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Kennametal Reports Strong Growth in Second Quarter Earnings
-- Sales up 7% -- Reported earnings per diluted share of $0.30, above guidance -- Strong cash flow
LATROBE, Pa., Jan. 28 /PRNewswire-FirstCall/ -- Kennametal Inc. (NYSE: KMT) today reported fiscal 2004 second- quarter earnings of $0.30 per diluted share compared with earnings of $0.07 per diluted share last year. Excluding special items in each period, diluted earnings per share were $0.34 for the quarter, exceeding guidance, compared with last year's earnings per share of $0.27. Sales of $461 million were 7 percent above prior year on foreign currency effects, and a one percent increase in organic volume.
Earnings Per Share Excluding Special Items
Company Guidance (10/29/03) $0.27 to $0.32
Analyst Estimate Range (01/23/04) $0.30 to $0.34
Earnings, Excluding Special Items $0.34
For the first six months of fiscal 2004, reported earnings of $0.54 per diluted share compared with earnings of $0.38 per diluted share last year. Excluding special items in each period, diluted earnings per share of $0.68 were 17% above prior year's earnings of $0.58.
Kennametal Chairman, President and Chief Executive Officer, Markos I. Tambakeras, said, "We were pleased to exceed our guidance for the quarter, and deliver 26 percent earnings per share growth over the prior year quarter. Our results reflect continued strong growth in the developing regions of Asia- Pacific and South America. In addition, our North American performance tracked well with macro-economic trends that have been forecasting a recovery for several months. Our confidence in the sustainability of the North American recovery was assisted by the return to growth of the Light and General Engineering market. Additionally, our sales to the Energy and Mining & Construction sectors grew at double-digit rates.
As anticipated, we continued to face persistent weakness in our European markets, which has been exacerbated by our end market and customer mix, particularly in the automotive sector."
Tambakeras continued, "In addition to our strong operating performance, we sustained our concurrent focus on generating cash and strengthening our balance sheet. $34 million of free operating cash flow contributed to a further reduction of debt, and reduced our debt-to-capital ratio to 37 percent. As promised, the quarter also included the completion of the Widia restructuring."
Highlights
Second Quarter - FY04
-- Sales of $460.8 million were 7 percent above last year's $431.7
million. Sales results include a 6 percent benefit from foreign
currency exchange and a 1 percent increase in organic sales volume.
-- Reported net income was $10.9 million against net income of $2.5
million in the same quarter last year. Excluding special items, net
income was $12.3 million for the quarter, a 30 percent increase
compared to net income of $9.4 million last year reflecting the
benefits of Widia synergies, cost reduction, reduced interest
expense, and foreign currency exchange offset by increased employment
costs.
-- The current quarter included net special charges of $1.4 million, or
$0.04 per diluted share, associated with the previously announced
curtailment charge related to the amendment of the Retirement Income
Pension Plan, the finalization of the Widia integration and an
allowance for a note receivable from a fiscal 2002 divestiture. These
costs were offset by a gain on the sale of our 5 percent ownership
interest in Toshiba Tungaloy. The prior-year quarter included net
special charges of $7.0 million, or $0.20 per diluted share, largely
related to the salaried workforce reduction and Widia integration.
-- As expected, net cash flow from operations was $43.2 million, versus
$36.3 million for the prior year. Free operating cash flow was
$33.8 million, versus $25.0 million in the same period last year due
to positive operating performance and reduction in inventory levels.
-- Total debt was $481 million, down $44 million from June 2003, and $136
million below December 2002.
-- Debt to capital decreased to 37 percent, from 45 percent at the end of
December in the prior year.
First Six Months - FY04
-- Sales of $905.4 million were 8 percent above last year's $835.9
million. The Widia acquisition and foreign currency exchange
contributed to the growth.
-- Reported net income was $19.7 million compared to net income of $13.3
million in the same period last year. Excluding special items, net
income was $24.4 million for the quarter, an 18 percent increase
compared to net income of $20.6 million last year
Outlook
Performance in certain key North American markets during the December quarter corroborated positive macroeconomic indicators, and increased the probability of a sustained recovery in North American industrial markets. Europe remains challenging, with continued weakness in key markets and customers.
Tambakeras said, "On balance, we remain confident in our ability to deliver against our original earnings guidance for the year. While Europe is weaker than anticipated, North America is encouraging, and the rest of the world remains strong. In addition to North American market growth, the incremental seasonal strength of the second half of our fiscal year, and the addition of sales from the previously announced J&L and FSS contracts give us confidence that we will be able to deliver in excess of 35 percent earnings growth in fiscal 2004."
Sales for the third quarter of fiscal 2004 are expected to grow 10 to 12 percent year-over-year, including the impact of currency. Organic growth is anticipated to be 4 to 6 percent year-over-year, compared to a 1 percent increase in the second quarter. Reported diluted earnings per share are expected to be $0.50 to $0.60 per share.
Guidance for the full year remains essentially unchanged, but has been modified to reflect recent increases in raw material prices and persistent weakness in Europe. Sales are expected to grow 9 to 11 percent year-over- year, including the impact of currency. Reported diluted earnings per share are expected to be $1.75 to $1.95 per share. This includes net charges to date of approximately $0.14 per share. Excluding these charges, diluted earnings per share are forecasted to range from $1.90 to $2.10 per share. The earnings outlook includes $0.12 to $0.15 of accretion from Widia.
Kennametal anticipates net cash flow provided by operating activities of approximately $160 to $175 million in fiscal 2004. Purchases of property, plant and equipment and proceeds from disposals of property, plant and equipment are expected to be approximately $50 to $60 million, net. Adjusting net cash flow provided by operating activities for the above items, Kennametal expects to generate between $100 and $125 million of free operating cash flow.
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 25, 2004, to shareowners of record as of the close of business February 10, 2004.
Second 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 13,500 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 Frth, 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 quarter and six months ended December 31, 2003 and 2002 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,
2003 2002 2003 2002
Sales $460,778 $431,731 $905,353 $835,949
Cost of goods sold (A) 313,146 294,248 613,614 567,497
Gross profit 147,632 137,483 291,739 268,452
Operating expense(B) 124,723 115,677 245,962 220,512
Restructuring and asset
impairment charges 3,120 8,561 3,670 8,380
Amortization of intangibles 486 1,300 956 2,114
Operating income 19,303 11,945 41,151 37,446
Interest expense 6,547 9,594 13,147 18,079
Other (income), net (C) (3,855) (1,721) (2,518) (1,127)
Income before provision for income
taxes and minority interest 16,611 4,072 30,522 20,494
Provision for income taxes 5,315 893 9,767 6,148
Minority interest 404 709 1,099 1,047
Net income $10,892 $2,470 $19,656 $13,299
Basic earnings per share $0.31 $0.07 $0.55 $0.38
Diluted earnings per share $0.30 $0.07 $0.54 $0.38
Dividends per share $0.17 $0.17 $0.34 $0.34
Basic weighted average share
outstanding 35,604 35,126 35,470 35,086
Diluted weighted average shares
outstanding 36,260 35,414 36,124 35,379
(A) For the quarter ended December 31, 2003, these amounts include charges
of $0.8 million for the pension curtailment. For the six months ended
December 31, 2003, these amounts include charges of $0.1 million for
integration activities, $2.9 million related to restructuring
programs, and $0.8 million for the pension curtailment. For the
quarter and six months ended December 31, 2002, these amounts include
charges of $0.1 million for integration activities related to the
Widia acquisition.
(B) For the quarter ended December 31, 2003, these amounts include charges
of $1.8 million related to a note receivable from a divestiture of a
business by Kennametal in 2002, and $0.5 million related to the
pension curtailment. For the six months ended December 31, 2003,
these amounts include charges of $1.8 million related to a note
receivable from a divestiture of a business by Kennametal in 2002,
$0.5 million related to the pension curtailment, and $1.4 million for
integration activities related to the Widia acquisition. For the
quarter and six months ended December 31, 2002, these amounts include
charges of $1.3 million and $2.0 million, respectively, for
integration activities related to the Widia acquisition.
(C) 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 note
receivable from a divestiture of a business by Kennametal in 2002.
FINANCIAL HIGHLIGHTS (Continued)
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.
RECONCILIATION TO GAAP - QUARTER ENDED DECEMBER 31 (Unaudited)
Diluted
Other Earnings
Gross Operating Operating (Income)/ Net Per
Profit Expense Income Expense Income 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
2002 Reported
Results $137,483 $115,677 $11,945 $(1,721) $2,470 $0.07
MSSG Restructuring - - 4,849 - 3,394 0.10
AMSG Restructuring - - 2,259 - 1,577 0.04
Corporate
Restructuring - - 958 - 670 0.02
J&L Restructuring - - 466 - 327 0.01
FSS Restructuring - - 29 - 20 -
Widia Integration
Costs - MSSG 54 (1,306) 1,360 - 967 0.03
Widia Integration
Costs - AMSG - (4) 4 - 3 -
2002 Results
Excluding Special
Items $137,537 $114,367 $21,870 $(1,721) $9,428 $0.27
FINANCIAL HIGHLIGHTS (Continued)
RECONCILIATION TO GAAP - SIX MONTHS ENDED DECEMBER 31 (Unaudited)
Diluted
Other Earnings
Gross Operating Operating (Income)/ Net Per
Profit Expense Income Expense Income 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
2002 Reported
Results $268,452 $220,512 $37,446 $(1,127) $13,299 $0.38
MSSG Restructuring - - 4,849 - 3,394 0.10
AMSG Restructuring - - 2,078 - 1,454 0.04
Corporate
Restructuring - - 958 - 670 0.02
J&L Restructuring - - 466 - 327 0.01
FSS Restructuring - - 29 - 20 -
Widia Integration
Costs - MSSG 54 (2,017) 2,071 - 1,450 0.03
Widia Integration
Costs - AMSG - (4) 4 - 3 -
2002 Results
Excluding Special
Items $268,506 $218,491 $47,901 $(1,127) $20,617 $0.58
FINANCIAL HIGHLIGHTS (Continued)
SEGMENT DATA (Unaudited):
Quarter Ended Six Months Ended
December 31, December 31,
2003 2002* 2003 2002*
Sales:
Metalworking Solutions and
Services Group $283,493 $269,413 $554,622 $510,234
Advanced Materials Solutions Group 94,751 83,305 188,382 166,714
J&L Industrial Supply 50,341 48,076 98,480 96,283
Full Service Supply 32,193 30,937 63,869 62,718
Total Sales $460,778 $431,731 $905,353 $835,949
Sales By Geographic Region:
Within the United States $236,203 $229,506 $468,817 $468,630
International 224,575 202,225 436,536 367,319
Total Sales $460,778 $431,731 $905,353 $835,949
Operating Income (Loss), as
reported:
Metalworking Solutions and
Services Group $22,684 $17,394 $46,186 $41,004
Advanced Materials Solutions Group 9,407 6,339 21,229 17,724
J&L Industrial Supply 4,306 1,722 6,991 3,886
Full Service Supply (159) (332) (440) (351)
Corporate and Eliminations (16,935) (13,178) (32,815) (24,817)
Total Operating Income $19,303 $11,945 $41,151 $37,446
Operating Income (Loss), excluding
special charges:
Metalworking Solutions and
Services Group $24,314 $23,603 $52,720 $47,924
Advanced Materials Solutions Group 10,904 8,602 22,774 19,806
J&L Industrial Supply 4,306 2,188 6,991 4,352
Full Service Supply (159) (303) (440) (322)
Corporate and Eliminations (13,819) (12,220) (29,699) (23,859)
Total Operating Income $25,546 $21,870 $52,346 $47,901
* Prior year segment data has been restated for organizational changes.
FINANCIAL HIGHLIGHTS (Continued)
OPERATING INCOME (LOSS) RECONCILIATION (Unaudited):
QUARTER ENDED DECEMBER 31,
Corp &
MSSG AMSG J&L FSS 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 Charges $24,314 $10,904 $4,306 $(159) $(13,819) $25,546
2002 Reported
Operating Income
(Loss) $17,394 $6,339 $1,722 $(332) $(13,178) $11,945
Restructuring 4,849 2,259 466 29 958 8,561
Widia Integration
Costs 1,360 4 - - - 1,364
2002 Operating Income
(Loss) Excluding
Special Charges $23,603 $8,602 $2,188 $(303) $(12,220) $21,870
SIX MONTHS ENDED DECEMBER 31,
Corp &
MSSG AMSG J&L FSS 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 Charges $52,720 $22,774 $6,991 $(440) $(29,699) $52,346
2002 Reported
Operating Income
(Loss) $41,004 $17,724 $3,886 $(351) $(24,817) $37,446
Restructuring 4,849 2,078 466 29 958 8,380
Widia Integration
Costs 2,071 4 - - - 2,075
2002 Operating Income
(Loss) Excluding
Special Charges $47,924 $19,806 $4,352 $(322) $(23,859) $47,901
FINANCIAL HIGHLIGHTS (Continued)
RECONCILIATION TO OPERATING CASH FLOW INFORMATION (Unaudited)
Quarter Ended Six Months Ended
December 31, December 31,
2003 2002 2003 2002
Net income $10,892 $2,470 $19,656 $13,299
Other non-cash items 4,746 3,484 11,219 5,489
Depreciation and amortization 16,489 20,914 31,840 39,980
Change in inventory 11,709 3,379 15,437 13,500
Change in accounts receivable 18,343 24,973 23,397 30,911
Change in accounts payable 3,332 (11,637) (9,180) (25,736)
Change in other assets and liabilities (22,354) (7,310) (37,027) (2,856)
Net cash flow provided by operating
activities 43,157 36,273 55,342 74,587
Purchase of property, plant and
equipment (11,259) (11,536) (21,853) (22,011)
Proceeds from disposals of property,
plant and equipment 1,854 238 2,388 843
Free operating cash flow $33,752 $24,975 $35,877 $53,419
CONDENSED BALANCE SHEETS (Unaudited)
Quarter Ended
12/31/03 09/30/03 06/30/03
ASSETS
Cash and equivalents $15,086 $14,720 $15,093
Accounts receivable, net of allowance 223,087 232,146 231,803
Inventories 386,250 387,877 389,613
Deferred income taxes 88,020 86,888 97,237
Other current assets 39,460 47,003 48,606
Total current assets 751,903 768,634 782,352
Property, plant and equipment, net 487,530 489,242 489,828
Goodwill and Intangible assets, net 500,890 484,662 470,165
Other assets 72,802 67,108 71,542
Total $1,813,125 $1,809,646 $1,813,887
LIABILITIES
Short-term debt, including notes
payable $12,872 $11,375 $10,845
Accounts payable 112,563 107,653 118,509
Accrued liabilities 183,835 197,578 206,993
Total current liabilities 309,270 316,606 336,347
Long-term debt 468,455 508,763 514,842
Deferred income taxes 36,087 41,368 43,543
Other liabilities 191,585 180,258 178,698
Total liabilities 1,005,397 1,046,995 1,073,430
MINORITY INTEREST 16,286 16,089 18,880
SHAREOWNERS' EQUITY 791,442 746,562 721,577
Total $1,813,125 $1,809,646 $1,813,887
Quarter Ended
03/31/03 12/31/02
ASSETS
Cash and equivalents $17,250 $18,155
Accounts receivable, net of allowance 235,908 199,261
Inventories 408,996 403,530
Deferred income taxes 81,651 80,204
Other current assets 44,286 53,868
Total current assets 788,091 755,018
Property, plant and equipment, net 476,208 480,066
Goodwill and Intangible assets, net 491,987 478,060
Other assets 107,159 104,937
Total $1,863,445 $1,818,081
LIABILITIES
Short-term debt, including notes
payable $15,068 $17,591
Accounts payable 120,981 92,114
Accrued liabilities 208,816 171,726
Total current liabilities 344,865 281,431
Long-term debt 565,067 599,425
Deferred income taxes 38,382 46,801
Other liabilities 140,550 135,101
Total liabilities 1,088,864 1,062,758
MINORITY INTEREST 18,070 17,594
SHAREOWNERS' EQUITY 756,511 737,729
Total $1,863,445 $1,818,081
RECONCILIATION OF FORECASTED GAAP CASH FLOW INFORMATION (Unaudited)
Twelve Months Ended
June 30, 2004
Forecasted net cash flow provided by
operating activities $160,000 - 175,000
Forecasted purchases and disposals of property,
plant and equipment (50,000) - (60,000)
Forecasted free operating cash flow $100,000 - 125,000
SOURCE Kennametal Inc.