Kennametal Inc. · NYSE:KMT
Kennametal — FY2019 Earnings Presentation
40 slides from Kennametal's earnings presentation, Aug 6, 2019
Slide 1: FY19 Fourth Quarter and Year-end Earnings Call Presentation
FY19 Fourth Quarter and Year-end Earnings Call Presentation August 6, 2019
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: FY19 Total Year Overview & Highlights
Margin improvement demonstrates continuing progress on simplification/modernization FY19 Total Year Overview & Highlights ▪ Organic sales growth: 3% organic sales growth on top of 12% organic growth in prior year • 3rd consecutive year of organic sales growth • Continued FX headwinds on sales of (3)
Slide 4: FY19 performance generally in-line with expectations
FY19 performance generally in-line with expectations EPS within forecasted range, despite softening end-markets & FX/tariff headwinds Unsettled macro-economic backdrop FY19 FY19 Outlook Actual • Lingering trade tensions • FX and tariff headwinds continue Organic Sales ~5% 3% Growth • Softening end-m
Slide 5: Kennametal's journey to-date
Kennametal’s journey to-date More benefits from Simplification/Modernization to come Sales 6% CAGR $2,368 $2,375 $500 Adjusted EBITDA 24% CAGR $2,058 $2,016 $400 Adjusted EBITDA $300 $ Millions $200 $100 $0 FY16 * FY17 FY18 FY19 * FY16 Sales are adjusted for the effect of a divestiture 4 | © 2019 Ke
Slide 6: Q4 FY19 Overview & Highlights
Continuing progress in Simplification/Modernization initiatives, despite market slowdown Q4 FY19 Overview & Highlights ▪ Organic sales: (2)% organic sales decline on top of 10% organic growth in prior year (PY) quarter • Headwinds continued with negative effect of FX at (4)% and business days of (1)
Slide 7: Industrial Business Segment Q4 FY19 Highlights
Underlying performance continues to improve despite slower end-markets Sales by Geography Sales by End Market Industrial Business Segment AsiaPac 20% Americas Energy 9% General 41% Aerospace 14% Engineering Q4 FY19 Highlights 44% EMEA 39% Transportation 33% Q4 FY19 sales $318 million; (4)% organic s
Slide 8: WIDIA Business Segment Q4 FY19 Highlights
Underlying operational performance continues to improve despite softening macro environment Sales by Region AsiaPac Americas WIDIA Business Segment 28% 46% Q4 FY19 Highlights EMEA 26% Q4 FY19 sales $49 million; (3)% organic decline on top of 9% organic growth in prior year Regions**: EMEA 3%, Amer
Slide 9: Infrastructure Business Segment Q4 FY19 Highlights
Expanding operating margins – both year-over-year and sequentially Sales by Geography Sales by End Market Infrastructure Business Segment AsiaPac 18% General Earthworks Engineering 35% Q4 FY19 Highlights EMEA 34% 16% Americas 66% Energy 31% Q4 FY19 sales $237 million; 1% organic growth on top of 9%
Slide 10: FY19 Adjusted EPS Bridge
Simplification/Modernization delivering increased profitability FY19 Adjusted EPS Bridge $3.50 $0.40 $0.05 $3.02 $3.00 ($0.13) $0.12 ($0.07) $2.65 $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 FY18 Other FY19 Currency Taxes Simplification / Operations Modernization 9 | © 2019 Kennametal Inc. l All rights rese
Slide 11: Consolidated Q4 FY19 Financial Overview
Improving margins despite slowing end-markets Consolidated Q4 FY19 Financial Overview Adjusted Reported Change Quarter Ended ($ in millions) from PY June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018 Sales (7)% $604 $646 $604 $646 Organic (2)% 10% (2)% 10% FX (4)% 3% (4)% 3% Business Days (1)%
Slide 12: Q4 FY19 Adjusted EPS Bridge
Simplification/Modernization benefits increasing Q4 FY19 Adjusted EPS Bridge $1.00 $0.10 $0.01 $0.90 $0.87 $0.84 $0.80 ($0.05) ($0.01) ($0.08) $0.70 $0.60 $0.50 $0.40 $0.30 $0.20 $0.10 $0.00 Other Currency Taxes Simplification / Operations Q4 FY18 Q4 FY19 Modernization 11 | © 2019 Kennametal Inc. l
Slide 13: Strong balance sheet & positive FOCF despite higher capital spend
Strong balance sheet & positive FOCF despite higher capital spend Debt Maturities 1,100 Total Debt Net Debt 800 Revolver Notes 1,000 992 700 900 600 $ Millions $ Millions 800 500 700 695 696 Limit 700 400 593 0 600 534 300 Drawn 505 500 200 436 411 400 100 300 0 4Q FY16 4Q FY17 4Q FY18 4Q FY19 2020
Slide 14: Outlook for Fiscal 2020
FY20 assumes 2H recovery and reflects accelerating modernization benefits Outlook for Fiscal 2020 Factors impacting FY20 quarterly pattern Organic Sales Growth (2)% - 2% • End-markets expected to be soft in 1H; modest recovery in 2H based on Effective Tax Rate 21% - 23% transportation and energy Adj
Slide 15: Sales and Adjusted EBITDA Trajectory vs. December 2017
Sales and Adjusted EBITDA Trajectory vs. December 2017 Recent market slowdown driving revenue shift December 2017 Investor Day Projections Original Reflecting current market conditions 1,000 1,000 2,700 2,700 900 900 2,600 2,600 800 800 Adjusted EBITDA 2,500 2,500 Adjusted EBITDA 700 700 2,400 Sales
Slide 16: Summary of Results
Strengthening foundation for continued improved performance Summary of Results ▪ Strong FY19 results; adjusted EBITDA margins increasing to ~20% ▪ Solid Q4 FY19, adjusted EPS in-line with outlook, despite slowing end-market environment in Q4 and continuing headwinds of FX and tariffs ▪ Softening end
Slide 17: Appendix
Appendix Fiscal 2019 Second Quarter Earnings Call Presentation February 5, 2019
Slide 18: Adjusted Segment Results
Adjusted Segment Results Period ending June 30, 2019 ($ in millions) Quarter Year Industrial WIDIA Infrastructure Total Industrial WIDIA Infrastructure Total Sales $318 $49 $237 $604 $1,274 $198 $903 $2,375 Organic (4)% (3)% 1% (2)% 2% 3% 5% 3% FX (4)% (3)% (3)% (4)% (3)% (4)% (2)% (3)% Business Day
Slide 19: Consolidated FY19 Financial Results
Consolidated FY19 Financial Results Adjusted Reported Change Year Ended ($ in millions) from PY June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018 Sales - $2,375 $2,368 $2,375 $2,368 Organic 3% 12% 3% 12% FX (3)% 4% (3)% 4% Business Days - (1)% - (1)% Gross Profit* +1% $834 $824 $831 $820 as a
Slide 20: Balance Sheet
Balance Sheet ASSETS ($ in millions) June 2019 June 2018 Cash and cash equivalents $182 $556 Accounts receivable, net 380 401 Inventories 572 526 Other current assets 57 63 Total current assets $1,191 $1,546 Property, plant and equipment, net 935 824 Goodwill and other intangible assets, net 461 478
Slide 21: 4Q FY19 and Total Year Cash Flow
4Q FY19 and Total Year Cash Flow ($ in millions) Consolidated Results 4Q FY19 4Q FY18 FY19 FY18 Net Cash Provided by Operating Activities $143 $119 $300 $277 Investing Activities ($59) ($53) ($201) ($157) Financing Activities ($15) $278 ($471) $247 Effect of Exchange Rate - ($10) ($2) ($2) Net Chang
Slide 22: Footnotes
Footnotes (1) Prior period amounts were restated to reflect the retrospective adoption of ASU No. 2017-07, "Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost" on July 1, 2018. (2) The Company revised its statement of cash flow for the three months e
Slide 23: Non-GAAP Reconciliations
Non-GAAP Reconciliations The information presented by the Company contains certain non-GAAP financial measures including organic sales growth, constant currency regional sales growth (decline), constant currency end market sales growth (decline), adjusted gross profit and margin; adjusted operating
Slide 24: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Constant Currency End Market Sales Growth (Decline) Constant currency end market sales growth (decline) is a non-GAAP financial measure of sales growth (decline) (which is the most directly comparable GAAP measure) by end market excluding the impacts of acquisitions
Slide 25: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) ($ in millions, except per share data and Gross Operating Operating Effective Diluted percents) Sales Profit Expense Income Tax Rate EPS Q4 FY19 Reported Results $ 603.9 $ 213.7 $ 116.1 $ 85.0 21.0% $ 0.74 Reported Margins 35.4% 19.2% 14.1% Restructuring and related
Slide 26: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) ($ in millions, except per share data and Gross Operating Operating Effective Diluted percents) Sales Profit Expense Income Tax Rate EPS FY19 Reported Results $ 2,375.2 $ 831.5 $ 474.2 $ 328.9 20.4% $ 2.90 Reported Margins 35.0% 20.0% 13.8% Restructuring and related
Slide 27: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) FY 15 FY 16 FY 17 FY 18 FY 19 Reported Sales $ 2,647.2 $ 2,098.4 $ 2,058.4 $ 2,367.9 $ 2,375.2 Reported CAGR from FY16 4% Operations of divested businesses (242.6) (82.5) - - - Adjusted Sales $ 2,404.6 $ 2,015.9 $ 2,058.4 $ 2,367.9 $ 2,375.2 Adjusted CAGR from FY16
Slide 28: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Three months ended June 30, ($ in millions) 2019 2018 Net income attributable to Kennametal, reported $ 62.0 $ 68.5 Add back: Interest expense 8.7 8.2 Interest income (0.4) (1.5) Provision for income taxes, reported 16.8 18.8 Depreciation 25.6 24.0 Amortization 3.6
Slide 29: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) FY 16 FY 17 FY 18 FY 19 Reported Diluted (LPS) EPS $ (2.83) $ 0.61 $ 2.42 $ 2.90 Reported CAGR -201% Restructuring and related charges 0.50 0.89 0.16 0.17 Tax charge from change in permanent reinvestment assertion(6) - - - 0.07 (7), (9) Net discrete effects from tax
Slide 30: 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) Income Sales Income Q4 FY19 Reported Results $ 318.0 $ 47.4 $ 48.9 $ (0.9) $ 237.0 $ 39.1 Reported Operating Marg
Slide 31: 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 Income Sales Income FY19 Reported Results $ 1,274.5 $ 220.7 $ 197.5 $ 2.9 $ 903.2 $ 108.5 Reported Operating Margin 17.3
Slide 32: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Three months ended June 30, 2019: Industrial Widia Infrastructure Kennametal Organic Sales (Decline) Growth (4%) (3%) 1% (2%) Foreign Currency Exchange Impact (4%) (3%) (3%) (4%) Business Days Impact (1%) (2%) (1%) (1%) Sales Decline (9%) (8%) (3%) (7%) Three months
Slide 33: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Industrial Three months ended June 30, 2019: Americas EMEA Asia Pacific Constant currency regional sales decline (1%) (5%) (8%) Foreign currency exchange impact (1%) (8%) (5%) Regional sales growth (decline) (2%) (13%) (13%) Widia Three months ended June 30, 2019: A
Slide 34: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Industrial Year ended June 30, 2019: Americas EMEA Asia Pacific Constant currency regional sales growth (decline) 7% 1% (1%) Foreign currency exchange impact (3%) (6%) (4%) Regional sales growth (decline) 4% (5%) (5%) Widia Year ended June 30, 2019: Americas EMEA As
Slide 35: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Industrial General Aerospace Three months ended June 30, 2019: Engineering Transportation and Defense Energy Constant currency end market sales (decline) growth (2%) (13%) 12% (4%) Foreign currency exchange impact (5%) (4%) (4%) (3%) End market sales (decline) growt
Slide 36: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Industrial General Aerospace Year ended June 30, 2019: Engineering Transportation and Defense Energy Constant currency end market sales growth (decline) 5% (5%) 16% 1% Foreign currency exchange impact (3%) (4%) (4%) (3%) End market sales growth (decline) 2% (9%) 12%
Slide 37: 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 38: 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 39: 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 $
Slide 40: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) (in thousands, except percents) 6/30/2016 3/31/2016 12/31/2015 9/30/2015 6/30/2015 Average Current assets $ 1,075,341 $ 1,099,260 $ 1,062,992 $ 1,168,511 $ 1,258,546 Current liabilities 427,275 421,415 394,983 438,406 482,744 Working capital, GAAP $ 648,066 $ 677,84