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Kennametal Announces Fourth Quarter And Fiscal 2016 Results; Provides Fiscal 2017 Outlook
During the current quarter, the company recorded a discrete tax charge of
"We continued to make meaningful progress to better position
De Feo continued, "As we look to fiscal year 2017, we expect to see some improvements in certain end markets. We have a solid plan, and even without a modest upturn in our end markets, we believe our improving cost position in combination with a more robust and proactive commercial strategy will produce improved margins. I am optimistic about the future for
Fiscal 2016 Fourth Quarter Key Developments
- Sales were
$521 million compared with$638 million in the same quarter last year. Sales decreased by 18 percent, reflecting a 9 percent decline due to divestiture, a 9 percent organic sales decline and a 1 percent unfavorable currency exchange impact, offset partially by a 1 percent increase due to more business days.
- On a combined basis, pre-tax restructuring and related charges amounted to
$16 million , or$0.10 per share, and pre-tax benefits were approximately$20 million , or$0.19 per share in the quarter. In the same quarter last year, pre-tax restructuring and related charges were$21 million , or$0.24 per share, and pre-tax benefits were approximately$17 million , or$0.16 per share.
- Operating income was
$25 million , compared with$35 million in the same quarter last year. Adjusted operating income was$47 million , compared with$53 million in the prior year quarter. The decrease in operating income in the current period was primarily driven by organic sales decline and unfavorable mix in both segments, partially offset by lower raw material costs and restructuring benefits. Adjusted operating margin was 9.0 percent in the current period and 9.2 percent in the prior period.
- The reported effective tax rate (ETR) was not meaningful due to the
$81 million U.S. deferred tax valuation allowance recorded in the current quarter. The adjusted ETR was 16.0 percent. For the fourth quarter of fiscal 2015, the reported ETR was 24.8 percent and the adjusted ETR was 22.5 percent. The difference between reported and adjusted effective tax rates is mainly related to the U.S. deferred tax valuation allowance, tax impact of prior impairment charges, divestiture and restructuring and related charges. The primary drivers of the change in adjusted rates are favorable jurisdictional mix of earnings and a higher benefit from the RD&E credit in the current year quarter.
- LPS was
$0.83 , compared with the prior year quarter EPS of$0.26 . Adjusted EPS were$0.44 in the current year quarter and$0.44 in the prior year quarter.
- The company generated year-to-date free operating cash flow of
$115 million compared with$267 million in the prior year. The decrease in free operating cash flow was primarily by lower cash earnings, higher net capital expenditures and higher restructuring, tax and pension payments, partially offset by reductions in working capital.
Segment Developments for the Fiscal 2016 Fourth Quarter
- Industrial segment sales of
$329 million decreased 8 percent from$358 million in the prior year quarter due to organic sales decline of 8 percent and unfavorable currency exchange of 1 percent, partially offset by a 1 percent increase due to more business days. Excluding the impact of currency exchange, sales decreased approximately 17 in energy, 8 in general engineering and 4 percent in transportation and increased approximately 9 percent in aerospace and defense. Energy market sales declined at a slower pace. Oil and gas markets continued to remain weak. Lower activity in energy and other commodity focused markets continued to adversely spill into the general engineering market, particularly in the Americas. Stable transportation market sales in theAmericas and EMEA were more than offset by fewer machine deliveries in Asia. Aerospace sales grew across all regions with stronger growth occurring in EMEA andAsia . On a segment regional basis excluding the impact of currency exchange and divestiture, sales decreased 11 percent inAsia , 8 percent in theAmericas , and 1 percent inEurope .
- Industrial segment operating income was
$29 million compared with$40 million in the prior year period. Adjusted operating income was$41 million compared to$50 million in the prior year quarter, driven by organic sales decline and unfavorable product mix, partially offset by lower raw material costs and incremental restructuring benefits. Industrial adjusted operating margin was 12.4 percent compared with 14.2 percent in the prior year.
- Infrastructure segment sales of
$193 million decreased 31 percent from$280 million in the prior year. The decrease was driven by the divestiture impact of 20 percent, 11 percent organic sales decline and 1 percent unfavorable currency exchange, offset partially by an increase of 1 percent due to more business days. Excluding the impact of currency exchange, Infrastructure sales decreased approximately 23 percent in energy, 13 percent in earthworks and 10 percent in general engineering. The energy market was impacted by continuing weakness in oil and gas end markets. Additionally, challenging conditions in underground mining continued to drive sales declines, particularly inNorth America , while highway construction sales showed improvement in conjunction with the road rehabilitation season. On a segment regional basis excluding the impact of divestiture and currency exchange, sales increased 5 percent inEurope , while sales decreased 18 percent in theAmericas and 11 percent inAsia .
- Infrastructure segment operating loss was
$4 million in both 2016 and 2015, respectively. Adjusted operating income was$6 million compared to$2 million in the prior year quarter. Adjusted operating income increased as the effects of divestiture and unfavorable mix were more than offset by incremental restructuring benefits. Infrastructure adjusted operating margin was 3.4 percent compared with 1.1 percent in the prior year.
Fiscal 2016 Key Developments
- Sales were
$2,098 million , compared with$2,647 million last year. Sales decreased by 21 percent, driven by 11 percent organic sales decline, divestiture impact of 5 percent and 5 percent unfavorable currency exchange.
- Combined restructuring programs delivered full fiscal 2016 year-over-year incremental savings of approximately
$44 million .
- Operating loss was
$175 million , compared with$358 million in the same period last year. Adjusted operating income was$126 million , compared with adjusted operating income of$235 million in the prior year. Adjusted operating income decreased primarily due to organic sales decline, unfavorable product mix, lower fixed cost absorption and unfavorable currency exchange, offset partially by lower material costs, incremental restructuring benefits and manufacturing productivity improvements. Adjusted operating margin was 6.2 percent, compared to 9.8 percent in the prior year.
- LPS was
$2.83 in the current year, compared with$4.71 in the prior year. Adjusted EPS were$1.11 in the current year and$2.00 in the prior year.
Restructuring Programs
During the quarter, the company substantially completed Phase 1 of restructuring programs. Estimated ongoing annualized savings for this phase is
The company has identified additional actions to adjust the company's cost structure with 2017 restructuring initiatives. Actions initiated to date are currently estimated to achieve an additional
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 expects 2017 adjusted earnings per share between
Mr. De Feo commented, "In 2017, we are implementing a more robust sales and marketing strategy while continuing to work on the cost structure. The announced restructuring plans are expected to yield incremental savings of approximately
New Operating Structure Implemented in 2017
In order to take advantage of the growth opportunities of our WIDIA brand, we implemented a new operating structure at the start of fiscal 2017.
A key attribute of the new structure is the establishment of the WIDIA operating segment. In order to better lever the opportunities that lie in this business, in addition to being more agile and competitive in the marketplace, we are placing higher levels of focus, determination and leadership in the business. Industrial and WIDIA in 2017 will be formed from the 2016 Industrial segment. We will now have three reportable operating segments: Industrial, WIDIA and Infrastructure.
Dividend Declared
The company will discuss its fiscal 2016 fourth-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
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At the forefront of advanced materials innovation for more than 75 years,
FINANCIAL HIGHLIGHTS |
|||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) |
|||||||||||||||
Three Months Ended |
Twelve Months Ended |
||||||||||||||
(in thousands, except per share amounts) |
2016 |
2015 |
2016 |
2015 |
|||||||||||
Sales |
$ |
521,224 |
$ |
637,653 |
$ |
2,098,436 |
$ |
2,647,195 |
|||||||
Cost of goods sold |
354,540 |
448,687 |
1,482,369 |
1,841,202 |
|||||||||||
Gross profit |
166,684 |
188,966 |
616,067 |
805,993 |
|||||||||||
Operating expense |
121,148 |
130,923 |
494,975 |
554,895 |
|||||||||||
Restructuring and asset impairment charges |
15,312 |
16,398 |
143,810 |
582,235 |
|||||||||||
Loss on divestiture |
712 |
— |
131,463 |
— |
|||||||||||
Amortization of intangibles |
4,448 |
6,325 |
20,762 |
26,686 |
|||||||||||
Operating income (loss) |
25,064 |
35,320 |
(174,943) |
(357,823) |
|||||||||||
Interest expense |
6,857 |
7,537 |
27,752 |
31,466 |
|||||||||||
Other income, net |
(2,541) |
(1,705) |
(4,124) |
(1,674) |
|||||||||||
Income (loss) from continuing operations before |
20,748 |
29,488 |
(198,571) |
(387,615) |
|||||||||||
Provision (benefit) for income taxes |
86,812 |
7,321 |
25,313 |
(16,654) |
|||||||||||
Net (loss) income |
(66,064) |
22,167 |
(223,884) |
(370,961) |
|||||||||||
Less: Net income attributable to noncontrolling interests |
451 |
1,021 |
2,084 |
2,935 |
|||||||||||
Net (loss) income attributable to Kennametal |
$ |
(66,515) |
$ |
21,146 |
$ |
(225,968) |
$ |
(373,896) |
|||||||
PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL SHAREHOLDERS |
|||||||||||||||
Basic (loss) earnings per share |
$ |
(0.83) |
$ |
0.27 |
$ |
(2.83) |
$ |
(4.71) |
|||||||
Diluted (loss) earnings per share |
$ |
(0.83) |
$ |
0.26 |
$ |
(2.83) |
$ |
(4.71) |
|||||||
Dividends per share |
$ |
0.20 |
$ |
0.18 |
$ |
0.80 |
$ |
0.72 |
|||||||
Basic weighted average shares outstanding |
79,890 |
79,518 |
79,835 |
79,342 |
|||||||||||
Diluted weighted average shares outstanding |
79,890 |
80,113 |
79,835 |
79,342 |
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) |
|||||||
(in thousands) |
June 30, 2016 |
June 30, 2015 |
|||||
|
|||||||
Cash and cash equivalents |
$ |
161,579 |
$ |
105,494 |
|||
Accounts receivable, net |
370,916 |
445,373 |
|||||
Inventories |
458,830 |
575,531 |
|||||
Other current assets |
74,619 |
132,148 |
|||||
Total current assets |
1,065,944 |
1,258,546 |
|||||
Property, plant and equipment, net |
730,640 |
815,825 |
|||||
Goodwill and other intangible assets, net |
505,695 |
704,058 |
|||||
Other assets |
61,901 |
71,100 |
|||||
Total assets |
$ |
2,364,180 |
$ |
2,849,529 |
|||
LIABILITIES |
|||||||
Current maturities of long-term debt and capital leases, including notes payable |
$ |
1,895 |
$ |
15,702 |
|||
Accounts payable |
182,039 |
187,381 |
|||||
Other current liabilities |
243,341 |
279,661 |
|||||
Total current liabilities |
427,275 |
482,744 |
|||||
Long-term debt and capital leases |
699,558 |
735,885 |
|||||
Other liabilities |
241,546 |
255,465 |
|||||
Total liabilities |
1,368,379 |
1,474,094 |
|||||
KENNAMETAL SHAREHOLDERS' EQUITY |
964,323 |
1,345,807 |
|||||
NONCONTROLLING INTERESTS |
31,478 |
29,628 |
|||||
Total liabilities and equity |
$ |
2,364,180 |
$ |
2,849,529 |
SEGMENT DATA (UNAUDITED) |
Three Months Ended |
Twelve Months Ended |
||||||||||||
(in thousands) |
2016 |
2015 |
2016 |
2015 |
||||||||||
Outside Sales: |
||||||||||||||
Industrial |
$ |
328,574 |
$ |
357,519 |
$ |
1,269,162 |
$ |
1,461,744 |
||||||
Infrastructure |
192,650 |
280,134 |
829,274 |
1,185,451 |
||||||||||
Total outside sales |
$ |
521,224 |
$ |
637,653 |
$ |
2,098,436 |
$ |
2,647,195 |
||||||
Sales By Geographic Region: |
||||||||||||||
North America |
$ |
234,233 |
$ |
295,066 |
$ |
953,212 |
$ |
1,250,535 |
||||||
Western Europe |
142,480 |
176,405 |
574,957 |
731,014 |
||||||||||
Rest of World |
144,511 |
166,182 |
570,267 |
665,646 |
||||||||||
Total sales by geographic region |
$ |
521,224 |
$ |
637,653 |
$ |
2,098,436 |
$ |
2,647,195 |
||||||
Operating Income (Loss): |
||||||||||||||
Industrial |
$ |
29,441 |
$ |
39,771 |
$ |
81,243 |
$ |
160,894 |
||||||
Infrastructure |
(3,888) |
(3,583) |
(246,306) |
(509,381) |
||||||||||
Corporate (3) |
(489) |
(868) |
(9,880) |
(9,336) |
||||||||||
Total operating income (loss) |
$ |
25,064 |
$ |
35,320 |
$ |
(174,943) |
$ |
(357,823) |
||||||
(3) 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 JUNE 30, 2016 (UNAUDITED) |
||||||||||||||||||||
(in thousands, except |
Sales |
Gross |
Operating |
Operating |
Net (Loss) |
Diluted |
Effective |
|||||||||||||
Reported results |
$ |
521,224 |
$ |
166,684 |
$ |
121,148 |
$ |
25,064 |
$ |
(66,515) |
$ |
(0.83) |
418.4 |
% |
||||||
Reported margins |
32.0 |
% |
23.2 |
% |
4.8 |
% |
||||||||||||||
Restructuring and related |
— |
2,566 |
(3,041) |
15,539 |
8,244 |
0.10 |
(2.1) |
|||||||||||||
Tax impact of prior |
— |
— |
— |
— |
(4,411) |
(0.06) |
(5.0) |
|||||||||||||
Fixed asset disposal |
— |
— |
— |
5,380 |
3,657 |
0.05 |
(0.3) |
|||||||||||||
Loss on divestiture |
— |
— |
— |
712 |
12,977 |
0.16 |
(3.6) |
|||||||||||||
U.S. deferred tax |
— |
— |
— |
— |
81,206 |
1.02 |
(391.4) |
|||||||||||||
Adjusted results |
$ |
521,224 |
$ |
169,250 |
$ |
118,107 |
$ |
46,695 |
$ |
35,158 |
$ |
0.44 |
16.0 |
% |
||||||
Adjusted margins |
32.5 |
% |
22.7 |
% |
9.0 |
% |
||||||||||||||
(4) Represents amounts attributable to Kennametal Shareholders. |
||||||||||||||||||||
(5) Includes pre-tax restructuring and related charges recorded in corporate of $117. |
(in thousands, except percents) |
Industrial |
Industrial |
Infrastructure |
Infrastructure |
||||||||
Reported results |
$ |
328,574 |
$ |
29,441 |
$ |
192,650 |
$ |
(3,888) |
||||
Reported operating margin |
9.0 |
% |
(2.0)% |
|||||||||
Restructuring and related charges (6) |
— |
7,728 |
— |
7,694 |
||||||||
Fixed asset disposal charges |
— |
3,381 |
— |
1,999 |
||||||||
Loss on divestiture |
— |
29 |
— |
683 |
||||||||
Adjusted results |
$ |
328,574 |
$ |
40,579 |
$ |
192,650 |
$ |
6,488 |
||||
Adjusted operating margin |
12.4 |
% |
3.4 |
% |
||||||||
(6) Excludes pre-tax restructuring related charges recorded in corporate of $117. |
THREE MONTHS ENDED JUNE 30, 2015 (UNAUDITED) |
||||||||||||||||||||
(in thousands, except |
Sales |
Gross |
Operating |
Operating |
Net |
Diluted |
Effective |
|||||||||||||
Reported results |
$ |
637,653 |
$ |
188,966 |
$ |
130,923 |
$ |
35,320 |
$ |
21,146 |
$ |
0.26 |
24.8 |
% |
||||||
Reported margins |
29.6 |
% |
20.5 |
% |
5.5 |
% |
||||||||||||||
Restructuring and related |
— |
2,908 |
(1,691) |
20,996 |
18,566 |
0.24 |
(5.5) |
|||||||||||||
Tax impact of prior |
— |
— |
— |
— |
(3,651) |
(0.05) |
7.2 |
|||||||||||||
Tax expense on cash |
— |
— |
— |
— |
807 |
0.01 |
(1.6) |
|||||||||||||
Operations of divested |
(59,737) |
(11,540) |
(6,485) |
(3,341) |
(1,391) |
(0.02) |
(2.4) |
|||||||||||||
Adjusted results |
$ |
577,916 |
$ |
180,334 |
$ |
122,747 |
$ |
52,975 |
$ |
35,477 |
$ |
0.44 |
22.5 |
% |
||||||
Adjusted margins |
31.2 |
% |
21.2 |
% |
9.2 |
% |
||||||||||||||
(4) Represents amounts attributable to Kennametal Shareholders. |
||||||||||||||||||||
(7) Includes pre-tax restructuring and related charges recorded in corporate of $986. |
(in thousands, except percents) |
Industrial |
Industrial |
Infrastructure |
Infrastructure |
||||||||
Reported results |
$ |
357,519 |
$ |
39,771 |
$ |
280,134 |
$ |
(3,583) |
||||
Reported operating margin |
11.1 |
% |
(1.3)% |
|||||||||
Restructuring and related charges (8) |
— |
10,743 |
— |
9,267 |
||||||||
Operations of divested businesses |
(3,043) |
(67) |
(56,694) |
(3,274) |
||||||||
Adjusted results |
$ |
354,476 |
$ |
50,447 |
$ |
223,440 |
$ |
2,410 |
||||
Adjusted operating Margin |
14.2 |
% |
1.1 |
% |
||||||||
(8) Excludes pre-tax restructuring related charges recorded in corporate of $986. |
TWELVE MONTHS ENDED JUNE 30, 2016 - (UNAUDITED) |
||||||||||||
(in thousands, except percents) |
Sales |
Operating |
Net (Loss) |
Diluted |
||||||||
Reported Results |
$ |
2,098,436 |
$ |
(174,943) |
$ |
(225,968) |
$ |
(2.83) |
||||
Reported Operating Margin |
(8.3)% |
|||||||||||
Restructuring and related charges |
— |
53,508 |
40,220 |
0.50 |
||||||||
Goodwill and other intangible asset impairment |
— |
108,456 |
77,076 |
0.96 |
||||||||
Loss on divestiture and related charges |
— |
131,463 |
111,426 |
1.39 |
||||||||
Fixed asset disposal charges |
— |
5,381 |
3,657 |
0.05 |
||||||||
Operations of divested businesses |
(82,512) |
1,912 |
1,358 |
0.02 |
||||||||
U.S. deferred tax valuation allowance |
— |
— |
81,206 |
1.02 |
||||||||
Adjusted Results |
$ |
2,015,924 |
$ |
125,777 |
$ |
88,975 |
$ |
1.11 |
||||
Adjusted Operating Margin |
6.2 |
% |
||||||||||
(4) Represents amounts attributable to Kennametal Shareholders. |
TWELVE MONTHS ENDED JUNE 30, 2015 - (UNAUDITED) |
||||||||||||
(in thousands, except percents) |
Sales |
Operating |
Net (Loss) |
Diluted |
||||||||
Reported Results |
$ |
2,647,195 |
$ |
(357,823) |
$ |
(373,896) |
$ |
(4.71) |
||||
Reported Operating Margin |
(13.5)% |
|||||||||||
Goodwill and other intangible asset impairment |
— |
541,700 |
486,763 |
6.13 |
||||||||
Restructuring and related charges |
— |
58,102 |
44,197 |
0.56 |
||||||||
Tax expense on cash redeployment |
— |
— |
2,945 |
0.04 |
||||||||
Operations of divested businesses |
(242,650) |
(6,951) |
(1,567) |
(0.02) |
||||||||
Adjusted Results |
$ |
2,404,545 |
$ |
235,028 |
$ |
158,442 |
$ |
2.00 |
||||
Adjusted Operating Margin |
9.8 |
% |
||||||||||
(4) Represents amounts attributable to Kennametal Shareholders. |
FREE OPERATING CASH FLOW (UNAUDITED) |
Twelve Months Ended |
|||||||
June 30, |
||||||||
(in thousands) |
2016 |
2015 |
||||||
Net cash flow from operating activities |
$ |
219,322 |
$ |
351,437 |
||||
Purchases of property, plant and equipment |
(110,697) |
(100,939) |
||||||
Proceeds from disposals of property, plant and equipment |
5,978 |
16,122 |
||||||
Free operating cash flow |
$ |
114,603 |
$ |
266,620 |
To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/kennametal-announces-fourth-quarter-and-fiscal-2016-results-provides-fiscal-2017-outlook-300307173.html
SOURCE
Investor Relations, CONTACT: Kelly Boyer, PHONE: 412-248-8287, or Corporate Relations - Media, CONTACT: Christina Sutter, PHONE: 724-539-5708