« Back
Kennametal Reports Fourth Quarter Earnings
- Sales up 15% on acquisitions - Reported loss per diluted share of $0.14, per guidance - Another strong quarter of cash flow
LATROBE, Pa., July 30 /PRNewswire-FirstCall/ -- Kennametal Inc. (NYSE: KMT) today reported a fiscal 2003 fourth quarter loss of $0.14 per diluted share compared with earnings of $0.48 per diluted share last year. Excluding special items in each period, diluted earnings per share were $0.45 for the quarter, at the high end of guidance, against last year's earnings per share of $0.67. Sales of $463.8 million were 15 percent above prior year, driven by the Widia acquisition. Free operating cash flow was $55 million versus $43 million in fiscal 2002.
Earnings Per Share Excluding Special Items
Company Guidance (07/09/03) $0.43 to $0.45
Analyst Estimate Range (07/29/03) $0.38 to $0.44
Earnings, Excluding Special Items $0.45
For the total fiscal year, diluted earnings per share were $0.51, compared against last year's loss per share of $6.70. Excluding special items in each period, diluted earnings per share were $1.41 against last year's earnings per share of $1.95. The prior year included a non-cash impairment charge associated with the adoption of SFAS No. 142 "Goodwill and Other Intangible Assets". Sales of $1,759 million grew 11 percent, and free operating cash flow was $136 million.
Kennametal Chairman, President and Chief Executive Officer, Markos I. Tambakeras, said, "We are pleased to deliver a credible performance in fiscal 2003, in the context of a manufacturing recession that persisted in North America, for the third year, and deepened in Europe. Our continuing disciplined management of the business strengthened the foundation that will enhance our operating leverage as global manufacturing economies improve."
Tambakeras continued, "We substantially improved our competitiveness across all fronts. The delivery of another strong year of free operating cash flow, in excess of $130 million despite $25 million spent on the Widia integration, was particularly gratifying. Product innovation was unabated, and we confirmed our technological leadership by attaining our target of 40 percent of sales from new products. At the same time, we delivered against very aggressive objectives for the Widia acquisition. In the face of a sustained manufacturing recession, I remain particularly impressed by the resilience and resourcefulness of our employees. "
Tambakeras further noted that Institutional Shareholder Services (ISS) recently reviewed and rated Kennametal's corporate governance profile and, according to ISS, Kennametal outperformed 96% of the companies in the S&P 400 and 98% of the companies in the Capital Goods group.
Highlights
Fourth Quarter - FY03
-- Sales of $463.8 million were 15 percent above last year's
$402.9 million. Sales growth was driven by a 13 percent positive
benefit from acquisitions.
-- Reported net loss was $4.9 million against net income of $15.4 million
in the same quarter last year. Excluding special items, net income was
$15.9 million for the quarter; a 26 percent decrease compared to net
income of $21.4 million last year including the impact of Widia
dilution and reduced pension income.
-- The current quarter included net special charges of $20.8 million, or
$0.59 per diluted share, primarily associated with the previously
announced Widia integration efforts and Electronics' impairment
charge. Prior-year results included net special charges of
$6.1 million, or $0.19 per diluted share, associated with the
completion of previously announced restructurings and the divestiture
of Strong Tool.
-- Decreased pension income reduced earnings per diluted share by
$0.05 for the quarter versus the prior year. Pretax income for the
quarter was reduced by $2.6 million (non-cash) compared to the same
period in fiscal 2002 due to the effect of a decrease in the expected
rate of return on Kennametal's pension fund assets, coupled with lower
discount rates related to pension liabilities.
-- At year-end, Kennametal's pension plan had an unfunded obligation of
$3.7 million that resulted in a $35.2 million charge, net of tax, to
equity under SFAS No. 87 "Employers Accounting for Pensions". The
pension plan is adequately funded from an ERISA perspective, and the
company currently does not anticipate any cash funding requirements
during fiscal 2004.
-- Free operating cash flow remained strong at $55.0 million, versus
$43.5 million in the same period last year.
-- Total debt was $526 million, up $114 million from June 2002, but down
$91 million from the closing of the Widia acquisition in the September
quarter.
Fiscal 2003 versus 2002
-- Sales for the 12 months ending June 30, 2003 of $1,759 million grew
11 percent. Net acquisitions and divestitures contributed growth of
11 percent.
-- Reported net income was $18.1 million against a net loss of
$211.9 million in the prior year. Excluding special items, net income
was $49.9 million, a decrease of 19 percent compared to $61.6 million
last year.
-- Special charges of $31.7 million, or $0.90 per share, were included in
the year's results related primarily to the Widia integration and the
previously announced Electronics' impairment charge. Prior-year
results included special charges of $273.5 million, or $8.65 per
share, related primarily to the SFAS No. 142 impairment charge of
$250.4 million. A chart detailing special charges for both years is
attached.
-- Free operating cash flow remained strong at $136 million, versus
$131 million for the prior year.
Outlook
Global economic signals remain mixed at the beginning of the current quarter. The sustainability of the modest sales improvement in June is unclear, as near-term visibility remains limited. However, the macroeconomic outlook beyond the next three to six months is cautiously more positive, and continues to suggest that a North American recovery will precede any improvement in Europe.
Tambakeras said, "In fiscal 2004, we expect to accelerate the realization of benefits from our efforts. As projected, the Widia acquisition is anticipated to become accretive to earnings in the first quarter. Our competitive repositioning of the company will gain traction even with a modest market improvement."
Sales for the first quarter of fiscal 2004 are expected to grow 9 to 11 percent year-over-year. Reported diluted earnings per share are expected to be $0.20 to $0.27 per share. This includes an estimate for special charges associated with the completion of the Widia integration of approximately $0.08 to $0.10 per share, consistent with previously announced integration assumption. Excluding these charges, diluted earnings per share are forecasted to range from $0.30 to $0.35 per share.
For the full year, sales are expected to grow 4 to 6 percent year-over-year. Reported diluted earnings per share are expected to be $1.70 to $2.10 per share. This includes an estimate for special charges associated with the completion of the Widia integration approximately $0.10 to $0.20 per share. Excluding these charges, diluted earnings per share are forecasted to range from $1.90 to $2.20 per share. The earnings forecast includes $0.15 to $0.20 of accretion from Widia, better than the $0.10 to $0.15 per share originally estimated. An incremental increase in pension expense is lowering diluted EPS for the fiscal year by approximately $0.30 per share. In addition, combining information obtained from the valuation of acquired Widia assets with further review and analysis, management has determined that the current useful lives of Kennametal's assets should be extended to more appropriately match the life of those assets. The resulting depreciation expense reduction is expected to be approximately $0.30 per share.
Kennametal expects to generate between $100 and $125 million of free operating cash flow in fiscal 2004.
Kennametal advises shareholders to note monthly order trends, for which the company makes a disclosure ten business days after the conclusion of each month. This information is available on the Investor Relations section of Kennametal's corporate web site at www.kennametal.com.
Dividend Declared
Kennametal also announced its Board of Directors declared a quarterly cash dividend of $0.17 cents per share, payable August 25, 2003, to shareowners of record as of the close of business August 8, 2003.
Fourth 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 www.kennametal.com.
This release contains "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. You can identify these forward-looking statements by the fact they use words such as "should," "anticipate," "estimate," "approximate," "expect," "may," "will," "project," "intend," "plan," "believe," and others words of similar meaning and expression in connection with any discussion of future operating or financial performance. One can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements are likely to relate to, among other things, our goals, plans and projections regarding our financial position, results of operations, market position and product development, which are based on current expectations that involve inherent risks and uncertainties, including factors that could delay, divert or change any of them in the next several years. Although it is not possible to predict or identify all factors, they may include the following: global economic conditions; future terrorist attacks; epidemics; 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; and risks associated with the implementation of restructuring plans and environmental remediation matters. We can give no assurance that any goal or plan set forth in forward- looking statements can be achieved and readers are cautioned not to place undue reliance on such statements, which speak only as of the date made. We undertake no obligation to release publicly any revisions to forward-looking statements as a result of future events or developments.
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 about 14,000 employees worldwide, the company's annual
sales approximate $1.8 billion, with nearly half 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 www.kennametal.com.
FINANCIAL HIGHLIGHTS
Consolidated financial highlights for Kennametal Inc. (NYSE: KMT) for the quarters and twelve-month periods ended June 30, 2003 and 2002 are shown in the following tables (in thousands, except per share amounts).
Consolidated Statements of Income (Unaudited)
Quarter Ended Twelve Months Ended
June 30, June 30,
2003 2002 2003 2002
Net sales $463,765 $402,898 $1,758,957 $1,583,742
Cost of goods sold(1) 314,974 266,025 1,190,053 1,072,918
Gross profit 148,791 136,873 568,904 510,824
Operating expense(2) 121,757 100,685 464,861 389,396
Restructuring and asset
impairment charges(3) 20,305 4,657 31,954 27,307
Amortization of
intangibles 854 697 4,164 2,804
Operating income 5,875 30,834 67,925 91,317
Interest expense(4) 9,108 7,551 36,166 32,627
Other (income), net(5) (2,117) (182) (2,531) (361)
(Loss) Income before provision
for income taxes
and minority interest (1,116) 23,465 34,290 59,051
Provision for income taxes(6) 3,678 7,513 14,300 18,900
Minority interest 74 582 1,860 1,653
(Loss) Income before
cumulative effect of change
in accounting principle (4,868) 15,370 18,130 38,498
Cumulative effect of change
in accounting
principle, net of tax(7) - - - (250,406)
Net (loss) income $(4,868) $15,370 $18,130 $(211,908)
Diluted (loss) earnings per
share $(0.14) $0.48 $0.51 $(6.70)
Dividends per share $0.17 $0.17 $0.68 $0.68
Basic weighted average
shares outstanding 35,396 31,673 35,202 31,169
Diluted weighted average
shares outstanding 35,682 32,159 35,479 31,627
(1) For the quarter and twelve months ended June 30, 2003, these amounts
include charges of $2.0 million and $2.2 million, respectively, for
integration activities related to the Widia acquisition.
(2) For the quarter and twelve months ended June 30, 2003, these amounts
include charges of $1.7 million and $5.5 million, respectively, for
integration activities related to the Widia acquisition.
(3) For the quarter and twelve months ended June 30, 2003, these amounts
include a non-cash charge of $16.1 million for impairment of long-
lived assets within the Electronics business.
(4) For the quarter and twelve months ended June 30, 2003, these amounts
include $0.5 million for recognition of a portion of deferred
financing fees due to the company reducing its borrowing capacity
under its U.S. credit facility. For the quarter and twelve months
ended June 30, 2002, these amounts include $0.3 million related to
recognition of the remaining unamortized balance of deferred financing
fees from the company's U.S. credit facilities that were replaced with
a new 3-year facility.
(5) For the quarters ended June 30, 2003 and 2002, these amounts include
charges of $0.4 million and $0.5 million, respectively, for fees
incurred in connection with the company's accounts receivable
securitization program. For the twelve months ended June 30, 2003 and
2002, these amounts include similar charges of $1.9 million and $2.5
million, respectively. For the quarter and twelve months ended June
30, 2002, these amounts include a charge of $3.5 million related to
the divestiture of Strong Tool Company.
(6) For the quarter and twelve months ended June 30, 2003, the effective
tax rate was (329.6%) and 41.7%, respectively. These amounts reflect
that a portion of the Electronics impairment could not be tax
effected, otherwise, the tax rate for the quarter and twelve month
period would have been 30%.
(7) For the twelve months ended June 30, 2002, this amount represents a
non-cash charge for the adoption of Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets."
FINANCIAL HIGHLIGHTS (Continued)
In addition to reported results under U.S. GAAP for the fiscal periods,
the following financial highlight tables also include, where appropriate, a
reconciliation of results excluding special items and free operating cash flow
(which are non-GAAP measures), to the most directly comparable GAAP measures.
RECONCILIATION TO GAAP _ QUARTER ENDED JUNE 30 (Unaudited)
Diluted
(Loss)/
Operating Net Earnings
Gross Operating Income/ (Loss)/ Per
Profit Expense (Loss) Income Share
2003 Reported Results $148,791 $121,757 $5,875 $(4,868) $(0.14)
MSSG Restructuring - - 3,134 2,194 0.06
AMSG Restructuring - - 1,224 857 0.02
AMSG Electronics
impairment - - 16,110 15,269 0.43
Corporate Restructuring - - (99) (69) -
Widia Integration Costs -
MSSG 1,146 (1,365) 2,511 1,758 0.06
Widia Integration Costs -
AMSG 865 (305) 1,170 818 0.02
J&L Restructuring - - (64) (45) -
2003 Results Excluding
Special Items $150,802 $120,087 $29,861 $15,914 $0.45
2002 Reported Results $136,873 $100,685 $30,834 $15,370 $0.48
MSSG Restructuring 384 - 2,104 1,423 0.04
AMSG Restructuring 350 (11) 1,424 960 0.03
Corporate Restructuring - - 915 621 0.02
Widia Integration Costs -
Corporate - (144) 144 98 -
Deferred Financing Fees - - - 184 0.01
J&L Restructuring (377) - 247 168 0.01
FSS Restructuring - - 335 226 0.01
J&L Strong Tool
Divestiture - - - 2,390 0.07
2002 Results Excluding
Special Items $137,230 $100,530 $36,003 $21,440 $0.67
FINANCIAL HIGHLIGHTS (Continued)
TWELVE MONTHS ENDED JUNE 30 (Unaudited)
Diluted
Earnings/
Net (Loss)
Gross Operating Operating Income/ Per
Profit Expense Income (Loss) Share
2003 Reported Results $568,904 $464,861 $67,925 $18,130 $0.51
MSSG Restructuring - - 9,060 6,342 0.18
AMSG Restructuring - - 4,406 3,084 0.09
AMSG Electronics
impairment - - 16,110 15,269 0.43
Corporate Restructuring - - 1,137 796 0.02
Widia Integration Costs
- MSSG 1,344 (5,149) 6,493 4,545 0.14
Widia Integration Costs
- AMSG 865 (327) 1,192 834 0.02
J&L Restructuring - - 1,203 843 0.02
FSS Restructuring - - 38 26 -
2003 Results Excluding
Special Items $571,113 $459,385 $107,564 $49,869 $1.41
2002 Reported Results $510,824 $389,396 $91,317 $(211,908) $(6.70)
MSSG Restructuring 544 - 10,245 6,958 0.22
AMSG Restructuring 1,654 (11) 7,997 5,430 0.17
Corporate Restructuring - - 1,075 730 0.02
MSSG (Adoption of SFAS
142) - - - 168,314 5.32
AMSG (Adoption of SFAS
142) - - - 82,092 2.60
Widia Integration Costs
- Corporate - (144) 144 98 -
Deferred Financing Fees - - - 184 0.01
J&L Restructuring 529 - 10,093 6,863 0.22
FSS Restructuring - - 635 430 0.01
J&L Strong Tool
Divestiture - - - 2,390 0.08
2002 Results Excluding
Special Items $513,551 $389,241 $121,506 $61,581 $1.95
FINANCIAL HIGHLIGHTS (Continued)
SEGMENT DATA (Unaudited):
Quarter Ended Twelve Months Ended
June 30, June 30,
2003 2002 2003 2002
Sales:
Metalworking Solutions and
Services Group $299,032 $231,151 $1,123,175 $897,157
Advanced Materials Solutions
Group 88,185 80,170 319,223 307,668
J&L Industrial Supply 48,158 52,013 196,170 226,010
Full Service Supply 28,390 39,564 120,389 152,907
Total Sales $463,765 $402,898 $1,758,957 $1,583,742
Sales By Geographic Region:
Within the United States $238,323 $257,709 $946,518 $1,019,849
International 225,442 145,189 812,439 563,893
Total Sales $463,765 $402,898 $1,758,957 $1,583,742
Operating Income (Loss), as
reported:
Metalworking Solutions and
Services Group $24,139 $29,243 $90,627 $97,323
Advanced Materials Solutions
Group (7,805) 10,082 17,348 26,781
J&L Industrial Supply 931 1,044 6,140 (681)
Full Service Supply 264 215 (56) 2,014
Corporate and Eliminations (11,654) (9,750) (46,134) (34,120)
Total Operating Income $5,875 $30,834 $67,925 $91,317
Operating Income (Loss),
excluding special charges:
Metalworking Solutions and
Services Group $29,784 $31,347 $106,180 $107,568
Advanced Materials Solutions
Group 10,699 11,506 39,056 34,778
J&L Industrial Supply 867 1,290 7,343 9,412
Full Service Supply 264 550 (18) 2,649
Corporate and Eliminations (11,753) (8,690) (44,997) (32,901)
Total Operating Income $29,861 $36,003 $107,564 $121,506
FINANCIAL HIGHLIGHTS (Continued)
OPERATING INCOME RECONCILIATION (Unaudited):
QUARTER ENDED JUNE 30,
MSSG AMSG J&L FSS Corp & Elim. Total
2003 Reported
Operating
Income
(Loss) $24,139 $(7,805) $931 $264 $(11,654) $5,875
Restructuring 3,134 1,224 (64) - (99) 4,195
Widia
Integration
Costs 2,511 1,170 - - - 3,681
Electronics
Impairment - 16,110 - - - 16,110
2003 Operating
Income (Loss)
Excluding
Special
Charges $29,784 $10,699 $867 $264 $(11,753) $29,861
2002 Reported
Operating
Income
(Loss) $29,243 $10,082 $1,044 $215 $(9,750) $30,834
Restructuring 2,104 1,424 246 335 916 5,025
Widia
Integration
Costs - - - - 144 144
2002 Operating
Income (Loss)
Excluding
Special
Charges $31,347 $11,506 $1,290 $550 $(8,690) $36,003
TWELVE MONTHS ENDED JUNE 30,
MSSG AMSG J&L FSS Corp & Elim. Total
2003 Reported
Operating
Income
(Loss) $90,627 $17,348 $6,140 $(56) $(46,134) $67,925
Restructuring 9,060 4,406 1,203 38 1,137 15,844
Widia
Integration
Costs 6,493 1,192 - - - 7,685
Electronics
Impairment - 16,110 - - - 16,110
2003 Operating
Income (Loss)
Excluding Special
Charges $106,180 $39,056 $7,343 $(18) $(44,997) $107,564
2002 Reported
Operating
Income (Loss) $97,323 $26,781 $(681) $2,014 $(34,120) $91,317
Restructuring 10,245 7,997 10,093 635 1,075 30,045
Widia
Integration
Costs - - - - 144 144
2002 Operating
Income (Loss)
Excluding
Special
Charges $107,568 $34,778 $9,412 $2,649 $(32,901) $121,506
FINANCIAL HIGHLIGHTS (Continued)
RECONCILIATION TO GAAP CASH FLOW INFORMATION (Unaudited)
Quarter Ended Twelve Months Ended
June 30, June 30,
2003 2002 2003 2002
Net income $(4,868) $15,370 $18,130 $(211,908)
Adoption of SFAS 142 - - - 250,406
Electronics impairment 16,110 - 16,110 -
Other non-cash items 11,796 8,468 21,126 26,144
Depreciation and amortization 22,224 18,392 84,043 73,629
Change in primary working capital 30,897 16,366 48,825 60,362
Change in other assets and
liabilities (8,125) (6,535) (4,766) (34,548)
Net cash flow provided by operating
activities 68,034 52,061 183,468 164,085
Purchase of property, plant and
equipment (13,447) (13,691) (49,413) (44,040)
Proceeds from disposals of
property, plant and equipment 371 5,106 1,875 10,905
Free operating cash flow $54,958 $43,476 $135,930 $130,950
CONDENSED BALANCE SHEETS (Unaudited)
Quarter Ended
06/30/03 03/31/03 12/31/02
ASSETS
Cash and equivalents $15,093 $17,250 $18,155
Accounts receivable, net of allowance 235,648 235,908 199,261
Inventories 392,255 408,996 403,530
Deferred income taxes 79,564 81,651 80,204
Other current assets 42,119 44,286 53,868
Total current assets 764,679 788,091 755,018
Property, plant and equipment, net 493,373 476,208 480,066
Goodwill and Intangible assets, net 473,932 491,987 478,060
Other assets 47,108 107,159 104,937
Total $1,779,092 $1,863,445 $1,818,081
LIABILITIES
Short-term debt $10,845 $15,068 $17,591
Accounts payable 119,853 120,981 92,114
Accrued liabilities 205,649 208,816 171,726
Total current liabilities 336,347 344,865 281,431
Long-term debt 514,842 565,067 599,425
Deferred income taxes 8,660 38,382 46,801
Other liabilities 178,453 140,550 135,101
Total liabilities 1,038,302 1,088,864 1,062,758
MINORITY INTEREST 18,880 18,070 17,594
SHAREOWNERS' EQUITY 721,910 756,511 737,729
Total $1,779,092 $1,863,445 $1,818,081
CONDENSED BALANCE SHEETS
Quarter Ended
09/30/02 06/30/02
ASSETS
Cash and equivalents $14,300 $10,385
Accounts receivable, net of allowance 221,313 179,101
Inventories 403,590 345,076
Deferred income taxes 71,084 71,375
Other current assets 40,110 31,447
Total current assets 750,397 637,384
Property, plant and equipment, net 480,696 435,116
Goodwill and Intangible assets, net 467,140 367,992
Other assets 109,225 83,119
Total $1,807,458 $1,523,611
LIABILITIES
Short-term debt $16,992 $23,480
Accounts payable 101,823 101,586
Accrued liabilities 171,045 137,034
Total current liabilities 289,860 262,100
Long-term debt 599,615 387,887
Deferred income taxes 53,475 52,570
Other liabilities 125,816 96,421
Total liabilities 1,068,766 798,978
MINORITY INTEREST 17,685 10,671
SHAREOWNERS' EQUITY 721,007 713,962
Total $1,807,458 $1,523,611
RECONCILIATION OF FORECASTED GAAP CASH FLOW INFORMATION (Unaudited)
Twelve Months Ended
June 30, 2004
Forecasted net cash flow provided by
operating activities $170,000 - $195,000
Forecasted purchases and disposals
of property, plant and equipment (70,000)
Forecasted free operating cash flow $100,000 - $125,000
SOURCE Kennametal Inc.