Kennametal Inc. today reported earnings for the fiscal year ending June 30, 2001 of $2.17 per share, an increase of two percent, compared to $2.13 per share last year, excluding special items in each period. Earnings per share would have grown 15 percent to $2.46 without the negative impact of foreign exchange. On a reported basis, earnings per share were $1.73 per share against $1.70 per share last year.
For the fourth quarter, earnings per share were $0.60 per share, toward the upper end of April guidance, compared to $0.68 per share last year, excluding special items in each period.
Kennametal President and Chief Executive Officer Markos I. Tambakeras remarked, "We are pleased to have delivered on our April commitments despite severe declines in many of our end markets. Our performance was driven by outstanding effort by Kennametal employees around the world. We acted quickly to offset the declining North American industrial markets, and began accelerating our cost-cutting initiatives last September. As the decline deepened and spread, we aggressively pursued new opportunities and believe we grew market share. As a result, we offset the majority of the severe market pressure to deliver strong 2001 results."
Tambakeras added, "At the same time, we continued to execute our strategy. I am particularly pleased with a second consecutive year of outstanding cash generation and debt reduction despite the manufacturing recession. Deployment of lean techniques more broadly through our manufacturing network and into corporate functions including finance, purchasing and IT, allowed us to maintain margins despite declining volumes. In addition, we sustained our growth investments to continually improve our competitiveness. The introduction of nearly 7,000 new products captured market share and improved customer satisfaction. E-Business investments produced the launch of our online web site that will allow customers to order, check pricing and inventory, and follow the status of their order more efficiently. Unique to our industry, these functions are available regardless of how the order is placed -- fax, email, phone, EDI or online.
Highlights Fourth Quarter
During the fourth quarter the company adopted the new accounting standard "Accounting for Shipping and Handling Fees and Costs." The adoption is simply a reclassification of existing fees and costs, which does not affect earnings.
-- Sales of $442.5 million declined 7 percent versus $477.1 million last year. Excluding the unfavorable impact of foreign currency (2 percent) and the ATS divestiture (1 percent), sales were 4 percent below the prior year. Sales benefited from the combination of continued growth in Europe and Asia and strength in North American mining and energy sectors. According to prior accounting standards, sales were $439.5 million against $473.8 million last year. -- Gross profit margin of 34.0 percent, excluding special charges, declined 140 basis points versus the fourth quarter of fiscal 2000. Foreign currency and operating inefficiencies in the Electronics business due to low volumes were the primary drivers of the decline. Price increases and incremental productivity improvements from lean implementation offset sales volume declines and increases in raw material costs. According to prior accounting standards, gross profit margin was 37.8 percent against 39.2 percent last year. -- Operating expense for the quarter was reduced 7 percent to $102.4 million. Lean initiatives delivered incremental cost reduction and productivity improvements that combined with restructuring benefits to balance funding of key growth initiatives. Excluding foreign exchange, operating expense declined 4 percent. According to prior accounting standards, operating expense was $119.4 million against $127.4 million last year. -- As anticipated, the effective tax rate for the fourth quarter was 39.7 percent compared to 42.7 percent last year. -- Interest expense declined 14 percent during the quarter compared to last year due to the ongoing reduction in debt and lower average interest rates. -- Excluding special items, net income was $18.5 million, an 11 percent decrease compared to $20.7 million last year. -- As previously announced, special charges of $13.9 million, or $0.28 per share, were included in the quarter's results related to the divestiture of ATS, the J&L business improvement plan and work force reductions. Prior-year results included special charges of $2.0 million, or $0.04 per share related to restructuring in the core business and costs associated with JLK strategic alternatives. -- Diligent cash flow and balance sheet management generated another quarter of notable results. Free operating cash flow of $34.7 million ($136.9 million for the year) benefited from a 12 percent reduction in primary working capital versus prior year. This reduction yielded primary working capital as a percent of sales of 27.3 percent - the lowest level in 10 years. -- Total debt was $607.1 million; down from $699.2 million at the beginning of the year despite the investment in a share repurchase program ($16.5 million), and the acquisition of JLK ($41.7 million). Fiscal 2001 versus 2000 -- Organic sales for the 12 months ending June 30, 2001 increased 2 percent. Actual sales of $1,807.9 million were down 3 percent, negatively affected by foreign currency (3 percent) and fewer business days (2 percent). According to prior accounting standards, sales were $1,795.4 million against $1,853.7 million last year. -- Excluding special items, net income was $66.6 million, an increase of 3 percent compared to $64.7 million last year. -- Special charges of $22.5 million, or $0.44 per share, were included in the year's results related primarily to the J&L and FSS business improvement program ($8.6 million), the ATS divestiture ($5.8 million), core business resize program ($4.6 million) and costs associated with the JLK tender offer ($2.1 million). Prior-year results included special charges of $22.9 million, or $0.43 per share related primarily to restructuring and asset impairment charges in the core businesses ($18.6 million) and a charge for environmental remediation ($3.0 million). Outlook
Looking forward, Tambakeras noted, "The North American manufacturing recession has not eased, and we do not expect improvement until calendar 2002. In addition, the European economy is clearly beginning to slow. Consequently, we are forecasting continued weakness through the first half of fiscal 2002. At the same time, we will continue to execute against the factors that we can control. The evolution of Lean Throughout into the Kennametal Lean Enterprise will formalize standards and procedures to extend operating efficiencies to every area of the company. Continued product development will sustain the momentum of nearly 14,000 new products over the past two years, and will be combined with aggressive marketing to acquire market share."
Sales for the first half of fiscal 2002 are expected to decline 4 to 6 percent, with a corresponding 10 to 15 percent decline in earnings per share. The first quarter is forecasted to be the weakest quarter for the year. A strong second half driven by economic improvement is anticipated to deliver growth, which will result in flat to slightly higher sales and earnings per share increase of 5 to 10 percent for the year. Cash flow for the year should be within the ongoing long-term range of $100 to $150 million.
Outlook FINANCIAL HIGHLIGHTS
Consolidated financial highlights for Kennametal Inc. for the quarter and year ended June 30, 2001 and 2000 are shown in the following tables (in thousands, except per share amounts).
Consolidated Statements of Income Quarter Ended Year Ended June 30, June 30, 2001 2000 2001 2000 As As As As Reported Reported Reported Reported Net sales $442,505 $477,125 $1,807,896 $1,866,578 Cost of goods sold (A) 295,324 308,184 1,192,176 1,228,685 Gross profit 147,181 168,941 615,720 637,893 Operating expense (B) 102,403 110,602 425,641 434,136 Restructuring and asset impairment charge 4,912 1,222 9,545 18,526 Amortization of intangibles 5,601 6,335 24,134 26,452 Operating income 34,265 50,782 156,400 158,779 Interest expense © 11,290 13,131 50,381 55,079 Other expense, net (D) 4,924 1,979 11,690 3,289 Income before provision for income taxes and minority interest 18,051 35,672 94,329 100,411 Provision for income taxes 7,172 15,215 37,300 43,700 Minority interest 851 1,001 3,142 4,734 Income before extraordinary loss and cumulative effect of change in accounting principle 10,028 19,456 53,887 51,977 Extraordinary loss on early extinguishment of debt, net of tax - - - (267) Cumulative effect of change in accounting principle, net of tax - - (599) - Net income $10,028 $19,456 $53,288 $51,710 Per Share Data: Diluted earnings per share $0.32 $0.64 $1.73 $1.70 Dividends per share $0.17 $0.17 $0.68 $0.68 Diluted weighted average shares outstanding 31,027 30,535 30,749 30,364 (A) For the quarter and year ended June 30, 2001, these amounts include charges of $3.2 million and $3.7 million, respectively, related to the JLK business improvement program. (B) For the year ended June 30, 2001, this amount includes $2.1 million primarily related to the tender offer to acquire the outstanding shares of JLK. For the quarter and year ended June 30, 2000, these amounts include a charge of $0.8 million related to the evaluation of strategic alternatives for JLK. For the year ended June 30, 2000, this amount includes a charge of $3.0 million for environmental remediation. © For the year ended June 30, 2001, this amount includes a charge of financing fees as a result of the reduction in the availability under the company's U.S. credit facility. (D) For the quarters ended June 30, 2001 and 2000, these amounts include charges of $1.1 million and $1.4 million, respectively, for fees incurred in connection with the company's accounts receivable securitization program. For the years ended June 30, 2001 and 2000, these amounts include similar charges of $5.7 million and $5.2 million, respectively. For the quarter and year ended June 30, 2001, these amounts include a charge of $5.8 million related to the divestiture of Abrasive & Tool Specialties. For the year ended June 30, 2000, this amount includes one-time gains of $1.4 million from the sales of underutilized assets. Supplemental Data Sheet SELECTED OPERATING DATA: Quarter Ended Year Ended June 30, June 30, 2001 2000 (A) 2001 2000 (A) Sales:(B) Metalworking Services and Solutions Group $245,054 $261,597 $999,813 $1,029,395 Advanced Materials Solutions Group 89,187 89,621 352,933 345,447 J&L Industrial Supply 66,327 83,486 296,264 333,061 Full Service Supply 41,937 42,421 158,886 158,675 Total $442,505 $477,125 $1,807,896 $1,866,578 Sales By Geographic Region: (B) Within the United States $285,631 $322,053 $1,189,014 $1,245,134 International 156,874 155,072 618,882 621,444 Total $442,505 $477,125 $1,807,896 $1,866,578 Operating Income (Loss), including special charges: (B) Metalworking Services and Solutions Group $31,628 $39,202 $130,558 $131,676 Advanced Materials Solutions Group 11,152 14,631 43,270 41,204 J&L Industrial Supply (802) 1,635 3,689 17,208 Full Service Supply 1,555 2,408 7,541 12,021 Corporate and Eliminations (9,268) (7,094) (28,658) (43,330) Total $34,265 $50,782 $156,400 $158,779 Operating Income (Loss), excluding special charges: (B) Metalworking Services and Solutions Group $33,883 $39,072 $133,828 $142,659 Advanced Materials Solutions Group 12,317 14,704 44,197 46,023 J&L Industrial Supply 3,232 2,390 13,815 17,963 Full Service Supply 1,807 2,408 8,113 12,021 Corporate and Eliminations (8,814) (5,784) (28,224) (37,476) Total $42,425 $52,790 $171,729 $181,190 Diluted EPS excluding special charges and amortization expense $0.78 $0.89 $2.95 $3.00 Diluted EPS excluding special charges $0.60 $0.68 $2.17 $2.13 Free Operating Cash Flow: © Net Income $10,028 $19,456 $53,288 $51,710 Non-cash Items 16,301 4,574 23,067 18,117 Depreciation & Amortization 23,857 25,196 97,297 101,646 Change in Working Capital 4,289 11,325 23,140 77,155 Capital Expenditures (19,808) (16,540) (59,929) (50,663) Free Operating Cash Flow $34,667 $44,011 $136,863 $197,965 SELECTED BALANCE SHEET DATA: Quarter Ended 6/30/01 3/31/01 12/31/00 9/30/00 Accounts Receivable $206,175 $214,332 $203,344 $218,863 Inventory 373,221 387,520 389,460 392,741 Accounts Payable (118,073) (108,371) (102,217) (111,873) Total Primary Working Capital (PWC) $461,323 $493,481 $490,587 $499,731 PWC % Sales (D) 27.3% 27.7% 27.8% 28.3% Debt $607,115 $654,930 $687,487 $672,593 Debt/Total Capital 42.9% 45.1% 46.7% 44.7% (A) Kennametal reports global business units consisting of Metalworking Services and Solutions Group, Advanced Materials Solutions Group, Full Service Supply and J&L Industrial 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. (B) Amounts reflect reclassification of shipping fees charged customers to sales, and freight and handling costs to cost of goods sold, as required by Emerging Issues Task Force 00-10, "Accounting for Shipping and Handling Fees and Costs." © Prior year amounts restated to exclude the effect of changes in value of marketable investment securities available-for-sale. (D) Calculated by averaging the current and the previous four quarter-end balances for PWC, divided by sales for the most recent 12-month period.
SOURCE: Kennametal Inc.
Contact: Beth A. Riley, Director of Investor Relations of Kennametal,