« Back
Kennametal Announces Fiscal 2019 Second Quarter Results
"In the second quarter of fiscal 2019 we delivered strong earnings per share results, margin improvement year-over-year and the eighth consecutive quarter of sales growth," said President and Chief Executive Officer,
Fiscal 2019 Second Quarter Key Developments
Sales were
In connection with the Company's simplification/modernization initiative, pre-tax restructuring and related charges were
Operating income was
The reported effective tax rate (ETR) for the quarter was 24.8 percent and the adjusted ETR was 21.3 percent, compared to reported ETR of 29.3 percent and adjusted ETR of 28.4 percent in the prior year quarter. The change in the adjusted ETR is primarily due to U.S. tax reform.
Reported EPS in the current quarter includes a non-recurring benefit related to U.S. tax reform of
Net cash flow provided by operating activities was
Outlook
The Company reaffirms its previous outlook for fiscal year 2019:
- Adjusted EPS of
$2.90 to $3.20 on organic sales growth of 5 to 8 percent - Adjusted ETR in the range of 22 to 25 percent
- Capital spending of
$240 to $260 million - FOCF of
$120 to $140 million
Segment Results
Industrial sales of
Widia sales of
Infrastructure sales of
Dividend Declared
The Company will discuss its fiscal 2019 second 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
With over 80 years as an industrial technology leader,
FINANCIAL HIGHLIGHTS |
||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) |
||||||||||||||
Three Months Ended |
Six Months Ended |
|||||||||||||
(in thousands, except per share amounts) |
2018 |
2017 |
2018 |
2017 |
||||||||||
Sales |
$ |
587,394 |
$ |
571,345 |
$ |
1,174,080 |
$ |
1,113,799 |
||||||
Cost of goods sold |
388,796 |
381,844 |
764,389 |
742,348 |
||||||||||
Gross profit |
198,598 |
189,501 |
409,691 |
371,451 |
||||||||||
Operating expense |
114,635 |
122,138 |
237,920 |
242,731 |
||||||||||
Restructuring and asset impairment charges |
1,545 |
45 |
2,620 |
5,570 |
||||||||||
Amortization of intangibles |
3,560 |
3,677 |
7,141 |
7,338 |
||||||||||
Operating income |
78,858 |
63,641 |
162,010 |
115,812 |
||||||||||
Interest expense |
8,104 |
7,231 |
16,201 |
14,379 |
||||||||||
Other income, net (1) |
(4,022) |
(3,220) |
(6,782) |
(7,437) |
||||||||||
Income before income taxes |
74,776 |
59,630 |
152,591 |
108,870 |
||||||||||
Provision for income taxes |
18,529 |
17,472 |
37,921 |
27,074 |
||||||||||
Net income |
56,247 |
42,158 |
114,670 |
81,796 |
||||||||||
Less: Net income attributable to noncontrolling interests |
1,549 |
557 |
3,274 |
1,011 |
||||||||||
Net income attributable to Kennametal |
$ |
54,698 |
$ |
41,601 |
$ |
111,396 |
$ |
80,785 |
||||||
PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL SHAREHOLDERS |
||||||||||||||
Basic earnings per share |
$ |
0.66 |
$ |
0.51 |
$ |
1.35 |
$ |
0.99 |
||||||
Diluted earnings per share |
$ |
0.66 |
$ |
0.50 |
$ |
1.34 |
$ |
0.98 |
||||||
Dividends per share |
$ |
0.20 |
$ |
0.20 |
$ |
0.40 |
$ |
0.40 |
||||||
Basic weighted average shares outstanding |
82,331 |
81,477 |
82,218 |
81,274 |
||||||||||
Diluted weighted average shares outstanding |
83,310 |
82,778 |
83,233 |
82,446 |
||||||||||
(1) Includes income of $3.6 million and $4.5 million for the three months ended December 31, 2018 and 2017, respectively, and $7.1 million and $8.8 million for the six months ended December 31, 2018 and 2017, respectively, from the 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 this standard. |
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) |
||||||||||||||
(in thousands) |
December 31, 2018 |
June 30, 2018 |
||||||||||||
ASSETS |
||||||||||||||
Cash and cash equivalents |
$ |
96,276 |
$ |
556,153 |
||||||||||
Accounts receivable, net |
380,683 |
401,290 |
||||||||||||
Inventories |
578,566 |
525,466 |
||||||||||||
Other current assets |
63,509 |
63,257 |
||||||||||||
Total current assets |
1,119,034 |
1,546,166 |
||||||||||||
Property, plant and equipment, net |
855,103 |
824,213 |
||||||||||||
Goodwill and other intangible assets, net |
468,489 |
478,270 |
||||||||||||
Other assets |
88,482 |
77,088 |
||||||||||||
Total assets |
$ |
2,531,108 |
$ |
2,925,737 |
||||||||||
LIABILITIES |
||||||||||||||
Current maturities of long-term debt, including notes payable |
$ |
3,371 |
$ |
400,200 |
||||||||||
Accounts payable |
198,350 |
221,903 |
||||||||||||
Other current liabilities |
210,332 |
264,428 |
||||||||||||
Total current liabilities |
412,053 |
886,531 |
||||||||||||
Long-term debt |
591,688 |
591,505 |
||||||||||||
Other liabilities |
219,083 |
217,374 |
||||||||||||
Total liabilities |
1,222,824 |
1,695,410 |
||||||||||||
KENNAMETAL SHAREHOLDERS' EQUITY |
1,269,740 |
1,194,325 |
||||||||||||
NONCONTROLLING INTERESTS |
38,544 |
36,002 |
||||||||||||
Total liabilities and equity |
$ |
2,531,108 |
$ |
2,925,737 |
||||||||||
SEGMENT DATA (UNAUDITED) |
Three Months Ended |
Six Months Ended |
||||||||||||
(in thousands) |
2018 |
2017 |
2018 |
2017 |
||||||||||
Outside Sales: |
||||||||||||||
Industrial |
$ |
317,320 |
$ |
312,448 |
$ |
637,878 |
$ |
609,912 |
||||||
Widia |
48,954 |
47,744 |
97,626 |
92,987 |
||||||||||
Infrastructure |
221,120 |
211,153 |
438,576 |
410,900 |
||||||||||
Total sales |
$ |
587,394 |
$ |
571,345 |
$ |
1,174,080 |
$ |
1,113,799 |
||||||
Sales By Geographic Region: |
||||||||||||||
Americas |
$ |
295,626 |
$ |
275,488 |
$ |
584,755 |
$ |
537,877 |
||||||
EMEA |
174,608 |
174,611 |
346,115 |
341,165 |
||||||||||
Asia Pacific |
117,160 |
121,246 |
243,210 |
234,757 |
||||||||||
Total sales |
$ |
587,394 |
$ |
571,345 |
$ |
1,174,080 |
$ |
1,113,799 |
||||||
Operating Income (2): |
||||||||||||||
Industrial |
$ |
57,519 |
$ |
40,504 |
$ |
116,061 |
$ |
72,543 |
||||||
Widia |
1,728 |
474 |
3,822 |
154 |
||||||||||
Infrastructure |
20,614 |
23,833 |
44,474 |
44,223 |
||||||||||
Corporate (3) |
(1,003) |
(1,170) |
(2,347) |
(1,108) |
||||||||||
Total operating income |
$ |
78,858 |
$ |
63,641 |
$ |
162,010 |
$ |
115,812 |
||||||
(2) Amounts for the three and six months ended December 31, 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 for the three months ended December 31, 2017: Industrial lower $2.8 million; Widia lower $0.4 million, Infrastructure lower $1.7 million and Corporate lower expense of $0.3 million. For the six months ended December 31, 2017: Industrial lower $5.6 million; Widia lower $0.8 million, Infrastructure lower $3.4 million and Corporate lower expense of $0.8 million. |
||||||||||||||
(3) Represents unallocated corporate expenses |
NON-GAAP RECONCILIATIONS (UNAUDITED)
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 the 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 DECEMBER 31, 2018 (UNAUDITED) |
||||||||||||||
(in thousands, except percents and per share data) |
Sales |
Operating income |
ETR |
Net |
Diluted EPS |
|||||||||
Reported results |
$ |
587,394 |
$ |
78,858 |
24.8 |
% |
$ |
54,698 |
$ |
0.66 |
||||
Reported margins |
13.4 |
% |
||||||||||||
Restructuring and related charges |
— |
2,071 |
— |
1,621 |
0.02 |
|||||||||
Non-recurring effect of tax reform (5) |
— |
— |
4.6 |
(3,452) |
(0.04) |
|||||||||
Tax charge from change in permanent |
— |
— |
(8.1) |
6,093 |
0.07 |
|||||||||
Adjusted results |
$ |
587,394 |
$ |
80,929 |
21.3 |
% |
$ |
58,960 |
$ |
0.71 |
||||
Adjusted margins |
13.8 |
% |
||||||||||||
(4) Attributable to Kennametal |
||||||||||||||
(5) Primarily the additional net benefit of $4 million recorded to reflect finalization of the amounts recorded for the application of a measure of the Tax Cuts and Jobs Act of 2017 (TCJA) requiring a one-time transition tax on previously untaxed accumulated earnings and profits of non-U.S. companies (toll tax). The final toll tax charge, incorporating IRS guidance through December 31, 2018, is $78 million after available foreign tax credits. |
||||||||||||||
(6) As a result of TCJA, the Company reevaluated its permanent reinvestment assertion in certain jurisdictions, concluding that the unremitted earnings and profits of certain of our non-U.S. subsidiaries and affiliates will no longer be permanently reinvested. This change in assertion required the recognition of a tax charge of $6 million primarily for foreign withholding and state income taxes. |
THREE MONTHS ENDED DECEMBER 31, 2018 (UNAUDITED) |
||||||||||||||||||
Industrial |
Widia |
Infrastructure |
||||||||||||||||
(in thousands, except percents) |
Sales |
Operating |
Sales |
Operating |
Sales |
Operating |
||||||||||||
Reported results |
$ |
317,320 |
$ |
57,519 |
$ |
48,954 |
$ |
1,728 |
$ |
221,120 |
$ |
20,614 |
||||||
Reported operating margin |
18.1 |
% |
3.5 |
% |
9.3 |
% |
||||||||||||
Restructuring and related |
— |
1,480 |
— |
76 |
— |
514 |
||||||||||||
Adjusted results |
$ |
317,320 |
$ |
58,999 |
$ |
48,954 |
$ |
1,804 |
$ |
221,120 |
$ |
21,128 |
||||||
Adjusted operating margin |
18.6 |
% |
3.7 |
% |
9.6 |
% |
||||||||||||
THREE MONTHS ENDED DECEMBER 31, 2017 (UNAUDITED) |
||||||||||||||||||
(in thousands, except percents and |
Sales |
Operating |
ETR |
Net |
Diluted |
|||||||||||||
Reported results |
$ |
571,345 |
$ |
63,641 |
29.3 |
% |
$ |
41,601 |
$ |
0.50 |
||||||||
Reported margins |
11.1 |
% |
||||||||||||||||
Restructuring and related charges |
— |
1,489 |
1.5 |
192 |
— |
|||||||||||||
Impact of out-of-period adjustment to |
— |
— |
(8.9) |
5,297 |
0.07 |
|||||||||||||
Non-recurring effect of tax reform (8) |
— |
— |
6.5 |
(3,886) |
(0.05) |
|||||||||||||
Adjusted results |
$ |
571,345 |
$ |
65,130 |
28.4 |
% |
$ |
43,204 |
$ |
0.52 |
||||||||
Adjusted margins |
11.4 |
% |
||||||||||||||||
(7) Non-cash charge associated with the out-of-period impact of recording an adjustment to deferred tax charges associated with intra-entity product transfers. |
||||||||||||||||||
(8) During the three months ended December 31, 2017, the Company estimated the toll tax to be $77 million after available foreign tax credits. The toll tax charge was expected to consume the Company's entire U.S. federal net operating loss carryforward and other credit carryforwards, which represent a significant portion of previously available deferred tax assets, and was offset by the release of the valuation allowance associated with these assets. The toll tax charge was preliminary, and subject to finalization of the Company's 2018 U.S. federal income tax return and applying any additional regulatory guidance issued after December 31, 2017. |
||||||||||||||||||
Industrial |
Widia |
Infrastructure |
||||||||||||||||
(in thousands, except percents) |
Sales |
Operating |
Sales |
Operating |
Sales |
Operating |
||||||||||||
Reported results |
$ |
312,448 |
$ |
40,504 |
$ |
47,744 |
$ |
474 |
$ |
211,153 |
$ |
23,833 |
||||||
Reported operating margin |
13.0 |
% |
1.0 |
% |
11.3 |
% |
||||||||||||
Restructuring and related |
— |
116 |
— |
199 |
— |
1,174 |
||||||||||||
Adjusted results |
$ |
312,448 |
$ |
40,620 |
$ |
47,744 |
$ |
673 |
$ |
211,153 |
$ |
25,007 |
||||||
Adjusted operating margin |
13.0 |
% |
1.4 |
% |
11.8 |
% |
Free Operating Cash Flow (FOCF)
FOCF is a non-GAAP financial measure and is defined by the Company as net cash flow provided by operating activities (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) |
Six Months Ended |
|||||||
(in thousands) |
2018 |
2017 |
||||||
Net cash flow provided by operating activities (9) |
$ |
61,501 |
$ |
41,074 |
||||
Purchases of property, plant and equipment (9) |
(88,076) |
(59,523) |
||||||
Disposals of property, plant and equipment |
2,490 |
846 |
||||||
Free operating cash flow |
$ |
(24,085) |
$ |
(17,603) |
||||
(9) The Company revised its statement of cash flow for the six months ended December 31, 2017, resulting in a decrease of $26 million to previously reported net cash flow provided by operating activities and a corresponding decrease to previously reported net cash flow used for investing activities. 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 December 31, 2018 |
Industrial |
Widia |
Infrastructure |
Total |
||||
Organic sales growth |
3% |
4% |
4% |
4% |
||||
Foreign currency exchange impact (10) |
(4) |
(4) |
(1) |
(3) |
||||
Business days impact (11) |
3 |
3 |
2 |
2 |
||||
Sales growth |
2% |
3% |
5% |
3% |
||||
(10) 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. |
||||||||
(11) Business days impact is calculated by dividing the year-over-year change in weighted average working days (based on mix of sales by country) by prior period weighted average working days. |
View original content:http://www.prnewswire.com/news-releases/kennametal-announces-fiscal-2019-second-quarter-results-300789044.html
SOURCE
Investor Relations, CONTACT: Kelly Boyer, PHONE: 412-248-8287 or Media Relations, CONTACT: Lori Lecker, PHONE: 412-248-8224