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Kennametal Announces Fiscal Third Quarter 2014 Results
"We delivered solid results in the March quarter," said
Cardoso added, "The integration of our Tungsten Materials Business is on-track to deliver key objectives. The related restructuring actions are expected to result in productivity improvements as well as significant cost savings. We remain dedicated to building on our respective strengths to bring even greater value for the combined entity."
Fiscal 2014 Third Quarter Key Developments
- Sales were
$755 million , compared with$655 million in the same quarter last year. Sales increased by 15 percent, reflecting a 12 percent increase from the TMB acquisition, a 3 percent organic increase and a 1 percent increase from more business days, partially offset by a 1 percent decrease from unfavorable currency exchange. - Operating income was
$77 million , compared with$75 million in the same quarter last year. Excluding nonrecurring charges and TMB results, adjusted operating income was$86 million . Operating margin was 10.2 percent, compared with an operating margin of 11.4 percent in the prior year. Adjusted operating margin was 12.7 percent. - The reported effective tax rate was 24.1 percent compared to 18.5 percent in the prior year quarter. The prior year rate was favorably impacted by the extension of the credit for increasing research activities contained in the American Taxpayer Relief Act of 2012 that was enacted in the
March 2013 quarter. - During the quarter, TMB contributed sales of
$78 million and on-going operating income of$3 million or$0.01 per share, excluding the inventory step-up purchase accounting impact of$8 million or$0.07 per share. Integration efforts are on-track related to the acquisition. - Restructuring and related charges of
$3 million pre-tax or$0.02 per share were incurred during the current quarter. - EPS were
$0.64 , compared with the prior year quarter EPS of$0.67 . Adjusted EPS were$0.74 in the current year period. - Adjusted return on invested capital (ROIC) was 7.8 percent as of
March 31, 2014 due to increased debt related to acquisitions. - Year-to-date, the company generated
$153 million in cash flow from operating activities, compared with$150 million in the prior year period. Net capital expenditures were$85 million and$52 million for the nine months endedMarch 31, 2014 and 2013, respectively. The company realized free operating cash flow of$68 million compared with$98 million for the same period last year.
Segment Developments for the Fiscal 2014 Third Quarter
- Industrial segment sales of
$400 million increased 13 percent from$353 million in the prior year quarter. This increase was due to 8 percent growth related to the TMB acquisition, 5 percent organic growth and a 1 percent increase due to more business days, partially offset by a 1 percent decrease from unfavorable currency exchange. - Excluding TMB, Industrial sales increased 8 percent in general engineering and 5 percent in transportation, partially offset by a 3 percent decrease in aerospace and defense. General engineering increased due to continued demand from distribution channels and the transportation market benefited from increased demand in the light vehicle markets world-wide. Aerospace and defense reflected higher comparables related to government orders in the prior year quarter. Sales increased in all geographies. On a regional basis sales increased 11 percent in
Asia , 9 percent inEurope and 1 percent in theAmericas due to the weather effects inNorth America . - Industrial segment operating income was
$51 million for both the current and prior year periods. Excluding nonrecurring charges and TMB results, adjusted operating income was$58 million . Industrial adjusted operating margin was 15.6 percent compared with 14.5 percent in the prior year. - Infrastructure segment sales of
$356 million increased 18 percent from$303 million in the prior year. The increase was driven by 16 percent growth related to the TMB acquisition and a 3 percent favorable impact from more business days, partially offset by a 1 percent decrease due to unfavorable currency exchange. Organic growth was flat. - Excluding TMB, Infrastructure sales increased by 9 percent in energy, partially offset by a decrease of 6 percent in earthworks. Energy sales continued to improve year over year, reflecting improving demand in oil and gas drilling activity in the U.S., coupled with continued gains in production, completion and process applications. Earthworks sales decreased due to persistently weak underground coal and surface mining markets in the U.S. and
China . On a regional basis sales grew 4 percent inEurope and 3 percent in theAmericas even with the weather impacts inNorth America , partially offset by a decrease of 9 percent inAsia . - Infrastructure segment operating income was
$28 million , compared with$26 million in the same quarter of the prior year. Excluding nonrecurring charges and TMB results, adjusted operating income was$31 million . Infrastructure adjusted operating margin was 10.2 percent compared with 8.6 percent in the prior year.
As previously disclosed, segment results were restated for certain sales reclassifications based on products and technologies.
Fiscal 2014 Year-To-Date Key Developments
- Sales were
$2,065 million , compared with$1,918 million in the same period last year. Sales increased by 8 percent, driven by 6 percent growth related to the TMB acquisition and 2 percent increase due to more business days. - Operating income was
$185 million , compared with$206 million in the same period last year. Excluding nonrecurring charges and TMB results, adjusted operating income was$208 million . Operating margin was 9.0 percent compared with an operating margin of 10.7 percent in the prior year. Adjusted operating margin was 10.7 percent. - Restructuring and related charges of
$5 million pre-tax or$0.04 per share were recorded year-to-date. - EPS were
$1.42 , compared with the prior year period EPS of$1.76 . Adjusted EPS was$1.74 in the current year period.
Earnings Per Diluted Share Reconciliation for the Quarter and Year-To-Date Periods ended
FY 2014 |
Third Quarter |
Year-To-Date |
||||
Reported EPS |
$ |
0.64 |
$ |
1.42 |
||
TMB results: |
||||||
Base operating income |
(0.04) |
(0.05) |
||||
Depreciation and amortization step-up |
0.03 |
0.05 |
||||
On-going operating income |
(0.01) |
— |
||||
Inventory step-up |
0.07 |
0.14 |
||||
Acquisition-related charges |
0.02 |
0.05 |
||||
Restructuring and related charges |
0.02 |
0.04 |
||||
Tax repatriation expense |
— |
0.09 |
||||
Adjusted EPS |
$ |
0.74 |
$ |
1.74 |
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
The company now expects fiscal 2014 total sales growth in the range of 10 to 11 percent. TMB is estimated to contribute 7 to 8 percent sales growth. Organic sales growth is projected to range from 2 to 3 percent. Previously, the company had forecast total sales growth ranging from 12 to 13 percent, with organic sales growth ranging from 2 to 4 percent.
With one quarter remaining in fiscal 2014,
Below is a detail of the fiscal year 2014 guidance related to the
Fiscal Year 2014 Guidance: |
|
KMT base business |
$2.60 - $2.70 |
TMB results: |
|
Base operating income |
$0.10 - $0.15 |
Depreciation and amortization step-up |
($0.07 - $0.09) |
Total on-going operations |
$2.63 - $2.76 |
Nonrecurring charges: |
|
TMB Inventory step-up |
($0.14) |
Acquisition-related charges |
($0.03 - $0.06) |
Restructuring and related charges |
($0.10 - $0.15) |
Tax repatriation expense |
($0.09) |
Total nonrecurring charges |
($0.36 - $0.44) |
The company continues to expect to generate cash flow from operations ranging from
Dividend Declared
The company will discuss its fiscal 2014 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 more than 75 years as an industrial technology leader,
FINANCIAL HIGHLIGHTS |
||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) |
||||||||||||||
Three Months Ended March 31, |
Nine Months Ended March 31, |
|||||||||||||
(in thousands, except per share amounts) |
2014 |
2013 |
2014 |
2013 |
||||||||||
Sales |
$ |
755,242 |
$ |
655,360 |
$ |
2,064,986 |
$ |
1,917,963 |
||||||
Cost of goods sold |
516,287 |
446,865 |
1,420,823 |
1,301,673 |
||||||||||
Gross profit |
238,955 |
208,495 |
644,163 |
616,290 |
||||||||||
Operating expense |
152,298 |
128,328 |
434,983 |
394,967 |
||||||||||
Restructuring charges |
2,703 |
— |
5,013 |
— |
||||||||||
Amortization of intangibles |
7,124 |
5,194 |
18,791 |
15,501 |
||||||||||
Operating income |
76,830 |
74,973 |
185,376 |
205,822 |
||||||||||
Interest expense |
8,883 |
7,504 |
24,001 |
20,430 |
||||||||||
Other expense (income), net |
(561) |
749 |
906 |
502 |
||||||||||
Income from continuing operations before income taxes |
68,508 |
66,720 |
160,469 |
184,890 |
||||||||||
Provision for income taxes |
16,514 |
12,344 |
45,750 |
40,158 |
||||||||||
Net income |
51,994 |
54,376 |
114,719 |
144,732 |
||||||||||
Less: Net income attributable to noncontrolling interests |
1,129 |
460 |
1,808 |
2,285 |
||||||||||
Net income attributable to Kennametal |
$ |
50,865 |
$ |
53,916 |
$ |
112,911 |
$ |
142,447 |
||||||
PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL SHAREOWNERS |
||||||||||||||
Basic earnings per share |
$ |
0.65 |
$ |
0.68 |
$ |
1.44 |
$ |
1.79 |
||||||
Diluted earnings per share |
$ |
0.64 |
$ |
0.67 |
$ |
1.42 |
$ |
1.76 |
||||||
Dividends per share |
$ |
0.18 |
$ |
0.16 |
$ |
0.54 |
$ |
0.48 |
||||||
Basic weighted average shares outstanding |
78,718 |
79,294 |
78,631 |
79,744 |
||||||||||
Diluted weighted average shares outstanding |
79,744 |
80,619 |
79,622 |
80,912 |
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) |
|||||||
(in thousands) |
March 31, 2014 |
June 30, 2013 |
|||||
ASSETS |
|||||||
Cash and cash equivalents |
$ |
161,819 |
$ |
377,316 |
|||
Accounts receivable, net |
528,454 |
445,322 |
|||||
Inventories |
738,857 |
578,795 |
|||||
Other current assets |
109,919 |
98,040 |
|||||
Total current assets |
1,539,049 |
1,499,473 |
|||||
Property, plant and equipment, net |
885,627 |
741,482 |
|||||
Goodwill and other intangible assets, net |
1,323,749 |
944,520 |
|||||
Other assets |
126,818 |
115,564 |
|||||
Total assets |
$ |
3,875,243 |
$ |
3,301,039 |
|||
LIABILITIES |
|||||||
Current maturities of long-term debt and capital leases, including notes payable |
$ |
113,424 |
$ |
44,319 |
|||
Accounts payable |
203,669 |
190,623 |
|||||
Other current liabilities |
272,245 |
232,651 |
|||||
Total current liabilities |
589,338 |
467,593 |
|||||
Long-term debt and capital leases |
1,022,129 |
703,626 |
|||||
Other liabilities |
329,218 |
317,527 |
|||||
Total liabilities |
1,940,685 |
1,488,746 |
|||||
KENNAMETAL SHAREOWNERS' EQUITY |
1,901,801 |
1,781,826 |
|||||
NONCONTROLLING INTERESTS |
32,757 |
30,467 |
|||||
Total liabilities and equity |
$ |
3,875,243 |
$ |
3,301,039 |
SEGMENT DATA (UNAUDITED) |
Three Months Ended March 31, |
Nine Months Ended March 31, |
||||||||||||
(in thousands) |
2014 |
2013 |
2014 |
2013 |
||||||||||
Outside Sales: |
||||||||||||||
Industrial |
$ |
399,669 |
$ |
352,793 |
$ |
1,108,546 |
$ |
1,023,994 |
||||||
Infrastructure |
355,573 |
302,567 |
956,440 |
893,969 |
||||||||||
Total outside sales |
$ |
755,242 |
$ |
655,360 |
$ |
2,064,986 |
$ |
1,917,963 |
||||||
Sales By Geographic Region: |
||||||||||||||
North America |
$ |
351,532 |
$ |
289,508 |
$ |
923,100 |
$ |
852,675 |
||||||
Western Europe |
238,260 |
199,225 |
641,548 |
559,812 |
||||||||||
Rest of World |
165,450 |
166,627 |
500,338 |
505,476 |
||||||||||
Total sales by geographic region |
$ |
755,242 |
$ |
655,360 |
$ |
2,064,986 |
$ |
1,917,963 |
||||||
Operating Income: |
||||||||||||||
Industrial |
$ |
51,403 |
$ |
51,173 |
$ |
124,441 |
$ |
131,177 |
||||||
Infrastructure |
28,012 |
26,120 |
68,305 |
81,623 |
||||||||||
Corporate (1) |
(2,585) |
(2,320) |
(7,370) |
(6,978) |
||||||||||
Total operating income |
$ |
76,830 |
$ |
74,973 |
$ |
185,376 |
$ |
205,822 |
(1) Represents unallocated corporate expenses. |
NOTE: Previously disclosed segment results were restated for certain sales reclassifications based on products and technologies. |
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, 2014 - (UNAUDITED) |
||||||||||||
(in thousands, except percents) |
Sales |
Operating Income |
Net Income (2) |
Diluted EPS |
||||||||
2014 Reported Results |
$ |
755,242 |
76,830 |
$ |
50,865 |
$ |
0.64 |
|||||
2014 Reported Operating Margin |
10.2 % |
|||||||||||
TMB results: |
||||||||||||
Base results |
(77,667) |
(7,380) |
(3,892) |
(0.04) |
||||||||
Depreciation & amortization step-up |
— |
3,917 |
2,488 |
0.03 |
||||||||
Inventory step-up |
— |
7,721 |
5,769 |
0.07 |
||||||||
Acquisition-related charges |
— |
2,446 |
1,703 |
0.02 |
||||||||
Restructuring and related charges |
— |
2,779 |
1,747 |
0.02 |
||||||||
2014 Adjusted Results |
$ |
677,575 |
$ |
86,313 |
$ |
58,680 |
$ |
0.74 |
||||
2014 Adjusted Operating Margin |
12.7 % |
(2) Represents amounts attributable to Kennametal Shareowners. |
THREE MONTHS ENDED MARCH 31, 2014 - (UNAUDITED) |
||||||||||||
(in thousands, except percents) |
Industrial Sales |
Infrastructure Sales |
Industrial Operating Income |
Infrastructure Operating Income |
||||||||
2014 Reported Results |
$ |
399,669 |
$ |
355,573 |
$ |
51,403 |
$ |
28,012 |
||||
2014 Reported Operating Margin |
12.9 % |
7.9 % |
||||||||||
TMB results: |
||||||||||||
Base sales and operating income |
(28,394) |
(49,273) |
(2,858) |
(4,522) |
||||||||
Depreciation & amortization step-up |
— |
— |
1,279 |
2,638 |
||||||||
Inventory step-up |
— |
— |
5,412 |
2,309 |
||||||||
Acquisition-related charges |
— |
— |
955 |
1,491 |
||||||||
Restructuring and related charges |
— |
— |
1,569 |
1,210 |
||||||||
2014 Adjusted Results |
$ |
371,275 |
$ |
306,300 |
$ |
57,760 |
$ |
31,138 |
||||
2014 Adjusted Operating Margin |
15.6 % |
10.2 % |
NINE MONTHS ENDED MARCH 31, 2014 - (UNAUDITED) |
||||||||||||
(in thousands, except percents) |
Sales |
Operating Income |
Net Income (2) |
Diluted EPS |
||||||||
2014 Reported Results |
$ |
2,064,986 |
$ |
185,376 |
$ |
112,911 |
$ |
1.42 |
||||
2014 Reported Operating Margin |
9.0 % |
|||||||||||
TMB results: |
||||||||||||
Base results |
(122,493) |
(9,267) |
(3,801) |
(0.05) |
||||||||
Depreciation & amortization step-up |
— |
5,990 |
3,816 |
0.05 |
||||||||
Inventory step-up |
— |
15,420 |
11,518 |
0.14 |
||||||||
Acquisition-related charges |
— |
5,278 |
3,734 |
0.05 |
||||||||
Restructuring and related charges |
— |
5,091 |
3,482 |
0.04 |
||||||||
Tax repatriation expense |
— |
— |
7,170 |
0.09 |
||||||||
2014 Adjusted Results |
$ |
1,942,493 |
$ |
207,888 |
$ |
138,830 |
$ |
1.74 |
||||
2014 Adjusted Operating Margin |
10.7 % |
FREE OPERATING CASH FLOW (UNAUDITED) |
Nine Months Ended |
|||||||
March 31, |
||||||||
(in thousands) |
2014 |
2013 |
||||||
Net cash flow from operating activities |
$ |
153,242 |
$ |
150,358 |
||||
Purchases of property, plant and equipment |
(85,961) |
(53,808) |
||||||
Proceeds from disposals of property, plant and equipment |
928 |
1,763 |
||||||
Free operating cash flow |
$ |
68,209 |
$ |
98,313 |
RETURN ON INVESTED CAPITAL (UNAUDITED) |
||||||||||||||||||||||||
March 31, 2014 (in thousands, except percents) |
||||||||||||||||||||||||
Invested Capital |
3/31/2014 |
12/31/2013 |
9/30/2013 |
6/30/2013 |
3/31/2013 |
Average |
||||||||||||||||||
Debt |
$ |
1,135,553 |
$ |
1,145,729 |
$ |
706,331 |
$ |
747,945 |
$ |
751,030 |
$ |
897,318 |
||||||||||||
Total equity |
1,934,558 |
1,903,304 |
1,873,194 |
1,812,293 |
1,753,834 |
1,855,437 |
||||||||||||||||||
Total |
$ |
3,070,111 |
$ |
3,049,033 |
$ |
2,579,525 |
$ |
2,560,238 |
$ |
2,504,864 |
$ |
2,752,755 |
||||||||||||
Three Months Ended |
||||||||||||||||||||||||
Interest Expense |
3/31/2014 |
12/31/2013 |
9/30/2013 |
6/30/2013 |
Total |
|||||||||||||||||||
Interest expense |
$ |
8,883 |
$ |
8,037 |
$ |
7,081 |
$ |
7,042 |
$ |
31,043 |
||||||||||||||
Income tax benefit |
7,792 |
|||||||||||||||||||||||
Total interest expense, net of tax |
$ |
23,251 |
||||||||||||||||||||||
Net Income |
3/31/2014 |
12/31/2013 |
9/30/2013 |
6/30/2013 |
Total |
|||||||||||||||||||
Net income attributable to Kennametal, as reported |
$ |
50,865 |
$ |
24,209 |
$ |
37,837 |
$ |
60,818 |
$ |
173,729 |
||||||||||||||
Acquisition-related charges |
1,703 |
1,258 |
775 |
— |
3,736 |
|||||||||||||||||||
Restructuring and related charges |
1,747 |
1,733 |
— |
— |
3,480 |
|||||||||||||||||||
Tax repatriation expense |
— |
7,170 |
— |
— |
7,170 |
|||||||||||||||||||
Noncontrolling interest |
1,129 |
(42) |
721 |
1,366 |
3,174 |
|||||||||||||||||||
Net income, adjusted |
$ |
55,444 |
$ |
34,328 |
$ |
39,333 |
$ |
62,184 |
$ |
191,289 |
||||||||||||||
Total interest expense, net of tax |
23,251 |
|||||||||||||||||||||||
$ |
214,540 |
|||||||||||||||||||||||
Average invested capital |
$ |
2,752,755 |
||||||||||||||||||||||
Adjusted Return on Invested Capital |
7.8 % |
|||||||||||||||||||||||
Return on invested capital calculated utilizing net income, as reported is as follows: |
||||||||||||||||||||||||
Net income attributable to Kennametal, as reported |
$ |
173,729 |
||||||||||||||||||||||
Total interest expense, net of tax |
23,251 |
|||||||||||||||||||||||
$ |
196,980 |
|||||||||||||||||||||||
Average invested capital |
$ |
2,752,755 |
||||||||||||||||||||||
Return on Invested Capital |
7.2 % |
SOURCE
Investor Relations CONTACT: Quynh McGuire, PHONE: 724-539-6559; Corporate Relations - Media CONTACT: Lorrie Paul Crum, PHONE: 724-539-6792