-- Reported 2Q EPS of $0.07; adjusted EPS of $0.14 -- Sales
increased 8 percent sequentially to $443 million -- Free operating
cash flow of $36 million for first half of fiscal 2010 -- Increases
EPS midpoint guidance by $0.10 including new profitability actions
-- Increases FOCF midpoint guidance by $35 million LATROBE, Pa.,
Jan. 28 /PRNewswire-FirstCall/ -- Kennametal Inc. (NYSE: KMT) today
reported that fiscal 2010 second quarter earnings per diluted share
(EPS) were $0.07, compared with prior year quarter reported EPS of
$0.21. The current quarter reported EPS included restructuring and
related charges amounting to $0.07 per share. The prior year
quarter reported EPS included restructuring and related charges of
$0.14 per share. Absent these charges, adjusted EPS for the current
quarter was $0.14, compared with the prior year quarter adjusted
EPS of $0.35. Adjusted EPS for the current quarter improved
sequentially by $0.18 from the quarter ended September 30, 2009.
The sequential improvement in EPS was driven by higher sales
volume, as well as further benefits from previously implemented
restructuring programs. Kennametal's Chairman, President and Chief
Executive Officer Carlos Cardoso said, "In the December quarter, we
have achieved sequential sales growth for the past two quarters
driven by the gradual economic recovery, increased industrial
activity in certain geographies and end markets, and higher demand
from customers replenishing their inventories." "The sequential
improvement in our operating results and earnings per share
demonstrate the success of our restructuring initiatives. Our
global workforce has consistently focused on managing through the
economic downturn to deliver results and will continue to
concentrate on implementing further cost reduction efforts in the
second half of fiscal 2010. We are pleased to have returned to
profitability and will continue to maximize opportunities to expand
future margins. In addition, we will remain focused on generating
strong cash flow and maintaining a solid balance sheet to position
our business for ongoing future growth." 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. Fiscal 2010 Second Quarter Key Developments -- Sales for
the quarter were $443 million, compared with $546 million in the
same quarter last year. Sales decreased by 19 percent, driven by an
organic decline of 23 percent, partially offset by a 4 percent
favorable impact from foreign currency effects. -- Sales for the
December quarter improved sequentially by 8 percent, representing
the second consecutive quarter of sequential sales growth. The
improvement in sales was driven by an expansion in industrial
activity in certain markets and geographies. -- During the quarter
ended December 31, 2009, the company recognized pre-tax
restructuring and related charges of $4 million, or $0.07 per
share. Incremental pre-tax benefits from restructuring programs
were approximately $30 million in the current quarter, driven by
manufacturing rationalization and workforce reduction programs. --
Operating income for the quarter was $15 million compared with $23
million in the same quarter last year. Absent restructuring related
charges recorded in both periods, operating income for the current
quarter was $20 million, compared with operating income of $33
million in the prior year quarter. The prior year quarter benefited
from lower provisions for incentive compensation due to declines in
operating performance in the prior year. The adjusted operating
income for the current quarter improved sequentially by $21 million
from the September 2009 quarter. This sequential improvement was
driven by higher sales, continued permanent savings from
restructuring programs and ongoing cost discipline. -- Reported EPS
was $0.07 compared with prior year quarter reported EPS of $0.21.
Adjusted EPS was $0.14 compared with prior year quarter adjusted
EPS of $0.35. A reconciliation follows: Earnings Per Diluted Share
Reconciliation Second Quarter FY 2010 Second Quarter FY 2009
Reported EPS $0.07 Reported EPS $0.21 Restructuring and related
Restructuring and related charges 0.07 charges 0.14 ---- ----
Adjusted EPS $0.14 Adjusted EPS $0.35 ===== ===== Segment
Highlights of Fiscal 2010 Second Quarter -- Metalworking Solutions
& Services Group (MSSG) sales decreased by 19 percent from the
prior year quarter, driven by an organic sales decline of 23
percent, offset by favorable foreign currency effects of 4 percent.
Sequentially, sales increased by 13 percent for the second
consecutive quarter as global industrial production continued to
improve modestly. On a regional basis, India had a year-over-year
organic sales increase of 5 percent. Europe and North America
reported organic sales declines of 30 percent and 24 percent,
respectively, compared with the prior year December quarter. Latin
America and Asia Pacific also experienced year-over-year organic
sales declines of 17 percent and 1 percent, respectively. -- MSSG
operating income of $7 million for the December quarter was flat
compared with the same quarter of the prior year despite a
reduction in sales of $61 million. Excluding restructuring and
related charges recorded in both periods, MSSG operating income was
$10 million compared with $14 million in the prior year quarter.
MSSG adjusted operating margin improved sequentially from the
September quarter by 730 basis points to 3.6 percent. The primary
driver of the adjusted sequential increase in operating margin was
cost savings from restructuring programs and continued cost
containment, with a considerable portion of these savings offset by
lower sales volumes. -- Advanced Materials Solutions Group (AMSG)
sales decreased 19 percent from the prior year quarter, driven by a
22 percent organic decline, offset by a 3 percent favorable impact
from foreign currency effects. The organic decline was primarily
driven by lower sales in the engineered products business, as well
as reduced demand for energy related products and capital
equipment. Sequentially, sales increased by 2 percent. -- AMSG
operating income increased 54 percent to $30 million in the current
quarter compared with $19 million in the same quarter of the prior
year. Absent restructuring and related charges recorded in both
periods, AMSG operating income was $31 million in the current
quarter compared with $22 million in the prior year quarter, an
increase of 38 percent. The year-over-year increase in operating
income was primarily due to cost savings from restructuring and
continued cost reduction actions, partially offset by lower sales
volumes. AMSG adjusted operating margin increased sequentially by
320 basis points to 16.9 percent from the September quarter. Fiscal
2010 First Half Key Developments -- Cash flow from operating
activities was $53 million in the first half of fiscal 2010,
compared with $115 million in the prior year period. Also, during
the first half of the current fiscal year, the company generated
free operating cash flow of $36 million compared with $48 million
in the prior year period. -- Sales of $852 million decreased 28
percent from $1.2 billion in the same period last year. Sales
decreased 30 percent on an organic basis, partially offset by a 2
percent increase from a business acquisition made in the prior
fiscal year. -- During the first half of fiscal 2010, the company
recognized pre-tax restructuring and related charges of $13
million, or $0.15 per share. Incremental pre-tax benefits from
restructuring programs were approximately $60 million year-to-date.
-- Operating income was $6 million, compared with $75 million in
the same period last year. Absent charges related to restructuring
recorded in both periods, operating income for the current period
was $19 million, compared with $94 million for the prior year
period. This decrease was principally the result of reduced sales
volumes and was partially offset by a combination of restructuring
benefits, continued cost reduction actions and improved price
realization. -- Reported EPS was ($0.05), compared with prior year
reported EPS of $0.69. The current period reported EPS included
charges of $0.15 per share related to the company's restructuring
programs and divestiture of its high speed steel drills and related
product lines. Prior year period reported EPS included
restructuring and related charges of $0.23 per share. Absent these
charges, adjusted EPS for the first half of fiscal 2010 were $0.10,
compared with prior year adjusted EPS of $0.92. A reconciliation
follows: Earnings Per Diluted Share Reconciliation First Half FY
2010 First Half FY 2009 Reported EPS $(0.05) Reported EPS $0.69
Restructuring and related Restructuring and related charges 0.12
charges 0.23 Divestiture related charges 0.03 ---- Adjusted EPS
$0.10 Adjusted EPS $0.92 ===== ===== Further Restructuring Actions
Kennametal intends to undertake further restructuring actions which
are expected to generate $30 million to $35 million in annual
savings once fully implemented over the next six to nine months.
The company expects to incur pre-tax cash charges of approximately
$40 million to $45 million in connection with the execution of
these new initiatives. These new plans, together with restructuring
programs previously announced over the past few quarters, are
expected to produce annual ongoing pre-tax permanent savings of
$155 million to $160 million once all are fully implemented. The
combined total pre-tax charges are expected to be approximately
$155 million to $160 million, including approximately $94 million
recorded through the December 2009 quarter. Outlook Global
industrial activity has recently exhibited some stability and
slight upward trends following the severe economic downturn and
turbulence experienced during the previous fiscal year. However,
the improvement in business conditions at present is still uneven
and does not yet entail broad-based momentum. Certain market
sectors and regions have begun to strengthen while others remain
flat. While there are some overall positive signs of an improving
global economy, it remains difficult to predict with any certainty
the timing, magnitude and duration of a sustainable recovery.
Management currently believes that global industrial activity and
the corresponding demand for the company's products will continue
to moderately improve through the remainder of the current fiscal
year. Under these assumed conditions, Kennametal is increasing its
EPS guidance for fiscal 2010 from the range of $0.50 to $0.70 per
share to the range of $0.65 to $0.75 per share, excluding
restructuring and divestiture related charges, on sales that are
expected to be 8 percent to 10 percent lower year-over-year on an
organic basis. This higher EPS range represents a 17 percent
increase in the midpoint. Cash flow from operations is expected to
be in the range of $100 million to $110 million for fiscal 2010, as
a considerable portion of the cash generated is expected to be
needed to fund higher working capital requirements as business
improves. Based on net capital expenditures of approximately $60
million, the free operating cash flow range is increased from $5
million to $15 million to the range of $40 million to $50 million
for fiscal 2010. For the third quarter of fiscal 2010, Kennametal
expects organic sales to be 5 percent to 10 percent higher than for
the same quarter of the previous fiscal year and expects sequential
EPS improvement for the next two quarters. Dividend Declared
Kennametal also announced today that its Board of Directors
declared a regular quarterly cash dividend of $0.12 per share. The
dividend is payable February 24, 2010 to shareowners of record as
of the close of business on February 9, 2010. 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
http://www.kennametal.com/. Second quarter results for fiscal 2010
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, http://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 February 28, 2010. This release contains "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. You can identify
forward-looking statements by the fact they use words such as
"should," "anticipate," "estimate," "approximate," "expect," "may,"
"will," "project," "intend," "plan," "believe" and other words of
similar meaning and expression in connection with any discussion of
future operating or financial performance or events. Forward
looking statements in this release concern, among other things,
Kennametal's outlook for earnings for its fiscal year 2010, and its
expectations regarding restructuring initiatives, future growth and
financial performance, all of which are based on current
expectations 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, actual outcomes could vary materially from those
indicated. Among the factors that could cause the actual results to
differ materially from those indicated in the forward-looking
statements are risks and uncertainties related to: the recent
downturn in our industry; deepening or prolonged economic
recession; restructuring and related actions (including associated
costs and anticipated benefits); changes in our debt ratings;
compliance with our debt arrangements; 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;
availability and cost of the raw materials we use to manufacture
our products; global or regional catastrophic events, including
terrorist attacks or acts of war; integrating acquisitions and
achieving the expected savings and synergies; business
divestitures; potential claims relating to our products; energy
costs; commodity prices; labor relations; demand for and market
acceptance of new and existing products; and implementation of
environmental remediation matters. These 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
2009, customers bought approximately $2.0 billion of Kennametal
products and services - delivered by our nearly 12,000 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 http://www.kennametal.com/. [KMT-E] FINANCIAL
HIGHLIGHTS CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Six Months Ended Ended December 31, December 31, (in
thousands, except per share amounts) 2009 2008 (1) 2009 2008 (1)
-------------- ---- ------- ---- ---------- Sales $442,865 $546,061
$852,260 $1,189,435 Cost of goods sold 302,777 385,899 594,371
814,153 ------------- ------- ------- ------- ------- Gross profit
140,088 160,162 257,889 375,282 Operating expense 117,902 128,118
234,064 279,074 Restructuring charges 3,348 6,204 11,178 14,616
Amortization of intangibles 3,367 3,269 6,707 6,678 ------------
----- ----- ----- ----- Operating income 15,471 22,571 5,940 74,914
Interest expense 5,954 8,000 12,325 15,083 Other income, net
(1,866) (5,716) (4,818) (4,630) ------------- ------ ------ ------
------ Income (loss) from continuing operations 11,383 20,287
(1,567) 64,461 before income taxes Provision (benefit) for income
taxes 5,090 4,701 (39) 13,078 -------------- ----- ----- --- ------
Income (loss) from continuing operations 6,293 15,586 (1,528)
51,383 (Loss) income from discontinued operations (56) (28) (1,423)
427 ------------- --- --- ------ --- Net income (loss) 6,237 15,558
(2,951) 51,810 Less: Net income (loss) attributable to
noncontrolling interests 270 (101) 899 684 --- ---- --- --- Net
income (loss) attributable to Kennametal $5,967 $15,659 $(3,850)
$51,126 ============== ====== ======= ======= ======= Amounts
Attributable to Kennametal Common Shareowners: Income (loss) from
continuing operations $6,023 $15,687 $(2,427) $50,699 (Loss) income
from discontinued operations (56) (28) (1,423) 427 -------------
--- --- ------ --- Net income (loss) attributable to Kennametal
$5,967 $15,659 $(3,850) $51,126 ============== ====== =======
======= ======= PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL Basic
earnings (loss) per share: Continuing operations $0.07 $0.22
$(0.03) $0.69 Discontinued operations - - (0.02) 0.01 ------------
--- --- ----- ---- $0.07 $0.22 $(0.05) $0.70 ===== ===== ======
===== Diluted earnings (loss) per share: Continuing operations
$0.07 $0.21 $(0.03) $0.68 Discontinued operations - - (0.02) 0.01
------------ --- --- ----- ---- $0.07 $0.21 $(0.05) $0.69 =====
===== ====== ===== Dividends per share $0.12 $0.12 $0.24 $0.24
============= ===== ===== ===== ===== Basic weighted average shares
outstanding 81,149 72,630 80,461 73,515 ============== ======
====== ====== ====== Diluted weighted average shares outstanding
81,855 73,199 80,461 74,347 ============ ====== ====== ======
====== (1) Amounts have been reclassified to reflect discontinued
operations related to the divestiture of the high speed steel
drills and related products business. CONDENSED CONSOLIDATED
BALANCE SHEETS (UNAUDITED) December 31, June 30, (in thousands)
2009 2009 -------------- ---- ---- ASSETS Cash and cash equivalents
$95,835 $69,823 Accounts receivable, net 274,632 278,977
Inventories 378,167 381,306 Other current assets 115,251 145,798
-------------------- Total current assets 863,885 875,904 Property,
plant and equipment, net 705,138 720,326 Goodwill and intangible
assets, net 675,420 677,436 Other assets 76,046 73,308 ------------
Total assets $2,320,489 $2,346,974 ============ ==========
========== LIABILITIES Current maturities of long-term debt and
capital leases, including notes payable $19,696 $49,365 Accounts
payable 96,420 87,176 Other current liabilities 237,492 242,428
------------------------- Total current liabilities 353,608 378,969
Long-term debt and capital leases 319,085 436,592 Other liabilities
247,551 263,958 ----------------- Total liabilities 920,244
1,079,519 KENNAMETAL SHAREOWNERS' EQUITY 1,378,980 1,247,443
NONCONTROLLING INTERESTS 21,265 20,012 ------------------------
Total liabilities and equity $2,320,489 $2,346,974
============================ ========== ========== SEGMENT DATA
(UNAUDITED) Three Months Ended Six Months Ended December 31,
December 31, (in thousands) 2009 2008 (1) 2009 2008 (1)
-------------- ---- ------- ---- ------- Outside Sales:
Metalworking Solutions and Services Group $261,487 $322,007
$492,478 $727,402 Advanced Materials Solutions Group 181,378
224,054 359,782 462,033 ------------------ ------- ------- -------
------- Total outside sales $442,865 $546,061 $852,260 $1,189,435
=================== ======== ======== ======== ========== Sales By
Geographic Region: United States $186,469 $256,466 $373,057
$525,978 International 256,396 289,595 479,203 663,457
------------- ------- ------- ------- ------- Total sales by
geographic region $442,865 $546,061 $852,260 $1,189,435
========================= ======== ======== ======== ==========
Operating Income (Loss): Metalworking Solutions and Services Group
$6,793 $6,904 $(5,973) $49,283 Advanced Materials Solutions Group
29,928 19,437 53,035 49,427 Corporate and eliminations (2) (21,250)
(3,770) (41,122) (23,796) ----------------- ------- ------ -------
------- Total operating income $15,471 $22,571 $5,940 $74,914
====================== ======= ======= ====== ======= (1) Amounts
have been reclassified to reflect discontinued operations related
to the divestiture of the high speed steel drills and related
products business. (2) Includes corporate functional shared
services and intercompany eliminations. 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, MSSG operating income and margin, AMSG operating income and
margin, income from continuing operations, net income and diluted
earnings per share and free operating cash flow (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, 2009 (UNAUDITED) (in thousands, except Gross Operating
Operating per Profit Expense Income share amounts) ------ ---------
--------- -------------- 2010 Reported Results $140,088 $117,902
$15,471 Restructuring and related 562 (201) 4,111 charges
Divestiture related charges - - - ------------------- --- --- ---
2010 Adjusted Results $140,650 $117,701 $19,582
===================== ======== ======== ======= Income from (in
thousands, except Continuing per Operations Net Income Diluted EPS
share amounts) ----------- ---------- ----------- --------------
2010 Reported Results $6,293 $5,967 $0.07 Restructuring and related
5,143 5,143 0.07 charges Divestiture related charges - 56 0.00
------------------- --- --- ---- 2010 Adjusted Results $11,436
$11,166 $0.14 ===================== ======= ======= ===== (in
thousands, except percents) MSSG AMSG ---------------------
Operating Operating Income Income ------ ------ 2010 Reported
Results $6,793 $29,928 2010 Reported Operating Margin 2.6% 16.5%
Restructuring and related charges 2,735 676 ----------------- -----
--- 2010 Adjusted Results $9,528 $30,604 =====================
====== ======= 2010 Adjusted Operating Margin 3.6% 16.9%
======================= === ==== THREE MONTHS ENDED DECEMBER 31,
2008 (UNAUDITED) (in thousands, except Gross Operating Operating
per share amounts) Profit Expense Income ---------------------
------ --------- --------- 2009 Reported Results $160,162 $128,118
$22,571 Restructuring and related 3,875 (9) 10,088 charges -----
--- ------ ---------------------- 2009 Adjusted Results $164,037
$128,109 $32,659 ============= ======== ======== ======= Income
from (in thousands, except Continuing per share amounts) Operations
Net Income Diluted EPS --------------------- ----------- ----------
----------- 2009 Reported Results $15,586 $15,659 $0.21
Restructuring and related 9,779 9,779 0.14 charges ----- ----- ----
------- 2009 Adjusted Results $25,365 $25,438 $0.35 =============
======= ======= ===== (in thousands, except percents) MSSG AMSG
--------------------- Operating Operating Income Income ------
------ 2009 Reported Results $6,904 $19,437 2009 Reported Operating
Margin 2.1% 8.7% Restructuring and related charges 7,288 2,800
----------------- ----- ----- 2009 Adjusted Results $14,192 $22,237
===================== ======= ======= 2009 Adjusted Operating
Margin 4.4% 9.9% ======================= === === SIX MONTHS ENDED
DECEMBER 31, 2009 (UNAUDITED) (in thousands, except Gross Operating
Operating per Profit Expense Income share amounts) ------ ---------
--------- -------------- 2010 Reported Results $257,889 $234,064
$5,940 Restructuring and related 1,018 (464) 12,660 charges
Divestiture related charges - - - ------------------- --- --- ---
2010 Adjusted Results $258,907 $233,600 $18,600
===================== ======== ======== ======= (in thousands,
except Net (Loss) per (Loss) Income Diluted EPS Income from
Continuing share amounts) Operations ----------- -----------
-------------- ----------- 2010 Reported Results $(1,528) $(3,850)
$(0.05) Restructuring and related 10,403 10,403 0.12 charges
Divestiture related charges - 1,340 0.03 ------------------- ---
----- ---- 2010 Adjusted Results $8,875 $7,893 $0.10
===================== ====== ====== ===== SIX MONTHS ENDED DECEMBER
31, 2008 (UNAUDITED) (in thousands, except Gross Operating
Operating per share amounts) Profit Expense Income
--------------------- ------ --------- --------- 2009 Reported
Results $375,282 $279,074 $74,914 Restructuring and related 4,650
33 19,233 charges ----- --- ------ ---------------------- 2009
Adjusted Results $379,932 $279,107 $94,147 ============= ========
======== ======= (in thousands, except per share amounts) Income
Net Income Diluted EPS from Continuing ---------------------
Operations ---------- ----------- ----------- 2009 Reported Results
$51,383 $51,126 $0.69 Restructuring and related 17,187 17,187 $0.23
charges ------ ------ ----- ------- 2009 Adjusted Results $68,570
$68,313 $0.92 ============= ======= ======= ===== FREE OPERATING
CASH FLOW (UNAUDITED) Six Months Ended December 31, (in thousands)
2009 2008 -------------- ---- ---- Net cash flow provided by
operating activities $53,431 $115,490 Purchases of property, plant
and equipment (19,266) (68,659) Proceeds from disposals of
property, plant and equipment 1,659 1,668
------------------------------ ----- ----- Free operating cash flow
$35,824 $48,499 ======================== ======= =======
DATASOURCE: Kennametal Inc. CONTACT: Quynh McGuire, Investor
Relations, +1-724-539-6559, or Joy Chandler, Media Relations,
+1-724-539-4618 Web Site: http://www.kennametal.com/
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