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Kennametal Announces Fiscal 2020 First Quarter Results
"As announced on
Rossi continued, "We are focused on the things we can control, including adjusting production levels based on lower demand and managing costs. We anticipate positive free operating cash flow for the year, and our capital structure enables us to deliver on our simplification/modernization investments as planned. Our structural cost reduction efforts are on schedule, including the proposed closures of three manufacturing locations and a distribution center, which we expect will drive significantly improved profitability beginning in the second half of the year."
Fiscal 2020 First Quarter Key Developments
Sales of
In connection with the Company's simplification/modernization initiative, pre-tax restructuring and related charges for the FY20 and FY21 Restructuring Actions(1) were
As part of the FY20 Restructuring Actions, production was discontinued at the Company's Lichtenau,
The Company also expects to complete in the second quarter of fiscal 2020 the divestiture of non-core specialty alloys business in Infrastructure segment as part of ongoing simplification/modernization initiatives.
Operating income was
The reported effective tax rate (ETR) for the quarter was 33.7 percent and the adjusted ETR was 22.5 percent, compared to reported ETR of 24.9 percent and adjusted ETR of 23.6 percent in the prior year quarter.
Reported EPS in the current quarter includes restructuring and related charges of
Net cash flow provided by operating activities was
Outlook
On
- Adjusted EPS of
$1.70 to $2.10 on organic sales decline of 9 to 5 percent - Adjusted ETR of 22 to 24 percent
- Capital spending of
$240 to $260 million - Free operating cash flow of
$20 to $50 million
Segment Results
Industrial sales of
Widia sales of
Infrastructure sales of
Dividend Declared
The Company will host its first quarter fiscal 2020 results on
The conference call will be broadcast via real-time audio on the
(1) Previously announced restructuring actions associated with the ongoing simplification/modernization program. These restructurings and proposed facility closures in fiscal 2020 (FY20 Restructuring Actions) are currently estimated to deliver annualized savings of $35 to $40 million with pre-tax charges of $55 to $65 million. Fiscal 2021 proposed restructuring and facility closures (FY21 Restructuring Actions) estimated to deliver annualized savings of $25 to $30 million with pre-tax charges of $60 to $75 million. |
This earnings release contains non-GAAP financial measures. Reconciliations and descriptions of all non-GAAP financial measures are set forth in the tables that follow.
Certain statements in this release may be forward-looking in nature, or "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are statements that do not relate strictly to historical or current facts. For example, statements about
About
With over 80 years as an industrial technology leader,
FINANCIAL HIGHLIGHTS |
|||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) |
|||||
Three Months Ended |
|||||
(in thousands, except per share amounts) |
2019 |
2018 |
|||
Sales |
$ |
518,088 |
$ |
586,687 |
|
Cost of goods sold |
379,108 |
375,595 |
|||
Gross profit |
138,980 |
211,092 |
|||
Operating expense |
114,191 |
123,285 |
|||
Restructuring and asset impairment charges |
4,666 |
1,075 |
|||
Amortization of intangibles |
3,747 |
3,580 |
|||
Operating income |
16,376 |
83,152 |
|||
Interest expense |
7,881 |
8,097 |
|||
Other income, net |
(2,681) |
(2,761) |
|||
Income before income taxes |
11,176 |
77,816 |
|||
Provision for income taxes |
3,766 |
19,392 |
|||
Net income |
7,410 |
58,424 |
|||
Less: Net income attributable to noncontrolling interests |
944 |
1,725 |
|||
Net income attributable to Kennametal |
$ |
6,466 |
$ |
56,699 |
|
PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL SHAREHOLDERS |
|||||
Basic earnings per share |
$ |
0.08 |
$ |
0.69 |
|
Diluted earnings per share |
$ |
0.08 |
$ |
0.68 |
|
Dividends per share |
$ |
0.20 |
$ |
0.20 |
|
Basic weighted average shares outstanding |
82,881 |
82,105 |
|||
Diluted weighted average shares outstanding |
83,487 |
83,194 |
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) |
|||||
(in thousands) |
September 30, |
June 30, |
|||
ASSETS |
|||||
Cash and cash equivalents |
$ |
113,522 |
$ |
182,015 |
|
Accounts receivable, net |
327,628 |
379,855 |
|||
Inventories |
557,133 |
571,576 |
|||
Other current assets |
67,106 |
57,381 |
|||
Total current assets |
1,065,389 |
1,190,827 |
|||
Property, plant and equipment, net |
964,288 |
934,895 |
|||
Goodwill and other intangible assets, net |
451,292 |
461,009 |
|||
Other assets |
118,436 |
69,538 |
|||
Total assets |
$ |
2,599,405 |
$ |
2,656,269 |
|
LIABILITIES |
|||||
Current maturities of long-term debt, including notes payable |
$ |
3,528 |
$ |
157 |
|
Accounts payable |
198,674 |
212,908 |
|||
Other current liabilities |
216,517 |
248,661 |
|||
Total current liabilities |
418,719 |
461,726 |
|||
Long-term debt |
592,858 |
592,474 |
|||
Other liabilities |
250,178 |
227,365 |
|||
Total liabilities |
1,261,755 |
1,281,565 |
|||
KENNAMETAL SHAREHOLDERS' EQUITY |
1,298,566 |
1,335,172 |
|||
NONCONTROLLING INTERESTS |
39,084 |
39,532 |
|||
Total liabilities and equity |
$ |
2,599,405 |
$ |
2,656,269 |
|
SEGMENT DATA (UNAUDITED) |
Three Months Ended |
||||
(in thousands) |
2019 |
2018 |
|||
Outside Sales: |
|||||
Industrial |
$ |
280,028 |
$ |
320,559 |
|
Widia |
44,057 |
48,672 |
|||
Infrastructure |
194,003 |
217,456 |
|||
Total sales |
$ |
518,088 |
$ |
586,687 |
|
Sales By Geographic Region: |
|||||
Americas |
$ |
259,289 |
$ |
289,129 |
|
EMEA |
153,480 |
171,508 |
|||
Asia Pacific |
105,319 |
126,050 |
|||
Total sales |
$ |
518,088 |
$ |
586,687 |
|
Operating Income (Loss): |
|||||
Industrial |
$ |
21,271 |
$ |
58,542 |
|
Widia |
(1,965) |
2,093 |
|||
Infrastructure |
(2,690) |
23,860 |
|||
Corporate (2) |
(240) |
(1,343) |
|||
Total operating income |
$ |
16,376 |
$ |
83,152 |
|
(2) Represents unallocated corporate expenses |
NON-GAAP RECONCILIATIONS (UNAUDITED)
In addition to reported results under generally accepted accounting principles in
Management believes that presentation of these non-GAAP financial measures provides useful information about the results of operations of the Company for the current and past periods. Management believes that investors should have available the same information that management uses to assess operating performance, determine compensation and assess the capital structure of the Company. These non-GAAP financial measures should not be considered in isolation or as a substitute for the most comparable GAAP financial measures. Investors are cautioned that non-GAAP financial measures used by management may not be comparable to non-GAAP financial measures used by other companies. Reconciliations and descriptions of all non-GAAP financial measures are set forth in the disclosures below.
Reconciliations to the most directly comparable GAAP financial measures for the following forward-looking non-GAAP financial measures for the full fiscal year of 2019 have not been provided, including but not limited to: adjusted EPS, adjusted ETR, organic sales growth (decline) and FOCF. The most comparable GAAP financial measures are earnings per share, ETR, sales growth (decline) and net cash flow from operating activities, respectively. Because the non-GAAP financial measures on a forward-looking basis are subject to uncertainty and variability as they are dependent on many factors - including, but not limited to, the effect of foreign currency exchange fluctuations, impacts from potential acquisitions or divestitures, gains or losses on the potential sale of businesses or other assets, restructuring costs, asset impairment charges, gains or losses from early extinguishment of debt, the tax impact of the items above and the impact of tax law changes or other tax matters - reconciliations to the most directly comparable forward-looking GAAP financial measures are not available without unreasonable effort.
THREE MONTHS ENDED SEPTEMBER 30, 2019 (UNAUDITED) |
|||||||||
(in thousands, except percents and |
Sales |
Operating |
ETR |
Net |
Diluted EPS |
||||
Reported results |
$ |
518,088 |
$ |
16,376 |
33.7% |
$ |
6,466 |
$ |
0.08 |
Reported margins |
3.2% |
||||||||
Restructuring and related charges |
— |
7,970 |
(11.2) |
7,429 |
0.09 |
||||
Adjusted results |
$ |
518,088 |
$ |
24,346 |
22.5% |
$ |
13,895 |
$ |
0.17 |
Adjusted margins |
4.7% |
||||||||
(3) Attributable to Kennametal |
Industrial |
Widia |
Infrastructure |
||||||||||
(in thousands, except percents) |
Sales |
Operating |
Sales |
Operating |
Sales |
Operating |
||||||
Reported results |
$ |
280,028 |
$ |
21,271 |
$ |
44,057 |
$ |
(1,965) |
$ |
194,003 |
$ |
(2,690) |
Reported operating margin |
7.6% |
(4.5)% |
(1.4)% |
|||||||||
Restructuring and related |
— |
6,167 |
— |
141 |
— |
1,663 |
||||||
Adjusted results |
$ |
280,028 |
$ |
27,438 |
$ |
44,057 |
$ |
(1,824) |
$ |
194,003 |
$ |
(1,027) |
Adjusted operating margin |
9.8% |
(4.1)% |
(0.5)% |
THREE MONTHS ENDED SEPTEMBER 30, 2018 (UNAUDITED) |
|||||||||
(in thousands, except percents and |
Sales |
Operating |
ETR |
Net |
Diluted EPS |
||||
Reported results |
$ |
586,687 |
$ |
83,152 |
24.9% |
$ |
56,699 |
$ |
0.68 |
Reported margins |
14.2% |
||||||||
Restructuring and related charges |
— |
1,062 |
— |
758 |
0.01 |
||||
Discrete effect from tax reform (4) |
— |
— |
(1.3) |
1,011 |
0.01 |
||||
Adjusted results |
$ |
586,687 |
$ |
84,214 |
23.6% |
$ |
58,468 |
$ |
0.70 |
Adjusted margins |
14.4% |
||||||||
(4) Additional charge recorded to reflect adjustments to the amounts recorded for the application of a measure of the Tax Cuts and Jobs Act of 2017 (TCJA) requiring a one-time transition tax on previously untaxed accumulated earnings and profits of non-U.S. companies (toll tax) considering regulatory guidance issued through September 30, 2018. |
Industrial |
Widia |
Infrastructure |
||||||||||
(in thousands, except percents) |
Sales |
Operating |
Sales |
Operating |
Sales |
Operating |
||||||
Reported results |
$ |
320,559 |
$ |
58,542 |
$ |
48,672 |
$ |
2,093 |
$ |
217,456 |
$ |
23,860 |
Reported operating margin |
18.3% |
4.3% |
11.0% |
|||||||||
Restructuring and related |
— |
185 |
— |
40 |
— |
837 |
||||||
Adjusted results |
$ |
320,559 |
$ |
58,727 |
$ |
48,672 |
$ |
2,133 |
$ |
217,456 |
$ |
24,697 |
Adjusted operating margin |
18.3% |
4.4% |
11.4% |
Free Operating Cash Flow (FOCF)
FOCF is a non-GAAP financial measure and is defined by the Company as net cash flow provided by operating activities (which is the most directly comparable GAAP financial measure) less capital expenditures plus proceeds from disposals of fixed assets. Management considers FOCF to be an important indicator of the Company's cash generating capability because it better represents cash generated from operations that can be used for dividends, debt repayment, strategic initiatives (such as acquisitions) and other investing and financing activities.
Three Months Ended |
||||||
FREE OPERATING CASH FLOW (UNAUDITED) |
||||||
(in thousands) |
2019 |
2018 |
||||
Net cash flow provided by operating activities |
$ |
27,545 |
$ |
9,201 |
||
Purchases of property, plant and equipment |
(72,455) |
(43,263) |
||||
Disposals of property, plant and equipment |
395 |
833 |
||||
Free operating cash flow |
$ |
(44,515) |
$ |
(33,229) |
Organic Sales Decline
Organic sales decline is a non-GAAP financial measure of sales decline (which is the most directly comparable GAAP measure) excluding the impacts of acquisitions, divestitures, business days and foreign currency exchange from year-over-year comparisons. Management believes this measure provides investors with a supplemental understanding of underlying sales trends by providing sales growth (decline) on a consistent basis. Management reports organic sales growth (decline) at the consolidated and segment levels.
ORGANIC SALES DECLINE (UNAUDITED) |
|||||
Three Months Ended September 30, 2019 |
Industrial |
Widia |
Infrastructure |
Total |
|
Organic sales decline |
(11)% |
(10)% |
(11)% |
(11)% |
|
Foreign currency exchange impact (5) |
(2) |
(1) |
(1) |
(2) |
|
Business days impact (6) |
— |
2 |
1 |
1 |
|
Sales decline |
(13)% |
(9)% |
(11)% |
(12)% |
|
(5) Foreign currency exchange impact is calculated by dividing the difference between current period sales at prior period foreign exchange rates and prior period sales by prior period sales. |
|||||
(6) Business days impact is calculated by dividing the year-over-year change in weighted average working days (based on mix of sales by country) by prior period weighted average working days. |
View original content:http://www.prnewswire.com/news-releases/kennametal-announces-fiscal-2020-first-quarter-results-300950878.html
SOURCE
Investor Relations: CONTACT: Kelly Boyer, PHONE: 412-248-8287, kelly.boyer@kennametal.com; Media Relations: CONTACT: Lori Lecker, PHONE: 412-248-8224, lori.lecker@kennametal.com