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Kennametal Announces Fiscal Second Quarter 2015 Results And Accelerates Cost Reduction Initiatives
"As attractive as our future may be,
Fiscal 2015 Second Quarter Key Developments
- Sales were
$676 million , compared with$690 million in the same quarter last year. Sales decreased by 2 percent, reflecting decreases of 4 percent due to unfavorable currency exchange and a 2 percent organic decline, offset partially by a 3 percent increase from acquisition and a 1 percent increase due to more business days. - During the December quarter, the company performed an interim impairment test of goodwill and indefinite-lived intangible assets for its Infrastructure segment. This preliminary test was undertaken in view of the recent abrupt change in the global energy market, coupled with the severe and persistent decline in the earthworks markets. The test resulted in an estimated non-cash pre-tax goodwill and other intangible asset impairment charge of
$377 million , or$5.24 per share. The valuation will be completed in the company's fiscal third quarter. The company also recorded a non-cash impairment charge of$5 million or$0.04 per share for an Infrastructure technology asset. Given the significant impairment charges, Infrastructure portfolio actions will be the initial focus. - Phase 1 restructuring and related charges amounted to
$13 million pre-tax, or$0.13 per share in the quarter. Pre-tax benefits realized in the quarter were approximately$6 million or$0.07 per share. Total pre-tax benefits from this program are estimated to be$50-$55 million in annual savings, and total pre-tax charges are projected to be in the range of$55-$60 million through fiscal 2016. - Operating loss was
$334 million , compared with operating income of$50 million in the same quarter last year. Adjusted operating income of$61 million was flat compared to the prior period. Adjusted operating results in the current period were driven by restructuring benefits and lower employment costs, offset by organic decline and unfavorable mix in Infrastructure, and unfavorable currency exchange. Adjusted operating margin was 9.1 percent in the current period and 8.9 percent in the prior period. - The effective tax rate was a negative 12.7 percent (provision on a loss), compared with 40.8 percent (provision on income) in the prior year. The adjusted effective tax rate was 17.7 percent in the current quarter and 23.8 percent in the prior period. The decrease was primarily driven by the extension of the credit for increase in research activities contained in the Tax Increase Prevention Act of 2014 that was enacted during the current quarter and the mix of pre-tax book income in jurisdictions with different tax rates.
- LPS was
$4.89 , compared with the prior year quarter EPS of$0.30 . Adjusted EPS were$0.52 in the current quarter and$0.50 in the prior year quarter. - Adjusted return on invested capital (ROIC) was 7.9 percent as of
December 31, 2014 and reflects the impact of the goodwill and other intangible asset impairment charges of$382 million , offset partially by increased debt in the near term from recent acquisitions. - The company generated
$135 million in cash flow from operating activities for the six months endedDecember 31, 2014 , compared with$85 million in the prior year period. Net capital expenditures were$54 million and$48 million for the same periods. The company realized free operating cash flow of$82 million compared with$36 million for the same period last year.
Segment Developments for the Fiscal 2015 Second Quarter
- Industrial segment sales of
$372 million remained flat compared with$371 million in the prior year quarter due to increases of 2 percent from organic growth, 1 percent net from acquisition and divestiture and 1 percent due to more business days, offset partially by unfavorable currency exchange of 4 percent. Sales increased 3 percent in general engineering and 2 percent in transportation, while aerospace and defense remained relatively flat. General engineering increased due to sales in the indirect channel and to tier suppliers in theAmericas , and the transportation market increased due to new project tooling package sales in theAsia region. On a regional basis sales increased approximately 14 percent inAsia and 3 percent in theAmericas , offset partially by a decrease of 1 percent inEurope . - Industrial segment operating income was
$42 million compared with$33 million in the prior year. Adjusted operating income was$48 million compared to$40 million in the prior year quarter, benefiting from organic growth, restructuring initiatives, and lower employment costs. Industrial adjusted operating margin was 12.8 percent compared with 10.9 percent in the prior year. - Infrastructure segment sales of
$304 million decreased 5 percent from$319 million in the prior year. The decrease was driven by 8 percent organic sales decline and 3 percent unfavorable currency exchange, offset partially by 5 percent increase from acquisition and 1 percent due to more business days. Sales decreased by 6 percent in earthworks and 3 percent in energy. Earthworks sales declined from persistently weak underground and surface mining globally, particularly in the U.S. andAsia , combined with reduced demand for road rehabilitation tools and less infrastructure development activity inChina. Energy sales decreased due to lower activity in power generation, while oil and gas sales were relatively flat year over year. In addition, the prior year included sales related to surface finishing projects that did not repeat in the current period. On a regional basis, sales decreased 14 percent inEurope , 9 percent inAsia and 2 percent in theAmericas . - Infrastructure segment operating loss was
$372 million , compared with operating income of$19 million in the same quarter of prior year. During the quarter a non-cash pre-tax goodwill and intangible asset impairment charge of$377 million was recorded related to the deterioration of the earthworks and energy markets and an impairment charge of$5 million was also recorded for an Infrastructure technology asset. Adjusted operating income was$15 million compared to$23 million in the prior year quarter. Adjusted operating income decreased due to lower organic sales as well as an unfavorable mix, partially offset by the benefits of the restructuring initiatives and lower employment costs. Infrastructure adjusted operating margin was 5.0 percent compared with 7.3 percent in the prior year.
Fiscal 2015 First Half Key Developments
- Sales were
$1,371 million , compared with$1,310 million in the same period last year. Sales increased by 5 percent, driven by 7 percent growth from acquisition and 1 percent increase due to more business days, partially offset by a 2 percent decline due to unfavorable currency exchange and 1 percent organic decline. - Operating loss was
$273 million , compared with operating income of$109 million in the same period last year. Adjusted operating income was$130 million in the current period, compared with adjusted operating income of$121 million in the prior year, which included a non-recurring inventory charge of approximately$6 million . Adjusted operating margin was 9.5 percent, compared with 9.3 percent in the prior year. - LPS was
$4.40 in the current year period, compared with EPS of$0.78 the prior year period. Adjusted EPS were$1.09 in the current year period and$0.99 in the prior year period.
Phase 2 Restructuring Program
The company has identified additional actions to streamline the company's cost structure with Phase 2 of restructuring initiatives. This is estimated to achieve an additional
RESTRUCTURING AND RELATED CHARGES AND SAVINGS |
|||||
Estimated |
Charges To |
Estimated Annualized |
Savings To |
Expected |
|
Phase 1 |
$55M-$60M |
$39M |
$50M-$55M |
$12M |
6/30/2016 |
Phase 2 |
$90M-$100M |
— |
$40M-$50M |
— |
12/31/2016 |
Total |
$145M-$160M |
$39M |
$90M-$105M |
$12M |
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 current high levels of uncertainty in the global economy, visibility is very limited regarding demand in some of
The company expects fiscal 2015 total sales to decline in the range of 6 to 7 percent and organic sales to decline in the range of 4 to 5 percent. Previously, total sales growth was projected to be in the range of 2 to 4 percent, with organic sales growth of 1 to 3 percent. Based on the revised forecast,
The company expects to generate cash flow from operations between
Dividend Declared
The company will discuss its fiscal 2015 second-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
Celebrating more than 75 years as an industrial technology leader,
FINANCIAL HIGHLIGHTS |
||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) |
||||||||||||||
Three Months Ended |
Six Months Ended |
|||||||||||||
(in thousands, except per share amounts) |
2014 |
2013 |
2014 |
2013 |
||||||||||
Sales |
$ |
675,631 |
$ |
689,936 |
$ |
1,370,572 |
$ |
1,309,743 |
||||||
Cost of goods sold |
476,173 |
482,965 |
953,015 |
904,536 |
||||||||||
Gross profit |
199,458 |
206,971 |
417,557 |
405,207 |
||||||||||
Operating expense |
137,459 |
148,421 |
285,947 |
282,685 |
||||||||||
Restructuring and asset impairment charges |
388,839 |
2,310 |
390,402 |
2,310 |
||||||||||
Amortization of intangibles |
6,931 |
6,524 |
13,959 |
11,667 |
||||||||||
Operating (loss) income |
(333,771) |
49,716 |
(272,751) |
108,545 |
||||||||||
Interest expense |
7,960 |
8,037 |
16,170 |
15,118 |
||||||||||
Other expense, net |
2,223 |
856 |
409 |
1,466 |
||||||||||
(Loss) income from continuing operations before income |
(343,954) |
40,823 |
(289,330) |
91,961 |
||||||||||
Provision for income taxes |
43,751 |
16,656 |
58,248 |
29,236 |
||||||||||
Net (loss) income |
(387,705) |
24,167 |
(347,578) |
62,725 |
||||||||||
Less: Net income (loss) attributable to noncontrolling interests |
597 |
(42) |
1,236 |
679 |
||||||||||
Net (loss) income attributable to Kennametal |
$ |
(388,302) |
$ |
24,209 |
$ |
(348,814) |
$ |
62,046 |
||||||
PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL SHAREHOLDERS |
||||||||||||||
Basic (loss) earnings per share |
$ |
(4.89) |
$ |
0.31 |
$ |
(4.40) |
$ |
0.79 |
||||||
Diluted (loss) earnings per share |
$ |
(4.89) |
$ |
0.30 |
$ |
(4.40) |
$ |
0.78 |
||||||
Dividends per share |
$ |
0.18 |
$ |
0.18 |
$ |
0.36 |
$ |
0.36 |
||||||
Basic weighted average shares outstanding |
79,343 |
78,729 |
79,229 |
78,587 |
||||||||||
Diluted weighted average shares outstanding |
79,343 |
79,776 |
79,229 |
79,597 |
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) |
|||||||||||||||||||
(in thousands) |
December 31, 2014 |
June 30, 2014 |
|||||||||||||||||
ASSETS |
|||||||||||||||||||
Cash and cash equivalents |
$ |
146,267 |
$ |
177,929 |
|||||||||||||||
Accounts receivable, net |
449,166 |
531,515 |
|||||||||||||||||
Inventories |
662,883 |
703,766 |
|||||||||||||||||
Other current assets |
115,671 |
111,986 |
|||||||||||||||||
Total current assets |
1,373,987 |
1,525,196 |
|||||||||||||||||
Property, plant and equipment, net |
843,101 |
884,458 |
|||||||||||||||||
Goodwill and other intangible assets, net |
889,818 |
1,318,752 |
|||||||||||||||||
Other assets |
145,537 |
139,680 |
|||||||||||||||||
Total assets |
$ |
3,252,443 |
$ |
3,868,086 |
|||||||||||||||
LIABILITIES |
|||||||||||||||||||
Current maturities of long-term debt and capital leases, including notes |
$ |
95,513 |
$ |
80,117 |
|||||||||||||||
Accounts payable |
159,464 |
206,891 |
|||||||||||||||||
Other current liabilities |
273,727 |
275,748 |
|||||||||||||||||
Total current liabilities |
528,704 |
562,756 |
|||||||||||||||||
Long-term debt and capital leases |
867,103 |
981,666 |
|||||||||||||||||
Other liabilities |
326,049 |
362,056 |
|||||||||||||||||
Total liabilities |
1,721,856 |
1,906,478 |
|||||||||||||||||
KENNAMETAL SHAREHOLDERS' EQUITY |
1,499,320 |
1,929,256 |
|||||||||||||||||
NONCONTROLLING INTERESTS |
31,267 |
32,352 |
|||||||||||||||||
Total liabilities and equity |
$ |
3,252,443 |
$ |
3,868,086 |
|||||||||||||||
SEGMENT DATA (UNAUDITED) |
Three Months Ended |
Six Months Ended |
|||||||||||||||||
(in thousands) |
2014 |
2013 |
2014 |
2013 |
|||||||||||||||
Outside Sales: |
|||||||||||||||||||
Industrial |
$ |
371,557 |
$ |
370,647 |
$ |
749,415 |
$ |
708,876 |
|||||||||||
Infrastructure |
304,074 |
319,289 |
621,157 |
600,867 |
|||||||||||||||
Total outside sales |
$ |
675,631 |
$ |
689,936 |
$ |
1,370,572 |
$ |
1,309,743 |
|||||||||||
Sales By Geographic Region: |
|||||||||||||||||||
North America |
$ |
319,495 |
$ |
302,032 |
$ |
654,065 |
$ |
571,566 |
|||||||||||
Western Europe |
183,583 |
215,688 |
374,437 |
403,289 |
|||||||||||||||
Rest of World |
172,553 |
172,216 |
342,070 |
334,888 |
|||||||||||||||
Total sales by geographic region |
$ |
675,631 |
$ |
689,936 |
$ |
1,370,572 |
$ |
1,309,743 |
|||||||||||
Operating Income (Loss): |
|||||||||||||||||||
Industrial |
$ |
41,795 |
$ |
33,218 |
$ |
85,812 |
$ |
73,038 |
|||||||||||
Infrastructure |
(371,920) |
18,604 |
(352,699) |
40,294 |
|||||||||||||||
Corporate (1) |
(3,646) |
(2,106) |
(5,864) |
(4,787) |
|||||||||||||||
Total operating (loss) income |
$ |
(333,771) |
$ |
49,716 |
$ |
(272,751) |
$ |
108,545 |
|||||||||||
(1) 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 DECEMBER 31, 2014 - (UNAUDITED) |
||||||||||||||||||||
(in thousands, except |
Sales |
Gross |
Operating |
Operating |
Net (Loss) |
Diluted |
Effective |
|||||||||||||
2015 Reported Results |
$ 675,631 |
$ 199,458 |
$ 137,459 |
$ (333,771) |
$ (388,302) |
$ (4.89) |
(12.7)% |
|||||||||||||
2015 Reported Margins |
29.5% |
20.3% |
(49.4)% |
|||||||||||||||||
Restructuring and |
— |
2,677 |
(3,415) |
12,930 |
10,385 |
0.13 |
2.3 |
|||||||||||||
Technology asset |
— |
— |
— |
5,500 |
3,377 |
0.04 |
2.0 |
|||||||||||||
Goodwill and other |
— |
— |
— |
376,500 |
415,896 |
5.24 |
26.1 |
|||||||||||||
2015 Adjusted Results |
$ 675,631 |
$ 202,135 |
$ 134,044 |
$ 61,159 |
$ 41,356 |
$ 0.52 |
17.7% |
|||||||||||||
2015 Adjusted Margins |
29.9% |
19.8% |
9.1% |
(2) Represents amounts attributable to Kennametal Shareholders.
(3) Includes pre-tax restructuring related charges recorded in corporate of
THREE MONTHS ENDED DECEMBER 31, 2014 - (UNAUDITED) |
||||||||||||
(in thousands, except percents) |
Industrial |
Industrial |
Infrastructure |
Infrastructure |
||||||||
2015 Reported Results |
$ 371,557 |
$ 41,795 |
$ 304,074 |
$ (371,920) |
||||||||
2015 Reported Operating Margin |
11.2% |
(122.3)% |
||||||||||
Restructuring and related charges (4) |
— |
5,921 |
— |
5,165 |
||||||||
Technology asset impairment charge |
— |
— |
— |
5,500 |
||||||||
Goodwill and other intangible asset |
— |
— |
— |
376,500 |
||||||||
2015 Adjusted Results |
$ 371,557 |
$ 47,716 |
$ 304,074 |
$ 15,245 |
||||||||
2015 Adjusted Operating Margin |
12.8% |
5.0% |
(4) Excludes pre-tax restructuring related charges recorded in corporate of
THREE MONTHS ENDED DECEMBER 31, 2013 - (UNAUDITED) |
||||||||||||||||||||
(in thousands, except |
Sales |
Gross |
Operating |
Operating |
Net |
Diluted |
Effective |
|||||||||||||
2014 Reported Results |
$ 689,936 |
$ 206,970 |
$ 148,421 |
$ 49,716 |
$ 24,209 |
$ 0.30 |
40.8% |
|||||||||||||
2014 Reported Margins |
30.0% |
21.5% |
7.2% |
|||||||||||||||||
TMB inventory step-up |
— |
7,699 |
— |
7,699 |
5,749 |
0.07 |
(2.5) |
|||||||||||||
TMB acquisition- |
— |
26 |
(1,713) |
1,738 |
1,258 |
0.02 |
(0.3) |
|||||||||||||
Restructuring and |
— |
— |
— |
2,310 |
1,733 |
0.02 |
(0.6) |
|||||||||||||
Tax repatriation |
— |
— |
— |
— |
7,170 |
0.09 |
(13.6) |
|||||||||||||
2014 Adjusted Results |
689,936 |
214,695 |
146,708 |
61,463 |
40,119 |
0.50 |
23.8% |
|||||||||||||
2014 Adjusted Margins |
31.1% |
21.3% |
8.9% |
(in thousands, except percents) |
Industrial |
Industrial Operating |
Infrastructure |
Infrastructure |
||||||||
2014 Reported Results |
$ |
370,647 |
$ |
33,218 |
$ |
319,289 |
$ |
18,604 |
||||
2014 Reported Operating Margin |
9.0% |
5.8% |
||||||||||
TMB inventory step-up |
— |
5,390 |
— |
2,309 |
||||||||
TMB acquisition-related charges |
— |
609 |
— |
1,129 |
||||||||
Restructuring and related charges |
— |
1,085 |
— |
1,225 |
||||||||
2014 Adjusted Results |
$ |
370,647 |
$ |
40,302 |
$ |
319,289 |
$ |
23,267 |
||||
2014 Adjusted Operating Margin |
10.9% |
7.3% |
SIX MONTHS ENDED DECEMBER 31, 2014 - (UNAUDITED) |
||||||||||||
(in thousands, except percents) |
Sales |
Operating |
Net (Loss) |
Diluted |
||||||||
2015 Reported Results |
$ |
1,370,572 |
$ |
(272,751) |
$ |
(348,814) |
$ |
(4.40) |
||||
2015 Reported Operating Margin |
(19.9)% |
|||||||||||
Restructuring and related charges (3) |
— |
20,375 |
15,941 |
0.20 |
||||||||
Technology asset impairment charge |
— |
5,500 |
3,377 |
0.04 |
||||||||
Goodwill and other intangible asset impairment |
— |
376,500 |
415,896 |
5.25 |
||||||||
2015 Adjusted Results |
$ |
1,370,572 |
$ |
129,624 |
$ |
86,400 |
$ |
1.09 |
||||
2015 Adjusted Operating Margin |
9.5 % |
SIX MONTHS ENDED DECEMBER 31, 2013 - (UNAUDITED) |
||||||||||||
(in thousands, except percents) |
Sales |
Operating |
Net Income (2) |
Diluted EPS |
||||||||
2014 Reported Results |
$ |
1,309,743 |
$ |
108,545 |
$ |
62,046 |
$ |
0.78 |
||||
2014 Reported Operating Margin |
8.3% |
|||||||||||
TMB inventory step-up |
— |
7,699 |
5,749 |
0.07 |
||||||||
TMB acquisition-related charges |
— |
2,836 |
2,065 |
0.03 |
||||||||
Restructuring and related charges (5) |
— |
2,310 |
1,700 |
0.02 |
||||||||
Tax repatriation expense |
— |
— |
7,170 |
0.09 |
||||||||
2014 Adjusted Results |
$ |
1,309,743 |
$ |
121,390 |
$ |
78,730 |
$ |
0.99 |
||||
2014 Adjusted Operating Margin |
9.3% |
(5) Included pre-tax restructuring related charges recorded in corporate of
FREE OPERATING CASH FLOW (UNAUDITED) |
Six Months Ended |
|||||||
December 31, |
||||||||
(in thousands) |
2014 |
2013 |
||||||
Net cash flow from operating activities |
$ |
135,322 |
$ |
84,617 |
||||
Purchases of property, plant and equipment |
(54,672) |
(48,804) |
||||||
Proceeds from disposals of property, plant and equipment |
978 |
444 |
||||||
Free operating cash flow |
$ |
81,628 |
$ |
36,257 |
RETURN ON INVESTED CAPITAL (UNAUDITED) |
||||||||||||||||||||||||
Invested Capital |
12/31/2014 |
9/30/2014 |
6/30/2014 |
3/31/2014 |
12/31/2013 |
Average |
||||||||||||||||||
Debt |
$ |
962,616 |
$ |
1,015,863 |
$ |
1,061,783 |
$ |
1,135,553 |
$ |
1,145,729 |
$ |
1,064,309 |
||||||||||||
Total equity |
1,530,587 |
1,954,254 |
1,961,608 |
1,934,558 |
1,903,304 |
1,856,862 |
||||||||||||||||||
Total |
$ |
2,493,203 |
$ |
2,970,117 |
$ |
3,023,391 |
$ |
3,070,111 |
$ |
3,049,033 |
$ |
2,921,171 |
||||||||||||
Three Months Ended |
||||||||||||||||||||||||
Interest Expense |
12/31/2014 |
9/30/2014 |
6/30/2014 |
3/31/2014 |
Total |
|||||||||||||||||||
Interest expense |
$ |
7,960 |
$ |
8,210 |
$ |
8,450 |
$ |
8,883 |
$ |
33,503 |
||||||||||||||
Income tax benefit |
9,227 |
|||||||||||||||||||||||
Total interest expense, net of tax |
$ |
24,276 |
||||||||||||||||||||||
Net (Loss) Income |
12/31/2014 |
9/30/2014 |
6/30/2014 |
3/31/2014 |
Total |
|||||||||||||||||||
Net (loss) income |
(388,302) |
39,488 |
45,455 |
50,865 |
(252,494) |
|||||||||||||||||||
TMB acquisition- |
— |
— |
1,914 |
1,703 |
3,617 |
|||||||||||||||||||
Restructuring and |
10,385 |
5,557 |
13,874 |
1,747 |
31,563 |
|||||||||||||||||||
Goodwill and other |
415,896 |
— |
— |
— |
415,896 |
|||||||||||||||||||
Technology asset |
3,377 |
— |
— |
— |
3,377 |
|||||||||||||||||||
Loss on divestiture |
— |
— |
1,607 |
— |
1,607 |
|||||||||||||||||||
Noncontrolling interest |
597 |
639 |
2,024 |
1,129 |
4,389 |
|||||||||||||||||||
Net income, adjusted |
41,953 |
45,684 |
64,874 |
55,444 |
207,955 |
|||||||||||||||||||
Total interest expense, net of tax |
24,276 |
|||||||||||||||||||||||
$ |
232,231 |
|||||||||||||||||||||||
Average invested capital |
$ |
2,921,171 |
||||||||||||||||||||||
Adjusted Return on Invested Capital |
7.9 % |
|||||||||||||||||||||||
Return on invested capital calculated utilizing net income, as reported is as follows: |
||||||||||||||||||||||||
Net (loss) income attributable to Kennametal, as reported |
$ |
(252,494) |
||||||||||||||||||||||
Total interest expense, net of tax |
24,276 |
|||||||||||||||||||||||
$ |
(228,218) |
|||||||||||||||||||||||
Average invested capital |
$ |
2,921,171 |
||||||||||||||||||||||
Return on Invested Capital |
(7.8)% |
To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/kennametal-announces-fiscal-second-quarter-2015-results-and-accelerates-cost-reduction-initiatives-300027503.html
SOURCE
Investor Relations: Quynh McGuire, 724-539-6559; Corporate Relations - Media: Lorrie Paul Crum, 724-539-6792