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Kennametal Inc. 525 William Penn Place Suite 3300, Pittsburgh, PA 15219
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Sign InLATROBE, Pa., July 31, 2014 /PRNewswire/ -- Kennametal Inc. (NYSE: KMT) today announced fiscal 2014 and fourth-quarter results. For fiscal 2014, the company reported earnings per diluted share (EPS) of $1.99, compared with $2.52 during the prior year. The current year adjusted EPS were $2.50 absent nonrecurring charges and results of the Tungsten Materials Business (TMB).
For its fiscal fourth quarter, the company reported EPS of $0.57, compared with the prior year quarter EPS of $0.76. The current quarter adjusted EPS were $0.75 absent nonrecurring charges and TMB results.
"During the June quarter, we saw accelerating growth and ongoing strength in our served industrial markets; however, certain sectors are still challenging," said Kennametal Chairman, President and CEO Carlos Cardoso. "Although we have yet to realize the full potential of our operating leverage, we continued to elevate our base performance and protect our profitability. Since necessary investments in sales and other customer-facing functions were made in fiscal 2014, we will manage a tighter cost structure as we move ahead."
Cardoso added, "We remain pleased with the progress related to the integration of our Tungsten Materials Business, which is currently ahead of schedule. We will continue to manage our business and control what factors we can."
Fiscal 2014 Fourth Quarter Key Developments
Segment Developments for the Fiscal 2014 Fourth Quarter
As previously disclosed, segment results were restated for certain sales reclassifications based on products and technologies.
Fiscal 2014 Key Developments
Earnings Per Diluted Share Reconciliation for the Quarter and Year Ended June 30, 2014
FY 2014 |
Quarter |
Year | ||||
Reported EPS |
$ |
0.57 |
$ |
1.99 |
||
TMB results: |
||||||
Base operating income |
(0.06) |
(0.11) |
||||
Depreciation and amortization step-up |
0.03 |
0.08 |
||||
On-going operating income |
(0.03) |
(0.03) |
||||
Inventory step-up |
— |
0.14 |
||||
Acquisition-related charges |
0.02 |
0.07 |
||||
Restructuring and related charges |
0.17 |
0.22 |
||||
Tax repatriation expense |
— |
0.09 |
||||
Loss on divestiture |
0.02 |
0.02 |
||||
Adjusted EPS |
$ |
0.75 |
$ |
2.50 |
Restructuring Actions
Kennametal accelerated restructuring actions during fiscal 2014 and continues to expect to deliver annual pre-tax permanent savings of $35 million to $45 million once these initiatives are fully implemented. The cumulative total pre-tax charges are expected to be approximately $50 million. Total restructuring and related benefits realized in fiscal 2014 were approximately $3 million while the related charges recorded inception-to-date were $19 million.
Reconciliations of all non-GAAP financial measures are set forth in the tables attached, and corresponding descriptions are contained in the company's report on Form 8-K, to which this news release is attached.
Outlook
For fiscal year 2015, the company's outlook reflects ongoing market uncertainties as well as limited visibility related to customer demand trends. Kennametal's current assumptions include expectations of continued macro-economic improvement, driven primarily by Industrial end markets. While underground coal mining activity will likely remain at relatively low levels globally, the company believes manufacturing activity is projected to grow over the next 12 months.
Given these factors, the company expects organic sales growth ranging from 3 to 5 percent, with total sales growth between 5 and 7 percent.
The company expects consolidated EPS to range from $2.90 to $3.20 in fiscal 2015. This forecast includes the contribution from TMB.
Kennametal expects to generate cash flow from operating activities in the range of $290 million to $320 million in fiscal 2015. Based on anticipated capital expenditures of approximately $110 million to $120 million, the company expects to generate free operating cash flow in the range of $180 million to $200 million for fiscal year 2015.
Dividend Declared
Kennametal also announced that its board of directors declared a quarterly cash dividend of $0.18 per share. The dividend is payable August 26, 2014 to shareowners of record as of the close of business on August 12, 2014.
Kennametal advises shareowners to note monthly order trends, for which the company generally makes a disclosure ten business days after the conclusion of each month. This information is available via the Investor Relations section of Kennametal's corporate website at www.kennametal.com.
The company will discuss its fiscal 2014 fourth-quarter results in a live webcast at 10:00 a.m. Eastern Time today. This event will be broadcast live on the company's website, www.kennametal.com. To access the webcast, select "Investor Relations" and then "Events." A recorded replay of this event also will be available on the company's website through September 2, 2014.
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 2015 and our expectations regarding future growth and financial performance are forward-looking statements. Any forward looking statements are based on current knowledge, expectations and 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: economic recession; 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; global or regional catastrophic events; energy costs; commodity prices; labor relations; demand for and market acceptance of new and existing products; and implementation of environmental remediation matters. Many of these risks 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 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.
Celebrating more than 75 years as an industrial technology leader, Kennametal Inc. delivers productivity to customers seeking peak performance in demanding environments. The company provides innovative wear-resistant products, application engineering and services backed by advanced material science, serving customers in 60 countries across diverse sectors of aerospace, earthworks, energy, industrial production, transportation and infrastructure. With approximately 14,000 employees and nearly $3 billion in sales, the company realizes half of its revenue from outside North America, and over 40% globally from innovations introduced in the past five years. Recognized among the "World's Most Ethical Companies" (Ethisphere); "Outstanding Corporate Innovator" (Product Development Management Association); and "America's Safest Companies" (EHS Today) with a focus on 100% safety, Kennametal and its foundation invest in technical education, industrial technologies and material science to deliver the promise of progress and economic prosperity to people everywhere. For more information, visit the company's website at www.kennametal.com.
FINANCIAL HIGHLIGHTS | |||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) | |||||||||||||||
Three Months Ended |
Twelve Months Ended | ||||||||||||||
(in thousands, except per share amounts) |
2014 |
2013 |
2014 |
2013 | |||||||||||
Sales |
$ |
772,204 |
$ |
671,410 |
$ |
2,837,190 |
$ |
2,589,373 |
|||||||
Cost of goods sold |
519,364 |
442,696 |
1,940,187 |
1,744,369 |
|||||||||||
Gross profit |
252,840 |
228,714 |
897,003 |
845,004 |
|||||||||||
Operating expense |
154,785 |
132,883 |
589,768 |
527,850 |
|||||||||||
Restructuring charges |
12,594 |
— |
17,608 |
— |
|||||||||||
Amortization of intangibles |
7,404 |
5,258 |
26,195 |
20,760 |
|||||||||||
Operating income |
78,057 |
90,573 |
263,432 |
296,394 |
|||||||||||
Interest expense |
8,450 |
7,042 |
32,451 |
27,472 |
|||||||||||
Other expense (income), net |
1,267 |
1,812 |
2,172 |
2,313 |
|||||||||||
Income from continuing operations before income taxes |
68,340 |
81,719 |
228,809 |
266,609 |
|||||||||||
Provision for income taxes |
20,861 |
19,535 |
66,611 |
59,693 |
|||||||||||
Net income |
47,479 |
62,184 |
162,198 |
206,916 |
|||||||||||
Less: Net income attributable to noncontrolling interests |
2,024 |
1,366 |
3,832 |
3,651 |
|||||||||||
Net income attributable to Kennametal |
$ |
45,455 |
$ |
60,818 |
$ |
158,366 |
$ |
203,265 |
|||||||
PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL SHAREOWNERS |
|||||||||||||||
Basic earnings per share |
$ |
0.58 |
$ |
0.77 |
$ |
2.01 |
$ |
2.56 |
|||||||
Diluted earnings per share |
$ |
0.57 |
$ |
0.76 |
$ |
1.99 |
$ |
2.52 |
|||||||
Dividends per share |
$ |
0.18 |
$ |
0.16 |
$ |
0.72 |
$ |
0.64 |
|||||||
Basic weighted average shares outstanding |
78,818 |
78,615 |
78,678 |
79,463 |
|||||||||||
Diluted weighted average shares outstanding |
79,850 |
79,866 |
79,667 |
80,612 |
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) | |||||||
(in thousands) |
June 30, 2014 |
June 30, 2013 | |||||
ASSETS |
|||||||
Cash and cash equivalents |
$ |
177,929 |
$ |
377,316 |
|||
Accounts receivable, net |
531,515 |
445,322 |
|||||
Inventories |
703,766 |
578,795 |
|||||
Other current assets |
111,986 |
98,040 |
|||||
Total current assets |
1,525,196 |
1,499,473 |
|||||
Property, plant and equipment, net |
884,458 |
741,482 |
|||||
Goodwill and other intangible assets, net |
1,318,752 |
944,520 |
|||||
Other assets |
139,680 |
115,564 |
|||||
Total assets |
$ |
3,868,086 |
$ |
3,301,039 |
|||
LIABILITIES |
|||||||
Current maturities of long-term debt and capital leases, including notes payable |
$ |
80,117 |
$ |
44,319 |
|||
Accounts payable |
206,891 |
190,623 |
|||||
Other current liabilities |
275,748 |
232,651 |
|||||
Total current liabilities |
562,756 |
467,593 |
|||||
Long-term debt and capital leases |
981,666 |
703,626 |
|||||
Other liabilities |
362,056 |
317,527 |
|||||
Total liabilities |
1,906,478 |
1,488,746 |
|||||
KENNAMETAL SHAREOWNERS' EQUITY |
1,929,256 |
1,781,826 |
|||||
NONCONTROLLING INTERESTS |
32,352 |
30,467 |
|||||
Total liabilities and equity |
$ |
3,868,086 |
$ |
3,301,039 |
SEGMENT DATA (UNAUDITED) |
Three Months Ended |
Twelve Months Ended | ||||||||||||
(in thousands) |
2014 |
2013 |
2014 |
2013 | ||||||||||
Outside Sales: |
||||||||||||||
Industrial |
$ |
415,529 |
$ |
362,696 |
$ |
1,524,075 |
$ |
1,386,690 |
||||||
Infrastructure |
356,675 |
308,714 |
1,313,115 |
1,202,683 |
||||||||||
Total outside sales |
$ |
772,204 |
$ |
671,410 |
$ |
2,837,190 |
$ |
2,589,373 |
||||||
Sales By Geographic Region: |
||||||||||||||
North America |
$ |
353,604 |
$ |
293,048 |
$ |
1,276,704 |
$ |
1,145,722 |
||||||
Western Europe |
232,280 |
202,168 |
873,828 |
768,276 |
||||||||||
Rest of World |
186,320 |
176,194 |
686,658 |
675,375 |
||||||||||
Total sales by geographic region |
$ |
772,204 |
$ |
671,410 |
$ |
2,837,190 |
$ |
2,589,373 |
||||||
Operating Income: |
||||||||||||||
Industrial |
$ |
52,598 |
$ |
61,651 |
$ |
177,040 |
$ |
192,828 |
||||||
Infrastructure |
26,636 |
29,830 |
94,940 |
111,453 |
||||||||||
Corporate (1) |
(1,177) |
(908) |
(8,548) |
(7,887) |
||||||||||
Total operating income |
$ |
78,057 |
$ |
90,573 |
$ |
263,432 |
$ |
296,394 |
||||||
(1) Represents unallocated corporate expenses. | ||||||||||||||
NOTE: Previously disclosed segment results were restated for certain sales reclassifications based on products and technologies. |
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 sales, operating income and margin, net income, diluted EPS, Industrial sales, Industrial operating income and margin, Infrastructure sales, Infrastructure operating income and margin, 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 JUNE 30, 2014 - (UNAUDITED) |
||||||||||||||
(in thousands, except percents) |
Sales |
Operating Income |
Net Income (2) |
Diluted EPS | ||||||||||
2014 Reported Results |
$ |
772,204 |
$ |
78,057 |
$ |
45,455 |
$ |
0.57 |
||||||
2014 Reported Operating Margin |
10.1%
|
|||||||||||||
TMB results: |
||||||||||||||
Base results |
(72,403) |
(8,568) |
(4,978) |
(0.06) |
||||||||||
Depreciation & amortization step-up |
— |
3,581 |
2,314 |
0.03 |
||||||||||
Acquisition-related charges |
— |
3,396 |
1,914 |
0.02 |
||||||||||
Restructuring and related charges |
— |
13,994 |
13,874 |
0.17 |
||||||||||
Loss on divestiture |
— |
— |
1,607 |
0.02 |
||||||||||
2014 Adjusted Results |
699,801 |
90,460 |
60,186 |
0.75 |
||||||||||
2014 Adjusted Operating Margin |
12.9%
|
|||||||||||||
(2) Represents amounts attributable to Kennametal Shareowners. |
THREE MONTHS ENDED JUNE 30, 2014 - (UNAUDITED) |
||||||||||
(in thousands, except percents) |
Industrial Sales |
Infrastructure Sales |
Industrial Operating Income |
Infrastructure Operating Income | ||||||
2014 Reported Results |
$ |
415,529 |
356,675 |
$ |
52,598 |
26,636 |
||||
2014 Reported Operating Margin |
12.7%
|
7.5%
|
||||||||
TMB results: |
||||||||||
Base sales and operating income |
(25,532) |
(46,871) |
(733) |
(7,835) |
||||||
Depreciation & amortization step-up |
— |
— |
549 |
3,032 |
||||||
Acquisition-related charges |
— |
— |
1,327 |
2,069 |
||||||
Restructuring and related charges |
— |
— |
10,516 |
3,478 |
||||||
2014 Adjusted Results |
389,997 |
309,804 |
64,257 |
27,380 |
||||||
2014 Adjusted Operating Margin |
16.5%
|
8.8%
|
TWELVE MONTHS ENDED JUNE 30, 2014 - (UNAUDITED) |
||||||||||||
(in thousands, except percents) |
Sales |
Operating Income |
Net Income (2) |
Diluted EPS | ||||||||
2014 Reported Results |
$ |
2,837,190 |
263,432 |
$ |
158,366 |
$ |
1.99 |
|||||
2014 Reported Operating Margin |
9.3%
|
|||||||||||
TMB results: |
||||||||||||
Base results |
(194,896) |
(17,836) |
(8,779) |
(0.11) |
||||||||
Depreciation & amortization step-up |
— |
9,571 |
6,130 |
0.08 |
||||||||
Inventory step-up |
— |
15,420 |
11,518 |
0.14 |
||||||||
Acquisition-related charges |
— |
8,674 |
5,648 |
0.07 |
||||||||
Restructuring and related charges |
— |
19,085 |
17,356 |
0.22 |
||||||||
Tax repatriation expense |
— |
— |
7,170 |
0.09 |
||||||||
Loss on divestiture |
— |
— |
1,607 |
0.02 |
||||||||
2014 Adjusted Results |
$ |
2,642,294 |
$ |
298,346 |
$ |
199,016 |
$ |
2.50 |
||||
2014 Adjusted Operating Margin |
11.3%
|
|||||||||||
(2) Represents amounts attributable to Kennametal Shareowners. |
FREE OPERATING CASH FLOW (UNAUDITED) |
Twelve Months Ended | |||||||
June 30, | ||||||||
(in thousands) |
2014 |
2013 | ||||||
Net cash flow from operating activities |
$ |
271,873 |
$ |
284,150 |
||||
Purchases of property, plant and equipment |
(117,376) |
(82,835) |
||||||
Proceeds from disposals of property, plant and equipment |
1,236 |
3,016 |
||||||
Free operating cash flow |
$ |
155,733 |
$ |
204,331 |
RETURN ON INVESTED CAPITAL (UNAUDITED) | ||||||||||||||||||||||||
June 30, 2014 (in thousands, except percents) | ||||||||||||||||||||||||
Invested Capital |
6/30/2014 |
3/31/2014 |
12/31/2013 |
9/30/2013 |
6/30/2013 |
Average | ||||||||||||||||||
Debt |
$ |
1,061,783 |
$ |
1,135,553 |
$ |
1,145,729 |
$ |
706,331 |
$ |
747,945 |
$ |
959,468 |
||||||||||||
Total equity |
1,961,608 |
1,934,558 |
1,903,304 |
1,873,194 |
1,812,293 |
1,896,991 |
||||||||||||||||||
Total |
$ |
3,023,391 |
$ |
3,070,111 |
$ |
3,049,033 |
$ |
2,579,525 |
$ |
2,560,238 |
$ |
2,856,459 |
||||||||||||
Three Months Ended | ||||||||||||||||||||||||
Interest Expense |
6/30/2014 |
3/31/2014 |
12/31/2013 |
9/30/2013 |
Total | |||||||||||||||||||
Interest expense |
$ |
8,450 |
$ |
8,883 |
$ |
8,037 |
$ |
7,081 |
$ |
32,451 |
||||||||||||||
Income tax benefit |
8,032 |
|||||||||||||||||||||||
Total interest expense, net of tax |
$ |
24,419 |
||||||||||||||||||||||
Net Income |
6/30/2014 |
3/31/2014 |
12/31/2013 |
9/30/2013 |
Total | |||||||||||||||||||
Net income attributable to |
$ |
45,455 |
$ |
50,865 |
$ |
24,209 |
$ |
37,837 |
$ |
158,366 |
||||||||||||||
Acquisition-related |
1,914 |
1,703 |
1,258 |
775 |
5,648 |
|||||||||||||||||||
Restructuring and |
13,874 |
1,747 |
1,733 |
— |
17,356 |
|||||||||||||||||||
Tax repatriation expense |
— |
— |
7,170 |
— |
7,170 |
|||||||||||||||||||
Loss on divestiture |
1,607 |
— |
— |
— |
1,607 |
|||||||||||||||||||
Noncontrolling interest |
2,024 |
1,129 |
(42) |
721 |
3,832 |
|||||||||||||||||||
Net income, adjusted |
$ |
64,874 |
$ |
55,444 |
$ |
34,328 |
$ |
39,333 |
$ |
193,979 |
||||||||||||||
Total interest expense, net of tax |
24,419 |
|||||||||||||||||||||||
$ |
218,398 |
|||||||||||||||||||||||
Average invested capital |
$ |
2,856,459 |
||||||||||||||||||||||
Adjusted Return on Invested Capital |
7.6%
|
|||||||||||||||||||||||
Return on invested capital calculated utilizing net income, as reported is as follows: |
||||||||||||||||||||||||
Net income attributable to Kennametal, as reported |
$ |
158,366 |
||||||||||||||||||||||
Total interest expense, net of tax |
24,419 |
|||||||||||||||||||||||
$ |
182,785 |
|||||||||||||||||||||||
Average invested capital |
$ |
2,856,459 |
||||||||||||||||||||||
Return on Invested Capital |
6.4%
|
SOURCE Kennametal Inc.