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Kennametal Announces Fiscal 2017 Third Quarter Results
The current period reported results included restructuring and related charges of
"This quarter's results exceeded our expectations by almost every metric," commented
De Feo continued, "Very little of this progress reflects the structural benefits from the modernization and End-to-End initiatives that we have planned, nor the benefits from the ongoing product and process simplification initiatives. The results of those programs will accrue to the Company over the next two to three years. This is a time of real change at
This earnings release contains non-GAAP financial measures. Reconciliations of all non-GAAP financial measures are set forth in the tables attached to this earnings release, and corresponding descriptions are contained in the Company's report on Form 8-K, to which this news release is attached.
Fiscal 2017 Third Quarter Key Developments
- Sales were
$529 million , compared with$498 million in the same quarter last year. Sales increased by 6 percent, driven by 5 percent organic growth and a 2 percent increase due to more business days, partially offset by a 1 percent unfavorable currency exchange impact. - Pre-tax restructuring and related charges were
$10 million , or$0.12 per share, and pre-tax benefits were approximately$30 million , or$0.32 per share in the quarter. In the same quarter last year, pre-tax restructuring and related charges were$14 million , or$0.18 per share, and pre-tax benefits were approximately$10 million , or$0.11 per share. - Operating income was
$58 million , compared to$27 million in the same quarter last year. Adjusted operating income was$68 million , compared to$39 million in the prior year quarter. The increase in adjusted operating income reflects incremental restructuring benefits, organic sales growth, higher absorption and productivity and favorable mix, partially offset by higher performance-based compensation and the negative effects of higher raw material costs. Adjusted operating margin was 12.8 percent in the current period and 7.8 percent in the prior year period. - The reported effective tax rate (ETR) was 19.0 percent and the adjusted ETR was 15.3 percent. The difference between reported and adjusted ETRs is attributable to restructuring and related charges. For the third quarter of fiscal 2016, the reported ETR was 24.7 percent and the adjusted ETR was 9.9 percent. The increase in the adjusted effective tax rate was driven primarily by a favorable impact in the prior year quarter related to a U.S. provision to return adjustment that did not repeat in the current year, partially offset by earnings in the U.S. that cannot be tax affected in the current year due to a full valuation allowance on our domestic deferred tax assets.
- EPS were
$0.48 , compared with$0.20 in the prior year quarter. Adjusted EPS were$0.60 in the current quarter and$0.37 in the prior year quarter. - Year-to-date free operating cash flow was negative
$10 million compared to positive$67 million in the same period last year. The decrease in free operating cash flow was primarily attributable to an increase in primary working capital, higher restructuring payments and capital expenditures, partially offset by higher cash earnings and lower tax and pension payments. - Earnings before interest, taxes, depreciation and amortization (EBITDA) were
$82 million , compared with$56 million in the prior year quarter. Adjusted EBITDA were$91 million in the current quarter and$67 million in the prior year quarter.
Segment Developments for the Fiscal 2017 Third Quarter
- Industrial segment sales of
$289 million increased 6 percent from$274 million in the prior year quarter, reflecting organic growth of 5 percent and a 3 percent increase due to more business days, partially offset by 2 percent unfavorable currency exchange. Excluding the impact of currency exchange, sales increased approximately 18 percent in energy, 9 percent in general engineering, 6 percent in aerospace and defense and 3 percent in transportation. General engineering sales benefited from growth in the indirect channel, due in part to the strengthening of oil and gas in the U.S. and growth in theChina automotive market. Oil and gas in theAmericas likewise contributed to overall growth in energy, coupled with increases in power generation globally. Transportation experienced growth inAsia with tiered suppliers and truck OEMs which was tempered slightly by lower project sales in theAmericas . Conditions continue to be favorable in the aerospace sector, with engine growth being supplemented by increasing demand related to frames. On a segment regional basis excluding the impact of currency exchange, sales increased 17 percent inAsia , 6 percent inEurope and 4 percent in theAmericas . - Industrial segment operating income was
$39 million compared to$26 million in the prior year. Adjusted operating income was$44 million compared to$31 million in the prior year quarter, driven primarily by incremental restructuring benefits, organic sales growth and higher absorption and productivity, partially offset by higher performance-based compensation and unfavorable mix. Industrial adjusted operating margin was 15.1 percent compared with 11.2 percent in the prior year. - Widia segment sales of
$46 million increased 10 percent from$42 million in the prior year quarter, driven by organic growth of 9 percent and a 1 percent increase due to more business days. On a segment regional basis excluding the impact of currency exchange, sales increased 14 percent inAsia , 11 percent in theAmericas and 3 percent inEurope . - Widia segment operating income was
$1 million compared to a loss of$2 million in the prior year. Adjusted operating income was$1 million compared to adjusted operating loss of less than$1 million in the prior year quarter, primarily driven by organic growth and incremental restructuring benefits. Widia adjusted operating income margin was 2.3 percent compared with adjusted operating loss margin of 1.0 percent in the prior year. - Infrastructure segment sales of
$193 million increased 6 percent from$181 million in the prior year quarter, driven by organic growth of 4 percent and a 2 percent increase due to more business days. Excluding the impact of currency exchange, sales increased by approximately 22 percent in energy, 3 percent in earthworks and 1 percent in general engineering. Key energy markets, particularly inNorth America , showed strong growth during the quarter with average quarterly land U.S. rig counts up 37 percent year-over-year. On a segment regional basis excluding the impact of currency exchange, sales increased 12 percent inAsia and 6 percent in theAmericas , whileEurope remained flat. - Infrastructure segment operating income was
$20 million compared to$4 million in the same quarter of the prior year. Adjusted operating income was$24 million compared to$10 million in the prior year quarter. The change in adjusted operating results was primarily due to incremental restructuring benefits, higher absorption and productivity and favorable mix, partially offset by higher raw material costs. Infrastructure adjusted operating income margin was 12.3 percent compared with 5.2 percent in the prior year.
Fiscal 2017 Year-to-Date Key Developments
- Sales were
$1,493 million , compared to$1,577 million in the same period last year. Sales decreased by 5 percent, driven by divestiture impact of 5 percent and 1 percent unfavorable currency exchange impact, partially offset by 1 percent organic growth. - Operating income was
$73 million , compared to operating loss of$200 million in the same period last year. Adjusted operating income was$126 million in the current period, compared to$79 million in the prior year. Adjusted operating income increased due to incremental restructuring benefits, better absorption and productivity and lower raw material costs, partially offset by unfavorable mix and higher employment-related costs. Adjusted operating margin was 8.4 percent, compared to 5.3 percent in the prior year. - EPS was
$0.30 in the current year period, compared with loss per diluted share (LPS) of$2.00 the prior year period. Adjusted EPS were$0.95 in the current year period and$0.68 in the prior year period.
Restructuring Programs
Restructuring programs are currently expected to produce combined annual ongoing pre-tax permanent savings of
Restructuring and related charges and savings (pre-tax) |
||||||
Estimated Charges |
Current Quarter Charges |
Charges To Date |
Estimated Annualized Savings |
Approximate Current Quarter Savings |
Expected Completion Date |
|
Headcount reduction initiatives |
$60M-$70M |
$5M |
$42M |
$90M |
$13M |
12/31/2017 |
Other |
$105M-$125M |
$5M |
$83M |
$75M-$90M |
$17M |
12/31/2018 |
Total |
$165M-$195M |
$10M |
$125M |
$165M-$180M |
$30M |
Outlook
The Company now expects consolidated adjusted EPS for the full fiscal year to be in the range of
Dividend Declared
The company will discuss its fiscal 2017 third 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
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At the forefront of advanced materials innovation for more than 75 years,
FINANCIAL HIGHLIGHTS |
||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) |
||||||||||||||
Three Months Ended March 31, |
Nine Months Ended March 31, |
|||||||||||||
(in thousands, except per share amounts) |
2017 |
2016 |
2017 |
2016 |
||||||||||
Sales |
$ |
528,630 |
$ |
497,837 |
$ |
1,493,343 |
$ |
1,577,212 |
||||||
Cost of goods sold |
342,365 |
340,484 |
1,015,926 |
1,127,828 |
||||||||||
Gross profit |
186,265 |
157,353 |
477,417 |
449,384 |
||||||||||
Operating expense |
116,939 |
121,004 |
347,808 |
373,827 |
||||||||||
Restructuring and asset impairment charges |
7,169 |
7,142 |
44,230 |
128,498 |
||||||||||
Loss on divestiture |
— |
(2,557) |
— |
130,750 |
||||||||||
Amortization of intangibles |
4,245 |
4,429 |
12,665 |
16,315 |
||||||||||
Operating income (loss) |
57,912 |
27,335 |
72,714 |
(200,006) |
||||||||||
Interest expense |
7,331 |
7,113 |
21,475 |
20,895 |
||||||||||
Other expense (income), net |
1,626 |
(1,938) |
2,470 |
(1,582) |
||||||||||
Income (loss) before income taxes |
48,955 |
22,160 |
48,769 |
(219,319) |
||||||||||
Provision (benefit) for income taxes |
9,301 |
5,465 |
22,401 |
(61,499) |
||||||||||
Net income (loss) |
39,654 |
16,695 |
26,368 |
(157,820) |
||||||||||
Less: Net income attributable to noncontrolling interests |
764 |
695 |
1,873 |
1,634 |
||||||||||
Net income (loss) attributable to Kennametal |
$ |
38,890 |
$ |
16,000 |
$ |
24,495 |
$ |
(159,454) |
||||||
PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL SHAREHOLDERS |
||||||||||||||
Basic earnings (loss) per share |
$ |
0.48 |
$ |
0.20 |
$ |
0.31 |
$ |
(2.00) |
||||||
Diluted earnings (loss) per share |
$ |
0.48 |
$ |
0.20 |
$ |
0.30 |
$ |
(2.00) |
||||||
Dividends per share |
$ |
0.20 |
$ |
0.20 |
$ |
0.60 |
$ |
0.60 |
||||||
Basic weighted average shares outstanding |
80,398 |
79,871 |
80,219 |
79,814 |
||||||||||
Diluted weighted average shares outstanding |
81,381 |
80,224 |
80,965 |
79,814 |
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) |
|||||||
(in thousands) |
March 31, 2017 |
June 30, 2016 |
|||||
ASSETS |
|||||||
Cash and cash equivalents |
$ |
100,817 |
$ |
161,579 |
|||
Accounts receivable, net |
376,956 |
370,916 |
|||||
Inventories |
490,212 |
458,830 |
|||||
Other current assets |
75,061 |
84,016 |
|||||
Total current assets |
1,043,046 |
1,075,341 |
|||||
Property, plant and equipment, net |
728,775 |
730,640 |
|||||
Goodwill and other intangible assets, net |
487,384 |
505,695 |
|||||
Other assets |
75,534 |
51,107 |
|||||
Total assets |
$ |
2,334,739 |
$ |
2,362,783 |
|||
LIABILITIES |
|||||||
Current maturities of long-term debt and capital leases, including notes payable |
$ |
1,591 |
$ |
1,895 |
|||
Accounts payable |
190,841 |
182,039 |
|||||
Other current liabilities |
234,367 |
243,341 |
|||||
Total current liabilities |
426,799 |
427,275 |
|||||
Long-term debt and capital leases |
694,631 |
693,548 |
|||||
Other liabilities |
233,738 |
246,159 |
|||||
Total liabilities |
1,355,168 |
1,366,982 |
|||||
KENNAMETAL SHAREHOLDERS' EQUITY |
945,962 |
964,323 |
|||||
NONCONTROLLING INTERESTS |
33,609 |
31,478 |
|||||
Total liabilities and equity |
$ |
2,334,739 |
$ |
2,362,783 |
SEGMENT DATA (UNAUDITED) |
Three Months Ended March 31, |
Nine Months Ended March 31, |
||||||||||||
(in thousands) |
2017 |
2016 |
2017 |
2016 |
||||||||||
Outside Sales: |
||||||||||||||
Industrial (1) |
$ |
289,455 |
$ |
274,123 |
$ |
825,990 |
$ |
812,892 |
||||||
Widia (1) |
46,297 |
42,249 |
130,186 |
127,696 |
||||||||||
Infrastructure |
192,878 |
181,465 |
537,167 |
636,624 |
||||||||||
Total outside sales |
$ |
528,630 |
$ |
497,837 |
$ |
1,493,343 |
$ |
1,577,212 |
||||||
Sales By Geographic Region: |
||||||||||||||
North America |
$ |
245,558 |
$ |
232,183 |
$ |
684,448 |
$ |
718,979 |
||||||
Western Europe |
128,675 |
130,914 |
367,004 |
432,477 |
||||||||||
Rest of World |
154,397 |
134,740 |
441,891 |
425,756 |
||||||||||
Total sales by geographic region |
$ |
528,630 |
$ |
497,837 |
$ |
1,493,343 |
$ |
1,577,212 |
||||||
Operating Income (Loss): |
||||||||||||||
Industrial (1) |
$ |
38,535 |
$ |
26,371 |
$ |
62,138 |
$ |
59,855 |
||||||
Widia (1) |
606 |
(1,679) |
(7,797) |
(8,053) |
||||||||||
Infrastructure |
19,770 |
3,748 |
22,457 |
(242,417) |
||||||||||
Corporate (2) |
(999) |
(1,105) |
(4,084) |
(9,391) |
||||||||||
Total operating income (loss) |
$ |
57,912 |
$ |
27,335 |
$ |
72,714 |
$ |
(200,006) |
(1) |
Amounts for the three and nine months ended March 31, 2016 have been restated to reflect the change in reportable operating segments |
(2) |
Represents unallocated corporate expenses |
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 MARCH 31, 2017 (UNAUDITED) |
||||||||||||||||||||
(in thousands, except |
Sales |
Gross profit |
Operating expense |
Operating income |
Effective tax rate |
Net income(3) |
Diluted EPS |
|||||||||||||
Reported results |
$ |
528,630 |
$ |
186,265 |
$ |
116,939 |
$ |
57,912 |
19.0 |
% |
$ |
38,890 |
$ |
0.48 |
||||||
Reported margins |
35.2 |
% |
22.1 |
% |
11.0 |
% |
||||||||||||||
Restructuring and related |
— |
1,644 |
(809) |
9,623 |
(3.7) |
9,961 |
0.12 |
|||||||||||||
Adjusted results |
$ |
528,630 |
$ |
187,909 |
$ |
116,130 |
$ |
67,535 |
15.3 |
% |
$ |
48,851 |
$ |
0.60 |
||||||
Adjusted margins |
35.5 |
% |
22.0 |
% |
12.8 |
% |
||||||||||||||
(3) Represents amounts attributable to Kennametal Shareholders. |
Industrial |
Widia |
Infrastructure |
||||||||||||||||
(in thousands, except percents) |
Sales |
Operating income |
Sales |
Operating income |
Sales |
Operating income |
||||||||||||
Reported results |
$ |
289,455 |
$ |
38,535 |
$ |
46,297 |
$ |
606 |
$ |
192,878 |
$ |
19,770 |
||||||
Reported operating margin |
13.3 |
% |
1.3 |
% |
10.3 |
% |
||||||||||||
Restructuring and related |
— |
5,142 |
— |
466 |
— |
3,974 |
||||||||||||
Adjusted results |
$ |
289,455 |
$ |
43,677 |
$ |
46,297 |
$ |
1,072 |
$ |
192,878 |
$ |
23,744 |
||||||
Adjusted operating margin |
15.1 |
% |
2.3 |
% |
12.3 |
% |
||||||||||||
(4) Excludes pre-tax restructuring related charges recorded in Corporate of $41. |
THREE MONTHS ENDED MARCH 31, 2016 (UNAUDITED) |
||||||||||||||||||||
(in thousands, except |
Sales |
Gross profit |
Operating expense |
Operating income |
Effective tax rate |
Net income(3) |
Diluted EPS |
|||||||||||||
Reported results |
$ |
497,837 |
$ |
157,353 |
$ |
121,004 |
$ |
27,335 |
24.7 |
% |
$ |
16,000 |
$ |
0.20 |
||||||
Reported margins |
31.6 |
% |
24.3 |
% |
5.5 |
% |
||||||||||||||
Restructuring and related |
— |
1,456 |
(5,400) |
13,998 |
(4.9) |
14,242 |
0.18 |
|||||||||||||
Tax effect of prior asset |
— |
— |
— |
— |
(5.8) |
1,251 |
0.02 |
|||||||||||||
Loss on divestiture |
— |
— |
— |
(2,557) |
(4.1) |
(1,902) |
(0.03) |
|||||||||||||
Adjusted results |
$ |
497,837 |
$ |
158,809 |
$ |
115,604 |
$ |
38,776 |
9.9 |
% |
$ |
29,591 |
$ |
0.37 |
||||||
Adjusted margins |
31.9 |
% |
23.2 |
% |
7.8 |
% |
Industrial (1) |
Widia (1) |
Infrastructure |
||||||||||||||||
(in thousands, except percents) |
Sales |
Operating income |
Sales |
Operating loss |
Sales |
Operating income |
||||||||||||
Reported results |
$ |
274,123 |
$ |
26,371 |
$ |
42,249 |
$ |
(1,679) |
$ |
181,465 |
$ |
3,748 |
||||||
Reported operating margin |
9.6 |
% |
(4.0)% |
2.1 |
% |
|||||||||||||
Restructuring and related |
— |
8,091 |
— |
1,255 |
— |
4,652 |
||||||||||||
Loss on divestiture |
— |
(3,677) |
— |
— |
— |
1,117 |
||||||||||||
Adjusted results |
$ |
274,123 |
$ |
30,785 |
$ |
42,249 |
$ |
(424) |
$ |
181,465 |
$ |
9,517 |
||||||
Adjusted operating margin |
11.2 |
% |
(1.0)% |
5.2 |
% |
NINE MONTHS ENDED MARCH 31, 2017 (UNAUDITED) |
||||||||||||
(in thousands, except percents) |
Sales |
Operating |
Net income(3) |
Diluted EPS |
||||||||
Reported results |
$ |
1,493,343 |
$ |
72,714 |
$ |
24,495 |
$ |
0.30 |
||||
Reported operating margin |
4.9 |
% |
||||||||||
Restructuring and related charges |
— |
53,064 |
51,469 |
0.63 |
||||||||
Australia deferred tax valuation allowance |
— |
— |
1,288 |
0.02 |
||||||||
Adjusted results |
$ |
1,493,343 |
$ |
125,778 |
$ |
77,252 |
$ |
0.95 |
||||
Adjusted operating margin |
8.4 |
% |
NINE MONTHS ENDED MARCH 31, 2016 (UNAUDITED) |
||||||||||||
(in thousands, except percents) |
Sales |
Operating |
Net (loss) income(3) |
Diluted (LPS) EPS |
||||||||
Reported results |
$ |
1,577,212 |
$ |
(200,006) |
$ |
(159,454) |
$ |
(2.00) |
||||
Reported operating margin |
(12.7) |
% |
||||||||||
Restructuring and related charges |
— |
37,970 |
31,978 |
0.42 |
||||||||
Goodwill and other intangible asset impairment |
— |
108,456 |
81,487 |
1.02 |
||||||||
Loss on divestiture and related charges |
— |
130,750 |
98,448 |
1.22 |
||||||||
Operations of divested businesses |
(82,512) |
1,912 |
1,358 |
0.02 |
||||||||
Adjusted results |
$ |
1,494,700 |
$ |
79,082 |
$ |
53,817 |
$ |
0.68 |
||||
Adjusted operating margin |
5.3 |
% |
FREE OPERATING CASH FLOW (UNAUDITED) |
Three Months Ended March 31, |
Nine Months Ended March 31, |
||||||||||||
(in thousands) |
2017 |
2016 |
2017 |
2016 |
||||||||||
Net cash flow from operating activities |
$ |
33,443 |
$ |
40,870 |
$ |
80,021 |
$ |
145,414 |
||||||
Purchases of property, plant and equipment |
(23,522) |
(22,110) |
(94,095) |
(83,285) |
||||||||||
Proceeds from disposals of property, plant and equipment |
343 |
700 |
3,852 |
5,102 |
||||||||||
Free operating cash flow |
$ |
10,264 |
$ |
19,460 |
$ |
(10,222) |
$ |
67,231 |
EBITDA (UNAUDITED) |
Three Months Ended March 31, |
Nine Months Ended March 31, |
||||||||||||
(in thousands) |
2017 |
2016 |
2017 |
2016 |
||||||||||
Net income (loss) attributable to Kennametal |
$ |
38,890 |
$ |
16,000 |
$ |
24,495 |
$ |
(159,454) |
||||||
Add back: |
||||||||||||||
Interest expense |
7,331 |
7,113 |
21,475 |
20,895 |
||||||||||
Interest income |
(306) |
(310) |
(759) |
(1,112) |
||||||||||
Provision (benefit) for income taxes |
9,301 |
5,465 |
22,401 |
(61,499) |
||||||||||
Depreciation |
22,375 |
22,868 |
68,369 |
73,297 |
||||||||||
Amortization of intangibles |
4,245 |
4,429 |
12,665 |
16,315 |
||||||||||
E(L)BITDA |
$ |
81,836 |
$ |
55,565 |
$ |
148,646 |
$ |
(111,558) |
||||||
Margin |
15.5 |
% |
11.2 |
% |
10.0 |
% |
(7.1) |
% |
||||||
Adjustments: |
||||||||||||||
Restructuring and related charges |
9,623 |
13,998 |
53,064 |
37,970 |
||||||||||
Goodwill and other intangible asset impairment charges |
— |
— |
— |
108,456 |
||||||||||
Operations of divested businesses |
— |
— |
— |
1,912 |
||||||||||
Loss on divestiture and related charges |
— |
(2,557) |
— |
130,750 |
||||||||||
Adjusted EBITDA |
$ |
91,459 |
$ |
67,006 |
$ |
201,710 |
$ |
167,530 |
||||||
Adjusted margin |
17.3 |
% |
13.5 |
% |
13.5 |
% |
11.2 |
% |
To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/kennametal-announces-fiscal-2017-third-quarter-results-300445479.html
SOURCE
Investor Relations CONTACT: Kelly Boyer, PHONE: 412-248-8287, Corporate Relations - Media CONTACT: Christina Sutter, PHONE: 724-539-5708