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Kennametal Announces Fiscal 2017 First Quarter Results
The current period reported results included restructuring and related charges of
"
De Feo continued, "Approximately 75% of the previously announced workforce reduction and 65% of the correlating savings have been identified and are in the implementation phase. Longer-term factory and product modernization projects are underway, with substantial opportunities being confirmed. Lastly, selling initiatives are ongoing, but these are the hardest to forecast as market forces are still generally negative. We are increasing our full year outlook range but remain generally cautious on the overall year."
This earnings release contains non-GAAP financial measures. Reconciliations of all non-GAAP financial measures are set forth in the tables attached to this earnings release, and corresponding descriptions are contained in the company's report on Form 8-K, to which this news release is attached.
Fiscal 2017 First Quarter Key Developments
- Sales were
$477 million , compared with$555 million in the same quarter last year. Sales decreased by 14 percent, reflecting a 9 percent decline due to divestiture, a 3 percent organic decline and a 2 percent unfavorable currency exchange impact. - Pre-tax restructuring and related charges were
$32 million , or$0.38 per share, and pre-tax benefits were approximately$18 million , or$0.19 per share in the quarter. In the same quarter last year, pre-tax restructuring and related charges were$15 million , or$0.14 per share, and pre-tax benefits were approximately$9 million , or$0.08 per share. - Operating loss was
$9 million , compared to operating income of$7 million in the same quarter last year. Adjusted operating income was flat at$22 million in the current and prior year periods. Year-over-year adjusted operating results reflect the positive effects of lower raw material costs, incremental restructuring benefits and slightly better productivity, offset by the negative impacts of unfavorable mix in all segments, organic sales decline and higher employment-related costs. Adjusted operating margin was 4.7 percent in the current period and 4.3 percent in the prior year period. - The reported effective tax rate (ETR) was 29.9 percent (provision on a loss) and the adjusted ETR was 38.7 percent (provision on income). For the first quarter of fiscal 2016, the reported ETR was 292.8 percent (provision on a loss) and the adjusted ETR was 24.9 percent (provision on income). The change in the adjusted ETR year-over-year is driven primarily by tax benefits on losses in the U.S. that were recorded in the prior year which could not be recognized in the current year due to the full valuation allowance on our domestic deferred tax assets.
- LPS was
$0.27 , compared with$0.08 in the prior year quarter. Adjusted EPS were$0.11 in the current quarter and$0.14 in the prior year quarter. - Year-to-date free operating cash flow was negative
$19 million compared to positive$3 million in the same period last year. The decrease in free operating cash flow was primarily attributable to lower cash earnings, comparatively lower reductions in primary working capital and front-end loaded cash requirements for severance related to our headcount reduction initiative. These were offset partially by lower tax payments. - Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) were
$17 million , compared with$36 million in the prior year quarter. Adjusted EBITDA were$48 million in the current quarter and$54 million in the prior year quarter.
Segment Developments for the Fiscal 2017 First Quarter
As previously announced, in order to take advantage of the growth opportunities of our WIDIA brand, we implemented a new operating structure at the start of fiscal 2017.
A key attribute of the new structure is the establishment of the WIDIA operating segment. In order to better leverage the opportunities that lie in this business, in addition to being more agile and competitive in the marketplace, we are placing higher levels of focus, determination and leadership in the business. Industrial and WIDIA in 2017 are formed from the previously reported Industrial segment. We now have three reportable operating segments: Industrial, WIDIA and Infrastructure. Restated quarterly segment results are included in this press release.
- Industrial segment sales of
$269 million remained relatively flat compared to$270 million in the prior year quarter, reflecting organic growth of 3 percent, offset by 2 percent unfavorable currency exchange and 1 percent due to divestiture. Excluding the impact of currency exchange and divestiture, sales increased approximately 6 percent in aerospace and defense, 5 percent in general engineering and 1 percent in transportation, offset partially by a decrease of approximately 11 percent in energy. Activity in the aerospace sector remains elevated with sales growing globally. General engineering sales inAmericas andAsia have benefited from stability in the indirect channel stock levels, offsetting the general industrial weakness caused by the continued decline in the energy sector. The transportation market was mixed with more projects contributing to higher sales inAsia , partially offset by less favorable conditions inEurope and theAmericas . On a segment regional basis excluding the impact of currency exchange and divestiture, sales increased 7 percent inAsia and 4 percent in theAmericas , offset partially by a decrease of 1 percent inEurope . - Industrial segment operating income was
$6 million compared with$21 million in the prior year. Adjusted operating income was$24 million compared to$27 million in the prior year quarter, driven primarily by higher employment-related costs and unfavorable mix, partially offset by incremental restructuring benefits and organic sales growth. Industrial adjusted operating margin was 9.0 percent compared with 10.0 percent in the prior year. - The WIDIA segment, selling primarily in the general engineering end market, recorded sales of
$41 million , a decrease of 5 percent from$43 million in the prior year quarter due to organic decline of 3 percent, unfavorable currency exchange of 1 percent and a 1 percent decrease due to fewer business days. On a regional basis excluding the impact of currency exchange, sales decreased 10 percent inEurope and 5 percent in theAmericas , partially offset by an increase of 5 percent inAsia . - WIDIA segment operating loss was
$6 million compared to$2 million in the prior year. Adjusted operating loss was$3 million compared to$1 million in the prior year quarter, primarily driven by organic sales decline and unfavorable mix. WIDIA adjusted operating loss margin was 6.7 percent compared with 2.3 percent in the prior year. - Infrastructure segment sales of
$167 million decreased 31 percent from$242 million in the prior year quarter. The decrease was driven by divestiture impact of 20 percent, 10 percent organic sales decline and 1 percent unfavorable currency exchange. Excluding the impact of currency exchange and divestiture, sales decreased by approximately 22 percent in earthworks, 6 percent in energy and 4 percent in general engineering. Key energy markets, particularly inNorth America , continued to see contraction in the first quarter, with U.S. rig counts declining over 40 percent year-over-year. In addition, conditions in underground mining inNorth America declined further, with sales down 36 percent year-over-year. As previously disclosed, this weakness is expected to continue for the foreseeable future. On a segment regional basis excluding the impact of divestiture and currency exchange, sales decreased 16 percent in theAmericas , 8 percent inAsia and 3 percent inEurope . - Infrastructure segment operating loss was
$8 million , flat compared to the same quarter of the prior year. Adjusted operating income was$2 million compared to adjusted operating loss of$3 million in the prior year quarter. The change in adjusted operating results was primarily due to lower raw material costs and incremental restructuring benefits, partially offset by lower organic sales and unfavorable mix. Infrastructure adjusted operating income margin was 1.4 percent compared with adjusted operating loss margin of 1.4 percent in the prior year.
Restructuring Programs
Restructuring programs are currently expected to produce combined annual ongoing pre-tax permanent savings of
Restructuring and related charges and savings (pre-tax) |
|||||||||||
Estimated Charges |
Current Quarter Charges |
Charges To Date |
Estimated Annualized Savings |
Approximate Current Quarter Savings |
Expected Completion Date |
||||||
Headcount reduction initiatives |
$50M |
$27M |
$30M |
$65M |
$4M |
6/30/2017 |
|||||
Other |
$105M-$125M |
$5M |
$73M |
$75M-$90M |
$14M |
12/31/2018 |
|||||
Total |
$155M-$175M |
$32M |
$103M |
$140M-$155M |
$18M |
||||||
Outlook
The company now expects consolidated adjusted EPS for the full fiscal year to be in the range of
The company's expectations of full year free operating cash flow of
Dividend Declared
The company will discuss its fiscal 2017 first quarter results in a live webcast at
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
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At the forefront of advanced materials innovation for more than 75 years,
FINANCIAL HIGHLIGHTS |
|||||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) |
|||||||
Three Months Ended |
|||||||
(in thousands, except per share amounts) |
2016 |
2015 |
|||||
Sales |
$ |
477,140 |
$ |
555,354 |
|||
Cost of goods sold |
333,610 |
404,130 |
|||||
Gross profit |
143,530 |
151,224 |
|||||
Operating expense |
119,865 |
129,243 |
|||||
Restructuring and asset impairment charges |
28,605 |
9,120 |
|||||
Amortization of intangibles |
4,271 |
6,247 |
|||||
Operating (loss) income |
(9,211) |
6,614 |
|||||
Interest expense |
6,993 |
6,979 |
|||||
Other expense, net |
118 |
1,087 |
|||||
Loss before income taxes |
(16,322) |
(1,452) |
|||||
Provision for income taxes |
4,879 |
4,252 |
|||||
Net loss |
(21,201) |
(5,704) |
|||||
Less: Net income attributable to noncontrolling interests |
455 |
522 |
|||||
Net loss attributable to Kennametal |
$ |
(21,656) |
$ |
(6,226) |
|||
PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL SHAREHOLDERS |
|||||||
Basic loss per share |
$ |
(0.27) |
$ |
(0.08) |
|||
Diluted loss per share |
$ |
(0.27) |
$ |
(0.08) |
|||
Dividends per share |
$ |
0.20 |
$ |
0.20 |
|||
Basic weighted average shares outstanding |
80,054 |
79,728 |
|||||
Diluted weighted average shares outstanding |
80,054 |
79,728 |
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) |
|||||||
(in thousands) |
September 30, 2016 |
June 30, 2016 |
|||||
ASSETS |
|||||||
Cash and cash equivalents |
$ |
119,411 |
$ |
161,579 |
|||
Accounts receivable, net |
348,470 |
370,916 |
|||||
Inventories |
459,296 |
458,830 |
|||||
Other current assets |
64,660 |
84,016 |
|||||
Total current assets |
991,837 |
1,075,341 |
|||||
Property, plant and equipment, net |
735,448 |
730,640 |
|||||
Goodwill and other intangible assets, net |
501,589 |
505,695 |
|||||
Other assets |
78,559 |
51,107 |
|||||
Total assets |
$ |
2,307,433 |
$ |
2,362,783 |
|||
LIABILITIES |
|||||||
Current maturities of long-term debt and capital leases, including notes payable |
$ |
1,381 |
$ |
1,895 |
|||
Accounts payable |
176,004 |
182,039 |
|||||
Other current liabilities |
225,189 |
243,341 |
|||||
Total current liabilities |
402,574 |
427,275 |
|||||
Long-term debt and capital leases |
694,027 |
693,548 |
|||||
Other liabilities |
243,488 |
246,159 |
|||||
Total liabilities |
1,340,089 |
1,366,982 |
|||||
KENNAMETAL SHAREHOLDERS' EQUITY |
934,996 |
964,323 |
|||||
NONCONTROLLING INTERESTS |
32,348 |
31,478 |
|||||
Total liabilities and equity |
$ |
2,307,433 |
$ |
2,362,783 |
SEGMENT DATA (UNAUDITED) |
Three Months Ended September 30, |
||||||
(in thousands) |
2016 |
2015 |
|||||
Outside Sales: |
|||||||
Industrial (1) |
$ |
269,043 |
$ |
270,191 |
|||
WIDIA (1) |
41,015 |
43,142 |
|||||
Infrastructure |
167,082 |
242,021 |
|||||
Total outside sales |
$ |
477,140 |
$ |
555,354 |
|||
Sales By Geographic Region: |
|||||||
North America |
$ |
215,211 |
$ |
253,149 |
|||
Western Europe |
119,982 |
155,721 |
|||||
Rest of World |
141,947 |
146,484 |
|||||
Total sales by geographic region |
$ |
477,140 |
$ |
555,354 |
|||
Operating (Loss) Income: |
|||||||
Industrial (1) |
$ |
5,556 |
$ |
21,459 |
|||
WIDIA (1) |
(5,756) |
(1,709) |
|||||
Infrastructure |
(7,587) |
(8,428) |
|||||
Corporate (2) |
(1,424) |
(4,708) |
|||||
Total operating (loss) income |
$ |
(9,211) |
$ |
6,614 |
|||
(1) Amounts for the three months ended September 30, 2015 have been restated to reflect the change in reportable operating segments |
|||||||
(2) Represents unallocated corporate expenses |
In addition to reported results under generally accepted accounting principles in
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 SEPTEMBER 30, 2016 (UNAUDITED) |
||||||||||||||||||||
(in thousands, except |
Sales |
Gross |
Operating |
Operating |
Net (loss) |
Diluted |
Effective |
|||||||||||||
Reported results |
$ |
477,140 |
$ |
143,530 |
$ |
119,865 |
$ |
(9,211) |
$ |
(21,656) |
$ |
(0.27) |
(29.9) |
% |
||||||
Reported margins |
30.1 |
% |
25.1 |
% |
(1.9) |
% |
||||||||||||||
Restructuring and related |
— |
1,995 |
(1,057) |
31,657 |
30,603 |
0.38 |
68.6 |
|||||||||||||
Adjusted results |
$ |
477,140 |
$ |
145,525 |
$ |
118,808 |
$ |
22,446 |
$ |
8,947 |
$ |
0.11 |
38.7 |
% |
||||||
Adjusted margins |
30.5 |
% |
24.9 |
% |
4.7 |
% |
||||||||||||||
(3) Represents amounts attributable to Kennametal Shareholders. |
||||||||||||||||||||
(4) Includes pre-tax restructuring related charges recorded in corporate of $13. |
Industrial |
WIDIA |
Infrastructure |
||||||||||||||||
(in thousands, except |
Sales |
Operating |
Sales |
Operating |
Sales |
Operating |
||||||||||||
Reported results |
$ |
269,043 |
$ |
5,556 |
$ |
41,015 |
$ |
(5,756) |
$ |
167,082 |
$ |
(7,587) |
||||||
Reported operating margin |
2.1 |
% |
(14.0) |
% |
(4.5) |
% |
||||||||||||
Restructuring and related |
— |
18,708 |
— |
3,026 |
— |
9,910 |
||||||||||||
Adjusted results |
$ |
269,043 |
$ |
24,264 |
$ |
41,015 |
$ |
(2,730) |
$ |
167,082 |
$ |
2,323 |
||||||
Adjusted operating margin |
9.0 |
% |
(6.7) |
% |
1.4 |
% |
||||||||||||
(5) Excludes pre-tax restructuring related charges recorded in corporate of $13. |
THREE MONTHS ENDED SEPTEMBER 30, 2015 (UNAUDITED) |
||||||||||||||||||||
(in thousands, except |
Sales |
Gross |
Operating |
Operating |
Net (loss) |
Diluted |
Effective |
|||||||||||||
Reported results |
$ |
555,354 |
$ |
151,224 |
$ |
129,243 |
$ |
6,614 |
$ |
(6,226) |
$ |
(0.08) |
(292.8) |
% |
||||||
Reported margins |
27.2 |
% |
23.3 |
% |
1.2 |
% |
||||||||||||||
Restructuring and related |
— |
1,627 |
(4,363) |
15,111 |
11,154 |
0.14 |
42.8 |
|||||||||||||
Divestiture-related charges |
— |
— |
— |
— |
6,368 |
0.08 |
276.2 |
|||||||||||||
Operations of divested |
(51,206) |
(7,643) |
(6,062) |
82 |
256 |
— |
(1.3) |
|||||||||||||
Adjusted results |
$ |
504,148 |
$ |
145,208 |
$ |
118,818 |
$ |
21,807 |
$ |
11,552 |
$ |
0.14 |
24.9 |
% |
||||||
Adjusted margins |
28.8 |
% |
23.6 |
% |
4.3 |
% |
||||||||||||||
(6) Includes pre-tax restructuring related charges recorded in corporate of $3,333. |
Industrial (1) |
WIDIA (1) |
Infrastructure |
||||||||||||||||
(in thousands, except percents) |
Sales |
Operating |
Sales |
Operating |
Sales |
Operating |
||||||||||||
Reported results |
$ |
270,191 |
$ |
21,459 |
$ |
43,142 |
$ |
(1,709) |
$ |
242,021 |
$ |
(8,428) |
||||||
Reported operating margin |
7.9 |
% |
(4.0) |
% |
(3.5) |
% |
||||||||||||
Restructuring and related |
— |
5,462 |
— |
722 |
— |
5,594 |
||||||||||||
Operations of divested |
(2,543) |
(78) |
— |
— |
(48,663) |
160 |
||||||||||||
Adjusted results |
$ |
267,648 |
$ |
26,843 |
$ |
43,142 |
$ |
(987) |
$ |
193,358 |
$ |
(2,674) |
||||||
Adjusted operating margin |
10.0 |
% |
(2.3) |
% |
(1.4) |
% |
||||||||||||
(7) Excludes pre-tax restructuring related charges recorded in corporate of $3,333. |
FREE OPERATING CASH FLOW (UNAUDITED) |
Three Months Ended |
|||||||
September 30, |
||||||||
(in thousands) |
2016 |
2015 |
||||||
Net cash flow from operating activities |
$ |
21,860 |
$ |
38,707 |
||||
Purchases of property, plant and equipment |
(42,264) |
(37,217) |
||||||
Proceeds from disposals of property, plant and equipment |
1,138 |
1,933 |
||||||
Free operating cash flow |
$ |
(19,266) |
$ |
3,423 |
EBITDA (UNAUDITED) |
Three Months Ended |
|||||||
September 30, |
||||||||
(in thousands) |
2016 |
2015 |
||||||
Net loss attributable to Kennametal, reported |
$ |
(21,656) |
$ |
(6,226) |
||||
Add back: |
||||||||
Interest expense |
6,993 |
6,979 |
||||||
Interest income |
(248) |
(475) |
||||||
Provision for income taxes, reported |
4,879 |
4,252 |
||||||
Depreciation |
23,167 |
25,312 |
||||||
Amortization |
4,271 |
6,247 |
||||||
EBITDA |
$ |
17,406 |
$ |
36,089 |
||||
Adjustments: |
||||||||
Restructuring and related charges |
30,603 |
11,154 |
||||||
Divestiture-related charges |
— |
6,368 |
||||||
Operations of divested businesses |
— |
256 |
||||||
Adjusted EBITDA |
$ |
48,009 |
$ |
53,867 |
SUPPLEMENTAL INFORMATION FOR SELECTED FISCAL YEAR 2016 FINANCIAL RESULTS (UNAUDITED)
(in thousands, except percents)
Previously disclosed segment results were restated for establishment of the WIDIA segment. This supplemental information regarding selected fiscal year 2016 financial results should be read in connection with the company's Annual Report on Form 10-K filed with the
TWELVE MONTHS ENDED JUNE 30, 2016 |
Industrial |
WIDIA |
||||||||||
Sales |
Operating |
Sales |
Operating |
|||||||||
Reported results |
$ |
1,098,439 |
$ |
90,324 |
$ |
170,723 |
$ |
(9,081) |
||||
Reported margin |
8.2 |
% |
(5.3) |
% |
||||||||
Restructuring and related charges |
— |
24,291 |
— |
3,734 |
||||||||
Fixed asset disposal charges |
— |
2,635 |
— |
746 |
||||||||
Goodwill and other intangible asset impairment charges |
— |
— |
— |
2,345 |
||||||||
Operations of divested businesses |
(4,106) |
— |
— |
— |
||||||||
Loss on divestiture |
— |
3,610 |
— |
— |
||||||||
Adjusted results |
$ |
1,094,333 |
$ |
120,860 |
$ |
170,723 |
$ |
(2,256) |
||||
Adjusted margin |
11.0 |
% |
(1.3) |
% |
THREE MONTHS ENDED JUNE 30, 2016 (UNAUDITED) |
Industrial |
WIDIA |
||||||||||
Sales |
Operating |
Sales |
Operating |
|||||||||
Reported results |
$ |
285,547 |
$ |
30,469 |
$ |
43,027 |
$ |
(1,028) |
||||
Reported margin |
10.7 |
% |
(2.4) |
% |
||||||||
Restructuring and related charges |
— |
6,697 |
— |
1,031 |
||||||||
Fixed asset disposal charges |
— |
2,635 |
— |
746 |
||||||||
Loss on divestiture |
— |
29 |
— |
— |
||||||||
Adjusted results |
$ |
285,547 |
$ |
39,830 |
$ |
43,027 |
$ |
749 |
||||
Adjusted margin |
13.9 |
% |
1.7 |
% |
THREE MONTHS ENDED MARCH 31, 2016 |
Industrial |
WIDIA |
||||||||||
Sales |
Operating |
Sales |
Operating |
|||||||||
Reported results |
$ |
274,123 |
$ |
26,371 |
$ |
42,249 |
$ |
(1,679) |
||||
Reported margin |
9.6 |
% |
(4.0) |
% |
||||||||
Restructuring and related charges |
— |
8,091 |
— |
1,255 |
||||||||
Loss on divestiture |
— |
(3,677) |
— |
— |
||||||||
Adjusted results |
$ |
274,123 |
$ |
30,785 |
$ |
42,249 |
$ |
(424) |
||||
Adjusted margin |
11.2 |
% |
(1.0) |
% |
THREE MONTHS ENDED DECEMBER 31, 2015 |
Industrial |
WIDIA |
||||||||||
Sales |
Operating |
Sales |
Operating |
|||||||||
Reported results |
$ |
268,578 |
$ |
12,025 |
$ |
42,305 |
$ |
(4,665) |
||||
Reported margin |
4.5 |
% |
(11.0) |
% |
||||||||
Restructuring and related charges |
— |
4,041 |
— |
726 |
||||||||
Goodwill and other intangible asset impairment charges |
— |
— |
— |
2,345 |
||||||||
Operations of divested businesses |
(1,563) |
78 |
— |
— |
||||||||
Loss on divestiture |
— |
7,258 |
— |
— |
||||||||
Adjusted results |
$ |
267,015 |
$ |
23,402 |
$ |
42,305 |
$ |
(1,594) |
||||
Adjusted margin |
8.8 |
% |
(3.8) |
% |
THREE MONTHS ENDED SEPTEMBER 30, 2015 |
Industrial |
WIDIA |
||||||||||
Sales |
Operating |
Sales |
Operating |
|||||||||
Reported results |
$ |
270,191 |
$ |
21,459 |
$ |
43,142 |
$ |
(1,709) |
||||
Reported margin |
7.9 |
% |
(4.0) |
% |
||||||||
Restructuring and related charges |
— |
5,462 |
— |
722 |
||||||||
Operations of divested businesses |
(2,543) |
(78) |
— |
— |
||||||||
Adjusted results |
$ |
267,648 |
$ |
26,843 |
$ |
43,142 |
$ |
(987) |
||||
Adjusted margin |
10.0 |
% |
(2.3) |
% |
To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/kennametal-announces-fiscal-2017-first-quarter-results-300352117.html
SOURCE
Investor Relations: CONTACT: Kelly Boyer, PHONE: 412-248-8287; Corporate Relations - Media: CONTACT: Christina Sutter, PHONE: 724-539-5708