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Kennametal Announces Fiscal Second Quarter 2016 Results, Completes Sale Of Non-Core Businesses
Nolan continued, "As we address what is needed to be done in this environment, we are also positioning the Company to fully leverage our core strengths for attractive, long-term growth and profitability. Kennametal has strong brands, superior technologies, and great customer relationships. We have divested non-core businesses and continue to invest in R&D and capital, focusing on our core in order to deliver great value to our customers each and every day. We look to the future and improved market conditions to fully leverage the many changes we have made within the global organization, incrementally improve margins, and drive value-enhancing long-term profitable growth."
Fiscal 2016 Second Quarter Key Developments
- Sales were
$524 million , compared with$676 million in the same quarter last year. Sales decreased by 22 percent, reflecting a 12 percent organic decline due to weakening of our served end markets, a 6 percent unfavorable currency exchange impact and a 4 percent decline due to divestiture. - During the December quarter end, the company performed an interim impairment test of goodwill and indefinite-lived intangible assets for the Industrial and Infrastructure reporting units. This preliminary test was undertaken as a result of end market challenges, which required the company to reduce fiscal 2016 guidance, resulting in a corresponding decrease in share price. The test resulted in an estimated non-cash pre-tax goodwill and other intangible asset impairment charge in the Infrastructure segment of
$106 million , or $0.96 per share, and an estimated non-cash pre-tax trademark impairment charge in the Industrial segment of$2 million , or$0.02 per share. The valuation will be completed in the company's fiscal third quarter. - On a combined basis, pre-tax restructuring and related charges were
$9 million , or$0.08 per share, and pre-tax benefits were approximately$19 million , or$0.18 per share in the quarter. In the same quarter last year, pre-tax restructuring and related charges were$13 million , or$0.13 per share, and pre-tax benefits were approximately$6 million , or$0.07 per share. Kennametal completed the sale of several non-core businesses related to certain castings, steel-plate fabrication and deburring for an aggregate price of approximately$70 million prior to working capital adjustments, or$61 million including working capital adjustments of approximately$9 million . A portion of the transaction proceeds were used to pay down revolver debt with the remaining balance being held as cash on hand. The pre-tax loss on the sale was$133 million , or$1.20 per share.- Operating loss was
$234 million , compared with$334 million in the same quarter last year. Adjusted operating income was$17 million , compared with$61 million a year ago. The decrease in adjusted operating results was driven primarily by organic sales decline, unfavorable mix, and lower fixed cost absorption, offset partially by lower raw material costs and restructuring benefits. Adjusted operating margin was 3.2 percent in the current period and 9.1 percent in the prior period. - The reported effective tax rate (ETR) was 29.7 percent (benefit on a loss) and the adjusted ETR was 13.1 percent (benefit on income). The difference between the reported and adjusted ETR was due to goodwill and other intangible asset impairment charges and the loss on divestiture. For the second quarter of fiscal 2015, the reported ETR was 12.7 percent (provision on a loss) and the adjusted ETR was 17.7 percent (provision on income). The change in the adjusted ETR is driven primarily by a shift in jurisdictional mix of earnings and the impact of the permanent extension of the research and development tax credit in the current year.
- LPS was
$2.12 , compared with the prior year quarter LPS of$4.89 . Adjusted EPS were$0.14 in the current quarter and$0.52 in the prior year quarter.
(Loss) Earnings Per Diluted Share and Effective Tax Rate Reconciliation |
|||||||||||
Second Quarter |
FY2016 |
FY2015 |
|||||||||
Diluted (LPS) EPS |
Effective tax rate |
Diluted (LPS) EPS |
Effective tax rate |
||||||||
Reported Results |
$ |
(2.12) |
29.7% |
$ |
(4.89) |
(12.7)% |
|||||
Restructuring and related charges |
0.08 |
— |
0.13 |
2.3 |
|||||||
Goodwill and other intangible asset impairment charges |
0.98 |
(25.0) |
5.28 |
28.1 |
|||||||
Loss on divestiture |
1.20 |
(17.8) |
— |
— |
|||||||
Adjusted Results |
$ |
0.14 |
(13.1)% |
$ |
0.52 |
17.7% |
- The company realized year-to-date free operating cash flow of
$46 million compared with $82 million in the same period last year. The decrease in free operating cash flow was primarily attributable to lower cash earnings, net of tax, partially offset by improved working capital management.
Segment Developments for the Fiscal 2016 Second Quarter
- Industrial segment sales of
$311 million decreased 16 percent from$372 million in the prior year quarter due to organic decline of 9 percent and unfavorable currency exchange of 7 percent. Excluding the impact of currency exchange and divestiture, sales decreased approximately 31 percent in energy, approximately 9 percent in general engineering, approximately 5 percent in transportation and approximately 3 percent in aerospace and defense. Activity in the energy end market continued to be weak, also adversely impacting the general engineering end market where the company believes there has been destocking in the indirect channel, particularly in theAmericas . Sales in the transportation end market were also impacted by destocking inAsia during the quarter. On a segment regional basis excluding the impact of currency exchange and divestiture, sales decreased 15 percent in theAmericas and 14 percent inAsia , partially offset by 1 percent increase inEurope . - Industrial segment operating income was
$7 million compared with$42 million in the prior year. Adjusted operating income was$22 million compared to$48 million in the prior year quarter, driven by organic sales decline, lower fixed cost absorption, unfavorable currency exchange and unfavorable business mix, partially offset by restructuring program benefits and lower raw material costs. Industrial adjusted operating margin was 7.0 percent compared with 12.8 percent in the prior year. - Infrastructure segment sales of
$213 million decreased 30 percent from$304 million in the prior year quarter. The decrease was driven by 20 percent organic sales decline, 6 percent due to divestiture and 4 percent unfavorable currency exchange. Excluding the impact of currency exchange and divestiture, sales decreased by approximately 34 percent in energy, approximately 23 percent in general engineering and approximately 18 percent in earthworks. The continued weakening in global demand for energy resources and the related over-supply of these commodities, coupled with the economic downturn inAsia - particularlyChina - has had a significant impact on demand for the company's products. This reduced demand has been most severe in the North American region with the company's concentration in oil and gas and underground mining markets. 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 28 percent in theAmericas , 10 percent inEurope and 9 percent inAsia . - Infrastructure segment operating loss was
$238 million , compared with operating loss of$372 million in the same quarter of the prior year. Adjusted operating loss was$4 million compared to adjusted operating income of$15 million in the prior year quarter. The change in adjusted operating results was primarily due to lower organic sales, lower fixed cost absorption and unfavorable business mix, partially offset by the benefits of restructuring savings and lower raw material costs.
Fiscal 2016 First Half Key Developments
- Sales were
$1,079 million , compared with$1,371 million in the same period last year. Sales decreased by 21 percent, reflecting a 13 percent organic decline due to weakening in our served end markets, 7 percent unfavorable currency exchange impact and 1 percent from divestiture. - Operating loss was
$227 million , compared with$273 million in the same period last year. Adjusted operating income was $38 million in the current period, compared with adjusted operating income of $130 million in the prior year. Adjusted operating results decreased due to organic sales decline, lower fixed cost absorption, unfavorable mix and unfavorable currency exchange, offset partially by restructuring benefits and lower raw material costs. Adjusted operating margin was 3.6 percent, compared with 9.5 percent in the prior year. - LPS was
$2 .20 in the current year period, compared with $4.40 the prior year period. Adjusted EPS were $0.29 in the current year period and $1.09 in the prior year period.
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.
Restructuring Programs
The previously announced restructuring programs are 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 |
Approximate Savings Since Inception |
Expected Completion Date |
|
Phase 1 |
$55M-$60M |
$1M |
$58M |
$40M-$45M |
$10M |
$52M |
6/30/2016 |
Phase 2 |
$90M-$100M |
$6M |
$38M |
$40M-$50M |
$8M |
$24M |
12/31/2018 |
Phase 3 |
$40M-$45M |
$2M |
$5M |
$25M-$30M |
$1M |
$1M |
3/31/2017 |
Total |
$185M-$205M |
$9M |
$101M |
$105M-$125M |
$19M |
$77M |
Outlook
At our investor conference in December, we announced a reduction in our full fiscal year expectations. Consistent with that announcement, we have reduced guidance for consolidated adjusted EPS for the full fiscal year to be in the range of $0.85 to
Due to the further deterioration of our end markets as evidenced by continued declines in industrial production indices, U.S. and
The company now expects fiscal 2016 total sales to decline in the range of 20 to 23 percent and organic sales to decline in the range of 10 to 13 percent. Previously, our October guidance provided in the fiscal first quarter 2016 earnings release, the decline in total sales was projected to be in the range of 10 to 14 percent, with a decline in organic sales of 6 to 10 percent. The current guidance reflects the impact of the sale of non-core businesses, whereas the previous guidance did not reflect this transaction.
Consistent with the change of expectations in December, the company has reduced EPS approximately 40 percent at the midpoint, and now expects consolidated adjusted EPS to be in the range of
FY16 mid-point previous EPS guidance - post divestiture |
$ |
1.60 |
|
Organic sales |
(0.48) |
||
Absorption, mix, productivity and raw materials |
(0.37) |
||
Cost reductions and performance-based compensation adjustments |
0.06 |
||
Taxes * |
0.15 |
||
Other |
(0.01) |
||
FY16 mid-point revised EPS guidance |
$ |
0.95 |
* The revised outlook includes a lower ETR than was previously expected which positively impacted EPS by approximately $0.15 per share. |
The company now expects to generate cash flow from operations between
As previously stated, the impact from the sale of non-core businesses has been reflected in
Dividend Declared
The company will discuss its fiscal 2016 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
About
At the forefront of advanced materials innovation for more than 75 years,
FINANCIAL HIGHLIGHTS |
||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) |
||||||||||||||
Three Months Ended |
Six Months Ended |
|||||||||||||
(in thousands, except per share amounts) |
2015 |
2014 |
2015 |
2014 |
||||||||||
Sales |
$ |
524,021 |
$ |
675,631 |
$ |
1,079,376 |
$ |
1,370,572 |
||||||
Cost of goods sold |
383,215 |
476,173 |
787,345 |
953,015 |
||||||||||
Gross profit |
140,806 |
199,458 |
292,031 |
417,557 |
||||||||||
Operating expense |
123,580 |
137,459 |
252,824 |
285,947 |
||||||||||
Restructuring and asset impairment charges |
112,237 |
388,839 |
121,357 |
390,402 |
||||||||||
Loss on divestiture |
133,307 |
— |
133,307 |
— |
||||||||||
Amortization of intangibles |
5,638 |
6,931 |
11,886 |
13,959 |
||||||||||
Operating loss |
(233,956) |
(333,771) |
(227,343) |
(272,751) |
||||||||||
Interest expense |
6,803 |
7,960 |
13,782 |
16,170 |
||||||||||
Other (income) expense, net |
(732) |
2,223 |
353 |
409 |
||||||||||
Loss before income taxes |
(240,027) |
(343,954) |
(241,478) |
(289,330) |
||||||||||
(Benefit) provision for income taxes |
(71,216) |
43,751 |
(66,964) |
58,248 |
||||||||||
Net loss |
(168,811) |
(387,705) |
(174,514) |
(347,578) |
||||||||||
Less: Net income attributable to noncontrolling interests |
416 |
597 |
939 |
1,236 |
||||||||||
Net loss attributable to Kennametal |
$ |
(169,227) |
$ |
(388,302) |
$ |
(175,453) |
$ |
(348,814) |
||||||
PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL SHAREHOLDERS |
||||||||||||||
Basic loss earnings per share |
$ |
(2.12) |
$ |
(4.89) |
$ |
(2.20) |
$ |
(4.40) |
||||||
Diluted loss earnings per share |
$ |
(2.12) |
$ |
(4.89) |
$ |
(2.20) |
$ |
(4.40) |
||||||
Dividends per share |
$ |
0.20 |
$ |
0.18 |
$ |
0.40 |
$ |
0.36 |
||||||
Basic weighted average shares outstanding |
79,840 |
79,343 |
79,784 |
79,229 |
||||||||||
Diluted weighted average shares outstanding |
79,840 |
79,343 |
79,784 |
79,229 |
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) |
|||||||
(in thousands) |
December 31, 2015 |
June 30, 2015 |
|||||
ASSETS |
|||||||
Cash and cash equivalents |
$ |
138,978 |
$ |
105,494 |
|||
Accounts receivable, net |
333,402 |
445,373 |
|||||
Inventories |
477,499 |
575,531 |
|||||
Other current assets |
113,113 |
132,148 |
|||||
Total current assets |
1,062,992 |
1,258,546 |
|||||
Property, plant and equipment, net |
719,529 |
815,825 |
|||||
Goodwill and other intangible assets, net |
514,002 |
704,058 |
|||||
Other assets |
143,729 |
71,100 |
|||||
Total assets |
$ |
2,440,252 |
$ |
2,849,529 |
|||
LIABILITIES |
|||||||
Current maturities of long-term debt and capital leases, including notes payable |
$ |
5,942 |
$ |
15,702 |
|||
Accounts payable |
151,597 |
187,381 |
|||||
Other current liabilities |
237,444 |
279,661 |
|||||
Total current liabilities |
394,983 |
482,744 |
|||||
Long-term debt and capital leases |
700,711 |
735,885 |
|||||
Other liabilities |
190,281 |
255,465 |
|||||
Total liabilities |
1,285,975 |
1,474,094 |
|||||
KENNAMETAL SHAREHOLDERS' EQUITY |
1,124,848 |
1,345,807 |
|||||
NONCONTROLLING INTERESTS |
29,429 |
29,628 |
|||||
Total liabilities and equity |
$ |
2,440,252 |
$ |
2,849,529 |
SEGMENT DATA (UNAUDITED) |
Three Months Ended |
Six Months Ended |
||||||||||||
(in thousands) |
2015 |
2014 |
2015 |
2014 |
||||||||||
Outside Sales: |
||||||||||||||
Industrial |
$ |
310,883 |
$ |
371,557 |
$ |
624,217 |
$ |
749,415 |
||||||
Infrastructure |
213,138 |
304,074 |
455,159 |
621,157 |
||||||||||
Total outside sales |
$ |
524,021 |
$ |
675,631 |
$ |
1,079,376 |
$ |
1,370,572 |
||||||
Sales By Geographic Region: |
||||||||||||||
North America |
$ |
233,647 |
$ |
319,495 |
$ |
486,797 |
$ |
654,065 |
||||||
Western Europe |
145,842 |
183,583 |
301,563 |
374,437 |
||||||||||
Rest of World |
144,532 |
172,553 |
291,016 |
342,070 |
||||||||||
Total sales by geographic region |
$ |
524,021 |
$ |
675,631 |
$ |
1,079,376 |
$ |
1,370,572 |
||||||
Operating Income (Loss): |
||||||||||||||
Industrial |
$ |
7,360 |
$ |
41,795 |
$ |
27,109 |
$ |
85,812 |
||||||
Infrastructure |
(237,738) |
(371,920) |
(246,166) |
(352,699) |
||||||||||
Corporate (1) |
(3,578) |
(3,646) |
(8,286) |
(5,864) |
||||||||||
Total operating loss |
$ |
(233,956) |
$ |
(333,771) |
$ |
(227,343) |
$ |
(272,751) |
(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, 2015 - (UNAUDITED) |
||||||||||||||||||||
(in thousands, |
Sales |
Gross |
Operating |
Operating |
Net (loss) |
Diluted |
Effective |
|||||||||||||
Reported results |
$ |
524,021 |
$ |
140,806 |
$ |
123,580 |
$ |
(233,956) |
$ |
(169,227) |
$ |
(2.12) |
29.7% |
|||||||
Reported margins |
26.9% |
23.6% |
(44.6)% |
|||||||||||||||||
Restructuring and related charges (3) |
— |
1,676 |
(3,405) |
8,862 |
6,393 |
0.08 |
— |
|||||||||||||
Goodwill and other intangible asset impairment charges |
— |
— |
— |
108,456 |
78,239 |
0.98 |
(25.0) |
|||||||||||||
Loss on divestiture |
— |
— |
— |
133,307 |
96,167 |
1.20 |
(17.8) |
|||||||||||||
Adjusted results |
$ |
524,021 |
$ |
142,482 |
$ |
120,175 |
$ |
16,669 |
$ |
11,572 |
$ |
0.14 |
(13.1)% |
|||||||
Adjusted margins |
27.2% |
22.9% |
3.2% |
(2) Represents amounts attributable to Kennametal Shareholders. |
(3) Includes pre-tax restructuring related charges recorded in corporate of $2,281. |
(in thousands, except percents) |
Industrial |
Industrial |
Infrastructure |
Infrastructure |
||||
Reported results |
$ |
310,883 |
$ |
7,360 |
$ |
213,138 |
$ |
(237,738) |
Reported operating margin |
2.4% |
(111.5)% |
||||||
Restructuring and related charges (4) |
— |
4,767 |
— |
1,814 |
||||
Goodwill and other intangible asset impairment charges |
— |
2,345 |
— |
106,111 |
||||
Loss on divestiture |
— |
7,258 |
— |
126,049 |
||||
Adjusted results |
$ |
310,883 |
$ |
21,730 |
$ |
213,138 |
$ |
(3,764) |
Adjusted operating margin |
7.0% |
(1.8)% |
(4) Excludes pre-tax restructuring related charges recorded in corporate of $2,281. |
THREE MONTHS ENDED DECEMBER 31, 2014 - (UNAUDITED) |
||||||||||||||||||||
(in thousands, |
Sales |
Gross |
Operating |
Operating |
Net (loss) |
Diluted |
Effective |
|||||||||||||
Reported results |
$ |
675,631 |
$ |
199,458 |
$ |
137,459 |
$ |
(333,771) |
$ |
(388,302) |
$ |
(4.89) |
(12.7)% |
|||||||
Reported margins |
29.5% |
20.3% |
(49.4)% |
|||||||||||||||||
Restructuring and |
— |
2,677 |
(3,415) |
12,930 |
10,385 |
0.13 |
2.3 |
|||||||||||||
Goodwill and other |
— |
— |
— |
382,000 |
419,273 |
5.28 |
28.1 |
|||||||||||||
Adjusted results |
$ |
675,631 |
$ |
202,135 |
$ |
134,044 |
$ |
61,159 |
$ |
41,356 |
$ |
0.52 |
17.7% |
|||||||
Adjusted margins |
29.9% |
19.8% |
9.1% |
(5) Includes pre-tax restructuring related charges recorded in corporate of $1,844. |
(in thousands, except percents) |
Industrial |
Industrial |
Infrastructure |
Infrastructure |
||||
Reported results |
$ |
371,557 |
$ |
41,795 |
$ |
304,074 |
$ |
(371,920) |
Reported operating margin |
11.2% |
(122.3)% |
||||||
Restructuring and related charges(6) |
— |
5,921 |
— |
5,165 |
||||
Goodwill and other intangible asset |
— |
— |
— |
382,000 |
||||
Adjusted results |
$ |
371,557 |
$ |
47,716 |
$ |
304,074 |
$ |
15,245 |
Adjusted operating margin |
12.8% |
5.0% |
(6) Excludes pre-tax restructuring related charges recorded in corporate of $1,844. |
SIX MONTHS ENDED DECEMBER 31, 2015 - (UNAUDITED) |
|||||||||||
(in thousands, except percents) |
Sales |
Operating |
Net (loss) |
Diluted |
|||||||
Reported results |
$ |
1,079,376 |
$ |
(227,343) |
$ |
(175,453) |
$ |
(2.20) |
|||
Reported operating margin |
(21.1)% |
||||||||||
Restructuring and related charges |
— |
23,974 |
17,736 |
0.22 |
|||||||
Goodwill and other intangible asset impairment charges |
— |
108,456 |
80,236 |
1.01 |
|||||||
Loss on divestiture and related charges |
— |
133,307 |
100,349 |
1.26 |
|||||||
Adjusted results |
$ |
1,079,376 |
$ |
38,394 |
$ |
22,868 |
$ |
0.29 |
|||
Adjusted operating margin |
3.6% |
SIX MONTHS ENDED DECEMBER 31, 2014 - (UNAUDITED) |
|||||||||||
(in thousands, except percents) |
Sales |
Operating |
Net (loss) |
Diluted |
|||||||
Reported results |
$ |
1,370,572 |
$ |
(272,751) |
$ |
(348,814) |
$ |
(4.40) |
|||
Reported operating margin |
(19.9)% |
||||||||||
Restructuring and related charges |
— |
20,375 |
15,941 |
0.20 |
|||||||
Goodwill and other intangible asset impairment charges |
— |
382,000 |
419,273 |
5.29 |
|||||||
Adjusted results |
$ |
1,370,572 |
$ |
129,624 |
$ |
86,400 |
$ |
1.09 |
|||
Adjusted operating margin |
9.5% |
FREE OPERATING CASH FLOW (UNAUDITED) |
Six Months Ended |
|||||||
December 31, |
||||||||
(in thousands) |
2015 |
2014 |
||||||
Net cash flow from operating activities |
$ |
102,790 |
$ |
135,322 |
||||
Purchases of property, plant and equipment |
(61,175) |
(54,672) |
||||||
Proceeds from disposals of property, plant and equipment |
4,402 |
978 |
||||||
Free operating cash flow |
$ |
46,017 |
$ |
81,628 |
To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/kennametal-announces-fiscal-second-quarter-2016-results-completes-sale-of-non-core-businesses-300214022.html
SOURCE
Investor Relations: Kelly Boyer, 412-248-8287; or Corporate Relations - Media: Diane Johnson, 412-248-8220