Kennametal Announces Second Quarter Fiscal 2009 Results
- Reported 2Q EPS of
- Fiscal 2009 adjusted EPS guidance revised to range of
- Cash dividend of
“Kennametal has made solid progress in executing strategies to balance our businesses across served geographies and end markets. However, we are not immune to the rapid and significant global decline in industrial production that has taken place over the past few months,” said Chairman, President and Chief Executive Officer
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 2009 Second Quarter Key Developments
- Sales for the quarter were
$569 million , compared with$647 million in the same quarter last year. The 12 percent decrease in sales was comprised of a 10 percent organic decline and a 5 percent decrease from unfavorable foreign currency effects, partially offset by the net favorable impact of acquisitions and divestitures of 2 percent and more workdays of 1 percent. - As previously announced, the company continued to implement certain restructuring plans to reduce costs and improve efficiencies in its operations. During the December quarter, the company recognized pre-tax charges related to these initiatives of
$10 million , or$0.14 per share. Pre-tax charges recorded to date for these initiatives were$27 million . Including these charges, the company expects to recognize approximately$90 million of pre-tax charges related to its restructuring plans. The remaining charges are expected to be incurred over the next six to nine months. The majority of these charges are expected to be cash expenditures. Annual ongoing benefits from these actions, once fully implemented, are expected to be approximately$100 million . - Operating income was
$23 million for the quarter. This represents a decrease of$46 million , or 66 percent, from$69 million in the prior year quarter. Absent the impact of the restructuring and related charges, operating income for the quarter was$34 million , a decline of$36 million or 52 percent from the prior year quarter. This decrease was driven primarily by reduced sales volumes and the related lower manufacturing cost absorption as well as disruption costs from restructuring programs. This was partially offset by lower provisions for employee incentive compensation plans and higher price realization. - The effective tax rate for the current quarter was 23.2 percent, compared with 17.3 percent in the prior year quarter. Absent the effect of restructuring and related charges, the current quarter rate was 16.5 percent, which included a benefit from the recent completion of a routine income tax examination for certain prior fiscal years.
- Net income was
$16 million for the current year quarter. Absent the charges related to restructuring, net income for the current quarter decreased 50 percent to$25 million , from$50 million in the prior year quarter. This decrease was primarily the result of lower operating income partially offset by higher other income, driven mostly by favorable foreign currency transaction results. - Reported EPS were
$0.21 , compared with prior year quarter reported EPS of$0.64 . Adjusted EPS of$0.35 decreased 45 percent, compared with prior year quarter reported EPS. A reconciliation follows:
Earnings Per Diluted Share Reconciliation
Second Quarter FY 2009 Second Quarter FY 2008
Reported EPS $0.21 Reported EPS $0.64
Restructuring and related No special items -
charges 0.14
Adjusted EPS $0.35 $0.64
Fiscal 2009 First Half Key Developments
- Sales of
$1.2 billion decreased 2 percent from$1.3 billion in the same period last year. Sales decreased 3 percent on an organic basis, partially offset by a 1 percent increase from more workdays. - During the first half of 2009, the company recognized pre-tax charges related to the previously mentioned restructuring plans of
$19 million , or$0.23 per share. - Operating income was
$77 million , compared with$134 million in the same period last year, a decrease of 42 percent. Absent charges related to restructuring, operating income was$96 million , which was down$38 million , or 28 percent, from the prior year period. This decrease was principally the result of reduced sales volumes and the related lower manufacturing cost absorption as well as disruption costs from restructuring programs. This was partially offset by lower provisions for employee incentive compensation plans and higher price realization. - The effective tax rate for the current period was 20.3 percent, compared with 27.1 percent in the prior year period. Absent the effect of restructuring and related charges in the current year and a charge for a German tax law change in the prior year, the current year rate was 18.1 percent and the prior year rate was 21.6 percent. The year-to-year decrease in the adjusted rate was due to the release of a deferred tax benefit valuation allowance and a benefit from the recent completion of a routine income tax examination.
- Net income was
$51 million for the current year period, compared with$85 million for the prior year. Absent the charges related to restructuring and the German tax law change, net income for the current period decreased 25 percent to$68 million , from$92 million in the prior year. This decrease was driven primarily by lower operating income, partially offset by the favorable impact of a lower effective tax rate. - Reported EPS was
$0.69 , a decrease of 36 percent from the prior year reported EPS of$1.08 . The current period reported EPS included charges of$0.23 per share related to the company’s restructuring plans. Prior year period reported EPS included a non-cash charge of$0.08 per share for the impact of the German tax law change. Absent these charges, adjusted EPS for the first half of fiscal 2009 of$0.92 decreased 21 percent, compared with prior year adjusted EPS of$1.16 . A reconciliation follows:
Earnings Per Diluted Share Reconciliation
First Half FY 2009 First Half FY 2008
Reported EPS $0.69 Reported EPS $1.08
Restructuring and related Impact of German tax law
charges 0.23 change 0.08
Adjusted EPS $0.92 Adjusted EPS $1.16
- Adjusted ROIC was 10.9 percent, down 140 basis points from 12.3 percent in the prior year quarter.
- Cash flow from operating activities was
$115 million in the first half of fiscal 2009, compared with$69 million in the prior year period. Free operating cash flow for the current year period was$48 million , compared with an outflow of$9 million in the prior year period. The increased generation of cash flow was driven by a strong focus on receivable collection and lower income tax payments.
Segment Highlights of Fiscal 2009 Second Quarter
Metalworking Solutions & Services Group (MSSG) sales decreased by 21 percent during the December quarter, driven primarily by an organic sales decline of 15 percent, unfavorable foreign currency effects of 5 percent and 1 percent from the impact of divestitures. On a global basis, industrial production declined in contrast to the prior year quarter. Demand in most industry and market sectors has weakened. On a regional basis,
MSSG operating income and margin decreased significantly, compared with the prior year. During the December quarter, MSSG recognized restructuring and related charges of
Advanced Materials Solutions Group (AMSG) sales increased 5 percent during the December quarter, driven by 8 percent from the impact of acquisitions partially offset by 3 percent from unfavorable foreign currency effects. Organic sales were flat as increased mining and construction sales and higher energy-related sales were offset by lower sales of engineered products.
AMSG operating income decreased by 29 percent and the operating margin decreased to 9 percent from the same quarter last year. During the December quarter, AMSG recognized restructuring and related charges of
Corporate operating loss decreased by 81 percent, or
Outlook
Kennametal has revised its outlook for fiscal 2009 EPS to a range of
In the third quarter of fiscal 2009, Kennametal expects organic sales to decline by 22 to 25 percent from the prior year quarter and EPS to be in the range of
Kennametal anticipates cash flow from operating activities of approximately
Dividend Declared
Kennametal also announced today that its Board of Directors declared a regular quarterly cash dividend of
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 www.kennametal.com.
Second quarter results for fiscal 2009 will be discussed in a live Internet broadcast at
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 2009, and its expectations regarding 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: global and regional economic conditions; availability and cost of the raw materials we use to manufacture our products; our ability to protect our intellectual property in foreign jurisdictions; our foreign operations and international markets, such as currency exchange rates, different regulatory environments, trade barriers, exchange controls, and social and political instability; our ability to implement restructuring plans and other cost savings initiatives, fluctuations in energy costs and commodity prices; competition; integrating recent acquisitions, as well as any future acquisitions, and achieving the expected savings and synergies; business divestitures; demands on management resources; environmental remediation matters; demand for and market acceptance of new and existing products; future terrorist attacks or acts of war; and labor relations. 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) is a leading global supplier of tooling, engineered components and advanced materials consumed in production processes. The company improves customers’ competitiveness by providing superior economic returns through the delivery of application knowledge and advanced technology to master the toughest of materials application demands. Companies producing everything from airframes to coal, from medical implants to oil wells and from turbochargers to motorcycle parts recognize Kennametal for extraordinary contributions to their value chains. Customers buy approximately
FINANCIAL HIGHLIGHTS
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Six Months Ended
(in thousands, except per December 31, December 31,
share amounts) 2008 2007 2008 2007
------------------------- ---- ---- ---- ----
Sales $568,684 $647,423 $1,237,949 $1,262,499
Cost of goods sold 405,369 426,485 855,856 829,470
------------------ ------- ------- ------- -------
Gross profit 163,315 220,938 382,093 433,029
Operating expense 130,348 147,921 284,030 292,953
Restructuring charges 6,204 - 14,616 -
Amortization of intangibles 3,269 3,626 6,678 6,571
--------------------------- ----- ----- ----- -----
Operating income 23,494 69,391 76,769 133,505
Interest expense 8,026 8,531 15,142 16,330
Other income, net (4,790) (993) (3,387) (2,096)
----------------- ------ ---- ------ ------
Income before income
taxes and minority
interest 20,258 61,853 65,014 119,271
Provision for income taxes 4,700 10,670 13,204 32,337
Minority interest
(income) expense (101) 1,037 684 1,909
----------------- ---- ----- --- -----
Net income $15,659 $50,146 $51,126 $85,025
========== ======= ======= ======= =======
Basic earnings per share $0.22 $0.65 $0.70 $1.10
======================== ===== ===== ===== =====
Diluted earnings per share $0.21 $0.64 $0.69 $1.08
========================== ===== ===== ===== =====
Dividends per share $0.12 $0.12 $0.24 $0.23
=================== ===== ===== ===== =====
Basic weighted average
shares outstanding 72,630 77,111 73,515 77,272
====================== ====== ====== ====== ======
Diluted weighted average
shares outstanding 73,199 78,647 74,347 78,821
======================== ====== ====== ====== ======
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
December 31, June 30,
(in thousands) 2008 2008
-------------- ---- ----
ASSETS
Cash and cash equivalents $69,731 $86,478
Accounts receivable, net 367,426 512,794
Inventories 464,684 460,800
Other current assets 102,398 91,914
-------------------- ------- ------
Total current assets 1,004,239 1,151,986
Property, plant and equipment, net 735,972 749,755
Goodwill and intangible assets, net 794,048 802,722
Other assets 91,171 79,886
------------ ------ ------
Total assets $2,625,430 $2,784,349
=============== ========== ==========
LIABILITIES
Current maturities of long-term debt and
capital leases, including notes payable $43,111 $33,600
Accounts payable 128,779 189,050
Other current liabilities 241,434 298,661
------------------------- ------- -------
Total current liabilities 413,324 521,311
Long-term debt and capital leases 479,611 313,052
Other liabilities 282,533 280,552
----------------- ------- -------
Total liabilities 1,175,468 1,114,915
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 19,235 21,527
SHAREOWNERS' EQUITY 1,430,727 1,647,907
------------------- --------- ---------
Total liabilities and shareowners' equity $2,625,430 $2,784,349
============================================ ========== ==========
SEGMENT DATA (UNAUDITED) Three Months Ended Six Months Ended
December 31, December 31,
(in thousands) 2008 2007 2008 2007
-------------- ---- ---- ---- ----
Outside Sales:
Metalworking Solutions and
Services Group $344,630 $434,733 $775,916 $842,430
Advanced Materials
Solutions Group 224,054 212,690 462,033 420,069
------------------ ------- ------- ------- -------
Total outside sales $568,684 $647,423 $1,237,949 $1,262,499
=================== ======== ======== ========== ==========
Sales By Geographic Region:
United States $274,397 $278,238 $563,203 $561,318
International 294,287 369,185 674,746 701,181
------------- ------- ------- ------- -------
Total sales by
geographic region $568,684 $647,423 $1,237,949 $1,262,499
================== ======== ======== ========== ==========
Operating Income (Loss):
Metalworking Solutions and
Services Group $7,827 $61,986 $51,138 $117,338
Advanced Materials
Solutions Group 19,437 27,197 49,427 57,177
Corporate and eliminations(a) (3,770) (19,792) (23,796) (41,010)
----------------------------- ------ ------- ------- -------
Total operating income $23,494 $69,391 $76,769 $133,505
====================== ======= ======= ======= ========
(a) 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, effective tax rate, net income and diluted earnings per share as
well as free operating cash flow and adjusted return on invested capital
(which are non-GAAP financial measures), to the most directly comparable
GAAP measures. 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 of Form 8-K to which this
release is attached.
THREE MONTHS ENDED DECEMBER 31, 2008 (UNAUDITED)
(in thousands,
except per share Gross Operating Operating Net Diluted
amounts) Profit Expense Income Income EPS
----------------- ------ --------- --------- ------ -------
2009 Reported
Results $163,315 $130,348 $23,494 $15,659 $0.21
Restructuring
and related
charges 3,875 (9) 10,088 9,779 0.14
---------------- ----- -- ------ ----- ----
2009 Adjusted
Results $167,190 $130,339 $33,582 $25,438 $0.35
============= ======== ======== ======= ======= =====
MSSG AMSG
(in thousands, Operating Operating
except percents) Income Income
----------------- --------- ---------
2009 Reported
Results $7,827 $19,437
2009 Reported
Operating Margin 2.3% 8.7%
Restructuring
and related
charges 7,288 2,800
----------------- ----- -----
2009 Adjusted
Results $15,115 $22,237
============= ======= =======
2009 Adjusted
Operating
Margin 4.4% 9.9%
============= === ===
Effective
Tax Rate
------------- ---------
2009 Reported
Results 23.2%
Impact on
effective tax
rate as a result
of restructuring
and related
charges (6.7)
------------------- ----
2009 Adjusted
Results 16.5%
============= ====
SIX MONTHS ENDED DECEMBER 31, 2008 (UNAUDITED)
(in thousands,
except per share Gross Operating Operating Net Diluted
amounts) Profit Expense Income Income EPS
----------------- ------ --------- --------- ------ -------
2009 Reported
Results $382,093 $284,030 $76,769 $51,126 $0.69
Restructuring
and related
charges 4,598 (19) 19,233 17,188 0.23
--------------- ----- --- ------ ------ ----
2009 Adjusted
Results $386,691 $284,011 $96,002 $68,314 $0.92
============= ======== ======== ======= ======= =====
Effective
Tax Rate
------------- ---------
2009 Reported
Results 20.3%
Impact on
effective tax
rate as a result
of restructuring
and related
charges (2.2)
-------------------- ----
2009 Adjusted
Results 18.1%
============= ====
SIX MONTHS ENDED DECEMBER 31, 2007 (UNAUDITED)
(in thousands,
except percents
and per share Effective Net Diluted
amounts) Tax Rate Income EPS
---------------- --------- ------ -------
2008 Reported
Results 27.1% $85,025 $1.08
Impact of German
tax law change (5.5) 6,594 0.08
------------------- ---- ----- ----
2008 Adjusted
Results 21.6% $91,619 $1.16
============= ==== ======= =====
FREE OPERATING CASH FLOW (UNAUDITED) Six Months Ended
December 31,
(in thousands) 2008 2007
-------------- ---- ----
Net cash flow provided by operating activities $115,490 $68,934
Purchases of property, plant and equipment (68,659) (79,559)
Proceeds from disposals of property, plant and
equipment 1,668 1,891
---------------------------------------------- ----- -----
Free operating cash flow $48,499 $(8,734)
=========================== ======= =======
RETURN ON INVESTED CAPITAL (UNAUDITED)
December 31, 2008 (in thousands, except percents)
Invested Capital 12/31/2008 9/30/2008 6/30/2008
---------------- ---------- --------- ---------
Debt $522,722 $481,723 $346,652
Minority interest 19,235 20,412 21,527
Shareowners' equity 1,430,727 1,465,757 1,647,907
------------------- --------- --------- ---------
Total $1,972,684 $1,967,892 $2,016,086
===== ========== ========== ==========
Invested Capital 3/31/2008 12/31/2007 Average
---------------- --------- ---------- -------
Debt $428,456 $446,956 $445,302
Minority interest 21,879 20,276 20,666
Shareowners' equity 1,615,568 1,563,297 1,544,651
------------------- --------- --------- ---------
Total $2,065,903 $2,030,529 $2,010,619
===== ========== ========== ==========
Three Months Ended
Interest Expense 12/31/2008 9/30/2008 6/30/2008 3/31/2008 Total
---------------- ---------- --------- --------- --------- -----
Interest expense $8,026 $7,116 $7,393 $8,005 $30,540
Securitization
fees - - 4 5 9
-------------- ------ ------ ------ ------ ------
Total interest
expense $8,026 $7,116 $7,397 $8,010 $30,549
============== ====== ====== ====== ======
Income tax benefit 6,110
-----
Total interest
expense, net of
tax $24,439
=======
Total Income 12/31/2008 9/30/2008 6/30/2008 3/31/2008 Total
------------ ---------- --------- --------- --------- -----
Net income, as
reported $15,659 $35,467 $59,580 $23,170 $133,876
Goodwill
impairment charge - - - 35,000 35,000
Restructuring and
related charges 9,779 7,408 6,635 - 23,822
Minority interest
(income) expense (101) 785 329 742 1,755
----------------- ---- --- --- --- -----
Total income,
adjusted $25,337 $43,660 $66,544 $58,912 $194,453
============= ======= ======= ======= =======
Total interest
expense, net of
tax 24,439
------
$218,892
Average invested
capital $2,010,619
----------
Adjusted Return on
Invested Capital 10.9%
====
Return on invested capital calculated utilizing net income, as reported
is as follows:
Net income, as reported $133,876
Total interest expense,
net of tax 24,439
----------------------- ------
$158,315
Average invested capital $2,010,619
------------------------ ----------
Return on Invested
Capital 7.9%
================== ===
RETURN ON INVESTED CAPITAL (UNAUDITED)
December 31, 2007 (in thousands, except percents)
Invested Capital 12/31/2007 9/30/2007 6/30/2007
---------------- ---------- --------- ---------
Debt $446,956 $377,051 $366,829
Minority interest 20,276 19,122 17,624
Shareowners' equity 1,563,297 1,531,378 1,484,467
------------------- --------- --------- ---------
Total $2,030,529 $1,927,551 $1,868,920
===== ========== ========== ==========
Invested Capital 3/31/2007 12/31/2006 Average
---------------- --------- ---------- -------
Debt $371,521 $376,472 $387,766
Minority interest 16,896 15,807 17,945
Shareowners' equity 1,431,235 1,369,748 1,476,025
------------------- --------- --------- ---------
Total $1,819,652 $1,762,027 $1,881,736
===== ========== ========== ==========
Three Months Ended
Interest
Expense 12/31/2007 9/30/2007 6/30/2007 3/31/2007 Total
-------- ---------- --------- --------- --------- -----
Interest expense $8,531 $7,799 $7,513 $6,915 $30,758
Securitization
fees 5 8 5 5 23
---------------- ------ ------ ------ ------ ------
Total interest
expense $8,536 $7,807 $7,518 $6,920 $30,781
============== ====== ====== ====== ======
Income tax benefit 8,434
-----
Total interest
expense, net
of tax $22,347
=======
Total Income 12/31/2007 9/30/2007 6/30/2007 3/31/2007 Total
------------ ---------- --------- --------- --------- -----
Net income, as
reported $50,146 $34,879 $62,093 $51,738 $198,856
Impact of German
tax law change - 6,594 - - 6,594
Minority interest
expense 1,037 872 229 757 2,895
----------------- ----- --- --- --- -----
Total income,
adjusted $51,183 $42,345 $62,322 $52,495 $208,345
============= ======= ======= ======= =======
Total interest
expense, net
of tax 22,347
------
$230,692
Average invested
capital $1,881,736
----------
Adjusted Return on
Invested Capital 12.3%
====
Return on invested capital calculated utilizing net income, as reported
is as follows:
Net income, as reported $198,856
Total interest expense,
net of tax 22,347
----------------------- ------
$221,203
Average invested capital $1,881,736
------------------------ ----------
Return on Invested
Capital 11.8%
================== ====
SOURCE Kennametal Inc.