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Kennametal Reports Strong Third Quarter Results
-- Q3 05 sales up 14 percent
-- Adjusted Earnings per diluted share (EPS) of $0.92, up 39 percent
-- Adjusted EPS outlook for FY05 increased to $3.17 - $3.22
LATROBE, Pa., April 27 /PRNewswire-FirstCall/ -- Kennametal Inc. (NYSE: KMT) today reported fiscal 2005 third-quarter adjusted EPS of $0.92 compared with prior year reported EPS of $0.66 and original guidance of $0.80 to $0.85. Third quarter reported EPS of $0.80 includes $0.12 of charges related to the Full Service Supply (FSS) divestiture.
For the first nine months of fiscal 2005, adjusted EPS were $2.26 compared with prior year adjusted EPS of $1.34. Reported EPS for the current period were $2.15 and include special items totaling $0.11 related to the FSS divestiture. Prior year period reported EPS were $1.20 and included special items totaling $0.14.
Kennametal Chairman, President and Chief Executive Officer, Markos I. Tambakeras, said, "Building on the momentum of the first half, we sustained a robust rate of growth on top of the 14 percent growth posted in the third quarter of fiscal 2004. As a result, we delivered the highest quarterly sales and earnings in Kennametal's history, while continuing to generate strong cash flow. Consistent execution of our strategies through the Kennametal Value Business System supported growth in every geography and nearly every market, despite our modest automotive exposure--representing only 18 percent of sales, less than half of which is in North America. We also continued to proactively improve the growth and profitability profile of our portfolio with the Extrude Hone acquisition and the announced divestiture of the Full Service Supply business."
Highlights of the Fiscal 2005 Third Quarter
-- Sales of $597 million up 14 percent versus the same quarter last year,
including 12 percent organic sales growth, 3 percent benefit from
foreign currency exchange and 2 percent from acquisitions offset by 3
percent from fewer workdays.
-- Reported net income was $31 million versus $24 million, as improved
sales volume was leveraged against a more productive operating
structure offset by charges related to the FSS divestiture.
-- Net cash flow from operations was $66 million versus $54 million last
year. Free operating cash flow was $45 million versus the prior year
level of $41 million due primarily to increased operating leverage.
-- Debt to capital decreased to 32 percent versus 37 percent at the end
of the prior year quarter, including the impact of the Extrude Hone
acquisition.
-- Adjusted Return on Invested Capital improved 290 basis points to 9.1
percent versus 6.2 percent in the prior year.
-- Completed the acquisition of Extrude Hone Corporation for
approximately $133.6 million, net of acquired cash and direct
acquisition costs.
Highlights of First Nine Months of Fiscal 2005
-- Sales of $1.7 billion up 18 percent on 14 percent organic sales
growth, 3 percent benefit from foreign currency exchange and 2 percent
from acquisitions offset by 1 percent from fewer workdays.
-- Reported net income was $82 million versus $44 million in the same
period last year, reflecting the benefits of increased operating
leverage, partially offset by charges related to the FSS divestiture.
-- Net cash flow from operations was $150 million versus $109 million
last year. Free operating cash flow totaled $96 million for the nine-
month period versus $76 million in last year's comparable period, due
to growth in cash from operations offset by increased capital
spending.
Divestiture
As previously announced, Kennametal Inc. has signed a definitive agreement to sell its FSS business unit. During the quarter ended March 31, 2005, the Company recognized an impairment charge related to FSS goodwill of $5 million and recorded a loss on assets held for sale of $1 million. The impact on EPS was $0.12 during the quarter and $0.11 for the nine-month period.
This transaction is expected to close during Kennametal's Fiscal 2005 fourth quarter.
Outlook
Tambakeras said, "We are pleased to be on pace for a record year of sales and earnings, and remain steadfastly focused on delivering superior shareowner value."
Organic sales for the fourth quarter of fiscal 2005 are expected to grow 9 to 11 percent, despite significantly tougher comparisons. Reported EPS is expected to be $0.90 to $0.95. The effective tax rate for the fourth quarter is expected to be approximately 36 percent (this is an increase versus prior expectations of 32 percent). The full year rate is expected to be approximately 33 percent. As stated previously, the execution of our business strategy, as well as the impact of tax planning, will result in fluctuations of the tax rate from quarter to quarter.
Kennametal anticipates net cash flow provided by operating activities of approximately $190 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 still expected to be approximately $75 to $80 million. Adjusting net cash flow provided by operating activities for the above items, Kennametal expects to generate between $115 and $130 million of free operating cash flow for fiscal 2005.
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 http://www.kennametal.com .
Dividend Declared
Kennametal also announced its Board of Directors declared a quarterly cash dividend of $0.17 cents per share, payable May 24, 2005, to shareowners of record as of the close of business on May 9, 2005.
Third 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 http://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 the world's premier 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 $2.2 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 http://www.Kennametal.com . KMT-E
FINANCIAL HIGHLIGHTS
Consolidated Statements of Income (Unaudited)
(in thousands, except Quarter Ended Nine Months Ended
per share amounts) March 31, March 31,
2005 2004 2005 2004
Sales $597,355 $524,230 $1,685,009 $1,429,583
Cost of goods sold (1) 386,094 348,376 1,118,939 961,990
Gross profit 211,261 175,854 566,070 467,593
Operating expense (2) 147,968 132,218 418,430 378,180
Restructuring and
asset impairment
charges (3) 4,707 - 4,707 3,670
Amortization of
intangibles 723 614 1,894 1,570
Operating income 57,863 43,022 141,039 84,173
Interest expense 6,803 6,332 19,380 19,479
Other expense
(income), net (4) 28 508 (2,786) (2,010)
Income before provision
for income taxes and
minority interest 51,032 36,182 124,445 66,704
Provision for income
taxes 18,933 11,579 39,540 21,345
Minority interest 1,449 533 3,354 1,632
Net income $30,650 $24,070 $81,551 $43,727
Basic earnings per share $0.83 $0.67 $2.22 $1.23
Diluted earnings per
share $0.80 $0.66 $2.15 $1.20
Dividends per share $0.17 $0.17 $0.51 $0.51
Basic weighted average
shares outstanding 37,093 35,828 36,736 35,589
Diluted weighted average
shares outstanding 38,253 36,662 37,935 36,307
1) For the nine months ended March 31, 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 quarter and nine months ended March 31, 2005, these amounts
include a loss on assets held for sale of $1.5 million. For the nine
months ended March 31, 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 quarter and nine months ended March 31, 2005, these amounts
include $4.7 million related to a FSS goodwill impairment charge. For
the nine months ended March 31, 2004, these amounts include $3.7
million related to restructuring programs.
4) For the nine months ended March 31, 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.
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.
RECONCILIATION TO GAAP - QUARTER ENDED MARCH 31, 2005 (Unaudited)
Other Diluted
Operating Operating (Income)/ Net Earnings
Gross Profit Expense Income Expense Income Per Share
2005 Reported
Results $211,261 $147,968 $57,863 $28 $30,650 $0.80
FSS goodwill
impairment
charge - - 4,707 - 3,306 0.09
Loss on assets
held for sale - (1,546) 1,546 - 1,086 0.03
2005 Results,
excluding special
items $211,261 $146,422 $64,116 $28 $35,042 $0.92
Reported EPS for the quarter ended March 31, 2005 of $0.80 is up 21 percent from reported EPS of $0.66 for the quarter ended March 31, 2004. Adjusted EPS for the quarter ended March 31, 2005 of $0.92 is up 39 percent from reported EPS of $0.66 for the quarter ended March 31, 2004.
RECONCILIATION TO GAAP - NINE MONTHS ENDED MARCH 31, 2005 (Unaudited)
Other Diluted
Operating Operating (Income)/ Net Earnings
Gross Profit Expense Income Expense Income Per Share
2005 Reported
Results $566,070 $418,430 $141,039 $(2,786) $81,551 $2.15
FSS goodwill
impairment
charge - - 4,707 - 3,277 0.08
Loss on assets
held for sale - (1,546) 1,546 - 1,076 0.03
2005 Results,
excluding special
items $566,070 $416,884 $147,292 $(2,786) $85,904 $2.26
For the quarter ended March 31, 2004, there were no special items.
RECONCILIATION TO GAAP - NINE MONTHS ENDED MARCH 31, 2004 (Unaudited)
Other Diluted
Operating Operating (Income)/ Net Earnings
Gross Profit Expense Income Expense Income Per Share
2004 Reported
Results $467,593 $378,180 $84,173 $(2,010) $43,727 $1.20
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
2004 Results,
excluding special
items $471,333 $374,395 $95,368 $2,204 $48,474 $1.34
SEGMENT DATA (Unaudited):
Quarter Ended Nine Months Ended
March 31, March 31,
2005 2004 2005 2004
Outside Sales:
Metalworking Solutions
and Services Group $357,197 $317,506 $1,009,297 $872,128
Advanced Materials
Solutions Group 135,460 111,464 375,673 299,846
J&L Industrial Supply 67,054 60,074 189,809 158,554
Full Service Supply 37,644 35,186 110,230 99,055
Total Outside Sales $597,355 $524,230 $1,685,009 $1,429,583
Sales By Geographic
Region:
Within the United
States $323,484 $289,506 $926,791 $791,151
International 273,871 234,724 758,218 638,432
Total Sales by
Geographic Region $597,355 $524,230 $1,685,009 $1,429,583
Operating Income (Loss),
as reported:
Metalworking Solutions
and Services Group $53,555 $36,751 $135,150 $82,937
Advanced Materials
Solutions Group 22,211 15,146 50,613 36,375
J&L Industrial Supply 7,915 6,419 19,502 13,410
Full Service Supply (5,036) 376 (4,370) (64)
Corporate and
eliminations (1) (20,782) (15,670) (59,856) (48,485)
Total Operating Income,
as reported $57,863 $43,022 $141,039 $84,173
Operating Income (Loss),
excluding special items:
Metalworking Solutions
and Services Group $53,555 $36,751 $135,150 $89,471
Advanced Materials
Solutions Group 22,211 15,146 50,613 37,920
J&L Industrial Supply 7,915 6,419 19,502 13,410
Full Service Supply 1,217 376 1,883 (64)
Corporate and
eliminations (1) (20,782) (15,670) (59,856) (45,369)
Total Operating Income,
excluding special items $64,116 $43,022 $147,292 $95,368
(1) Includes corporate functional shared services and intercompany
eliminations.
OPERATING INCOME (LOSS) RECONCILIATION (Unaudited):
QUARTER ENDED MARCH 31,
MSSG AMSG J&L FSS Corp & Elim Total
2005 Reported
Operating Income
(Loss) $53,555 $22,211 $7,915 $(5,036) $(20,782) $57,863
FSS goodwill
impairment charge - - - 4,707 - 4,707
Loss on assets
held for sale - - - 1,546 - 1,546
2005 Operating Income
(Loss), excluding
special items $53,555 $22,211 $7,915 $1,217 $(20,782) $64,116
NINE MONTHS ENDED MARCH 31,
MSSG AMSG J&L FSS Corp & Elim Total
2005 Reported
Operating Income
(Loss) $135,150 $50,613 $19,502 $(4,370) $(59,856) $141,039
FSS goodwill
impairment
charge - - - 4,707 - 4,707
Loss on assets
held for sale - - - 1,546 - 1,546
2005 Operating Income
(Loss), excluding
special items $135,150 $50,613 $19,502 $1,883 $(59,856) $147,292
For the quarter ended March 31, 2004, there were no special items.
NINE MONTHS ENDED MARCH 31,
MSSG AMSG J&L FSS Corp & Elim Total
2004 Reported
Operating Income
(Loss) $82,937 $36,375 $13,410 $(64) $(48,485) $84,173
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
2004 Operating Income
(Loss), excluding
special items $89,471 $37,920 $13,410 $(64) $(45,369) $95,368
RECONCILIATION TO FREE OPERATING CASH FLOW INFORMATION (Unaudited):
Quarter Ended Nine Months Ended
March 31, March 31,
2005 2004 2005 2004
Net income $30,650 $24,070 $81,551 $43,727
Other non-cash items 12,332 4,238 16,565 15,457
Depreciation and
amortization 16,931 16,913 48,540 48,753
Change in inventory (8,751) (1,969) (21,481) 13,468
Change in accounts
receivable (29,766) (26,610) (14,774) (3,213)
Change in accounts
payable 12,340 18,260 991 9,080
Change in other assets
and liabilities 32,569 19,222 38,339 (17,805)
Net cash flow provided
by operating activities 66,305 54,124 149,731 109,467
Purchase of property,
plant and equipment (21,523) (14,207) (57,292) (36,060)
Proceeds from disposals
of property, plant and
equipment 579 610 3,912 2,998
Free operating cash flow $45,361 $40,527 $96,351 $76,405
CONDENSED BALANCE SHEETS (Unaudited):
03/31/05 12/31/04 09/30/04 06/30/04 03/31/04
ASSETS
Cash and
equivalents $34,792 $32,168 $28,688 $25,940 $27,528
Trade
receivables,
net of
allowance 382,188 367,940 369,008 364,725 357,795
Receivables
securitized (120,749) (115,253) (115,309) (117,480) (108,916)
Accounts
receivable,
net 261,439 252,687 253,699 247,245 248,879
Inventories 408,713 421,183 404,478 388,077 387,202
Deferred income
taxes 98,063 99,731 96,144 95,240 88,480
Current assets
held for sale 50,469 - - - -
Other current
assets 32,353 39,605 37,178 40,443 38,803
Total current
assets 885,829 845,374 820,187 796,945 790,892
Property, plant
and equipment,
net 512,806 506,253 487,616 484,475 481,793
Goodwill and
intangible
assets, net 661,908 543,062 546,487 542,014 554,614
Assets held for
sale 2,715 - - - -
Other assets 135,873 133,451 115,733 115,229 57,743
Total $2,199,131 $2,028,140 $1,970,023 $1,938,663 $1,885,042
LIABILITIES
Short-term debt,
including notes
payable $56,225 $28,888 $116,446 $126,807 $8,193
Accounts
payable 142,268 142,465 146,543 148,216 132,246
Current
liabilities
held for sale 14,437 - - - -
Accrued
liabilities 245,534 226,568 217,636 211,504 200,304
Total current
liabilities 458,464 397,921 480,625 486,527 340,743
Long-term debt 428,943 376,268 318,989 313,400 486,119
Deferred income
taxes 91,088 56,340 65,973 67,426 39,132
Other
liabilities 179,786 174,855 162,627 167,926 192,546
Total
liabilities 1,158,281 1,005,384 1,028,214 1,035,279 1,058,540
MINORITY
INTEREST 19,664 19,249 17,377 16,232 16,598
SHAREOWNERS'
EQUITY 1,021,186 1,003,507 924,432 887,152 809,904
Total $2,199,131 $2,028,140 $1,970,023 $1,938,663 $1,885,042
Debt to Capital Reconciliation (Unaudited):
March 31,
2005 2004
Total debt $485,168 $494,312
Total shareowners' equity 1,021,186 809,904
Debt to equity, GAAP 47.5% 61.0%
Total debt $485,168 $494,312
Minority interest 19,664 16,598
Total shareowners' equity 1,021,186 809,904
Total capital $1,526,018 $1,320,814
Debt to Capital 31.8% 37.4%
RETURN ON INVESTED CAPITAL (Unaudited):
For the Period Ended March 31, 2005
Invested
Capital 3/31/2005 12/31/2004 9/30/2004 6/30/2004 3/31/2004 Average
Debt $485,168 $405,156 $435,435 $440,207 $494,312 $452,056
Accounts
receivable
securi-
tized 120,749 115,253 115,309 117,480 108,916 115,541
Minority
interest 19,664 19,249 17,377 16,232 16,598 17,824
Shareowners'
equity 1,021,186 1,003,507 924,432 887,152 809,904 929,236
Total $1,646,767 $1,543,165 $1,492,553 $1,461,071 $1,429,730 $1,514,657
Quarter Ended
Interest Expense 3/31/2005 12/31/2004 9/30/2004 6/30/2004 Total
Interest
expense $6,803 $6,121 $6,456 $6,405 $25,785
Securitization
interest 868 757 580 443 2,648
Total interest
expense $7,671 $6,878 $7,036 $6,848 $28,433
Income tax
benefit 9,099
Total Interest
Expense, net
of tax $19,334
Quarter Ended
Total Income 3/31/2005 12/31/2004 9/30/2004 6/30/2004 Total
Net Income, as
reported $30,650 $28,181 $22,720 $29,852 $111,403
Restructuring
and asset
impairment
charges 3,306 - - - 3,306
Loss on assets
held for sale 1,086 - - - 1,086
Minority
interest
expense 1,449 928 977 (36) 3,318
Total Income,
excluding
special items $36,491 $29,109 $23,697 $29,816 $119,113
Total Income, excluding special
items $119,113
Total Interest Expense, net of tax 19,334
$138,447
Average invested capital $1,514,657
Adjusted Return on Invested Capital 9.1%
Return on Invested Capital calculated utilizing
Net Income, as reported is as follows:
Net Income, as reported $111,403
Total Interest Expense, net of tax 19,334
$130,737
Average invested capital $1,514,657
Return on Invested Capital 8.6%
RETURN ON INVESTED CAPITAL (Unaudited):
For the Period Ended March 31, 2004
Invested
Capital 3/31/2004 12/31/2003 9/30/2003 6/30/2003 3/31/2003 Average
Debt $494,312 $481,327 $520,138 $525,687 $580,135 $520,320
Accounts
receivable
securi-
tized 108,916 101,422 95,318 99,316 93,614 99,717
Minority
interest 16,598 16,286 16,089 18,880 18,070 17,185
Shareowners'
equity 809,904 791,442 746,562 721,577 756,511 765,199
Total $1,429,730 $1,390,477 $1,378,107 $1,365,460 $1,448,330 $1,402,421
Quarter Ended
Interest Expense 3/31/2004 12/31/2003 9/30/2003 6/30/2003 Total
Interest
expense $6,332 $6,547 $6,600 $9,108 $28,587
Securitization
interest 356 483 397 413 1,649
Total interest
expense $6,688 $7,030 $6,997 $9,521 $30,236
Income tax
benefit 9,676
Total interest
expense, net
of tax $20,560
Quarter Ended
Total Income 3/31/2004 12/31/2003 9/30/2003 6/30/2003 Total
Net income,
as reported $24,070 $10,892 $8,764 $(4,868) $38,858
Minority interest
expense 533 404 695 74 1,706
MSSG restructuring - 1,109 2,307 2,194 5,610
AMSG restructuring - 1,018 - 857 1,875
Corporate
restructuring - - - (69) (69)
J&L restructuring - - - (45) (45)
Widia integration
costs - MSSG - - 1,027 1,758 2,785
Widia integration
costs - AMSG - - 33 818 851
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 $24,603 $12,676 $12,826 $15,988 $66,093
Total Income, excluding special
items $66,093
Total Interest Expense, net of tax 20,560
$86,653
Average invested capital $1,402,421
Adjusted Return on Invested Capital 6.2%
Return on Invested Capital calculated utilizing
Net Income, as reported is as follows:
Net Income, as reported $38,858
Total Interest Expense, net of tax 20,560
$59,418
Average invested capital $1,402,421
Return on Invested Capital 4.2%
SOURCE Kennametal Inc.
-0- 04/27/2005
/CONTACT: Investor Relations, Beth A. Riley, or Media Relations, Joy
Chandler of Kennametal Inc., +1-724-539-6141/
/Web site: http://www.kennametal.com /
(KMT)
CO: Kennametal Inc.
ST: Pennsylvania
IN: MNG
SU: ERN ERP DIV CCA MAV
JT-MH
-- CLW003 --
7481 04/27/2005 08:58 EDT http://www.prnewswire.com