- Earnings per diluted share (EPS) of $0.37 compared to $0.34 in the prior year quarter
- Strong cash flow from operations of $26
million compared to negative $11
million in the prior year quarter
- Returned approximately $30
million to shareholders; $14
million in share repurchases and $16
million in dividends
PITTSBURGH, Nov. 1, 2023
/PRNewswire/ -- Kennametal Inc. (NYSE: KMT) (the "Company") today
reported results for its fiscal 2024 first quarter ended
September 30, 2023, with sales of $492
million, compared to $495
million in the prior year quarter, and earnings per diluted
share (EPS) of $0.37, compared with
$0.34 in the prior year quarter.
Adjusted EPS was $0.41 in the current
quarter, whereas EPS was not adjusted in the prior year
quarter.
"Sales were generally in line with the outlook we shared last
quarter, despite weaker than expected results in China," said Christopher Rossi, President and CEO. "We also
generated strong cash flow from operations, and executed on our
Commercial and Operational Excellence initiatives and previously
announced restructuring program to offset the weaker market
conditions."
Rossi continued, "We remain focused on our multi-year growth and
innovation strategy and the long-term targets we shared at Investor
Day. The growth and margin expansion initiatives, including the
$100 million cost reduction target,
within our plan continue to give me confidence that we will drive
long-term value for shareholders."
Fiscal 2024 First Quarter Key Developments
Sales of $492 million were flat
from the prior year quarter, reflecting flat organic growth and no
meaningful effect from business days or currency exchange.
During the quarter, the Company achieved restructuring savings
of approximately $4 million from the
previously announced action to streamline our cost structure while
continuing to invest in our high-return Commercial and Operational
Excellence initiatives. This action is currently expected to
deliver annualized run rate pre-tax savings of approximately
$20 million by the end of fiscal
2024. Restructuring and related charges of $4 million were recognized during the quarter in
connection with the execution of this initiative.
Operating income was $45 million,
or 9.2 percent of sales, compared to $49
million, or 9.8 percent of sales, in the prior year quarter.
The decrease in operating income was primarily due to higher wages
and general inflation, lower sales volumes, higher raw material
costs and restructuring and related charges of approximately
$4 million in the current quarter.
These factors were partially offset by higher price realization and
operational efficiencies including restructuring savings. Adjusted
operating income was $48.8 million,
or 9.9 percent margin, in the current quarter, whereas operating
income was not adjusted in the prior year quarter.
The reported effective tax rate (ETR) for the quarter was 21.0
percent compared to 27.5 percent in the prior year quarter. The
year-over-year change in ETR is primarily due to a benefit of
approximately $6 million from a
change in unrecognized tax benefits, partially offset by a
settlement related to tax litigation in Italy of approximately $3 million. Adjusted ETR was 21.0 percent in the
current quarter, whereas ETR was not adjusted in the prior year
quarter.
Year-to-date net cash flow from operating activities was
$26 million compared to negative
$11 million in the prior year period.
The change in net cash flow from operating activities was driven
primarily by working capital changes including improved inventory
levels. Year-to-date free operating cash flow (FOCF) was negative
$3 million compared to negative
$40 million in the prior year period.
The increase in FOCF was driven primarily by working capital
changes, including improved inventory levels, and proceeds received
from the disposal of property, plant and equipment, partially
offset by higher capital expenditures.
The Company paid $16 million in
cash dividends to Kennametal shareholders during the quarter. The
Company has a long history of consistently paying dividends to
shareholders since its listing on the New York Stock Exchange in
1967.
During the quarter, the Company repurchased 505 thousand shares
of Kennametal common stock for $14
million under its share repurchase program.
Inception-to-date the Company has repurchased 5 million shares of
common stock for $148 million under
the $200 million three-year
program.
Outlook
The Company's expectations for the second quarter of fiscal 2024
and the full year are as follows:
Quarterly Outlook:
- Sales expected to be $490 -
$515 million; foreign exchange
anticipated to be a tailwind of approximately 1 percent compared to
the second quarter of fiscal 2023
- Adjusted EPS is expected to be $0.20 - $0.30
Annual Outlook:
- Sales expected to be $2.1 -
$2.2 billion
- Interest expense is expected to be approximately $28 million
- Adjusted EPS is expected to be $1.75 - $2.15
- Pricing actions expected to cover raw material costs, wages and
general inflation
- Free operating cash flow of 100 percent of adjusted net
income
- Primary working capital as a percent of sales maintained at 30
- 32 percent throughout the year
- Capital spending expected to be approximately $100 - $110
million
- Adjusted ETR is expected to be approximately 24 percent
- $200 million three-year share
repurchase program to continue
The Company will provide more details regarding its Outlook
during its quarterly earnings conference call.
Segment Results
Metal Cutting sales of $308
million increased 3 percent from $300
million in the prior year quarter, driven by organic growth
of 2 percent and a favorable currency exchange effect of 1 percent.
Operating income was $32 million, or
10.4 percent of sales, compared to $29
million, or 9.5 percent of sales, in the prior year quarter.
The increase in operating income was primarily due to higher price
realization and operational efficiencies including restructuring
savings. These factors were partially offset by higher wages and
general inflation, lower sales volumes, restructuring and related
charges of approximately $3 million
in the current quarter and higher raw material costs. Adjusted
operating income was $34.7 million,
or 11.2 percent margin, in the current quarter, whereas operating
income was not adjusted in the prior year quarter.
Infrastructure sales of $184
million decreased 5 percent from $195
million in the prior year quarter, driven by organic sales
decline of 3 percent and unfavorable currency exchange and business
days effects of 1 percent, respectively. Operating income was
$14 million, or 7.4 percent of sales,
compared to $21 million, or 10.7 percent of sales, in the
prior year quarter. The decrease in operating income was primarily
due to lower sales volumes, higher raw material costs and less
price realization. Adjusted operating income was $14.8 million, or 8.0 percent, in the current
quarter, whereas operating income was not adjusted in the prior
year quarter.
Dividend Declared
Kennametal announced that its Board of Directors declared a
quarterly cash dividend of $0.20 per
share. The dividend is payable on November
21, 2023 to shareholders of record as of the close of
business on November 7, 2023.
The Company will host a conference call to discuss its first
quarter fiscal 2024 results on Wednesday,
November 1, 2023 at 9:30 a.m. Eastern
Time. The conference call will be broadcast via real-time
audio on Kennametal's investor relations website at
https://investors.kennametal.com/ - click "Event" (located in the
blue Quarterly Earnings block).
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 Kennametal's outlook for
sales, interest expense, adjusted EPS, FOCF, primary working
capital, capital expenditures and adjusted effective tax rate for
the second quarter and full year of fiscal 2024 and our
expectations regarding future growth and financial performance are
forward-looking statements. Any forward-looking statements are
based on current knowledge, expectations and estimates that involve
inherent risks and uncertainties. Should one or more of these risks
or uncertainties materialize, or should the assumptions underlying
the forward-looking statements prove incorrect, our actual results
could vary materially from our current expectations. There are a
number of factors that could cause our actual results to differ
from those indicated in the forward-looking statements. They
include: uncertainties related to changes in macroeconomic and/or
global conditions, including as a result of increased inflation and
Russia's invasion of Ukraine and the resulting sanctions on
Russia; the adverse effects of the
COVID-19 pandemic and its impacts on our business operations,
financial results and financial position and on the industries in
which we operate and the global economy generally; other economic
recession; our ability to achieve all anticipated benefits of
restructuring, simplification and modernization initiatives;
Commercial Excellence growth initiatives, Operational Excellence
initiatives, our foreign operations and international markets, such
as currency exchange rates, different regulatory environments,
trade barriers, exchange controls, and social and political
instability, including the conflict in Ukraine; changes in the regulatory environment
in which we operate, including environmental, health and safety
regulations; potential for future goodwill and other intangible
asset impairment charges; our ability to protect and defend our
intellectual property; continuity of information technology
infrastructure; competition; our ability to retain our management
and employees; demands on management resources; availability and
cost of the raw materials we use to manufacture our products;
product liability claims; integrating acquisitions and achieving
the expected savings and synergies; global or regional catastrophic
events; demand for and market acceptance of our products; business
divestitures; energy costs; commodity prices; labor relations; and
implementation of environmental remediation matters. Many of these
risks and other risks are more fully described in Kennametal's
latest annual report on Form 10-K and its other periodic filings
with the Securities and Exchange Commission. We can give no
assurance that any goal or plan set forth in forward-looking
statements can be achieved and readers are cautioned not to place
undue reliance on such statements, which speak only as of the date
made. We undertake no obligation to release publicly any revisions
to forward-looking statements as a result of future events or
developments.
About Kennametal
With over 80 years as an industrial technology leader,
Kennametal Inc. delivers productivity to customers through
materials science, tooling and wear-resistant solutions. Customers
across aerospace and defense, earthworks, energy, general
engineering and transportation turn to Kennametal to help them
manufacture with precision and efficiency. Every day approximately
8,700 employees are helping customers in nearly 100 countries stay
competitive. Kennametal generated $2.1
billion in revenues in fiscal 2023. Learn more at
www.kennametal.com. Follow @Kennametal: X (formerly Twitter),
Instagram, Facebook, LinkedIn and YouTube.
FINANCIAL
HIGHLIGHTS
|
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
|
|
|
Three Months
Ended
September 30,
|
(in thousands,
except per share amounts)
|
2023
|
|
2022
|
Sales
|
$
492,476
|
|
$
494,792
|
Cost of goods
sold
|
329,578
|
|
334,824
|
Gross profit
|
162,898
|
|
159,968
|
Operating
expense
|
111,649
|
|
108,278
|
Restructuring and other
charges, net
|
3,086
|
|
—
|
Amortization of
intangibles
|
3,045
|
|
3,164
|
Operating income
|
45,118
|
|
48,526
|
Interest
expense
|
6,601
|
|
6,638
|
Other expense,
net
|
89
|
|
1,009
|
Income before income
taxes
|
38,428
|
|
40,879
|
Provision for income
taxes
|
8,059
|
|
11,242
|
Net income
|
30,369
|
|
29,637
|
Less: Net income
attributable to noncontrolling interests
|
312
|
|
1,441
|
Net income attributable
to Kennametal
|
$ 30,057
|
|
$ 28,196
|
PER SHARE DATA
ATTRIBUTABLE TO KENNAMETAL SHAREHOLDERS
|
Basic earnings per
share
|
$
0.38
|
|
$
0.35
|
Diluted earnings per
share
|
$
0.37
|
|
$
0.34
|
Basic weighted average
shares outstanding
|
80,025
|
|
81,544
|
Diluted weighted
average shares outstanding
|
80,699
|
|
82,165
|
CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
|
|
(in
thousands)
|
September 30,
2023
|
|
June 30,
2023
|
ASSETS
|
|
|
|
Cash and cash
equivalents
|
$
95,098
|
|
$
106,021
|
Accounts receivable,
net
|
288,655
|
|
307,313
|
Inventories
|
570,345
|
|
557,630
|
Other current
assets
|
56,457
|
|
55,825
|
Total current
assets
|
1,010,555
|
|
1,026,789
|
Property, plant and
equipment, net
|
958,246
|
|
969,068
|
Goodwill and other
intangible assets, net
|
356,399
|
|
362,715
|
Other assets
|
187,560
|
|
188,662
|
Total
assets
|
$
2,512,760
|
|
$
2,547,234
|
LIABILITIES
|
|
|
|
Revolving and other
lines of credit and notes payable
|
$
31,179
|
|
$
689
|
Accounts
payable
|
197,369
|
|
203,341
|
Other current
liabilities
|
191,298
|
|
229,945
|
Total current
liabilities
|
419,846
|
|
433,975
|
Long-term
debt
|
595,374
|
|
595,172
|
Other
liabilities
|
198,789
|
|
203,919
|
Total
liabilities
|
1,214,009
|
|
1,233,066
|
KENNAMETAL
SHAREHOLDERS' EQUITY
|
1,260,358
|
|
1,275,447
|
NONCONTROLLING
INTERESTS
|
38,393
|
|
38,721
|
Total liabilities
and equity
|
$
2,512,760
|
|
$
2,547,234
|
SEGMENT DATA
(UNAUDITED)
|
Three Months
Ended
September 30,
|
(in
thousands)
|
2023
|
|
2022
|
Sales:
|
|
|
|
Metal
Cutting
|
$ 308,229
|
|
$ 299,936
|
Infrastructure
|
184,247
|
|
194,856
|
Total sales
|
$ 492,476
|
|
$ 494,792
|
Sales By Geographic
Region:
|
|
|
|
Americas
|
$ 246,742
|
|
$ 253,581
|
EMEA
|
148,709
|
|
131,308
|
Asia Pacific
|
97,025
|
|
109,903
|
Total sales
|
$ 492,476
|
|
$ 494,792
|
Operating
income:
|
|
|
|
Metal
Cutting
|
$
32,117
|
|
$
28,605
|
Infrastructure
|
13,644
|
|
20,787
|
Corporate
(1)
|
(643)
|
|
(866)
|
Total operating
income
|
$
45,118
|
|
$
48,526
|
|
(1) Represents unallocated corporate
expenses.
|
NON-GAAP RECONCILIATIONS (UNAUDITED)
In addition to reported results under generally accepted
accounting principles in the United
States of America (GAAP), the following financial highlight
tables include, where appropriate, a reconciliation of adjusted
results including: operating income and margin; ETR; net income
attributable to Kennametal; diluted EPS; Metal Cutting operating
income and margin; Infrastructure operating income and margin;
FOCF; and consolidated and segment organic sales growth (all of
which are non-GAAP financial measures), to the most directly
comparable GAAP financial measures. Adjustments for the three
months ended September 30, 2023 include restructuring and
related charges and differences in projected annual tax rates.
There were no adjustments for the three months ended
September 30, 2022. For those adjustments that are presented
'net of tax', the tax effect of the adjustment can be derived by
calculating the difference between the pre-tax and the post-tax
adjustments presented. The tax effect on adjustments is calculated
by preparing an overall tax calculation including the adjustments
and then a tax calculation excluding the adjustments. The
difference between these calculations results in the tax impact of
the adjustments.
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 second quarter and full fiscal year of 2024 have
not been provided, including but not limited to: FOCF, adjusted
operating income, adjusted net income, adjusted EPS, adjusted ETR
and primary working capital. The most comparable GAAP financial
measures are net cash flow from operating activities, operating
income, net income attributable to Kennametal, ETR and working
capital (defined as current assets less current liabilities),
respectively. Primary working capital is defined as accounts
receivable, net plus inventories, net minus accounts payable.
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, 2023 (UNAUDITED)
|
|
(in thousands,
except percents and per share data)
|
Sales
|
Operating
income
|
ETR
|
Net
income(2)
|
Diluted
EPS
|
Reported
results
|
$ 492,476
|
45,118
|
21.0 %
|
$
30,057
|
$
0.37
|
Reported operating
margin
|
|
9.2 %
|
|
|
|
Restructuring and
related charges
|
—
|
3,694
|
9.5
|
3,391
|
0.04
|
Differences in
projected annual tax
rates
|
—
|
—
|
(9.5)
|
(444)
|
—
|
Adjusted
results
|
$ 492,476
|
$ 48,812
|
21.0 %
|
$
33,004
|
$
0.41
|
Adjusted operating
margin
|
|
9.9 %
|
|
|
|
|
(2)
Attributable to Kennametal.
|
THREE MONTHS ENDED
SEPTEMBER 30, 2023 (UNAUDITED)
|
|
Metal
Cutting
|
Infrastructure
|
(in thousands,
except percents)
|
Sales
|
Operating
income
|
Sales
|
Operating
income
|
Reported
results
|
$
308,229
|
$
32,117
|
$
184,247
|
$
13,644
|
Reported operating
margin
|
|
10.4 %
|
|
7.4 %
|
Restructuring and
related charges
|
—
|
2,539
|
—
|
1,155
|
Adjusted
results
|
$
308,229
|
$
34,656
|
$
184,247
|
$
14,799
|
Adjusted operating
margin
|
|
11.2 %
|
|
8.0 %
|
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)
|
|
Three Months
Ended
September 30,
|
(in
thousands)
|
|
2023
|
|
2022
|
Net cash flow provided
by (used in) operating activities
|
|
$ 25,711
|
|
$ (10,748)
|
Purchases of property,
plant and equipment
|
|
(31,799)
|
|
(29,484)
|
Disposals of property,
plant and equipment
|
|
3,048
|
|
202
|
Free operating cash
flow
|
|
$ (3,040)
|
|
$ (40,030)
|
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 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 on a consistent
basis. Management reports organic sales growth at the consolidated
and segment levels.
ORGANIC SALES GROWTH
(DECLINE) (UNAUDITED)
|
|
|
|
Three Months Ended
September 30, 2023
|
|
Metal
Cutting
|
|
Infrastructure
|
|
Total
|
Organic sales growth
(decline)
|
|
2 %
|
|
(3) %
|
|
— %
|
Foreign currency
exchange effect (3)
|
|
1
|
|
(1)
|
|
—
|
Business days effect
(4)
|
|
—
|
|
(1)
|
|
—
|
Sales growth
(decline)
|
|
3 %
|
|
(5) %
|
|
— %
|
|
(3) 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.
|
(4) 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.
|
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content:https://www.prnewswire.com/news-releases/kennametal-announces-fiscal-2024-first-quarter-results-301973422.html
SOURCE Kennametal Inc.