Kennametal Inc. · NYSE:KMT
Kennametal — FY2022 Earnings Presentation
38 slides from Kennametal's earnings presentation, Aug 2, 2022
Slide 1: FY22 Fourth Quarter and Year-end Earnings Call Presentation
FY22 Fourth Quarter and Year-end Earnings Call Presentation August 2, 2022 0 | © 2021 Kennametal Inc. l All rights reserved.
Slide 2: Safe Harbor Statement
Safe Harbor Statement 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 rel
Slide 3: Strong FY22 results and operating leverage demonstrate strength of transformation
Strong FY22 results and operating leverage demonstrates strength of transformation and strategic initiatives FY22 Highlights Sales up 9% as demand recovers and growth initiatives accelerate • 11% organic sales growth vs. (4)% decline prior year; FX headwind of (2)%, business days neutral • YoY gro
Slide 4: Q4 results highlight continuing growth offset by high inflation, FX and macro headwinds
Q4 results highlight continuing growth offset by high inflation, FX and other macro headwinds Q4 FY22 Highlights Price and growth initiatives driving sales • Sales up 3% YoY to $530 million; organic growth 7% with (4)% effect due to fx and no effect due to business days • Effect of Russian busines
Slide 5: Transformation evident with significant 660 bps margin improvement
Transformation evident with significant 660 bps margin improvement Financial performance post-FY16 Sales and Adjusted EBITDA margin Benefits already realized even at current low volume levels: FY16 vs. FY22 $85 million from FY17 headcount reduction and ~$200 million from Simplification/Modernizati
Slide 6: Strong competitive position with room to grow through share gain
Strong competitive position with room to grow through share gain & by targeting underserved markets Growth Roadmap: FY23 and Beyond Grow share in Mega-trends Growth in Accelerate current base + align with KMT + underserved + with M&A business expertise markets • KMT holds leadership • Steady demand
Slide 7: Innovation and Commercial Excellence initiatives continuing to drive share gain
Innovation and Commercial Excellence initiatives continuing to drive share gain Recent Customer Wins Electric Vehicles Semiconductors Landing Gear Extrusion Wear Additive Manufacturing Photo credit GE Additive • Secured first major win • KMT expertise in • When OEM was re- • Superior tungsten • Part
Slide 8: Results reflect strong execution of initiatives in inflationary environment
Results reflect strong execution of initiatives in inflationary environment Consolidated Q4 FY22 Financial Overview Adjusted Reported Change from Quarter Ended ($ in millions) PY June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021 Sales 3% $530 $516 $530 $516 Organic 7% 29% 7% 29% FX (4)% 6% (4)
Slide 9: Q4 FY22 Adjusted EPS Bridge
Focus on initiatives offsetting macro environment headwinds Q4 FY22 Adjusted EPS Bridge $0.05 $0.53 $0.01 $0.53 ($0.03 ) ($0.03) Drivers: Price offsetting raw material cost increases, Operational Excellence initiatives, volume and lower incentive compensation mitigate higher manufacturing costs incl
Slide 10: Solid performance despite challenging market dynamics
Solid performance despite challenging market dynamics Sales by Geography Sales by End Market Metal Cutting Business Segment AsiaPac 21% Americas Aerospace 10% Energy 7% General 43% Engineering Q4 FY22 Summary 56% EMEA Transportation 36% 27% Q4 FY22 sales $316 million; organic sales up 7% YoY • Regio
Slide 11: Price and productivity initiatives mitigating effects of inflationary headwinds
Price and productivity initiatives mitigating effects of inflationary headwinds Sales by Geography Sales by End Market AsiaPac General Infrastructure Business Segment 22% Engineering 33% Energy 28% Q4 FY22 Summary EMEA 18% Americas Earthworks 60% 39% Q4 FY22 sales $214 million; 7% organic sales grow
Slide 12: Strong free operating cash flow, balance sheet and liquidity position
Strong free operating cash flow, balance sheet and liquidity position Total Debt Net Debt Debt Structure & Covenants Debt profile $1,095 $1,100 • Two $300M notes mature June 2028 & March 2031 • $700M revolver amended and extended • Matures June 2027 $ Millions $800 • Covenant ratio well within limit
Slide 13: Q1 Outlook: Focused execution despite continuing high inflation, FX and macro headwinds
Q1 Outlook: Focused execution of initiatives despite continuing high inflation, FX & other macro headwinds Q1 FY23 Outlook Outlook range reflects the following assumptions: • Continued growth in Aerospace, Energy, Earthworks and General Engineering $480M - $500M Sales (9)-(6)% sequentially, slightly
Slide 14: FY23 Outlook: Execution of strategic initiatives continues to drive progress
FY23 Outlook: Execution of strategic initiatives continues to drive progress throughout the year FY23 Total Year Outlook Outlook reflects Q1 assumptions as well as the following: • High inflation continues through the year Pricing action expected to offset raw Price vs. Inflation material costs, wag
Slide 15: Strong balance sheet and cashflow supports reinvestment and cash to shareholders
Strong balance sheet and cashflow supports reinvestment and cash to shareholders Capital Allocation Strategy FY16 - FY21: Margin and Footprint Focus FY22 and beyond: Margin and Growth Focus Cash Allocation Priorities Cash Allocation Priorities • Sustain modernized manufacturing Capital investment •
Slide 16: Modernized footprint and balanced capital allocation strategy
Modernized footprint and balanced capital allocation strategy for growth and margin improvement Foundation and strategy in place for future outperformance Strong FY22 despite macro challenges sets strong base for further advancing our strategy • Improved cost structure sets strong base for efficient
Slide 17: Appendix
Appendix E< KENNAMETAL
Slide 18: Consolidated FY22 Financial Results
Margin improvement driven by strong execution of initiatives Consolidated FY22 Financial Results Adjusted Reported Change from Quarter Ended ($ in millions) PY June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021 Sales 9% $2,012 $1,841 $2,012 $1,841 Organic 11% (4)% 11% (4)% FX (2)% 2% (2)% 2% Bu
Slide 19: FY22 Adjusted EPS Bridge
Price, volume and execution of initiatives driving strong EPS growth FY22 Adjusted EPS Bridge $0.75 $0.07 $1.78 ($0.05) ($0.03) $1.04 Drivers: Price offsetting raw material cost increases, volume, Operational Excellence initiatives and lower incentive compensation partially offset by higher manufact
Slide 20: Adjusted Segment Results
All end-markets recovering; aerospace, general engineering and energy at double-digit YoY growth Adjusted Segment Results Period Ending June 30, 2022 ($ in millions) Q4 FY22 Fiscal Year 2022 Metal Cutting Infrastructure Total Metal Cutting Infrastructure Total Sales $316 $214 $530 $1,227 $785 $2,012
Slide 21: Balance Sheet
Balance Sheet ASSETS ($ in millions) June 2022 June 2021 Cash and cash equivalents $86 $154 Accounts receivable, net 295 303 Inventories 571 476 Other current assets 73 71 Total current assets 1,025 1,005 Property, plant and equipment, net 1,002 1,055 Goodwill and other intangible assets, net 370 39
Slide 22: Non-GAAP Reconciliations
Non-GAAP Reconciliations The information presented by the Company contains certain non-GAAP financial measures including organic sales decline, constant currency regional sales growth (decline), constant currency end market sales growth (decline), adjusted gross profit and margin; adjusted operating
Slide 23: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Constant Currency End Market Sales Growth (Decline) Constant currency end market sales growth (decline) is a non-GAAP financial measure of sales growth (decline) (which is the most directly comparable GAAP measure) by end market excluding the impacts of acquisitions
Slide 24: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Operating Operating Effective Tax ($ in millions, except percents and per share data) Sales Gross Profit Expense Income Net Income(5) Diluted EPS Rate Q4 FY22 Reported Results $ 530.0 $ 169.7 $ 102.7 $ 62.7 $ 41.7 $ 0.50 27.8 % Reported Margins 32.0 % 19.4 % 11.8 %
Slide 25: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Operating Operating Effective Tax ($ in millions, except percents and per share data) Sales Gross Profit Expense Income Net Income(5) Diluted EPS Rate FY22 Reported Results $ 2,012.5 $ 648.0 $ 419.1 $ 218.1 $ 144.6 $ 1.72 27.3 % Reported Margins 32.2 % 20.8 % 10.8 %
Slide 26: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Three months ended June 30, Year ended June 30, ($ in millions) 2022 2021 2022 2021 2016 Net income attributable to Kennametal, reported $ 41.7 $ 35.1 $ 144.6 $ 54.4 $ (226.0) Add back: Interest expense 6.7 6.6 25.9 46.4 27.8 Interest income (0.2) (0.2) (1.0) (0.9)
Slide 27: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Metal Cutting Infrastructure Metal Cutting Operating Infrastructure Operating ($ in millions, except percents) Sales Income Sales Income Q4 FY22 Reported Results $ 316.4 $ 34.1 $ 213.6 $ 29.2 Reported Operating Margin 10.8 % 13.7 % Restructuring and related charges
Slide 28: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Metal Cutting Infrastructure Metal Cutting Operating Infrastructure Operating ($ in millions, except percents) Sales Income Sales Income FY22 Reported Results $ 1,227.3 $ 121.4 $ 785.2 $ 98.9 Reported Operating Margin 9.9 % 12.6 % Restructuring and related charges —
Slide 29: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Three months ended June 30, 2022 Metal Cutting Infrastructure Kennametal Organic sales growth 7% 7% 7% Foreign currency exchange effect (6) (2) (4) Sales growth 1% 5% 3% Three months ended June 30, 2021 Metal Cutting Infrastructure Kennametal Organic sales growth 30
Slide 30: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Metal Cutting Three months ended June 30, 2022 Americas EMEA Asia Pacific Constant currency regional sales growth (decline) 12 % 6% (1)% Foreign currency exchange effect 1% (12)% (4)% Regional sales growth (decline) 13 % (6)% (5)% Infrastructure Three months ended J
Slide 31: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Metal Cutting Year ended June 30, 2022 Americas EMEA Asia Pacific Constant currency regional sales growth (decline) 14 % 10 % (2)% Foreign currency exchange effect —% (6)% —% Regional sales growth (decline) 14 % 4% (2)% Infrastructure Year ended June 30, 2022 Americ
Slide 32: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Metal Cutting General Three months ended June 30, 2022 Engineering Transportation Aerospace Energy Constant currency end market sales growth 6% 4% 21 % 9% Foreign currency exchange effect (5)% (6)% (6)% (5)% End market sales growth (decline) 1% (2)% 15 % 4% Infrastr
Slide 33: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Metal Cutting General Year ended June 30, 2022 Engineering Transportation Aerospace Energy Constant currency end market sales growth (decline) 13 % (1)% 23 % 6% Foreign currency exchange effect (3)% (2)% (2)% (1)% End market sales growth (decline) 10 % (3)% 21 % 5%
Slide 34: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Net Debt Year ended (in millions) 6/30/2022 6/30/2021 6/30/2020 6/30/2019 Total debt (gross) $ 615.6 $ 600.5 $ 1,094.5 $ 592.6 Less: cash and cash equivalents 85.6 154.0 606.7 182.0 Net debt $ 530.0 $ 446.5 $ 487.8 $ 410.6 Three months ended June 30, Year ended June
Slide 35: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) (in thousands, except percents) 6/30/2022 3/31/2022 12/31/2021 9/30/2021 6/30/2021 Average Current assets $ 1,024,708 $ 1,043,241 $ 984,201 $ 966,948 $ 1,004,807 Current liabilities 485,610 460,365 410,983 389,223 437,394 Working capital, GAAP $ 539,098 $ 582,876 $
Slide 36: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) (in thousands, except percents) 6/30/2021 3/31/2021 12/31/2020 9/30/2020 6/30/2020 Average Current assets $ 1,004,807 $ 966,916 $ 948,686 $ 935,721 $ 1,440,812 Current liabilities 437,394 425,553 402,641 415,573 898,080 Working capital, GAAP $ 567,413 $ 541,363 $ 54
Slide 37: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) (in thousands, except percents) 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019 Average Current assets $ 1,440,812 $ 966,723 $ 1,035,912 $ 1,065,389 $ 1,190,827 Current liabilities 898,080 383,131 409,110 418,719 461,726 Working capital, GAAP $ 542,732 $ 583,592
Slide 38: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) (in thousands, except percents) 6/30/2019 3/31/2019 12/31/2018 9/30/2018 6/30/2018 Average Current assets $ 1,190,827 $ 1,162,842 $ 1,119,034 $ 1,121,482 $ 1,546,166 Current liabilities 461,726 430,018 412,053 439,171 886,531 Working capital, GAAP $ 729,101 $ 732,82