KENNAMETAL INC. LATROBE, Pa., Oct. 30, 2014 /PRNewswire/ -- Kennametal Inc. (NYSE: KMT) today reported results for the fiscal first-quarter 2015, with earnings per diluted share (EPS) of $0.49, compared with the prior year quarter EPS of $0.48. The current quarter adjusted EPS were $0.56 absent restructuring and related charges, compared with prior year's adjusted EPS of $0.49 excluding acquisition charges.
Carlos Cardoso, Kennametal Chairman and Chief Executive Officer said, "September quarter sales growth was driven by ongoing demand strength in our Industrial segment; however, our Infrastructure business was challenged by continued weak conditions in underground mining and road construction, partially offset by modest improvement in the oil and gas sector. We are pleased to have made significant progress in integrating the Tungsten Materials Business, and we are accelerating measures to reduce costs and improve efficiencies that should position Kennametal for improved profitability."
Fiscal 2015 First Quarter Key Developments
-- Sales were $695 million, compared with $620 million in the same quarter
last year. Sales increased by 12 percent, reflecting increases of 10
percent from the TMB acquisition, 1 percent from organic growth and 1
percent due to favorable currency exchange.
-- Operating income was $61 million, compared with $59 million in the same
quarter last year. Operating income increased primarily due to the TMB
acquisition and organic sales growth, partially offset by unfavorable
mix in Infrastructure and higher employment costs overall. Operating
income also included $7 million of restructuring and related charges,
primarily due to equipment relocation and facility expenses. Prior year
operating income included a non-recurring inventory charge of
approximately $6 million and $1 million of acquisition-related expenses.
Adjusted operating margin was 9.9 percent, compared with an adjusted
operating margin of 9.7 percent in the prior year.
-- Restructuring and related charges amounted to $7 million pre-tax, or
$0.07 per share, and pre-tax benefits from these restructuring actions
reached approximately $5 million in the current quarter. In fiscal 2015,
the expected restructuring pre-tax benefits have been increased to $20
million to $25 million. Total restructuring pre-tax benefits are now
estimated to be in the range of $50 million to $55 million, and total
pre-tax charges are projected to be in the range of $55 million to $60
million through fiscal 2016, which is consistent with the previously
stated period.
-- The effective tax rate was 26.5 percent, compared with 24.6 percent in
the prior year. The increase was primarily driven by losses in certain
jurisdictions that do not provide a tax benefit, as well as the effect
of certain tax provisions that expired after fiscal 2014.
-- EPS were $0.49, consistent with the prior year quarter EPS of $0.48. The
current year quarter included restructuring and related charges of $0.07
per share. The prior year quarter included acquisition-related charges
of $0.01 per share. TMB contributed $0.07 per share in the quarter.
-- Adjusted return on invested capital (ROIC) was 7.6 percent as of
September 30, 2014 and reflects increased debt in the near term from
recent acquisitions.
-- The company generated $43 million in cash flow from operating
activities, compared with $44 million in the prior year period. Net
capital expenditures were $30 million and $25 million for the three
months ended September 30, 2014 and 2013, respectively. The company
realized free operating cash flow of $12 million compared with $20
million for the same period last year.
Segment Developments for the Fiscal 2015 First Quarter
-- Industrial segment sales of $378 million increased 12 percent from $338
million in the prior year quarter due to increases of 6 percent from the
TMB acquisition, 5 percent from organic growth and 1 percent due to
favorable currency exchange. Sales increased by 9 percent in general
engineering, 7 percent in transportation and decreased slightly by 1
percent in aerospace and defense. General engineering increased due to
improvements in production and overall demand for machinery and the
transportation market increased due to improvement in the light vehicle
market. On a regional basis excluding TMB, sales increased approximately
8 percent in Asia, 7 percent in the Americas and 1 percent in Europe.
-- Industrial segment operating income was $44 million compared with $40
million in the prior year. Excluding restructuring and related charges,
adjusted operating income of $49 million benefited primarily from the
TMB acquisition and organic growth in the current period, partially
offset by higher employment costs. Industrial adjusted operating margin
was 13.1 percent compared with reported operating margin of 11.8 percent
in the prior year.
-- Infrastructure segment sales of $317 million increased 13 percent from
$282 million in the prior year. The increase was driven by a 16 percent
increase from the TMB acquisition partially offset by a 3 percent
organic sales decline. Sales increased by 2 percent in energy, offset by
decreased sales of 6 percent in earthworks. Energy sales improved
modestly due to increased drilling activity in oil and gas in North
America. Earthworks sales declined from persistently weak underground
coal mining markets globally, as well as lower road construction
activity. On a regional basis excluding TMB, sales decreased 10 percent
in Europe and 7 percent in Asia, partially offset by a 2 percent
increase in the Americas.
-- Infrastructure segment operating income was $19 million, compared with
$22 million in the same quarter of the prior year. Operating income
decreased due to lower organic sales as well as an unfavorable mix and
higher employment costs, partly offset by the TMB acquisition. Prior
year operating income included a non-recurring inventory charge of
approximately $6 million. Infrastructure adjusted operating margin was
6.7 percent compared with reported operating margin of 7.7 percent in
the prior year.
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
Kennametal is updating its outlook due to weaker economic conditions anticipated for the remainder of fiscal 2015. Key factors include softer customer demand in the Eurozone, lower drilling activity in the oil and gas sector, as well as a continued decline in underground mining production levels.
The company now expects fiscal 2015 total sales growth in the range of 2 to 4 percent, with organic sales growth of 1 to 3 percent. Previously, the company had forecast total sales growth in the range of 5 to 7 percent, with organic sales growth of 3 to 5 percent.
As a result, the company has reduced its EPS guidance for fiscal 2015 in the range of $2.80 to $3.00, compared with its previous expectation of $2.90 to $3.20.
The company expects to generate cash flow from operations between $280 million and $310 million for fiscal 2015, compared with its previous outlook of $290 million to $320 million. The revised cash flow from operations range is based on anticipated capital expenditures of approximately $110 million to $120 million, and the company now expects to generate between $170 million and $190 million of free operating cash flow for the fiscal year.
Dividend Declared
Kennametal also announced that its board of directors declared a quarterly cash dividend of $0.18 per share. The dividend is payable November 25, 2014 to shareowners of record as of the close of business on November 11, 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 2015 first-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 November 30, 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 2014 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
September 30,
(in thousands, except per share amounts) 2014 2013
--------------------------------------- ---- ----
Sales $694,941 $619,808
Cost of goods sold 476,842 421,571
------------------ ------- -------
Gross profit 218,099 198,237
Operating expense 148,488 134,264
Restructuring charges 1,563 -
Amortization of intangibles 7,027 5,143
--------------------------- ----- -----
Operating income 61,021 58,830
Interest expense 8,210 7,081
Other (income) expense, net (1,813) 611
--------------------------- ------ ---
Income from continuing operations before income taxes 54,624 51,138
Provision for income taxes 14,497 12,580
-------------------------- ------ ------
Net income 40,127 38,558
Less: Net income attributable to noncontrolling interests 639 721
Net income attributable to Kennametal $39,488 $37,837
===================================== ======= =======
PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL SHAREOWNERS
Basic earnings per share $0.50 $0.48
======================== ===== =====
Diluted earnings per share $0.49 $0.48
========================== ===== =====
Dividends per share $0.18 $0.18
=================== ===== =====
Basic weighted average shares outstanding 79,114 78,439
========================================= ====== ======
Diluted weighted average shares outstanding 79,933 79,470
=========================================== ====== ======
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands) September 30, June 30,
2014 2014
--- ---- ----
ASSETS
Cash and cash equivalents $156,194 $177,929
Accounts receivable, net 488,423 531,515
Inventories 709,925 703,766
Other current assets 109,811 111,986
-------------------- ------- -------
Total current assets 1,464,353 1,525,196
Property, plant and equipment,
net 858,683 884,458
Goodwill and other intangible
assets, net 1,288,564 1,318,752
Other assets 140,213 139,680
Total assets $3,751,813 $3,868,086
============ ========== ==========
LIABILITIES
Current maturities of long-term
debt and capital leases,
including notes $107,258 $80,117
payable
Accounts payable 188,999 206,891
Other current liabilities 242,114 275,748
------------------------- ------- -------
Total current liabilities 538,371 562,756
Long-term debt and capital
leases 908,605 981,666
Other liabilities 350,583 362,056
----------------- ------- -------
Total liabilities 1,797,559 1,906,478
KENNAMETAL SHAREOWNERS' EQUITY 1,922,755 1,929,256
NONCONTROLLING INTERESTS 31,499 32,352
Total liabilities and equity $3,751,813 $3,868,086
============================ ========== ==========
SEGMENT DATA (UNAUDITED) Three Months Ended
September 30,
(in thousands) 2014 2013
------------- ---- ----
Outside Sales:
Industrial $377,858 $338,230
Infrastructure 317,083 281,578
Total outside sales $694,941 $619,808
=================== ======== ========
Sales By Geographic Region:
North America $334,570 $269,535
Western Europe 190,854 187,601
Rest of World 169,517 162,672
------- -------
Total sales by geographic region $694,941 $619,808
================================ ======== ========
Operating Income:
Industrial $44,017 $39,820
Infrastructure 19,221 21,689
Corporate (1) (2,217) (2,679)
Total operating income $61,021 $58,830
====================== ======= =======
(1) 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, operating income and margin, net income, diluted EPS, Industrial sales, operating income and margin, Infrastructure sales, 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 SEPTEMBER 30, 2014 - (UNAUDITED)
(in thousands, except percents) Sales Operating Net Income (2) Diluted EPS
Income
--- --- ---
2015 Reported Results $694,941 $61,021 $39,488 $0.49
2015 Reported Operating Margin 8.8%
Restructuring and related charges - 7,446 5,557 0.07
--------------------------------- --- ----- ----- ----
2015 Adjusted Results $694,941 $68,467 $45,045 $0.56
===================== ======== ======= ======= =====
2015 Adjusted Operating Margin 9.9%
============================== ===
(in thousands, except percents) Industrial Industrial Infrastructure Infrastructure
Sales Operating Income
Sales Operating Income
--- ----- ----------------
2015 Reported Results $377,858 $44,017 $317,083 $19,221
2015 Reported Operating Margin 11.6% 6.1%
Restructuring and related charges - 5,430 - 2,016
--------------------------------- --- ----- --- -----
2015 Adjusted Results $377,858 $49,447 $317,083 $21,237
===================== ======== ======= ======== =======
2015 Adjusted Operating Margin 13.1% 6.7%
============================== ==== ===
THREE MONTHS ENDED SEPTEMBER 30, 2013 - (UNAUDITED)
(in thousands, except percents) Sales Operating Income Net Income (2) Diluted EPS
------------------------------ ----- ---------------- ------------- -----------
2014 Reported Results $619,808 58,830 $37,837 $0.48
2014 Reported Operating Margin 9.5%
Acquisition charges (3) - 1,098 775 0.01
---------------------- --- ----- --- ----
2014 Adjusted Results $619,808 $59,928 $38,612 $0.49
===================== ======== ======= ======= =====
2014 Adjusted Operating Margin 9.7%
============================== ===
(2) Represents amounts attributable to Kennametal Shareowners.
(3) TMB acquisition charges.
FREE OPERATING
CASH FLOW
(UNAUDITED) Three Months Ended
September 30,
(in thousands) 2014 2013
------------- ---- ----
Net cash flow
from
operating
activities $42,552 $44,425
Purchases of
property,
plant and
equipment (30,802) (24,974)
Proceeds from
disposals of
property,
plant and
equipment 619 148
Free operating
cash flow $12,369 $19,599
============== ======= =======
RETURN ON INVESTED CAPITAL (UNAUDITED)
September 30, 2014 (in thousands, except percents)
Invested Capital 9/30/2014 6/30/2014 3/31/2014 12/31/2013 9/30/2013 Average
---------------- --------- --------- --------- ---------- --------- -------
Debt $1,015,863 $1,061,783 $1,135,553 $1,145,729 $706,331 $1,013,052
Total equity 1,954,254 1,961,608 1,934,558 1,903,304 1,873,194 1,925,384
--------- --------- --------- --------- --------- ---------
Total $2,970,117 $3,023,391 $3,070,111 $3,049,033 $2,579,525 $2,938,436
===== ========== ========== ========== ========== ========== ==========
Three Months Ended
Interest Expense 9/30/2014 6/30/2014 3/31/2014 12/31/2013 Total
---------------- --------- --------- --------- ---------- -----
Interest expense $8,210 $8,450 $8,883 $8,037 $33,580
---------------- ------ ------ ------ ------
Income tax benefit 9,611
-----
Total interest expense, net of tax $23,969
=======
Net Income 9/30/2014 6/30/2014 3/31/2014 12/31/2013 Total
---------- --------- --------- --------- ---------- -----
Net income attributable to 39,488 45,455 50,865 24,209 160,017
Kennametal, as reported
Acquisition-related charges - 1,914 1,703 1,258 4,875
Restructuring and related charges 5,557 13,874 1,747 1,733 22,911
Tax repatriation - - - 7,170 7,170
Loss on divestiture - 1,607 - - 1,607
Noncontrolling interest 639 2,024 1,129 (42) 3,750
-----
Net income, adjusted 45,684 64,874 55,444 34,328 200,330
==================== ====== ====== ====== ======
Total interest expense, net of tax 23,969
------
$224,299
Average invested capital $2,938,436
----------
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 $160,017
Total interest expense, net of tax 23,969
---------------------------------- ------
$183,986
Average invested capital $2,938,436
Return on Invested Capital 6.3%
========================== ===
SOURCE Kennametal Inc.
