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Kennametal Third-Quarter Earnings Up 3%, Despite Economic Softness; Quarterly Dividend Declared
LATROBE, Pa., April 25 /PRNewswire/ -- Kennametal Inc. (NYSE: KMT) today reported solid third-quarter earnings, despite significant weakness across North American industrial markets. Kennametal's diluted earnings per share increased by 3 percent to $0.73 per share compared to $0.71 per share last year, excluding special items in each period. On a reported basis, diluted earnings per share were $0.66 per share against $0.46 per share last year.
Kennametal President and Chief Executive Officer Markos I. Tambakeras said, "We were very pleased to deliver even modest growth in the current economic environment. We demonstrated that our unyielding focus on results delivers tangible benefits. Cost-cutting programs were accelerated as we scaled the business for reduced demand, and gross margins were maintained despite top-line pressure. More importantly, short-term responses to reduced demand did not compromise our continued investment in programs that will improve our efficiency and effectiveness in the marketplace in the future. The programs that we have previously detailed continue to be funded."
Third-Quarter Highlights
-- Excluding the unfavorable impact of foreign currency (2 percent) and
fewer business days (2 percent), sales were flat compared to the
prior year. Actual sales were $464.7 million, a decrease of
4 percent. Relative strength in organic sales was sustained on
significant growth in Europe and Asia, despite weakening in several
key North American markets.
-- Gross profit margin of 38.9 percent, excluding special charges, was
essentially flat to the third quarter of fiscal 2000 despite the
weak top-line performance. Foreign currency reduced gross profit by
60 basis points. The pressure of reduced sales volume was offset by
incremental efficiencies from lean manufacturing techniques and the
Inventory Turns Initiative.
-- Operating expense for the quarter, excluding special charges, was
reduced 2 percent to $123.7 million. Continuing cost reduction and
productivity programs were augmented by early actions from the
resizing program as detailed in the company's recent release.
Funding of key growth initiatives continued in the quarter.
-- As anticipated, the effective tax rate for the third quarter was
39.5 percent compared to 43.3 percent last year. The expected
full-year tax rate remains 39.5 percent.
-- Interest expense declined 9 percent during the quarter compared to
last year due primarily to lower average borrowings.
-- Excluding special items, net income was $22.3 million, an increase
of 3 percent compared to $21.6 million last year.
-- Special charges of $3.2 million, or $0.07 per share, were included
in the quarter's results related to the J&L and FSS business
improvement plans and the core business resize program. Prior-year
results included special charges of $13.3 million, or $0.25 per
share related to operational improvement programs in the core
businesses.
-- Cash flow and balance sheet management continued to generate
incremental benefits ahead of expectations. Free operating cash
flow of $34.5 million benefited from a 210-basis-point reduction in
primary working capital versus prior year. This reduction yielded
primary working capital as a percent of sales of 27.9 percent.
Total debt was $654.9 million, down from $699.2 million at the
beginning of the year despite the unforecasted investment in a share
repurchase program ($16.5 million), and the acquisition of JLK
($41.7 million).
-- Sales of $1,355.9 million for the first nine months of the year were
up 3 percent compared to last year, excluding unfavorable foreign
currency translation effects and the impact of fewer business days,
which affected the year by 3 and 2 percent, respectively. Net
income for the first nine months was $48.1 million or $1.57 per
share compared to $43.9 million or $1.45 per share for the same
period last year, excluding special items in each period. Including
special items, reported net income for the first nine months was
$43.3 million or $1.41 per share compared to $32.3 million or
$1.06 per share for the first nine months of last year.
Outlook
As previously announced, the company expects sales for the full year to be slightly down (2-3 percent), with modest earnings growth (1-3 percent) due to pervasive weakening in the North American industrial economy. Diluted earnings per share, excluding special charges, are anticipated to be $2.15-$2.20 for the full year versus $2.13 in fiscal 2000.
Tambakeras concluded, "I continue to be impressed by the organization's ability to rapidly adapt to shifting market conditions, as demonstrated by our third-quarter performance. In response to a reduced and uncertain market outlook for the remainder of our fiscal year, we remain focused on mitigating short-term earnings impacts while still executing our long-term strategies."
Dividend Announcement
Kennametal also announced its Board of Directors declared a quarterly cash dividend of $0.17 cents per share, payable May 25, 2001, to holders of record as of May 10, 2001.
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 13,000 employees worldwide, the company's annual sales are approximately $1.8 billion, with a third coming from sales outside the United States. Kennametal has been named one of the Best Places to Work in Pennsylvania 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.
This release contains "forward-looking statements" as defined by Section
21E of the Securities Exchange Act of 1934 as amended. Actual results may
differ materially from those expressed or implied in the forward-looking
statements. Factors that could cause actual results to differ materially
include, but are not limited to, the extent that global economic conditions do
not change materially, risks associated with integrating businesses and
restructuring programs, demands on management resources, risks associated with
international markets such as currency exchange rates, and competition. The
company undertakes no obligation to publicly release any revisions to forward-
looking statements to reflect events or circumstances occurring after the date
hereof.
FINANCIAL HIGHLIGHTS
Consolidated financial highlights for Kennametal Inc. (NYSE: KMT) for the quarter and nine months ended March 31, 2001 and 2000 are shown in the following tables (in thousands, except per share amounts). All fiscal year 2001 data is subject to year-end (June 30) adjustment and audit by independent public accountants.
Consolidated Statements of Income
Quarter Ended Nine Months Ended
March 31, March 31,
2001 2000 2001 2000
Net sales $464,650 $483,019 $1,355,876 $1,379,890
Cost of goods sold 284,416 294,567 840,051 859,242
Gross profit 180,234 188,452 515,825 520,648
Operating expense(A) 123,807 125,830 374,054 375,019
Restructuring and
asset impairment
charge 2,286 13,323 4,633 17,304
Amortization of
intangibles 6,063 6,517 18,533 20,117
Operating income 48,078 42,782 118,605 108,208
Interest expense(B) 12,496 13,668 39,091 41,948
Other expense, net(C) 579 1,269 3,236 1,521
Income before provision for
income taxes and
minority interest 35,003 27,845 76,278 64,739
Provision for income taxes 13,824 12,067 30,128 28,485
Minority interest 785 1,681 2,291 3,733
Income before extraordinary
loss and cumulative
effect of change in
accounting principle 20,394 14,097 43,859 32,521
Extraordinary loss on early
extinguishments of debt,
net of tax -- -- -- (267)
Cumulative effect of change in
accounting principle,
net of tax -- -- (599) --
Net income $20,394 $14,097 $43,260 $32,254
Per Share Data:
Diluted earnings per share $0.66 $0.46 $1.41 $1.06
Dividends per share $0.17 $0.17 $0.51 $0.51
Diluted weighted average
shares outstanding 30,692 30,418 30,656 30,307
(A) For the quarter and nine months ended March 31, 2001, these amounts
include charges of $0.1 million and $2.1 million, respectively,
primarily related to the tender offer to acquire the outstanding
shares of JLK. For the nine months ended March 31, 2000, this amount
includes a charge of $3.0 million for environmental remediation.
(B) Includes $0.3 million charges related to the recognition of a
portion of deferred financing fees as a result of the reduction in
the availability under the company's U.S. credit facility.
(C) For the quarters ended March 31, 2001 and 2000, these amounts include
charges of $1.5 million and $1.3 million, respectively, for fees
incurred in connection with the company's accounts receivable
securitization program. For the nine months ended March 31, 2001 and
2000, these amounts include similar charges of $4.7 million and $3.7
million, respectively. For the nine months ended March 31, 2000,
this amount includes one-time gains of $1.4 million from the sales of
underutilized assets.
Supplemental Data Sheet
SELECTED OPERATING DATA:
Quarter Ended Nine Months Ended
March 31, March 31,
2001 2000(A) 2001 2000(A)
Sales:
Metalworking Services and
Solutions Group $257,747 $265,878 $748,628 $761,492
Advanced Materials Solutions
Group 91,095 85,814 261,487 253,550
J&L Industrial Supply 77,646 96,215 242,457 270,958
Full Service Supply 38,162 35,112 103,304 93,890
Total $464,650 $483,019 $1,355,876 $1,379,890
Sales By Geographic Region:
Within the United States $299,545 $321,945 $895,015 $914,727
International 165,105 161,074 460,861 465,163
Total $464,650 $483,019 $1,355,876 $1,379,890
Operating Income (Loss),
including special charges:
Metalworking Services and
Solutions Group $37,369 $34,658 $96,305 $89,964
Advanced Materials Solutions
Group 12,184 8,001 32,106 26,565
J&L Industrial Supply 2,663 7,060 4,488 16,479
Full Service Supply 2,017 3,303 5,096 7,952
Corporate and Eliminations (6,155) (10,240) (19,390) (32,752)
Total $48,078 $42,782 $118,605 $108,208
Operating Income (Loss),
excluding special charges:
Metalworking Services and
Solutions Group $38,380 $42,373 $97,320 $101,198
Advanced Materials Solutions
Group 11,920 12,376 31,868 31,311
J&L Industrial Supply 4,576 7,060 10,580 16,479
Full Service Supply 2,187 3,303 5,416 7,952
Corporate and Eliminations (6,155) (9,007) (19,409) (28,328)
Total $50,908 $56,105 $125,775 $128,612
Diluted EPS excluding special
charges and
amortization expense $0.92 $0.92 $2.17 $2.11
Diluted EPS excluding special
charges $0.73 $0.71 $1.57 $1.45
Free Operating Cash Flow:
Net Income $20,394 $14,097 $43,260 $32,254
Non-cash Items 4,774 7,062 6,766 13,543
Depreciation & Amortization 24,375 25,165 73,440 76,450
Change in Working Capital 2,118 22,376 32,277 70,093
Capital Expenditures (17,141) (12,447) (40,121) (34,123)
Free Operating Cash Flow $34,520 $56,253 $115,622 $158,217
Supplemental Data Sheet (Continued)
SELECTED BALANCE SHEET DATA:
Quarter Ended
3/31/01 12/31/00 9/30/00 6/30/00
Accounts Receivable $214,332 $203,344 $218,863 $231,917
Inventory 387,520 389,460 392,741 410,885
Accounts Payable (108,371) (102,217) (111,873) (118,908)
Total Primary Working Capital
(PWC) $493,481 $490,587 $499,731 $523,894
PWC % Sales(B) 27.9% 28.0% 28.5% 29.4%
Debt $654,930 $687,487 $672,593 $699,242
Debt/Total Capital 45.1% 46.7% 44.7% 45.6%
(A) Kennametal reports global business units consisting of Metalworking
Services and Solutions Group, Advanced Materials Solutions Group, Full
Service Supply and J&L Industrial Supply, and corporate functional
shared services. Certain amounts in prior year sales and operating
income (loss) have been restated to conform to this reporting
structure.
(B) Calculated by averaging the current and the previous four quarter-end
balances for PWC, divided by sales for the most recent 12-month
period.
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SOURCE Kennametal Inc.
Web site: http: //www.kennametal.com
CONTACT: Beth A. Riley, Director, Investor Relations of Kennametal, 724-539-3470