Kennametal Announces Fiscal Third Quarter 2013 Results

- Reported EPS of $0.67; Stellite accretive $0.02 per share

- Delivered double-digit operating margin

- Strong operating cash flow of $150 million year-to-date

- Guidance modestly revised for weaker macro-economic environment

Apr 25, 2013, 07:00 ET from Kennametal Inc.

LATROBE, Pa., April 25, 2013 /PRNewswire/ -- Kennametal Inc. (NYSE: KMT) today reported results for the fiscal third-quarter 2013, with earnings per diluted share (EPS) of $0.67 compared with the prior year quarter EPS of $0.93.

"In the March quarter, we again delivered double-digit margin performance and generated strong cash flows, despite another difficult period for industrial and infrastructure activity globally" said Kennametal Chairman, President and Chief Executive Officer Carlos Cardoso.

"We're navigating well in a challenging economic environment, while strengthening our business to be ready to serve our customers as growth returns. In addition, our Stellite acquisition – which completed its first year with Kennametal on March 1 – expands our growth prospects in the energy and power generation sectors. Our company-specific initiatives will continue to provide opportunities for maximizing revenues, earnings and cash flows."

Fiscal 2013 Third Quarter Key Developments

  • Sales were $655 million, compared with $696 million in the same quarter last year. Sales decreased by 6 percent, reflecting a 6 percent organic decline, a 5 percent unfavorable impact from fewer business days and a 1 percent unfavorable effect from currency exchange, partially offset by a 6 percent increase due to two months of revenues from Stellite.
  • Operating income was $75 million, compared with $103 million in the same quarter last year. Stellite contributed $2.9 million of operating income in the current year quarter, compared with a net operating loss of $4.6 million in the prior year period. Operating income declined due to lower absorption of manufacturing costs related to reduced sales volume, as well as an ongoing inventory reduction initiative. Partially offsetting these effects, the company reduced operating expense with its continued cost discipline. Excluding the impact of Stellite, operating margin was 12.1 percent, compared with an operating margin of 16.0 percent in the prior year.
  • The effective tax rate was 18.5 percent in the period, compared with 20.4 percent in the prior year. The decrease was primarily driven by the extension of the credit for increasing research activities contained in the American Taxpayer Relief Act of 2012 that was enacted during the current quarter, partially offset by higher relative U.S. earnings in the current year relative to the rest of the world.
  • In accordance with the Securities and Exchange Board of India (SEBI) rules, which require a minimum 25 percent public float, Kennametal was required to sell shares of the company's subsidiary in India by June 2013. The company sold 13 percent of the subsidiary's shares and received net proceeds of approximately $27 million. The company now owns 75 percent of the Indian subsidiary.
  • EPS were $0.67, compared with the prior year quarter EPS of $0.93. The current year includes $0.02 per share accretion from Stellite. The prior year quarter included net loss of $0.05 per share from Stellite.
  • Adjusted return on invested capital (ROIC) was 10.8 percent as of March 31, 2013.
  • Year to date, the company generated $150 million in cash flow from operating activities, compared with $164 million in the prior year period. Cash flow benefited from the company's ongoing inventory reduction initiative which reduced inventory approximately $40 million year to date, excluding raw materials. Net capital expenditures were $52 million and $56 million for the nine months ended March 31, 2013 and 2012, respectively. For the current nine-month period, the company realized free operating cash flow of $98 million compared with $108 million for the same period last year.
  • Capital stock repurchased during the quarter were 786,000 shares. Year-to-date purchases total approximately 2.1 million shares, under the amended, multi-year share repurchase program announced in July. Approximately 6.5 million shares remain available for purchase under the program.

Segment Developments for the Fiscal 2013 Third Quarter

  • Industrial segment sales of $374 million declined 11 percent from $419 million in the prior year quarter. The results reflect a 5 percent organic decline, a 5 percent unfavorable impact from fewer business days and a 1 percent unfavorable effect from currency exchange. On an organic basis, sales declined 12 percent in general engineering and 2 percent in transportation, while aerospace and defense sales grew 14 percent. Customer inventory levels remained low, impacting sales in general engineering. The decline in transportation reflected lower vehicle production rates in most geographic regions, while aerospace and defense sales grew with increased production of commercial aircraft. On a regional basis, sales declined approximately 12 percent in the Americas, 10 percent in Asia and 9 percent in Europe.
  • Industrial segment operating income was $45 million compared with $71 million in the prior year. Industrial operating income decreased due to lower absorption of manufacturing costs related to reduced sales volume and an ongoing inventory reduction initiative. Industrial operating margin was 12.0 percent compared with 17.0 percent in the prior year.
  • Infrastructure segment sales of $282 million, up 1 percent from $278 million in the prior year. The increase was driven by 15 percent growth related to two months of revenues from Stellite, partially offset by an 8 percent organic decline and a 6 percent decline from fewer business days. On an organic basis, sales declined by 15 percent in the energy and 6 percent in the earthworks markets. Energy sales decreased globally due to lower drilling activity in oil and gas. Earthworks sales declined from persistently weak underground coal mining activity in North America, where a number of additional mine closures further depressed sales, as well as a delayed start to the road construction season due to the colder March weather. On a regional basis including the organic growth of Stellite, sales decreased approximately 18 percent in the Americas, 6 percent in Europe and remained relatively flat in Asia.
  • Infrastructure segment operating income was $32 million, compared with $34 million in the same quarter of the prior year. Stellite contributed $2.9 million of operating income in the current year quarter, compared with a net operating loss of $4.6 million in the prior year period. Operating income decreased due to the effects of the organic sales decline, as well as lower absorption of manufacturing costs. Infrastructure adjusted operating margin was 13.4 percent compared with 15.1 percent in the prior year.

Fiscal 2013 Year-to-Date Key Developments

  • Sales were $1,918 million, compared with $1,997 million in the same period last year. Sales decreased by 4 percent, driven by a 7 percent organic decline, a 3 percent unfavorable effect from currency exchange and a 2 percent decline due to fewer business days, partially offset by an 8 percent increase from Stellite.
  • Operating income was $206 million, compared with $299 million in the same period last year. Stellite contributed $11.1 million of operating income year to date, compared with a net operating loss of $4.6 million in the prior year period. Operating income decreased primarily due to lower sales volume, lower absorption of manufacturing costs, related to reduced sales volume and an ongoing inventory reduction initiative, 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 11.2 percent, compared with an operating margin of 15.4 percent in the prior year.
  • EPS were $1.76, compared with the prior year period EPS of $2.72. The current year includes $0.04 per share accretion from Stellite. Prior year included net loss of $0.05 per share 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.

Recent Actions to Enhance Liquidity and Further Strengthen Financial Position

In April 2013, Kennametal further enhanced liquidity and strengthened its financial position by amending the company's existing revolving bank credit facility, capitalizing upon current market conditions to extend the company's debt maturity profile. The amendment extends the maturity of the existing $600 million credit facility to April 2018.

Outlook

Kennametal adjusted its full-year outlook due to a slower than anticipated recovery in the company's served industrial end markets globally, as well as continued softness in road construction, underground mining, and oil and gas markets in the U.S. However, the company notes that its order rates have reflected a sequential increase over the prior quarter and expects continued modest improvement, primarily in its industrial end markets.

The company now expects fiscal 2013 sales decline in the range of 5 to 6 percent, with organic sales decline ranging from 8 to 9 percent. Previously, the company had forecast total sales decline ranging from 2 to 4 percent with organic sales decline of 7 to 9 percent.

Based on the revision, the company has reduced its EPS guidance for fiscal 2013 to range from $2.45 to $2.55, versus its previous expectation of $2.60 to $2.80. Included in this outlook is the accretive contribution of the Stellite acquisition, net of integration costs, which is now expected to range between $0.05 and $0.10 per share as compared to the previous range of $0.10 and $0.15 per share.

The company now expects to generate cash flow from operations between $260 million and $280 million for fiscal 2013, compared with the previous range of $290 million to $325 million. Based on anticipated capital expenditures of approximately $90 million to $100 million, the company expects to generate between $170 million and $180 million of free operating cash flow for the full fiscal year, as compared to the previous range of $200 million to $225 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 May 22, 2013 to shareowners of record as of the close of business on May 7, 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 third-quarter results in a live webcast at 9:00 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 May 24, 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.

Celebrating its 75th year as an industrial technology leader, Kennametal Inc. delivers productivity to customers seeking peak performance in demanding environments. The company provides innovative wear-resistant products and application engineering backed by advanced material science, serving customers in 60 countries across diverse sectors of aerospace, earthworks, energy, industrial production, transportation and infrastructure. With approximately 13,000 employees and nearly $3 billion in sales, the company realizes half of its revenue from outside North America, and 40% globally from innovations introduced in the past five years. Recognized among the "World's Most Ethical Companies" (Ethisphere); "Outstanding Corporate Innovator" (Product Development Management Association); and "America's Safest Companies" (EHS Today) with a focus on 100% safety, Kennametal and its foundation invest in technical education, industrial technologies and material science to deliver the promise of progress and economic prosperity to people everywhere. For more information, visit the company's website at www.kennametal.com.


 

FINANCIAL HIGHLIGHTS

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

Three Months Ended March 31,

Nine Months Ended March 31,

(in thousands, except per share amounts)

2013

2012

2013

2012

Sales

$

655,360

$

696,411

$

1,917,963

$

1,997,030

Cost of goods sold

446,865

449,965

1,301,673

1,267,638

Gross profit

208,495

246,446

616,290

729,392

Operating expense

128,328

138,904

394,967

419,459

Amortization of intangibles

5,194

4,250

15,501

10,982

Operating income

74,973

103,292

205,822

298,951

Interest expense

7,504

8,003

20,430

18,746

Other expense (income), net

749

(486)

502

(1,169)

Income from continuing operations before income taxes

66,720

95,775

184,890

281,374

Provision for income taxes

12,344

19,538

40,158

57,093

Net income

54,376

76,237

144,732

224,281

Less: Net income attributable to noncontrolling interests

460

738

2,285

3,099

Net income attributable to Kennametal

$

53,916

$

75,499

$

142,447

$

221,182

PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL SHAREOWNERS

Basic earnings per share

$

0.68

$

0.94

$

1.79

$

2.76

Diluted earnings per share

$

0.67

$

0.93

$

1.76

$

2.72

Dividends per share

$

0.16

$

0.14

$

0.48

$

0.40

Basic weighted average shares outstanding

79,294

80,110

79,744

80,179

Diluted weighted average shares outstanding

80,619

81,535

80,912

81,434

 


 

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands)

March 31,

2013

June 30,

2012

ASSETS

Cash and cash equivalents

$

322,089

$

116,466

Accounts receivable, net

442,486

478,989

Inventories

575,889

585,856

Other current assets

101,966

101,651

Total current assets

1,442,430

1,282,962

Property, plant and equipment, net

728,112

742,201

Goodwill and other intangible assets, net

945,407

962,837

Other assets

42,982

46,188

Total assets

$

3,158,931

$

3,034,188

LIABILITIES

Current maturities of long-term debt and capital leases, including notes

 payable

$

47,135

$

75,137

Accounts payable

153,048

219,475

Other current liabilities

204,130

284,010

Total current liabilities

404,313

578,622

Long-term debt and capital leases

703,895

490,608

Other liabilities

296,889

296,737

Total liabilities

1,405,097

1,365,967

KENNAMETAL SHAREOWNERS' EQUITY

1,721,508

1,643,850

NONCONTROLLING INTERESTS

32,326

24,371

Total liabilities and equity

$

3,158,931

$

3,034,188

SEGMENT DATA (UNAUDITED)

Three Months Ended March 31,

Nine Months Ended March 31,

(in thousands)

2013

2012

2013

2012

Outside Sales:

Industrial

$

373,807

$

418,554

$

1,088,155

$

1,246,261

Infrastructure

281,553

277,857

829,808

750,769

Total outside sales

$

655,360

$

696,411

$

1,917,963

$

1,997,030

Sales By Geographic Region:

North America

$

289,508

$

326,750

$

852,675

$

917,917

Western Europe

199,225

193,111

559,812

556,085

Rest of World

166,627

176,550

505,476

523,028

Total sales by geographic region

$

655,360

$

696,411

$

1,917,963

$

1,997,030

Operating Income:

Industrial

$

44,961

$

71,195

$

117,552

$

206,778

Infrastructure

32,332

34,060

95,248

99,927

Corporate (1)

(2,320)

(1,963)

(6,978)

(7,754)

Total operating income

$

74,973

$

103,292

$

205,822

$

298,951

(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, 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 MARCH 31, 2013 - (UNAUDITED)

(in thousands, except percents)

Infrastructure Sales

Infrastructure Operating Income

2013 Reported Results

$

281,553

$

32,332

2013 Reported Operating Margin

11.5%

 Stellite (2)

(61,209)

(2,865)

2013 Adjusted Results

$

220,344

$

29,467

2013 Adjusted Operating Margin

13.4%

(2) Includes three months of Stellite operations (Stellite was acquired March 1, 2012). The two months of acquisition impact included sales of $40.7 million and operating income of $2.4 million.

 

THREE MONTHS ENDED MARCH 31, 2013 - (UNAUDITED)

(in thousands, except percents)

Sales

Operating Income

2013 Reported Results

$

655,360

$

74,973

2013 Reported Operating Margin

11.4%

 Stellite (2)

(61,209)

(2,865)

2013 Adjusted Results

$

594,151

$

72,108

2013 Adjusted Operating Margin

12.1%

 

THREE MONTHS ENDED MARCH 31, 2012 - (UNAUDITED)

(in thousands, except percents)

Infrastructure Sales

Infrastructure

Operating Income

2012 Reported Results

$

277,857

$

34,060

2012 Reported Operating Margin

12.3%

 Acquisition impact (3)

(22,558)

4,608

2012 Adjusted Results

$

255,299

$

38,668

2012 Adjusted Operating Margin

15.1%

(3) Includes the impact of Stellite operations

 

THREE MONTHS ENDED MARCH 31, 2012 - (UNAUDITED)

(in thousands, except percents)

Sales

Operating Income

2012 Reported Results

$

696,411

$

103,292

2012 Reported Operating Margin

14.8%

 Acquisition impact (3)

(22,558)

4,608

2012 Adjusted Results

$

673,853

$

107,900

2012 Adjusted Operating Margin

16.0%

 

NINE MONTHS ENDED MARCH 31, 2013 - (UNAUDITED)

(in thousands, except percents)

Sales

Operating Income

2013 Reported Results

$

1,917,963

$

205,822

2013 Reported Operating Margin

10.7%

 Stellite (4)

(180,864)

(11,143)

2013 Adjusted Results

$

1,737,099

$

194,679

2013 Adjusted Operating Margin

11.2%

(4) Includes nine months of Stellite operations (Stellite was acquired March 1, 2012). The eight months of acquisition impact included sales of $160.4 million and operating income of $10.7 million.

 

NINE MONTHS ENDED MARCH 31, 2012 - (UNAUDITED)

(in thousands, except percents)

Sales

Operating Income

2012 Reported Results

$

1,997,030

$

298,951

2012 Reported Operating Margin

15.0%

 Acquisition impact (3)

(22,558)

4,608

2012 Adjusted Results

$

1,974,472

$

303,559

2012 Adjusted Operating Margin

15.4%

 

FREE OPERATING CASH FLOW (UNAUDITED)

Nine Months Ended

March 31,

(in thousands)

2013

2012

Net cash flow from operating activities

$

150,358

$

164,236

Purchases of property, plant and equipment

(53,808)

(60,657)

Proceeds from disposals of property, plant and equipment

1,763

4,397

Free operating cash flow

$

98,313

$

107,976

 

 


 

RETURN ON INVESTED CAPITAL (UNAUDITED)

March 31, 2013 (in thousands, except percents)

Invested Capital

3/31/2013

12/31/2012

9/30/2012

6/30/2012

3/31/2012

Average

Debt

$

751,030

$

706,859

$

601,124

$

565,745

$

640,871

$

653,126

Total equity

1,753,834

1,744,443

1,712,532

1,668,221

1,745,699

1,724,946

Total

$

2,504,864

$

2,451,302

$

2,313,656

$

2,233,966

$

2,386,570

$

2,378,072

Three Months Ended

Interest Expense

3/31/2013

12/31/2012

9/30/2012

6/30/2012

Total

Interest expense

$

7,504

$

6,970

$

5,956

$

8,469

$

28,899

Income tax benefit

6,213

Total interest expense, net of tax

$

22,686

Net Income

3/31/2013

12/31/2012

9/30/2012

6/30/2012

Total

Net income attributable to Kennametal, as reported

$

53,916

$

42,142

$

46,390

$

86,048

$

228,496

Stellite acquisition charges

2,267

2,267

Noncontrolling interest

460

1,167

657

504

2,788

Net income, adjusted

$

54,376

$

43,309

$

47,047

$

88,819

$

233,551

Total interest expense, net of tax

22,686

$

256,237

Average invested capital

$

2,378,072

Adjusted Return on Invested Capital

10.8%

Return on invested capital calculated utilizing net income, as reported is as follows:

Net income attributable to Kennametal, as reported

$

228,496

Total interest expense, net of tax

22,686

$

251,182

Average invested capital

$

2,378,072

Return on Invested Capital

10.6%

SOURCE Kennametal Inc.



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http://www.kennametal.com