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Kennametal Announces Strong Fiscal 2019 First Quarter Results
"We delivered strong first quarter results. The continued progress on our strategic initiatives of growth and simplification/modernization, coupled with the ongoing strength of our end markets delivered significant year-over-year improvement in almost all facets of our business," said President and Chief Executive Officer,
"In addition to capitalizing on healthy market conditions, we focused on strategically investing in our simplification/modernization initiative where we can improve our customer service and increase productivity. The team is balancing strong demand while executing our operational improvement strategy. Despite headwinds associated with the strengthening U.S. dollar, we are confident that we are on track to deliver our fiscal 2019 adjusted EPS outlook," said Rossi.
Fiscal 2019 First Quarter Key Developments
Sales were
In association with the Company's simplification/modernization initiative, pre-tax restructuring and related charges were
Operating income was
The reported effective tax rate (ETR) was 24.9 percent and the adjusted ETR was 23.6 percent. For the prior year quarter, the reported ETR was 19.5 percent and the adjusted ETR was 18.0 percent. The change in the adjusted ETR compared to the prior year period is primarily due to the effects of not having a valuation allowance recorded on U.S. deferred tax assets in the current period and the reduction in the U.S. federal statutory tax rate, partially offset by the tax on global intangible low-taxed income.
Net cash flow from operating activities was
As previously announced, the Company completed early redemption in
Outlook
The Company reaffirms its previous outlook for fiscal year 2019, despite anticipated incremental currency headwinds. The Company expects fiscal 2019 adjusted EPS of
Segment Results
Industrial segment sales of
Widia sales of
Infrastructure sales of
Dividend Declared
The Company will discuss its fiscal 2019 first quarter results in a live webcast at
This earnings release contains non-GAAP financial measures. Reconciliations and descriptions of all non-GAAP financial measures are set forth in the tables that follow.
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
About
Celebrating its 80th year as an industrial technology leader,
FINANCIAL HIGHLIGHTS |
|||||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) |
|||||||
Three Months Ended |
|||||||
(in thousands, except per share amounts) |
2018 |
2017 |
|||||
Sales |
$ |
586,687 |
$ |
542,454 |
|||
Cost of goods sold |
375,595 |
360,505 |
|||||
Gross profit |
211,092 |
181,949 |
|||||
Operating expense |
123,285 |
120,592 |
|||||
Restructuring and asset impairment charges |
1,075 |
5,525 |
|||||
Amortization of intangibles |
3,580 |
3,661 |
|||||
Operating income |
83,152 |
52,171 |
|||||
Interest expense |
8,097 |
7,149 |
|||||
Other income, net (1) |
(2,761) |
(4,218) |
|||||
Income before income taxes |
77,816 |
49,240 |
|||||
Provision for income taxes |
19,392 |
9,602 |
|||||
Net income |
58,424 |
39,638 |
|||||
Less: Net income attributable to noncontrolling interests |
1,725 |
455 |
|||||
Net income attributable to Kennametal |
$ |
56,699 |
$ |
39,183 |
|||
PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL SHAREHOLDERS |
|||||||
Basic earnings per share |
$ |
0.69 |
$ |
0.48 |
|||
Diluted earnings per share |
$ |
0.68 |
$ |
0.48 |
|||
Dividends per share |
$ |
0.20 |
$ |
0.20 |
|||
Basic weighted average shares outstanding |
82,105 |
81,071 |
|||||
Diluted weighted average shares outstanding |
83,194 |
82,123 |
|||||
(1) Includes income of $3.6 million and $4.3 million for the three months ended September 30, 2018 and 2017, respectively, of combined effects of net periodic pension income and postretirement benefit cost (other than the service cost component) as a result of the adoption of ASU No. 2017-07, "Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost" on July 1, 2018. The prior period was restated to reflect the retrospective adoption of the standard. |
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) |
|||||||
(in thousands) |
September 30, 2018 |
June 30, 2018 |
|||||
ASSETS |
|||||||
Cash and cash equivalents |
$ |
102,084 |
$ |
556,153 |
|||
Accounts receivable, net |
386,685 |
401,290 |
|||||
Inventories |
569,252 |
525,466 |
|||||
Other current assets |
63,461 |
63,257 |
|||||
Total current assets |
1,121,482 |
1,546,166 |
|||||
Property, plant and equipment, net |
834,351 |
824,213 |
|||||
Goodwill and other intangible assets, net |
473,321 |
478,270 |
|||||
Other assets |
83,050 |
77,088 |
|||||
Total assets |
$ |
2,512,204 |
$ |
2,925,737 |
|||
LIABILITIES |
|||||||
Current maturities of long-term debt and capital leases, including |
$ |
756 |
$ |
400,200 |
|||
Accounts payable |
220,887 |
221,903 |
|||||
Other current liabilities |
217,528 |
264,428 |
|||||
Total current liabilities |
439,171 |
886,531 |
|||||
Long-term debt and capital leases |
591,303 |
591,505 |
|||||
Other liabilities |
217,621 |
217,374 |
|||||
Total liabilities |
1,248,095 |
1,695,410 |
|||||
KENNAMETAL SHAREHOLDERS' EQUITY |
1,227,614 |
1,194,325 |
|||||
NONCONTROLLING INTERESTS |
36,495 |
36,002 |
|||||
Total liabilities and equity |
$ |
2,512,204 |
$ |
2,925,737 |
|||
SEGMENT DATA (UNAUDITED) |
Three Months Ended |
||||||
(in thousands) |
2018 |
2017 |
|||||
Outside Sales: |
|||||||
Industrial |
$ |
320,559 |
$ |
297,464 |
|||
Widia |
48,672 |
45,243 |
|||||
Infrastructure |
217,456 |
199,747 |
|||||
Total sales |
$ |
586,687 |
$ |
542,454 |
|||
Sales By Geographic Region: |
|||||||
Americas |
$ |
289,129 |
$ |
262,390 |
|||
EMEA |
171,508 |
166,553 |
|||||
Asia Pacific |
126,050 |
113,511 |
|||||
Total sales |
$ |
586,687 |
$ |
542,454 |
|||
Operating Income (Loss) (2): |
|||||||
Industrial |
$ |
58,542 |
$ |
32,039 |
|||
Widia |
2,093 |
(320) |
|||||
Infrastructure |
23,860 |
20,390 |
|||||
Corporate (3) |
(1,343) |
62 |
|||||
Total operating income |
$ |
83,152 |
$ |
52,171 |
|||
(2) Amounts for the three months ended September 30, 2017 were restated to reflect retrospective application for adoption of ASU No. 2017-07, "Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost" on July 1, 2018. Operating income was affected by the restatement of the prior year period in the following manner: Industrial lower $2.8 million; Widia lower $0.4 million, Infrastructure lower $1.7 million and Corporate lower expense of $0.6 million. |
|||||||
(3) Represents unallocated corporate expenses |
In addition to reported results under generally accepted accounting principles in
Management believes that presentation of these non-GAAP financial measures provides useful information about the results of operations of the Company for the current and past periods. 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 financial measures should not be considered in isolation or as a substitute for the most comparable GAAP financial measures. Investors are cautioned that non-GAAP financial measures used by management may not be comparable to non-GAAP financial measures used by other companies. Reconciliations and descriptions of all non-GAAP financial measures are set forth in the disclosures below.
Reconciliations to the most directly comparable GAAP financial measures for the following forward-looking non-GAAP financial measures for full fiscal year of 2019 have not been provided, including but not limited to: adjusted EPS, adjusted ETR, organic sales growth and FOCF. The most comparable GAAP financial measures are earnings per share, ETR, sales growth and net cash flow from operating activities, respectively. Because the non-GAAP financial measures on a forward-looking basis are subject to uncertainty and variability as they are dependent on many factors - including, but not limited to, the effect of foreign currency exchange fluctuations, impacts from potential acquisitions or divestitures, gains or losses on the potential sale of businesses or other assets, restructuring costs, asset impairment charges, gains or losses from early extinguishment of debt, the tax impact of the items above and the impact of tax law changes or other tax matters - reconciliations to the most directly comparable forward-looking GAAP financial measures are not available without unreasonable effort.
THREE MONTHS ENDED SEPTEMBER 30, 2018 (UNAUDITED) |
|||||||||||||||||||
(in thousands, except percents and |
Sales |
Operating |
ETR |
Net |
Diluted EPS |
||||||||||||||
Reported results |
$ |
586,687 |
$ |
83,152 |
24.9 |
% |
$ |
56,699 |
$ |
0.68 |
|||||||||
Reported margins |
14.2 |
% |
|||||||||||||||||
Restructuring and related charges |
— |
1,062 |
— |
758 |
0.01 |
||||||||||||||
Effect of tax reform (5) |
— |
— |
(1.3) |
1,011 |
0.01 |
||||||||||||||
Adjusted results |
$ |
586,687 |
$ |
84,214 |
23.6 |
% |
$ |
58,468 |
$ |
0.70 |
|||||||||
Adjusted margins |
14.4 |
% |
|||||||||||||||||
(4) Attributable to Kennametal |
|||||||||||||||||||
(5) Additional charge recorded to reflect adjustments to the provisional amounts recorded in fiscal 2018 for the application of a measure of the |
|||||||||||||||||||
Industrial |
Widia |
Infrastructure |
|||||||||||||||||
(in thousands, except percents) |
Sales |
Operating |
Sales |
Operating |
Sales |
Operating |
|||||||||||||
Reported results |
$ |
320,559 |
$ |
58,542 |
$ |
48,672 |
$ |
2,093 |
$ |
217,456 |
$ |
23,860 |
|||||||
Reported operating margin |
18.3 |
% |
4.3 |
% |
11.0 |
% |
|||||||||||||
Restructuring and related |
— |
185 |
— |
40 |
— |
837 |
|||||||||||||
Adjusted results |
$ |
320,559 |
$ |
58,727 |
$ |
48,672 |
$ |
2,133 |
$ |
217,456 |
$ |
24,697 |
|||||||
Adjusted operating margin |
18.3 |
% |
4.4 |
% |
11.4 |
% |
|||||||||||||
THREE MONTHS ENDED SEPTEMBER 30, 2017 (UNAUDITED) |
|||||||||||||||||||
(in thousands, except percents and |
Sales |
Operating |
ETR |
Net |
Diluted |
||||||||||||||
Reported results |
$ |
542,454 |
$ |
52,171 |
19.5 |
% |
$ |
39,183 |
$ |
0.48 |
|||||||||
Reported margins |
9.6 |
% |
|||||||||||||||||
Restructuring and related charges |
— |
6,876 |
(1.5) |
6,378 |
0.07 |
||||||||||||||
Adjusted results |
$ |
542,454 |
$ |
59,047 |
18.0 |
% |
$ |
45,561 |
$ |
0.55 |
|||||||||
Adjusted margins |
10.9 |
% |
|||||||||||||||||
Industrial |
Widia |
Infrastructure |
|||||||||||||||||
(in thousands, except percents) |
Sales |
Operating |
Sales |
Operating |
Sales |
Operating |
|||||||||||||
Reported results |
$ |
297,464 |
$ |
32,039 |
$ |
45,243 |
$ |
(320) |
$ |
199,747 |
$ |
20,390 |
|||||||
Reported operating margin |
10.8 |
% |
(0.7) |
% |
10.2 |
% |
|||||||||||||
Restructuring and related |
— |
4,023 |
— |
797 |
— |
2,056 |
|||||||||||||
Adjusted results |
$ |
297,464 |
$ |
36,062 |
$ |
45,243 |
$ |
477 |
$ |
199,747 |
$ |
22,446 |
|||||||
Adjusted operating margin |
12.1 |
% |
1.1 |
% |
11.2 |
% |
Free Operating Cash Flow (FOCF)
FOCF is a non-GAAP financial measure and is defined by the Company as cash provided by operations (which is the most directly comparable GAAP financial measure) less capital expenditures plus proceeds from disposals of fixed assets. Management considers FOCF to be an important indicator of the Company's cash generating capability because it better represents cash generated from operations that can be used for dividends, debt repayment, strategic initiatives (such as acquisitions) and other investing and financing activities.
FREE OPERATING CASH FLOW (UNAUDITED) |
Three Months Ended |
|||||||
(in thousands) |
2018 |
2017 |
||||||
Net cash flow from (used for) operating activities (6) |
$ |
9,201 |
$ |
(39,674) |
||||
Purchases of property, plant and equipment (6) |
(43,263) |
(22,306) |
||||||
Proceeds from disposals of property, plant and equipment |
833 |
426 |
||||||
Free operating cash flow |
$ |
(33,229) |
$ |
(61,554) |
||||
(6) During the current quarter, the Company revised its statement of cash flow for the three months ended September 30, 2017, resulting in an increase of $20 million to net cash flow used for operating cash flows and a corresponding decrease in investing cash flows. The Company has concluded that the impact of the revision was not material to the previously issued interim financial statements. The revision had no impact on the previously issued annual financial statements nor FOCF in any period. |
Organic Sales Growth
Organic sales growth is a non-GAAP financial measure of sales growth (which is the most directly comparable GAAP measure) excluding the impacts of acquisitions, divestitures, business days and foreign currency exchange from year-over-year comparisons. Management believes this measure provides investors with a supplemental understanding of underlying sales trends by providing sales growth on a consistent basis. Management reports organic sales growth at the consolidated and segment levels.
ORGANIC SALES GROWTH (UNAUDITED) |
||||||||
Three Months Ended September 30, 2018 |
Industrial |
Widia |
Infrastructure |
Total |
||||
Organic sales growth |
10% |
11% |
10% |
10% |
||||
Foreign currency exchange impact (7) |
(2) |
(3) |
(1) |
(2) |
||||
Sales growth |
8% |
8% |
9% |
8% |
||||
(7) Foreign currency exchange impact is calculated by dividing the difference between current period sales at prior period foreign exchange rates and prior period sales by prior period sales. |
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SOURCE
Investor Relations CONTACT: Kelly Boyer, PHONE: 412-248-8287; Media Relations CONTACT: Lori Lecker, PHONE: 412-248-8224