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COVID-19: How Kennametal is responding

LATROBE, Pa., April 28, 2011 /PRNewswire/ -- Kennametal Inc. (NYSE: KMT) today reported fiscal 2011 third quarter earnings per diluted share (EPS) of $0.77 compared with prior year quarter reported EPS of $0.12.  Absent restructuring and related charges, adjusted EPS for the current quarter increased 113% to $0.83 from the prior year quarter adjusted EPS of $0.39.

Carlos Cardoso, Kennametal's Chairman, President and Chief Executive Officer said, "March quarter results continue to demonstrate that our global team is successfully executing our established strategies.  We realized organic sales growth of 25 percent year-over-year, despite strong comparisons from the prior year.  This growth reflected higher customer demand in both our served end markets as well as geographic regions.  Even at a sales level that is lower than prior peak, we achieved a record operating margin for the March quarter.  In addition, we again increased our guidance for sales and earnings per share for the current fiscal year.  We continue to outperform the forecasted industrial production rate and expect to maintain our strong operating leverage."

Cardoso added, "Our long-term strategies remain consistent -- we continue to balance our served end markets, business mix and geographic presence.  Kennametal is a 'Breakaway' company that has demonstrated its ability to be profitable throughout the economic cycle."

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.

Fiscal 2011 Third Quarter Key Developments

  • Sales were $615 million, compared with $493 million in the same quarter last year. Sales increased as a result of strong organic growth of 25 percent despite stronger comparisons last year. Sales growth was strong across both business segments and all regions.
  • Pre-tax restructuring and related charges of $6 million, or $0.06 per diluted share, were recorded in the quarter. The company realized pre-tax benefits from restructuring programs of approximately $42 million.
  • Operating income was $88 million compared with operating income of $26 million in the same quarter last year.  Absent restructuring and related charges in both periods, operating income was $93 million, compared with operating income of $49 million in the prior year quarter.  The adjusted operating margin of 15.2 percent was an all-time record for the company. The strong margin performance was driven by higher sales volume and price realization, improved capacity utilization and incremental restructuring benefits of $5 million.  These benefits were partially offset by higher raw material costs, higher employment costs and the restoration of temporary cost reductions.
  • The effective tax rate was 19.1 percent compared to 21.3 percent for the December quarter.  The sequential reduction in the tax rate was primarily driven by the strength of our pan-European operations.
  • Reported EPS were $0.77 compared with prior year quarter reported EPS of $0.12.  Adjusted EPS were $0.83 compared with prior year quarter adjusted EPS of $0.39.  A reconciliation follows:

Earnings Per Diluted Share Reconciliation

Third Quarter FY 2011


Third Quarter FY 2010

Reported EPS

$  0.77


Reported EPS

$   0.12

  Restructuring and related charges

0.06


  Restructuring and related charges

0.27

Adjusted EPS

$  0.83


Adjusted EPS

$   0.39








  • Cash flow from operating activities was $125 million for the nine months ended March 31, 2011, compared with $93 million in the prior year period. Net capital expenditures were $25 million for the nine months ended March 31, 2011. The company generated year-to-date free operating cash flow of $100 million compared with $66 million in the same period last year.  
  • Adjusted ROIC was 12.9 percent as of March 31, 2011 and was also an all-time company record.

Segment Developments for the Fiscal 2011 Third Quarter

  • Industrial segment sales of $392 million grew 28 percent from $306 million in the prior year quarter, driven by organic growth of 29 percent and a 1 percent favorable foreign currency impact, partially offset by an unfavorable impact due to fewer business days.  On an organic basis, sales increased in all served market sectors led by strong growth in general engineering and transportation sales of 34 percent and 29 percent, respectively. On a regional basis, sales increased by approximately 32 percent in Asia, 29 percent in Europe and 23 percent in the Americas.
  • Industrial segment operating income was $54 million compared with $11 million for the same quarter of the prior year. Absent restructuring and related charges recorded in both periods, Industrial operating income was $56 million compared with $26 million in the prior year quarter.  The primary drivers of the increase in operating income were higher sales volume and price realization, improved capacity utilization and incremental restructuring benefits. These benefits were partially offset by higher raw material costs and the restoration of temporary cost reductions. Industrial adjusted operating margin increased to 14.3 percent from 8.6 percent in the prior year.
  • Infrastructure segment sales of $223 million increased 19 percent from $187 million in the prior year quarter due to organic growth.  The organic increase was driven by higher sales in the energy and earthworks markets of 21 percent and 17 percent, respectively. On a regional basis, organic sales increased by approximately 20 percent in the Americas, 15 percent in Asia and 11 percent in Europe.
  • Infrastructure segment operating income was $36 million, compared with $19 million in the same quarter of the prior year.  Absent restructuring and related charges recorded in both periods, Infrastructure operating income was $37 million in the current quarter compared with $26 million in the prior year quarter.  Operating income improved primarily due to higher sales volume and price realization, increased capacity utilization and incremental restructuring benefits, partially offset by higher raw material costs and the restoration of temporary cost reductions.  Infrastructure adjusted operating margin increased from the prior year quarter to 16.5 percent from 13.8 percent.

Fiscal 2011 Year-to-Date Key Developments

  • Sales were $1.7 billion, compared with $1.3 billion in the same period last year. Sales increased as a result of strong organic growth of 29 percent, partially offset by a 1 percent unfavorable impact from foreign currency effects and an unfavorable impact from fewer business days.
  • Operating income was $207 million compared with operating income of $32 million in the same period last year.  Absent restructuring and related charges in both periods, operating income was $222 million, compared with operating income of $68 million in the same period of the prior year.  The corresponding adjusted operating margins were 13.0 percent and 5.0 percent for nine months ended March 31, 2011 and 2010, respectively.
  • Reported EPS were $1.72 compared with reported EPS of $0.07 in the prior year period.  Absent restructuring and divestiture related charges, adjusted EPS for the current year were $1.87, compared with the prior year period adjusted EPS of $0.49.

Outlook

Global economic conditions and worldwide industrial production continues to remain positive.  As such, Kennametal expects its fiscal 2011 organic sales growth to be 24 percent to 25 percent.  This is in line with our goal of growing at least two times the rate of increase in global industrial production.

The company expects EPS for fiscal 2011 to be in the range of $2.75 to $2.85 per share, excluding charges related to previously announced restructuring programs, increased from the previous range of $2.50 to $2.65 per share, excluding charges related to restructuring.  

Cash flow from operations is expected to be in the range of $255 million to $265 million for fiscal 2011 as compared to the previous range of $260 million to $280 million.  Capital expenditures are expected to be approximately $80 million which is unchanged from the previous guidance.  The range of free operating cash flow is expected to be $175 million to $185 million verses the previous guidance of $180 million to $200 million.

Dividend Declared

Kennametal also announced that its Board of Directors declared a regular quarterly cash dividend of $0.12 per share.  The dividend is payable May 25, 2011 to shareowners of record as of the close of business on May 10, 2011.

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 2011 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 27, 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 2011 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:  prolonged economic recession; restructuring and related actions (including associated costs and anticipated benefits); 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; implementation of environmental remediation matters; and successful completion of information systems upgrades, including our enterprise system software. 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 2010, customers bought approximately $1.9 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. [KMT-E]

FINANCIAL HIGHLIGHTS


CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)







Three Months Ended

Nine Months Ended


March 31,

March 31,

(in thousands, except per share amounts)

2011

2010

2011

2010






Sales

$ 614,830

$ 493,165

$ 1,709,756

$ 1,345,425

Cost of goods sold

384,849

322,841

1,091,010

917,212






  Gross profit

229,981

170,324

618,746

428,213






Operating expense

138,322

120,062

395,447

354,126

Restructuring charges

1,046

20,720

7,697

31,898

Amortization of intangibles

2,836

3,239

8,696

9,946






  Operating income

87,777

26,303

206,906

32,243






Interest expense

5,767

6,531

17,294

18,856

Other expense (income), net

1,413

(1,496)

3,071

(6,314)






  Income from continuing operations before income taxes

80,597

21,268

186,541

19,701






Provision for income taxes

15,394

11,065

41,092

11,026






Income from continuing operations

65,203

10,203

145,449

8,675

Loss from discontinued operations

-

-

-

(1,423)






Net income

65,203

10,203

145,449

7,252

Less:  Net income attributable to noncontrolling interests

520

518

2,376

1,417






Net income attributable to Kennametal

$   64,683

$     9,685

$    143,073

$        5,835






Amounts attributable to Kennametal Shareowners:





  Income from continuing operations

$   64,683

$     9,685

$    143,073

$        7,258

  Loss from discontinued operations

-

-

-

(1,423)






Net income attributable to Kennametal

$   64,683

$     9,685

$    143,073

$        5,835






PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL





Basic earnings (loss) per share:





 Continuing operations

$       0.79

$       0.12

$          1.74

$          0.09

 Discontinued operations

-

-

-

(0.02)


$       0.79

$       0.12

$          1.74

$          0.07






Diluted earnings (loss)  per share:





 Continuing operations

$       0.77

$       0.12

$          1.72

$          0.09

 Discontinued operations

-

-

-

(0.02)


$       0.77

$       0.12

$          1.72

$          0.07






Dividends per share

$       0.12

$       0.12

$          0.36

$          0.36






Basic weighted average shares outstanding

82,138

81,358

82,144

80,756






Diluted weighted average shares outstanding

83,495

82,189

83,164

81,397



CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)


March 31,

June 30,

(in thousands)

2011

2010




ASSETS



Cash and cash equivalents

$    184,192

$    118,129

Accounts receivable, net

418,546

326,699

Inventories

466,125

364,268

Other current assets

123,934

106,835

  Total current assets

1,192,797

915,931

Property, plant and equipment, net

664,856

664,535

Goodwill and other intangible assets, net

661,827

644,749

Other assets

49,742

42,608

  Total assets

$ 2,569,222

$ 2,267,823




LIABILITIES



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

$        6,176

$      22,993

Accounts payable

166,085

125,360

Other current liabilities

277,865

244,652

  Total current liabilities

450,126

393,005

Long-term debt and capital leases

310,667

314,675

Other liabilities

246,042

226,700

  Total liabilities

1,006,835

934,380




KENNAMETAL SHAREOWNERS' EQUITY

1,540,170

1,315,500

NONCONTROLLING INTERESTS

22,217

17,943

  Total liabilities and equity

$ 2,569,222

$ 2,267,823



SEGMENT DATA (UNAUDITED)


Three Months Ended

Nine Months Ended


March 31,

March 31,

(in thousands)

2011

2010

2011

2010






Outside Sales(1):





Industrial

$ 391,763

$ 305,802

$ 1,091,560

$    831,939

Infrastructure

223,067

187,363

618,196

513,486

Total outside sales

$ 614,830

$ 493,165

$ 1,709,756

$ 1,345,425






Sales By Geographic Region:





United States

$ 267,903

$ 220,340

$    742,503

$    593,397

International

346,927

272,825

967,253

752,028

Total sales by geographic region

$ 614,830

$ 493,165

$ 1,709,756

$ 1,345,425






Operating Income (Loss)(1):





Industrial

$   54,145

$   10,808

$    132,410

$      (1,140)

Infrastructure

35,639

18,556

83,708

48,454

Corporate (2)

(2,007)

(3,061)

(9,212)

(15,071)

Total operating income

$   87,777

$   26,303

$    206,906

$      32,243

(1) Amounts for the three and nine months ended March 31, 2010 have been restated to reflect the change in reportable operating segments






(2) 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 MARCH 31, 2011 (UNAUDITED)

(in thousands, except per share amounts)

Gross Profit

Operating Expense

Operating Income

Net Income(3)

Diluted EPS

2011 Reported Results

$     229,981

$    138,322

$         87,777

$       64,683

$                  0.77

2011 Reported Operating Margin



14.3%



  Restructuring and related charges

2,023

(2,450)

5,519

4,379

0.06

2011 Adjusted Results

$     232,004

$    135,872

$         93,296

$       69,062

$                  0.83

2011 Adjusted Operating Margin



15.2%









(in thousands, except percents)




Industrial
Operating
Income

Infrastructure
Operating
Income

2011 Reported Results




$       54,145

$              35,639

2011 Reported Operating Margin




13.8%

16.0%

  Restructuring and related charges




1,872

1,260

2011 Adjusted Results




$       56,017

$              36,899

2011 Adjusted Operating Margin




14.3%

16.5%







(3) Represents amounts attributable to Kennametal shareowners



THREE MONTHS ENDED MARCH 31, 2010 (UNAUDITED)

(in thousands, except per share amounts)

Gross Profit

Operating Expense

Operating Income

Net Income(3)

Diluted EPS

2010 Reported Results

$     170,324

$    120,062

$         26,303

$         9,685

$                  0.12

2010 Reported Operating Margin



5.3%



  Restructuring and related charges

1,595

(635)

22,950

22,329

0.27

2010 Adjusted Results

$     171,919

$    119,427

$         49,253

$       32,014

$                  0.39

2010 Adjusted Operating Margin



10.0%




(in thousands, except percents)




Industrial
Operating
Income

Infrastructure
Operating
Income

2010 Reported Results




$       10,808

$              18,556

2010 Reported Operating Margin




3.5%

9.9%

  Restructuring and related charges




15,620

7,330

2010 Adjusted Results




$       26,428

$              25,886

2010 Adjusted Operating Margin




8.6%

13.8%









NINE MONTHS ENDED MARCH 31, 2011 (UNAUDITED)

(in thousands, except per share amounts)

Gross Profit

Operating Expense

Operating Income

Net Income(3)

Diluted EPS

2011 Reported Results

$     618,746

$    395,447

$       206,906

$     143,073

$                  1.72

2011 Reported Operating Margin



12.1%



  Restructuring and related charges

3,987

(3,230)

14,914

12,496

0.15

2011 Adjusted Results

$     622,733

$    392,217

$       221,820

$     155,569

1.87

2011 Adjusted Operating Margin



13.0%





NINE MONTHS ENDED MARCH 31, 2010 (UNAUDITED)

(in thousands, except per share amounts)

Gross Profit

Operating Expense

Operating Income

Net Income(3)

Diluted EPS

2010 Reported Results

$     428,213

$    354,126

$         32,243

$         5,835

$                  0.07

2010 Reported Operating Margin



2.4%



  Restructuring and related charges

2,613

(1,099)

35,610

32,732

0.40

  Divestiture related charges

-

-

-

1,340

0.02

2010 Adjusted Results

$     430,826

$    353,027

$         67,853

$       39,907

$                  0.49

2010 Adjusted Operating Margin



5.0%





FREE OPERATING CASH FLOW (UNAUDITED)

Nine Months Ended


March 31,

(in thousands)

2011

2010




Net cash flow provided by operating activities

$    125,025

$      92,637

Purchases of property, plant and equipment

(33,348)

(30,438)

Proceeds from disposals of property, plant and equipment

8,063

4,087

  Free operating cash flow

$      99,740

$      66,286



RETURN ON INVESTED CAPITAL (UNAUDITED)

March 31, 2011 (in thousands, except percents)








Invested Capital

3/31/2011

12/31/2010

9/30/2010

6/30/2010

3/31/2010

Average

Debt

$    316,843

$    316,379

$    318,819

$    337,668

$    336,175

$    325,177

Total equity

1,562,387

1,476,427

1,437,616

1,333,443

1,374,321

1,436,839

Total

$ 1,879,230

$ 1,792,806

$ 1,756,435

$ 1,671,111

$ 1,710,496

$ 1,762,016




Three Months Ended

Interest Expense

3/31/2011

12/31/2010

9/30/2010

6/30/2010

Total

Interest expense

$        5,767

$        5,564

$        5,963

$        6,347

$      23,641

Income tax benefit





5,485

Total interest expense, net of tax





$      18,156

Total Income

3/31/2011

12/31/2010

9/30/2010

6/30/2010

Total

Net income attributable to Kennametal, as reported

$      64,683

$      43,469

$      34,921

$      40,584

$    183,657

Restructuring and related charges

4,379

4,366

3,751

9,681

22,177

Noncontrolling interest

520

821

1,035

366

2,742

Total income, adjusted

$      69,582

$      48,656

$      39,707

$      50,631

$    208,576

Total interest expense, net of tax





18,156






$    226,732

Average invested capital





$ 1,762,016

Adjusted Return on Invested Capital





12.9%







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






Net income attributable to Kennametal, as reported





$    183,657

Total interest expense, net of tax





18,156






$    201,813

Average invested capital





$ 1,762,016

Return on Invested Capital





11.5%



SOURCE Kennametal Inc.