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Kennametal Announces Fourth Quarter & Fiscal 2014 Results
For its fiscal fourth quarter, the company reported EPS of
"During the June quarter, we saw accelerating growth and ongoing strength in our served industrial markets; however, certain sectors are still challenging," said
Cardoso added, "We remain pleased with the progress related to the integration of our Tungsten Materials Business, which is currently ahead of schedule. We will continue to manage our business and control what factors we can."
Fiscal 2014 Fourth Quarter Key Developments
- Sales were
$772 million , compared with$671 million in the same quarter last year. Sales increased by 15 percent, reflecting an 11 percent increase from the TMB acquisition and 5 percent from organic growth, partially offset by 1 percent decrease from fewer business days. - Operating income was
$78 million , compared with$91 million in the same quarter last year. Excluding nonrecurring charges and TMB results, adjusted operating income of$90 million was relatively flat compared with the prior year, as organic sales growth was offset by lower fixed cost absorption and mix in Infrastructure, and higher employment costs overall. Operating margin was 10.1 percent, compared with an operating margin of 13.5 percent in the prior year. Current year adjusted operating margin was 12.9 percent. - During the quarter, TMB contributed sales of
$72 million and on-going operating income of$5 million or$0.03 per share. In addition, there were acquisition-related charges of$3 million pre-tax or$0.02 per share, and restructuring and related charges of$14 million pre-tax or$0.17 per share. The company also completed the sale of a non-core business that was part of the TMB acquisition. Cash proceeds from this divestiture amounted to$10 million . The loss on divestiture and related charges totaled$1 million pre-tax or$0.02 per share. - The reported effective tax rate was 30.5 percent compared to 23.9 percent in the prior year, primarily driven by restructuring charges in tax jurisdictions where a tax benefit is not permitted for these charges.
- EPS were
$0.57 , compared with the prior year quarter EPS of$0.76 . Adjusted EPS were$0.75 in the current year period. - Adjusted return on invested capital (ROIC) was 7.6 percent as of
June 30, 2014 and reflects increased debt in the near term from recent acquisitions. - For the year, the company generated
$272 million in cash flow from operating activities, compared with$284 million in the prior year. Net capital expenditures were$116 million and$80 million in fiscal years 2014 and 2013, respectively. The company realized free operating cash flow of$156 million compared with$204 million last year. Free operating cash flow was impacted by the acquisition of TMB.
Segment Developments for the Fiscal 2014 Fourth Quarter
- Industrial segment sales of
$416 million increased 15 percent from$363 million in the prior year quarter. This increase was due to 7 percent growth related to the TMB acquisition, 8 percent organic growth and a 1 percent increase due to favorable currency exchange, partially offset by a 1 percent decrease from fewer business days. - Excluding TMB, Industrial sales increased 11 percent in transportation, 9 percent in general engineering, partially offset by a 1 percent decrease in aerospace and defense. The transportation market benefited from increased demand in the light vehicle markets world-wide and general engineering increased due to continued demand from distribution channels. Sales increased in all geographies, up 15 percent in
Asia , 6 percent in theAmericas and 4 percent inEurope . - Industrial segment operating income was
$53 million compared with$62 million in the prior year period. Excluding nonrecurring charges and TMB results, adjusted operating income of$64 million benefited from organic growth, but was largely offset by higher employment costs. Industrial adjusted operating margin was 16.5 percent compared with 17.0 percent in the prior year. - Infrastructure segment sales of
$357 million increased 16 percent from$309 million in the prior year. The increase was driven by 15 percent growth from the TMB acquisition and 1 percent organic growth. - Excluding TMB, Infrastructure sales increased by 10 percent in energy, largely offset by a decrease of 9 percent in earthworks. Energy sales continued to improve year over year, reflecting improving demand in oil and gas drilling activity, coupled with continued gains in process wear applications. Earthworks sales decreased due to persistently weak underground coal and surface mining markets globally, as well as lower road construction activity. On a regional basis sales grew 2 percent in
Europe and held relatively steady in theAmericas andAsia . - Infrastructure segment operating income was
$27 million , compared with$30 million in the same quarter of the prior year. Excluding nonrecurring charges and TMB results, adjusted operating income was also$27 million . Operating income was impacted by lower fixed cost absorption and mix. Infrastructure adjusted operating margin was 8.8 percent compared with 9.7 percent in the prior year.
As previously disclosed, segment results were restated for certain sales reclassifications based on products and technologies.
Fiscal 2014 Key Developments
- Sales were
$2,837 million , compared with$2,589 million last year. Sales increased by 10 percent, driven by 8 percent growth related to the TMB acquisition and 2 percent organic growth. - Operating income was
$263 million , compared with$296 million in the same period last year. Excluding nonrecurring charges and TMB results, adjusted operating income was$298 million . The current year operating income was favorably impacted by organic growth and raw material costs, offset by higher employment costs and a non-recurring inventory charge of$6 million . Operating margin was 9.3 percent compared with an operating margin of 11.4 percent in the prior year. Adjusted operating margin was 11.3 percent for the current year. - Restructuring and related charges amounted to
$19 million pre-tax or$0.22 per share. - EPS were
$1.99 , compared with the prior year EPS of$2.52 . Adjusted EPS was$2.50 in the current year.
Earnings Per Diluted Share Reconciliation for the Quarter and Year Ended
FY 2014 |
Quarter |
Year |
||||
Reported EPS |
$ |
0.57 |
$ |
1.99 |
||
TMB results: |
||||||
Base operating income |
(0.06) |
(0.11) |
||||
Depreciation and amortization step-up |
0.03 |
0.08 |
||||
On-going operating income |
(0.03) |
(0.03) |
||||
Inventory step-up |
— |
0.14 |
||||
Acquisition-related charges |
0.02 |
0.07 |
||||
Restructuring and related charges |
0.17 |
0.22 |
||||
Tax repatriation expense |
— |
0.09 |
||||
Loss on divestiture |
0.02 |
0.02 |
||||
Adjusted EPS |
$ |
0.75 |
$ |
2.50 |
Restructuring Actions
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
For fiscal year 2015, the company's outlook reflects ongoing market uncertainties as well as limited visibility related to customer demand trends.
Given these factors, the company expects organic sales growth ranging from 3 to 5 percent, with total sales growth between 5 and 7 percent.
The company expects consolidated EPS to range from
Dividend Declared
The company will discuss its fiscal 2014 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
Celebrating more than 75 years as an industrial technology leader,
FINANCIAL HIGHLIGHTS |
|||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) |
|||||||||||||||
Three Months Ended |
Twelve Months Ended |
||||||||||||||
(in thousands, except per share amounts) |
2014 |
2013 |
2014 |
2013 |
|||||||||||
Sales |
$ |
772,204 |
$ |
671,410 |
$ |
2,837,190 |
$ |
2,589,373 |
|||||||
Cost of goods sold |
519,364 |
442,696 |
1,940,187 |
1,744,369 |
|||||||||||
Gross profit |
252,840 |
228,714 |
897,003 |
845,004 |
|||||||||||
Operating expense |
154,785 |
132,883 |
589,768 |
527,850 |
|||||||||||
Restructuring charges |
12,594 |
— |
17,608 |
— |
|||||||||||
Amortization of intangibles |
7,404 |
5,258 |
26,195 |
20,760 |
|||||||||||
Operating income |
78,057 |
90,573 |
263,432 |
296,394 |
|||||||||||
Interest expense |
8,450 |
7,042 |
32,451 |
27,472 |
|||||||||||
Other expense (income), net |
1,267 |
1,812 |
2,172 |
2,313 |
|||||||||||
Income from continuing operations before income taxes |
68,340 |
81,719 |
228,809 |
266,609 |
|||||||||||
Provision for income taxes |
20,861 |
19,535 |
66,611 |
59,693 |
|||||||||||
Net income |
47,479 |
62,184 |
162,198 |
206,916 |
|||||||||||
Less: Net income attributable to noncontrolling interests |
2,024 |
1,366 |
3,832 |
3,651 |
|||||||||||
Net income attributable to Kennametal |
$ |
45,455 |
$ |
60,818 |
$ |
158,366 |
$ |
203,265 |
|||||||
PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL SHAREOWNERS |
|||||||||||||||
Basic earnings per share |
$ |
0.58 |
$ |
0.77 |
$ |
2.01 |
$ |
2.56 |
|||||||
Diluted earnings per share |
$ |
0.57 |
$ |
0.76 |
$ |
1.99 |
$ |
2.52 |
|||||||
Dividends per share |
$ |
0.18 |
$ |
0.16 |
$ |
0.72 |
$ |
0.64 |
|||||||
Basic weighted average shares outstanding |
78,818 |
78,615 |
78,678 |
79,463 |
|||||||||||
Diluted weighted average shares outstanding |
79,850 |
79,866 |
79,667 |
80,612 |
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) |
|||||||
(in thousands) |
June 30, 2014 |
June 30, 2013 |
|||||
ASSETS |
|||||||
Cash and cash equivalents |
$ |
177,929 |
$ |
377,316 |
|||
Accounts receivable, net |
531,515 |
445,322 |
|||||
Inventories |
703,766 |
578,795 |
|||||
Other current assets |
111,986 |
98,040 |
|||||
Total current assets |
1,525,196 |
1,499,473 |
|||||
Property, plant and equipment, net |
884,458 |
741,482 |
|||||
Goodwill and other intangible assets, net |
1,318,752 |
944,520 |
|||||
Other assets |
139,680 |
115,564 |
|||||
Total assets |
$ |
3,868,086 |
$ |
3,301,039 |
|||
LIABILITIES |
|||||||
Current maturities of long-term debt and capital leases, including notes payable |
$ |
80,117 |
$ |
44,319 |
|||
Accounts payable |
206,891 |
190,623 |
|||||
Other current liabilities |
275,748 |
232,651 |
|||||
Total current liabilities |
562,756 |
467,593 |
|||||
Long-term debt and capital leases |
981,666 |
703,626 |
|||||
Other liabilities |
362,056 |
317,527 |
|||||
Total liabilities |
1,906,478 |
1,488,746 |
|||||
KENNAMETAL SHAREOWNERS' EQUITY |
1,929,256 |
1,781,826 |
|||||
NONCONTROLLING INTERESTS |
32,352 |
30,467 |
|||||
Total liabilities and equity |
$ |
3,868,086 |
$ |
3,301,039 |
SEGMENT DATA (UNAUDITED) |
Three Months Ended |
Twelve Months Ended |
||||||||||||
(in thousands) |
2014 |
2013 |
2014 |
2013 |
||||||||||
Outside Sales: |
||||||||||||||
Industrial |
$ |
415,529 |
$ |
362,696 |
$ |
1,524,075 |
$ |
1,386,690 |
||||||
Infrastructure |
356,675 |
308,714 |
1,313,115 |
1,202,683 |
||||||||||
Total outside sales |
$ |
772,204 |
$ |
671,410 |
$ |
2,837,190 |
$ |
2,589,373 |
||||||
Sales By Geographic Region: |
||||||||||||||
North America |
$ |
353,604 |
$ |
293,048 |
$ |
1,276,704 |
$ |
1,145,722 |
||||||
Western Europe |
232,280 |
202,168 |
873,828 |
768,276 |
||||||||||
Rest of World |
186,320 |
176,194 |
686,658 |
675,375 |
||||||||||
Total sales by geographic region |
$ |
772,204 |
$ |
671,410 |
$ |
2,837,190 |
$ |
2,589,373 |
||||||
Operating Income: |
||||||||||||||
Industrial |
$ |
52,598 |
$ |
61,651 |
$ |
177,040 |
$ |
192,828 |
||||||
Infrastructure |
26,636 |
29,830 |
94,940 |
111,453 |
||||||||||
Corporate (1) |
(1,177) |
(908) |
(8,548) |
(7,887) |
||||||||||
Total operating income |
$ |
78,057 |
$ |
90,573 |
$ |
263,432 |
$ |
296,394 |
||||||
(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 JUNE 30, 2014 - (UNAUDITED) |
||||||||||||||
(in thousands, except percents) |
Sales |
Operating Income |
Net Income (2) |
Diluted EPS |
||||||||||
2014 Reported Results |
$ |
772,204 |
$ |
78,057 |
$ |
45,455 |
$ |
0.57 |
||||||
2014 Reported Operating Margin |
10.1%
|
|||||||||||||
TMB results: |
||||||||||||||
Base results |
(72,403) |
(8,568) |
(4,978) |
(0.06) |
||||||||||
Depreciation & amortization step-up |
— |
3,581 |
2,314 |
0.03 |
||||||||||
Acquisition-related charges |
— |
3,396 |
1,914 |
0.02 |
||||||||||
Restructuring and related charges |
— |
13,994 |
13,874 |
0.17 |
||||||||||
Loss on divestiture |
— |
— |
1,607 |
0.02 |
||||||||||
2014 Adjusted Results |
699,801 |
90,460 |
60,186 |
0.75 |
||||||||||
2014 Adjusted Operating Margin |
12.9%
|
|||||||||||||
(2) Represents amounts attributable to Kennametal Shareowners. |
THREE MONTHS ENDED JUNE 30, 2014 - (UNAUDITED) |
||||||||||
(in thousands, except percents) |
Industrial Sales |
Infrastructure Sales |
Industrial Operating Income |
Infrastructure Operating Income |
||||||
2014 Reported Results |
$ |
415,529 |
356,675 |
$ |
52,598 |
26,636 |
||||
2014 Reported Operating Margin |
12.7%
|
7.5%
|
||||||||
TMB results: |
||||||||||
Base sales and operating income |
(25,532) |
(46,871) |
(733) |
(7,835) |
||||||
Depreciation & amortization step-up |
— |
— |
549 |
3,032 |
||||||
Acquisition-related charges |
— |
— |
1,327 |
2,069 |
||||||
Restructuring and related charges |
— |
— |
10,516 |
3,478 |
||||||
2014 Adjusted Results |
389,997 |
309,804 |
64,257 |
27,380 |
||||||
2014 Adjusted Operating Margin |
16.5%
|
8.8%
|
TWELVE MONTHS ENDED JUNE 30, 2014 - (UNAUDITED) |
||||||||||||
(in thousands, except percents) |
Sales |
Operating Income |
Net Income (2) |
Diluted EPS |
||||||||
2014 Reported Results |
$ |
2,837,190 |
263,432 |
$ |
158,366 |
$ |
1.99 |
|||||
2014 Reported Operating Margin |
9.3%
|
|||||||||||
TMB results: |
||||||||||||
Base results |
(194,896) |
(17,836) |
(8,779) |
(0.11) |
||||||||
Depreciation & amortization step-up |
— |
9,571 |
6,130 |
0.08 |
||||||||
Inventory step-up |
— |
15,420 |
11,518 |
0.14 |
||||||||
Acquisition-related charges |
— |
8,674 |
5,648 |
0.07 |
||||||||
Restructuring and related charges |
— |
19,085 |
17,356 |
0.22 |
||||||||
Tax repatriation expense |
— |
— |
7,170 |
0.09 |
||||||||
Loss on divestiture |
— |
— |
1,607 |
0.02 |
||||||||
2014 Adjusted Results |
$ |
2,642,294 |
$ |
298,346 |
$ |
199,016 |
$ |
2.50 |
||||
2014 Adjusted Operating Margin |
11.3%
|
|||||||||||
(2) Represents amounts attributable to Kennametal Shareowners. |
FREE OPERATING CASH FLOW (UNAUDITED) |
Twelve Months Ended |
|||||||
June 30, |
||||||||
(in thousands) |
2014 |
2013 |
||||||
Net cash flow from operating activities |
$ |
271,873 |
$ |
284,150 |
||||
Purchases of property, plant and equipment |
(117,376) |
(82,835) |
||||||
Proceeds from disposals of property, plant and equipment |
1,236 |
3,016 |
||||||
Free operating cash flow |
$ |
155,733 |
$ |
204,331 |
RETURN ON INVESTED CAPITAL (UNAUDITED) |
||||||||||||||||||||||||
June 30, 2014 (in thousands, except percents) |
||||||||||||||||||||||||
Invested Capital |
6/30/2014 |
3/31/2014 |
12/31/2013 |
9/30/2013 |
6/30/2013 |
Average |
||||||||||||||||||
Debt |
$ |
1,061,783 |
$ |
1,135,553 |
$ |
1,145,729 |
$ |
706,331 |
$ |
747,945 |
$ |
959,468 |
||||||||||||
Total equity |
1,961,608 |
1,934,558 |
1,903,304 |
1,873,194 |
1,812,293 |
1,896,991 |
||||||||||||||||||
Total |
$ |
3,023,391 |
$ |
3,070,111 |
$ |
3,049,033 |
$ |
2,579,525 |
$ |
2,560,238 |
$ |
2,856,459 |
||||||||||||
Three Months Ended |
||||||||||||||||||||||||
Interest Expense |
6/30/2014 |
3/31/2014 |
12/31/2013 |
9/30/2013 |
Total |
|||||||||||||||||||
Interest expense |
$ |
8,450 |
$ |
8,883 |
$ |
8,037 |
$ |
7,081 |
$ |
32,451 |
||||||||||||||
Income tax benefit |
8,032 |
|||||||||||||||||||||||
Total interest expense, net of tax |
$ |
24,419 |
||||||||||||||||||||||
Net Income |
6/30/2014 |
3/31/2014 |
12/31/2013 |
9/30/2013 |
Total |
|||||||||||||||||||
Net income attributable to |
$ |
45,455 |
$ |
50,865 |
$ |
24,209 |
$ |
37,837 |
$ |
158,366 |
||||||||||||||
Acquisition-related |
1,914 |
1,703 |
1,258 |
775 |
5,648 |
|||||||||||||||||||
Restructuring and |
13,874 |
1,747 |
1,733 |
— |
17,356 |
|||||||||||||||||||
Tax repatriation expense |
— |
— |
7,170 |
— |
7,170 |
|||||||||||||||||||
Loss on divestiture |
1,607 |
— |
— |
— |
1,607 |
|||||||||||||||||||
Noncontrolling interest |
2,024 |
1,129 |
(42) |
721 |
3,832 |
|||||||||||||||||||
Net income, adjusted |
$ |
64,874 |
$ |
55,444 |
$ |
34,328 |
$ |
39,333 |
$ |
193,979 |
||||||||||||||
Total interest expense, net of tax |
24,419 |
|||||||||||||||||||||||
$ |
218,398 |
|||||||||||||||||||||||
Average invested capital |
$ |
2,856,459 |
||||||||||||||||||||||
Adjusted Return on Invested Capital |
7.6%
|
|||||||||||||||||||||||
Return on invested capital calculated utilizing net income, as reported is as follows: |
||||||||||||||||||||||||
Net income attributable to Kennametal, as reported |
$ |
158,366 |
||||||||||||||||||||||
Total interest expense, net of tax |
24,419 |
|||||||||||||||||||||||
$ |
182,785 |
|||||||||||||||||||||||
Average invested capital |
$ |
2,856,459 |
||||||||||||||||||||||
Return on Invested Capital |
6.4%
|
SOURCE
Investor Relations, Quynh McGuire, PHONE: 724-539-6559; or Corporate Relations - Media, Lorrie Paul Crum, PHONE: 724-539-6792