- Strong YTD cash from operations of $163
million compared to $126
million in the prior year
- Earnings per diluted share (EPS) of $0.24 and adjusted EPS of $0.30
- Returned approximately $31
million to shareholders; $15
million in share repurchases and $16
million in dividends
PITTSBURGH, May 8, 2024
/PRNewswire/ -- Kennametal Inc. (NYSE: KMT) (the "Company") today
reported results for its fiscal 2024 third quarter ended
March 31, 2024, with sales of $516
million, compared to $536
million in the prior year quarter, and earnings per diluted
share (EPS) of $0.24, compared with
$0.39 in the prior year quarter.
Adjusted EPS was $0.30 in the current
quarter, whereas EPS was not adjusted in the prior year
quarter.
"Results this quarter were in line with our expectations, and we
once again generated strong cash from operations despite market
softness, particularly in the energy end market and a continued
slow recovery in China," said
Christopher Rossi, President and
CEO.
Rossi continued, "We have tightened our full year outlook to
align with current market conditions. As always, we remain focused
on the things we can control, including driving share gain and
productivity. We are expecting to deliver approximately
$35 million in annualized savings in
fiscal 2024, which is excellent progress toward our $100 million productivity target by the end of
fiscal 2027. Finally, as I prepare to leave Kennametal at the end
of this month, I am confident that my successor, Sanjay Chowbey, and his leadership team will
continue to pursue above-market growth and margin expansion while
deploying a balanced capital allocation strategy."
Fiscal 2024 Third Quarter Key Developments
Sales of $516 million decreased 4
percent from $536 million in the
prior year quarter, reflecting an organic sales decline of 2
percent, an unfavorable business days effect of 1 percent and an
unfavorable currency exchange effect of 1 percent.
During the quarter, the Company achieved restructuring savings
of approximately $6 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 is expected to deliver
annualized run rate pre-tax savings of approximately $35 million by the end of fiscal 2024.
Restructuring and related charges of $6
million were recognized during the quarter in connection
with the execution of this initiative.
Operating income was $35 million,
or 6.8 percent of sales, compared to $52
million, or 9.8 percent of sales, in the prior year quarter.
The decrease in operating income was primarily due to lower sales
and production volumes, restructuring charges of approximately
$6 million, higher wages and general
inflation, unfavorable foreign currency exchange of approximately
$2 million and the unfavorable timing
of pricing compared to raw material costs in the Infrastructure
segment. These factors were partially offset by higher pricing in
the Metal Cutting segment and restructuring savings of
approximately $6 million. Adjusted
operating income was $42 million, or
8.1 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 27.4
percent compared to 24.4 percent in the prior year quarter. The
increase in the ETR year-over-year was driven by geographical mix,
partially offset by discrete tax benefits recorded in the current
year quarter related to provision to return adjustments. Adjusted
ETR was 26.5 percent in the current quarter, whereas ETR was not
adjusted in the prior year quarter.
Year-to-date net cash flow from operating activities was
$163 million compared to $126 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,
partially offset by lower net income compared to the prior year
period. Year-to-date free operating cash flow (FOCF) was
$84 million compared to
$60 million in the prior year period.
The increase in FOCF was driven primarily by working capital
changes, including improved inventory levels, partially offset by
higher capital expenditures and lower net income compared to the
prior year period.
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 609 thousand shares
of Kennametal common stock for $15
million under its share repurchase program.
Inception-to-date the Company has repurchased 6.5 million shares of
common stock for $178 million under
the existing $200 million program. In
February 2024, the Board of Directors
of the Company authorized an additional $200
million, three-year share repurchase program.
Outlook
The Company's expectations for the full fiscal year 2024 are as
follows:
Annual Outlook:
- Sales now expected to be $2.030 -
$2.050 billion
- Interest expense is expected to be approximately $28 million
- Adjusted EPS is now expected to be $1.40 - $1.55
- Pricing actions expected to cover raw material costs, wages and
general inflation
- Free operating cash flow now expected to be greater than 125
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 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 $327
million decreased 2 percent from $334
million in the prior year quarter, driven by flat organic
sales, an unfavorable currency exchange effect of 1 percent and an
unfavorable business days effect of 1 percent. Operating income was
$31 million, or 9.4 percent of sales,
compared to $44 million, or 13.1
percent of sales, in the prior year quarter. The decrease in
operating income was primarily due to lower sales and production
volumes, restructuring charges of approximately $4 million, unfavorable foreign currency exchange
of approximately $2 million, higher
wages and general inflation and a gain of approximately
$1 million on a property sale in the
prior year quarter that did not repeat. These factors were
partially offset by higher pricing and restructuring savings of
approximately $5 million. Adjusted
operating income was $35 million, or
10.8 percent margin, in the current quarter, whereas operating
income was not adjusted in the prior year quarter.
Infrastructure sales of $189
million decreased 7 percent from $203
million in the prior year quarter, driven by an organic
sales decline of 5 percent, an unfavorable currency exchange effect
of 1 percent and an unfavorable business days effect of 1 percent.
Operating income was $5 million, or
2.7 percent of sales, compared to $10 million, or 4.8 percent
of sales, in the prior year quarter. The decrease in operating
income was primarily due to lower sales volumes, restructuring
charges of approximately $2 million,
higher wages and general inflation 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 $7 million, or 3.8 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 May 28,
2024 to shareholders of record as of the close of business
on May 14, 2024.
The Company will host a conference call to discuss its third
quarter fiscal 2024 results on Wednesday,
May 8, 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 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: Instagram, Facebook,
LinkedIn and YouTube.
FINANCIAL
HIGHLIGHTS
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
|
|
|
|
|
Three Months
Ended
March 31,
|
Nine Months
Ended
March 31,
|
(in thousands,
except per share amounts)
|
2024
|
|
2023
|
2024
|
|
2023
|
Sales
|
$
515,794
|
|
$
536,036
|
$ 1,503,591
|
|
$ 1,527,949
|
Cost of goods
sold
|
362,532
|
|
368,122
|
1,047,834
|
|
1,057,177
|
Gross profit
|
153,262
|
|
167,914
|
455,757
|
|
470,772
|
Operating
expense
|
108,684
|
|
113,273
|
327,674
|
|
327,308
|
Restructuring and other
charges, net
|
6,465
|
|
(994)
|
10,585
|
|
(2,499)
|
Amortization of
intangibles
|
2,886
|
|
3,164
|
8,674
|
|
9,476
|
Operating income
|
35,227
|
|
52,471
|
108,824
|
|
136,487
|
Interest
expense
|
6,777
|
|
7,747
|
20,225
|
|
21,399
|
Other (income) expense,
net
|
(76)
|
|
986
|
(674)
|
|
2,584
|
Income before income
taxes
|
28,526
|
|
43,738
|
89,273
|
|
112,504
|
Provision for income
taxes
|
7,816
|
|
10,672
|
13,866
|
|
26,878
|
Net income
|
20,710
|
|
33,066
|
75,407
|
|
85,626
|
Less: Net income
attributable to noncontrolling interests
|
1,734
|
|
1,129
|
3,266
|
|
3,594
|
Net income attributable
to Kennametal
|
$ 18,976
|
|
$ 31,937
|
$ 72,141
|
|
$ 82,032
|
PER SHARE DATA
ATTRIBUTABLE TO KENNAMETAL SHAREHOLDERS
|
|
Basic earnings per
share
|
$
0.24
|
|
$
0.40
|
$
0.91
|
|
$
1.01
|
Diluted earnings per
share
|
$
0.24
|
|
$
0.39
|
$
0.90
|
|
$
1.01
|
Basic weighted average
shares outstanding
|
79,229
|
|
80,611
|
79,655
|
|
80,967
|
Diluted weighted
average shares outstanding
|
79,849
|
|
81,281
|
80,197
|
|
81,525
|
CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
|
|
|
|
|
(in
thousands)
|
March 31,
2024
|
|
June 30,
2023
|
ASSETS
|
|
|
|
Cash and cash
equivalents
|
$
92,119
|
|
$
106,021
|
Accounts receivable,
net
|
303,456
|
|
307,313
|
Inventories
|
547,654
|
|
557,630
|
Other current
assets
|
56,708
|
|
55,825
|
Total current
assets
|
999,937
|
|
1,026,789
|
Property, plant and
equipment, net
|
947,709
|
|
969,068
|
Goodwill and other
intangible assets, net
|
356,557
|
|
362,715
|
Other assets
|
214,442
|
|
188,662
|
Total
assets
|
$
2,518,645
|
|
$
2,547,234
|
LIABILITIES
|
|
|
|
Revolving and other
lines of credit and notes payable
|
$
12,302
|
|
$
689
|
Accounts
payable
|
192,769
|
|
203,341
|
Other current
liabilities
|
208,174
|
|
229,945
|
Total current
liabilities
|
413,245
|
|
433,975
|
Long-term
debt
|
595,778
|
|
595,172
|
Other
liabilities
|
203,728
|
|
203,919
|
Total
liabilities
|
1,212,751
|
|
1,233,066
|
KENNAMETAL
SHAREHOLDERS' EQUITY
|
1,264,559
|
|
1,275,447
|
NONCONTROLLING
INTERESTS
|
41,335
|
|
38,721
|
Total liabilities
and equity
|
$
2,518,645
|
|
$
2,547,234
|
SEGMENT DATA
(UNAUDITED)
|
Three Months
Ended
March 31,
|
Nine Months
Ended
March 31,
|
(in
thousands)
|
2024
|
|
2023
|
2024
|
|
2023
|
Sales:
|
|
|
|
|
|
|
Metal
Cutting
|
$ 326,561
|
|
$ 333,507
|
$ 946,237
|
|
$ 932,912
|
Infrastructure
|
189,233
|
|
202,529
|
557,354
|
|
595,037
|
Total sales
|
$ 515,794
|
|
$ 536,036
|
$
1,503,591
|
|
$
1,527,949
|
Sales By Geographic
Region:
|
|
|
|
|
|
|
Americas
|
$ 252,921
|
|
$ 269,498
|
$ 738,566
|
|
$ 773,252
|
EMEA
|
164,238
|
|
163,888
|
465,874
|
|
437,548
|
Asia Pacific
|
98,635
|
|
102,650
|
299,151
|
|
317,149
|
Total sales
|
$ 515,794
|
|
$ 536,036
|
$
1,503,591
|
|
$
1,527,949
|
Operating
income:
|
|
|
|
|
|
|
Metal
Cutting
|
$
30,809
|
|
$
43,765
|
$
88,453
|
|
$
98,593
|
Infrastructure
|
5,140
|
|
9,658
|
22,020
|
|
40,543
|
Corporate
(1)
|
(722)
|
|
(952)
|
(1,649)
|
|
(2,649)
|
Total operating
income
|
$
35,227
|
|
$
52,471
|
$ 108,824
|
|
$ 136,487
|
(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 March 31, 2024 include restructuring and related
charges and differences in projected annual tax rates. There were
no adjustments for the three months ended March 31, 2023. 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 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
MARCH 31, 2024 (UNAUDITED)
|
|
(in thousands,
except percents and
per share data)
|
Sales
|
Operating
income
|
ETR
|
Net
income(2)
|
Diluted
EPS
|
Reported
results
|
$ 515,794
|
35,227
|
27.4 %
|
$
18,976
|
$
0.24
|
Reported operating
margin
|
|
6.8 %
|
|
|
|
Restructuring and
related charges
|
—
|
6,465
|
20.4
|
5,098
|
0.06
|
Differences in
projected annual tax rates
|
—
|
—
|
(21.3)
|
(141)
|
—
|
Adjusted
results
|
$ 515,794
|
$ 41,692
|
26.5 %
|
$
23,933
|
$
0.30
|
Adjusted operating
margin
|
|
8.1 %
|
|
|
|
(2)
Attributable to Kennametal.
|
THREE MONTHS ENDED
MARCH 31, 2024 (UNAUDITED)
|
|
Metal
Cutting
|
Infrastructure
|
(in thousands,
except percents)
|
Sales
|
Operating
income
|
Sales
|
Operating
income
|
Reported
results
|
$
326,561
|
$
30,809
|
$
189,233
|
$
5,140
|
Reported operating
margin
|
|
9.4 %
|
|
2.7 %
|
Restructuring and
related charges
|
—
|
4,493
|
—
|
1,972
|
Adjusted
results
|
$
326,561
|
$
35,302
|
$
189,233
|
$
7,112
|
Adjusted operating
margin
|
|
10.8 %
|
|
3.8 %
|
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)
|
|
Nine Months
Ended
March 31,
|
(in
thousands)
|
|
2024
|
|
2023
|
Net cash flow provided
by operating activities
|
|
$
163,460
|
|
$
126,182
|
Purchases of property,
plant and equipment
|
|
(84,240)
|
|
(71,083)
|
Disposals of property,
plant and equipment
|
|
5,270
|
|
4,774
|
Free operating cash
flow
|
|
$ 84,490
|
|
$ 59,873
|
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
DECLINE (UNAUDITED)
|
|
|
|
Three Months Ended
March 31, 2024
|
|
Metal
Cutting
|
|
Infrastructure
|
|
Total
|
Organic sales
decline
|
|
— %
|
|
(5) %
|
|
(2) %
|
Foreign currency
exchange effect (3)
|
|
(1)
|
|
(1)
|
|
(1)
|
Business days effect
(4)
|
|
(1)
|
|
(1)
|
|
(1)
|
Sales
decline
|
|
(2) %
|
|
(7) %
|
|
(4) %
|
(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
content:https://www.prnewswire.com/news-releases/kennametal-announces-fiscal-2024-third-quarter-results-302138971.html
SOURCE Kennametal Inc.