Kennametal Inc. today reported a fiscal 2009 third quarter loss per diluted share (LPS) of ($1.90), compared with prior year quarter reported earnings per diluted share (EPS) of $0.30. The current quarter reported LPS included non-cash charges for impairment of goodwill and intangible assets of $1.40 per share, as well as charges of $0.51 per share related to the company's previously announced restructuring plans. The prior year quarter reported EPS included a non-cash goodwill impairment charge of $0.45 per share. Absent these charges, adjusted EPS for the current quarter was $0.01, compared with the prior year quarter adjusted EPS of $0.75.

Kennametal's Chairman, President and Chief Executive Officer Carlos Cardoso said, "During the March quarter, we saw further weakening in the global business climate, particularly in Europe, as well as lower demand in our served end markets. We quickly responded by accelerating measures to reduce our cost structure, maximize cash flow and maintain our balance sheet. We believe that these collective actions will help us to emerge from the current downturn as an even more streamlined company that is positioned to capitalize on future growth opportunities."

"We have a world-class global team that remains focused on effectively managing through the current downturn, serving our customers and preserving our competitive strengths," Cardoso added.

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.

  Fiscal 2009 Third Quarter Key Developments
  --  Sales for the quarter were $441 million, compared with $690 million in
      the same quarter last year. The 36 percent decrease in sales was due
      to a 32 percent organic decline and a 5 percent decrease from
      unfavorable foreign currency effects, partially offset by the net
      favorable impact of acquisitions and divestitures of 1 percent.
  --  During the March quarter, the company performed an impairment test of
      goodwill and long-lived assets for its engineered products business as
      well as for its surface finishing machines and services business. This
      test was undertaken in view of the decline in sales, and the impact
      and persistence of the global economic downturn.  The test resulted in
      non-cash pre-tax impairment charges of $111 million, or $1.40 per
      share.
  --  As previously announced, the company continued to implement certain
      restructuring plans to reduce costs and improve operating
      efficiencies. During the March quarter, the company recognized pre-tax
      charges related to these initiatives of $34 million, or $0.51 per
      share.  Pre-tax charges recorded to date for these initiatives were
      $61 million. Including these charges, the company expects to recognize
      approximately $115 million of pre-tax charges related to its
      restructuring plans.  The remaining charges are expected to be
      incurred over the next six to nine months.  The majority of these
      charges are expected to be cash expenditures.  Annual ongoing benefits
      from these actions, once fully implemented, are expected to be
      approximately $125 million.
  --  Operating loss was $151 million for the quarter.  Absent the impact of
      charges related to impairment and restructuring, operating loss for
      the quarter was $6 million compared to operating income of $84 million
      in the prior year quarter. The current performance was impacted by the
      significant decline in sales volumes and the related lower
      manufacturing cost absorption. The company continues to adjust its
      manufacturing costs and operating expenses in response to the rapid
      and steep downturn in business levels.
  --  Results for the current year quarter included $5 million of other
      income driven by favorable foreign currency transactions as well as an
      income tax benefit of $15 million.
  --  Net loss was $138 million for the current year quarter, compared to
      net income of $23 million in the prior year quarter. Absent the
      charges related to impairment and restructuring, net income for the
      current quarter decreased to $0.5 million from net income of $58
      million in the prior year quarter.

  --  Reported LPS was ($1.90), compared with prior year quarter reported
      EPS of $0.30.  Adjusted EPS were $0.01 compared to prior year quarter
      adjusted EPS of $0.75.  A reconciliation follows:



              (Loss) Earnings Per Diluted Share Reconciliation
  Third Quarter FY 2009                    Third Quarter FY 2008
  Reported LPS                  ($1.90)    Reported EPS            $0.30
    Restructuring and                      Goodwill impairment
     related charges              0.51      charge                  0.45
    Asset impairment charges      1.40
                                -------                           -------
  Adjusted EPS                   $0.01     Adjusted EPS            $0.75
                                =======                           =======

  Fiscal 2009 Year to Date Key Developments
  --  Cash flow from operating activities was $164 million in the first nine
      months of fiscal 2009, compared with $159 million in the prior year
      period.  Free operating cash flow for the current year period was $73
      million, compared with $30 million in the prior year period.  The
      increased generation of free operating cash flow was driven by a
      strong focus on receivable collection, inventory reduction resulting
      from active management of production levels and lower capital
      expenditures.
  --  Sales of $1.7 billion decreased 14 percent from $2.0 billion in the
      same period last year. Sales decreased 13 percent organically and 2
      percent from unfavorable foreign currency effects. This was partially
      offset by the net favorable impact of acquisitions and divestitures of
      1 percent.
  --  Operating loss was $74 million, compared with operating income of $182
      million in the same period last year, a decrease of $256 million. 
      Absent charges related to restructuring and asset impairment,
      operating income was $90 million compared to $217 million in the prior
      year period. This decrease was principally the result of reduced sales
      volumes and the related lower manufacturing cost absorption. A
      considerable portion of the impact of lower business levels was offset
      by a combination of cost reduction actions, lower provisions for
      employee incentive compensation plans and higher price realization.

  --  Reported LPS was ($1.18) compared to the prior year reported EPS of
      $1.38.  Adjusted EPS of $0.94 decreased 51 percent, compared with
      prior year adjusted EPS of $1.91.  A reconciliation follows:



                (Loss) Earnings Per Diluted Share Reconciliation
  First Nine Months of FY 2009             First Nine Months of FY 2008
  Reported LPS                  ($1.18)    Reported EPS            $1.38
    Restructuring and related                Impact of German tax
     charges                      0.74        law change            0.08
    Asset impairment                         Goodwill impairment
     charges                      1.38        charge                0.45
                                 -----                             -----
  Adjusted EPS                   $0.94     Adjusted EPS            $1.91
                                 =====                             =====

  Segment Highlights of Fiscal 2009 Third Quarter

Metalworking Solutions & Services Group (MSSG) sales decreased by 43 percent from the prior year quarter, driven primarily by an organic sales decline of 35 percent, unfavorable foreign currency effects of 6 percent and 2 percent from the impact of divestitures. On a global basis, industrial production declined sequentially and in comparison to the prior year quarter. Demand in most industry and market sectors has weakened substantially. On a regional basis, Europe, India and North America reported organic sales declines of 40 percent, 38 percent and 34 percent, respectively, for the March quarter. Asia Pacific and Latin America also experienced organic sales declines of 31 percent and 21 percent, respectively.

MSSG operating loss was $40 million for the current quarter compared to operating income of $76 million in the prior year. During the March quarter, MSSG recognized restructuring and related charges of $25 million. Absent these charges, MSSG operating loss was $15 million compared to the prior year operating income of $76 million. The primary drivers of the decline in operating income were reduced sales volumes and the related unfavorable absorption of manufacturing costs due to lower production.

Advanced Materials Solutions Group (AMSG) sales decreased 22 percent during the March quarter, driven primarily by a 24 percent organic decline and a 3 percent decrease from unfavorable foreign currency effects, partially offset by the impact of acquisitions of 5 percent. The organic decline was primarily driven by lower sales in the surface finishing machines and services business as well as the engineered products business.

AMSG operating loss was $103 million in the current quarter compared to an operating loss of $6 million in the prior year. During the current quarter, AMSG recognized charges related to impairment and restructuring of $121 million. During the prior year quarter, AMSG recognized an impairment charge of $35 million. Absent these charges, AMSG operating income was $18 million in the current quarter, compared to $29 million in the prior year quarter. The decline in operating income was primarily due to lower sales and production volumes in the engineered products business.

Corporate operating loss decreased by 59 percent, or $12 million. This decrease was primarily driven by lower provisions for performance-based employee compensation programs, as well as the impact of cost reduction actions.

Outlook

Due to the present high level of uncertainty in the global economy, visibility is very limited regarding the demand in Kennametal's served end markets and ultimately, the company's sales levels, earnings, and cash flows.

Based on management's best judgment in this uncertain environment, Kennametal expects organic sales for the June quarter to be down by more than 40 percent from the same quarter of the prior year. Under that circumstance, the company expects that its June quarter operating results, excluding charges related to restructuring, will be somewhat lower than its March quarter operating results, excluding charges related to impairment and restructuring.

Kennametal continues to take aggressive actions to reduce costs, including streamlining its manufacturing infrastructure. In further implementing these actions, the company expects to recognize a remaining $54 million in charges related to previously announced restructuring initiatives over the next six to nine months. The company is positioned to respond quickly to any changes in the global markets and will continue to sharply focus on cash flow.

Dividend Declared

Kennametal also announced today that its Board of Directors declared a regular quarterly cash dividend of $0.12 per share. The dividend is payable May 21, 2009 to shareowners of record as of the close of business on May 6, 2009.

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 website at www.kennametal.com.

Third quarter results for fiscal 2009 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 May 24, 2009.

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. Forward-looking statements are statements that do not relate strictly to historical or current facts. You can identify 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 or events. Forward looking statements in this release concern, among other things, Kennametal's outlook for earnings for its fiscal year 2009, and its expectations regarding future growth and financial performance, all of which are based on current expectations 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, actual outcomes could vary materially from those indicated. Among the factors that could cause the actual results to differ materially from those indicated in the forward-looking statements are risks and uncertainties related to: global and regional economic conditions; availability and cost of the raw materials we use to manufacture our products; our ability to protect our intellectual property in foreign jurisdictions; our foreign operations and international markets, such as currency exchange rates, different regulatory environments, trade barriers, exchange controls, and social and political instability; our ability to implement restructuring plans and other cost savings initiatives, fluctuations in energy costs and commodity prices; competition; integrating recent acquisitions, as well as any future acquisitions, and achieving the expected savings and synergies; business divestitures; demands on management resources; environmental remediation matters; demand for and market acceptance of new and existing products; future terrorist attacks or acts of war; and labor relations. These and other 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. 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. As of the prior fiscal year end, customers bought approximately $2.7 billion annually of Kennametal products and services -- delivered by our 14,000 talented employees in over 60 countries -- with more than 50 percent of these revenues coming from outside North America. Visit us at www.kennametal.com. [KMT-E]

                               FINANCIAL HIGHLIGHTS

  CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

                                   Three Months Ended     Nine Months Ended
  (in thousands, except per             March 31,             March 31,
   share amounts)                     2009      2008       2009        2008
  -------------------------------------------------------------------------

  Sales                           $441,311  $689,669 $1,679,260  $1,952,168
  Cost of goods sold               337,529   451,803  1,193,385   1,281,273
  -------------------------------------------------------------------------

    Gross profit                   103,782   237,866    485,875     670,895

  Operating expense                108,054   150,461    392,084     443,414
  Restructuring and asset
  impairment charges               143,476    35,000    158,092      35,000
  Amortization of intangibles        3,196     3,487      9,874      10,058
  -------------------------------------------------------------------------

    Operating (loss) income       (150,944)   48,918    (74,175)    182,423

  Interest expense                   6,672     8,005     21,814      24,335
  Other (income) expense, net       (5,243)      385     (8,630)     (1,711)
  -------------------------------------------------------------------------

    (Loss) income before
     income taxes and
     minority interest            (152,373)   40,528    (87,359)    159,799

  (Benefit) provision for
   income taxes                    (14,660)   16,616     (1,456)     48,953
  Minority interest expense            161       742        845       2,651
  -------------------------------------------------------------------------

  Net (loss) income              $(137,874)  $23,170   $(86,748)   $108,195
  =========================================================================

  Basic (loss) earnings per
   share                            $(1.90)    $0.30     $(1.18)      $1.41
  =========================================================================

  Diluted (loss) earnings per
   share                            $(1.90)    $0.30     $(1.18)      $1.38
  =========================================================================

  Dividends per share                $0.12     $0.12      $0.36       $0.35
  =========================================================================

  Basic weighted average
   shares outstanding               72,673    76,463     73,238      76,984
  =========================================================================

  Diluted weighted average
   shares outstanding               72,673    77,503     73,238      78,374
  =========================================================================



  CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

                                                      March 31,  June 30,
  (in thousands)                                        2009       2008
  -----------------------------------------------------------------------
  ASSETS
  Cash and cash equivalents                           $98,190    $86,478
  Accounts receivable, net                            295,322    512,794
  Inventories                                         426,455    460,800
  Other current assets                                100,845     91,914
  -----------------------------------------------------------------------
    Total current assets                              920,812  1,151,986
  Property, plant and equipment, net                  729,783    749,755
  Goodwill and intangible assets, net                 670,127    802,722
  Other assets                                         76,649     79,886
  -----------------------------------------------------------------------
    Total assets                                   $2,397,371 $2,784,349
  =======================================================================

  LIABILITIES
  Current maturities of long-term debt
   and capital leases, including
   notes payable                                      $42,647    $33,600
  Accounts payable                                    110,873    189,050
  Other current liabilities                           256,074    298,661
  -----------------------------------------------------------------------
    Total current liabilities                         409,594    521,311
  Long-term debt and capital leases                   459,446    313,052
  Other liabilities                                   260,325    280,552
  -----------------------------------------------------------------------
    Total liabilities                               1,129,365  1,114,915

  MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES       18,678     21,527
  SHAREOWNERS' EQUITY                               1,249,328  1,647,907
  -----------------------------------------------------------------------
    Total liabilities and shareowners' equity      $2,397,371 $2,784,349
  =======================================================================



  SEGMENT DATA (UNAUDITED)        Three Months Ended     Nine Months Ended
                                       March 31,              March 31,
  (in thousands)                    2009      2008        2009        2008
  -------------------------------------------------------------------------

  Outside Sales:
  Metalworking Solutions
   and Services Group            $262,454  $459,407  $1,038,370  $1,301,837
  Advanced Materials
  Solutions Group                 178,857   230,262     640,890     650,331
  -------------------------------------------------------------------------
    Total outside sales          $441,311  $689,669  $1,679,260  $1,952,168
  =========================================================================

  Sales By Geographic Region:
  United States                  $219,815  $294,281    $783,018    $855,599
  International                   221,496   395,388     896,242   1,096,569
  -------------------------------------------------------------------------
    Total sales by geographic
     region                      $441,311  $689,669  $1,679,260  $1,952,168
  =========================================================================

  Operating (Loss) Income:
  Metalworking Solutions
   and Services Group            $(39,943)  $75,679     $11,196    $193,017
  Advanced Materials
  Solutions Group                (102,502)   (6,110)    (53,072)     51,067
  Corporate and eliminations(a)    (8,499)  (20,651)    (32,299)    (61,661)
  -------------------------------------------------------------------------
    Total operating (loss)
     income                     $(150,944)  $48,918    $(74,175)   $182,423
  =========================================================================

  (a)  Includes corporate functional shared services and intercompany
       eliminations.



  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, MSSG operating income and margin, AMSG operating income and
  margin, effective tax rate, net income and diluted (loss) earnings per
  share as well as free operating cash flow and adjusted return on
  invested capital (which are non-GAAP financial measures), to the most
  directly comparable GAAP measures. 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 of Form 8-K to which this release is attached.

  THREE MONTHS ENDED MARCH 31, 2009 (UNAUDITED)

  (in thousands,                                          Net        Diluted
   except per         Gross     Operating  Operating    (Loss)       (LPS)
   share amounts)     Profit     Expense     Loss       Income        EPS
  -------------------------------------------------------------------------
  2009 Reported
   Results           $103,782   $108,054  $(150,944)  $(137,874)    $(1.90)
    Restructuring
     and related
     charges            2,248      1,145     33,537      37,167       0.51
    Asset
     impairment
     charges                -          -    111,042     101,200       1.40
  -------------------------------------------------------------------------
  2009 Adjusted
   Results           $106,030   $109,199    $(6,365)       $493      $0.01
  =========================================================================

                                                         MSSG        AMSG
                                                      Operating   Operating
  (in thousands,                                        (Loss)      (Loss)
   except percents)                                     Income      Income
  -------------------------------------------------------------------------
  2009 Reported
   Results                                             $(39,943) $(102,502)
    Restructuring
     and related
     charges                                             25,428      9,464
    Asset
     impairment
     charges                                                  -    111,042
  -------------------------------------------------------------------------
  2009 Adjusted
   Results                                             $(14,515)   $18,004
  =========================================================================

  THREE MONTHS ENDED MARCH 31, 2008 (UNAUDITED)

                                   AMSG
  (in thousands,                Operating
   except per                     Income   Operating      Net       Diluted
   share amounts)                 (Loss)     Income     Income        EPS
  -------------------------------------------------------------------------
  2008 Reported
   Results                       $(6,110)   $48,918     $23,170      $0.30
    Goodwill
     impairment
     charge                       35,000     35,000      35,000       0.45
  -------------------------------------------------------------------------
  2008 Adjusted
   Results                       $28,890    $83,918     $58,170      $0.75
  =========================================================================

  NINE MONTHS ENDED MARCH 31, 2009 (UNAUDITED)

  (in thousands,                            Operating      Net      Diluted
   except per         Gross     Operating    (Loss)      (Loss)      (LPS)
   share amounts)     Profit     Expense     Income      Income       EPS
  -------------------------------------------------------------------------
  2009 Reported
   Results           $485,875   $392,084   $(74,175)   $(86,748)    $(1.18)
    Restructuring
     and related
     charges            6,898      1,178     52,770      54,355       0.74
    Asset
     impairment
     charges                -          -    111,042     101,200       1.38
  -------------------------------------------------------------------------
  2009 Adjusted
   Results           $492,773   $393,262    $89,637     $68,807      $0.94
  =========================================================================

  NINE MONTHS ENDED MARCH 31, 2008 (UNAUDITED)

  (in thousands,
   except percents
   and per share                          Operating      Net       Diluted
   amounts)                                 Income      Income        EPS
  -------------------------------------------------------------------------
  2008 Reported
   Results                                 $182,423    $108,195      $1.38
    Impact of
     German tax
     law change                                   -       6,594       0.08
    Goodwill
     impairment
     charge                                  35,000      35,000       0.45
  -------------------------------------------------------------------------
  2008 Adjusted
   Results                                 $217,423    $149,789      $1.91
  =========================================================================



  FREE OPERATING CASH FLOW (UNAUDITED)                    Nine Months Ended
                                                              March 31,
  (in thousands)                                           2009      2008
  ------------------------------------------------------------------------

  Net cash flow provided by operating activities       $163,739   $158,558
  Purchases of property, plant and equipment            (92,712)  (130,587)
  Proceeds from disposals of property, plant and
   equipment                                              2,386      2,370
  ------------------------------------------------------------------------
    Free operating cash flow                            $73,413    $30,341
  ========================================================================

First Call Analyst: see ed. note
FCMN Contact: quynh.mcguire@kennametal.com

SOURCE: Kennametal Inc.