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Kennametal Announces Fiscal Third Quarter 2013 Results
"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
"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
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 inIndia byJune 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 endedMarch 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
- 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 theAmericas , 10 percent inAsia and 9 percent inEurope . - 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 inNorth 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 theAmericas , 6 percent inEurope and remained relatively flat inAsia . - 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
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
Outlook
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
The company now expects to generate cash flow from operations between
Dividend Declared
The company will discuss its fiscal 2013 third-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 its 75th year as an industrial technology leader,
FINANCIAL HIGHLIGHTS |
||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) |
||||||||||||||
Three Months Ended |
Nine Months Ended |
|||||||||||||
(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 |
Nine Months Ended |
|||||||||||||||||||
(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
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 |
|||||||||||
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 |
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 |
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
Investor Relations, Quynh McGuire, 724-539-6559, or Corporate Relations - Media, Lorrie Paul Crum, 724-539-6792