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Kennametal Announces Fourth Quarter And Fiscal 2017 Results; Provides Fiscal 2018 Outlook
"Fiscal year 2017 has been a year of substantial change at
De Feo continued, "Adjusted EPS of
"For fiscal year 2018, we expect adjusted EPS between
This earnings release contains non-GAAP financial measures. Reconciliations of all non-GAAP financial measures are set forth in the tables attached to this earnings release, and corresponding descriptions are contained in the company's report on Form 8-K, to which this news release is attached, and which was filed with the
Fiscal 2017 Fourth Quarter Key Developments
- Sales were
$565 million compared with$521 million in the same quarter last year. Sales increased by 8 percent, reflecting 12 percent organic growth, offset partially by a 2 percent decrease due to fewer business days and a 2 percent unfavorable currency exchange impact. - On a combined basis, pre-tax restructuring and related charges amounted to
$23 million , or$0.26 per share, primarily from severance and a facility closure. Pre-tax benefits were approximately$37 million , or$0.39 per share in the quarter. In the same quarter last year, pre-tax restructuring and related charges were$16 million , or$0.10 per share, and pre-tax benefits were approximately$10 million , or$0.10 per share. - Operating income was
$40 million , compared with$25 million in the same quarter last year. Adjusted operating income was$63 million , compared with$47 million in the prior year quarter. The increase in adjusted operating income was driven by incremental restructuring benefits, organic sales growth and favorable mix, partially offset by higher performance-based compensation, higher raw material costs and a LIFO inventory charge. Adjusted operating margin was 11.2 percent in the current period and 9.0 percent in the prior period. - The reported effective tax rate (ETR) was 22.6 percent and the adjusted ETR was 16.8 percent. The difference between reported and adjusted ETRs is due to restructuring and related charges. For the fourth quarter of fiscal 2016, the reported ETR was not meaningful due to the
$81 million U.S. deferred tax valuation allowance recorded in the period, and the adjusted ETR was 16.0 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 driver of the increase in the adjusted ETR is unfavorable jurisdictional mix of earnings. - EPS were
$0.30 , compared with the prior year quarter LPS of$0.83 . Adjusted EPS were$0.56 in the current year quarter and$0.44 in the prior year quarter. - The company generated year-to-date free operating cash flow of
$79 million compared with$115 million in the prior year. The decrease in free operating cash flow was driven primarily by the prior year favorable impact of divestiture of$33 million . - Earnings before interest, taxes, depreciation and amortization (EBITDA) were
$66 million , compared with$54 million in the prior year quarter. Adjusted EBITDA were$89 million in the current quarter and$76 million in the prior year quarter.
Segment Developments for the Fiscal 2017 Fourth Quarter
- Industrial segment sales of
$300 million increased 5 percent from$286 million in the prior year quarter due to organic sales growth of 10 percent, partially offset by unfavorable currency exchange of 3 percent and a 2 percent decrease due to fewer business days. Excluding the impact of currency exchange, sales increased approximately 22 percent in energy, 8 percent in general engineering, 6 percent in aerospace and defense and 5 percent in transportation. General engineering sales continue to benefit from growth in the indirect channel, supported by increasing demand in the U.S. energy markets andChina transportation markets. Oil and gas drilling and power generation in theAmericas contributed to the growth in energy sales. Consistent with recent trends, transportation sales increased in theAsia markets to tiered suppliers and OEMs. Conditions in the aerospace sector were mixed as growth in engine-related sales was partially offset by declines in frames. On a segment regional basis excluding the impact of currency exchange, sales increased 14 percent inAsia , 9 percent in theAmericas and 4 percent inEurope . - Industrial segment operating income was
$21 million compared with$30 million in the prior year period. Adjusted operating income was$36 million compared to$40 million in the prior year quarter, driven primarily by higher performance-based compensation, a LIFO inventory charge, lower productivity and unfavorable currency exchange, partially offset by incremental restructuring benefits and organic sales growth. Industrial adjusted operating margin was 11.9 percent compared with 13.9 percent in the prior year. - Widia segment sales of
$47 million increased 10 percent from$43 million in the prior year quarter, driven by organic growth of 14 percent, offset partially by a 3 percent decrease due to fewer business days and an unfavorable currency exchange impact of 1 percent. Contributing to Widia organic growth are increasing demand in the U.S. energy markets in addition to channel partner development, in particular the development of national and regional distribution inEurope . On a segment regional basis excluding the impact of currency exchange, sales increased 15 percent in theAmericas , 13 percent inAsia and 2 percent inEurope . - Widia segment operating loss was
$2 million compared to$1 million in the prior year. Adjusted operating results were break even, compared to adjusted operating income of$1 million in the prior year quarter, primarily driven by higher performance-based compensation and a LIFO inventory charge, partially offset by incremental restructuring benefits and organic growth. Widia adjusted operating margin was break even, compared with adjusted operating income margin of 1.7 percent in the prior year. - Infrastructure segment sales of
$217 million increased 13 percent from$193 million in the prior year due to 14 percent organic sales growth, offset partially by a decrease of 1 percent due to fewer business days. Excluding the impact of currency exchange, Infrastructure sales increased approximately 41 percent in energy, 8 percent in earthworks and 5 percent in general engineering. Sales have been favorably impacted by the energy markets, which have continued to strengthen. This is in addition to the year-over-year growth in underground mining in all regions. Compared to the prior year, construction sales were down due to softening business inEurope andAsia . On a segment regional basis excluding the impact of currency exchange, sales increased 22 percent in theAmericas and 11 percent inAsia , while sales decreased 11 percent inEurope . - Infrastructure segment operating income was
$18 million compared with operating loss of$4 million in the prior year period. Adjusted operating income was$24 million compared to$6 million in the prior year quarter, driven primarily by incremental restructuring benefits, favorable mix, organic sales growth and higher absorption and productivity, partially offset by higher raw material costs and performance-based compensation. Infrastructure adjusted operating margin was 11.0 percent compared with 3.4 percent in the prior year.
Fiscal 2017 Key Developments
- Sales were
$2,058 million , compared with$2,098 million last year. Sales decreased by 2 percent, driven by divestiture impact of 4 percent and 2 percent unfavorable currency exchange, partially offset by 4 percent organic sales growth. - Combined restructuring programs delivered full fiscal 2017 year-over-year incremental savings of approximately
$72 million . - Operating income was
$113 million , compared with operating loss of$175 million in the same period last year. Adjusted operating income was$189 million , compared with$126 million in the prior year. Adjusted operating income increased primarily due to incremental restructuring benefits, better absorption and productivity, organic sales growth and lower raw material costs, partially offset by unfavorable mix and higher employment-related costs. Adjusted operating margin was 9.2 percent, compared to 6.2 percent in the prior year. - EPS were
$0.61 in the current year, compared with LPS of$2.83 in the prior year. Adjusted EPS were$1.52 in the current year and$1.11 in the prior year.
Restructuring Programs
Restructuring programs are currently expected to produce combined annual ongoing pre-tax permanent savings of
Restructuring and related charges and savings (pre-tax) |
|||||||||||
Estimated |
Current |
Charges |
Estimated |
Approximate |
Expected |
||||||
Headcount reduction initiatives |
$60M-$70M |
$14M |
$56M |
$90M |
$20M |
12/31/2017 |
|||||
Other |
$105M-$125M |
$9M |
$92M |
$75M-$90M |
$17M |
12/31/2018 |
|||||
Total |
$165M-$195M |
$23M |
$148M |
$165M-$180M |
$37M |
||||||
Outlook
The company expects 2018 adjusted EPS between
Dividend Declared
The company will discuss its fiscal 2017 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
About
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) |
2017 |
2016 |
2017 |
2016 |
|||||||||||
Sales |
$ |
565,025 |
$ |
521,224 |
$ |
2,058,368 |
$ |
2,098,436 |
|||||||
Cost of goods sold |
384,736 |
354,540 |
1,400,661 |
1,482,369 |
|||||||||||
Gross profit |
180,289 |
166,684 |
657,707 |
616,067 |
|||||||||||
Operating expense |
115,359 |
121,148 |
463,167 |
494,975 |
|||||||||||
Restructuring and asset impairment charges |
20,788 |
15,312 |
65,018 |
143,810 |
|||||||||||
Loss on divestiture |
— |
712 |
— |
131,463 |
|||||||||||
Amortization of intangibles |
3,912 |
4,448 |
16,578 |
20,762 |
|||||||||||
Operating income (loss) |
40,230 |
25,064 |
112,944 |
(174,943) |
|||||||||||
Interest expense |
7,367 |
6,857 |
28,842 |
27,752 |
|||||||||||
Other (income) expense, net |
(243) |
(2,541) |
2,227 |
(4,124) |
|||||||||||
Income (loss) from continuing operations before income taxes |
33,106 |
20,748 |
81,875 |
(198,571) |
|||||||||||
Provision for income taxes |
7,494 |
86,812 |
29,895 |
25,313 |
|||||||||||
Net income (loss) |
25,612 |
(66,064) |
51,980 |
(223,884) |
|||||||||||
Less: Net income attributable to noncontrolling interests |
969 |
451 |
2,842 |
2,084 |
|||||||||||
Net income (loss) attributable to Kennametal |
$ |
24,643 |
$ |
(66,515) |
$ |
49,138 |
$ |
(225,968) |
|||||||
PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL SHAREHOLDERS |
|||||||||||||||
Basic earnings (loss) per share |
$ |
0.31 |
$ |
(0.83) |
$ |
0.61 |
$ |
(2.83) |
|||||||
Diluted earnings (loss) per share |
$ |
0.30 |
$ |
(0.83) |
$ |
0.61 |
$ |
(2.83) |
|||||||
Dividends per share |
$ |
0.20 |
$ |
0.20 |
$ |
0.80 |
$ |
0.80 |
|||||||
Basic weighted average shares outstanding |
80,746 |
79,890 |
80,351 |
79,835 |
|||||||||||
Diluted weighted average shares outstanding |
81,850 |
79,890 |
81,169 |
79,835 |
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) |
||||||
(in thousands) |
June 30, 2017 |
June 30, 2016 |
||||
ASSETS |
||||||
Cash and cash equivalents |
$ |
190,629 |
$ |
161,579 |
||
Accounts receivable, net |
380,425 |
370,916 |
||||
Inventories |
487,681 |
458,830 |
||||
Other current assets |
55,166 |
84,016 |
||||
Total current assets |
1,113,901 |
1,075,341 |
||||
Property, plant and equipment, net |
744,388 |
730,640 |
||||
Goodwill and other intangible assets, net |
491,894 |
505,695 |
||||
Other assets |
65,313 |
51,107 |
||||
Total assets |
$ |
2,415,496 |
$ |
2,362,783 |
||
LIABILITIES |
||||||
Current maturities of long-term debt and capital leases, including notes payable |
$ |
925 |
$ |
1,895 |
||
Accounts payable |
215,722 |
182,039 |
||||
Other current liabilities |
244,831 |
243,341 |
||||
Total current liabilities |
461,478 |
427,275 |
||||
Long-term debt and capital leases |
694,991 |
693,548 |
||||
Other liabilities |
206,374 |
246,159 |
||||
Total liabilities |
1,362,843 |
1,366,982 |
||||
KENNAMETAL SHAREHOLDERS' EQUITY |
1,017,294 |
964,323 |
||||
NONCONTROLLING INTERESTS |
35,359 |
31,478 |
||||
Total liabilities and equity |
$ |
2,415,496 |
$ |
2,362,783 |
SEGMENT DATA (UNAUDITED) |
Three Months Ended |
Twelve Months Ended |
|||||||||||
(in thousands) |
2017 |
2016 |
2017 |
2016 |
|||||||||
Outside Sales: |
|||||||||||||
Industrial (1) |
$ |
300,318 |
$ |
285,547 |
$ |
1,126,309 |
$ |
1,098,439 |
|||||
Widia (1) |
47,477 |
43,027 |
177,662 |
170,723 |
|||||||||
Infrastructure |
217,230 |
192,650 |
754,397 |
829,274 |
|||||||||
Total outside sales |
$ |
565,025 |
$ |
521,224 |
$ |
2,058,368 |
$ |
2,098,436 |
|||||
Sales By Geographic Region: |
|||||||||||||
North America |
$ |
269,507 |
$ |
234,233 |
$ |
953,954 |
$ |
953,212 |
|||||
Western Europe |
132,431 |
142,480 |
499,435 |
574,957 |
|||||||||
Rest of World |
163,087 |
144,511 |
604,979 |
570,267 |
|||||||||
Total sales by geographic region |
$ |
565,025 |
$ |
521,224 |
$ |
2,058,368 |
$ |
2,098,436 |
|||||
Operating Income (Loss): |
|||||||||||||
Industrial (1) |
$ |
20,705 |
$ |
30,469 |
$ |
82,842 |
$ |
90,324 |
|||||
Widia (1) |
(1,808) |
(1,028) |
(9,606) |
(9,081) |
|||||||||
Infrastructure |
17,554 |
(3,888) |
40,011 |
(246,306) |
|||||||||
Corporate (2) |
3,779 |
(489) |
(303) |
(9,880) |
|||||||||
Total operating income (loss) |
$ |
40,230 |
$ |
25,064 |
$ |
112,944 |
$ |
(174,943) |
|||||
(1) Amounts for the three and twelve months ended June 30, 2016 have been restated to reflect the change in |
|||||||||||||
(2) 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, and which was filed with the
THREE MONTHS ENDED JUNE 30, 2017 (UNAUDITED) |
||||||||||||||||||||
(in thousands, except percents) |
Sales |
Gross |
Operating |
Operating |
Effective |
Net |
Diluted |
|||||||||||||
Reported results |
$ |
565,025 |
$ |
180,289 |
$ |
115,359 |
$ |
40,230 |
22.6 |
% |
$ |
24,643 |
$ |
0.30 |
||||||
Reported margins |
31.9 |
% |
20.4 |
% |
7.1 |
% |
||||||||||||||
Restructuring and related charges |
— |
1,680 |
(697) |
23,165 |
(5.8) |
21,186 |
0.26 |
|||||||||||||
Adjusted results |
$ |
565,025 |
$ |
181,969 |
$ |
114,662 |
$ |
63,395 |
16.8 |
% |
$ |
45,829 |
$ |
0.56 |
||||||
Adjusted margins |
32.2 |
% |
20.3 |
% |
11.2 |
% |
||||||||||||||
(3) Represents amounts attributable to Kennametal Shareholders. |
Industrial |
Widia |
Infrastructure |
||||||||||||||||
(in thousands, except percents) |
Sales |
Operating |
Sales |
Operating |
Sales |
Operating |
||||||||||||
Reported results |
$ |
300,318 |
$ |
20,705 |
$ |
47,477 |
$ |
(1,808) |
$ |
217,230 |
$ |
17,554 |
||||||
Reported operating margin |
6.9 |
% |
(3.8) |
% |
8.1 |
% |
||||||||||||
Restructuring and related charges |
— |
15,054 |
— |
1,791 |
— |
6,320 |
||||||||||||
Adjusted results |
$ |
300,318 |
$ |
35,759 |
$ |
47,477 |
$ |
(17) |
$ |
217,230 |
$ |
23,874 |
||||||
Adjusted operating margin |
11.9 |
% |
— |
% |
11.0 |
% |
THREE MONTHS ENDED JUNE 30, 2016 (UNAUDITED) |
||||||||||||||||||||
(in thousands, except percents) |
Sales |
Gross |
Operating |
Operating |
Effective |
Net (loss) |
Diluted |
|||||||||||||
Reported results |
$ |
521,224 |
$ |
166,684 |
$ |
121,148 |
$ |
25,064 |
418.4 |
% |
$ |
(66,515) |
$ |
(0.83) |
||||||
Reported margins |
32.0 |
% |
23.2 |
% |
4.8 |
% |
||||||||||||||
Restructuring and related charges (4) |
— |
2,566 |
(3,041) |
15,539 |
(2.1) |
8,244 |
0.10 |
|||||||||||||
Tax impact of prior impairment charges |
— |
— |
— |
— |
(5.0) |
(4,411) |
(0.06) |
|||||||||||||
Fixed asset disposal charges |
— |
— |
— |
5,380 |
(0.3) |
3,657 |
0.05 |
|||||||||||||
Loss on divestiture |
— |
— |
— |
712 |
(3.6) |
12,977 |
0.16 |
|||||||||||||
U.S. deferred tax valuation allowance |
— |
— |
— |
— |
(391.4) |
81,206 |
1.02 |
|||||||||||||
Adjusted results |
$ |
521,224 |
$ |
169,250 |
$ |
118,107 |
$ |
46,695 |
16.0 |
% |
$ |
35,158 |
$ |
0.44 |
||||||
Adjusted margins |
32.5 |
% |
22.7 |
% |
9.0 |
% |
||||||||||||||
(3) Represents amounts attributable to Kennametal Shareholders. |
||||||||||||||||||||
(4) Includes pre-tax restructuring and related charges recorded in corporate of $117. |
Industrial |
Widia |
Infrastructure |
||||||||||||||||
(in thousands, except percents) |
Sales |
Operating |
Sales |
Operating (loss) |
Sales |
Operating (loss) |
||||||||||||
Reported results |
$ |
285,547 |
$ |
30,469 |
$ |
43,027 |
$ |
(1,028) |
$ |
192,650 |
$ |
(3,888) |
||||||
Reported operating margin |
10.7 |
% |
(2.4) |
% |
(2.0) |
% |
||||||||||||
Restructuring and related charges (5) |
— |
6,697 |
— |
1,031 |
— |
7,694 |
||||||||||||
Fixed asset disposal charges |
— |
2,635 |
— |
746 |
1,999 |
|||||||||||||
Operations of divested businesses |
— |
29 |
— |
— |
— |
683 |
||||||||||||
Adjusted results |
$ |
285,547 |
$ |
39,830 |
$ |
43,027 |
$ |
749 |
$ |
192,650 |
$ |
6,488 |
||||||
Adjusted operating Margin |
13.9 |
% |
1.7 |
% |
3.4 |
% |
||||||||||||
(5) Excludes pre-tax restructuring related charges recorded in corporate of $117. |
TWELVE MONTHS ENDED JUNE 30, 2017 - (UNAUDITED) |
||||||||||||
(in thousands, except percents) |
Sales |
Operating |
Net income (3) |
Diluted EPS |
||||||||
Reported Results |
$ |
2,058,368 |
$ |
112,944 |
$ |
49,138 |
$ |
0.61 |
||||
Reported Operating Margin |
5.5 |
% |
||||||||||
Restructuring and related charges |
— |
76,229 |
72,656 |
0.89 |
||||||||
Australia deferred tax valuation allowance |
— |
— |
1,288 |
0.02 |
||||||||
Adjusted Results |
$ |
2,058,368 |
$ |
189,173 |
$ |
123,082 |
$ |
1.52 |
||||
Adjusted Operating Margin |
9.2 |
% |
||||||||||
(3) Represents amounts attributable to Kennametal Shareholders. |
TWELVE MONTHS ENDED JUNE 30, 2016 - (UNAUDITED) |
||||||||||||
(in thousands, except percents) |
Sales |
Operating (loss) |
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 charges |
— |
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 |
% |
||||||||||
(3) Represents amounts attributable to Kennametal Shareholders. |
FREE OPERATING CASH FLOW (UNAUDITED) |
Three Months Ended |
Twelve Months Ended |
||||||||||||
June 30, |
June 30, |
|||||||||||||
(in thousands) |
2017 |
2016 |
2017 |
2016 |
||||||||||
Net cash flow from operating activities |
$ |
112,181 |
$ |
73,908 |
$ |
192,202 |
$ |
219,322 |
||||||
Purchases of property, plant and equipment |
(23,923) |
(27,412) |
(118,018) |
(110,697) |
||||||||||
Proceeds from disposals of property, plant and equipment |
1,171 |
876 |
5,023 |
5,978 |
||||||||||
Free operating cash flow |
$ |
89,429 |
$ |
47,372 |
$ |
79,207 |
$ |
114,603 |
EBITDA (UNAUDITED) |
Three Months Ended |
Twelve Months Ended |
||||||||||||
June 30, |
June 30, |
|||||||||||||
(in thousands) |
2017 |
2016 |
2017 |
2016 |
||||||||||
Net income (loss) attributable to Kennametal |
$ |
24,643 |
$ |
(66,515) |
$ |
49,138 |
$ |
(225,968) |
||||||
Add back: |
||||||||||||||
Interest expense |
7,367 |
6,857 |
28,842 |
27,752 |
||||||||||
Interest income |
(246) |
(568) |
(1,005) |
(1,680) |
||||||||||
Provision for income taxes |
7,494 |
86,812 |
29,895 |
25,313 |
||||||||||
Depreciation |
22,709 |
23,407 |
91,078 |
96,704 |
||||||||||
Amortization of intangibles |
3,912 |
4,448 |
16,578 |
20,762 |
||||||||||
EBITDA |
$ |
65,879 |
$ |
54,441 |
$ |
214,526 |
$ |
(57,117) |
||||||
Margin |
11.7 |
% |
10.4 |
% |
10.4 |
% |
(2.7) |
% |
||||||
Adjustments: |
||||||||||||||
Restructuring and related charges |
23,165 |
15,539 |
76,229 |
53,508 |
||||||||||
Fixed asset disposal charges |
— |
5,380 |
— |
5,381 |
||||||||||
Loss on divestiture and related charges |
— |
712 |
— |
131,463 |
||||||||||
Goodwill and other intangible asset impairment charges |
— |
— |
— |
108,456 |
||||||||||
Operations of divested businesses |
— |
— |
— |
1,912 |
||||||||||
Adjusted EBITDA |
$ |
89,044 |
$ |
76,072 |
$ |
290,755 |
$ |
243,603 |
||||||
Adjusted margin |
15.8 |
% |
14.6 |
% |
14.1 |
% |
12.1 |
% |
View original content:http://www.prnewswire.com/news-releases/kennametal-announces-fourth-quarter-and-fiscal-2017-results-provides-fiscal-2018-outlook-300498709.html
SOURCE
Investor Relations - Kelly Boyer, PHONE: 412-248-8287, or Corporate Relations - Media - Christina Sutter, PHONE: 724-539-5708