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Kennametal First-Quarter Earnings Up 15%, Performance In Line With Expectations
Quarterly Dividend Declared
LATROBE, Pa., Oct. 25 /PRNewswire/ -- Kennametal Inc. (NYSE: KMT) today reported strong first-quarter earnings driven by higher sales and continued improvements in operations. Kennametal's earnings per share (EPS) increased by 15.2 percent to $0.38 per share, excluding special items, compared to $0.33 per share last year. EPS from the company's core operations, which exclude JLK Direct Distribution Inc. (NYSE: JLK), rose 45.4 percent, excluding special items.
Kennametal President and Chief Executive Officer Markos I. Tambakeras said, "We continue to deliver on our commitments despite challenging market conditions and a continuing unfavorable foreign exchange environment. We are building a new performance-based culture focused on providing advanced technical solutions for customers and on delivering value to our shareowners. Our efforts to reposition Kennametal for growth are starting to take hold. We continue to exceed expectations on cash flow and debt reduction and are regaining balance sheet flexibility as planned. We are working hard to become a top-tier financial performer."
First Quarter Highlights
-- Sales rose to $450.7 million, an increase of 1.8 percent compared to
last year, or 6.0 percent excluding the unfavorable impact of foreign
currency
(2.0 percent) and fewer business days (2.2 percent). Sales
performance generally was favorable across the company's businesses,
with particular strength from international markets. Soft end markets
contributed to the weak results for the North American construction
business. Overall, the introduction of more than 7,500 new products
in the last year and several initiatives to revitalize sales are
supporting Kennametal's sales growth target of 3-5 percent for the
current fiscal year.
-- The gross profit margin was 37.4 percent, an improvement of 50 basis
points from the first quarter of fiscal 2000. The increase in the
gross margin was principally due to higher productivity derived from
lean manufacturing programs and price discipline, offset by weakness
in the high-margin construction business.
-- Operating expenses for the quarter, excluding special charges, were up
3.4 percent to $126.7 million. Despite the planned increase in
spending on research and development, and strategic initiatives aimed
at accelerating sales growth, operating income margin still improved
30 basis points.
-- The effective tax rate for the first quarter was 40.5 percent compared
to 44.5 percent last year, as successful tax planning initiatives in
Europe more than offset the repeal of the Foreign Sales Corporation
tax benefits in the United States.
-- Excluding special items, net income was $11.5 million, an increase of
16.2 percent compared to $9.9 million last year.
-- Special charges of $3.2 million, or $0.06 per share, were included in
the quarter's results related to the JLK business improvement plan and
costs associated with the tender offer, and $0.6 million, net of tax,
or $0.02 per share related to the adoption of Financial Accounting
Standard No. 133, "Accounting for Derivative Instruments and Hedging
Activities."
-- The prior year's results for the first quarter included one-time gains
of $1.4 million from the sale of under-utilized assets.
-- Kennametal continued to generate strong cash flow and exceed its
targets. Free operating cash flow of $43 million was driven by a
$24 million reduction in primary working capital. Total debt declined
by $26 million from $699 million to $673 million.
Tambakeras added, "Our first-quarter results clearly demonstrate that Kennametal is continuing the disciplined execution of its seven initiatives. Our reinvigorated sales force and the introduction of new products, both leveraged by outstanding response at the recent IMTS trade show, are having a positive impact on sales even in lackluster market conditions. Cost discipline and manufacturing performance continue to improve across all areas of the company, providing further operating leverage. As planned, we have raised our investment in research and development and in support of growth initiatives. We are making steady progress toward our aspiration of being the world's premier tooling solutions supplier and are earning the right to grow."
Kennametal also announced the continuation of a program to purchase from time to time up to a total of 2,000,000 additional shares of its outstanding capital stock for investment or other general corporate purposes. The original repurchase program was announced on January 31, 1997. Repurchases may be made from time to time in the open market, in negotiated or other permissible transactions. Under the authority of this program, the company previously purchased approximately 1.4 million shares and currently has approximately 30.2 million shares outstanding.
Kennametal also announced its Board of Directors declared a quarterly cash dividend of 17 cents per share, payable November 24, 2000, to holders of record as of November 10, 2000.
Kennametal is a global leader in providing tools, tooling systems and solutions to the metalworking, mining, highway construction, oil and energy industries, and wear-resistant parts for a wide range of industries. Headquartered in Latrobe, Pa., Kennametal has approximately 13,000 employees worldwide and annual sales of approximately $1.9 billion.
This release contains "forward-looking statements" as defined by Section 21E of the Securities Exchange Act of 1934. 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 do not change materially, 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 quarters ended September 30, 2000 and 1999 are shown in the following tables (in thousands, except per share amounts). All fiscal year 2001 data is subject to year-end (June 30) adjustment and audit by independent public accountants.
Consolidated Statements of Income Quarter Ended
September 30
Operations: 2000 1999
Net sales $ 450,705 $ 442,943
Cost of goods sold 282,052 279,614
Gross profit 168,653 163,329
Operating expense (A) 128,424 122,487
Restructuring and asset
impairment charges 1,535 --
Amortization of intangibles 6,323 7,003
Operating income 32,371 33,839
Interest expense 13,195 14,527
Other (income) expense, net (B) 1,457 (258)
Income before provision
for income taxes and
minority interest 17,719 19,570
Provision for income taxes 7,176 8,709
Minority interest 602 948
Income before cumulative
effect of change in
accounting principle 9,941 9,913
Cumulative effect of change in accounting
principle, net of tax (C) (599) --
Net income $9,342 $ 9,913
Per Share Data:
Diluted earnings per share $0.30 $0.33
Dividends per share $0.17 $0.17
Diluted weighted average
shares outstanding 30,742 30,165
(A) For the quarter ended September 30, 2000, these amounts include a
charge of $1.7 million, primarily related to the tender offer to
acquire the outstanding shares of JLK.
(B) For the quarters ended September 30, 2000 and 1999, these amounts
include charges of $1.6 million and $1.1 million, respectively, for
fees incurred in connection with the company's accounts receivable
securitization program.
(C) For the quarter ended September 30, 2000, this amount represents a
non-cash charge for the adoption of Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities."
Supplemental Data Sheet
SELECTED OPERATING DATA:
Quarter Ended
September 30
2000 1999(A)
Sales:
Metalworking Services and Solutions Group $ 246,816 $ 242,164
Advanced Materials Solutions Group 86,779 84,800
JLK/Industrial Supply(B) 117,110 115,979
Total $450,705 $442,943
Sales By Geographic Area:
Within the United States $ 302,433 $ 296,095
International 148,272 146,848
Total $450,705 $442,943
Operating Income (Loss),
including special charges:
Metalworking Services and
Solutions Group (C) $27,922 $29,257
Advanced Materials Solutions Group 11,187 10,623
JLK/Industrial Supply 552 6,979
Corporate and Eliminations(C) (7,290) (13,020)
Total $32,371 $33,839
Operating Income (Loss),
excluding special charges:
Metalworking Services and
Solutions Group(C) $27,890 $29,257
Advanced Materials Solutions Group 11,187 10,623
JLK/Industrial Supply 3,869 6,979
Corporate and Eliminations(C) (7,310) (13,020)
Total $35,636 $33,839
Diluted EPS excluding special charges and
amortization expense $0.58 $0.56
Free Cash Flow:
Net Income $9,342 $9,913
Non-cash Items 2,989 80
Depreciation & Amortization 24,566 26,064
Change in Working Capital 17,504 25,157
Capital Expenditures (11,471) (10,779)
Free Cash Flow $42,930 $50,435
Supplemental Data Sheet (Continued)
SELECTED BALANCE SHEET DATA:
Quarter Ended
9/30/00 6/30/00 3/31/00 9/30/99
Accounts Receivable $218,863 $ 231,917 $ 245,002 $ 233,867
Inventory 392,741 410,885 417,333 431,324
Accounts Payable (111,873) (118,908) (122,166) (106,668)
Total Primary
Working Capital (PWC) $499,731 $ 523,894 $ 540,169 $ 558,523
PWC % Sales(D) 28.5% 29.4% 30.0% 32.0%
Debt $672,593 $ 699,242 $ 737,003 $ 814,836
Debt/Total Capital 44.7% 45.6% 47.6% 50.2%
SPECIAL CHARGES IMPACT:
Operating Net Per
Income Income Share
Reported Earnings $ 32,371 $ 9,342 $0.30
JLK Special Charges
(Tender Costs) 1,678 815 0.03
JLK Restructuring Charges 1,587 776 0.03
FAS 133 --- 599 0.02
Results Excluding
Special Charges $35,636 $11,532 $0.38
(A) Kennametal now reports three global business units consisting of
Metalworking Services and Solutions Group, Advanced Materials
Solutions Group and JLK/Industrial Supply, and a corporate
functional shared services. Certain amounts in prior year sales
and operating income (loss) have been restated to conform with
this new reporting structure.
(B) Compared to the amounts reported separately by JLK, these amounts
have been adjusted to properly reflect the elimination of
intercompany sales to Kennametal and its subsidiaries.
(C) For the quarter ended September 30, 1999, results for the
Metalworking Services and Solutions Group include a gain of
$4.7 million on the sale of $12.7 million of inventory to JLK that
is eliminated in Corporate and Eliminations.
(D) Calculated by averaging beginning of the year and quarter-end
balances for PWC, divided by sales for the most recent 12-month
period.
SOURCE Kennametal Inc.
Web site: http: //www.kennametal.com
CONTACT: Beth A. Riley, Director, Investor Relations of Kennametal, 724-539-3470