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Kennametal Delivers on Third Quarter Expectations
LATROBE, Pa., May 1 /PRNewswire-FirstCall/ -- Kennametal Inc. (NYSE: KMT) today reported fiscal 2002 third quarter earnings of $0.53 per diluted share, a decrease of 42 percent, compared with earnings of $0.91* per diluted share last year, excluding special items in each period. On the same basis through the first nine months, diluted earnings per share were $1.28, 38 percent below last year's earnings of $2.06*.
Earnings Per Share Excluding Special Items
Company Guidance (1/30/02) $0.50 to $0.55
Analyst Estimate Range (04/30/02) $0.50 to $0.55
Earnings, Excluding Special Items $0.53
On a reported basis, diluted earnings per share were $0.42 for the quarter against last year's earnings per share of $0.84*. For the first nine months, reported diluted earnings per share were $0.74 against last year's earnings per share of $1.89*.
* Fiscal 2001 performance quoted in this release excludes goodwill
amortization as defined by SFAS 142, "Goodwill and Other Intangible
Assets" to allow equivalent comparisons. A table reconciling the
fiscal 2001 impact of goodwill amortization is included later in this
release.
"We were encouraged to see 3.6 percent sequential improvement versus the December quarter, and continued our disciplined management of the business through the softest March quarter in many years," Kennametal Chairman, President and Chief Executive Officer, Markos I. Tambakeras, said. "We leveraged continued aggressive cost management through the Kennametal Lean Enterprise, as North American industrial markets remained severely depressed and our European and energy related markets softened as expected. I was particularly pleased that our relentless focus on working capital management contributed to another quarter of strong cash flow, including an $18 million decrease in inventory. In addition, the previously announced restructuring effort in our J&L, IPG and Electronics businesses progressed as planned and positioned the company for even stronger performance as the economy rebounds."
Third Quarter Highlights
-- Sales of $393.9 million declined 16 percent, versus $468.2 million
last year. Excluding the unfavorable impact of foreign currency
(2 percent), and fewer workdays (3 percent), sales were 11 percent
below the prior year. Each month in the March 2002 quarter improved
sequentially on a daily sales basis, despite broad year-over-year
weakness. Sales for the March 2002 quarter improved 3.6% sequentially
versus the December quarter.
-- Gross profit margin, excluding special charges in both periods, of
32.7 percent declined 250 basis points compared with the third quarter
of fiscal 2001. Lean initiatives continue to provide manufacturing
efficiencies that offset much of the combined negative pressure of
underutilized capacity due to volume declines and an unfavorable
customer and product mix. Foreign currency translation also reduced
the margin.
-- Operating expense for the quarter was reduced 10 percent, to
$95.7 million, excluding special charges in 2001. The reduction was
9 percent excluding the impact of foreign exchange. Ongoing
cost-cutting and lean initiatives, combined with several short-term
savings actions, reduced expenses nearly in line with sales declines.
Moreover, the reduction was achieved even as spending on growth
programs and R&D was sustained.
-- The current quarter included special charges of $5.2 million, or
$0.11 per diluted share, associated with previously announced
restructurings. The charges were divided approximately evenly between
the J&L/FSS business improvement plan and the Metalworking and
Electronics plan. These plans are expected to be completed by fiscal
year end. Prior-year results included special charges of
$3.2 million, or $0.07 per share, associated with the J&L and FSS
business improvement plans and the resize program.
-- Interest expense of $7.4 million is 41 percent below the same quarter
last year due to ongoing debt reduction and lower average borrowing
rates.
-- The effective tax rate for the March 2002 quarter was 32.0 percent,
compared with prior year of 33.9 percent.
-- Excluding special items, net income was $16.7 million, a 40 percent
decrease compared with net income of $28.0 million last year.
Reported net income was $13.1 million against net income of
$25.9 million in the same quarter last year.
-- Free operating cash flow was $31.4 million, versus $31.9 million in
the same period last year. Primary working capital remained tightly
controlled with the primary working capital as a percent of sales
ratio increasing slightly to 28.1 percent. Primary working capital of
$425.4 million was down 14 percent from the same period last year.
-- Total debt was $547.9 million, down $107.0 million from March 2001 and
down $59.2 million from the beginning of the fiscal year. Three years
of focused debt reduction has lowered total debt by more than 40%.
Outlook
"Sequential improvement though the March quarter supports the broad perception that the markets have found a bottom and are slowly beginning to rebound," Tambakeras said, "Key indicators including industrial production and the Institute of Supply Management (ISM -- formerly NAPM) index also continue to strengthen. Consequently, we are reaffirming our outlook for the final quarter of the fiscal year with the expectation that the gradual economic improvement will continue. While the near term will continue to be challenging, we remain confident that future economic growth will allow us to take maximum advantage of the many improvements we have made as a company. These improvements have included revitalized investment in technology, which has increased sales from new products to 34%. New products have been leveraged with sales and marketing initiatives to deliver market share gains and enhanced customer satisfaction. At the same time we have significantly improved operating efficiency."
Assuming economic conditions continue to slowly strengthen, sales for the fourth quarter of fiscal 2002 are expected to sequentially improve 2 to 5 percent, and to decline 5 to 10 percent year-over-year, with diluted earnings per share between $0.62 and $0.72, excluding special charges. Cash flow for the year is still expected to exceed $100 million.
Change of Independent Auditor
On April 30, 2002, upon the joint recommendation of management and the Audit Committee, the Board of Directors of Kennametal Inc. (the company) ratified the dismissal of Arthur Andersen LLP (Arthur Andersen) as the company's independent auditors following the completion by Arthur Andersen of its report on the financial statements of the company for the quarter ended March 31, 2002, and the selection of PricewaterhouseCoopers LLP as independent auditors for fiscal year ending June 30, 2002. The appointment of PricewaterhouseCoopers LLP was made after careful consideration by the Board of Directors, the Audit Committee and management of the company, and included an extensive evaluation process.
The decision to change auditors was not the result of any disagreement between the company and Arthur Andersen on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure. During its long tenure as the company's outside auditors, Arthur Andersen has provided many years of quality service and has demonstrated a high level of professionalism.
Strong Tool Company Disposition
Kennametal also announced that it has sold its wholly owned subsidiary, Strong Tool Company, headquartered in Cleveland, Ohio. This April 2002 action represents a net book loss of approximately $2.4 million and is in line with Kennametal's strategy to refocus J&L on its catalog business.
Dividend Declared
Kennametal also announced its Board of Directors declared a quarterly cash dividend of $0.17 cents per share, payable May 24, 2002, to shareowners of record as of the close of business May 10, 2002.
Third quarter results will be discussed in a live Internet broadcast at 10:00 a.m. today. Access the live or archived conference by visiting the Investor Relations section of Kennametal's corporate web site at http://www.kennametal.com.
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 continue to improve in the second quarter of calendar 2002, risks associated with integrating and divesting businesses and achieving the expected savings and synergies, demands on management resources, risks associated with international markets such as currency exchange rates and social and political environments, competition, labor relations, commodity prices, demand for and market acceptance of new and existing products, risks associated with the implementation of restructuring plans and environmental remediation, as well as other risks and uncertainties including those detailed from time to time in the filings of the company with the Securities and Exchange Commission. The company undertakes no obligation to publicly release any revisions to forward-looking statements to reflect events or circumstances occurring after the date hereof.
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 approximately 12,000 employees worldwide, the company's fiscal 2001 annual sales were $1.8 billion, with a third coming from sales outside the United States. Kennametal is a five-time winner of the GM "Supplier of the Year" award 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. For more information, visit the company's web site at http://www.kennametal.com.
FINANCIAL HIGHLIGHTS
Consolidated financial highlights for Kennametal Inc. (NYSE: KMT) for the quarters and nine-month periods ended March 31, 2002 and 2001 are shown in the following tables (in thousands, except per share amounts). All fiscal year 2002 data is subject to year-end (June 30) adjustment and audit by independent public accountants.
Consolidated Statements of Income
Quarter Ended Nine Months Ended
March 31, March 31,
2002 2001 2002 2001
Net sales $393,852 $468,191 $1,180,844 $1,365,391
Cost of
goods sold 266,205 303,684 806,893 896,852
Gross profit 127,647 164,507 373,951 468,539
Operating
expense(1) 95,695 106,786 288,711 323,238
Restructuring and
asset impairment
charges 3,944 2,286 22,650 4,633
Amortization of
intangibles 728 6,063 2,107 18,533
Operating income 27,280 49,372 60,483 122,135
Interest
expense(2) 7,421 12,496 25,076 39,091
Other expense
(income), net(3) (14) 1,873 (179) 6,766
Income before
provision for income
taxes and minority
interest 19,873 35,003 35,586 76,278
Provision for
income taxes 6,359 13,824 11,387 30,128
Minority interest 370 785 1,071 2,291
Income before
cumulative effect
of change in
accting.
principle 13,144 20,394 23,128 43,859
Cumulative effect
of change in
accounting principle,
net of tax -- -- -- (599)
Net income $13,144 $20,394 $23,128 $43,260
Diluted earnings
per share $0.42 $0.66 $0.74 $1.41
Dividends per share $0.17 $0.17 $0.51 $0.51
Diluted weighted
average shares
outstanding 31,553 30,692 31,454 30,656
(1) For the quarter and nine-months ended March 31, 2001, this
includes a charge of $0.1 million and $2.1 million, respectively,
primarily related to the tender offer to acquire the outstanding
shares of JLK.
(2) For the quarter and nine-months ended March 31, 2001, this
includes a charge of $0.3 million related to the recognition of a
portion of deferred financing fees as a result of the reduction
in the availability under the company's U.S. credit facility.
(3) For the quarters ended March 31, 2002 and 2001, these amounts
include charges of $0.5 million and $1.5 million, respectively,
for fees incurred in connection with the company's accounts
receivable securitization program. For the nine-months ended
March 31, 2002 and 2001, these amounts include similar charges of
$2.0 million and $4.7 million, respectively.
FINANCIAL HIGHLIGHTS (Continued) Pro forma Fiscal 2001 Operating Results Excluding Goodwill Amortization:
Period Ended
March 31, 2001
Quarter Nine Months
Operating income $54,732 $138,272
Interest expense 12,496 39,091
Other expense, net 1,873 6,766
Income before provision for income
taxes and minority interest 40,363 92,415
Provision for income taxes 13,683 31,322
Minority interest 800 2,527
Income before cumulative effect of
change in accounting principle 25,880 58,566
Cumulative effect of change in
accounting principle, net of tax -- (599)
Pro forma net income $25,880 $57,967
Pro forma diluted earnings per share $0.84 $1.89
The following tables provide a comparison of the company's reported results, and the results excluding special items, for fiscal 2002 and fiscal 2001.
Quarter Ended March 31,
Diluted
Earnings
Gross Operating Net Per
Profit Income Income Share
2002 Reported Results $127,647 $27,280 $13,144 $0.42
MSSG Restructuring 160 1,904 1,295 0.04
AMSG Restructuring 554 619 421 0.01
Corporate Restructuring -- 3 2 --
Total Core Business 714 2,526 1,718 0.05
J&L Restructuring 507 2,375 1,616 0.05
FSS Restructuring -- 264 179 0.01
Total Non-Core Business 507 2,639 1,795 0.06
2002 Results Excluding Special Items $128,868 $32,445 $16,657 $0.53
2001 Reported Results $164,507 $49,372 $20,394 $0.66
MSSG Restructuring -- 1,011 612 0.02
AMSG Restructuring -- (264) (160) --
Corporate Special Charge -- -- 208 0.01
Total Core Business -- 747 660 0.03
J&L Restructuring 419 1,913 1,157 0.04
FSS Restructuring -- 170 103 --
Total Non-Core Business 419 2,083 1,260 0.04
2001 Results Excluding
Special Items $164,926 $52,202 $22,314 $0.73
FINANCIAL HIGHLIGHTS (Continued)
Nine Months Ended March 31,
Diluted
Earnings
Gross Operating Net Per
Profit Income Income Share
2002 Reported Results $373,951 $60,483 $23,128 $0.74
MSSG Restructuring 160 8,141 5,536 0.18
AMSG Restructuring 1,304 6,573 4,470 0.14
Corporate Restructuring -- 160 109 --
Total Core Business 1,464 14,874 10,115 0.32
J&L Restructuring 906 9,846 6,694 0.21
FSS Restructuring -- 300 204 0.01
Total Non-Core Business 906 10,146 6,898 0.22
2002 Results Excluding Special Items $376,321 $85,503 $40,141 $1.28
2001 Reported Results $468,539 $122,135 $43,260 $1.41
MSSG Restructuring -- 1,016 615 0.02
AMSG Restructuring -- (238) (146) --
Corporate Restructuring & Other -- (20) 197 0.01
Total Core Business -- 758 666 0.03
J&L Restructuring & Other 419 6,092 3,344 0.11
FSS Restructuring -- 320 184 --
Total Non-Core Business 419 6,412 3,528 0.11
Adoption of SFAS 133 -- -- 599 0.02
2001 Results Excluding Special Items $468,958 $129,305 $48,053 $1.57
FINANCIAL HIGHLIGHTS (Continued)
SEGMENT DATA:
Quarter Ended Nine Months Ended
March 31, March 31,
2002 2001(1) 2002 2001(1)
Sales:(2)
Metalworking Solutions and
Services Group $224,971 $260,098 $666,006 $754,759
Advanced Materials Solutions
Group 72,879 91,858 227,498 263,746
J&L Industrial Supply 58,873 74,504 173,997 224,708
Full Service Supply 37,129 41,731 113,343 122,178
Total Sales $393,852 $468,191 $1,180,844 $1,365,391
Sales By Geographic Region:(2)
Within the United States $253,905 $302,620 $762,140 $903,383
International 139,947 165,571 418,704 462,008
Total Sales $393,852 $468,191 $1,180,844 $1,365,391
Operating Income (Loss), as
reported:(2)
Metalworking Solutions and
Services Group $25,999 $38,318 $68,080 $98,930
Advanced Materials Solutions
Group 6,988 12,188 16,699 32,118
J&L Industrial Supply 1,208 2,896 (1,725) 4,533
Full Service Supply 380 2,125 1,799 5,944
Corporate and Eliminations (7,295) (6,155) (24,370) (19,390)
Total Operating Income $27,280 $49,372 $60,483 $122,135
Operating Income (Loss),
excluding special charges:(2)
Metalworking Solutions and
Services Group $27,903 $39,329 $76,221 $99,946
Advanced Materials Solutions
Group 7,607 11,924 23,272 31,880
J&L Industrial Supply 3,584 4,809 8,122 10,625
Full Service Supply 644 2,295 2,099 6,264
Corporate and Eliminations (7,293) (6,155) (24,211) (19,410)
Total Operating Income $32,445 $52,202 $85,503 $129,305
Operating Income (Loss),
excluding special charges
and goodwill
amortization: (2)(3)
Metalworking Solutions and
Services Group $41,678 $106,984
Advanced Materials Solutions
Group 14,154 38,571
J&L Industrial Supply 5,575 12,795
Full Service Supply 2,310 6,309
Corporate and Eliminations (6,155) (19,217)
Total Operating Income $57,562 $145,442
(1) Kennametal reports global business units consisting of
Metalworking Solutions and Services Group, Advanced Materials
Solutions Group, J&L Industrial Supply, Full Service 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.
(2) Amounts reflect reclassification of shipping fees charged
customers to sales, and freight and handling costs to costs of
goods sold, as required by Emerging Issues Task Force 00-10,
"Accounting for Shipping and Handling Fees and Costs."
(3) As reported amounts for fiscal 2002 are reflective of the non-
amortization provision of SFAS 142, "Goodwill and Other
Intangible Assets."
FINANCIAL HIGHLIGHTS (Continued)
CASH FLOW INFORMATION
Quarter Ended Nine Months Ended
March 31, March 31,
2002 2001(1) 2002 2001(1)
Net income $13,144 $20,394 $23,128 $43,260
Non-cash items (1,078) 4,774 11,241 6,766
Depreciation and
amortization 17,934 24,375 55,237 73,440
Change in primary
working capital 5,780 (13,166) 43,996 16,259
Change in other
working capital 3,574 9,931 (29,169) (6,241)
Cash flow from
operations 39,354 46,308 104,433 133,484
Capital
expenditures (10,235) (17,141) (30,349) (40,121)
Proceeds from
asset disposals 2,274 2,714 5,799 3,558
Free operating
cash flow $31,393 $31,881 $79,883 $96,921
(1) Certain amounts have been reclassified to be consistent with the
current year presentation.
FINANCIAL HIGHLIGHTS (Continued)
CONDENSED BALANCE SHEETS
Quarter Ended
3/31/02 12/31/01 9/30/01 6/30/01 3/31/01
ASSETS
Cash and
equivalents $10,705 $10,414 $10,722 $12,940 $19,987
Accounts
receivables,
net of
allowance 168,094 162,916 196,003 206,175 214,332
Inventories 351,129 367,724 382,701 373,221 387,520
Deferred income
taxes 66,177 67,215 64,673 57,452 52,610
Other current
assets 28,064 24,728 25,036 31,408 31,899
Total current
assets 624,169 632,997 679,135 681,196 706,348
Property, plant
and equipment,
net 438,505 448,263 467,268 472,874 474,015
Goodwill, net 615,955 616,113 616,527 615,263 628,104
Intangible assets,
net 7,164 7,945 8,716 9,497 9,529
Other assets 60,458 60,797 50,943 46,612 39,177
Total $1,746,251 $1,766,115 $1,822,589 $1,825,442 $1,857,173
LIABILITIES
Short-term
debt $383,639 $406,677 $418,448 $24,530 $8,786
Accounts
payable 93,810 101,817 103,993 118,073 108,371
Accrued
liabilities 136,095 131,656 137,055 151,882 174,378
Total current
liabilities 613,544 640,150 659,496 294,485 291,535
Long-term debt 164,257 173,514 209,613 582,585 646,144
Deferred income
taxes 54,953 54,204 50,945 53,844 37,531
Other
liabilities 88,720 89,880 90,716 87,898 84,312
Total
liabilities 921,474 957,748 1,010,770 1,018,812 1,059,522
MINORITY INTEREST 8,907 9,271 10,187 9,861 10,708
SHAREOWNERS'
EQUITY 815,870 799,096 801,632 796,769 786,943
Total $1,746,251 $1,766,115 $1,822,589 $1,825,442 $1,857,173
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SOURCE Kennametal Inc.
Web site: http: //www.kennametal.com
CONTACT: Beth A. Riley, Investor Relations, +1-724-539-6141, or Steve Halvonik, Media Relations, +1-724-539-4618, both of Kennametal Inc.