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Kennametal Reports Record Fourth Quarter and Full Year 2005 Results
-- Q4 05 sales up 14 percent, earnings per diluted share (EPS) of $.98, up 21 percent -- Full Year sales up 17 percent, adjusted EPS of $3.25, up 51 percent
LATROBE, Pa., July 27, 2005 /PRNewswire-FirstCall via COMTEX/ -- Kennametal Inc. (NYSE: KMT) today reported fiscal 2005 fourth quarter EPS at a record level of $0.98 compared with prior year EPS of $0.81 and original guidance of $0.90 to $0.95. There were no special items in either quarter.
For fiscal 2005, adjusted EPS were $3.25, also a record, compared with prior year adjusted EPS of $2.15. Reported EPS for the year were $3.13 and included special items totaling $0.12 related to the FSS divestiture in the third quarter. Prior year reported EPS were $2.02 and included special items totaling $0.13.
Sales for the fourth quarter were $619 million compared with prior year sales of $542 million. Full year sales were $2.3 billion compared with $2.0 billion last year. Both the quarter and full year sales figures were record levels for the Company.
Kennametal Chairman, President and Chief Executive Officer, Markos I. Tambakeras, said, "Each of our three business groups, Metalworking Solutions and Services, Advanced Materials Solutions, and J&L Industrial Supply performed at record levels in both sales and earnings. Market penetration, pricing and the underlying strength of our served end markets all contributed to our performance."
"Kennametal's results in FY05 are a function of the successful implementation of our transformation strategy that is rapidly expanding our advanced materials and engineered components portfolio, balancing the mix of our end market sales and further enhancing our value-based selling proposition with our customers. Despite difficult headwinds from rising raw material prices, Kennametal's team worked hard to generate EPS growth of over 50% for the year; on top of 52% growth in the previous fiscal year."
Highlights of the Fiscal 2005 Fourth Quarter
-- Sales of $619 million were up 14 percent versus the same quarter last
year, including 11 percent organic sales growth, 2 percent benefit
from foreign currency exchange and 4 percent from acquisitions offset
by 3 percent from the FSS divestiture.
-- Net income was $38 million versus $30 million, up 26 percent.
-- Adjusted Return on Invested Capital improved 260 basis points to 9.6
percent versus 7.0 percent in the prior year.
-- Completed the divestiture of FSS, a distribution business that
primarily addressed the North American Automotive market, for a
selling price of $39 million, subject to customary post-closing
adjustments.
Highlights of Fiscal 2005
-- Sales of $2.3 billion were up 17 percent on 13 percent organic sales
growth, 3 percent benefit from foreign currency exchange and 2 percent
from acquisitions offset by 1 percent from the FSS divestiture.
-- Net income was $119 million versus $74 million last year, up 62
percent.
-- Acquired Extrude Hone, for approximately $134 million, net of acquired
cash and direct acquisition costs, adding to our AMSG segment.
-- Cash flow from operations was $202 million, free operating cash flow
for the year was $118 million.
-- Debt to capital decreased to 31 percent versus 33 percent at the end
of the prior year.
Outlook
Economic indicators project continued growth through fiscal 2006 in North America and the rest-of-the world markets, and flat to modest growth in European markets. Kennametal expects to see organic revenue growth in the 7% to 10% range, two to three times the underlying growth rates of its addressed markets.
Tambakeras said, "We were delighted with our performance in fiscal 2005, and the outlook for our end markets in 2006 remains good. The major challenge in FY 2006 revolves around raw material costs, especially tungsten; but we remain confident in our ability to continue to realize pricing. Although there is near term uncertainty from these raw material cost increases, over the long-term, the industry should be establishing new higher overall levels of pricing commensurate with the underlying economic benefits of its products."
Reported EPS are expected to be in the $3.30 to $3.80 range for FY 2006; including an approximately $0.25 negative impact from expensing options due to SFAS 123R and the effects of the reduction in the discount rates applied to our pension plans. About 65% of the 06 EPS will be realized in the second half of the fiscal year, consistent with the Company's historical seasonal pattern. First quarter EPS are forecasted to be $0.40 to $0.50, also consistent with our seasonal pattern and additionally reflects the impact of raw material cost increases which will be highest in the first quarter.
Operating margins and ROIC should again improve this year as we stay on track to reach our stated goal of 12% for each by fiscal 2007.
Kennametal anticipates net cash flow provided by operating activities of approximately $200 to $220 million for fiscal 2006. Purchases of property, plant and equipment, net of proceeds from disposals of property, plant and equipment are expected to be approximately $80 million. Adjusting net cash flow provided by operating activities for the above item, Kennametal expects to generate between $120 and $140 million of free operating cash flow for fiscal 2006.
Kennametal advises shareowners 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.
Share Repurchase Program
Kennametal announced today that its Board of Directors reaffirmed its previously authorized share repurchase program of up to 1.8 million shares of the Company's common stock. The program will be used principally to dampen the impact of share dilution from equity issued under employee benefit programs. The Company intends to repurchase shares from time to time in open market transactions or in privately negotiated transactions at the Company's discretion, in accordance with the Board of Director's authorization and subject to applicable SEC regulations, market conditions and other factors.
Dividend Declared
Kennametal also announced its Board of Directors approved an increase of $.02 in the quarterly cash dividend to $0.19 per share, payable August 24, 2005, to shareowners of record as of the close of business on August 9, 2005. This increase of nearly 12% reflects management's confidence in continued strong cash generation and is consistent with Kennametal's stated cash deployment priorities.
Fourth quarter and full year results will be discussed in a live Internet broadcast at 10:00 a.m. (Eastern) 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. (NYSE: KMT) is a leading global supplier of tooling, engineered components and advanced materials consumed in production processes. The Company improves customers' competitiveness by providing superior economic returns through the delivery of application knowledge and advanced technology to master the toughest of materials application demands. Companies producing everything from airframes to coal, from medical implants to oil wells and from turbochargers to motorcycle parts recognize Kennametal for extraordinary contributions to their value chains. Customers buy over $2 billion annually of Kennametal products and services-delivered by our 14,000 talented employees in over 60 countries-with almost 50 percent of these revenues coming from outside the United States. Visit us at www.kennametal.com. KMT-E
FINANCIAL HIGHLIGHTS
Consolidated Statements of Income (Unaudited)
(in thousands, except
per share amounts) Quarter Ended Twelve Months Ended
June 30, June 30,
2005 2004 2005 2004
Sales $619,158 $541,858 $2,304,167 $1,971,441
Cost of goods
sold (1) 394,695 356,084 1,513,634 1,318,074
Gross profit 224,463 185,774 790,533 653,367
Operating
expense (2) 156,065 134,441 574,495 512,621
Restructuring and
asset impairment
charges (3) - - 4,707 3,670
Amortization of
intangibles 1,566 664 3,460 2,234
Operating income 66,832 50,669 207,871 134,842
Interest expense 7,897 6,405 27,277 25,884
Other expense (income),
net (4) (897) 294 (3,683) (1,716)
Income before provision
for income taxes
and minority interest 59,832 43,970 184,277 110,674
Provision for income
taxes 21,854 14,154 61,394 35,500
Minority interest 238 (36) 3,592 1,596
Net income $37,740 $29,852 $119,291 $73,578
Basic earnings per share $1.01 $0.83 $3.23 $2.06
Diluted earnings per
share $0.98 $0.81 $3.13 $2.02
Dividends per share $0.17 $0.17 $0.68 $0.68
Basic weighted average
shares outstanding 37,510 36,051 36,924 35,704
Diluted weighted average
shares outstanding 38,477 36,952 38,056 36,473
1) For the twelve months ended June 30, 2004, these amounts include
charges of $0.1 million for integration activities related to the
Widia acquisition, $2.9 million related to restructuring programs,
and $0.8 million for a pension curtailment.
2) For the twelve months ended June 30, 2005, these amounts include a
loss on assets held for sale of $1.5 million. For the twelve months
ended June 30, 2004, these amounts include charges of $1.4 million for
integration activities related to the Widia acquisition, $1.8 million
related to a reserve for a note receivable from a divestiture of a
business by Kennametal in 2002, and $0.5 million related to a pension
curtailment.
3) For the twelve months ended June 30, 2005, these amounts include $4.7
million related to a FSS goodwill impairment charge. For the twelve
months ended June 30, 2004, these amounts include $3.7 million related
to restructuring programs.
4) For the twelve months ended June 30, 2004, these amounts include
income of $4.4 million related to a gain on the sale of Toshiba
Tungaloy investment and a charge of $0.2 million on a reserve for a
note receivable from a divestiture of a business by Kennametal in
2002.
FINANCIAL HIGHLIGHTS (Continued)
In addition to reported results under generally accepted accounting principles in the United States of America (GAAP), the following financial highlight tables also include, where appropriate, a reconciliation of results excluding special items, free operating cash flow, debt to capital, and adjusted return on invested capital (which are non-GAAP measures), to the most directly comparable GAAP measures. Management believes that the investor 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. Non-GAAP financial measures utilized by the Company may not be comparable to non-GAAP financial measures used by other companies.
For the quarters ended June 30, 2005 and 2004, there were no special items.
RECONCILIATION TO GAAP - TWELVE MONTHS ENDED JUNE 30 (Unaudited)
Net
Income EPS
2005 Reported $119,291 $3.13
FSS goodwill
impairment charge 3,277 0.09
Loss on assets held
for sale 1,076 0.03
2005 Adjusted, excluding special items $123,644 $3.25
Reported EPS of $3.13 is up 55 percent from reported EPS of $2.02 for
prior year. Adjusted EPS of $3.25 is up 51 percent from adjusted EPS of $2.15
for prior year.
Net
Income EPS
2004 Reported $73,578 $2.02
MSSG restructuring 3,416 0.09
AMSG restructuring 1,018 0.03
Widia integration costs - MSSG 1,027 0.03
Widia integration costs - AMSG 33 -
Pension curtailment 883 0.02
Gain on Toshiba investment (2,990) (0.08)
Note receivable 1,360 0.04
2004 Adjusted, excluding special items $78,325 $ 2.15
FINANCIAL HIGHLIGHTS (Continued)
SEGMENT DATA (Unaudited):
Quarter Ended Twelve Months Ended
June 30, June 30,
2005 2004 2005 2004
Outside Sales:
Metalworking Solutions
and Services Group $369,297 $326,377 $1,378,594 $1,198,505
Advanced Materials
Solutions Group 171,165 119,227 546,838 419,073
J&L Industrial Supply 66,031 59,741 255,840 218,295
Full Service Supply 12,665 36,513 122,895 135,568
Total Outside Sales $619,158 $541,858 $2,304,167 $1,971,441
Sales By Geographic
Region:
Within the United
States $334,524 $307,319 $1,261,315 $1,098,470
International 284,634 234,539 1,042,852 872,971
Total Sales by
Geographic Region $619,158 $541,858 $2,304,167 $1,971,441
Operating Income
(Loss):
Metalworking Solutions
and Services Group $52,260 $43,720 $187,410 $126,657
Advanced Materials
Solutions Group 30,319 16,793 80,932 53,168
J&L Industrial Supply 7,592 6,137 27,094 19,547
Full Service Supply 265 882 (4,105) 818
Corporate and
eliminations (1) (23,604) (16,863) (83,460) (65,348)
Total Operating
Income, as reported $66,832 $50,669 $ 207,871 $134,842
(1) Includes corporate functional shared services and intercompany
eliminations.
RECONCILIATION TO FREE OPERATING CASH FLOW INFORMATION (Unaudited):
Quarter Ended Twelve Months Ended
June 30, June 30,
2005 2004 2005 2004
Net income $37,740 $29,852 $119,291 $73,578
Other non-cash items 22,483 (1,498) 39,048 13,959
Depreciation and
amortization 18,344 17,236 66,884 65,989
Change in inventory 13,035 (3,213) (8,446) 10,255
Change in accounts
receivable (38,994) (986) (53,768) (4,199)
Change in accounts
payable 12,006 16,696 12,997 25,776
Change in other
assets and
liabilities (12,018) 10,305 26,321 (7,500)
Net cash flow provided
by operating activities 52,596 68,392 202,327 177,858
Purchase of property,
plant and equipment (31,260) (20,902) (88,552) (56,962)
Proceeds from disposals
of property, plant and
equipment - 1,227 3,912 4,225
Free operating cash flow $21,336 $48,717 $117,687 $125,121
FINANCIAL HIGHLIGHTS (Continued)
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited):
06/30/05 03/31/05 12/31/04 09/30/04 06/30/04
ASSETS
Cash and
equivalents $43,220 $34,792 $32,168 $28,688 $25,940
Trade
receivables,
net of
allowance 403,097 382,188 367,940 369,008 364,725
Receivables
securitized (109,786) (120,749) (115,253) (115,309) (117,480)
Accounts
receivable,
net 293,311 261,439 252,687 253,699 247,245
Inventories 386,674 408,713 421,183 404,478 388,077
Deferred
income taxes 70,391 98,063 99,731 96,144 95,240
Current assets
held for sale - 50,469 - - -
Other current
assets 37,466 32,353 39,605 37,178 40,443
Total
current
assets 831,062 885,829 845,374 820,187 796,945
Property, plant
and equipment,
net 519,301 512,806 506,253 487,616 484,475
Goodwill and
intangible
assets, net 652,791 661,908 543,062 546,487 542,014
Assets held
for sale - 2,715 - - -
Other assets 141,297 135,873 133,451 115,733 115,229
Total $2,144,451 $2,199,131 $2,028,140 $1,970,023 $1,938,663
LIABILITIES
Short-term debt,
including
notes
payable $50,889 $56,225 $28,888 $116,446 $126,807
Accounts
payable 154,839 142,268 142,465 146,543 148,216
Current
liabilities
held for sale - 14,437 - - -
Accrued
liabilities 222,930 245,534 226,568 217,636 211,504
Total
current
liabilities 428,658 458,464 397,921 480,625 486,527
Long-term
debt 386,485 428,943 376,268 318,989 313,400
Deferred
income taxes 59,551 91,088 56,340 65,973 67,426
Other
liabilities 279,435 179,786 174,855 162,627 167,926
Total
liabilities 1,154,129 1,158,281 1,005,384 1,028,214 1,035,279
MINORITY
INTEREST 17,460 19,664 19,249 17,377 16,232
SHAREOWNERS'
EQUITY 972,862 1,021,186 1,003,507 924,432 887,152
Total $2,144,451 $2,199,131 $2,028,140 $1,970,023 $1,938,663
FINANCIAL HIGHLIGHTS (Continued)
Debt to Capital Reconciliation (Unaudited):
June 30,
2005 2004
Total debt $437,374 $440,207
Total shareowners' equity 972,862 887,152
Debt to equity, GAAP 45.0% 49.6%
Total debt $437,374 $440,207
Minority interest 17,460 16,232
Total shareowners' equity 972,862 887,152
Total capital $1,427,696 $1,343,591
Debt to Capital 30.6% 32.8%
FINANCIAL HIGHLIGHTS (Continued)
RETURN ON INVESTED CAPITAL (Unaudited):
For the Period Ended June 30, 2005
Invested
Capital 6/30/2005 3/31/2005 12/31/2004 9/30/2004 6/30/2004 Average
Debt $437,374 $485,168 $405,156 $435,435 $440,207 $440,668
Accounts
receivable
securitized 109,786 120,749 115,253 115,309 117,480 115,715
Minority
interest 17,460 19,664 19,249 17,377 16,232 17,996
Shareowners'
equity 972,862 1,021,186 1,003,507 924,432 887,152 961,828
Total $1,537,482 $1,646,767 $1,543,165 $1,492,553 $1,461,071 $1,536,207
Quarter Ended
Interest
Expense 6/30/2005 3/31/2005 12/31/2004 9/30/2004 Total
Interest
expense $7,897 $6,803 $6,121 $6,456 $27,277
Securitization
interest 981 868 757 580 3,186
Total interest
expense $8,878 $7,671 $6,878 $7,036 $30,463
Income tax
benefit 10,175
Total Interest
Expense, net
of tax $20,288
Quarter Ended
Total
Income 6/30/2005 3/31/2005 12/31/2004 9/30/2004 Total
Net Income,
as
reported $37,740 $30,650 $28,181 $22,720 $119,291
Restructuring
and asset
impairment
charges - 3,306 - - 3,306
Loss on assets
held for sale - 1,086 - - 1,086
Minority
interest
expense 238 1,449 928 977 3,592
Total Income,
excluding
special
items $37,978 $36,491 $29,109 $23,697 $127,275
Total Income,
excluding
special items $127,275
Total Interest
Expense,
net of tax 20,288
$147,563
Average
invested
capital $1,536,207
Adjusted Return on
Invested Capital 9.6%
Return on Invested Capital calculated utilizing
Net Income, as reported is as follows:
Net Income, as reported $119,291
Total Interest Expense, net of tax 20,288
$139,579
Average invested capital $1,536,207
Return on Invested Capital 9.1%
FINANCIAL HIGHLIGHTS (Continued)
RETURN ON INVESTED CAPITAL (Unaudited):
For the Period Ended June 30, 2004
Invested
Capital 6/30/2004 3/31/2004 12/31/2003 9/30/2003 6/30/2003 Average
Debt $440,207 $494,312 $481,327 $520,138 $525,687 $492,334
Accounts
receivable
securitized 117,480 108,916 101,422 95,318 99,316 104,490
Minority
interest 16,232 16,598 16,286 16,089 18,880 16,817
Shareowners'
equity 887,152 809,904 791,442 746,562 721,577 791,327
Total $1,461,071 $1,429,730 $1,390,477 $1,378,107 $1,365,460 $1,404,968
Quarter Ended
Interest
Expense 6/30/2004 3/31/2004 12/31/2003 9/30/2003 Total
Interest
expense $6,405 $6,332 $6,547 $6,600 $25,884
Securitization
interest 443 356 483 397 1,679
Total
interest
expense $6,848 $6,688 $7,030 $6,997 $27,563
Income tax
benefit 8,820
Total interest
expense, net of tax $18,743
Quarter Ended
Total
Income 6/30/2004 3/31/2004 12/31/2003 9/30/2003 Total
Net income, as
reported $29,852 $24,070 $10,892 $8,764 $73,578
Minority
interest
expense (36) 533 404 695 1,596
MSSG
restructuring - - 1,109 2,307 3,416
AMSG
restructuring - - 1,018 - 1,018
Widia
integration
costs
- MSSG - - - 1,027 1,027
Widia
integration
costs
- AMSG - - - 33 33
Pension
curtailment - - 883 - 883
Gain on
Toshiba
investment - - (2,990) - (2,990)
Note
receivable - - 1,360 - 1,360
Total Income,
excluding
special
items $29,816 $24,603 $12,676 $12,826 $79,921
Total Income,
excluding special
items $79,921
Total Interest Expense,
net of tax 18,743
$98,664
Average invested capital $1,404,968
Adjusted Return on Invested Capital 7.0%
Return on Invested Capital calculated utilizing
Net Income, as reported is as follows:
Net Income, as reported $73,578
Total Interest Expense, net of tax 18,743
$92,321
Average invested capital $1,404,968
Return on Invested Capital 6.6%
SOURCE Kennametal Inc.
Investor Relations, +1-724-539-6141, or Media Relations, Joy Chandler, +1-724-539-4618, both of Kennametal Inc.
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