Kennametal Announces Second Quarter 2013 Results

               Kennametal Announces Second Quarter 2013 Results

- Reported EPS of $0.52; Stellite accretive $0.02 per share

- Delivered double digit operating margin

- Strengthened financial position and liquidity with $400 million bond
issuance

- Revised guidance for slower-than-expected recovery

PR Newswire

LATROBE, Pa., Jan. 24, 2013

LATROBE, Pa., Jan.24, 2013 /PRNewswire/ --Kennametal Inc. (NYSE: KMT) today
reported fiscal 2013 second-quarter results, with earnings per diluted share
(EPS) of $0.52 compared with the prior-year quarter EPS of $0.91.

"We again sustained strong performance, in both profitability and return on
invested capital, despite generally lackluster activity in the global
industrial markets," said Kennametal Chairman, President and Chief Executive
Officer Carlos Cardoso. "While recovery is progressing more slowly than
expected, we have kept our organization agile and ready for the resumption of
growth. Our Stellite acquisition is contributing to earnings and opening us to
new growth opportunities in the energy and power generation industries. In
addition, Kennametal remains committed to maximizing our results and
maintaining our strong balance sheet to deliver increased shareholder value."

Fiscal 2013 Second Quarter Key Developments

  oSales were $633 million, compared with $642 million in the same quarter
    last year. Sales decreased by 1 percent, reflecting a 10 percent organic
    decline and a 1 percent unfavorable effect from currency exchange,
    partially offset by a 9 percent increase from Stellite and 1 percent from
    the effect of more business days.
  oOperating income was $66 million, compared with $94 million in the same
    quarter last year. Stellite contributed $5 million of operating income in
    the current year quarter. Operating income decreased due to lower
    absorption of manufacturing costs related to reduced sales volume and an
    inventory reduction initiative, as well as an unfavorable sales mix. The
    company reduced operating expense with additional cost-control measures to
    partially offset these effects. Excluding Stellite, adjusted operating
    margin was 10.7 percent, compared with an operating margin of 14.7 percent
    in the prior year.
  oThe results reflect a higher effective tax rate in the current quarter, at
    26.4 percent, compared with 17.3 percent in the prior year. The difference
    includes the impacts of a valuation allowance adjustment in the prior year
    and lower current quarter earnings contribution from Europe where tax
    rates are lower than those in the United States.
  oEPS were $0.52, compared with the prior year quarter EPS of $0.91. The
    current year EPS includes $0.02 per share accretion from Stellite.
  oAdjusted return on invested capital (ROIC) was 12.5 percent as of December
    31, 2012.
  oYear to date, the company generated $54 million in cash flow from
    operating activities, compared with $71 million in the prior year period.
    Net capital expenditures were $34 million and $33 million for the six
    months ended December 31, 2012 and 2011, respectively. For the first half
    of this fiscal year, the company realized free operating cash flow of $21
    million compared with $38 million for the same period last year.
  oThe company also bought back 560,200 shares of its capital stock.
    Year-to-date purchases now total approximately 1.3 million shares, under
    the amended, multiyear share repurchase program announced in July.
    Approximately 7.2 million shares remain available under the program.

Enhanced Liquidity and Strengthened Financial Position

In November 2012, the company further enhanced liquidity and strengthened its
financial position by issuing $400 million of 2.65 percent Senior Unsecured
Notes due in 2019.

Segment Developments for the Fiscal 2013 Second Quarter

  oIndustrial segment sales of $361 million declined 12 percent from $410
    million in the prior year quarter, reflecting a 10 percent organic decline
    and a 2 percent unfavorable effect from currency exchange. On an organic
    basis, sales declined 15 percent in general engineering and 8 percent in
    transportation, while aerospace and defense sales grew 10 percent.
    Inventory destocking affected indirect sales in general engineering, as
    distributors responded to the slow macro environment. The decline in
    transportation reflected lower vehicle production rates and extended plant
    shut-downs, while aerospace and defense sales grew with increased
    production of commercial aircraft. On a regional basis, sales declined
    approximately 15 percent in Asia, 9 percent in Europe and 8 percent in the
    Americas.
  oIndustrial segment operating income was $37 million compared with $63
    million in the prior year. Industrial operating income decreased due to
    lower absorption of manufacturing costs related to reduced sales volume
    and an inventory reduction initiative, as well as an unfavorable sales
    mix. Industrial operating margin was 10.4 percent compared with 15.3
    percent in the prior year.
  oInfrastructure segment sales of $272 million increased 17 percent from
    $232 million in the prior year, driven by 26 percent growth from Stellite,
    partially offset by an 8 percent organic decline and a 1 percent
    unfavorable effect from currency exchange. On an organic basis, sales
    declined by 13 percent in energy and 6 percent in the earthworks markets.
    Earthworks sales declined from persistently weak coal mining activity in
    North America, where a number of mine closures further depressed sales.
    Energy sales fell globally due to reduced drilling activity in oil and
    gas. On a regional basis excluding the impact of Stellite, sales decreased
    approximately 12 percent in the Americas and 3 percent in Asia and
    remained flat in Europe.
  oInfrastructure segment operating income was $31 million, compared with $33
    million in the same quarter of the prior year. Operating income benefited
    from Stellite operating income of $5 million, which was more than offset
    by the effects of the organic sales decline and lower absorption of
    manufacturing costs, as well as an unfavorable sales mix. Infrastructure
    adjusted operating margin was 12.3 percent compared with 14.4 percent in
    the prior year.

Fiscal 2013 First Half Key Developments

  oSales were $1,263 million, compared with $1,301 million in the same period
    last year. Sales decreased by 3 percent, driven by an 8 percent organic
    decline and 4 percent unfavorable effect from currency exchange, partially
    offset by a 9 percent increase from Stellite.
  oOperating income was $131 million, compared with $196 million in the same
    period last year. Stellite contributed $8 million of operating income year
    to date. Operating income decreased primarily due to lower sales volume,
    lower absorption of manufacturing costs as well as unfavorable currency
    exchange. This decrease was partially offset by reduced operating expense
    achieved with cost control. Excluding Stellite, year to date adjusted
    operating margin was 10.7 percent, compared with an operating margin of
    15.0 percent in the prior year.
  oEPS were $1.09, compared with the prior year period EPS of $1.79. The
    current year EPS includes $0.02 per share accretion from Stellite.

Reconciliations of all non-GAAP financial measures are set forth in the tables
attached, and corresponding descriptions are contained in the company's report
on Form 8-K, to which this news release is attached.

Outlook

Due to slower than expected demand in the company's served markets, Kennametal
adjusted its full-year outlook given lower sales volumes. However, the company
notes that its order rates have remained steady over the past few months,
which may reflect that bottoming has occurred.

The company now expects fiscal 2013 sales growth between negative 2 and
negative 4 percent, with organic sales ranging from negative 7 to negative 9
percent. Previously, the company had forecast total sales growth ranging from
3 to 6 percent with organic sales growth of flat to negative 3 percent.

Based on the revision, the company has reduced its EPS guidance for fiscal
2013 to range from $2.60 to $2.80, versus its previous expectation of $3.40 to
$3.70. Included in this outlook is the accretive contribution of the Stellite
acquisition, which is now expected to range between $0.10 and $0.15 per share
as compared to the previous range of $0.15 and $0.25 per share, net of
integration costs.

The company now expects to generate cash flow from operations between $290
million and $325 million for fiscal 2013, compared with the previous range of
$320 million to $385 million. Based on anticipated capital expenditures of
approximately $90 million to $100 million, the company expects to generate
between $200 million and $225 million of free operating cash flow for the full
fiscal year, as compared to the previous range of $225 million to $275
million.

Dividend Declared

Kennametal also announced that its board of directors declared a quarterly
cash dividend of $0.16 per share. The dividend is payable February 20, 2013 to
shareowners of record as of the close of business on February 5, 2013.

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

The company will discuss its fiscal 2013 second-quarter results in a live
webcast at 10:00 a.m. ET today. This event will be broadcast live on the
company's website, www.kennametal.com. To access the webcast, select "Investor
Relations" and then "Events." A recorded replay of this event also will be
available on the company's website through February 25, 2013.

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 earnings, sales volumes, and cash flow for fiscal year 2013 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: economic recession; availability and cost of the raw materials we use
to manufacture our products; 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; demand for and market acceptance
of our products; integrating acquisitions and achieving the expected savings
and synergies; business divestitures; 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 undertake no
obligation to release publicly any revisions to forward-looking statements as
a result of future events or developments.

Kennametal Inc. (NYSE: KMT) 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 2012,
customers bought nearly $3 billion of Kennametal products and services –
delivered by our approximately 13,000 talented employees doing business in
more than 60 countries worldwide – with more than 50 percent of these revenues
coming from outside North America. Visit us at www.kennametal.com.



FINANCIAL HIGHLIGHTS
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
                                                  
                            Three Months Ended
                            December 31,          Six Months Ended
                                                  December 31,
(in thousands, except per   2012       2011       2012         2011
share amounts)
Sales                       $ 633,144  $ 641,741  $ 1,262,603  $ 1,300,618
Cost of goods sold          433,697    409,855    854,808      817,672
Gross profit                199,447    231,886    407,795      482,946
Operating expense           127,778    134,566    266,638      280,555
Amortization of intangibles 5,200      3,272      10,307       6,733
Operating income            66,469     94,048     130,850      195,658
Interest expense            6,970      5,256      12,926       10,743
Other expense (income), net 655        (1,258)    (246)        (684)
Income from continuing
operations before           58,844     90,050     118,170      185,599

income taxes
Provision for income taxes  15,535     15,579     27,815       37,555
Net income                  43,309     74,471     90,355       148,044
Less: Net income
attributable to             1,167      774        1,823        2,361
noncontrolling interests
Net income attributable to  $ 42,142   $ 73,697   $ 88,532     $ 145,683
Kennametal
PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL SHAREOWNERS
Basic earnings per share    $ 0.53     $ 0.92     $ 1.11       $ 1.82
Diluted earnings per share  $ 0.52     $ 0.91     $ 1.09       $ 1.79
Dividends per share         $ 0.16     $ 0.14     $ 0.32       $ 0.26
Basic weighted average      79,713     79,765     79,980       80,212
shares outstanding
Diluted weighted average    80,986     80,936     81,164       81,357
shares outstanding



CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands)                                December 31, 2012  June 30, 2012
ASSETS
Cash and cash equivalents                     $   216,771        $  116,466
Accounts receivable, net                      412,563            478,989
Inventories                                   619,484            585,856
Other current assets                          107,545            101,651
Total current assets                          1,356,363          1,282,962
Property, plant and equipment, net            737,638            742,201
Goodwill and other intangible assets, net     961,786            962,837
Other assets                                  44,752             46,188
Total assets                                  $   3,100,539      $  3,034,188
LIABILITIES
Current maturities of long-term debt and      $   2,647          $  75,137
capital leases, including notes payable
Accounts payable                              155,401            219,475
Other current liabilities                     204,477            284,010
Total current liabilities                     362,525            578,622
Long-term debt and capital leases             704,212            490,608
Other liabilities                             289,359            296,737
Total liabilities                             1,356,096          1,365,967
KENNAMETAL SHAREOWNERS' EQUITY                1,719,991          1,643,850
NONCONTROLLING INTERESTS                      24,452             24,371
Total liabilities and equity                  $   3,100,539      $  3,034,188



SEGMENT DATA (UNAUDITED)     Three Months Ended    Six Months Ended
                             December 31,          December 31,
(in thousands)               2012       2011       2012         2011
Outside Sales:
Industrial                   $ 361,171  $ 409,887  $ 714,348    $ 827,706
Infrastructure               271,973    231,854    548,255      472,912
Total outside sales          $ 633,144  $ 641,741  $ 1,262,603  $ 1,300,618
Sales By Geographic Region:
North America                $ 279,943  $ 288,622  $ 563,167    $ 591,168
Western Europe               184,433    177,474    360,587      362,973
Rest of World                168,768    175,645    338,849      346,477
Total sales by geographic    $ 633,144  $ 641,741  $ 1,262,603  $ 1,300,618
region
Operating Income:
Industrial                   $ 37,402   $ 62,898   $ 72,591     $ 135,583
Infrastructure               31,181     33,312     62,916       65,866
Corporate ^(1)               (2,114)    (2,162)    (4,657)      (5,791)
Total operating income       $ 66,469   $ 94,048   $ 130,850    $ 195,658
^(1) Represents unallocated corporate expenses

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, sales, operating income and margin, net income and diluted earnings
per share, Infrastructure sales, operating income and margin, free operating
cash flow and return on invested capital (which are non-GAAP financial
measures), to the most directly comparable GAAP measures. 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 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 on Form 8-K to which
this release is attached.



THREE MONTHS ENDED DECEMBER 31, 2012 - (UNAUDITED)
                                            Infrastructure   Infrastructure
(in thousands,                                               Operating
except percents)                            Sales
                                                             Income
2013 Reported                               $     271,973    $    31,181
Results
2013 Reported                                                11.5%
Operating Margin
Acquisition impact                          (60,151)         (5,186)
^(2)
2013 Adjusted                               $     211,822    $    25,995
Results
2013 Adjusted                                                12.3%
Operating Margin
THREE MONTHS ENDED DECEMBER 31, 2012 - (UNAUDITED)
(in thousands,                   Operating
except per share      Sales                 Net Income ^(3)  Diluted EPS
amounts)                         Income
2013 Reported         $ 633,144  $  66,469  $     42,142     $    0.52
Results
2013 Reported                    10.5%
Operating Margin
Acquisition impact    (60,151)   (5,186)    (1,696)          (0.02)
^(2)
2013 Adjusted         $ 572,993  $  61,283  $     40,446     $    0.50
Results
2013 Adjusted                    10.7%
Operating Margin
SIX MONTHS ENDED DECEMBER 31, 2012 - (UNAUDITED)
(in thousands,                   Operating
except per share      Sales                 Net Income ^(3)  Diluted EPS
amounts)                         Income
2013 Reported         1,262,603  130,850    88,532           1.09
Results
2013 Reported                    10.4%
Operating Margin
Acquisition impact    (119,656)  (8,278)    (2,071)          (0.02)
^(2)
2013 Adjusted         1,142,947  122,572    86,461           1.07
Results
2013 Adjusted                    10.7%
Operating Margin
^(2) Includes the impact of Stellite operations
^(3) Represents amounts attributable to Kennametal Shareowners



FREE OPERATING CASH FLOW (UNAUDITED)                               Six Months Ended
                                                                   December 31,
(in thousands)                                                     2012         2011
Net cash flow from operating activities                            $ 54,235     $ 71,099
Purchases of property, plant and equipment                         (34,372)     (35,593)
Proceeds from disposals of property, plant and equipment           704          2,557
Free operating cash flow                                           $ 20,567     $ 38,063
RETURN ON INVESTED CAPITAL (UNAUDITED)
December 31, 2012 (in thousands, except percents)
Invested       12/31/2012   9/30/2012    6/30/2012    3/31/2012    12/31/2011   Average
Capital
Debt           $ 706,859    $ 601,124    $ 565,745    $ 640,871    $ 307,938    $ 564,507
Total equity   1,744,443    1,712,532    1,668,221    1,745,699    1,630,174    1,700,214
Total          $ 2,451,302  $ 2,313,656  $ 2,233,966  $ 2,386,570  $ 1,938,112  $ 2,264,721
                            Three Months Ended
Interest                    12/31/2012   9/30/2012    6/30/2012    3/31/2012    Total
Expense
Interest                    $ 6,970      $ 5,956      $ 8,469      $ 8,003      $ 29,398
expense
Income tax                                                                      6,321
benefit
Total interest
expense, net                                                                    $ 23,077
of tax
Total Income                12/31/2012   9/30/2012    6/30/2012    3/31/2012    Total
Net income
attributable                $ 42,142     $ 46,390     $ 86,048     $ 75,499     $ 250,079
to Kennametal,
as reported
Stellite
acquisition                 —            —            2,267        4,738        7,005
charges
Noncontrolling              1,167        657          504          738          3,066
interest
Total income,               $ 43,309     $ 47,047     $ 88,819     $ 80,975     $ 260,150
adjusted
Total interest
expense, net                                                                    23,077
of tax
                                                                                $ 283,227
Average invested capital                                                        $ 2,264,721
Adjusted Return on Invested Capital                                             12.5%
Return on invested capital calculated utilizing net income, as reported is as
follows:
Net income attributable to Kennametal, as reported                              $ 250,079
Total interest expense, net of tax                                              23,077
                                                                                $ 273,156
Average invested capital                                                        $ 2,264,721
Return on Invested Capital                                                      12.1%



SOURCE Kennametal Inc.

Website: http://www.kennametal.com
Contact: Investor Relations, Quynh McGuire, +1-724-539-6559, or Corporate
Relations - Media, Lorrie Paul Crum, +1-724-539-6792
 
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