Kennametal Inc. today reported fiscal 2006 second-quarter EPS of $0.79, including a non-recurring $0.05 per share tax benefit. Prior year second-quarter EPS was $0.74, including a non-recurring $0.17 per share tax benefit.
For the first six months of fiscal 2006, EPS was $1.52 compared with prior year EPS of $1.35.
Kennametal Executive Chairman, Markos I. Tambakeras, said, "We are delighted with our company's performance in the December quarter, which represents the 8th consecutive quarter of year-over-year growth. This continued growth is evidence of the sustainability of our business model as well as the continuing favorable market environment. We achieved record sales, earnings and return on invested capital and will continue to build on our leadership position by remaining focused on delivering exceptional value to customers and shareowners."
In addition, President and Chief Executive Officer, Carlos M. Cardoso, said, "Second quarter performance reflects continued strength across our end markets and geographies, despite difficult comparisons to the prior year. Providing superior value to customers through our game-changing technology, end market diversity and global presence results in our competitive advantage."
Highlights of the Fiscal 2006 Second Quarter -- Record second quarter sales of $585 million were up 5 percent versus the same quarter last year, including 8 percent organic sales growth, partially offset by 1 percent unfavorable foreign currency exchange as well as the net impact of acquisitions and divestitures. -- Net income was $31 million compared to $28 million in the prior year, up 10 percent. -- Second quarter EPS of $0.79 included the effects of stock option expense related to SFAS 123® of $0.03 per share, increased domestic pension expense of approximately $0.04 per share related to the change in the discount rate and a $0.05 per share benefit related to the release of a deferred tax valuation allowance. -- The effective tax rate in the second quarter was 31.5 percent compared to prior year's rate of 20 percent. -- Net cash flow from operations was $55 million versus $51 million in the same quarter last year. -- Record adjusted return on invested capital was up 140 basis points to 10.0 percent versus prior year. Highlights of the Fiscal 2006 First Half -- Sales of $1.2 billion were up 6 percent versus prior year, including 8 percent organic growth, partially offset by the net impact of acquisitions and divestitures. -- Net income was $59 million compared to $51 million in the prior year, up 16 percent. 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. For fiscal 2006, Kennametal continues to expect organic revenue growth in the 7 to 10 percent range, consistently outpacing world-wide industrial production rates by two to three times. The company anticipates the majority of its end markets to continue operating at high levels, with moderating growth rates for certain sectors.
Cardoso said, "We were very pleased with our performance for the second quarter of fiscal 2006, and the outlook for our end markets for the remainder of the year remains positive. As previously discussed, a major challenge for the industry in fiscal year 2006 continues to revolve around raw material costs, especially tungsten. We have demonstrated the ability to meet this challenge through our disciplined strategic pricing process and expect to continue doing so."
Reported EPS for fiscal year 2006 is now expected to be $3.70 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 domestic pension plans. This revised earnings outlook represents an increase from previous 2006 EPS guidance of $3.50 to $3.90. In addition to continuing to narrow the earnings guidance range, the revised outlook reflects an 18 to 25 percent increase from prior year EPS of $3.13.
Sales for the third quarter of fiscal year 2006 are expected to grow 7 to 10 percent, despite tougher comparisons. Market conditions support the company's expectations of continued top line growth in the third quarter, consistent with full year guidance. The company anticipates some continuing pressure on raw material prices. Reported EPS for the third quarter is forecasted to be in the range of $1.00 to $1.10, consistent with historical seasonal patterns and reflecting confidence in the company's ability to maintain the momentum of the first half.
Operating margins and ROIC are expected to continue improving for the remainder of fiscal year 2006. ROIC is expected to be in the 10 to 11 percent range for fiscal 2006.
Kennametal anticipates net cash flow provided by operating activities of approximately $210 million to $230 million for fiscal 2006, reflecting an increase from prior guidance of $200 million to $220 million. 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 $130 million to $150 million of free operating cash flow for fiscal 2006.
Kennametal also announced that its Board of Directors declared a quarterly cash dividend of $0.19 per share. The dividend is payable February 22, 2006, to shareowners of record as of the close of business on February 7, 2006.
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.
Second 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 "Investor Relations." This event also will be available on the company's website through February 8, 2006.
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; energy costs; 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 $2.3 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]
In addition to reported results under generally accepted accounting principles in the United States of America (GAAP), the following financial highlight tables also include, where appropriate, a reconciliation of adjusted return on invested capital (which is a non-GAAP financial measure), to the most directly comparable GAAP measure. Management believes that the investor should have available the same information that management uses to assess operating performance, determine compensation, and assess the capital structure of the Company. This non-GAAP measure should not be considered in isolation or as a substitute for the most comparable GAAP measure. Non-GAAP financial measures utilized by the Company may not be comparable to non-GAAP financial measures used by other companies.
Consolidated Statements of Income (Unaudited): (in thousands, except per Quarter Ended Six Months Ended share amounts) December 31, December 31, 2005 2004 2005 2004 Sales $585,258 $556,218 $1,154,476 $1,087,654 Cost of goods sold 385,521 374,804 754,869 732,845 Gross profit 199,737 181,414 399,607 354,809 Operating expense 145,282 139,513 292,944 270,462 Amortization of intangibles 1,438 634 2,789 1,171 Operating income 53,017 41,267 103,874 83,176 Interest expense 7,984 6,121 15,813 12,577 Other income, net (1,096) (1,240) (1,972) (2,814) Income before provision for income taxes and minority interest 46,129 36,386 90,033 73,413 Provision for income taxes 14,531 7,277 29,590 20,607 Minority interest 511 928 1,259 1,905 Net income $31,087 $28,181 $59,184 $50,901 Basic earnings per share $0.81 $0.77 $1.56 $1.39 Diluted earnings per share $0.79 $0.74 $1.52 $1.35 Dividends per share $0.19 $0.17 $0.38 $0.34 Basic weighted average shares outstanding 38,174 36,744 38,014 36,550 Diluted weighted average shares outstanding 39,278 38,016 39,064 37,702 SEGMENT DATA (Unaudited): Quarter Ended Six Months Ended (in thousands) December 31, December 31, 2005 2004 2005 2004 Outside Sales: Metalworking Solutions and Services Group $350,430 $336,230 $696,968 $652,100 Advanced Materials Solutions Group 169,491 122,327 327,169 240,213 J&L Industrial Supply 65,337 61,338 130,339 122,755 Full Service Supply - 36,323 - 72,586 Total Outside Sales $585,258 $556,218 $1,154,476 $1,087,654 Sales By Geographic Region: Within the United States $312,219 $301,524 $619,618 $603,307 International 273,039 254,694 534,858 484,347 Total Sales by Geographic Region $585,258 $556,218 $1,154,476 $1,087,654 Operating Income (Loss): Metalworking Solutions and Services Group $43,473 $42,723 $89,719 $81,595 Advanced Materials Solutions Group 29,102 13,869 52,430 28,402 J&L Industrial Supply 6,312 5,866 13,156 11,587 Full Service Supply - 546 - 666 Corporate and eliminations (1) (25,870) (21,737) (51,431) (39,074) Total Operating Income, as reported $53,017 $41,267 $103,874 $83,176 (1) Includes corporate functional shared services and intercompany eliminations. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited): (in thousands) December 31, June 30, 2005 2005 ASSETS Cash and equivalents $39,454 $43,220 Trade receivables, net of allowance 385,299 403,097 Receivables securitized (100,295) (109,786) Accounts receivable, net 285,004 293,311 Inventories 410,888 386,674 Deferred income taxes 70,176 70,391 Other current assets 32,121 37,466 Total current assets 837,643 831,062 Property, plant and equipment, net 515,451 519,301 Goodwill and intangible assets, net 666,166 652,791 Other assets 82,504 89,183 Total $2,101,764 $2,092,337 LIABILITIES Short-term debt, including notes payable $17,237 $50,889 Accounts payable 125,764 154,839 Accrued liabilities 216,112 222,930 Total current liabilities 359,113 428,658 Long-term debt 392,808 386,485 Deferred income taxes 54,591 59,551 Other liabilities 232,360 227,321 Total liabilities 1,038,872 1,102,015 MINORITY INTEREST 16,918 17,460 SHAREOWNERS' EQUITY 1,045,974 972,862 Total $2,101,764 $2,092,337 RETURN ON INVESTED CAPITAL (Unaudited): For the Period Ended December 31, 2005 (in thousands, except percents) Invested Capital 12/31/2005 09/30/2005 06/30/2005 Debt $410,045 $415,250 $437,374 Accounts receivable securitized 100,295 100,445 109,786 Minority interest 16,918 18,117 17,460 Shareowners' equity 1,045,974 1,009,394 972,862 Total $1,573,232 $1,543,206 $1,537,482 Quarter Ended Interest Expense 12/31/2005 09/30/2005 06/30/2005 Interest expense $7,984 $7,829 $7,897 Securitization fees 1,170 1,065 981 Total interest expense $9,154 $8,894 $8,878 Quarter Ended Total Income 12/31/2005 09/30/2005 06/30/2005 Net Income, as reported $31,087 $28,097 $37,740 Restructuring and asset impairment charges - - - Loss on assets held for sale - - - Minority interest expense 511 748 238 Total Income, excluding special items $31,598 $28,845 $37,978 Invested Capital 03/31/2005 12/31/2004 Average Debt $485,168 $405,156 $430,599 Accounts receivable securitized 120,749 115,253 109,306 Minority interest 19,664 19,249 18,282 Shareowners' equity 1,021,186 1,003,507 1,010,585 Total $1,646,767 $1,543,165 $1,568,772 Quarter Ended Interest Expense 03/31/2005 Total Interest expense $6,803 $30,513 Securitization fees 868 4,084 Total interest expense $7,671 $34,597 Income tax benefit 12,109 Total Interest Expense, net of tax $22,488 Quarter Ended Total Income 03/31/2005 Total Net Income, as reported $30,650 $127,574 Restructuring and asset impairment charges 3,306 3,306 Loss on assets held for sale 1,086 1,086 Minority interest expense 1,449 2,946 Total Income, excluding special items $36,491 $134,912 Total Income, excluding special items $134,912 Total Interest Expense, net of tax 22,488 $157,400 Average invested capital $1,568,772 Adjusted Return on Invested Capital 10.0% Return on Invested Capital calculated utilizing Net Income, as reported is as follows: Net Income, as reported $127,574 Total Interest Expense, net of tax 22,488 $150,062 Average invested capital $1,568,772 Return on Invested Capital 9.6% RETURN ON INVESTED CAPITAL (Unaudited): For the Period Ended December 31, 2004 (in thousands, except percents) Invested Capital 12/31/2004 09/30/2004 06/30/2004 Debt $405,156 $435,435 $440,207 Accounts receivable securitized 115,253 115,309 117,480 Minority interest 19,249 17,377 16,232 Shareowners' equity 1,003,507 924,432 887,152 Total $1,543,165 $1,492,553 $1,461,071 Quarter Ended Interest Expense 12/31/2004 09/30/2004 06/30/2004 Interest expense $6,121 $6,456 $6,405 Securitization fees 757 580 443 Total interest expense $6,878 $7,036 $6,848 Quarter Ended Total Income 12/31/2004 09/30/2004 06/30/2004 Net Income, as reported $28,181 $22,720 $29,852 Minority interest expense 928 977 (36) Total Income, excluding special items $29,109 $23,697 $29,816 Invested Capital 03/31/2004 12/31/2003 Average Debt $494,312 $481,327 $451,287 Accounts receivable securitized 108,916 101,422 111,676 Minority interest 16,598 16,286 17,148 Shareowners' equity 809,904 791,442 883,288 Total $1,429,730 $1,390,477 $1,463,399 Quarter Ended Interest Expense 03/31/2004 Total Interest expense $6,332 $25,314 Securitization fees 356 2,136 Total interest expense $6,688 $27,450 Income tax benefit 8,784 Total Interest Expense, net of tax $18,666 Quarter Ended Total Income 03/31/2004 Total Net Income, as reported $24,070 $104,823 Minority interest expense 533 2,402 Total Income, excluding special items $24,603 $107,225 Total Income, excluding special items $107,225 Total Interest Expense, net of tax 18,666 $125,891 Average invested capital $1,463,399 Adjusted Return on Invested Capital 8.6% Return on Invested Capital calculated utilizing Net Income, as reported is as follows: Net Income, as reported $104,823 Total Interest Expense, net of tax 18,666 $123,489 Average invested capital $1,463,399 Return on Invested Capital 8.4%
SOURCE: Kennametal Inc.
CONTACT: Investor Relations, Quynh McGuire, +1-724-539-6559, or Media,
Joy Chandler, +1-724-539-4618, both of Kennametal Inc.
Web site: http://www.kennametal.com/