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Kennametal Announces Fiscal 2021 Second Quarter Results
"We experienced strong sequential sales growth in the quarter that outpaced our expectations, driven by improving demand mainly in the Transportation and General Engineering end-markets. These end-market trends coupled with the progress on our growth initiatives and continued delivery of simplification/modernization benefits led to solid margin improvement and strong free operating cash flow in the quarter," said
Rossi continued: "Our transformation is well underway, and we have permanently improved the cost-structure of the Company, as demonstrated by the higher profitability levels we are achieving now versus previous downturns. Assuming no significant economic shutdowns from COVID-19, we expect Q3 sales to modestly outpace normal seasonal trends and to have positive free operating cash flow for the full year. We remain well positioned to gain market share and deliver better profitability as end-markets continue to improve due to our actions over the last few years."
Simplification/Modernization Update
The Company has achieved annualized savings since inception to date from simplification/modernization of
RESTRUCTURING AND RELATED CHARGES AND SAVINGS (PRE-TAX) |
||||||
($ in millions) |
||||||
Charges |
Approximate Savings |
|||||
Programs |
Total |
Current |
Inception to |
Total |
Incremental |
Annualized |
FY20 Actions(1) |
|
$— |
|
|
|
|
FY21 Actions |
90 - 100 |
4 |
75 |
65 - 75 |
12 |
48 |
Total |
|
|
|
|
|
|
(1) The FY20 Actions are considered substantially complete. |
Fiscal 2021 Second Quarter Key Developments
Sales of
Operating income was
Reported EPS in the current quarter includes restructuring and related charges of
The reported effective tax rate (ETR) for the quarter was 39.0 percent (benefit on income) and the adjusted ETR was 24.7 percent (provision on income), compared to reported ETR of 87.9 percent and adjusted ETR of 29.6 percent in the prior year quarter, both provisions on income. The year-over-year change in the reported ETR is due primarily to the effects of changes in projected pretax income, geographical mix and certain events that did not repeat in the current year such as Swiss tax reform and goodwill and other intangible asset impairments. The change in the adjusted ETR year-over-year is due primarily to the effects of changes in projected pretax income and geographical mix.
Year-to-date net cash flow provided by operating activities was
Outlook and Third Quarter Assumptions
While there continue to be signs of improvement, overall global market conditions remain unpredictable and visibility into the Company's primary end-markets remains limited. Therefore, the Company will not be providing an FY21 outlook at this time, outside of capital spending, which is unchanged and expected to be between
Segment Results
Metal Cutting sales of
Infrastructure sales of
Dividend Declared
The Company will host a conference call to discuss its second quarter fiscal 2021 results on
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) |
2020 |
2019 |
2020 |
2019 |
||||||||||
Sales |
$ |
440,507 |
$ |
505,080 |
$ |
840,812 |
$ |
1,023,168 |
||||||
Cost of goods sold |
318,978 |
373,062 |
614,210 |
752,170 |
||||||||||
Gross profit |
121,529 |
132,018 |
226,602 |
270,998 |
||||||||||
Operating expense |
97,758 |
107,548 |
191,097 |
221,739 |
||||||||||
Restructuring and asset impairment charges |
1,390 |
62,329 |
26,967 |
66,995 |
||||||||||
Loss on divestiture |
— |
6,517 |
— |
6,517 |
||||||||||
Amortization of intangibles |
3,347 |
3,262 |
6,681 |
7,008 |
||||||||||
Operating income (loss) |
19,034 |
(47,638) |
1,857 |
(31,261) |
||||||||||
Interest expense |
8,317 |
8,055 |
18,896 |
15,936 |
||||||||||
Other income, net |
(3,857) |
(4,211) |
(7,875) |
(6,891) |
||||||||||
Income (loss) before income taxes |
14,574 |
(51,482) |
(9,164) |
(40,306) |
||||||||||
Benefit from income taxes |
(5,676) |
(45,253) |
(8,554) |
(41,487) |
||||||||||
Net income (loss) |
20,250 |
(6,229) |
(610) |
1,181 |
||||||||||
Less: Net income (loss) attributable to noncontrolling interests |
862 |
(290) |
1,677 |
653 |
||||||||||
Net income (loss) attributable to |
$ |
19,388 |
$ |
(5,939) |
$ |
(2,287) |
$ |
528 |
||||||
PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL SHAREHOLDERS |
||||||||||||||
Basic earnings (loss) per share |
$ |
0.23 |
$ |
(0.07) |
$ |
(0.03) |
$ |
0.01 |
||||||
Diluted earnings (loss) per share |
$ |
0.23 |
$ |
(0.07) |
$ |
(0.03) |
$ |
0.01 |
||||||
Basic weighted average shares outstanding |
83,582 |
83,075 |
83,451 |
82,979 |
||||||||||
Diluted weighted average shares outstanding |
84,197 |
83,075 |
83,451 |
83,618 |
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) |
|||||||
(in thousands) |
|
|
|||||
ASSETS |
|||||||
Cash and cash equivalents |
$ |
103,188 |
$ |
606,684 |
|||
Accounts receivable, net |
275,151 |
237,983 |
|||||
Inventories |
497,224 |
522,447 |
|||||
Other current assets |
73,123 |
73,698 |
|||||
Total current assets |
948,686 |
1,440,812 |
|||||
Property, plant and equipment, net |
1,073,474 |
1,038,271 |
|||||
|
409,108 |
403,148 |
|||||
Other assets |
183,558 |
155,360 |
|||||
Total assets |
$ |
2,614,826 |
$ |
3,037,591 |
|||
LIABILITIES |
|||||||
Revolving and other lines of credit and notes payable |
$ |
34,979 |
$ |
500,368 |
|||
Accounts payable |
134,153 |
164,641 |
|||||
Other current liabilities |
233,509 |
233,071 |
|||||
Total current liabilities |
402,641 |
898,080 |
|||||
Long-term debt |
593,757 |
594,083 |
|||||
Other liabilities |
298,739 |
276,640 |
|||||
Total liabilities |
1,295,137 |
1,768,803 |
|||||
KENNAMETAL SHAREHOLDERS' EQUITY |
1,279,154 |
1,229,885 |
|||||
NONCONTROLLING INTERESTS |
40,535 |
38,903 |
|||||
Total liabilities and equity |
$ |
2,614,826 |
$ |
3,037,591 |
SEGMENT DATA (UNAUDITED) |
Three Months Ended |
Six Months Ended |
||||||||||||
(in thousands) |
2020 |
2019 |
2020 |
2019 |
||||||||||
Outside Sales: |
||||||||||||||
Metal Cutting |
$ |
282,917 |
$ |
323,579 |
530,793 |
647,664 |
||||||||
Infrastructure |
157,590 |
181,501 |
310,019 |
375,504 |
||||||||||
Total sales |
$ |
440,507 |
$ |
505,080 |
$ |
840,812 |
$ |
1,023,168 |
||||||
|
||||||||||||||
|
$ |
194,257 |
$ |
245,243 |
373,892 |
504,532 |
||||||||
EMEA |
137,219 |
150,433 |
259,982 |
303,913 |
||||||||||
|
109,031 |
109,404 |
206,938 |
214,723 |
||||||||||
Total sales |
$ |
440,507 |
$ |
505,080 |
$ |
840,812 |
$ |
1,023,168 |
||||||
Operating income (loss): |
||||||||||||||
Metal Cutting |
$ |
13,693 |
$ |
(35,177) |
(9,933) |
(15,870) |
||||||||
Infrastructure |
6,265 |
(11,570) |
13,533 |
(14,260) |
||||||||||
Corporate (2) |
(924) |
(891) |
(1,743) |
(1,131) |
||||||||||
Total operating income (loss) |
$ |
19,034 |
$ |
(47,638) |
$ |
1,857 |
$ |
(31,261) |
||||||
(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.
THREE MONTHS ENDED |
||||||||||||||
(in thousands, except percents and |
Sales |
Operating |
ETR |
Net |
Diluted EPS |
|||||||||
Reported results |
$ |
440,507 |
$ |
19,034 |
(39.0) |
% |
$ |
19,388 |
$ |
0.23 |
||||
Reported operating margin |
4.3 |
% |
||||||||||||
Restructuring and related charges |
— |
4,233 |
17.3 |
3,501 |
0.04 |
|||||||||
Differences in projected annual tax |
— |
— |
46.4 |
(9,583) |
(0.11) |
|||||||||
Adjusted results |
$ |
440,507 |
$ |
23,267 |
24.7 |
% |
$ |
13,306 |
$ |
0.16 |
||||
Adjusted operating margin |
5.3 |
% |
(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 separately presenting the effect of the differences in projected annual tax rates during the period, management believes that the tax effects related to restructuring and related charges are more accurately reflected. This change does not affect adjusted results. |
THREE MONTHS ENDED |
||||||||||||
Metal Cutting |
Infrastructure |
|||||||||||
(in thousands, except percents) |
Sales |
Operating |
Sales |
Operating |
||||||||
Reported results |
$ |
282,917 |
$ |
13,693 |
$ |
157,590 |
$ |
6,265 |
||||
Reported operating margin |
4.8 |
% |
4.0 |
% |
||||||||
Restructuring and related charges |
— |
3,528 |
— |
702 |
||||||||
Adjusted results |
$ |
282,917 |
$ |
17,221 |
$ |
157,590 |
$ |
6,967 |
||||
Adjusted operating margin |
6.1 |
% |
4.4 |
% |
THREE MONTHS ENDED |
||||||||||||||
(in thousands, except percents and |
Sales |
Operating |
ETR |
Net (loss) |
Diluted |
|||||||||
Reported results |
$ |
505,080 |
$ |
(47,638) |
87.9 |
% |
$ |
(5,939) |
$ |
(0.07) |
||||
Reported operating margin |
(9.4) |
% |
||||||||||||
Restructuring and related charges |
— |
50,969 |
(10.0) |
45,863 |
0.55 |
|||||||||
|
— |
14,627 |
(3.0) |
13,356 |
0.16 |
|||||||||
Loss on divestiture |
— |
6,517 |
(21.0) |
5,148 |
0.06 |
|||||||||
Discrete benefit from Swiss tax reform |
— |
— |
(29.7) |
(15,288) |
(0.18) |
|||||||||
Differences in projected annual tax |
— |
— |
5.4 |
(29,151) |
(0.35) |
|||||||||
Adjusted results |
$ |
505,080 |
$ |
24,475 |
29.6 |
% |
$ |
13,989 |
$ |
0.17 |
||||
Adjusted operating margin |
4.8 |
% |
(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 separately presenting the effect of the differences in projected annual tax rates during the period, management believes that the tax effects related to restructuring and related charges and other adjustments are more accurately reflected. This change does not affect adjusted results. The tax effects presented above for the three months ended |
THREE MONTHS ENDED |
||||||||||||
Metal Cutting |
Infrastructure |
|||||||||||
(in thousands, except percents) |
Sales |
Operating |
Sales |
Operating |
||||||||
Reported results |
$ |
323,579 |
$ |
(35,177) |
$ |
181,501 |
$ |
(11,570) |
||||
Reported operating margin |
(10.9) |
% |
(6.4) |
% |
||||||||
Restructuring and related charges |
— |
49,243 |
— |
1,726 |
||||||||
|
— |
14,627 |
— |
— |
||||||||
Loss on divestiture |
— |
— |
— |
6,517 |
||||||||
Adjusted results |
$ |
323,579 |
$ |
28,693 |
$ |
181,501 |
$ |
(3,327) |
||||
Adjusted operating margin |
8.9 |
% |
(1.8) |
% |
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) |
2020 |
2019 |
||||||
Net cash flow provided by operating activities |
$ |
67,352 |
$ |
87,097 |
||||
Purchases of property, plant and equipment |
(68,616) |
(147,532) |
||||||
Disposals of property, plant and equipment |
904 |
835 |
||||||
Free operating cash flow |
$ |
(360) |
$ |
(59,600) |
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 effects 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 |
Metal Cutting |
Infrastructure |
Total |
|||
Organic sales decline |
(14)% |
(14)% |
(14)% |
|||
Foreign currency exchange effect (5) |
1 |
1 |
1 |
|||
Business days effect (6) |
— |
1 |
1 |
|||
Divestiture effect (7) |
— |
(1) |
(1) |
|||
Sales decline |
(13)% |
(13)% |
(13)% |
(5) Foreign currency exchange effect is calculated by dividing the difference between current period sales and current period sales at prior period foreign exchange rates by prior period sales. |
(6) Business days effect 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. |
(7) Divestiture effect 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