Kennametal Inc. · NYSE:KMT
Kennametal — Q2 FY2020 Earnings Presentation
30 slides from Kennametal's earnings presentation, Feb 4, 2020
Slide 1: FY20 Second Quarter Earnings Call Presentation
FY20 Second Quarter Earnings Call Presentation February 4, 2020
Slide 2: Safe Harbor Statement
Safe Harbor Statement Certain statements in this presentation 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 no
Slide 3: Q2 FY20 Overview & Highlights
Q2 results affected by continuing weak end-markets; strong progress on initiatives Q2 FY20 Overview & Highlights Organic sales down due to declining end-markets: (12)% organic sales decline vs. 4% growth prior year • Negative impacts from FX of (1)% and business divestiture (1)% • Segment organic
Slide 4: Deteriorating trends across all end-markets in Q2 FY20, resulting in lowered FY20 outlook
Deteriorating trends occurred across all end-markets in Q2 FY20 Resulting in Lowered FY20 Outlook Q1 FY20 Call Q2 FY20 Call Positive Mfg. Industrial Production U.S. Negative actual Q1 annualized rate Q2 annualized rate General Engineering + 4% Industrial Production India - 4% actual forecast for Sep
Slide 5: Simplification/Modernization improving financial performance
Simplification/Modernization improving financial performance Footprint Rationalization Employees(1) 1 1 Employees(2) ~11K ~9K FY17 Current 23 21 21 18 45 40 Metal Cutting INFR Multi-segment Metal Cutting INFR Multi-segment (1) Headcount as of December 31, 2016 (2) Projected headcount at end of FY20
Slide 6: Consolidated Q2 FY20 Financial Overview
Margin decline driven by end-market slowdown & higher raw material costs Consolidated Q2 FY20 Financial Overview Adjusted Reported Change Quarter Ended ($ in millions) from PY Dec. 31, 2019 Dec. 30, 2018 Dec. 30, 2019 Dec. 30, 2018 Sales (14)% $505 $587 $505 $587 Organic (12)% 4% (12)% 4% FX (1)% (3
Slide 7: Q2 FY20 Adjusted EPS Bridge
Market slowdown & temporarily increased raw material costs impacting margins $0.80 Q2 FY20 Adjusted EPS Bridge $0.71 $0.70 (~$0.07) due to higher raw • Effect from higher raw material costs were expected material costs • Full year impact of raw materials expected to be roughly neutral $0.60 • 1st ha
Slide 8: Industrial Business Segment Q2 FY20 Summary
Slowdown in end-markets continuing; simplification/modernization benefits increasing Sales by Geography Sales by End Market Industrial Business Segment AsiaPac 21% Americas Aerospace 14% Energy 9% General Engineering 41% 45% Q2 FY20 Summary EMEA 38% Transportation 32% Q2 FY20 sales $279 million; (11
Slide 9: WIDIA Business Segment Q2 FY20 Summary
Slowing global demand offsetting operational improvements; progress on growth initiatives Sales by Region AsiaPac WIDIA Business Segment 27% Americas 47% Q2 FY20 Summary EMEA 26% Q2 FY20 sales $44 million; (8)% organic decline on top of 4% organic growth in prior year quarter Regions*: EMEA (6)%,
Slide 10: Infrastructure Business Segment Q2 FY20 Summary
Decelerating end-markets and raw material costs affect quarterly results Sales by Geography Sales by End Market AsiaPac General Infrastructure Business Segment 22% Engineering 34% Energy 29% Q2 FY20 Summary EMEA 17% Americas 61% Earthworks 37% Q2 FY20 sales $182 million; (14)% organic sales decline
Slide 11: Strong balance sheet & cash position allow continued focus on initiatives
Strong balance sheet & cash position allow continued focus on initiatives Debt Maturities 800 Total Debt Net Debt 800 Revolver Notes 697 697 700 700 600 595 595 $ Millions 500 700 $ Millions 600 595 537 Limit 400 499 490 500 0 300 Drawn 200 400 100 300 0 2Q FY17 2Q FY18 2Q FY19 2Q FY20 2020 2021 Feb
Slide 12: Outlook for Fiscal 2020
FY20 outlook reflects further end-markets weakening Outlook for Fiscal 2020 Prior Outlook Current Outlook Organic Sales Growth (Decline) (9)% - (5)% (12)% - (9)% Adjusted Effective Tax Rate 22% - 24% 25% - 28% Adjusted EPS $1.70 - $2.10 $1.20 - $1.50 Capital Spending $240M - $260M $240M - $260M Free
Slide 13: Focused on improving performance throughout the economic cycle
Focused on improving performance throughout the economic cycle We are focused on what we can control • Exercising strong cost discipline • Delivering on Simplification/Modernization initiatives • Increasing FY20 Simplification/Modernization benefits over FY19 and accelerating in 2H FY20 Margin i
Slide 14: Appendix
Appendix EE <kennametat
Slide 15: Adjusted Segment Results
Adjusted Segment Results Quarter ended ($ in millions) December 31, 2019 December 31, 2018 Industrial WIDIA Infrastructure Total Industrial WIDIA Infrastructure Total Sales $279 $44 $182 $505 $317 $49 $221 $587 Organic (11)% (8)% (14)% (12)% 3% 4% 4% 4% FX (1)% - (1)% (1)% (4)% (4)% (1)% (3)% Divest
Slide 16: Balance Sheet
Balance Sheet ASSETS ($ in millions) December 2019 September 2019 Cash and cash equivalents $105 $114 Accounts receivable, net 310 328 Inventories 523 557 Other current assets 98 67 Total current assets $1,036 $1,065 Property, plant and equipment, net 1,009 964 Goodwill and other intangible assets,
Slide 17: Non-GAAP Reconciliations
Non-GAAP Reconciliations The information presented by the Company contains certain non-GAAP financial measures including organic sales growth (decline), constant currency regional sales growth (decline), constant currency end market sales growth (decline), adjusted gross profit and margin; adjusted
Slide 18: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Constant Currency End Market Sales Growth (Decline) Constant currency end market sales growth (decline) is a non-GAAP financial measure of sales growth (decline) (which is the most directly comparable GAAP measure) by end market excluding the impacts of acquisitions
Slide 19: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Operating ($ in millions, except per share data and Gross Operating (Loss) Effective Diluted percents) Sales Profit Expense Income Tax Rate (LPS) EPS Q2 FY20 Reported Results $ 505.1 $ 132.0 $ 107.5 $ (47.6) 87.9% $ (0.07) Reported Margins 26.1% 21.3% (9.4%) Restruc
Slide 20: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Three months ended December 31, ($ in millions) 2019 2018 Net (loss) income attributable to Kennametal, reported $ (5.9) $ 54.7 Add back: Interest expense 8.1 8.1 Interest income (0.2) (0.3) Provision for income taxes, reported (45.3) 18.5 Depreciation 26.5 23.8 Amo
Slide 21: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Industrial WIDIA Infrastructure Industrial Operating WIDIA Operating Infrastructure Operating ($ in millions, except percents) Sales (Loss) Income Sales Loss Sales Loss Q2 FY20 Reported Results $ 279.2 $ (19.3) $ 44.3 $ (15.9) $ 181.5 $ (11.6) Reported Operating Mar
Slide 22: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Three months ended December 31, 2019: Industrial Widia Infrastructure Kennametal Organic Sales Decline (11%) (8%) (14%) (12%) Foreign Currency Exchange Impact (1%) 0% (1%) (1%) Business Days Impact 0% (1%) (1%) 0% Divestiture Impact 0% 0% (2%) (1%) Sales Decline (12
Slide 23: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Industrial Three months ended December 31, 2019: Americas EMEA Asia Pacific Constant currency regional sales decline (10%) (14%) (4%) Foreign currency exchange impact 0% (3%) (1%) Regional sales decline (10%) (17%) (5%) Widia Three months ended December 31, 2019: Am
Slide 24: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Industrial Three months ended December 31, 2018: Americas EMEA Asia Pacific Constant currency regional sales growth (decline) 12% 5% (4%) Foreign currency exchange impact (2%) (5%) (4%) Regional sales growth (decline) 10% 0% (8%) Widia Three months ended December 31
Slide 25: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Industrial General Three months ended December 31, 2019: Engineering Transportation Aerospace Energy Constant currency end market sales decline (10%) (13%) (6%) (9%) Foreign currency exchange impact (2%) (1%) (1%) (1%) End market sales decline (12%) (14%) (7%) (10%)
Slide 26: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Industrial General Three months ended December 31, 2018: Engineering Transportation Aerospace Energy Constant currency end market sales growth (decline) 9% (5%) 22% 6% Foreign currency exchange impact (3%) (4%) (4%) (3%) End market sales growth (decline) 6% (9%) 18%
Slide 27: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Three months ended December 31, ($ in millions) 2019 2018 Net cash flow from operating activities $ 59.6 $ 52.3 Purchases of property, plant and equipment (75.1) (44.8) Proceeds from disposals of property, plant and equipment 0.4 1.7 Free operating cash flow $ (15.1
Slide 28: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) (in thousands, except percents) 12/31/2018 9/30/2018 6/30/2018 3/31/2018 12/31/2017 Average Current assets $ 1,119,034 $ 1,121,482 $ 1,546,166 $ 1,240,587 $ 1,128,382 Current liabilities 412,053 439,171 886,531 477,790 407,621 Working capital, GAAP $ 706,981 $ 682,3
Slide 29: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) (in thousands, except percents) 12/31/2017 9/30/2017 6/30/2017 3/31/2017 12/31/2016 Average Current assets $ 1,128,382 $ 1,075,915 $ 1,113,901 $ 1,043,046 $ 971,745 Current liabilities 407,621 396,967 461,478 426,799 390,151 Working capital, GAAP $ 720,761 $ 678,948
Slide 30: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) (in thousands, except percents) 12/31/2016 9/30/2016 6/30/2016 3/31/2016 12/31/2015 Average Current assets $ 971,745 $ 991,837 $ 1,075,341 $ 1,099,260 $ 1,062,992 Current liabilities 390,151 402,574 427,275 421,415 394,983 Working capital, GAAP $ 581,594 $ 589,263 $