Kennametal Inc. today reported fiscal 2003 first quarter earnings of $0.32 per diluted share compared with earnings of $0.43 per diluted share last year, excluding special items in each period.
Earnings Per Share Excluding Special Items Company Guidance (07/24/02) $0.28 to $0.33 Analyst Estimate Range (10/21/02) $0.29 to $0.31 Earnings, Excluding Special Items $0.32
On a reported basis, diluted earnings per share were $0.31 for the quarter, above last year's loss per share of $7.57. The prior year included a non-cash SFAS 142 impairment charge associated with the adoption of SFAS No. 142 "Goodwill and Other Intangible Assets".
Kennametal Chairman, President and Chief Executive Officer, Markos I. Tambakeras, said, "We were pleased to deliver such solid results in what continues to be a more difficult economic environment than anticipated. Increased industrial economic activity earlier in the year stalled in both Europe and the U.S. at the beginning of the summer with the exception of automotive and heavy truck sectors in North America. Subsequently, both markets have realized only very modest sequential improvement, and remain below prior year levels. In response to the environment we have maintained tight control on expenditures, while continuing our focus on aggressive sales and marketing campaigns. For the quarter, we again delivered strong cash flow and efficiency improvements from the acceleration of the Kennametal Lean Enterprise. We were also very pleased to close on our acquisition of the Widia business, and have aggressively begun our planned integration efforts."
First Quarter Highlights -- Sales of $404.2 million were 1 percent below last year's $406.7 million. Excluding the positive benefit from net acquisitions and divestitures (4 percent), foreign currency exchange (2 percent), and incremental workdays (1 percent), sales were 8 percent below the prior year. -- Gross profit margin, excluding special charges in both periods, of 32.4 percent increased 50 basis points compared with the first quarter of fiscal 2002. Manufacturing efficiencies from the Kennametal Lean Enterprise and a benefit from foreign currency exchange offset the combined negative pressure of underutilized capacity due to volume declines, unfavorable customer and product mix and $1.1 million in decreased pension income. -- Operating expense for the quarter increased 4 percent, to $104.1 million, excluding special charges. Excluding $5.2 million in Widia operating expense, $2.2 million unfavorable foreign currency exchange and $0.7 million in decreased pension income, operating expense was 4 percent below prior year. -- The current quarter included net special charges of $0.5 million, or $0.01 per diluted share, primarily associated with the Widia integration. Prior-year results included special charges of $1.6 million, or $0.03 per diluted share, for the J&L business improvement plan and a non-cash goodwill impairment charge of $250.4 million, net of tax, associated with the adoption of SFAS No. 142 "Goodwill and Other Intangible Assets". -- Interest expense of $8.5 million was 9 percent below the same quarter last year on a lower average debt level for the quarter. -- The effective tax rate for the September 2002 quarter, and for the same quarter last year, was 32.0 percent. -- Excluding special items, net income was $11.2 million, a 17 percent decrease compared with net income of $13.5 million last year. Reported net income was $10.8 million against net loss of $238.0 million in the same quarter last year. -- Decreased pension income reduced earnings per diluted share by $0.04 for the quarter versus the prior year. Pretax income for the quarter was reduced by $1.8 million (non-cash) compared to the same period in fiscal 2002 due to the effect of a decrease in the expected rate of return on Kennametal's pension fund assets, coupled with lower discount rates associated with pension and other postretirement benefit liabilities. The pension plan remains overfunded. -- The Widia business performed at a break-even level for the quarter, and the additional equity used to fund the acquisition was $0.03 dilutive. -- Free operating cash flow was $28.0 million, versus $1.4 million in the same period last year. Primary working capital continues to be tightly controlled with its ratio to sales at 27.9 percent, up slightly versus last year. Primary working capital of $523.1 million was up 10 percent, or $48 million, from the same period last year including the impact of the Widia acquisition. -- Total debt was $616.6 million, up $205.2 million from June 2002, primarily due to the closing of the Widia acquisition. Outlook
Looking forward, Tambakeras said, "We have become more cautious regarding the pace and strength of the economic recovery during the second half of our fiscal year (i.e., first six months of CY2003). This view is based on the continuing uncertainty caused by the confluence of weakened economic indicators in North America and Europe, concern over consumer confidence, ambivalence in the financial markets and international geo-political tension. However, while the short-term economic outlook is tougher than we planned, Kennametal's fundamentals continue in excellent shape due to the durable systems we have put in place to sustain competitiveness, generate strong clash flow and continue strictly controlling costs."
Economic data considered includes, the September ISM reading of 49.5 percent, which fell below the 50 percent line of no growth for the first time since January of this year. The European purchasing manager's index was 48.9 percent in September versus a reading of 50.8 in August and 51.6 in July. The MAPI capital investment index, which increased from 36 percent in June to 45 percent in September, but remains below 50 percent. In addition, the Euro Zone Purchasing Managers Index slipped to 48.9 percent in September from 50.8 percent the prior month. The Euro Zone production and new orders index each also dropped below 50 percent and manufacturing employment contracted for the 16th month.
Tambakeras continued, "As we have demonstrated in the past, while we remain focused on diligently executing our strategy, we also take cost actions as necessary to maintain competitiveness and retain the resources to grow when our end-markets recover. In response to the uncertainty of the strength of the economic recovery, we are reducing our global salaried workforce by 5 percent, tempering our original robust growth assumptions for the second half of fiscal 2003, and moderating our full year earnings guidance to growth of 5 percent to 15 percent, before Widia. We continue to be pleased with the performance of the company in a tough environment, and remain focused on completing the successful integration of Widia."
The salaried workforce reduction will primarily result from the efficient realignment of certain support functions. The reduction is expected to cost between $9 million to $10 million, and is expected to generate in excess of $10 million in cash savings during the remainder of fiscal 2003. The annualized level of savings associated with the actions is anticipated to range between $18 and $20 million.
Fiscal 2003 Full Year Outlook $ in millions, except EPS; Excludes special charges Pre-Widia Including Widia Sales Growth Plus 1% to 3% Plus 14% to 16% EBITDA $190 to $210 $210 to $230 Diluted EPS $2.05 to $2.25 $1.90 to $2.10 EPS Growth Plus 5% to 15% - 3% to + 8% Free Operating Cash Flow $125 to $150 $100 to $125 EBITDA = Income before income taxes and minority interest plus interest expense, depreciation and amortization
Consistent with previous expectations, sales for the second quarter of fiscal 2003 are estimated to grow mid-double digit, with diluted earnings per share between $0.31 and $0.36 without Widia, or $0.24 and $0.29 including dilution from Widia.
Kennametal also announced its Board of Directors declared a quarterly cash dividend of $0.17 per share, payable November 25, 2002, to shareowners of record as of the close of business November 8, 2002.
Board of Directors Elections
At the October 22, 2002 Kennametal Annual Meeting of Shareowners, the following nominees were elected for a term of three years in the First Class of Directors: Peter B. Bartlett, Kathleen J. Hempel and Markos I. Tambakeras who have served as directors since 1975, 2000 and 1999, respectively.
Stock and Incentive Plan
At the same meeting, shareowners also approved the Kennametal Inc. Stock and Incentive Plan of 2002.
Ratification of Auditors
Shareowners ratified the selection of PricewaterhouseCoopers as the Company's independent auditors.
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; 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 14,500 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
Consolidated financial highlights for Kennametal Inc. for the quarters ended September 30, 2002 and 2001 are shown in the following tables (in thousands, except per share amounts).
Consolidated Statements of Income Quarter Ended September 30, 2002 2001 Net sales $404,218 $406,654 Cost of goods sold 273,249 276,815 Gross profit 130,969 129,839 Operating expense(1) 104,835 99,877 Restructuring and asset impairment charges / (credits) (181) 1,578 Amortization of intangibles 814 690 Operating income 25,501 27,694 Interest expense 8,485 9,365 Other expense (income), net(2) 594 (270) Income before provision for income taxes and minority interest 16,422 18,599 Provision for income taxes 5,255 5,951 Minority interest 338 204 Income before cumulative effect of change in accting. principle 10,829 12,444 Cumulative effect of change in accounting principle, net of tax(3) - (250,406) Net income/(loss) $10,829 $(237,962) Diluted earnings/(loss) per share $0.31 $(7.57) Dividends per share $0.17 $0.17 Diluted weighted average shares outstanding 35,344 31,435 (1) For the quarter ended September 30, 2002, this amount includes charges of $0.7 million for integration activities related to the Widia acquisition. (2) For the quarters ended September 30, 2002 and 2001, these amounts include charges of $0.5 million and $0.9 million, respectively, for fees incurred in connection with the company's accounts receivable securitization program. (3) For the quarter ended September 30, 2001, this amount represents a non-cash charge for the adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets." FINANCIAL HIGHLIGHTS (Continued)
The following tables provide a comparison of the company's reported results, and the results excluding special items, for fiscal 2003 and fiscal 2002
QUARTER ENDED SEPTEMBER 30, Diluted Earn./ Gross Operating Net Income (Loss) Per Profit Income / (Loss) Share 2002 Reported Results $130,969 $25,501 $10,829 $0.31 AMSG Restructuring - (181) (123) - Widia Integration Costs - 711 483 0.01 Total Core Business - 530 360 0.01 2002 Results Excluding Special Items $130,969 $26,031 $11,189 $0.32 2001 Reported Results $129,839 $27,694 $(237,962) $(7.57) MSSG Restructuring - (10) (7) - MSSG ( Adoption of SFAS 142) - - 168,314 5.36 AMSG ( Adoption of SFAS 142) - - 82,092 2.61 Total Core Business - (10) 250,399 7.97 J&L Restructuring - 1,618 1,098 0.03 FSS Restructuring - (30) (19) - Total Non-Core Business - 1,588 1,079 0.03 2001 Results Excluding Special Items $129,839 $29,272 $13,516 $0.43 FINANCIAL HIGHLIGHTS (Continued) SEGMENT DATA: Quarter Ended September 30, 2002 2001 Sales: Metalworking Solutions and Services Group $245,502 $222,957 Advanced Materials Solutions Group 79,317 83,005 J&L Industrial Supply 48,207 59,121 Full Service Supply 31,192 41,571 Total Sales $404,218 $406,654 Sales By Geographic Region: Within the United States $239,124 $265,726 International 165,094 140,928 Total Sales $404,218 $406,654 Operating Income (Loss), as reported: Metalworking Solutions and Services Group $24,315 $24,671 Advanced Materials Solutions Group 10,680 10,363 J&L Industrial Supply 2,164 732 Full Service Supply (19) 1,172 Corporate and Eliminations (11,639) (9,244) Total Operating Income $25,501 $27,694 Operating Income (Loss), excluding special charges: Metalworking Solutions and Services Group $25,026 $24,661 Advanced Materials Solutions Group 10,499 10,363 J&L Industrial Supply 2,164 2,350 Full Service Supply (19) 1,142 Corporate and Eliminations (11,639) (9,244) Total Operating Income $26,031 $29,272 FINANCIAL HIGHLIGHTS (Continued) CASH FLOW INFORMATION Quarter Ended September 30, 2002 2001 Net income $10,829 $(237,962) Adoption of SFAS 142 - 250,406 Other Non-cash items 1,717 (1,153) Depreciation and amortization 19,066 18,712 Change in primary working capital 1,960 (5,429) Change in other working capital 4,259 (15,747) Cash flow from operations 37,831 8,827 Capital expenditures (10,475) (10,027) Proceeds from asset disposals 605 2,605 Free operating cash flow $27,961 $1,405 CONDENSED BALANCE SHEETS Quarter Ended 9/30/02 6/30/02 3/31/02 ASSETS Cash and equivalents $14,300 $10,385 $10,705 Accounts receivables, net of allowance 221,313 179,101 168,094 Inventories 403,590 345,076 351,129 Deferred income taxes 71,084 71,375 82,949 Other current assets 40,110 31,447 28,064 Total current assets 750,397 637,384 640,941 Property, plant and equipment, net 480,696 435,116 438,505 Goodwill and Intangible assets, net 467,140 367,992 370,324 Other assets 109,225 83,119 60,458 Total $1,807,458 $1,523,611 $1,510,228 LIABILITIES Short-term debt $16,992 $23,480 $383,639 Accounts payable 101,823 101,586 93,810 Accrued liabilities 171,045 137,034 152,867 Total current liabilities 289,860 262,100 630,316 Long-term debt 599,615 387,887 164,257 Deferred income taxes 53,475 52,570 52,564 Other liabilities 125,816 96,421 88,720 Total liabilities 1,068,766 798,978 935,857 MINORITY INTEREST 17,685 10,671 8,907 SHAREOWNERS' EQUITY 721,007 713,962 565,464 Total $1,807,458 $1,523,611 $1,510,228 Quarter Ended 12/31/01 9/30/01 ASSETS Cash and equivalents $10,414 $10,722 Accounts receivables, net of allowance 162,916 196,003 Inventories 367,724 382,701 Deferred income taxes 83,987 81,445 Other current assets 24,728 25,036 Total current assets 649,769 695,907 Property, plant and equipment, net 448,263 467,268 Goodwill and Intangible assets, net 371,263 372,448 Other assets 60,797 50,943 Total $1,530,092 $1,586,566 LIABILITIES Short-term debt $406,677 $418,448 Accounts payable 101,817 103,993 Accrued liabilities 148,428 153,827 Total current liabilities 656,922 676,268 Long-term debt 173,514 209,613 Deferred income taxes 51,815 48,556 Other liabilities 89,880 90,716 Total liabilities 972,131 1,025,153 MINORITY INTEREST 9,271 10,187 SHAREOWNERS' EQUITY 548,690 551,226 Total $1,530,092 $1,586,566
SOURCE: Kennametal Inc.
CONTACT: Investor Relations: Beth A. Riley, +1-724-539-6141, or Media
Relations: Steve Halvonik, +1-724-539-4618, both of Kennametal
Web site: http://www.kennametal.com/