capital 





13.7%



SOURCE Kennametal Inc.