Kennametal Inc. today reported that sales for its first fiscal quarter ended September 30, 2009 improved sequentially by 6 percent from the preceding quarter. The improvement in sales was driven by a modest uptick in industrial activity in certain markets and follows three consecutive quarters of sharp sequential decline during the global economic downturn. Compared to the record level set for the September quarter one year ago, sales were lower by 36 percent.

Reported fiscal 2010 first quarter earnings (loss) per diluted share (EPS) were ($0.12), compared with prior year quarter reported EPS of $0.47. The current quarter reported EPS included restructuring and divestiture related charges amounting to $0.08 per share. The prior year quarter reported EPS included restructuring related charges of $0.10 per share. Absent these charges, adjusted EPS for the current quarter was ($0.04), compared with the prior year quarter adjusted EPS of $0.57. Adjusted EPS for the current quarter improved sequentially by $0.09 from the quarter ended June 30, 2009.

Kennametal's Chairman, President and Chief Executive Officer Carlos Cardoso said, "We are encouraged by the improvement in our business during the September quarter. In addition to the positive impact of higher sequential sales, our results benefited from increased permanent savings from our restructuring programs. We also continued to focus sharply on generating strong cash flow and maintaining a solid financial position. Our September quarter performance demonstrates the positive effect and future potential of the many difficult actions that we took during the global economic downturn. This, along with our market leading capabilities and talented employees worldwide, further enhances our ability to expand our sales and achieve higher levels of profitability in an improving global economy."

Reconciliations of all non-GAAP financial measures are set forth in the attached tables and descriptions of certain non-GAAP financial measures are contained in our report on Form 8-K to which this release is attached.

  Fiscal 2010 First Quarter Key Developments
  --  Sales for the quarter were $409 million, compared with $643 million in
      the same quarter last year. Sales declined organically by 36 percent,
      while the favorable impact of 3 percent from a business acquisition
      made in the prior fiscal year was offset by a 3 percent decrease from
      unfavorable foreign currency effects.
  --  The company continued to realize benefits from cost reductions and
      improved operating efficiencies resulting from a series of
      restructuring programs that have been undertaken over the past
      eighteen months. Pre-tax benefits from these restructuring programs
      reached approximately $30 million in the current quarter most of which
      were incremental to the same quarter one year ago. As a result, the
      company is nearing its target to achieve approximately $125 million in
      annual pre-tax benefits from these initiatives. During the September
      quarter, the company recognized pre-tax charges related to these
      initiatives of $9 million, or $0.06 per share.  Pre-tax charges
      recorded to date for these initiatives were $90 million. Including
      these charges, the company expects to recognize approximately $115
      million of pre-tax charges related to its restructuring plans.  The
      majority of the remaining charges are expected to be incurred over the
      next six to nine months, most of which are expected to be cash
      expenditures.
  --  Operating loss was $10 million for the current quarter compared to
      operating income of $52 million for the prior year quarter.  Absent
      restructuring related charges recorded in both periods, operating loss
      for the current quarter was $1 million compared to operating income of
      $61 million in the prior year quarter. The adjusted operating loss for
      the current quarter improved sequentially from the June 2009 quarter. 
      This sequential improvement was driven by higher sales, increased
      permanent savings from restructuring programs, one-time benefits from
      certain labor negotiations in Europe, and ongoing cost discipline. The
      combined benefit of these items more than offset a sequential decline
      in temporary cost reductions as well as a sequential increase in
      corporate costs and expenses.  The sequential decline in temporary
      cost reductions was related to the difference in savings between
      employee furloughs in place during the preceding quarter and salary
      reductions placed into effect at the beginning of the current quarter.
  --  The reported effective tax rate was 39.6 percent.  On an adjusted
      basis, the effective tax rate was 41.8 percent compared to an adjusted
      rate of 19.0 percent in the prior year quarter.  The change in the
      adjusted rate was driven primarily by certain favorable tax
      settlements amounting to $1.5 million.
  --  During the current quarter, the company incurred pre-tax charges of $2
      million related to the June 2009 divestiture of its high speed steel
      business. The company expects to incur additional pre-tax charges
      related to this divestiture of $2 million to $3 million over the next
      three to six months. All cash proceeds related to this divestiture
      have been received.

  --  Reported EPS was ($0.12), compared with prior year quarter reported
      EPS of $0.47.  Adjusted EPS was ($0.04) compared to prior year quarter
      adjusted EPS of $0.57.  A reconciliation follows:



           Earnings (Loss) Per Diluted Share Reconciliation

  First Quarter FY 2010                    First  Quarter FY 2009

  Reported EPS                    ($0.12)  Reported EPS            $0.47
    Restructuring and                        Restructuring and
     related charges                0.06      related charges       0.10
    Divestiture related charges     0.02
                                  ------                          ------
  Adjusted EPS                    ($0.04)    Adjusted EPS          $0.57
                                  ======                          ======

  --  Cash flow from operating activities was $17 million in the current
      quarter, compared with $38 million in the prior year quarter.  Free
      operating cash flow of $9 million was generated during the current
      quarter compared to an outflow of $5 million in the prior year
      quarter.

  --  At the outset of the current quarter, Kennametal completed two actions
      to further enhance liquidity and strengthen financial position. The
      first action involved an amendment to the company's existing $500
      million revolving bank credit facility. This amendment provides
      additional flexibility with respect to financial covenants while
      maintaining the size and maturity of the facility. The second action
      involved the issuance of 8,050,000 shares of common stock generating
      net proceeds of approximately $120 million which were used to pay down
      outstanding indebtedness under the revolving credit facility.

  Segment Highlights of Fiscal 2010 First Quarter

Metalworking Solutions & Services Group (MSSG) sales decreased by 43 percent from the prior year quarter, driven by an organic sales decline of 39 percent and unfavorable foreign currency effects of 4 percent. Global industrial production began to show some slight improvement as sales increased sequentially from the June quarter. On a regional basis, Europe and North America reported organic sales declines of 42 percent and 39 percent, respectively, compared to the prior year September quarter. Latin America, India and Asia Pacific also experienced year-to-year organic sales declines of 31 percent, 25 percent and 39 percent, respectively.

MSSG operating loss was $13 million for the September quarter compared to operating income of $42 million for the same quarter of the prior year. Excluding restructuring related charges recorded in both periods, MSSG operating loss was $8 million compared with operating income of $49 million in the prior year quarter. The primary driver of the year-to-year decline in operating results was reduced sales and production volumes, offset in part by restructuring benefits and continued cost reduction actions.

Advanced Materials Solutions Group (AMSG) sales decreased 25 percent from the prior year quarter, driven by a 30 percent organic decline and a 2 percent unfavorable impact from foreign currency effects, partially offset by the favorable impact from a prior year acquisition of 7 percent. The organic decline was primarily driven by lower sales in the engineered products business, as well as reduced demand for energy related products.

AMSG operating income was $23 million in the current quarter compared to operating income of $30 million in the same quarter of the prior year. Absent restructuring related charges recorded in both periods, AMSG operating income was $24 million in the current quarter compared to $31 million in the prior year quarter. The year-to-year decline in operating income was primarily due to lower sales and production volumes in the engineered products and energy related businesses. A considerable portion of the sales decline impact was offset by a combination of restructuring benefits and continued cost reduction actions.

Sale of Gage Business

On October 9, 2009, Kennametal completed a minor divestiture involving the sale of its gage business for cash proceeds of approximately $1 million. This business utilized two manufacturing plants that were included in the assets divested. This is another step in the company's process to further shape its business portfolio and reduce its manufacturing footprint.

Outlook

Global industrial activity has recently exhibited some stability following the severe economic downturn and turbulence experienced during the previous fiscal year. However, the improvement in business conditions at present is considerably uneven and does not yet entail broad-based momentum. Certain market sectors and regions have begun to strengthen while others look to either remain flat or trend further downward in the short to medium term. While there are some overall positive signs of an improving global economy, it remains difficult to predict with any certainty the timing, magnitude and duration of a sustainable recovery.

Management presently believes that global industrial activity and the corresponding demand for the company's products will continue to moderately improve through the remainder of the current fiscal year. Under these assumed conditions, Kennametal would expect EPS for fiscal 2010 to be in the range of $0.50 to $0.70 per share, excluding restructuring and divestiture related charges, on sales that would be 5 percent to 10 percent lower year-to-year on an organic basis. Cash flow from operations would be expected to be in the range of $65 million to $75 million for fiscal 2010, as a considerable portion of the cash generated is expected to be needed to fund higher working capital requirements as business improves. Based on capital expenditures of approximately $60 million, free operating cash flow would be in the range of $5 million to $15 million for fiscal 2010.

For the second quarter of fiscal 2010, Kennametal expects organic sales to be 20 percent to 25 percent lower than for the same quarter of the previous fiscal year and expects EPS to be at or slightly above breakeven, excluding restructuring and divestiture related charges.

Dividend Declared

Kennametal also announced today that its Board of Directors declared a regular quarterly cash dividend of $0.12 per share. The dividend is payable November 20, 2009 to shareowners of record as of the close of business on November 5, 2009.

Kennametal advises shareowners to note monthly order trends, for which the company makes a disclosure ten business days after the conclusion of each month. This information is available on the Investor Relations section of Kennametal's corporate website at www.kennametal.com.

First quarter results for fiscal 2010 will be discussed in a live Internet broadcast at 10:00 a.m. Eastern time today. This event will be broadcast live on the company's website, www.kennametal.com. Once on the homepage, select "Investor Relations" and then "Events." The replay of this event will also be available on the company's website through November 30, 2009.

This release contains "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. You can identify forward-looking statements by the fact they use words such as "should," "anticipate," "estimate," "approximate," "expect," "may," "will," "project," "intend," "plan," "believe" and other words of similar meaning and expression in connection with any discussion of future operating or financial performance or events. Forward looking statements in this release concern, among other things, Kennametal's outlook for earnings for its fiscal year 2010, and its expectations regarding restructuring initiatives, future growth and financial performance, all of which are based on current expectations 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, actual outcomes could vary materially from those indicated. Among the factors that could cause the actual results to differ materially from those indicated in the forward-looking statements are risks and uncertainties related to: the recent downturn in our industry; deepening or prolonged economic recession; restructuring and related actions (including associated costs and anticipated benefits); changes in our debt ratings; compliance with our debt arrangements; our foreign operations and international markets, such as currency exchange rates, different regulatory environments, trade barriers, exchange controls, and social and political instability; changes in the regulatory environment in which we operate, including environmental, health and safety regulations; our ability to protect and defend our intellectual property; 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; global or regional catastrophic events, including terrorist attacks or acts of war; integrating acquisitions and achieving the expected savings and synergies; business divestitures; potential claims relating to our products; energy costs; commodity prices; labor relations; demand for and market acceptance of new and existing products; and implementation of environmental remediation matters. These 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 undertake no obligation to release publicly any revisions to forward-looking statements as a result of future events or developments.

Kennametal Inc. delivers productivity to customers seeking peak performance in demanding environments by providing innovative custom and standard wear-resistant solutions. This proven productivity is enabled through our advanced materials sciences and application knowledge. Our commitment to a sustainable environment provides additional value to our customers. Companies operating in everything from airframes to coal mining, from engines to oil wells and from turbochargers to construction recognize Kennametal for extraordinary contributions to their value chains. In fiscal year 2009, customers bought approximately $2.0 billion of Kennametal products and services - delivered by our nearly 12,000 talented employees doing business in more than 60 countries - with more than 50 percent of these revenues coming from outside North America. Visit us at www.kennametal.com. [KMT-E]

                      FINANCIAL HIGHLIGHTS

  CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

                                                  Three Months Ended
                                                     September 30,
  (in thousands, except per share amounts)         2009       2008(1)
  ------------------------------------------------------------------
  Sales                                       $ 409,395    $ 643,374
  Cost of goods sold                            291,594      428,254
  ------------------------------------------------------------------
    Gross profit                                117,801      215,120

  Operating expense                             116,162      150,956
  Restructuring charges                           7,830        8,412
  Amortization of intangibles                     3,340        3,409
  ------------------------------------------------------------------
    Operating (loss) income                      (9,531)      52,343

  Interest expense                                6,371        7,083
  Other (income) expense, net                    (2,952)       1,086
  ------------------------------------------------------------------
    (Loss) income from continuing
     operations before income taxes             (12,950)      44,174

  (Benefit) provision for income taxes           (5,129)       8,377
  ------------------------------------------------------------------
  (Loss) income from continuing operations       (7,821)      35,797
  (Loss) income from discontinued operations     (1,367)         455
  ------------------------------------------------------------------
  Net (loss) income                              (9,188)      36,252
  Less: Net income attributable to
   noncontrolling interests                         629          785
  ------------------------------------------------------------------
  Net (loss) income attributable to Kennametal $ (9,817)    $ 35,467
  ==================================================================
  Amounts Attributable to Kennametal
   Common Shareowners:
    (Loss) income from continuing operations   $ (8,450)    $ 35,012
    (Loss) income from discontinued operations   (1,367)         455
  ------------------------------------------------------------------
  Net (loss) income attributable to Kennametal $ (9,817)    $ 35,467
  ==================================================================
  PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL
  Basic (loss) earnings per share:
    Continuing operations                      $  (0.10)    $   0.47
    Discontinued operations                       (0.02)        0.01
  ------------------------------------------------------------------
                                               $  (0.12)    $   0.48
  ==================================================================
  Diluted (loss) earnings per share:
    Continuing operations                      $  (0.10)    $   0.46
    Discontinued operations                       (0.02)        0.01
  ------------------------------------------------------------------
                                               $  (0.12)    $   0.47
  ==================================================================
  Dividends per share                          $   0.12     $   0.12
  ==================================================================
  Basic weighted average shares outstanding      79,772       74,399
  ==================================================================
  Diluted weighted average shares outstanding    79,772       75,526
  ==================================================================

  (1) Amounts have been reclassified to reflect discontinued operations
       related to the divestiture of the high speed steel drills and
       related products business.


  CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

                                             September 30,  June 30,
  (in thousands)                                 2009         2009
  ------------------------------------------------------------------
  ASSETS
  Cash and cash equivalents                 $   105,099  $    69,823
  Accounts receivable, net                      286,040      278,977
  Inventories                                   371,969      381,306
  Other current assets                          121,298      145,798
  ------------------------------------------------------------------
    Total current assets                        884,406      875,904
  Property, plant and equipment, net            716,821      720,326
  Goodwill and intangible assets, net           679,875      677,436
  Other assets                                   76,530       73,308
  ------------------------------------------------------------------
    Total assets                            $ 2,357,632  $ 2,346,974
  ==================================================================
  LIABILITIES
  Current maturities of long-term debt and
   capital leases, including notes payable  $    42,381  $    49,365
  Accounts payable                               90,840       87,176
  Other current liabilities                     253,500      242,428
  ------------------------------------------------------------------
    Total current liabilities                   386,721      378,969
  Long-term debt and capital leases             324,978      436,592
  Other liabilities                             245,174      263,958
  ------------------------------------------------------------------
    Total liabilities                           956,873    1,079,519

  KENNAMETAL SHAREOWNERS' EQUITY              1,379,702    1,247,443
  NONCONTROLLING INTERESTS                       21,057       20,012
  ------------------------------------------------------------------
    Total liabilities and equity            $ 2,357,632  $ 2,346,974
  ==================================================================

  SEGMENT DATA (UNAUDITED)                       Three Months Ended
                                                    September 30,
  (in thousands)                                   2009       2008(1)
  ------------------------------------------------------------------
  Outside Sales:
  Metalworking Solutions and Services Group   $ 230,991    $ 405,395
  Advanced Materials Solutions Group            178,404      237,979
  ------------------------------------------------------------------
    Total outside sales                       $ 409,395    $ 643,374
  ==================================================================
  Sales By Geographic Region:
  United States                               $ 186,588    $ 269,512
  International                                 222,807      373,862
  ------------------------------------------------------------------
    Total sales by geographic region          $ 409,395    $ 643,374
  ==================================================================
  Operating (Loss) Income:
  Metalworking Solutions and Services Group   $ (12,766)   $  42,379
  Advanced Materials Solutions Group             23,107       29,990
  Corporate and eliminations (2)                (19,872)     (20,026)
  ------------------------------------------------------------------
    Total operating (loss) income             $  (9,531)   $  52,343
  ==================================================================

  (1) Amounts have been reclassified to reflect discontinued operations
      related to the divestiture of the high speed steel drills and related
      products business.

  (2) Includes corporate functional shared services and intercompany
      eliminations.

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 gross profit, operating expense, operating income, MSSG operating income and margin, AMSG operating income and margin, income from continuing operations, income before income taxes and noncontrolling interest, provision for income taxes, effective tax rate, net income and diluted (loss) earnings per share and free operating cash flow (which are non-GAAP financial measures), to the most directly comparable GAAP measures. 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 measures should not be considered in isolation or as a substitute for the most comparable GAAP measures. Investors are cautioned that non-GAAP financial measures utilized by the company may not be comparable to non-GAAP financial measures used by other companies. Reconciliations of all non-GAAP financial measures are set forth in the attached tables and descriptions of certain non-GAAP financial measures are contained in our report of Form 8-K to which this release is attached.

  THREE MONTHS ENDED SEPTEMBER 30, 2009 (UNAUDITED)

                                                 Loss
  (in thousands,                                 from
   except per      Gross  Operating Operating Continuing     Net   Diluted
   share amounts)  Profit  Expense    Loss    Operations    Loss       EPS
  -------------------------------------------------------------------------
  2010 Reported
   Results       $117,801  $116,162  $(9,531)  $(7,821)  $(9,817)   $(0.12)
    Restructuring
     and related
     charges          456       263    8,549     5,260     5,260      0.06
    Divestiture
     related charges    -         -        -         -     1,284      0.02
  -------------------------------------------------------------------------
  2010 Adjusted
   Results       $118,257  $116,425  $  (982)  $(2,561)  $(3,273)   $(0.04)
  =========================================================================


                                                           MSSG      AMSG
                                                        Operating  Operating
  (in thousands, except percents)                          Loss     Income
  -------------------------------------------------------------------------
  2010 Reported Results                                 $(12,766)  $23,107
  2010 Reported Operating Margin                            (5.5%)    13.0%
    Restructuring and related charges                      4,289     1,321
  -------------------------------------------------------------------------
  2010 Adjusted Results                                 $ (8,477)  $24,428
  =========================================================================
  2010 Adjusted Operating Margin                            (3.7%)    13.7%
  =========================================================================

                                           Loss from
                                           Continuing   (Benefit)
                                           Operations   Provision
                                         before Income  for Income Effective
  (in thousands, except percents)            Taxes        Taxes    Tax Rate
  -------------------------------------------------------------------------
  2010 Reported Results                     $(12,950)   $(5,129)     39.6%
    Restructuring and related charges          8,549      3,289       2.2%
  -------------------------------------------------------------------------
  2010 Adjusted Results                     $ (4,401)   $(1,840)     41.8%
  =========================================================================



  THREE MONTHS ENDED SEPTEMBER 30, 2008 (UNAUDITED)

                                                Income
  (in thousands,                                 from
   except per      Gross  Operating Operating Continuing     Net   Diluted
   share amounts)  Profit  Expense    Income  Operations  Income       EPS
  -------------------------------------------------------------------------
  2009 Reported
   Results       $215,120  $150,956  $52,343   $35,797   $35,467     $0.47
    Restructuring
     and related
     charges          775       (42)   9,145     7,408     7,408      0.10
  -------------------------------------------------------------------------
  2009 Adjusted
   Results       $215,895  $150,998  $61,488   $43,205   $42,875     $0.57
  =========================================================================



                                                          MSSG      AMSG
                                                       Operating  Operating
  (in thousands, except percents)                        Income    Income
  -------------------------------------------------------------------------
  2009 Reported Results                                 $42,379   $29,990
  2009 Reported Operating Margin                           10.5%     12.6%
    Restructuring and related charges                     7,234     1,405
  -------------------------------------------------------------------------
  2009 Adjusted Results                                 $49,613   $31,395
  =========================================================================
  2009 Adjusted Operating Margin                           12.2%     13.2%
  =========================================================================



                                          Income from
                                          Continuing
                                          Operations    Provision
                                         before Income  for Income Effective
  (in thousands, except percents)            Taxes       Taxes     Tax Rate
  -------------------------------------------------------------------------
  2009 Reported Results                     $44,174     $ 8,377      19.0%
    Restructuring and related charges         9,145       1,737         -
  -------------------------------------------------------------------------
  2009 Adjusted Results                     $53,319     $10,114      19.0%
  =========================================================================



  FREE OPERATING CASH FLOW (UNAUDITED)                    Three Months Ended
                                                             September 30,
  (in thousands)                                            2009      2008
  -------------------------------------------------------------------------
  Net cash flow provided by operating activities         $17,290   $37,950
  Purchases of property, plant and equipment              (8,915)  (44,592)
  Proceeds from disposals of property, plant and equipment   987     1,309
  -------------------------------------------------------------------------
    Free operating cash flow                             $ 9,362   $(5,333)
  =========================================================================

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SOURCE: Kennametal Inc.