Kennametal Inc. today reported fiscal 2005 first-quarter EPS of $0.61 compared with prior year adjusted EPS of $0.34. First quarter EPS exceeded previous guidance and there were no special items. Reported EPS in last year's 1st quarter were $0.24 and included special items totaling $0.10. The effective tax rate in first quarter was 36 percent compared to prior year's rate of 32 percent.
EPS Summary
Company Guidance (9/15/04): $0.55 to $0.60
Analyst Estimate Range (10/18/04): $0.50 to $0.60
Reported EPS: $0.61
Kennametal Chairman, President and Chief Executive Officer, Markos I. Tambakeras, said, "We are very pleased to build on our successes of last year with a strong start to Fiscal 2005. We are particularly encouraged by the performance across all our North American businesses, including J&L Industrial Supply. For our Metalworking business, growth in the North American and developing markets was augmented by a return to modest growth in Europe. The investments we have made in the Kennametal Value Business System (KVBS) over the past several years are translating into strong results as the markets we serve continue to perform well."
Highlights of the Fiscal 2005 First Quarter
-- Record sales up 20 percent on 15 percent organic sales growth, 3
percent benefit from foreign currency exchange and 2 percent from
acquisitions.
-- Reported net income was $22.7 million versus $8.8 million in the same
quarter last year, as improved sales volume was leveraged against a
more productive operating structure in the current quarter.
-- Net cash flow from operations was $32 million versus $12 million last
year. Free operating cash flow totaled $17 million for the quarter
versus $2 million in last year's comparable quarter, due to improved
earnings and lower tax payments, partially offset by increased capital
investment.
-- As of September 30, 2004, total debt was $435 million, down $5 million
from June 2004 and down $85 million from September 30, 2003.
-- Debt to capital decreased to 31.6 percent versus 40.5 percent at the
end of September in the prior year.
-- Adjusted Return on Invested Capital improved 210 basis points to 7.6
percent.
Outlook
Demand levels experienced in the fiscal first quarter continue to support expectations of economic strength in the manufacturing sector throughout the remainder of fiscal 2005 in North America and rest-of-world markets. European markets are expected to continue a modest recovery in industrial activity.
Tambakeras said, "We are confident that the talent and drive of our employees, coupled with sound execution of the KVBS processes, will deliver substantial top and bottom line growth throughout 2005. We expect to offset significantly higher raw material prices through pricing and operational efficiencies, and are closely monitoring the potential for a negative impact from capacity constraints. Despite these challenges, we are determined to continue to deliver superior financial performance in the coming quarters. We are focused on continuing to build on our successful start to fiscal 2005 by taking advantage of our broad geographic footprint, lean operating structure and world-class product and service technology to deliver competitive advantage to our customers and value for our shareholders."
Organic sales for the second quarter of fiscal 2005 are expected to grow 13 to 15 percent. Reported EPS is expected to be $0.60 to $0.65. The assumed effective tax rate for the second quarter is approximately 20%. The expected tax rate for the full year remains approximately 32%, consistent with original guidance. As the Company indicated previously, it plans to execute a business strategy that will lower its tax rate in one quarter during the fiscal year.
For the full year, organic sales are expected to grow 8 to 10 percent. Reported EPS are expected to be 2.80 to $3.00, up 30 to 40 percent.
Kennametal anticipates net cash flow provided by operating activities of approximately $180 to $220 million in fiscal 2005. Purchases of property, plant and equipment, net of proceeds from disposals of property, plant and equipment are expected to be approximately $70 to $80 million. Adjusting net cash flow provided by operating activities for the above items, Kennametal expects to generate between $110 and $140 million of free operating cash flow for fiscal 2005.
Kennametal advises shareholders 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 web site at http://www.kennametal.com/ .
Dividend Declared
Kennametal also announced its Board of Directors declared a quarterly cash dividend of $0.17 cents per share, payable November 22, 2004, to shareowners of record as of the close of business on November 10, 2004.
First quarter results will be discussed in a live Internet broadcast at 10:00 a.m. EST today. Access the live or archived conference by visiting the Investor Relations section of Kennametal's corporate web site at http://www.kennametal.com/ .
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. You can identify these forward-looking statements by the fact they use words such as "should," "anticipate," "estimate," "approximate," "expect," "may," "will," "project," "intend," "plan," "believe," and others words of similar meaning and expression in connection with any discussion of future operating or financial performance. One can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements are likely to relate to, among other things, our goals, plans and projections regarding our financial position, results of operations, market position and product development, which are based on current expectations that involve inherent risks and uncertainties, including factors that could delay, divert or change any of them in the next several years. Although it is not possible to predict or identify all factors, they may include the following: global economic conditions; future terrorist attacks; epidemics; risks associated with integrating and divesting businesses and achieving the expected savings and synergies; demands on management resources; risks associated with international markets such as currency exchange rates, and social and political environments; competition; labor relations; commodity prices; demand for and market acceptance of new and existing products; and risks associated with the implementation of restructuring plans and environmental remediation matters. 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.
Kennametal Inc. aspires to be the premier tooling solutions supplier in the world with operational excellence throughout the value chain and best-in- class manufacturing and technology. Kennametal strives to deliver superior shareowner value through top-tier financial performance. The company provides customers a broad range of technologically advanced tools, tooling systems and engineering services aimed at improving customers' manufacturing competitiveness. With about 13,500 employees worldwide, the company's annual sales approximate $2.0 billion, with nearly half coming from sales outside the United States. Kennametal is a five-time winner of the GM "Supplier of the Year" award and is represented in more than 60 countries. Kennametal operations in Europe are headquartered in Furth, Germany. Kennametal Asia Pacific operations are headquartered in Singapore. For more information, visit the company's web site at http://www.kennametal.com/ .
FINANCIAL HIGHLIGHTS
Consolidated financial highlights for Kennametal Inc. for the quarter ended September 30, 2004 and 2003 are shown in the following tables (in thousands, except per share amounts).
Consolidated Statements of Income (Unaudited)
Quarter Ended
September 30,
2004 2003
Sales $531,436 $444,575
Cost of goods sold (1) 358,041 300,468
Gross profit 173,395 144,107
Operating expense (2) 130,949 121,239
Restructuring and asset
impairment charges - 550
Amortization of
intangibles 537 470
Operating income 41,909 21,848
Interest expense 6,456 6,600
Other (income) expense,
net (1,574) 1,337
Income before provision for income
taxes and minority interest 37,027 13,911
Provision for income taxes 13,330 4,452
Minority interest 977 695
Net income $22,720 $8,764
Basic earnings per share $0.62 $0.25
Diluted earnings per share $0.61 $0.24
Dividends per share $0.17 $0.17
Basic weighted average shares
outstanding 36,373 35,336
Diluted weighted average shares
outstanding 37,363 35,989
(1) For the quarter ended September 30, 2003, these amounts include
charges of $0.1 million for integration activities related to the
Widia acquisition and $2.8 million related to restructuring programs.
(2) For the quarter ended September 30, 2003, these amounts include
charges of $1.4 million for integration activities related to the
Widia acquisition.
FINANCIAL HIGHLIGHTS (Continued)
In addition to reported results under U.S. GAAP, the following financial highlight tables also include, where appropriate, a reconciliation of results excluding special items and free operating cash flow (which are non-GAAP measures), to the most directly comparable GAAP measures. Management believes that each of these non-GAAP financial measures is useful to investors to more easily compare the Company's financial performance period to period.
For the quarter ended September 30, 2004, there were no special items.
RECONCILIATION TO GAAP - QUARTER ENDED SEPTEMBER 30, 2003 (Unaudited)
Diluted
Earnings
Gross Operating Operating Net Per
Profit Expense Income Income Share
2003 Reported Results $144,107 $121,239 $21,848 $8,764 $0.24
MSSG Restructuring 2,843 - 3,393 2,307 0.07
Widia Integration Costs -
MSSG 63 (1,448) 1,511 1,027 0.03
Widia Integration Costs -
AMSG 48 - 48 33 -
2003 Results Excluding
Special Items $147,061 $119,791 $26,800 $12,131 $0.34
EPS for the quarter ended September 30, 2004 of $0.61 is up 79 percent from EPS, excluding special charges, of $0.34 and 154 percent from EPS, as reported, of $0.24 for the quarter ended September 30, 2003.
FINANCIAL HIGHLIGHTS (Continued)
SEGMENT DATA (Unaudited):
Quarter Ended
September 30,
2004 2003
Outside Sales:
Metalworking Solutions and Services
Group $315,870 $271,129
Advanced Materials Solutions Group 117,886 93,631
J&L Industrial Supply 61,417 48,139
Full Service Supply 36,263 31,676
Total Outside Sales $531,436 $444,575
Sales By Geographic Region:
Within the United States $277,147 $232,614
International 254,289 211,961
Total Outside Sales $531,436 $444,575
Operating Income (Loss), as reported:
Metalworking Solutions and Services
Group $38,872 $23,502
Advanced Materials Solutions Group 14,533 11,822
J&L Industrial Supply 5,721 2,685
Full Service Supply 120 (281)
Corporate and Eliminations (1) (17,337) (15,880)
Total Operating Income $41,909 $21,848
Operating Income (Loss), excluding
special charges:
Metalworking Solutions and Services
Group $38,872 $28,406
Advanced Materials Solutions Group 14,533 11,870
J&L Industrial Supply 5,721 2,685
Full Service Supply 120 (281)
Corporate and Eliminations (1) (17,337) (15,880)
Total Operating Income $41,909 $26,800
(1) Includes corporate functional shared services and intercompany
eliminations.
FINANCIAL HIGHLIGHTS (Continued)
OPERATING INCOME / (LOSS) RECONCILIATION (Unaudited):
For the quarter ended September 30, 2004, there were no special items.
QUARTER ENDED SEPTEMBER 30,
Corp. &
MSSG AMSG J&L FSS Elim. Total
2003 Reported
Operating Income
(Loss) $23,502 $11,822 $2,685 $(281) $(15,880) $21,848
Restructuring 3,393 - - - - 3,393
Widia Integration
Costs 1,511 48 - - - 1,559
2003 Operating Income
(Loss) Excluding
Special Items $28,406 $11,870 $2,685 $(281) $(15,880) $26,800
RECONCILIATION TO FREE OPERATING CASH FLOW INFORMATION (Unaudited)
Quarter Ended
September 30,
2004 2003
Net income $22,720 $8,764
Other non-cash items 5,282 6,473
Depreciation and amortization 15,468 15,351
Change in inventory (13,022) 3,728
Change in accounts receivable (3,058) 5,054
Change in accounts payable (3,178) (12,512)
Change in other assets and
liabilities 7,595 (14,673)
Net cash flow provided by operating
activities 31,807 12,185
Purchase of property, plant and
equipment (15,219) (10,594)
Proceeds from disposals of property,
plant and equipment 506 534
Free operating cash flow $17,094 $2,125
FINANCIAL HIGHLIGHTS (Continued)
CONDENSED BALANCE SHEETS (Unaudited)
09/30/04 06/30/04 03/31/04
ASSETS
Cash and equivalents $28,688 $25,940 $27,528
Trade receivables, net of allowance 369,008 364,725 357,795
Receivables securitized (115,309) (117,480) (108,916)
Accounts receivable, net 253,699 247,245 248,879
Inventories 404,478 388,077 387,202
Deferred income taxes 96,144 95,240 87,651
Other current assets 37,178 40,443 38,803
Total current assets 820,187 796,945 790,063
Property, plant and equipment, net 487,616 484,475 481,793
Goodwill and Intangible assets, net 545,901 542,014 554,614
Other assets 116,319 115,229 59,641
Total $1,970,023 $1,938,663 $1,886,111
LIABILITIES
Short-term debt, including notes
payable $116,446 $126,807 $8,193
Accounts payable 146,543 148,216 132,246
Accrued liabilities 220,496 214,359 202,460
Total current liabilities 483,485 489,382 342,899
Long-term debt 318,989 313,400 486,119
Deferred income taxes 63,113 64,571 38,045
Other liabilities 162,627 167,926 192,546
Total liabilities 1,028,214 1,035,279 1,059,609
MINORITY INTEREST 17,377 16,232 16,598
SHAREOWNERS' EQUITY 924,432 887,152 809,904
Total $1,970,023 $1,938,663 $1,886,111
CONDENSED BALANCE SHEETS (Unaudited)
12/31/03 09/30/03
ASSETS
Cash and equivalents $15,086 $14,720
Trade receivables, net of allowance 324,509 327,464
Receivables securitized (101,422) (95,318)
Accounts receivable, net 223,087 232,146
Inventories 386,250 387,877
Deferred income taxes 88,020 86,888
Other current assets 39,460 47,003
Total current assets 751,903 768,634
Property, plant and equipment, net 487,530 489,242
Goodwill and Intangible assets, net 500,890 484,662
Other assets 72,802 67,108
Total $1,813,125 $1,809,646
LIABILITIES
Short-term debt, including notes
payable $12,872 $11,375
Accounts payable 112,563 107,653
Accrued liabilities 183,835 197,578
Total current liabilities 309,270 316,606
Long-term debt 468,455 508,763
Deferred income taxes 36,087 41,368
Other liabilities 191,585 180,258
Total liabilities 1,005,397 1,046,995
MINORITY INTEREST 16,286 16,089
SHAREOWNERS' EQUITY 791,442 746,562
Total $1,813,125 $1,809,646
Debt to Capital Reconciliation (Unaudited)
September 30,
2004 2003
Total Debt $435,435 $520,138
Total Shareowners' Equity 924,432 746,562
Debt to Equity, GAAP 47.1% 69.7%
Total Debt $435,435 $520,138
Minority Interest 17,377 16,089
Total Shareowners' Equity 924,432 746,562
Total Capital $1,377,244 $1,282,789
Debt to Capital 31.6% 40.5%
FINANCIAL HIGHLIGHTS (Continued)
RETURN ON INVESTED CAPITAL (Unaudited)
For the Period Ended September 30, 2004
Invested Capital 9/30/2004 6/30/2004 3/31/2004
Debt $435,435 $440,207 $494,312
Acct. Rec. Securitized 115,309 117,480 108,916
Minority Interest 17,377 16,232 16,598
Equity 924,432 887,152 809,904
Total $1,492,553 $1,461,071 $1,429,730
RETURN ON INVESTED CAPITAL (Unaudited)
For the Period Ended September 30, 2004
Invested Capital 12/31/2003 9/30/2003 Average
Debt $481,327 $520,138 $474,284
Acct. Rec. Securitized 101,422 95,318 107,689
Minority Interest 16,286 16,089 16,516
Equity 791,442 746,562 831,899
Total $1,390,477 $1,378,107 $1,430,388
Quarter Ended
9/30/ 6/30/ 3/31/ 12/31/
Interest Expense 2004 2004 2004 2003 Total
Interest Expense $6,456 $6,405 $6,332 $6,547 $25,740
Securitization Interest 580 443 356 483 1,862
Total Interest Expense $7,036 $6,848 $6,688 $7,030 27,602
Income Tax Benefit 9,109
Total Interest Expense, net
of tax $18,493
Quarter Ended
9/30/ 6/30/ 3/31/ 12/31/
Total Income 2004 2004 2004 2003 Total
Net Income, as
reported $22,720 $29,852 $24,070 $10,892 $87,534
Minority Interest
Expense 977 (36) 533 404 1,878
MSSG Restructuring - - - 1,109 1,109
AMSG Restructuring - - - 1,018 1,018
Pension Curtailment - - - 883 883
Gain on Toshiba
Investment - - - (2,990) (2,990)
Strong Tool Note
Receivable - - - 1,360 1,360
Total Income,
excluding special
charges $23,697 $29,816 $24,603 $12,676 $90,792
Total Income,
excluding special
charges $90,792
Total Interest
Expense, net of tax 18,493
$109,285
Average Invested
Capital $1,430,388
Adjusted Return on
Invested Capital 7.6%
Return on Invested
Capital calculated
utilizing Net Income,
as reported is as
follows:
Net Income, as
reported $87,534
Total Interest
Expense, net of tax 18,493
$106,027
Average Invested
Capital $1,430,388
Return on Invested
Capital 7.4%
FINANCIAL HIGHLIGHTS (Continued)
For the Period Ended September 30, 2003
Invested Capital 9/30/2003 6/30/2003 3/31/2003
Debt $520,138 $525,687 $580,135
Acct. Rec. Securitized 95,318 99,316 93,614
Minority Interest 16,089 18,880 18,070
Equity 746,562 721,577 756,511
Total $1,378,107 $1,365,460 $1,448,330
For the Period Ended September 30, 2003
Invested Capital 12/31/2002 9/30/2002* Average
Debt $617,016 $596,715 $567,938
Acct. Rec. Securitized 100,000 94,319 96,514
Minority Interest 17,594 13,001 16,727
Equity 737,729 713,427 735,161
Total $1,472,339 $1,417,462 $1,416,340
Quarter Ended
9/30/ 6/30/ 3/31/ 12/31/
Interest Expense 2003 2003 2003 2002 Total
Interest Expense $6,600 $9,108 $8,979 $9,594 $34,281
Securitization Interest 397 413 406 536 1,752
Total Interest Expense $6,997 $9,521 $9,385 $10,130 36,033
Income Tax Benefit 11,531
Total Interest Expense,
net of tax $24,502
Quarter Ended
Total Income 9/30/ 6/30/ 3/31/ 12/31/
2003 2003 2003 2002 Total
Net Income, as reported $8,764 $(4,868) $9,699 $2,470 $16,065
Minority Interest Expense 695 74 739 709 2,217
MSSG Restructuring 2,307 2,194 754 3,394 8,649
AMSG Restructuring - 857 773 1,577 3,207
Corporate Restructuring - (69) 195 670 796
J&L Restructuring - (45) 561 327 843
FSS Restructuring - - 6 20 26
Widia Integration Costs -
MSSG 1,027 1,758 1,337 967 5,089
Widia Integration Costs -
AMSG 33 818 13 3 867
AMSG Electronics
Impairment - 15,269 - - 15,269
Total Income, excluding
special charges $12,826 $15,988 $14,077 $10,137 $53,028
Total Income, excluding
special charges $53,028
Total Interest Expense,
net of tax 24,502
$77,530
Average Invested Capital $1,416,340
Adjusted Return on Invested
Capital 5.5%
Return on Invested
Capital calculated
utilizing Net Income,
as reported is as
follows:
Net Income, as
reported $16,065
Total Interest
Expense, net of tax 24,502
$40,567
Average Invested
Capital $1,416,340
Return on Invested
Capital 2.9%
* The September 30, 2002 invested capital components utilized represent
average balances for the three months ended September 30, 2002 due to
the Widia acquisition in August 2002.
SOURCE: Kennametal Inc.
CONTACT: Investor Relations, Beth A. Riley, or Media Relations, Joy
Chandler, both of Kennametal Inc., +1-724-539-6141
Web site: http://www.kennametal.com/