Kennametal reports fourth quarter and fiscal 2019 results

"We posted strong margin improvement in fiscal 2019 on moderate organic sales growth, reflecting increasing progress on our simplification/modernisation initiatives," said Christopher Rossi, President and CEO.

"A key milestone of those initiatives was the recent announcement of the intended closure of four of our facilities, which will drive further structural benefits and improve operational efficiency. We also continued to gain traction on our growth initiatives in general engineering and aerospace, with aerospace growing by double digits for the sixth consecutive quarter."

Rossi continued "Against this backdrop of year-over-year progress, we saw increased softening in most of our end-markets late in the year, which put pressure on our fourth quarter results. Our expectation is that this challenging macro environment will continue into the first half of fiscal 2020. Nevertheless, we will stay focused on the things we can control and execute our plan to improve long-term profitability."

 

Fiscal 2019 fourth quarter key developments

Sales were US$604 million compared with US$646 million in the same quarter last year. Sales decreased by 7%, driven by 4% unfavourable currency exchange impact, 2% organic decline and a 1% decrease due to fewer business days.

In connection with the company's simplification/modernisation initiative, pre-tax restructuring and related charges were US$10 million, or US$0.11 per share, and incremental pre-tax benefits from simplification/modernisation restructuring were approximately US$3 million in the quarter. The charges are net of a US$5 million gain from the sale of the Madison, ALmanufacturing facility, which was previously closed as part of our simplification/modernisation restructuring programmes. Annualised run-rate pre-tax benefits of approximately US$15 million have been achieved in connection with these substantially completed simplification/modernisation initiatives.

Operating income was US$85 million, or 14.1% margin, compared with US$94 million, or 14.5% margin, in the same quarter last year. Adjusted operating income was US$95 million, or 15.8% margin, compared with US$99 million, or 15.4% margin, in the prior year quarter. The decrease in adjusted operating income was driven by unfavourable volume-related labor and fixed cost absorption in certain facilities in part due to simplification/modernisation efforts in progress and unfavourable currency exchange, partially offset by incremental simplification/modernisation benefits and lower compensation expense.

The reported effective tax rate (ETR) was 21.0% and the adjusted ETR was 21.0%, compared to reported ETR of 21.1% and adjusted ETR of 22.1% in the prior year quarter.

 

Reported EPS in the current quarter includes restructuring and related charges of US$0.11 and a discrete benefit of US$0.01from the release of a valuation allowance on Australian deferred tax assets. Reported EPS in the prior year quarter includes restructuring and related charges of US$0.07 and a discrete benefit related to US tax reform of US$0.03.

Fiscal 2019 key developments

Sales of US$2375 million grew slightly from US$2368 million in the prior year. Organic sales growth of 3% was offset by unfavourable currency exchange of 3%.

Operating income was US$329 million, or 13.8%margin, compared with US$290 million, or 12.3% margin, in the prior year. Adjusted operating income was US$346 million, or 14.6% margin, compared with US$306 million, or 12.9% margin, in the prior year. Adjusted operating income increased primarily due to organic sales growth, incremental simplification/modernisation benefits, favourable mix and lower compensation expense, partially offset by unfavourable volume-related labor and fixed cost absorption in certain facilities in part due to simplification/modernisation efforts in progress, higher raw material costs and unfavourable currency exchange. Price realisation exceeded raw material cost inflation. For the year, simplification/modernisation benefits improved incrementally by approximately US$40 million.

Net cash flow provided by operating activities in fiscal 2019 was US$301 million compared to US$277 million in the prior year. Free operating cash flow (FOCF) was US$99 million compared to US$121 million in the prior year period. The change in FOCF was driven primarily by greater net capital expenditures related to simplification/modernisation initiatives, partially offset by increased cash flow from operations before changes in certain other assets and liabilities.

To read the full report:https://www.kennametal.com/en/about-us/prnewsdetail.html?newsid=123036

Read the article online at: https://www.globalminingreview.com/finance-business/06082019/kennametal-reports-4q19-and-fiscal-2019-results/