Kennametal Inc. · NYSE:KMT
Kennametal — Q1 FY2020 Earnings Presentation
30 slides from Kennametal's earnings presentation, Nov 5, 2019
Slide 1: FY20 First Quarter Earnings Call Presentation
FY20 First Quarter Earnings Call Presentation November 5, 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: Q1 FY20 Overview & Highlights
Q1 results affected by near-term factors; strong progress on initiatives Q1 FY20 Overview & Highlights ▪ Organic sales down due to declining end-markets: (11)% organic sales decline vs. 10% growth prior year • Negative FX impacts of (2)% partially offset by extra business day benefits of 1% • Segmen
Slide 4: Better positioned throughout the cycle with additional improvement still ahead
Better positioned throughout the cycle with additional improvement still ahead Adjusted EPS and Cash Flow from Operations up vs. similar revenue periods 70%* Improvement in 50%* Improvement in Adjusted EPS Cash Flow from Operations AVG. AVG. * Improvement % derived from 2009, 2010, 2016, & 2017 aver
Slide 5: Continuing progress on growth initiatives including new product launches
Continuing progress on growth initiatives including new product launches End-Market Customer Benefits o Titanium alloys machining HARVI TM Ultra 8x Aerospace o Market leading position in metal removal rates o Named a 2019 R&D 100 Awards Finalist o Highest versatility in hard material applications TM
Slide 6: Consolidated Q1 FY20 Financial Overview
Margin decline driven by end-market slowdown & higher raw material costs Consolidated Q1 FY20 Financial Overview Adjusted Reported Change Quarter Ended ($ in millions) from PY Sept. 30, 2019 Sept. 30, 2018 Sept. 30, 2019 Sept. 30, 2018 Sales (12)% $518 $587 $518 $587 Organic (11)% 10% (11)% 10% FX (
Slide 7: Q1 FY20 Adjusted EPS Bridge
Market slowdown & temporarily increased raw material costs impacting margins Q1 FY20 Adjusted EPS Bridge $0.80 $0.70 $0.70 • Effects from higher raw material costs were expected (~$0.19) due $0.60 to higher raw • Continued headwind in 2Q and expected to abate in the material costs second half of the
Slide 8: Industrial Business Segment Q1 FY20 Summary
Significant slowdown in end-markets creating temporary challenges Sales by Geography Sales by End Market Industrial Business Segment AsiaPac 20% Americas Aerospace 14% Energy 9% General Engineering 42% 44% Q1 FY20 Summary EMEA 38% Transportation 33% Q1 FY20 sales $280 million; (11)% organic sales de
Slide 9: WIDIA Business Segment Q1 FY20 Summary
Slowing global demand offsetting operational improvements; solid progress on growth initiatives Sales by Region AsiaPac WIDIA Business Segment 26% Americas 48% Q1 FY20 Summary EMEA 26% Q1 FY20 sales $44 million; (10)% organic decline on top of 11% organic growth in prior year Regions*: EMEA flat,
Slide 10: Infrastructure Business Segment Q1 FY20 Summary
Decelerating end-markets and raw material costs affect quarterly results Sales by Geography Sales by End Market AsiaPac General Infrastructure Business Segment 19% Engineering 34% Energy 29% Q1 FY20 Summary EMEA 18% Americas 63% Earthworks 37% Q1 FY20 sales $194 million; (11)% 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 697 700 700 600 $ Millions 592 596 $ Millions 586 593 500 700 600 Limit 400 490 483 0 500 300 Drawn 411 200 400 100 300 0 1Q FY18 1Q FY19 4Q FY19 1Q FY20 2020 2021 Feb
Slide 12: Outlook for Fiscal 2020
Revised FY20 outlook reflects lower Q1 and slower market recovery Outlook for Fiscal 2020 Prior Outlook Current Outlook Organic Sales Growth (Decline) (2)% - 2% (9)% - (5)% Adjusted Effective Tax Rate 21% - 23% 22% - 24% Adjusted EPS $2.80 - $3.20 $1.70 - $2.10 Capital Spending $240M - $260M $240M -
Slide 13: Focused on improving performance throughout the economic cycle
Focused on improving performance throughout the economic cycle ▪ We are focused on what we can control • Controlling costs and adjusting production levels commensurate with demand • Delivering Simplification/Modernization initiatives • Increasing FY20 Simplification/Modernization benefits over FY19
Slide 14: Appendix
Appendix Fiscal 2019 Second Quarter Earnings Call Presentation February 5, 2019
Slide 15: Adjusted Segment Results
Adjusted Segment Results Quarter ended ($ in millions) September 30, 2019 September 30, 2018 Industrial WIDIA Infrastructure Total Industrial WIDIA Infrastructure Total Sales $280 $44 $194 $518 $321 $49 $217 $587 Organic (11)% (10)% (11)% (11)% 10% 11% 10% 10% FX (2)% (1)% (1)% (2)% (2)% (3)% (1)% (
Slide 16: Balance Sheet
Balance Sheet ASSETS ($ in millions) September 2019 June 2019 Cash and cash equivalents $114 $182 Accounts receivable, net 328 380 Inventories 557 572 Other current assets 67 57 Total current assets $1,065 $1,191 Property, plant and equipment, net 964 935 Goodwill and other intangible assets, net 45
Slide 17: Non-GAAP Reconciliations
Non-GAAP Reconciliations The information presented by the Company contains certain non-GAAP financial measures including organic sales growth (decline), constant currency regional sales growth (decline), constant currency end market sales growth (decline), adjusted gross profit and margin; adjusted
Slide 18: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Constant Currency End Market Sales Growth (Decline) Constant currency end market sales growth (decline) is a non-GAAP financial measure of sales growth (decline) (which is the most directly comparable GAAP measure) by end market excluding the impacts of acquisitions
Slide 19: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) ($ in millions, except per share data and Gross Operating Operating Effective Diluted percents) Sales Profit Expense Income Tax Rate EPS Q1 FY20 Reported Results $ 518.1 $ 139.0 $ 114.2 $ 16.4 33.7% $ 0.08 Reported Margins 26.8% 22.0% 3.2% Restructuring and related
Slide 20: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Three months ended September 30, ($ in millions) 2019 2018 Net income attributable to Kennametal, reported $ 6.5 $ 56.7 Add back: Interest expense 7.9 8.1 Interest income (0.4) (0.6) Provision for income taxes, reported 3.8 19.4 Depreciation 27.3 24.0 Amortization 3
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 Income Sales Loss Sales Loss Q1 FY20 Reported Results $ 280.0 $ 21.3 $ 44.1 $ (2.0) $ 194.0 $ (2.7) Reported Operating Margin 7.6% -4
Slide 22: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) 2009 2010 2016 2017 Diluted Diluted Diluted Diluted ($ in millions, except per share data and percents) Sales EPS Sales EPS Sales EPS Sales EPS Reported Results $ 1,999.9 $ (1.64) $ 1,884.1 $ 0.57 $ 2,098.4 $ (2.83) $ 2,058.4 $ 0.61 Restructuring and related charges
Slide 23: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Industrial Three months ended September 30, 2019: Americas EMEA Asia Pacific Constant currency regional sales decline (7%) (12%) (15%) Foreign currency exchange impact (1%) (3%) (2%) Regional sales decline (8%) (15%) (17%) Widia Three months ended September 30, 2019
Slide 24: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Industrial Three months ended September 30, 2018: Americas EMEA Asia Pacific Constant currency regional sales growth 13% 7% 12% Foreign currency exchange impact (3%) (3%) (2%) Regional sales growth 10% 4% 10% Widia Three months ended September 30, 2018: Americas EME
Slide 25: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Industrial General Three months ended September 30, 2019: Engineering Transportation Aerospace Energy Constant currency end market sales decline (9%) (17%) (1%) (8%) Foreign currency exchange impact (2%) (2%) (2%) (1%) End market sales decline (11%) (19%) (3%) (9%)
Slide 26: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Industrial General Three months ended September 30, 2018: Engineering Transportation Aerospace Energy Constant currency end market sales growth 10% 7% 18% 5% Foreign currency exchange impact (1%) (3%) (1%) (1%) End market sales growth 9% 4% 17% 4% Widia General Thre
Slide 27: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Net Debt Three months ended (in millions) 9/30/2019 6/30/2019 9/30/2018 9/30/2017 Total debt (gross) $ 596.4 $ 592.6 $ 592.1 $ 696.6 Less: cash and cash equivalents 113.5 182.0 102.1 110.7 Net debt $ 482.9 $ 410.6 $ 490.0 $ 585.9 (in thousands, except percents) 9/30
Slide 28: 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 29: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) (in thousands, except percents) 9/30/2018 6/30/2018 3/31/2018 12/31/2017 9/30/2017 Average Current assets $ 1,121,482 $ 1,546,166 $ 1,240,587 $ 1,128,382 $ 1,075,915 Current liabilities 439,171 886,531 477,790 407,621 396,967 Working capital, GAAP $ 682,311 $ 659,63
Slide 30: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) (in thousands, except percents) 9/30/2017 6/30/2017 3/31/2017 12/31/2016 9/30/2016 Average Current assets $ 1,075,915 $ 1,113,901 $ 1,043,046 $ 971,745 $ 991,837 Current liabilities 396,967 461,478 426,799 390,151 402,574 Working capital, GAAP $ 678,948 $ 652,423 $