- Earnings per diluted share (EPS) of $0.29 compared to $0.27 in the prior year quarter
- Strong YTD cash from operations of $88
million compared to $53
million in the prior year; highest first-half cash generated
from operations since fiscal 2016
- Returned approximately $31
million to shareholders; $15
million in share repurchases and $16
million in dividends
- Announces additional share repurchase program of up to
$200 million over three years
PITTSBURGH, Feb. 7, 2024
/PRNewswire/ -- Kennametal Inc. (NYSE: KMT) (the "Company") today
reported results for its fiscal 2024 second quarter ended
December 31, 2023, with sales of
$495 million, compared to
$497 million in the prior year
quarter, and earnings per diluted share (EPS) of $0.29, compared with $0.27 in the prior year quarter. Adjusted EPS was
$0.30 in the current quarter, whereas
EPS was not adjusted in the prior year quarter.
"Once again this quarter we generated strong cash from
operations, even though sales were at the lower end of our outlook
due to softening market conditions, most notably in December," said
Christopher Rossi, President and
CEO.
Rossi continued, "We have updated our full year outlook to
reflect the macro-economic conditions we are now seeing, which
includes softening across our end markets and no recovery in
China this fiscal year. We remain
focused on the things we can control including gaining share and
accelerating progress on our $100
million in cost reductions by the end of FY27. As a result,
we are taking additional actions to increase the savings of our
current restructuring program from $20
million to $35 million by the
end of FY24. These steps, coupled with our extended share
repurchase program, continue to give me confidence that we will
drive long-term value for shareholders."
Additional Share Repurchase Program
Today the Company announced that its Board of Directors
authorized an additional share repurchase program. The Company
intends to repurchase up to an additional $200 million of Kennametal common stock over a
three-year period. The Company expects to fund repurchases through
cash generated from operations.
Fiscal 2024 Second Quarter Key Developments
Sales of $495 million were flat
from the prior year quarter, reflecting an organic sales decline of
3 percent, offset by a favorable business days effect of 2 percent
and a favorable currency exchange effect of 1 percent.
During the quarter, the Company achieved restructuring savings
of approximately $5 million from the
previously announced action to streamline our cost structure while
continuing to invest in our high-return Commercial and Operational
Excellence initiatives. This action has been enlarged and is
currently expected to deliver annualized run rate pre-tax savings
of approximately $35 million, up from
the previous estimate of $20 million,
by the end of fiscal 2024. Restructuring and related charges of
$1 million were recognized during the
quarter in connection with the execution of this initiative.
Operating income was $28 million,
or 5.7 percent of sales, compared to $35
million, or 7.1 percent of sales, in the prior year quarter.
The decrease in operating income was primarily due to lower
volumes, higher wages and general inflation and the unfavorable
timing of pricing compared to raw material costs in the
Infrastructure segment. These factors were partially offset by
higher price realization in the Metal Cutting segment and
restructuring savings of approximately $5
million. Adjusted operating income was $30 million, or 6.0 percent margin, in the
current quarter, whereas operating income was not adjusted in the
prior year quarter.
The reported effective tax rate (ETR) for the quarter was 9.0
percent (benefit on income) compared to 17.8 percent (provision on
income) in the prior year quarter. The decrease in the ETR
year-over-year was driven by a $7.8
million tax benefit due to a change in the Swiss tax rate in
the current year quarter, partially offset by a $2.2 million tax benefit from a Swiss tax ruling
in the prior year quarter. Adjusted ETR was 8.0 percent (benefit on
income) in the current quarter, whereas ETR was not adjusted in the
prior year quarter.
Year-to-date net cash flow from operating activities was
$88 million compared to $53 million in the prior year period. The change
in net cash flow from operating activities was driven primarily by
working capital changes including improved inventory levels.
Year-to-date free operating cash flow (FOCF) was $36 million compared to $4 million in the prior year period. The increase
in FOCF was driven primarily by working capital changes, including
improved inventory levels, and proceeds received from the disposal
of property, plant and equipment, partially offset by higher
capital expenditures.
The Company paid $16 million in
cash dividends to Kennametal shareholders during the quarter. The
Company has a long history of consistently paying dividends to
shareholders since its listing on the New York Stock Exchange in
1967.
During the quarter, the Company repurchased 625 thousand shares
of Kennametal common stock for $15
million under its share repurchase program.
Inception-to-date the Company has repurchased 5.8 million shares of
common stock for $163 million under
the program.
Outlook
The Company's expectations for the third quarter of fiscal 2024
and the full year are as follows:
Quarterly Outlook:
- Sales expected to be $510 -
$530 million; foreign exchange
anticipated to be a headwind of approximately 1 percent compared to
the third quarter of fiscal 2023
- Adjusted EPS is expected to be $0.25 - $0.35
Annual Outlook:
- Sales now expected to be $2.020 -
$2.070 billion
- Interest expense is expected to be approximately $28 million
- Adjusted EPS is now expected to be $1.35 - $1.65
- Pricing actions expected to cover raw material costs, wages and
general inflation
- Free operating cash flow of 100 percent of adjusted net
income
- Primary working capital as a percent of sales maintained at
approximately 32 percent throughout the year
- Capital spending expected to be approximately $100 - $110
million
- Adjusted ETR is now expected to be approximately 21
percent
- Share repurchase program to continue
The Company will provide more details regarding its Outlook
during its quarterly earnings conference call.
Segment Results
Metal Cutting sales of $311
million increased 4 percent from $299
million in the prior year quarter, driven by a favorable
currency exchange effect of 2 percent and a favorable business days
effect of 2 percent. Operating income was $26 million, or 8.2 percent of sales, compared to
$26 million, or 8.8 percent of sales,
in the prior year quarter. Operating income was flat year over year
primarily because higher price realization and restructuring
savings of approximately $4 million
were offset by lower volumes and higher wages and general
inflation. Adjusted operating income was $26
million, or 8.4 percent margin, in the current quarter,
whereas operating income was not adjusted in the prior year
quarter.
Infrastructure sales of $184
million decreased 7 percent from $198
million in the prior year quarter, driven by an organic
sales decline of 8 percent, partially offset by a favorable
currency exchange effect of 1 percent. Operating income was
$3 million, or 1.8 percent of sales,
compared to $10 million, or 5.1 percent of sales, in the prior
year quarter. The decrease in operating income was primarily due to
lower volumes and the unfavorable timing of pricing compared to raw
material costs. These factors were partially offset by
restructuring savings of approximately $1
million. Adjusted operating income was $4 million, or 1.9 percent margin, in the current
quarter, whereas operating income was not adjusted in the prior
year quarter.
Dividend Declared
Kennametal announced that its Board of Directors declared a
quarterly cash dividend of $0.20 per
share. The dividend is payable on February
27, 2024 to shareholders of record as of the close of
business on February 13, 2024.
The Company will host a conference call to discuss its second
quarter fiscal 2024 results on Wednesday,
February 7, 2024 at 9:30 a.m. Eastern
Time. The conference call will be broadcast via real-time
audio on Kennametal's investor relations website at
https://investors.kennametal.com/ - click "Event" (located in the
blue Quarterly Earnings block).
This earnings release contains non-GAAP financial measures.
Reconciliations and descriptions of all non-GAAP financial measures
are set forth in the tables that follow.
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
sales, interest expense, adjusted EPS, FOCF, primary working
capital, capital expenditures and adjusted effective tax rate for
the third quarter and full year of fiscal 2024 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: uncertainties related to changes in macroeconomic and/or
global conditions, including as a result of increased inflation and
Russia's invasion of Ukraine and the resulting sanctions on
Russia; the adverse effects of the
COVID-19 pandemic and its impacts on our business operations,
financial results and financial position and on the industries in
which we operate and the global economy generally; other economic
recession; our ability to achieve all anticipated benefits of
restructuring, simplification and modernization initiatives;
Commercial Excellence growth initiatives, Operational Excellence
initiatives, our foreign operations and international markets, such
as currency exchange rates, different regulatory environments,
trade barriers, exchange controls, and social and political
instability, including the conflicts in Ukraine and Gaza; 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
With over 80 years as an industrial technology leader,
Kennametal Inc. delivers productivity to customers through
materials science, tooling and wear-resistant solutions. Customers
across aerospace and defense, earthworks, energy, general
engineering and transportation turn to Kennametal to help them
manufacture with precision and efficiency. Every day approximately
8,700 employees are helping customers in nearly 100 countries stay
competitive. Kennametal generated $2.1
billion in revenues in fiscal 2023. Learn more at
www.kennametal.com. Follow @Kennametal: X (formerly Twitter),
Instagram, Facebook, LinkedIn and YouTube.
FINANCIAL
HIGHLIGHTS
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
|
|
|
Three Months
Ended
December 31,
|
Six Months Ended
December 31,
|
(in thousands,
except per share amounts)
|
2023
|
|
2022
|
2023
|
|
2022
|
Sales
|
$
495,320
|
|
$
497,121
|
$
987,796
|
|
$
991,913
|
Cost of goods
sold
|
355,723
|
|
354,231
|
685,301
|
|
689,055
|
Gross
profit
|
139,597
|
|
142,890
|
302,495
|
|
302,858
|
Operating
expense
|
107,342
|
|
105,756
|
218,991
|
|
214,035
|
Restructuring and other
charges, net
|
1,033
|
|
(1,505)
|
4,119
|
|
(1,505)
|
Amortization of
intangibles
|
2,743
|
|
3,148
|
5,788
|
|
6,312
|
Operating income
|
28,479
|
|
35,491
|
73,597
|
|
84,016
|
Interest
expense
|
6,847
|
|
7,015
|
13,447
|
|
13,652
|
Other (income) expense,
net
|
(687)
|
|
588
|
(597)
|
|
1,597
|
Income before income
taxes
|
22,319
|
|
27,888
|
60,747
|
|
68,767
|
(Benefit from)
provision for income taxes
|
(2,009)
|
|
4,964
|
6,050
|
|
16,206
|
Net income
|
24,328
|
|
22,924
|
54,697
|
|
52,561
|
Less: Net income
attributable to noncontrolling interests
|
1,220
|
|
1,025
|
1,532
|
|
2,466
|
Net income attributable
to Kennametal
|
$ 23,108
|
|
$ 21,899
|
$ 53,165
|
|
$ 50,095
|
PER SHARE DATA
ATTRIBUTABLE TO KENNAMETAL SHAREHOLDERS
|
|
Basic earnings per
share
|
$
0.29
|
|
$
0.27
|
$
0.67
|
|
$
0.62
|
Diluted earnings per
share
|
$
0.29
|
|
$
0.27
|
$
0.66
|
|
$
0.61
|
Basic weighted average
shares outstanding
|
79,700
|
|
80,737
|
79,863
|
|
81,141
|
Diluted weighted
average shares outstanding
|
80,114
|
|
81,237
|
80,395
|
|
81,677
|
CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
|
|
(in
thousands)
|
December 31,
2023
|
|
June 30,
2023
|
ASSETS
|
|
|
|
Cash and cash
equivalents
|
$
90,735
|
|
$
106,021
|
Accounts receivable,
net
|
290,547
|
|
307,313
|
Inventories
|
570,785
|
|
557,630
|
Other current
assets
|
57,753
|
|
55,825
|
Total current
assets
|
1,009,820
|
|
1,026,789
|
Property, plant and
equipment, net
|
961,396
|
|
969,068
|
Goodwill and other
intangible assets, net
|
363,514
|
|
362,715
|
Other assets
|
209,622
|
|
188,662
|
Total
assets
|
$
2,544,352
|
|
$
2,547,234
|
LIABILITIES
|
|
|
|
Revolving and other
lines of credit and notes payable
|
$
23,315
|
|
$
689
|
Accounts
payable
|
193,002
|
|
203,341
|
Other current
liabilities
|
197,791
|
|
229,945
|
Total current
liabilities
|
414,108
|
|
433,975
|
Long-term
debt
|
595,576
|
|
595,172
|
Other
liabilities
|
206,564
|
|
203,919
|
Total
liabilities
|
1,216,248
|
|
1,233,066
|
KENNAMETAL
SHAREHOLDERS' EQUITY
|
1,287,823
|
|
1,275,447
|
NONCONTROLLING
INTERESTS
|
40,281
|
|
38,721
|
Total liabilities
and equity
|
$
2,544,352
|
|
$
2,547,234
|
SEGMENT DATA
(UNAUDITED)
|
Three Months
Ended
December 31,
|
Six Months Ended
December 31,
|
(in
thousands)
|
2023
|
|
2022
|
2023
|
|
2022
|
Sales:
|
|
|
|
|
|
|
Metal
Cutting
|
$ 311,445
|
|
$ 299,469
|
$ 619,675
|
|
$ 599,405
|
Infrastructure
|
183,875
|
|
197,652
|
368,121
|
|
392,508
|
Total sales
|
$ 495,320
|
|
$ 497,121
|
$ 987,796
|
|
$ 991,913
|
Sales By Geographic
Region:
|
|
|
|
|
|
|
Americas
|
$ 238,904
|
|
$ 250,178
|
$ 485,645
|
|
$ 503,756
|
EMEA
|
152,925
|
|
142,347
|
301,634
|
|
273,657
|
Asia Pacific
|
103,491
|
|
104,596
|
200,517
|
|
214,500
|
Total sales
|
$ 495,320
|
|
$ 497,121
|
$ 987,796
|
|
$ 991,913
|
Operating
income:
|
|
|
|
|
|
|
Metal
Cutting
|
$
25,527
|
|
$
26,222
|
$
57,644
|
|
$
54,828
|
Infrastructure
|
3,236
|
|
10,097
|
16,880
|
|
30,884
|
Corporate
(1)
|
(284)
|
|
(828)
|
(927)
|
|
(1,696)
|
Total operating
income
|
$
28,479
|
|
$
35,491
|
$
73,597
|
|
$
84,016
|
(1) Represents unallocated corporate
expenses.
|
NON-GAAP RECONCILIATIONS (UNAUDITED)
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: operating income and margin; ETR; net income
attributable to Kennametal; diluted EPS; Metal Cutting operating
income and margin; Infrastructure operating income and margin;
FOCF; and consolidated and segment organic sales growth (all of
which are non-GAAP financial measures), to the most directly
comparable GAAP financial measures. Adjustments for the three
months ended December 31, 2023 include restructuring and
related charges and differences in projected annual tax rates.
There were no adjustments for the three months ended
December 31, 2022. 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 presentation of these non-GAAP
financial measures provides useful information about the results of
operations of the Company for the current and past periods.
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 financial measures should not be considered
in isolation or as a substitute for the most comparable GAAP
financial measures. Investors are cautioned that non-GAAP financial
measures used by management may not be comparable to non-GAAP
financial measures used by other companies. Reconciliations and
descriptions of all non-GAAP financial measures are set forth in
the disclosures below.
Reconciliations to the most directly comparable GAAP financial
measures for the following forward-looking non-GAAP financial
measures for the third quarter and full fiscal year of 2024 have
not been provided, including but not limited to: FOCF, adjusted
operating income, adjusted net income, adjusted EPS, adjusted ETR
and primary working capital. The most comparable GAAP financial
measures are net cash flow from operating activities, operating
income, net income attributable to Kennametal, EPS, ETR and working
capital (defined as current assets less current liabilities),
respectively. Primary working capital is defined as accounts
receivable, net plus inventories, net minus accounts payable.
Because the non-GAAP financial measures on a forward-looking basis
are subject to uncertainty and variability as they are dependent on
many factors - including, but not limited to, the effect of foreign
currency exchange fluctuations, impacts from potential acquisitions
or divestitures, gains or losses on the potential sale of
businesses or other assets, restructuring costs, asset impairment
charges, gains or losses from early extinguishment of debt, the tax
impact of the items above and the impact of tax law changes or
other tax matters - reconciliations to the most directly comparable
forward-looking GAAP financial measures are not available without
unreasonable effort.
THREE MONTHS ENDED
DECEMBER 31, 2023 (UNAUDITED)
|
|
|
(in thousands,
except percents and per share data)
|
Sales
|
|
Operating
income
|
|
ETR
|
|
Net
income(2)
|
|
Diluted
EPS
|
Reported
results
|
$ 495,320
|
|
28,479
|
|
(9.0) %
|
|
$
23,108
|
|
$
0.29
|
Reported operating
margin
|
|
|
5.7 %
|
|
|
|
|
|
|
Restructuring and
related charges
|
—
|
|
1,033
|
|
14.3
|
|
885
|
|
0.01
|
Differences in
projected annual tax rates
|
—
|
|
—
|
|
(13.3)
|
|
6
|
|
—
|
Adjusted
results
|
$ 495,320
|
|
$ 29,512
|
|
(8.0) %
|
|
$
23,999
|
|
$
0.30
|
Adjusted operating
margin
|
|
|
6.0 %
|
|
|
|
|
|
|
(2)
Attributable to Kennametal.
|
THREE MONTHS ENDED
DECEMBER 31, 2023 (UNAUDITED)
|
|
Metal
Cutting
|
Infrastructure
|
(in thousands,
except percents)
|
Sales
|
|
Operating
income
|
|
Sales
|
|
Operating
income
|
Reported
results
|
$
311,445
|
|
$
25,527
|
|
$
183,875
|
|
$
3,236
|
Reported operating
margin
|
|
|
8.2 %
|
|
|
|
1.8 %
|
Restructuring and
related charges
|
—
|
|
692
|
|
—
|
|
340
|
Adjusted
results
|
$
311,445
|
|
$
26,219
|
|
$
183,875
|
|
$
3,576
|
Adjusted operating
margin
|
|
|
8.4 %
|
|
|
|
1.9 %
|
Free Operating Cash Flow (FOCF)
FOCF is a non-GAAP
financial measure and is defined by the Company as net cash flow
provided by operating activities (which is the most directly
comparable GAAP financial measure) less capital expenditures plus
proceeds from disposals of fixed assets. Management considers FOCF
to be an important indicator of the Company's cash generating
capability because it better represents cash generated from
operations that can be used for dividends, debt repayment,
strategic initiatives (such as acquisitions) and other investing
and financing activities.
FREE OPERATING CASH
FLOW (UNAUDITED)
|
|
Six Months Ended
December 31,
|
(in
thousands)
|
|
2023
|
|
2022
|
Net cash flow provided
by operating activities
|
|
$ 88,308
|
|
$ 52,509
|
Purchases of property,
plant and equipment
|
|
(57,487)
|
|
(50,622)
|
Disposals of property,
plant and equipment
|
|
5,208
|
|
2,466
|
Free operating cash
flow
|
|
$ 36,029
|
|
$
4,353
|
Organic Sales Growth (Decline)
Organic sales growth
(decline) is a non-GAAP financial measure of sales growth (decline)
(which is the most directly comparable GAAP measure) excluding the
effects of acquisitions, divestitures, business days and foreign
currency exchange from year-over-year comparisons. Management
believes this measure provides investors with a supplemental
understanding of underlying sales trends by providing sales growth
on a consistent basis. Management reports organic sales growth
(decline) at the consolidated and segment levels.
ORGANIC SALES GROWTH
(DECLINE) (UNAUDITED)
|
|
|
|
Three Months Ended
December 31, 2023
|
|
Metal
Cutting
|
|
Infrastructure
|
|
Total
|
Organic sales
decline
|
|
— %
|
|
(8) %
|
|
(3) %
|
Foreign currency
exchange effect (3)
|
|
2
|
|
1
|
|
1
|
Business days effect
(4)
|
|
2
|
|
—
|
|
2
|
Sales growth
(decline)
|
|
4 %
|
|
(7) %
|
|
— %
|
(3) Foreign
currency exchange effect is calculated by dividing the difference
between current period sales and current period sales at prior
period foreign exchange rates by prior period sales.
|
(4) Business
days effect is calculated by dividing the year-over-year change in
weighted average working days (based on mix of sales by country) by
prior period weighted average working days.
|
View original
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SOURCE Kennametal Inc.