Kennametal Announces Second Quarter 2013 Results

Thu Jan 24, 2013 8:00am EST

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- Reported EPS of $0.52; Stellite accretive $0.02 per share
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                               Six Months Ended                                          
                                                            December 31,                                     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.


Investor Relations, Quynh McGuire, +1-724-539-6559, or Corporate Relations -
Media, Lorrie Paul Crum, +1-724-539-6792

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