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Kennametal Announces Fiscal First Quarter 2014 Results
"Due to our company-specific initiatives,
"Also, our recently announced agreement to acquire ATI's Tungsten Materials Business will provide excellent growth opportunities. This represents a winning business combination that enhances our talent base, provides complementary strategic assets and further balances our portfolio."
Fiscal 2014 First Quarter Key Developments
- Sales were
$620 million , compared with$629 million in the same quarter last year. Sales decreased by 2 percent, reflecting a 3 percent organic decline, partially offset by a 1 percent favorable impact from more business days. - Operating income was
$59 million , compared with$64 million in the same quarter last year. Operating income declined due to lower organic sales partially offset by reduced operating expense reflecting the company's continued cost discipline. Operating income included a non-recurring inventory charge of approximately$6 million and$1 million of acquisition-related expenses. Operating margin was 9.5 percent, compared with an operating margin of 10.2 percent in the prior year. Non-recurring charges unfavorably impacted operating margin 110 basis points. - The effective tax rate was 24.6 percent in the period, compared with 20.7 percent in the prior year. The increase was primarily driven by a favorable effective tax audit settlement in
Europe in the prior year. - EPS were
$0.48 , compared with the prior year quarter EPS of$0.57 . The current year quarter includes non-recurring inventory charges of$0.04 per share and acquisition-related charges of$0.01 per share. - Adjusted return on invested capital (ROIC) was 8.9 percent as of September 30, 2013.
- The company generated
$44 million in cash flow from operating activities, compared with$3 million in the prior year period. Net capital expenditures were$25 million and$15 million for the three months ended September 30, 2013 and 2012, respectively. The company realized free operating cash inflow of$20 million compared with$12 million free operating cash outflow for the same period last year. - During the quarter, the company acquired the operating assets of Comercializadora Emura S.R.L. and certain related entities (Emura), based in
La Paz, Bolivia , and secured related material sourcing agreements. Emura is the region's principal operation engaged in collection, testing, processing and exporting tungsten ore material, and is a long-standing supplier toKennametal . The addition of Emura enhances the company's strategic tungsten sourcing capabilities to serve growth globally. - The company announced during the quarter that it has signed a definitive agreement to acquire ATI's Tungsten Materials Business for
$605 million . The acquisition is aligned with the company's growth strategy and positions the company to further diversify its portfolio. - Consistent with the company's priority uses of cash, 100,000 shares of capital stock were repurchased during the quarter, under the amended, multi-year share repurchase program announced in
July 2013 . Approximately 10.3 million shares remain available for purchase under the program.
Segment Developments for the Fiscal 2014 First Quarter
As previously announced, at the start of fiscal 2014, the company enhanced its organizational structure to align a broader base management team with customer-facing products and technology platforms, as well as to further increase cross-selling opportunities. This operating structure supports the company's stated growth objectives across diverse market sectors, preserves the focus on customers and increases product innovation.
Previously disclosed Industrial and Infrastructure segment results were restated for certain sales reclassifications based on products and technologies.
- Industrial segment sales of
$338 million increased 1 percent from $335 million in the prior year quarter due to the favorable impact of more business days. Organic growth was flat. Sales increased by 2 percent in general engineering, 2 percent in transportation and 1 percent in energy, partially offset by a 2 percent decline in aerospace and defense. General engineering increased due to improvements in production and overall demand for machinery and the transportation market increased due to improvement in the light vehicle market. The decline in aerospace and defense is due to the timing of orders. On a regional basis, sales increased approximately 6 percent inEurope , remained relatively flat in the Americas and decreased by 5 percent inAsia . WIDIA reflected an increase year-over-year in all geographic regions. - Industrial segment operating income was
$40 million compared with $39 million in the prior year. Industrial operating margin was 11.8 percent compared with 11.7 percent in the prior year. - Infrastructure segment sales of
$282 million declined 4 percent from $294 million in the prior year. The decrease was driven by a 6 percent organic decline, partially offset by 2 percent favorable impact from more business days. Sales declined by 8 percent in earthworks markets, 4 percent in energy and 1 percent in transportation, partially offset by a 11 percent increase in general engineering. Earthworks and energy sales decreased due to overall global demand softness. General engineering and transportation reflects higher volumes from integrators and distributors. On a regional basis sales grew 3 percent inEurope , offset by a 7 percent decrease in Asia as well as theAmericas . - Infrastructure segment operating income was
$22 million , compared with $28 million in the same quarter of the prior year. Operating income decreased due to lower organic sales and a non-recurring inventory charge of approximately$6 million . Infrastructure operating margin was 7.7 percent compared with 9.4 percent in the prior year. The inventory charge unfavorably impacted operating margin 200 basis points.
Reconciliations of all non-GAAP financial measures are set forth in the tables attached, and corresponding descriptions are contained in the company's report on Form 8-K, to which this news release is attached.
Outlook
The company now expects fiscal 2014 sales growth in the range of 5 to 7 percent, with organic sales growth ranging from 4 to 6 percent. Previously, the company had forecast total sales growth ranging from 4 to 6 percent with organic sales growth of 5 to 7 percent.
Based on the revision, the company has reduced its EPS guidance for fiscal 2014 to range from
The company still expects to generate cash flow from operations between
Note that the company's outlook does not reflect any impact related to the planned acquisition of ATI's Tungsten Materials Business.
Dividend Declared
The company will discuss its fiscal 2014 first-quarter results in a live webcast at
Certain statements in this release may be forward-looking in nature, or "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. Forward-looking statements are statements that do not relate strictly to historical or current facts. For example, statements about
Celebrating its 75th year as an industrial technology leader,
FINANCIAL HIGHLIGHTS
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) |
|||||||
Three Months Ended September 30, |
|||||||
(in thousands, except per share amounts) |
2013 |
2012 |
|||||
Sales |
$ |
619,808 |
$ |
629,459 |
|||
Cost of goods sold |
421,571 |
421,111 |
|||||
Gross profit |
198,237 |
208,348 |
|||||
Operating expense |
134,264 |
138,860 |
|||||
Amortization of intangibles |
5,143 |
5,107 |
|||||
Operating income |
58,830 |
64,381 |
|||||
Interest expense |
7,081 |
5,956 |
|||||
Other expense (income), net |
611 |
(902) |
|||||
Income from continuing operations before income taxes |
51,138 |
59,327 |
|||||
Provision for income taxes |
12,580 |
12,280 |
|||||
Net income |
38,558 |
47,047 |
|||||
Less: Net income attributable to noncontrolling interests |
721 |
657 |
|||||
Net income attributable to Kennametal |
$ |
37,837 |
$ |
46,390 |
|||
PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL SHAREOWNERS |
|||||||
Basic earnings per share |
$ |
0.48 |
$ |
0.58 |
|||
Diluted earnings per share |
$ |
0.48 |
$ |
0.57 |
|||
Dividends per share |
$ |
0.18 |
$ |
0.16 |
|||
Basic weighted average shares outstanding |
78,439 |
80,245 |
|||||
Diluted weighted average shares outstanding |
79,470 |
81,405 |
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) |
|||||||
(in thousands) |
September 30, 2013 |
June 30, 2013 |
|||||
ASSETS |
|||||||
Cash and cash equivalents |
$ |
333,305 |
$ |
377,316 |
|||
Accounts receivable, net |
425,436 |
445,322 |
|||||
Inventories |
631,784 |
578,795 |
|||||
Other current assets |
103,666 |
98,040 |
|||||
Total current assets |
1,494,191 |
1,499,473 |
|||||
Property, plant and equipment, net |
748,569 |
741,482 |
|||||
Goodwill and other intangible assets, net |
966,519 |
944,520 |
|||||
Other assets |
121,035 |
115,564 |
|||||
Total assets |
$ |
3,330,314 |
$ |
3,301,039 |
|||
LIABILITIES |
|||||||
Current maturities of long-term debt and capital leases, including notes payable |
$ |
2,951 |
$ |
44,319 |
|||
Accounts payable |
173,909 |
190,623 |
|||||
Other current liabilities |
247,893 |
232,651 |
|||||
Total current liabilities |
424,753 |
467,593 |
|||||
Long-term debt and capital leases |
703,380 |
703,626 |
|||||
Other liabilities |
328,987 |
317,527 |
|||||
Total liabilities |
1,457,120 |
1,488,746 |
|||||
KENNAMETAL SHAREOWNERS' EQUITY |
1,842,192 |
1,781,826 |
|||||
NONCONTROLLING INTERESTS |
31,002 |
30,467 |
|||||
Total liabilities and equity |
$ |
3,330,314 |
$ |
3,301,039 |
|||
SEGMENT DATA (UNAUDITED) |
Three Months Ended September 30, |
||||||
(in thousands) |
2013 |
2012 |
|||||
Outside Sales: |
|||||||
Industrial |
$ |
338,230 |
$ |
335,194 |
|||
Infrastructure |
281,578 |
294,265 |
|||||
Total outside sales |
$ |
619,808 |
$ |
629,459 |
|||
Sales By Geographic Region: |
|||||||
North America |
$ |
269,535 |
$ |
283,223 |
|||
Western Europe |
187,601 |
178,288 |
|||||
Rest of World |
162,672 |
167,948 |
|||||
Total sales by geographic region |
$ |
619,808 |
$ |
629,459 |
|||
Operating Income: |
|||||||
Industrial |
$ |
39,820 |
$ |
39,327 |
|||
Infrastructure |
21,689 |
27,597 |
|||||
Corporate (1) |
(2,679) |
(2,543) |
|||||
Total operating income |
$ |
58,830 |
$ |
64,381 |
(1) Represents unallocated corporate expenses. NOTE: Previously disclosed Industrial and Infrastructure segment results were restated for certain sales reclassifications based on products and technologies. |
In addition to reported results under generally accepted accounting principles in
Management believes that investors 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. Investors are cautioned that non-GAAP financial measures utilized by the company may not be comparable to non-GAAP financial measures used by other companies. Reconciliations of all non-GAAP financial measures are set forth in the attached tables and descriptions of certain non-GAAP financial measures are contained in our report on Form 8-K to which this release is attached.
THREE MONTHS ENDED SEPTEMBER 30, 2013 - (UNAUDITED) |
||||||||||||
(in thousands, except percents) |
Sales |
Operating Income |
Net Income (3) |
Diluted EPS |
||||||||
2014 Reported Results |
$ |
619,808 |
$ |
58,830 |
$ |
37,837 |
$ |
0.48 |
||||
2014 Reported Operating Margin |
9.5% |
|||||||||||
Acquisition charges (2) |
1,098 |
775 |
0.01 |
|||||||||
2013 Adjusted Results |
619,808 |
59,928 |
38,612 |
0.49 |
||||||||
2013 Adjusted Operating Margin |
9.7% |
(2) ATI acquisition charges. |
(3) Represents amounts attributable to Kennametal Shareowners. |
FREE OPERATING CASH FLOW (UNAUDITED) |
Three Months Ended |
||||||||
September 30, |
|||||||||
(in thousands) |
2013 |
2012 |
|||||||
Net cash flow from operating activities |
$ |
44,425 |
$ |
3,138 |
|||||
Purchases of property, plant and equipment |
(24,974) |
(15,803) |
|||||||
Proceeds from disposals of property, plant and equipment |
148 |
423 |
|||||||
Free operating cash flow |
$ |
19,599 |
$ |
(12,242) |
RETURN ON INVESTED CAPITAL (UNAUDITED) September 30, 2013 (in thousands, except percents)
|
||||||||||||||||||||||||
Invested Capital |
9/30/2013 |
6/30/2013 |
3/31/2013 |
12/31/2012 |
9/30/2012 |
Average |
||||||||||||||||||
Debt |
$ |
706,331 |
$ |
747,945 |
$ |
751,030 |
$ |
706,859 |
$ |
601,124 |
$ |
702,658 |
||||||||||||
Total equity |
1,873,194 |
1,812,293 |
1,753,834 |
1,744,443 |
1,712,532 |
1,779,259 |
||||||||||||||||||
Total |
$ |
2,579,525 |
$ |
2,560,238 |
$ |
2,504,864 |
$ |
2,451,302 |
$ |
2,313,656 |
$ |
2,481,917 |
||||||||||||
Three Months Ended |
||||||||||||||||||||||||
Interest Expense |
9/30/2013 |
6/30/2013 |
3/31/2013 |
12/31/2012 |
Total |
|||||||||||||||||||
Interest expense |
$ |
7,081 |
$ |
7,042 |
$ |
7,504 |
$ |
6,970 |
$ |
28,597 |
||||||||||||||
Income tax benefit |
6,635 |
|||||||||||||||||||||||
Total interest expense, net of tax |
$ |
21,962 |
||||||||||||||||||||||
Net Income |
9/30/2013 |
6/30/2013 |
3/31/2013 |
12/31/2012 |
Total |
|||||||||||||||||||
Net income attributable to Kennametal, as reported |
$ |
37,837 |
$ |
60,818 |
$ |
53,916 |
$ |
42,142 |
$ |
194,713 |
||||||||||||||
Acquisition charges |
775 |
— |
— |
— |
775 |
|||||||||||||||||||
Noncontrolling interest |
721 |
1,366 |
460 |
1,167 |
3,714 |
|||||||||||||||||||
Net income, adjusted |
$ |
39,333 |
$ |
62,184 |
$ |
54,376 |
$ |
43,309 |
$ |
199,202 |
||||||||||||||
Total interest expense, net of tax |
21,962 |
|||||||||||||||||||||||
$ |
221,164 |
|||||||||||||||||||||||
Average invested capital |
$ |
2,481,917 |
||||||||||||||||||||||
Adjusted Return on Invested Capital |
8.9% |
|||||||||||||||||||||||
Return on invested capital calculated utilizing net income, as reported is as follows: |
||||||||||||||||||||||||
Net income attributable to Kennametal, as reported |
$ |
194,713 |
||||||||||||||||||||||
Total interest expense, net of tax |
21,962 |
|||||||||||||||||||||||
$ |
216,675 |
|||||||||||||||||||||||
Average invested capital |
$ |
2,481,917 |
||||||||||||||||||||||
Return on Invested Capital |
8.7% |
SUPPLEMENTAL INFORMATION FOR SELECTED FISCAL YEAR 2013 FINANCIAL RESULTS (UNAUDITED) (in thousands, except percents)
Previously disclosed Industrial and Infrastructure segment results were restated for certain sales reclassifications based on products and technologies. This supplemental information regarding selected fiscal year 2013 financial results, should be read in connection with the company's Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission on August 13, 2013. The information includes non-GAAP financial measures and, in accordance with SEC Regulation G, the company has provided a reconciliation for each non-GAAP financial measure to the most directly comparable GAAP financial measure. |
||||||||||||
September 30, 2012 |
||||||||||||
Industrial |
Infrastructure |
Corporate |
Total |
|||||||||
Sales |
$ |
335,194 |
$ |
294,265 |
$ |
— |
$ |
629,459 |
||||
2013 Stellite Acquisition Impact-Sales |
— |
(59,505) |
— |
(59,505) |
||||||||
2013 Adjusted Sales |
335,194 |
234,760 |
— |
569,954 |
||||||||
2013 Reported results |
39,327 |
27,597 |
(2,543) |
64,381 |
||||||||
2013 Reported operating margin |
11.7% |
9.4% |
10.2% |
|||||||||
2013 Stellite Acquisition Impact |
— |
(3,091) |
— |
(3,091) |
||||||||
2013 Adjusted results |
$ |
39,327 |
$ |
24,506 |
$ |
(2,543) |
$ |
61,290 |
||||
2013 Adjusted operating margin |
11.7% |
10.4% |
10.8% |
|||||||||
December 31, 2012 |
||||||||||||
Industrial |
Infrastructure |
Corporate |
Total |
|||||||||
Sales |
$ |
336,007 |
$ |
297,137 |
$ |
— |
$ |
633,144 |
||||
2013 Stellite Acquisition Impact-Sales |
— |
(60,151) |
— |
(60,151) |
||||||||
2013 Adjusted Sales |
336,007 |
236,986 |
— |
572,993 |
||||||||
2013 Reported results |
40,677 |
27,906 |
(2,114) |
66,469 |
||||||||
2013 Reported operating margin |
12.1% |
9.4% |
10.5% |
|||||||||
2013 Stellite Acquisition Impact |
— |
(5,186) |
— |
(5,186) |
||||||||
2013 Adjusted results |
$ |
40,677 |
$ |
22,720 |
$ |
(2,114) |
$ |
61,283 |
||||
2013 Adjusted operating margin |
12.1% |
9.6% |
10.7% |
|||||||||
March 31, 2013 |
||||||||||||
Industrial |
Infrastructure |
Corporate |
Total |
|||||||||
Sales |
$ |
352,793 |
$ |
302,567 |
$ |
— |
$ |
655,360 |
||||
2013 Stellite Acquisition Impact-Sales |
— |
(61,209) |
— |
(61,209) |
||||||||
2013 Adjusted Sales |
352,793 |
241,358 |
— |
594,151 |
||||||||
2013 Reported results |
51,173 |
26,120 |
(2,320) |
74,973 |
||||||||
2013 Reported operating margin |
14.5% |
8.6% |
11.4% |
|||||||||
2013 Stellite Acquisition Impact |
— |
(2,865) |
— |
(2,865) |
||||||||
2013 Adjusted results |
$ |
51,173 |
$ |
23,255 |
$ |
(2,320) |
$ |
72,108 |
||||
2013 Adjusted operating margin |
14.5% |
9.6% |
12.1% |
|||||||||
June 30, 2013 |
||||||||||||
Industrial |
Infrastructure |
Corporate |
Total |
|||||||||
Sales |
$ |
362,696 |
$ |
308,714 |
$ |
— |
$ |
671,410 |
||||
2013 Stellite Acquisition Impact-Sales |
— |
(57,140) |
— |
(57,140) |
||||||||
2013 Adjusted Sales |
362,696 |
251,574 |
— |
614,270 |
||||||||
2013 Reported results |
61,651 |
29,830 |
(908) |
90,573 |
||||||||
2013 Reported operating margin |
17.0% |
9.7% |
13.5% |
|||||||||
2013 Stellite Acquisition Impact |
— |
(1,150) |
— |
(1,150) |
||||||||
2013 Adjusted results |
$ |
61,651 |
$ |
28,680 |
$ |
(908) |
$ |
89,423 |
||||
2013 Adjusted operating margin |
17.0% |
11.4% |
14.6% |
|||||||||
Total for year ended June 30, 2013 |
||||||||||||
Industrial |
Infrastructure |
Corporate |
Total |
|||||||||
Sales |
$ |
1,386,690 |
$ |
1,202,683 |
$ |
— |
$ |
2,589,373 |
||||
2013 Stellite Acquisition Impact-Sales |
— |
(238,004) |
— |
(238,004) |
||||||||
2013 Adjusted Sales |
1,386,690 |
964,679 |
— |
2,351,369 |
||||||||
2013 Reported results |
192,828 |
111,453 |
(7,887) |
296,394 |
||||||||
2013 Reported operating margin |
13.9% |
9.3% |
11.4% |
|||||||||
2013 Stellite Acquisition Impact |
— |
(12,293) |
— |
(12,293) |
||||||||
2013 Adjusted results |
$ |
192,828 |
$ |
99,160 |
$ |
(7,887) |
$ |
284,101 |
||||
2013 Adjusted operating margin |
13.9% |
10.3% |
12.1% |
SOURCE
Investor Relations CONTACT: Quynh McGuire, PHONE: 724-539-6559; Corporate Relations - Media CONTACT: Lorrie Paul Crum, PHONE: 724-539-6792