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Kennametal Inc. 525 William Penn Place Suite 3300, Pittsburgh, PA 15219
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Sign InPITTSBURGH, April 25, 2017 /PRNewswire/ -- Kennametal Inc. (NYSE: KMT) today reported results for its fiscal 2017 third quarter ended March 31, 2017, with earnings per diluted share (EPS) of $0.48, compared with the prior year quarter earnings per diluted share of $0.20. Adjusted EPS were $0.60 in the current quarter compared with adjusted EPS of $0.37 in the prior year quarter. Operating margin was 11.0 percent compared to 5.5 percent in the same quarter last year, while adjusted operating margin was 12.8 percent in the current period and 7.8 percent in the prior year period.
The current period reported results included restructuring and related charges of $0.12 per share. The prior year quarter reported results included restructuring and related charges of $0.18 per share, a net gain on divestiture of $0.03 per share and a tax impact of $0.02 per share related to prior year second quarter asset impairment charges.
"This quarter's results exceeded our expectations by almost every metric," commented Ron De Feo, Kennametal President and CEO. "Simply stated, revenue grew and costs declined, reflecting continuing progress with the work we began nine months ago. Revenue grew 6 percent, of which 5 percent was organic growth, and every region grew. The Widia segment posted quarterly profit for the first time with an adjusted operating margin of 2.3 percent. The Industrial and Infrastructure segments posted adjusted operating margins of 15.1 percent and 12.3 percent, respectively. These are strong numbers, and we are pleased to see the improvements in both sales and margins this quarter."
De Feo continued, "Very little of this progress reflects the structural benefits from the modernization and End-to-End initiatives that we have planned, nor the benefits from the ongoing product and process simplification initiatives. The results of those programs will accrue to the Company over the next two to three years. This is a time of real change at Kennametal and we are excited to continue the work of improving the Company."
This earnings release contains non-GAAP financial measures. Reconciliations of all non-GAAP financial measures are set forth in the tables attached to this earnings release, and corresponding descriptions are contained in the Company's report on Form 8-K, to which this news release is attached.
Fiscal 2017 Third Quarter Key Developments
Segment Developments for the Fiscal 2017 Third Quarter
Fiscal 2017 Year-to-Date Key Developments
Restructuring Programs
Restructuring programs are currently expected to produce combined annual ongoing pre-tax permanent savings of $165-$180 million. In total, pre-tax charges for these initiatives are expected to be approximately $165-$195 million.
Restructuring and related charges and savings (pre-tax) |
||||||
Estimated Charges |
Current Quarter Charges |
Charges To Date |
Estimated Annualized Savings |
Approximate Current Quarter Savings |
Expected Completion Date | |
Headcount reduction initiatives |
$60M-$70M |
$5M |
$42M |
$90M |
$13M |
12/31/2017 |
Other |
$105M-$125M |
$5M |
$83M |
$75M-$90M |
$17M |
12/31/2018 |
Total |
$165M-$195M |
$10M |
$125M |
$165M-$180M |
$30M |
Outlook
The Company now expects consolidated adjusted EPS for the full fiscal year to be in the range of $1.50 and $1.60 per share, an increase from previous outlook of $1.20 to $1.50 per share. The improvement is driven primarily by expectations of sales being at or near the higher end of the most recent announced guidance for fiscal 2017. The Company now expects free operating cash flow to be in the range of $60 to $80 million, a decrease from the previous outlook of $90 to $110 million. This decrease is due primarily to our expectation that more working capital will be required to meet higher demand trends in most of our end markets.
Dividend Declared
Kennametal also announced that its board of directors declared a quarterly cash dividend of $0.20 per share. The dividend is payable May 31, 2017 to shareholders of record as of the close of business on May 16, 2017.
The company will discuss its fiscal 2017 third quarter results in a live webcast at 8:30 a.m. Eastern Time, Wednesday, April 26, 2017. This event will be broadcast live on the company's website, www.kennametal.com. To access the webcast, select "About Us", "Investor Relations" and then "Events." A recorded replay of this event also will be available on the company's website through May 26, 2017.
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 2017 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; our ability to achieve all anticipated benefits of restructuring initiatives; 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; potential for future goodwill and other intangible asset impairment charges; our ability to protect and defend our intellectual property; continuity of information technology infrastructure; competition; our ability to retain our management and employees; demands on management resources; availability and cost of the raw materials we use to manufacture our products; product liability claims; integrating acquisitions and achieving the expected savings and synergies; global or regional catastrophic events; demand for and market acceptance of our products; business divestitures; energy costs; commodity prices; labor relations; 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.
About Kennametal
At the forefront of advanced materials innovation for more than 75 years, Kennametal Inc. is a global industrial technology leader delivering productivity to customers through materials science, tooling and wear-resistant solutions. Customers across aerospace, earthworks, energy, general engineering and transportation turn to Kennametal to help them manufacture with precision and efficiency. Every day approximately 11,000 employees are helping customers in more than 60 countries stay competitive. Kennametal generated nearly $2.1 billion in revenues in fiscal 2016. Learn more at www.kennametal.com.
FINANCIAL HIGHLIGHTS | ||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) | ||||||||||||||
Three Months Ended March 31, |
Nine Months Ended March 31, | |||||||||||||
(in thousands, except per share amounts) |
2017 |
2016 |
2017 |
2016 | ||||||||||
Sales |
$ |
528,630 |
$ |
497,837 |
$ |
1,493,343 |
$ |
1,577,212 |
||||||
Cost of goods sold |
342,365 |
340,484 |
1,015,926 |
1,127,828 |
||||||||||
Gross profit |
186,265 |
157,353 |
477,417 |
449,384 |
||||||||||
Operating expense |
116,939 |
121,004 |
347,808 |
373,827 |
||||||||||
Restructuring and asset impairment charges |
7,169 |
7,142 |
44,230 |
128,498 |
||||||||||
Loss on divestiture |
— |
(2,557) |
— |
130,750 |
||||||||||
Amortization of intangibles |
4,245 |
4,429 |
12,665 |
16,315 |
||||||||||
Operating income (loss) |
57,912 |
27,335 |
72,714 |
(200,006) |
||||||||||
Interest expense |
7,331 |
7,113 |
21,475 |
20,895 |
||||||||||
Other expense (income), net |
1,626 |
(1,938) |
2,470 |
(1,582) |
||||||||||
Income (loss) before income taxes |
48,955 |
22,160 |
48,769 |
(219,319) |
||||||||||
Provision (benefit) for income taxes |
9,301 |
5,465 |
22,401 |
(61,499) |
||||||||||
Net income (loss) |
39,654 |
16,695 |
26,368 |
(157,820) |
||||||||||
Less: Net income attributable to noncontrolling interests |
764 |
695 |
1,873 |
1,634 |
||||||||||
Net income (loss) attributable to Kennametal |
$ |
38,890 |
$ |
16,000 |
$ |
24,495 |
$ |
(159,454) |
||||||
PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL SHAREHOLDERS |
||||||||||||||
Basic earnings (loss) per share |
$ |
0.48 |
$ |
0.20 |
$ |
0.31 |
$ |
(2.00) |
||||||
Diluted earnings (loss) per share |
$ |
0.48 |
$ |
0.20 |
$ |
0.30 |
$ |
(2.00) |
||||||
Dividends per share |
$ |
0.20 |
$ |
0.20 |
$ |
0.60 |
$ |
0.60 |
||||||
Basic weighted average shares outstanding |
80,398 |
79,871 |
80,219 |
79,814 |
||||||||||
Diluted weighted average shares outstanding |
81,381 |
80,224 |
80,965 |
79,814 |
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) | |||||||
(in thousands) |
March 31, 2017 |
June 30, 2016 | |||||
ASSETS |
|||||||
Cash and cash equivalents |
$ |
100,817 |
$ |
161,579 |
|||
Accounts receivable, net |
376,956 |
370,916 |
|||||
Inventories |
490,212 |
458,830 |
|||||
Other current assets |
75,061 |
84,016 |
|||||
Total current assets |
1,043,046 |
1,075,341 |
|||||
Property, plant and equipment, net |
728,775 |
730,640 |
|||||
Goodwill and other intangible assets, net |
487,384 |
505,695 |
|||||
Other assets |
75,534 |
51,107 |
|||||
Total assets |
$ |
2,334,739 |
$ |
2,362,783 |
|||
LIABILITIES |
|||||||
Current maturities of long-term debt and capital leases, including notes payable |
$ |
1,591 |
$ |
1,895 |
|||
Accounts payable |
190,841 |
182,039 |
|||||
Other current liabilities |
234,367 |
243,341 |
|||||
Total current liabilities |
426,799 |
427,275 |
|||||
Long-term debt and capital leases |
694,631 |
693,548 |
|||||
Other liabilities |
233,738 |
246,159 |
|||||
Total liabilities |
1,355,168 |
1,366,982 |
|||||
KENNAMETAL SHAREHOLDERS' EQUITY |
945,962 |
964,323 |
|||||
NONCONTROLLING INTERESTS |
33,609 |
31,478 |
|||||
Total liabilities and equity |
$ |
2,334,739 |
$ |
2,362,783 |
SEGMENT DATA (UNAUDITED) |
Three Months Ended March 31, |
Nine Months Ended March 31, | ||||||||||||
(in thousands) |
2017 |
2016 |
2017 |
2016 | ||||||||||
Outside Sales: |
||||||||||||||
Industrial (1) |
$ |
289,455 |
$ |
274,123 |
$ |
825,990 |
$ |
812,892 |
||||||
Widia (1) |
46,297 |
42,249 |
130,186 |
127,696 |
||||||||||
Infrastructure |
192,878 |
181,465 |
537,167 |
636,624 |
||||||||||
Total outside sales |
$ |
528,630 |
$ |
497,837 |
$ |
1,493,343 |
$ |
1,577,212 |
||||||
Sales By Geographic Region: |
||||||||||||||
North America |
$ |
245,558 |
$ |
232,183 |
$ |
684,448 |
$ |
718,979 |
||||||
Western Europe |
128,675 |
130,914 |
367,004 |
432,477 |
||||||||||
Rest of World |
154,397 |
134,740 |
441,891 |
425,756 |
||||||||||
Total sales by geographic region |
$ |
528,630 |
$ |
497,837 |
$ |
1,493,343 |
$ |
1,577,212 |
||||||
Operating Income (Loss): |
||||||||||||||
Industrial (1) |
$ |
38,535 |
$ |
26,371 |
$ |
62,138 |
$ |
59,855 |
||||||
Widia (1) |
606 |
(1,679) |
(7,797) |
(8,053) |
||||||||||
Infrastructure |
19,770 |
3,748 |
22,457 |
(242,417) |
||||||||||
Corporate (2) |
(999) |
(1,105) |
(4,084) |
(9,391) |
||||||||||
Total operating income (loss) |
$ |
57,912 |
$ |
27,335 |
$ |
72,714 |
$ |
(200,006) |
(1) |
Amounts for the three and nine months ended March 31, 2016 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: sales; gross profit and margin; operating expense; operating expense as a percentage of sales; operating income (loss) and margin; net income (loss); diluted EPS (LPS); effective tax rate; Industrial sales, operating income and margin; Widia sales, operating income (loss) and margin; Infrastructure sales, operating income and margin; free operating cash flow and E(L)BITDA and margin (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 is 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, 2017 (UNAUDITED) |
||||||||||||||||||||
(in thousands, except |
Sales |
Gross profit |
Operating expense |
Operating income |
Effective tax rate |
Net income(3) |
Diluted EPS | |||||||||||||
Reported results |
$ |
528,630 |
$ |
186,265 |
$ |
116,939 |
$ |
57,912 |
19.0 |
% |
$ |
38,890 |
$ |
0.48 |
||||||
Reported margins |
35.2 |
% |
22.1 |
% |
11.0 |
% |
||||||||||||||
Restructuring and related |
— |
1,644 |
(809) |
9,623 |
(3.7) |
9,961 |
0.12 |
|||||||||||||
Adjusted results |
$ |
528,630 |
$ |
187,909 |
$ |
116,130 |
$ |
67,535 |
15.3 |
% |
$ |
48,851 |
$ |
0.60 |
||||||
Adjusted margins |
35.5 |
% |
22.0 |
% |
12.8 |
% |
||||||||||||||
(3) Represents amounts attributable to Kennametal Shareholders. |
Industrial |
Widia |
Infrastructure | ||||||||||||||||
(in thousands, except percents) |
Sales |
Operating income |
Sales |
Operating income |
Sales |
Operating income | ||||||||||||
Reported results |
$ |
289,455 |
$ |
38,535 |
$ |
46,297 |
$ |
606 |
$ |
192,878 |
$ |
19,770 |
||||||
Reported operating margin |
13.3 |
% |
1.3 |
% |
10.3 |
% | ||||||||||||
Restructuring and related |
— |
5,142 |
— |
466 |
— |
3,974 |
||||||||||||
Adjusted results |
$ |
289,455 |
$ |
43,677 |
$ |
46,297 |
$ |
1,072 |
$ |
192,878 |
$ |
23,744 |
||||||
Adjusted operating margin |
15.1 |
% |
2.3 |
% |
12.3 |
% | ||||||||||||
(4) Excludes pre-tax restructuring related charges recorded in Corporate of $41. |
THREE MONTHS ENDED MARCH 31, 2016 (UNAUDITED) |
||||||||||||||||||||
(in thousands, except |
Sales |
Gross profit |
Operating expense |
Operating income |
Effective tax rate |
Net income(3) |
Diluted EPS | |||||||||||||
Reported results |
$ |
497,837 |
$ |
157,353 |
$ |
121,004 |
$ |
27,335 |
24.7 |
% |
$ |
16,000 |
$ |
0.20 |
||||||
Reported margins |
31.6 |
% |
24.3 |
% |
5.5 |
% |
||||||||||||||
Restructuring and related |
— |
1,456 |
(5,400) |
13,998 |
(4.9) |
14,242 |
0.18 |
|||||||||||||
Tax effect of prior asset |
— |
— |
— |
— |
(5.8) |
1,251 |
0.02 |
|||||||||||||
Loss on divestiture |
— |
— |
— |
(2,557) |
(4.1) |
(1,902) |
(0.03) |
|||||||||||||
Adjusted results |
$ |
497,837 |
$ |
158,809 |
$ |
115,604 |
$ |
38,776 |
9.9 |
% |
$ |
29,591 |
$ |
0.37 |
||||||
Adjusted margins |
31.9 |
% |
23.2 |
% |
7.8 |
% |
Industrial (1) |
Widia (1) |
Infrastructure | ||||||||||||||||
(in thousands, except percents) |
Sales |
Operating income |
Sales |
Operating loss |
Sales |
Operating income | ||||||||||||
Reported results |
$ |
274,123 |
$ |
26,371 |
$ |
42,249 |
$ |
(1,679) |
$ |
181,465 |
$ |
3,748 |
||||||
Reported operating margin |
9.6 |
% |
(4.0)% |
2.1 |
% | |||||||||||||
Restructuring and related |
— |
8,091 |
— |
1,255 |
— |
4,652 |
||||||||||||
Loss on divestiture |
— |
(3,677) |
— |
— |
— |
1,117 |
||||||||||||
Adjusted results |
$ |
274,123 |
$ |
30,785 |
$ |
42,249 |
$ |
(424) |
$ |
181,465 |
$ |
9,517 |
||||||
Adjusted operating margin |
11.2 |
% |
(1.0)% |
5.2 |
% |
NINE MONTHS ENDED MARCH 31, 2017 (UNAUDITED) |
||||||||||||
(in thousands, except percents) |
Sales |
Operating |
Net income(3) |
Diluted EPS | ||||||||
Reported results |
$ |
1,493,343 |
$ |
72,714 |
$ |
24,495 |
$ |
0.30 |
||||
Reported operating margin |
4.9 |
% |
||||||||||
Restructuring and related charges |
— |
53,064 |
51,469 |
0.63 |
||||||||
Australia deferred tax valuation allowance |
— |
— |
1,288 |
0.02 |
||||||||
Adjusted results |
$ |
1,493,343 |
$ |
125,778 |
$ |
77,252 |
$ |
0.95 |
||||
Adjusted operating margin |
8.4 |
% |
NINE MONTHS ENDED MARCH 31, 2016 (UNAUDITED) |
||||||||||||
(in thousands, except percents) |
Sales |
Operating |
Net (loss) income(3) |
Diluted (LPS) EPS | ||||||||
Reported results |
$ |
1,577,212 |
$ |
(200,006) |
$ |
(159,454) |
$ |
(2.00) |
||||
Reported operating margin |
(12.7) |
% |
||||||||||
Restructuring and related charges |
— |
37,970 |
31,978 |
0.42 |
||||||||
Goodwill and other intangible asset impairment |
— |
108,456 |
81,487 |
1.02 |
||||||||
Loss on divestiture and related charges |
— |
130,750 |
98,448 |
1.22 |
||||||||
Operations of divested businesses |
(82,512) |
1,912 |
1,358 |
0.02 |
||||||||
Adjusted results |
$ |
1,494,700 |
$ |
79,082 |
$ |
53,817 |
$ |
0.68 |
||||
Adjusted operating margin |
5.3 |
% |
FREE OPERATING CASH FLOW (UNAUDITED) |
Three Months Ended March 31, |
Nine Months Ended March 31, | ||||||||||||
(in thousands) |
2017 |
2016 |
2017 |
2016 | ||||||||||
Net cash flow from operating activities |
$ |
33,443 |
$ |
40,870 |
$ |
80,021 |
$ |
145,414 |
||||||
Purchases of property, plant and equipment |
(23,522) |
(22,110) |
(94,095) |
(83,285) |
||||||||||
Proceeds from disposals of property, plant and equipment |
343 |
700 |
3,852 |
5,102 |
||||||||||
Free operating cash flow |
$ |
10,264 |
$ |
19,460 |
$ |
(10,222) |
$ |
67,231 |
EBITDA (UNAUDITED) |
Three Months Ended March 31, |
Nine Months Ended March 31, | ||||||||||||
(in thousands) |
2017 |
2016 |
2017 |
2016 | ||||||||||
Net income (loss) attributable to Kennametal |
$ |
38,890 |
$ |
16,000 |
$ |
24,495 |
$ |
(159,454) |
||||||
Add back: |
||||||||||||||
Interest expense |
7,331 |
7,113 |
21,475 |
20,895 |
||||||||||
Interest income |
(306) |
(310) |
(759) |
(1,112) |
||||||||||
Provision (benefit) for income taxes |
9,301 |
5,465 |
22,401 |
(61,499) |
||||||||||
Depreciation |
22,375 |
22,868 |
68,369 |
73,297 |
||||||||||
Amortization of intangibles |
4,245 |
4,429 |
12,665 |
16,315 |
||||||||||
E(L)BITDA |
$ |
81,836 |
$ |
55,565 |
$ |
148,646 |
$ |
(111,558) |
||||||
Margin |
15.5 |
% |
11.2 |
% |
10.0 |
% |
(7.1) |
% | ||||||
Adjustments: |
||||||||||||||
Restructuring and related charges |
9,623 |
13,998 |
53,064 |
37,970 |
||||||||||
Goodwill and other intangible asset impairment charges |
— |
— |
— |
108,456 |
||||||||||
Operations of divested businesses |
— |
— |
— |
1,912 |
||||||||||
Loss on divestiture and related charges |
— |
(2,557) |
— |
130,750 |
||||||||||
Adjusted EBITDA |
$ |
91,459 |
$ |
67,006 |
$ |
201,710 |
$ |
167,530 |
||||||
Adjusted margin |
17.3 |
% |
13.5 |
% |
13.5 |
% |
11.2 |
% |
SOURCE Kennametal Inc.