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Kennametal Reports Record Second Quarter
-- Q2 05 sales up 21 percent
-- Earnings per diluted share (EPS) of $0.74, up 118 percent
-- EPS outlook for FY05 increased to $3.05 - $3.15
LATROBE, Pa., Jan. 26 /PRNewswire-FirstCall/ -- Kennametal Inc. (NYSE: KMT) today reported fiscal 2005 second-quarter EPS of $0.74 compared with prior year adjusted EPS of $0.34. Second quarter EPS exceeded October guidance and there were no special items. Reported EPS in last year's second quarter were $0.30 and included special items totaling $0.04. As previously stated, the effective tax rate in the second quarter was 20 percent compared to prior year's rate of 32 percent.
EPS Summary
Company Guidance (10/27/04): $0.60 to $0.65
(Updated to $0.74 on 01/14/05)
Analyst Estimate Range (01/13/05): $0.61 to $0.72
Reported EPS: $0.74
For the first six months of fiscal 2005, EPS were $1.35 compared with prior year adjusted EPS of $0.68. Reported EPS for the prior year period were $0.54 and included special items totaling $0.14.
Kennametal Chairman, President and Chief Executive Officer, Markos I. Tambakeras, said, "We were very pleased to deliver record sales and earnings in the December quarter. Broad market momentum exceeded even our robust expectations, with contributions from all geographies and nearly every end market. The return to good growth in Europe was particularly encouraging. Effective execution of our strategy through the deployment of the Kennametal Value Business System is allowing us to leverage improved market conditions into strong penetration of new markets, and the gain of new customers. Metalworking and the J&L distribution business were notable earnings growth drivers."
Highlights of the Fiscal 2005 Second Quarter
-- Record sales up 21 percent on 16 percent organic sales growth,
3 percent benefit from foreign currency exchange and 2 percent from
acquisitions.
-- Reported net income was $28 million versus $11 million in the same
quarter last year, as improved sales volume was leveraged against a
more productive operating structure and a lower tax rate in the
current quarter.
-- Net cash flow from operations was $51 million versus $43 million last
year. Free operating cash flow was maintained at the prior year level
of $34 million.
-- As of December 31, 2004, total debt was $405 million, down $35 million
from June 2004 and down $76 million from December 31, 2003.
-- Debt to capital decreased to 28 percent versus 37 percent at the end
of the prior year quarter.
-- Adjusted Return on Invested Capital improved 310 basis points to
8.6 percent versus 5.5 percent in the prior year.
Highlights of the Fiscal 2005 First Half
-- Record sales up 20 percent on 15 percent organic sales growth,
3 percent benefit from foreign currency exchange and 2 percent from
acquisitions.
-- Reported net income was $51 million versus $20 million in the same
period last year, reflecting the benefits of increased volume and a
leaner cost structure.
-- Net cash flow from operations was $83 million versus $55 million last
year. Free operating cash flow totaled $51 million for the six-month
period versus $36 million in last year's comparable period, with
growth in cash from operations more than offsetting increased capital
expenditures.
Acquisition
Kennametal Inc. today separately announced that it has signed a definitive agreement to purchase Extrude Hone Corporation for approximately $137 million, net of acquired cash and estimated direct acquisition costs. The acquisition, which is expected to close by the end of March, remains subject to customary regulatory approval and negotiated conditions of closing.
The acquisition is expected to be modestly accretive to both earnings and margins beginning in the June quarter of FY05. Kennametal plans to fund the acquisition through existing credit facilities.
Outlook
The broad nature of the strong demand experienced through the fiscal first half strengthened expectations of sustained economic strength in global manufacturing sectors throughout the remainder of fiscal 2005.
Tambakeras said, "While we are pleased with our record December quarter, we remain focused on continuing to leverage the market environment for further customer and market penetration. This drive to deliver continued growth remains balanced by a relentless focus on cost control and cash flow."
Organic sales for the third quarter of fiscal 2005 are expected to grow 8 to 10 percent, despite tougher comparisons. Reported EPS is expected to be $0.80 to $0.85. The effective tax rate for the third quarter is expected to be between 37 and 38 percent (this is an increase versus prior expectations of 35 percent). The full year rate is still expected to be approximately 32 percent, consistent with original guidance. As stated previously, the execution of a business strategy, as well as the impact of tax planning, will result in fluctuations of the tax rate from quarter to quarter with a full year rate expected to be approximately 32 percent.
For the full year, organic sales are expected to grow 11 to 13 percent. Reported EPS are expected to be $3.05 to $3.15, up about 40 to 45 percent from the previous year.
Kennametal anticipates net cash flow provided by operating activities of approximately $185 to $215 million, or between 8 and 9 percent of sales, in fiscal 2005. Purchases of property, plant and equipment, net of proceeds from disposals of property, plant and equipment are expected to be approximately $70 to $80 million. Adjusting net cash flow provided by operating activities for the above items, Kennametal expects to generate between $115 and $135 million of free operating cash flow for fiscal 2005.
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 February 23, 2005, to shareowners of record as of the close of business on February 8, 2005.
Second quarter 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 other 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 $2.0 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 ended December 31, 2004 and 2003 are shown in the following tables (in thousands, except per share amounts).
Consolidated Statements of Income (Unaudited)
Quarter Ended Six Months Ended
December 31, December 31,
2004 2003 2004 2003
Sales $556,218 $460,778 $1,087,654 $905,353
Cost of goods sold (1) 374,804 313,146 732,845 613,614
Gross profit 181,414 147,632 354,809 291,739
Operating expense (2) 139,513 124,723 270,462 245,962
Restructuring and asset
impairment charges - 3,120 - 3,670
Amortization of intangibles 634 486 1,171 956
Operating income 41,267 19,303 83,176 41,151
Interest expense 6,121 6,547 12,577 13,147
Other income, net (3) (1,240) (3,855) (2,814) (2,518)
Income before provision
for income taxes
and minority interest 36,386 16,611 73,413 30,522
Provision for income taxes 7,277 5,315 20,607 9,767
Minority interest 928 404 1,905 1,099
Net income $28,181 $10,892 $50,901 $19,656
Basic earnings per share $0.77 $0.31 $1.39 $0.55
Diluted earnings per share $0.74 $0.30 $1.35 $0.54
Dividends per share $0.17 $0.17 $0.34 $0.34
Basic weighted average
shares outstanding 36,744 35,604 36,550 35,470
Diluted weighted average
shares outstanding 38,016 36,260 37,702 36,124
1) For the quarter ended December 31, 2003, these amounts include charges
of $0.8 million for a pension curtailment. For the six months ended
December 31, 2003, 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 quarter ended December 31, 2003, these amounts include charges
of $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. For the six months ended
December 31, 2003, these amounts include charges of $1.8 million
related to a reserve for a note receivable from a divestiture of a
business by Kennametal in 2002, $0.5 million related to a pension
curtailment, and $1.4 million for integration activities related to the
Widia acquisition.
3) For the quarter and six months ended December 31, 2003, 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.
In addition to reported results under U.S. GAAP, 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. Management believes that each of these non-GAAP financial measures is useful to investors to more easily compare the Company's financial performance period to period.
For the quarter and six months ended December 31, 2004, there were no special items.
RECONCILIATION TO GAAP - QUARTER ENDED DECEMBER 31, 2003 (Unaudited)
Other Diluted
Operating Operating (Income)/ Net Earnings
Gross Profit Expense Income Expense Income Per Share
2003 Reported
Results $147,632 $124,723 $19,303 $(3,855) $10,892 $0.30
MSSG restructuring 7 - 1,630 - 1,109 0.03
AMSG restructuring - - 1,497 - 1,018 0.03
Pension curtailment 779 (520) 1,299 - 883 0.02
Gain on Toshiba
investment - - - 4,397 (2,990) (0.08)
Note receivable - (1,817) 1,817 (183) 1,360 0.04
2003 Results, excluding
special items $148,418 $122,386 $25,546 $359 $12,272 $0.34
EPS for the quarter ended December 31, 2004 of $0.74 is up 118 percent from adjusted EPS of $0.34 and 147 percent from reported EPS of $0.30 for the quarter ended December 31, 2003.
RECONCILIATION TO GAAP - SIX MONTHS ENDED DECEMBER 31, 2003 (Unaudited)
Other Diluted
Operating Operating (Income)/ Net Earnings
Gross Profit Expense Income Expense Income Per Share
2003 Reported
Results $291,739 $245,962 $41,151 $(2,518) $19,656 $0.54
MSSG restructuring 2,850 - 5,023 - 3,416 0.10
AMSG restructuring - - 1,497 - 1,018 0.03
Widia integration
costs - MSSG 63 (1,448) 1,511 - 1,027 0.03
Widia integration
costs - AMSG 48 - 48 - 33 -
Pension curtailment 779 (520) 1,299 - 883 0.02
Gain on Toshiba
investment - - - 4,397 (2,990) (0.08)
Note receivable - ( 1,817) 1,817 (183) 1,360 0.04
2003 Results, excluding
special items $295,479 $242,177 $52,346 $1,696 $24,403 $0.68
EPS for the period ended December 31, 2004 of $1.35 is up 99 percent from
adjusted EPS of $0.68 and 150 percent from reported EPS of $0.54 for the
period ended December 31, 2003.
SEGMENT DATA (Unaudited):
Quarter Ended Six Months Ended
December 31, December 31,
2004 2003 2004 2003
Outside Sales:
Metalworking Solutions and
Services Group $336,230 $283,493 $652,100 $554,622
Advanced Materials Solutions
Group 122,327 94,751 240,213 188,382
J&L Industrial Supply 61,338 50,341 122,755 98,480
Full Service Supply 36,323 32,193 72,586 63,869
Total Outside Sales $556,218 $460,778 $1,087,654 $905,353
Sales By Geographic Region:
Within the United States $301,524 $252,734 $603,307 $501,645
International 254,694 208,044 484,347 403,708
Total Sales by Geographic
Region $556,218 $460,778 $1,087,654 $905,353
Operating Income (Loss),
as reported:
Metalworking Solutions and
Services Group $42,723 $22,684 $81,595 $46,186
Advanced Materials Solutions
Group 13,869 9,407 28,402 21,229
J&L Industrial Supply 5,866 4,306 11,587 6,991
Full Service Supply 546 (159) 666 (440)
Corporate and eliminations (1) (21,737) (16,935) (39,074) (32,815)
Total Operating Income,
as reported $41,267 $19,303 $83,176 $41,151
Operating Income (Loss),
excluding special items:
Metalworking Solutions and
Services Group $42,723 $24,314 $81,595 $52,720
Advanced Materials Solutions
Group 13,869 10,904 28,402 22,774
J&L Industrial Supply 5,866 4,306 11,587 6,991
Full Service Supply 546 (159) 666 (440)
Corporate and eliminations (1) (21,737) (13,819) (39,074) (29,699)
Total Operating Income,
excluding special items $41,267 $25,546 $83,176 $52,346
(1) Includes corporate functional shared services and intercompany
eliminations.
OPERATING INCOME (LOSS) RECONCILIATION (Unaudited):
For the quarter and six months ended December 31, 2004, there were no
special items.
QUARTER ENDED DECEMBER 31,
MSSG AMSG J&L FSS Corp & Elim Total
2003 Reported
Operating Income (Loss) $22,684 $9,407 $4,306 $(159) $(16,935) $19,303
Restructuring 1,630 1,497 - - - 3,127
Pension curtailment - - - - 1,299 1,299
Note receivable - - - - 1,817 1,817
2003 Operating Income
(Loss), excluding
special items $24,314 $10,904 $4,306 $(159) $(13,819) $25,546
SIX MONTHS ENDED DECEMBER 31,
MSSG AMSG J&L FSS Corp & Elim Total
2003 Reported
Operating Income (Loss) $46,186 $21,229 $6,991 $(440) $(32,815) $41,151
Restructuring 5,023 1,497 - - - 6,520
Widia integration
costs 1,511 48 - - - 1,559
Pension curtailment - - - - 1,299 1,299
Note receivable - - - - 1,817 1,817
2003 Operating Income
(Loss), excluding
special items $52,720 $22,774 $6,991 $(440) $(29,699) $52,346
RECONCILIATION TO FREE OPERATING CASH FLOW INFORMATION (Unaudited):
Quarter Ended Six Months Ended
December 31, December 31,
2004 2003 2004 2003
Net income $28,181 $10,892 $50,901 $19,656
Other non-cash items (1,235) 4,746 4,047 11,219
Depreciation and amortization 16,141 16,489 31,609 31,840
Change in inventory 292 11,709 (12,730) 15,437
Change in accounts receivable 18,050 18,343 14,992 23,397
Change in accounts payable (8,171) 3,332 (11,349) (9,180)
Change in other assets and
liabilities (1,825) (22,354) 5,770 (37,027)
Net cash flow provided by
operating activities 51,433 43,157 83,240 55,342
Purchase of property, plant and
equipment (20,550) (11,259) (35,769) (21,853)
Proceeds from disposals of
property, plant and equipment 2,827 1,854 3,333 2,388
Free operating cash flow $33,710 $33,752 $50,804 $35,877
CONDENSED BALANCE SHEETS (Unaudited):
12/31/04 09/30/04 06/30/04 03/31/04 12/31/03
ASSETS
Cash and
equivalents $32,168 $28,688 $25,940 $27,528 $15,086
Trade receivables,
net of allowance 367,940 369,008 364,725 357,795 324,509
Receivables
securitized (115,253) (115,309) (117,480) (108,916) (101,422)
Accounts
receivable, net 252,687 253,699 247,245 248,879 223,087
Inventories 421,183 404,478 388,077 387,202 386,250
Deferred income
taxes 99,731 96,144 95,240 88,480 88,820
Other current
assets 39,605 37,178 40,443 38,803 39,460
Total current
assets 845,374 820,187 796,945 790,892 752,703
Property, plant
and equipment,
net 506,253 487,616 484,475 481,793 487,530
Goodwill and
intangible
assets, net 543,062 546,487 542,014 554,614 500,890
Other assets 133,451 115,733 115,229 57,743 70,970
Total $2,028,140 $1,970,023 $1,938,663 $1,885,042 $1,812,093
LIABILITIES
Short-term debt,
including notes
payable $28,888 $116,446 $126,807 $8,193 $12,872
Accounts payable 142,465 146,543 148,216 132,246 112,563
Accrued
liabilities 226,568 217,636 211,504 200,304 181,755
Total current
liabilities 397,921 480,625 486,527 340,743 307,190
Long-term debt 376,268 318,989 313,400 486,119 468,455
Deferred income
taxes 56,340 65,973 67,426 39,132 37,135
Other liabilities 174,855 162,627 167,926 192,546 191,585
Total
liabilities 1,005,384 1,028,214 1,035,279 1,058,540 1,004,365
MINORITY INTEREST 19,249 17,377 16,232 16,598 16,286
SHAREOWNERS'
EQUITY 1,003,507 924,432 887,152 809,904 791,442
Total $2,028,140 $1,970,023 $1,938,663 $1,885,042 $1,812,093
Debt to Capital Reconciliation (Unaudited):
December 31,
2004 2003
Total debt $405,156 $481,327
Total shareowners' equity 1,003,507 791,442
Debt to equity, GAAP 40.4% 60.8%
Total debt 405,156 $481,327
Minority interest 19,249 16,286
Total shareowners' equity 1,003,507 791,442
Total capital $1,427,912 $1,289,055
Debt to Capital 28.4% 37.3%
RETURN ON INVESTED CAPITAL (Unaudited):
For the Period Ended December 31, 2004
Invested
Capital 12/31/2004 9/30/2004 6/30/2004 3/31/2004 12/31/2003 Average
Debt $405,156 $435,435 $440,207 $494,312 $481,327 $451,287
Accounts
receivable
securi-
tized 115,253 115,309 117,480 108,916 101,422 111,676
Minority
interest 19,249 17,377 16,232 16,598 16,286 17,148
Shareowners'
equity 1,003,507 924,432 887,152 809,904 791,442 883,288
Total $1,543,165 $1,492,553 $1,461,071 $1,429,730 $1,390,477 $1,463,399
Quarter Ended
Interest
Expense 12/31/2004 9/30/2004 6/30/2004 3/31/2004 Total
Interest
expense $6,121 $6,456 $6,405 $6,332 $25,314
Securiti-
zation
interest 757 580 443 356 2,136
Total interest
expense $6,878 $7,036 $6,848 $6,688 $27,450
Income tax
benefit 8,784
Total Interest
Expense, net
of tax $18,666
Quarter Ended
Total
Income 12/31/2004 9/30/2004 6/30/2004 3/31/2004 Total
Net Income,
as reported $28,181 $22,720 $29,852 $24,070 $104,823
Minority
interest
expense 928 977 (36) 533 2,402
Total Income,
excluding
special
items $29,109 $23,697 $29,816 $24,603 $107,225
Total Income,
excluding
special
items $107,225
Total Interest
Expense, net
of tax 18,666
$125,891
Average invested
capital $1,463,399
Adjusted Return
on Invested Capital 8.6%
Return on Invested Capital
calculated utilizing Net
Income, as reported is
as follows:
Net Income, as reported $104,823
Total Interest
Expense, net of tax 18,666
$123,489
Average invested
capital $1,463,399
Return on
Invested Capital 8.4%
RETURN ON INVESTED CAPITAL (Unaudited):
For the Period Ended December 31, 2003
Invested
Capital 12/31/2003 9/30/2003 6/30/2003 3/31/2003 12/31/2002 Average
Debt $481,327 $520,138 $525,687 $580,135 $617,016 $544,861
Accounts
receivable
securi-
tized 101,422 95,318 99,316 93,614 100,000 97,934
Minority
interest 16,286 16,089 18,880 18,070 17,594 17,384
Shareowners'
equity 791,442 746,562 721,577 756,511 737,729 750,764
Total $1,390,477 $1,378,107 $1,365,460 $1,448,330 $1,472,339 $1,410,943
Quarter Ended
Interest
Expense 12/31/2003 9/30/2003 6/30/2003 3/31/2003 Total
Interest
expense $6,547 $6,600 $9,108 $8,979 $31,234
Securitization
interest 483 397 413 406 1,699
Total interest
expense $7,030 $6,997 $9,521 $9,385 $32,933
Income tax
benefit 10,539
Total interest
expense, net
of tax $22,394
Quarter Ended
Total
Income 12/31/2003 9/30/2003 6/30/2003 3/31/2003 Total
Net income, as
reported $10,892 $8,764 $(4,868) $9,699 $24,487
Minority
interest
expense 404 695 74 739 1,912
MSSG
restruct-
uring 1,109 2,307 2,194 754 6,364
AMSG
restruct-
uring 1,018 - 857 773 2,648
Corporate
restruct-
uring - - (69) 195 126
J&L restruct-
uring - - (45) 561 516
FSS restruct-
uring - - - 6 6
Widia integration
costs - MSSG - 1,027 1,758 1,337 4,122
Widia
integration
costs - AMSG - 33 818 13 864
AMSG electronics
impairment - - 15,269 - 15,269
Pension
curtailment 883 - - - 883
Gain on
Toshiba
investment(2,990) - - - (2,990)
Note
receivable 1,360 - - - 1,360
Total Income,
excluding
special
items $12,676 $12,826 $15,988 $14,077 $55,567
Total Income,
excluding special
items $55,567
Total Interest
Expense, net
of tax 22,394
$77,961
Average invested
capital $ 1,410,943
Adjusted Return on
Invested Capital 5.5%
Return on Invested Capital calculated utilizing
Net Income, as reported is as follows:
Net Income,
as reported $24,487
Total Interest
Expense, net
of tax 22,394
$46,881
Average
invested capital $1,410,943
Return on
Invested Capital 3.3%
SOURCE Kennametal Inc.
-0- 01/26/2005
/CONTACT: Investor Relations, Beth A. Riley, or Media, Joy Chandler of
Kennametal Inc., +1-724-539-6141/
/Web site: http://www.kennametal.com/
(KMT)
CO: Kennametal Inc.; Extrude Hone Corporation
ST: Pennsylvania
IN: MNG
SU: ERN TNM MAV CCA ERP
DL-JK
-- CLW011 --
9267 01/26/2005 08:45 EST http://www.prnewswire.com