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Kennametal Announces Fiscal 2020 Third Quarter Results
"Despite the many headwinds we faced in the third quarter, we delivered solid results that were strengthened by our early cost-control actions and the continued benefits of our simplification/modernization investments," said President and CEO
Rossi continued, "As we look ahead, we expect COVID-19 will be a significant operational and market headwind. Early in this crisis we deployed global safety protocols and processes to keep our employees safe while continuing to serve critical industries. At the same time, however, COVID-19 is creating extensive uncertainty and limited visibility into our end markets, prompting us to withdraw our outlook for fiscal year 2020. We are approaching this challenging time determined to stay focused on the things we can control: keeping our employees safe, serving our customers, delivering savings from simplification/modernization and continuing to execute our strategy so that we are well-positioned for the eventual market recovery."
COVID-19
Excluding
In addition to the previously announced restructuring actions, the Company is taking other aggressive cost-control measures to offset the market headwinds. These measures include, among other things, reductions in all discretionary spending, furloughs, extensive travel restrictions, and reduced production at global manufacturing facilities to align with the current lower demand environment.
Fiscal 2020 Third Quarter Key Developments
Sales of
Reported EPS in the current quarter includes restructuring and related charges of
Operating income was
Q3 Restructuring Update
- In connection with the Company's simplification/modernization initiative, total incremental benefits were approximately
$15 million in the quarter, which includes incremental restructuring savings of approximately$5 million . - The Company achieved annualized total savings inception to date from simplification/modernization of
$87 million . Pre-tax restructuring and related charges for the FY20 and FY21 Restructuring Actions(1) in the quarter were$6 million , or$0.06 per share. - Based on the reduction of production levels in the current environment, FY20 Restructuring Actions are now expected to result in annualized savings of $30 to $35 million. Pre-tax charges are now expected to be $55 to $60 million. The Company previously expected savings of
$35 to$40 million and pre-tax charges of$55 to$65 million . - As previously announced, the Company also expects to deliver the FY21 Restructuring Actions with estimated annualized savings of $25 to $30 million and estimated pre-tax charges of approximately $55 to $65 million.
The Company recorded non-cash pre-tax Widia goodwill and other intangible asset impairment charges of
The reported effective tax rate (ETR) for the quarter was 93.1 percent and the adjusted ETR was 28.5 percent, compared to reported ETR of 11.0 percent and adjusted ETR of 19.8 percent in the prior year quarter. The year-over-year change in the reported ETR is due primarily to the effects of current year restructuring and the Widia goodwill and other intangible asset impairment charges. The increase in the adjusted ETR is due primarily to the effects of global intangible low-taxed income (GILTI) and base erosion and anti-abuse tax (BEAT), which are both provisions of the
Year-to-date net cash flow provided by operating activities was
As a result of the financial market uncertainty resulting from COVID-19 and in keeping with our cautious approach in this environment, subsequent to the quarter-end, the Company preemptively drew
Outlook and Fourth Quarter Assumptions
Looking ahead, due to the increased uncertainty in the global economy and
Segment Results
Industrial sales of
Widia sales of
Infrastructure sales of
Dividend Declared
The Company will host its third quarter fiscal 2020 results on
(1) Previously announced restructuring actions associated with the ongoing simplification/modernization program. These restructurings and proposed facility closures in fiscal 2020 (FY20 Restructuring Actions) are currently estimated to deliver annualized savings of |
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 |
Nine Months Ended |
|||||||||||||
(in thousands, except per share amounts) |
2020 |
2019 |
2020 |
2019 |
||||||||||
Sales |
$ |
483,084 |
$ |
597,204 |
$ |
1,506,252 |
$ |
1,771,285 |
||||||
Cost of goods sold |
326,066 |
389,118 |
1,078,236 |
1,153,509 |
||||||||||
Gross profit |
157,018 |
208,086 |
428,016 |
617,776 |
||||||||||
Operating expense |
98,534 |
120,135 |
320,273 |
358,054 |
||||||||||
Restructuring and asset impairment charges |
17,187 |
2,440 |
84,182 |
5,061 |
||||||||||
Loss on divestiture |
— |
— |
6,517 |
— |
||||||||||
Amortization of intangibles |
3,404 |
3,640 |
10,413 |
10,780 |
||||||||||
Operating income |
37,893 |
81,871 |
6,631 |
243,881 |
||||||||||
Interest expense |
7,897 |
8,104 |
23,834 |
24,305 |
||||||||||
Other income, net |
(2,438) |
(4,993) |
(9,330) |
(11,775) |
||||||||||
Income (loss) before income taxes |
32,434 |
78,760 |
(7,873) |
231,351 |
||||||||||
Provision (benefit) for income taxes |
30,193 |
8,632 |
(11,295) |
46,553 |
||||||||||
Net income |
2,241 |
70,128 |
3,422 |
184,798 |
||||||||||
Less: Net (loss) income attributable to noncontrolling interests |
(676) |
1,578 |
(23) |
4,852 |
||||||||||
Net income attributable to |
$ |
2,917 |
$ |
68,550 |
$ |
3,445 |
$ |
179,946 |
||||||
PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL SHAREHOLDERS |
||||||||||||||
Basic earnings per share |
$ |
0.04 |
$ |
0.83 |
$ |
0.04 |
$ |
2.19 |
||||||
Diluted earnings per share |
$ |
0.03 |
$ |
0.82 |
$ |
0.04 |
$ |
2.16 |
||||||
Dividends per share |
$ |
0.20 |
$ |
0.20 |
$ |
0.60 |
$ |
0.60 |
||||||
Basic weighted average shares outstanding |
83,106 |
82,479 |
83,022 |
82,305 |
||||||||||
Diluted weighted average shares outstanding |
83,696 |
83,339 |
83,589 |
83,266 |
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) |
|||||||
(in thousands) |
|
2019 |
|||||
ASSETS |
|||||||
Cash and cash equivalents |
$ |
85,230 |
$ |
182,015 |
|||
Accounts receivable, net |
304,162 |
379,855 |
|||||
Inventories |
516,781 |
571,576 |
|||||
Other current assets |
60,550 |
57,381 |
|||||
Total current assets |
966,723 |
1,190,827 |
|||||
Property, plant and equipment, net |
1,015,359 |
934,895 |
|||||
|
404,345 |
461,009 |
|||||
Other assets |
151,673 |
69,538 |
|||||
Total assets |
$ |
2,538,100 |
$ |
2,656,269 |
|||
LIABILITIES |
|||||||
Current maturities of long-term debt, including notes payable |
$ |
4,500 |
$ |
157 |
|||
Accounts payable |
165,062 |
212,908 |
|||||
Other current liabilities |
213,569 |
248,661 |
|||||
Total current liabilities |
383,131 |
461,726 |
|||||
Long-term debt |
593,607 |
592,474 |
|||||
Other liabilities |
262,539 |
227,365 |
|||||
Total liabilities |
1,239,277 |
1,281,565 |
|||||
KENNAMETAL SHAREHOLDERS' EQUITY |
1,260,623 |
1,335,172 |
|||||
NONCONTROLLING INTERESTS |
38,200 |
39,532 |
|||||
Total liabilities and equity |
$ |
2,538,100 |
$ |
2,656,269 |
SEGMENT DATA (UNAUDITED) |
Three Months Ended |
Nine Months Ended |
||||||||||||
(in thousands) |
2020 |
2019 |
2020 |
2019 |
||||||||||
Outside Sales: |
||||||||||||||
Industrial |
$ |
260,738 |
$ |
318,636 |
$ |
820,008 |
$ |
956,515 |
||||||
Widia |
42,721 |
50,966 |
131,115 |
148,592 |
||||||||||
Infrastructure |
179,625 |
227,602 |
555,129 |
666,178 |
||||||||||
Total sales |
$ |
483,084 |
$ |
597,204 |
$ |
1,506,252 |
$ |
1,771,285 |
||||||
|
||||||||||||||
|
$ |
242,404 |
$ |
302,919 |
$ |
746,936 |
$ |
887,675 |
||||||
EMEA |
146,847 |
181,390 |
450,760 |
527,505 |
||||||||||
|
93,833 |
112,895 |
308,556 |
356,105 |
||||||||||
Total sales |
$ |
483,084 |
$ |
597,204 |
$ |
1,506,252 |
$ |
1,771,285 |
||||||
Operating Income (Loss): |
||||||||||||||
Industrial |
$ |
30,147 |
$ |
57,218 |
$ |
32,159 |
$ |
173,279 |
||||||
Widia |
(13,528) |
(4) |
(31,410) |
3,817 |
||||||||||
Infrastructure |
21,941 |
24,934 |
7,679 |
69,407 |
||||||||||
Corporate (2) |
(667) |
(277) |
(1,797) |
(2,622) |
||||||||||
Total operating income |
$ |
37,893 |
$ |
81,871 |
$ |
6,631 |
$ |
243,881 |
(2) 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 2020 have not been provided, including but not limited to: adjusted EPS, adjusted ETR, organic sales decline and FOCF. The most comparable GAAP financial measures are (loss) earnings per share, ETR, sales decline 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 |
||||||||||||||
(in thousands, except percents and |
Sales |
Operating |
ETR |
Net |
Diluted EPS |
|||||||||
Reported results |
$ |
483,084 |
$ |
37,893 |
93.1 |
% |
$ |
2,917 |
$ |
0.03 |
||||
Reported margins |
7.8 |
% |
||||||||||||
Restructuring and related charges |
— |
5,573 |
12.8 |
4,858 |
0.06 |
|||||||||
|
— |
15,599 |
3.1 |
14,261 |
0.17 |
|||||||||
Differences in projected annual tax |
— |
— |
(80.5) |
16,106 |
0.20 |
|||||||||
Adjusted results |
$ |
483,084 |
$ |
59,065 |
28.5 |
% |
$ |
38,142 |
$ |
0.46 |
||||
Adjusted margins |
12.2 |
% |
||||||||||||
(3) Attributable to |
||||||||||||||
(4) Represents a change in the method in which management calculates the tax effect on adjustments within the non-GAAP reconciliations. By |
THREE MONTHS ENDED |
||||||||||||||||||
Industrial |
Widia |
Infrastructure |
||||||||||||||||
(in thousands, except percents) |
Sales |
Operating |
Sales |
Operating |
Sales |
Operating |
||||||||||||
Reported results |
$ |
260,738 |
$ |
30,147 |
$ |
42,721 |
$ |
(13,528) |
$ |
179,625 |
$ |
21,941 |
||||||
Reported operating margin |
11.6 |
% |
(31.7) |
% |
12.2 |
% |
||||||||||||
Restructuring and related |
— |
4,112 |
— |
37 |
— |
1,423 |
||||||||||||
|
— |
— |
— |
15,599 |
— |
— |
||||||||||||
Adjusted results |
$ |
260,738 |
$ |
34,259 |
$ |
42,721 |
$ |
2,108 |
$ |
179,625 |
$ |
23,364 |
||||||
Adjusted operating margin |
13.1 |
% |
4.9 |
% |
13.0 |
% |
THREE MONTHS ENDED |
||||||||||||||
(in thousands, except percents and |
Sales |
Operating |
ETR |
Net |
Diluted |
|||||||||
Reported results |
$ |
597,204 |
$ |
81,871 |
11.0 |
% |
$ |
68,550 |
$ |
0.82 |
||||
Reported margins |
13.7 |
% |
||||||||||||
Restructuring and related charges |
— |
3,433 |
0.1 |
2,614 |
0.03 |
|||||||||
Non-recurring effect of tax reform(6) |
— |
— |
8.7 |
(6,840) |
(0.08) |
|||||||||
Adjusted results |
$ |
597,204 |
$ |
85,304 |
19.8 |
% |
$ |
64,324 |
$ |
0.77 |
||||
Adjusted margins |
14.3 |
% |
||||||||||||
(5) Attributable to |
||||||||||||||
(6) Additional benefit recorded to reflect the effect of regulations and other relevant guidance issued through |
Industrial |
Widia |
Infrastructure |
||||||||||||||||
(in thousands, except percents) |
Sales |
Operating |
Sales |
Operating |
Sales |
Operating |
||||||||||||
Reported results |
$ |
318,636 |
$ |
57,218 |
$ |
50,966 |
$ |
(4) |
$ |
227,602 |
$ |
24,934 |
||||||
Reported operating margin |
18.0 |
% |
— |
% |
11.0 |
% |
||||||||||||
Restructuring and related |
— |
1,003 |
— |
662 |
— |
1,768 |
||||||||||||
Adjusted results |
$ |
318,636 |
$ |
58,221 |
$ |
50,966 |
$ |
658 |
$ |
227,602 |
$ |
26,702 |
||||||
Adjusted operating margin |
18.3 |
% |
1.3 |
% |
11.7 |
% |
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.
Nine Months Ended |
||||||||
FREE OPERATING CASH FLOW (UNAUDITED) |
||||||||
(in thousands) |
2020 |
2019 |
||||||
Net cash flow provided by operating activities |
$ |
146,059 |
$ |
157,465 |
||||
Purchases of property, plant and equipment |
(206,061) |
(145,942) |
||||||
Disposals of property, plant and equipment |
2,780 |
3,575 |
||||||
Free operating cash flow |
$ |
(57,222) |
$ |
15,098 |
Organic Sales Decline
Organic sales decline is a non-GAAP financial measure of sales decline (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 (decline) on a consistent basis. Management reports organic sales growth (decline) at the consolidated and segment levels.
ORGANIC SALES DECLINE (UNAUDITED) |
||||||||
Three Months Ended |
Industrial |
Widia |
Infrastructure |
Total |
||||
Organic sales decline |
(17)% |
(16)% |
(17)% |
(17)% |
||||
Foreign currency exchange impact (7) |
(2) |
(1) |
(1) |
(1) |
||||
Business days impact (8) |
1 |
1 |
— |
— |
||||
Divestiture impact (9) |
— |
— |
(3) |
(1) |
||||
Sales decline |
(18)% |
(16)% |
(21)% |
(19)% |
(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. |
||||||||
(8) 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. |
||||||||
(9) Divestiture impact is calculated by dividing prior period sales attributable to divested businesses by prior period sales. |
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SOURCE
Investor Relations CONTACT: Kelly Boyer, PHONE: 412-248-8287, kelly.boyer@kennametal.com; Media Relations CONTACT: Lori Lecker, PHONE: 412-248-8224, lori.lecker@kennametal.com