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Kennametal Delivers FY01 Growth Despite Weak Markets; Performance In-Line with Expectations
LATROBE, Pa., Aug. 1 /PRNewswire/ -- Kennametal Inc. (NYSE: KMT) today reported earnings for the fiscal year ending June 30, 2001 of $2.17 per share, an increase of two percent, compared to $2.13 per share last year, excluding special items in each period. Earnings per share would have grown 15 percent to $2.46 without the negative impact of foreign exchange. On a reported basis, earnings per share were $1.73 per share against $1.70 per share last year.
For the fourth quarter, earnings per share were $0.60 per share, toward the upper end of April guidance, compared to $0.68 per share last year, excluding special items in each period.
Kennametal President and Chief Executive Officer Markos I. Tambakeras remarked, "We are pleased to have delivered on our April commitments despite severe declines in many of our end markets. Our performance was driven by outstanding effort by Kennametal employees around the world. We acted quickly to offset the declining North American industrial markets, and began accelerating our cost-cutting initiatives last September. As the decline deepened and spread, we aggressively pursued new opportunities and believe we grew market share. As a result, we offset the majority of the severe market pressure to deliver strong 2001 results."
Tambakeras added, "At the same time, we continued to execute our strategy. I am particularly pleased with a second consecutive year of outstanding cash generation and debt reduction despite the manufacturing recession. Deployment of lean techniques more broadly through our manufacturing network and into corporate functions including finance, purchasing and IT, allowed us to maintain margins despite declining volumes. In addition, we sustained our growth investments to continually improve our competitiveness. The introduction of nearly 7,000 new products captured market share and improved customer satisfaction. E-Business investments produced the launch of our online web site that will allow customers to order, check pricing and inventory, and follow the status of their order more efficiently. Unique to our industry, these functions are available regardless of how the order is placed -- fax, email, phone, EDI or online.
Highlights
Fourth Quarter
During the fourth quarter the company adopted the new accounting standard "Accounting for Shipping and Handling Fees and Costs." The adoption is simply a reclassification of existing fees and costs, which does not affect earnings.
-- Sales of $442.5 million declined 7 percent versus $477.1 million last
year. Excluding the unfavorable impact of foreign currency (2
percent) and the ATS divestiture (1 percent), sales were 4 percent
below the prior year. Sales benefited from the combination of
continued growth in Europe and Asia and strength in North American
mining and energy sectors. According to prior accounting standards,
sales were $439.5 million against $473.8 million last year.
-- Gross profit margin of 34.0 percent, excluding special charges,
declined 140 basis points versus the fourth quarter of fiscal 2000.
Foreign currency and operating inefficiencies in the Electronics
business due to low volumes were the primary drivers of the decline.
Price increases and incremental productivity improvements from lean
implementation offset sales volume declines and increases in raw
material costs. According to prior accounting standards, gross
profit margin was 37.8 percent against 39.2 percent last year.
-- Operating expense for the quarter was reduced 7 percent to $102.4
million. Lean initiatives delivered incremental cost reduction and
productivity improvements that combined with restructuring benefits
to balance funding of key growth initiatives. Excluding foreign
exchange, operating expense declined 4 percent. According to prior
accounting standards, operating expense was $119.4 million against
$127.4 million last year.
-- As anticipated, the effective tax rate for the fourth quarter was
39.7 percent compared to 42.7 percent last year.
-- Interest expense declined 14 percent during the quarter compared to
last year due to the ongoing reduction in debt and lower average
interest rates.
-- Excluding special items, net income was $18.5 million, an 11 percent
decrease compared to $20.7 million last year.
-- As previously announced, special charges of $13.9 million, or $0.28
per share, were included in the quarter's results related to the
divestiture of ATS, the J&L business improvement plan and work force
reductions. Prior-year results included special charges of $2.0
million, or $0.04 per share related to restructuring in the core
business and costs associated with JLK strategic alternatives.
-- Diligent cash flow and balance sheet management generated another
quarter of notable results. Free operating cash flow of $34.7 million
($136.9 million for the year) benefited from a 12 percent reduction
in primary working capital versus prior year. This reduction yielded
primary working capital as a percent of sales of 27.3 percent - the
lowest level in 10 years.
-- Total debt was $607.1 million; down from $699.2 million at the
beginning of the year despite the investment in a share repurchase
program ($16.5 million), and the acquisition of JLK ($41.7 million).
Fiscal 2001 versus 2000
-- Organic sales for the 12 months ending June 30, 2001 increased 2
percent. Actual sales of $1,807.9 million were down 3 percent,
negatively affected by foreign currency (3 percent) and fewer
business days (2 percent). According to prior accounting standards,
sales were $1,795.4 million against $1,853.7 million last year.
-- Excluding special items, net income was $66.6 million, an increase of
3 percent compared to $64.7 million last year.
-- Special charges of $22.5 million, or $0.44 per share, were included
in the year's results related primarily to the J&L and FSS business
improvement program ($8.6 million), the ATS divestiture ($5.8
million), core business resize program ($4.6 million) and costs
associated with the JLK tender offer ($2.1 million). Prior-year
results included special charges of $22.9 million, or $0.43 per share
related primarily to restructuring and asset impairment charges in
the core businesses ($18.6 million) and a charge for environmental
remediation ($3.0 million).
Outlook
Looking forward, Tambakeras noted, "The North American manufacturing recession has not eased, and we do not expect improvement until calendar 2002. In addition, the European economy is clearly beginning to slow. Consequently, we are forecasting continued weakness through the first half of fiscal 2002. At the same time, we will continue to execute against the factors that we can control. The evolution of Lean Throughout into the Kennametal Lean Enterprise will formalize standards and procedures to extend operating efficiencies to every area of the company. Continued product development will sustain the momentum of nearly 14,000 new products over the past two years, and will be combined with aggressive marketing to acquire market share."
Sales for the first half of fiscal 2002 are expected to decline 4 to 6 percent, with a corresponding 10 to 15 percent decline in earnings per share. The first quarter is forecasted to be the weakest quarter for the year. A strong second half driven by economic improvement is anticipated to deliver growth, which will result in flat to slightly higher sales and earnings per share increase of 5 to 10 percent for the year. Cash flow for the year should be within the ongoing long-term range of $100 to $150 million.
Goodwill Amortization
Beginning with fiscal 2002, Kennametal will be complying with SFAS No. 142 "Goodwill and Other Intangible Assets." For reference, pro forma fiscal 2001 earnings per share, excluding special charges, is estimated to be $2.84, with an operating income margin of 10.6 percent, and an effective tax rate of 33.4 percent.
Dividend Announcement
Kennametal also announced its Board of Directors declared a quarterly cash dividend of $0.17 cents per share, payable August 24, 2001, to holders of record as of August 10, 2001.
Kennametal Inc. aspires to be the premier tooling solutions supplier in the world with operational excellence throughout the value chain and best-in- class manufacturing and technology. Kennametal strives to deliver superior shareowner value through top-tier financial performance. The company provides customers a broad range of technologically advanced tools, tooling systems and engineering services aimed at improving customers' manufacturing competitiveness. With 13,000 employees worldwide, the company's annual sales are approximately $1.8 billion, with a third coming from sales outside the United States. Kennametal has been named one of the Best Places to Work in Pennsylvania and is represented in more than 60 countries. Kennametal operations in Europe are headquartered in Furth, Germany. Kennametal Asia Pacific operations are headquartered in Singapore.
This release contains "forward-looking statements" as defined by Section 21E of the Securities Exchange Act of 1934 as amended. Actual results may differ materially from those expressed or implied in the forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, the extent that global economic conditions deteriorate or do not improve materially in the second half of our fiscal year, risks associated with integrating businesses and restructuring programs, demands on management resources, risks associated with international markets such as currency exchange rates, and competition. The company undertakes no obligation to publicly release any revisions to forward-looking statements to reflect events or circumstances occurring after the date hereof.
FINANCIAL HIGHLIGHTS
Consolidated financial highlights for Kennametal Inc. (NYSE: KMT) for the
quarter and year ended June 30, 2001 and 2000 are shown in the following
tables (in thousands, except per share amounts).
Consolidated Statements of Income
Quarter Ended Year Ended
June 30, June 30,
2001 2000 2001 2000
As As As As
Reported Reported Reported Reported
Net sales $442,505 $477,125 $1,807,896 $1,866,578
Cost of goods sold (A) 295,324 308,184 1,192,176 1,228,685
Gross profit 147,181 168,941 615,720 637,893
Operating expense (B) 102,403 110,602 425,641 434,136
Restructuring and asset
impairment charge 4,912 1,222 9,545 18,526
Amortization of
intangibles 5,601 6,335 24,134 26,452
Operating income 34,265 50,782 156,400 158,779
Interest expense (C) 11,290 13,131 50,381 55,079
Other expense, net (D) 4,924 1,979 11,690 3,289
Income before provision for
income taxes and minority
interest 18,051 35,672 94,329 100,411
Provision for income taxes 7,172 15,215 37,300 43,700
Minority interest 851 1,001 3,142 4,734
Income before extraordinary
loss and cumulative effect
of change in accounting
principle 10,028 19,456 53,887 51,977
Extraordinary loss on early
extinguishment of debt,
net of tax - - - (267)
Cumulative effect of change
in accounting principle,
net of tax - - (599) -
Net income $10,028 $19,456 $53,288 $51,710
Per Share Data:
Diluted earnings per share $0.32 $0.64 $1.73 $1.70
Dividends per share $0.17 $0.17 $0.68 $0.68
Diluted weighted average
shares outstanding 31,027 30,535 30,749 30,364
(A) For the quarter and year ended June 30, 2001, these amounts include
charges of $3.2 million and $3.7 million, respectively, related to
the JLK business improvement program.
(B) For the year ended June 30, 2001, this amount includes $2.1 million
primarily related to the tender offer to acquire the outstanding
shares of JLK. For the quarter and year ended June 30, 2000, these
amounts include a charge of $0.8 million related to the evaluation of
strategic alternatives for JLK. For the year ended June 30, 2000,
this amount includes a charge of $3.0 million for environmental
remediation.
(C) For the year ended June 30, 2001, this amount includes a charge of
financing fees as a result of the reduction in the availability under
the company's U.S. credit facility.
(D) For the quarters ended June 30, 2001 and 2000, these amounts include
charges of $1.1 million and $1.4 million, respectively, for fees
incurred in connection with the company's accounts receivable
securitization program. For the years ended June 30, 2001 and 2000,
these amounts include similar charges of $5.7 million and
$5.2 million, respectively. For the quarter and year ended June 30,
2001, these amounts include a charge of $5.8 million related to the
divestiture of Abrasive & Tool Specialties. For the year ended
June 30, 2000, this amount includes one-time gains of $1.4 million
from the sales of underutilized assets.
Supplemental Data Sheet
SELECTED OPERATING DATA:
Quarter Ended Year Ended
June 30, June 30,
2001 2000 (A) 2001 2000 (A)
Sales:(B)
Metalworking Services
and Solutions Group $245,054 $261,597 $999,813 $1,029,395
Advanced Materials
Solutions Group 89,187 89,621 352,933 345,447
J&L Industrial Supply 66,327 83,486 296,264 333,061
Full Service Supply 41,937 42,421 158,886 158,675
Total $442,505 $477,125 $1,807,896 $1,866,578
Sales By Geographic
Region: (B)
Within the
United States $285,631 $322,053 $1,189,014 $1,245,134
International 156,874 155,072 618,882 621,444
Total $442,505 $477,125 $1,807,896 $1,866,578
Operating Income
(Loss), including
special charges: (B)
Metalworking Services
and Solutions Group $31,628 $39,202 $130,558 $131,676
Advanced Materials
Solutions Group 11,152 14,631 43,270 41,204
J&L Industrial Supply (802) 1,635 3,689 17,208
Full Service Supply 1,555 2,408 7,541 12,021
Corporate and
Eliminations (9,268) (7,094) (28,658) (43,330)
Total $34,265 $50,782 $156,400 $158,779
Operating Income
(Loss), excluding
special charges: (B)
Metalworking Services
and Solutions Group $33,883 $39,072 $133,828 $142,659
Advanced Materials
Solutions Group 12,317 14,704 44,197 46,023
J&L Industrial Supply 3,232 2,390 13,815 17,963
Full Service Supply 1,807 2,408 8,113 12,021
Corporate and
Eliminations (8,814) (5,784) (28,224) (37,476)
Total $42,425 $52,790 $171,729 $181,190
Diluted EPS excluding
special charges and
amortization expense $0.78 $0.89 $2.95 $3.00
Diluted EPS excluding
special charges $0.60 $0.68 $2.17 $2.13
Free Operating
Cash Flow: (C)
Net Income $10,028 $19,456 $53,288 $51,710
Non-cash Items 16,301 4,574 23,067 18,117
Depreciation &
Amortization 23,857 25,196 97,297 101,646
Change in Working
Capital 4,289 11,325 23,140 77,155
Capital Expenditures (19,808) (16,540) (59,929) (50,663)
Free Operating
Cash Flow $34,667 $44,011 $136,863 $197,965
SELECTED BALANCE SHEET DATA:
Quarter Ended
6/30/01 3/31/01 12/31/00 9/30/00
Accounts Receivable $206,175 $214,332 $203,344 $218,863
Inventory 373,221 387,520 389,460 392,741
Accounts Payable (118,073) (108,371) (102,217) (111,873)
Total Primary
Working Capital
(PWC) $461,323 $493,481 $490,587 $499,731
PWC % Sales (D) 27.3% 27.7% 27.8% 28.3%
Debt $607,115 $654,930 $687,487 $672,593
Debt/Total Capital 42.9% 45.1% 46.7% 44.7%
(A) Kennametal reports global business units consisting of Metalworking
Services and Solutions Group, Advanced Materials Solutions Group, Full
Service Supply and J&L Industrial Supply, and corporate functional
shared services. Certain amounts in prior year sales and operating
income (loss) have been restated to conform to this reporting
structure.
(B) Amounts reflect reclassification of shipping fees charged customers to
sales, and freight and handling costs to cost of goods sold, as
required by Emerging Issues Task Force 00-10, "Accounting for Shipping
and Handling Fees and Costs."
(C) Prior year amounts restated to exclude the effect of changes in value
of marketable investment securities available-for-sale.
(D) Calculated by averaging the current and the previous four quarter-end
balances for PWC, divided by sales for the most recent 12-month
period.
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SOURCE Kennametal Inc.
Web site: http: //www.kennametal.com
CONTACT: Beth A. Riley, Director of Investor Relations of Kennametal, +1-724-539-3470