KENNAMETAL INC. 
By LATROBE, Pa., Jan. 24, 2013 /PRNewswire/ -- Kennametal Inc. (NYSE: KMT) today reported fiscal 2013 second-quarter results, with earnings per diluted share (EPS) of $0.52 compared with the prior-year quarter EPS of $0.91.
"We again sustained strong performance, in both profitability and return on invested capital, despite generally lackluster activity in the global industrial markets," said Kennametal Chairman, President and Chief Executive Officer Carlos Cardoso. "While recovery is progressing more slowly than expected, we have kept our organization agile and ready for the resumption of growth. Our Stellite acquisition is contributing to earnings and opening us to new growth opportunities in the energy and power generation industries. In addition, Kennametal remains committed to maximizing our results and maintaining our strong balance sheet to deliver increased shareholder value."
Fiscal 2013 Second Quarter Key Developments
-- Sales were $633 million, compared with $642 million in the same quarter
last year. Sales decreased by 1 percent, reflecting a 10 percent organic
decline and a 1 percent unfavorable effect from currency exchange,
partially offset by a 9 percent increase from Stellite and 1 percent
from the effect of more business days.
-- Operating income was $66 million, compared with $94 million in the same
quarter last year. Stellite contributed $5 million of operating income
in the current year quarter. Operating income decreased due to lower
absorption of manufacturing costs related to reduced sales volume and an
inventory reduction initiative, as well as an unfavorable sales mix. The
company reduced operating expense with additional cost-control measures
to partially offset these effects. Excluding Stellite, adjusted
operating margin was 10.7 percent, compared with an operating margin of
14.7 percent in the prior year.
-- The results reflect a higher effective tax rate in the current quarter,
at 26.4 percent, compared with 17.3 percent in the prior year. The
difference includes the impacts of a valuation allowance adjustment in
the prior year and lower current quarter earnings contribution from
Europe where tax rates are lower than those in the United States.
-- EPS were $0.52, compared with the prior year quarter EPS of $0.91. The
current year EPS includes $0.02 per share accretion from Stellite.
-- Adjusted return on invested capital (ROIC) was 12.5 percent as of
December 31, 2012.
-- Year to date, the company generated $54 million in cash flow from
operating activities, compared with $71 million in the prior year
period. Net capital expenditures were $34 million and $33 million for
the six months ended December 31, 2012 and 2011, respectively. For the
first half of this fiscal year, the company realized free operating cash
flow of $21 million compared with $38 million for the same period last
year.
-- The company also bought back 560,200 shares of its capital stock.
Year-to-date purchases now total approximately 1.3 million shares, under
the amended, multiyear share repurchase program announced in July.
Approximately 7.2 million shares remain available under the program.
Enhanced Liquidity and Strengthened Financial Position
In November 2012, the company further enhanced liquidity and strengthened its financial position by issuing $400 million of 2.65 percent Senior Unsecured Notes due in 2019.
Segment Developments for the Fiscal 2013 Second Quarter
-- Industrial segment sales of $361 million declined 12 percent from $410
million in the prior year quarter, reflecting a 10 percent organic
decline and a 2 percent unfavorable effect from currency exchange. On an
organic basis, sales declined 15 percent in general engineering and 8
percent in transportation, while aerospace and defense sales grew 10
percent. Inventory destocking affected indirect sales in general
engineering, as distributors responded to the slow macro environment.
The decline in transportation reflected lower vehicle production rates
and extended plant shut-downs, while aerospace and defense sales grew
with increased production of commercial aircraft. On a regional basis,
sales declined approximately 15 percent in Asia, 9 percent in Europe and
8 percent in the Americas.
-- Industrial segment operating income was $37 million compared with $63
million in the prior year. Industrial operating income decreased due to
lower absorption of manufacturing costs related to reduced sales volume
and an inventory reduction initiative, as well as an unfavorable sales
mix. Industrial operating margin was 10.4 percent compared with 15.3
percent in the prior year.
-- Infrastructure segment sales of $272 million increased 17 percent from
$232 million in the prior year, driven by 26 percent growth from
Stellite, partially offset by an 8 percent organic decline and a 1
percent unfavorable effect from currency exchange. On an organic basis,
sales declined by 13 percent in energy and 6 percent in the earthworks
markets. Earthworks sales declined from persistently weak coal mining
activity in North America, where a number of mine closures further
depressed sales. Energy sales fell globally due to reduced drilling
activity in oil and gas. On a regional basis excluding the impact of
Stellite, sales decreased approximately 12 percent in the Americas and 3
percent in Asia and remained flat in Europe.
-- Infrastructure segment operating income was $31 million, compared with
$33 million in the same quarter of the prior year. Operating income
benefited from Stellite operating income of $5 million, which was more
than offset by the effects of the organic sales decline and lower
absorption of manufacturing costs, as well as an unfavorable sales mix.
Infrastructure adjusted operating margin was 12.3 percent compared with
14.4 percent in the prior year.
Fiscal 2013 First Half Key Developments
-- Sales were $1,263 million, compared with $1,301 million in the same
period last year. Sales decreased by 3 percent, driven by an 8 percent
organic decline and 4 percent unfavorable effect from currency exchange,
partially offset by a 9 percent increase from Stellite.
-- Operating income was $131 million, compared with $196 million in the
same period last year. Stellite contributed $8 million of operating
income year to date. Operating income decreased primarily due to lower
sales volume, lower absorption of manufacturing costs as well as
unfavorable currency exchange. This decrease was partially offset by
reduced operating expense achieved with cost control. Excluding
Stellite, year to date adjusted operating margin was 10.7 percent,
compared with an operating margin of 15.0 percent in the prior year.
-- EPS were $1.09, compared with the prior year period EPS of $1.79. The
current year EPS includes $0.02 per share accretion from Stellite.
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
Due to slower than expected demand in the company's served markets, Kennametal adjusted its full-year outlook given lower sales volumes. However, the company notes that its order rates have remained steady over the past few months, which may reflect that bottoming has occurred.
The company now expects fiscal 2013 sales growth between negative 2 and negative 4 percent, with organic sales ranging from negative 7 to negative 9 percent. Previously, the company had forecast total sales growth ranging from 3 to 6 percent with organic sales growth of flat to negative 3 percent.
Based on the revision, the company has reduced its EPS guidance for fiscal 2013 to range from $2.60 to $2.80, versus its previous expectation of $3.40 to $3.70. Included in this outlook is the accretive contribution of the Stellite acquisition, which is now expected to range between $0.10 and $0.15 per share as compared to the previous range of $0.15 and $0.25 per share, net of integration costs.
The company now expects to generate cash flow from operations between $290 million and $325 million for fiscal 2013, compared with the previous range of $320 million to $385 million. Based on anticipated capital expenditures of approximately $90 million to $100 million, the company expects to generate between $200 million and $225 million of free operating cash flow for the full fiscal year, as compared to the previous range of $225 million to $275 million.
Dividend Declared
Kennametal also announced that its board of directors declared a quarterly cash dividend of $0.16 per share. The dividend is payable February 20, 2013 to shareowners of record as of the close of business on February 5, 2013.
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 2013 second-quarter results in a live webcast at 10:00 a.m. ET 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 February 25, 2013.
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 2013 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; 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 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 2012, customers bought nearly $3 billion of Kennametal products and services - delivered by our approximately 13,000 talented employees doing business in more than 60 countries worldwide - with more than 50 percent of these revenues coming from outside North America. Visit us at www.kennametal.com.
FINANCIAL HIGHLIGHTS
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended
December 31, Six Months Ended
December 31,
(in thousands, except per share amounts) 2012 2011 2012 2011
--------------------------------------- ---- ---- ---- ----
Sales $633,144 $641,741 $1,262,603 $1,300,618
Cost of goods sold 433,697 409,855 854,808 817,672
------------------ ------- ------- ------- -------
Gross profit 199,447 231,886 407,795 482,946
Operating expense 127,778 134,566 266,638 280,555
Amortization of intangibles 5,200 3,272 10,307 6,733
--------------------------- ----- ----- ------ -----
Operating income 66,469 94,048 130,850 195,658
Interest expense 6,970 5,256 12,926 10,743
Other expense (income), net 655 (1,258) (246) (684)
--------------------------- --- ------ ---- ----
Income from continuing operations before 58,844 90,050 118,170 185,599
income taxes
Provision for income taxes 15,535 15,579 27,815 37,555
-------------------------- ------ ------ ------ ------
Net income 43,309 74,471 90,355 148,044
Less: Net income attributable to noncontrolling interests 1,167 774 1,823 2,361
Net income attributable to Kennametal $42,142 $73,697 $88,532 $145,683
===================================== ======= ======= ======= ========
PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL SHAREOWNERS
Basic earnings per share $0.53 $0.92 $1.11 $1.82
======================== ===== ===== ===== =====
Diluted earnings per share $0.52 $0.91 $1.09 $1.79
========================== ===== ===== ===== =====
Dividends per share $0.16 $0.14 $0.32 $0.26
=================== ===== ===== ===== =====
Basic weighted average shares outstanding 79,713 79,765 79,980 80,212
========================================= ====== ====== ====== ======
Diluted weighted average shares outstanding 80,986 80,936 81,164 81,357
=========================================== ====== ====== ====== ======
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands) December 31, 2012 June 30, 2012
------------- ----------------- -------------
ASSETS
Cash and cash equivalents $216,771 $116,466
Accounts receivable, net 412,563 478,989
Inventories 619,484 585,856
Other current assets 107,545 101,651
-------------------- ------- -------
Total current assets 1,356,363 1,282,962
Property, plant and equipment,
net 737,638 742,201
Goodwill and other intangible
assets, net 961,786 962,837
Other assets 44,752 46,188
Total assets $3,100,539 $3,034,188
============ ========== ==========
LIABILITIES
Current maturities of long-term
debt and capital leases,
including notes payable $2,647 $75,137
Accounts payable 155,401 219,475
Other current liabilities 204,477 284,010
------------------------- ------- -------
Total current liabilities 362,525 578,622
Long-term debt and capital
leases 704,212 490,608
Other liabilities 289,359 296,737
----------------- ------- -------
Total liabilities 1,356,096 1,365,967
KENNAMETAL SHAREOWNERS' EQUITY 1,719,991 1,643,850
NONCONTROLLING INTERESTS 24,452 24,371
Total liabilities and equity $3,100,539 $3,034,188
============================ ========== ==========
SEGMENT DATA (UNAUDITED) Three Months Ended Six Months Ended
December 31, December31,
(in thousands) 2012 2011 2012 2011
------------- ---- ---- ---- ----
Outside Sales:
Industrial $361,171 $409,887 $714,348 $827,706
Infrastructure 271,973 231,854 548,255 472,912
Total outside sales $633,144 $641,741 $1,262,603 $1,300,618
=================== ======== ======== ========== ==========
Sales By Geographic Region:
North America $279,943 $288,622 $563,167 $591,168
Western Europe 184,433 177,474 360,587 362,973
Rest of World 168,768 175,645 338,849 346,477
------- ------- ------- -------
Total sales by geographic region $633,144 $641,741 $1,262,603 $1,300,618
================================ ======== ======== ========== ==========
Operating Income:
Industrial $37,402 $62,898 $72,591 $135,583
Infrastructure 31,181 33,312 62,916 65,866
Corporate (1) (2,114) (2,162) (4,657) (5,791)
Total operating income $66,469 $94,048 $130,850 $195,658
====================== ======= ======= ======== ========
(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 and diluted earnings per share, 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 DECEMBER 31, 2012 - (UNAUDITED)
(in thousands, except percents) Infrastructure Infrastructure
Operating
Sales Income
--- ----- ------
2013 Reported Results $271,973 $31,181
2013 Reported Operating Margin 11.5%
Acquisition impact (2) (60,151) (5,186)
2013 Adjusted Results $211,822 $25,995
===================== ======== =======
2013 Adjusted Operating Margin 12.3%
============================== ====
THREE MONTHS ENDED DECEMBER 31, 2012 - (UNAUDITED)
(in thousands, except per share amounts) Sales Operating Net Income (3) Diluted EPS
Income
--- ------
2013 Reported Results $633,144 $66,469 $42,142 $0.52
2013 Reported Operating Margin 10.5%
Acquisition impact (2) (60,151) (5,186) (1,696) (0.02)
2013 Adjusted Results $572,993 $61,283 $40,446 $0.50
===================== ======== ======= ======= =====
2013 Adjusted Operating Margin 10.7%
============================== ====
SIX MONTHS ENDED DECEMBER 31, 2012 - (UNAUDITED)
(in thousands, except per share amounts) Sales Operating Net Income (3) Diluted EPS
Income
--- ------
2013 Reported Results 1,262,603 130,850 88,532 1.09
2013 Reported Operating Margin 10.4%
Acquisition impact (2) (119,656) (8,278) (2,071) (0.02)
-------- ------ ------ -----
2013 Adjusted Results 1,142,947 122,572 86,461 1.07
===================== ========= ======= ====== ====
2013 Adjusted Operating Margin 10.7%
============================== ====
(2) Includes the impact of Stellite operations
(3) Represents amounts attributable to Kennametal Shareowners
FREE OPERATING CASH FLOW (UNAUDITED) Six Months Ended
December 31,
(in thousands) 2012 2011
------------- ---- ----
Net cash flow from operating activities $54,235 $71,099
Purchases of property, plant and equipment (34,372) (35,593)
Proceeds from disposals of property, plant and equipment 704 2,557
Free operating cash flow $20,567 $38,063
======================== ======= =======
RETURN ON INVESTED CAPITAL (UNAUDITED)
December 31, 2012 (in thousands, except percents)
Invested Capital 12/31/2012 9/30/2012 6/30/2012 3/31/2012 12/31/2011 Average
---------------- ---------- --------- --------- --------- ---------- -------
Debt $706,859 $601,124 $565,745 $640,871 $307,938 $564,507
Total equity 1,744,443 1,712,532 1,668,221 1,745,699 1,630,174 1,700,214
--------- --------- --------- --------- --------- ---------
Total $2,451,302 $2,313,656 $2,233,966 $2,386,570 $1,938,112 $2,264,721
===== ========== ========== ========== ========== ========== ==========
Three Months Ended
Interest Expense 12/31/2012 9/30/2012 6/30/2012 3/31/2012 Total
---------------- ---------- --------- --------- --------- -----
Interest expense $6,970 $5,956 $8,469 $8,003 $29,398
---------------- ------ ------ ------ ------
Income tax benefit 6,321
-----
Total interest expense, net of tax $23,077
=======
Total Income 12/31/2012 9/30/2012 6/30/2012 3/31/2012 Total
------------ ---------- --------- --------- --------- -----
Net income attributable to Kennametal, as reported $42,142 $46,390 $86,048 $75,499 $250,079
Stellite acquisition charges - - 2,267 4,738 7,005
Noncontrolling interest 1,167 657 504 738 3,066
-----
Total income, adjusted $43,309 $47,047 $88,819 $80,975 $260,150
====================== ======= ======= ======= =======
Total interest expense, net of tax 23,077
------
$283,227
Average invested capital $2,264,721
--- ----------
Adjusted Return on Invested Capital 12.5%
====
Return on invested capital calculated utilizing net income, as reported is as follows:
Net income attributable to Kennametal, as reported $250,079
Total interest expense, net of tax 23,077
---------------------------------- ------
$273,156
Average invested capital $2,264,721
Return on Invested Capital 12.1%
========================== ====
SOURCE Kennametal Inc.
