Kennametal Inc. · NYSE:KMT
Kennametal — Q4 FY2020 Earnings Presentation
37 slides from Kennametal's earnings presentation, Aug 4, 2020
Slide 1: FY20 Fourth Quarter and Year-end Earnings Call Presentation
FY20 Fourth Quarter and Year-end Earnings Call Presentation August 4, 2020 0 | © 2020 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: Managed the challenges of FY20 while focusing on the future
Managed the challenges of FY20 while focusing on the future Ensured business continuity • COVID-19 protocols remain in place to continue to operate safely and serve customers • All production facilities operational; India plant closed for ~6 weeks in the quarter due to government mandate Delivered s
Slide 4: Q4 FY20 results affected by weak end-markets; strong progress on initiatives
Q4 FY20 results affected by weak end-markets; strong progress on initiatives Q4 FY20 Overview & Highlights Organic sales affected by declining end-markets: (33)% organic sales decline vs. (2)% decline in prior year quarter • Effects from FX of (2)% and business divestiture of (2)% • Segment organi
Slide 5: Managing effectively through challenging period and emerging stronger
Managing effectively through challenging period and emerging stronger Looking Ahead Near-term outlook • Limited visibility due to COVID-19 effect • Continuing cost-control actions to protect margins • Capital spending significantly reduced in FY21 to $110M - 130M; weighted to the first half of FY21
Slide 6: Driving strategic growth through product innovation
Driving strategic growth through product innovation General Engineering Electric Vehicles Road Milling Traditional Kennametal PCD Technology Technology RIQ Reamer - Fine Boring KORTM 5 Tool VS. “Kennametal’s GOdrills, Harvi1’s, etc. have performed equally or better than many other brands I have put
Slide 7: Significant growth potential in expanded served market opportunity
Significant growth potential in expanded served market opportunity Change in structure and brand approach to target larger share-of-wallet We are moving… from separate organizations to a single metal cutting organization with improved strategic focus, with limited collaboration and more effective ut
Slide 8: Results reflect significant market weakness; managing costs to mitigate
Results reflect significant market weakness; managing costs to mitigate Consolidated Q4 FY20 Financial Overview Adjusted Reported Change Quarter Ended ($ in millions) from PY June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019 Sales (37)% $379 $604 $379 $604 Organic (33)% (2)% (33)% (2)% FX (2)%
Slide 9: Market slowdown negating strong Simplification/Modernization benefits
Market slowdown negating strong Simplification/Modernization benefits Q4 FY20 Adjusted EPS Bridge $0.90 $0.84 $0.80 Main drivers are lower volumes and associated $0.70 under absorption, partially offset by cost-control actions, lower variable compensation and raw $0.60 materials (+8 cents) $0.50 $0.
Slide 10: Significant slowdown in end-markets creating temporary challenges
Significant slowdown in end-markets creating temporary challenges Sales by Geography Sales by End-Market Industrial Business Segment AsiaPac 23% Americas 39% Energy 10% General Aerospace 14% Engineering Q4 FY20 Summary 48% EMEA 38% Transportation 28% Q4 FY20 sales $195 million; (36)% organic sales d
Slide 11: Slowing demand offsetting operational improvements; progress on initiatives
Slowing demand offsetting operational improvements; progress on initiatives Sales by Region AsiaPac WIDIA Business Segment 24% Americas 48% Q4 FY20 Summary EMEA 28% Q4 FY20 sales $32 million; (32)% organic decline against (3)% decline in prior year quarter • Regional sales*: Declines of (28)% in EME
Slide 12: Energy market declines and COVID-19 affecting results
Energy market declines and COVID-19 affecting results Sales by Geography Sales by End-Market General AsiaPac Infrastructure Business Segment 24% Engineering 32% Energy 25% Q4 FY20 Summary EMEA 18% Earthworks Americas 58% 43% Q4 FY20 sales $152 million; (29)% organic sales decline YoY on top of 1% gr
Slide 13: Strong year-end balance sheet and liquidity position
Strong year-end balance sheet and liquidity position 1,200 Total Debt Net Debt Debt Structure & Covenants 1,094 1,100 992 Debt Structure 1,000 • Two $300M notes; mature February 2022 & June 2028 900 • $700M revolver matures June 2023; preemptively drew $ Millions 800 696 $500M in April 2020 700 600
Slide 14: FY21 primary EPS and FOCF drivers
FY21 primary EPS and FOCF drivers Year-over-Year Change 1H21 2H21 FY21 Highlights Simplification/Modernization + + • Full year benefits ~$80 million + • 1H temporary cost-control actions EPS Drivers Temporary Cost-Control Actions ─ • Prior year actions & executive compensation 2H headwind Raw Materi
Slide 15: Solid plan to manage through the crisis and emerge with strength
Solid plan to manage through the crisis and emerge with strength Navigating through a challenging environment with a focus on the future Actively and aggressively managing cost and aligning production with current demand Maintaining strong liquidity position Optimizing cashflow: lower capital
Slide 16: Appendix
Appendix EE <kennametat
Slide 17: Results affected by weak end-markets; strong progress on initiatives
Results affected by weak end-markets; strong progress on initiatives FY20 Total Year Overview & Highlights Organic sales down due to declining end-markets: (18)% organic sales decline vs. 3% growth prior year • Effects from FX of (2)% and business divestiture of (1)% • Segment organic growth rates
Slide 18: Margin decline driven by significant end-market weakness
Margin decline driven by significant end-market weakness Consolidated FY20 Financial Results Adjusted Reported Change Year Ended ($ in millions) from PY June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019 Sales (21)% $1,885 $2,375 $1,885 $2,375 Organic (18)% 3% (18)% 3% FX (2)% (3)% (2)% (3)% Di
Slide 19: Simplification/Modernization helping to offset volume decline
Simplification/Modernization helping to offset volume decline FY20 Adjusted EPS Bridge $3.50 $3.02 $3.00 Main drivers are lower volumes and associated $2.50 under absorption and raw materials (-2 cents), partially offset by lower variable compensation $2.00 $1.50 $0.46 $1.00 $0.01 $0.94 ($0.17) ($0.
Slide 20: Adjusted Segment Results
Adjusted Segment Results Period ending June 30, 2020 ($ in millions) Quarter Year Industrial WIDIA Infrastructure Total Industrial WIDIA Infrastructure Total Sales $195 $32 $152 $379 $1,015 $163 $707 $1,885 Organic (36)% (32)% (29)% (33)% (19)% (16)% (18)% (18)% FX (2)% (2)% (2)% (2)% (1)% (1)% (1)%
Slide 21: Balance Sheet
Balance Sheet ASSETS ($ in millions) June 2020 June 2019 Cash and cash equivalents $607 $182 Accounts receivable, net 238 380 Inventories 522 572 Other current assets 74 57 Total current assets $1,441 $1,191 Property, plant and equipment, net 1,038 935 Goodwill and other intangible assets, net 403 4
Slide 22: Non-GAAP Reconciliations
Non-GAAP Reconciliations The information presented by the Company contains certain non-GAAP financial measures including organic sales growth (decline), constant currency regional sales decline, constant currency end market sales decline, adjusted gross profit and margin; adjusted operating expense
Slide 23: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) EBITDA EBITDA is a non-GAAP financial measure and is defined as net income (loss) attributable to Kennametal (which is the most directly comparable GAAP measure), with interest expense, interest income, provision for income taxes, depreciation and amortization added
Slide 24: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) ($ in millions, except per share data and Gross Operating Operating Effective Net (Loss) Diluted percents) Sales Profit Expense Income Tax Rate Income(5) (L)EPS Q4 FY20 Reported Results $ 379.1 $ 101.5 $ 68.2 $ 15.6 186.1% $ (9.1) $ (0.11) Reported Margins 26.8% 18.
Slide 25: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) ($ in millions, except per share data and Gross Operating Operating Effective Net (Loss) Diluted percents) Sales Profit Expense Income Tax Rate Income (5) (L)EPS FY20 Reported Results $ 1,885.3 $ 529.5 $ 388.4 $ 22.3 357.5% $ (5.7) $ (0.07) Reported Margins 28.1% 20
Slide 26: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Three months ended June 30, Year ended June 30, ($ in millions) 2020 2019 2020 2019 Net (loss) income attributable to Kennametal, reported $ (9.1) $ 62.0 $ (5.7) $ 241.9 Add back: Interest expense 11.3 8.7 35.2 33.0 Interest income (1.6) (0.4) (2.4) (2.1) Provision
Slide 27: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Industrial WIDIA Infrastructure Industrial Operating WIDIA Operating Infrastructure Operating ($ in millions, except percents) Sales Income Sales Loss Sales Income Q4 FY20 Reported Results $ 195.1 $ 3.5 $ 31.9 $ (3.3) $ 152.1 $ 15.4 Reported Operating Margin 1.8% (1
Slide 28: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Industrial WIDIA Infrastructure Industrial Operating WIDIA Operating Infrastructure Operating ($ in millions, except percents) Sales Income Sales Loss Sales Income FY20 Reported Results $ 1,015.1 $ 35.7 $ 163.0 $ (34.7) $ 707.3 $ 23.1 Reported Operating Margin 3.5%
Slide 29: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Three months ended June 30, 2020: Industrial Widia Infrastructure Kennametal Organic Sales Decline (36%) (32%) (29%) (33%) Foreign Currency Exchange Impact (2%) (2%) (2%) (2%) Business Days Impact (1%) (1%) (1%) 0% Divestiture Impact 0% 0% (4%) (2%) Sales Decline (3
Slide 30: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Industrial Three months ended June 30, 2020: Americas EMEA Asia Pacific Constant currency regional sales decline (40%) (38%) (27%) Foreign currency exchange impact (2%) (2%) (3%) Regional sales decline (42%) (40%) (30%) Widia Three months ended June 30, 2020: Americ
Slide 31: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Industrial Year ended June 30, 2020: Americas EMEA Asia Pacific Constant currency regional sales decline (18%) (21%) (15%) Foreign currency exchange impact (1%) (2%) (1%) Regional sales decline (19%) (23%) (16%) Widia Year ended June 30, 2020: Americas EMEA Asia Pac
Slide 32: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Industrial General Three months ended June 30, 2020: Engineering Transportation Aerospace Energy Constant currency end market sales decline (32%) (45%) (39%) (25%) Foreign currency exchange impact (2%) (2%) (2%) (2%) End market sales decline (34%) (47%) (41%) (27%)
Slide 33: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Industrial General Year ended June 30, 2020: Engineering Transportation Aerospace Energy Constant currency end market sales decline (18%) (23%) (16%) (12%) Foreign currency exchange impact (1%) (2%) (1%) (1%) End market sales decline (19%) (25%) (17%) (13%) Widia Ge
Slide 34: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Three months ended June Year ended June 30, ($ in millions) 2020 2019 2020 2019 Net cash flow from operating activities $ 77.7 $ 143.1 $ 223.7 $ 300.5 Purchases of property, plant and equipment (38.1) (66.4) (244.2) (212.3) Proceeds from disposals of property, plant
Slide 35: 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
Slide 36: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) (in thousands, except percents) 6/30/2018 3/31/2018 12/31/2017 9/30/2017 6/30/2017 Average Current assets $ 1,546,166 $ 1,240,587 $ 1,128,382 $ 1,075,915 $ 1,113,901 Current liabilities 886,531 477,790 407,621 396,967 461,478 Working capital, GAAP $ 659,635 $ 762,79
Slide 37: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) (in thousands, except percents) 6/30/2017 3/31/2017 12/31/2016 9/30/2016 6/30/2016 Average Current assets $ 1,113,901 $ 1,043,046 $ 971,745 $ 991,837 $ 1,075,341 Current liabilities 461,478 426,799 390,151 402,574 427,275 Working capital, GAAP $ 652,423 $ 616,247 $