Kennametal Inc. · NYSE:KMT
Kennametal — Q3 FY2020 Earnings Presentation
29 slides from Kennametal's earnings presentation, May 5, 2020
Slide 1: FY20 Third Quarter Earnings Call Presentation
FY20 Third Quarter Earnings Call Presentation May 5, 2020
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: Pandemic Response: immediate and effective
Pandemic Response: immediate and effective Business Continuity • KMT considered an essential business serving critical end-markets • Early implementation of EHS protocols to protect employees, while continuing to serve customers • All customer-serving production facilities operating • Well-positione
Slide 4: Q3 results affected by weak end-markets; strong progress on initiatives
Q3 results affected by weak end-markets; strong progress on initiatives Q3 FY20 Overview & Highlights Organic sales down due to declining end-markets: (17)% organic sales decline vs. 3% growth prior year • Effects from FX of (1)% and business divestiture of (1)% • Segment organic growth rates: WID
Slide 5: Confident in managing through challenging period and emerging stronger
Confident in managing through challenging period and emerging stronger Looking Ahead Near-Term Outlook • FY20 outlook withdrawn; limited visibility due to effect of COVID-19 • Preliminary April sales down ~(35)% YoY • Cost-control actions to increase in Q4; aligning production capacity to volume • R
Slide 6: Margin decline driven by significant weakness across all end-markets
Margin decline driven by significant weakness across all end-markets Consolidated Q3 FY20 Financial Overview Adjusted Reported Change Quarter Ended ($ in millions) from PY March 31, 2020 March 31, 2019 March 31, 2020 March 31, 2019 Sales (19)% $483 $597 $483 $597 Organic (17)% 3% (17)% 3% FX (1)% (4
Slide 7: Q3 FY20 Adjusted EPS Bridge
Accelerated market slowdown driven by COVID-19 affecting margins $0.90 Q3 FY20 Adjusted EPS Bridge $0.80 $0.77 Main drivers are lower volumes and associated $0.70 under absorption, partially offset by raw materials (16 cents) and lower variable compensation $0.60 $0.15 $0.50 $0.02 $0.46 ($0.06) $0.4
Slide 8: 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 20% Americas 41% Aerospace 13% Energy 10% General Engineering 44% Q3 FY20 Summary EMEA 39% Transportation 33% Q3 FY20 sales $261 million; (17)% organic sales d
Slide 9: Slowing demand offsetting operational improvements; progress on initiatives
Slowing demand offsetting operational improvements; progress on initiatives Sales by Region AsiaPac WIDIA Business Segment 25% Americas 49% Q3 FY20 Summary EMEA 26% Q3 FY20 sales $43 million; (16)% organic decline on top of 3% organic growth in prior year quarter • Regional sales*: Declines of (10)%
Slide 10: Energy market declines and COVID-19 affecting results
Energy market declines and COVID-19 affecting results Sales by Geography Sales by End-Market AsiaPac General Infrastructure Business Segment 18% Engineering 35% Energy 29% Q3 FY20 Summary EMEA 18% Americas 64% Earthworks 36% Q3 FY20 sales $180 million; (17)% organic sales decline YoY on top of 6% gr
Slide 11: Strong balance sheet and liquidity position to combat COVID-19 headwinds
Strong balance sheet and liquidity position to combat COVID-19 headwinds 800 Total Debt Net Debt Debt Structure & Covenants 696 698 Debt Structure 700 • Two $300M notes; mature February 2022 & June 2028 595 598 600 592 • Revolver matures June 2023; preemptively drew $500M $ Millions 513 in April 500
Slide 12: Solid plan to manage through the crisis and emerge with strength
Solid plan to manage through the crisis and emerge with strength Navigating through the crisis Adjust to lower demand environment Prepare for recovery Maintain strong liquidity position Continue with strategic initiatives for improved growth and profitability 11 | © 2020 Kennametal Inc. l Al
Slide 13: Appendix
Appendix EE <kennametat
Slide 14: Adjusted Segment Results
Adjusted Segment Results Quarter ended ($ in millions) March 31, 2020 March 31, 2019 Industrial WIDIA Infrastructure Total Industrial WIDIA Infrastructure Total Sales $261 $43 $180 $483 $319 $51 $228 $597 Organic (17)% (16)% (17)% (17)% 1% 3% 6% 3% FX (2)% (1)% (1)% (1)% (5)% (4)% (3)% (4)% Divestit
Slide 15: Balance Sheet
Balance Sheet ASSETS ($ in millions) March 2020 December 2019 Cash and cash equivalents $85 $105 Accounts receivable, net 304 310 Inventories 517 523 Other current assets 61 98 Total current assets $967 $1,036 Property, plant and equipment, net 1,015 1,009 Goodwill and other intangible assets, net 4
Slide 16: Non-GAAP Reconciliations
Non-GAAP Reconciliations The information presented by the Company contains certain non-GAAP financial measures including organic sales growth (decline), constant currency regional sales growth (decline), constant currency end market sales growth (decline), adjusted gross profit and margin; adjusted
Slide 17: Non-GAAP Reconciliations (cont’d)
Non-GAAP Reconciliations (cont’d) Constant Currency End-Market Sales Growth (Decline) Constant currency end market sales growth (decline) is a non-GAAP financial measure of sales growth (decline) (which is the most directly comparable GAAP measure) by end market excluding the impacts of acquisitions
Slide 18: Non-GAAP Reconciliations (cont’d)
Non-GAAP Reconciliations (cont’d) ($ in millions, except per share data and Gross Operating Operating Effective Net Diluted percents) Sales Profit Expense Income Tax Rate Income(5) EPS Q3 FY20 Reported Results $ 483.1 $ 157.0 $ 98.5 $ 37.9 93.1% $ 2.9 $ 0.03 Reported Margins 32.5% 20.4% 7.8% Restruc
Slide 19: Non-GAAP Reconciliations (cont’d)
Non-GAAP Reconciliations (cont’d) Three months ended March 31, ($ in millions) 2020 2019 Net income attributable to Kennametal, reported $ 2.9 $ 68.6 Add back: Interest expense 7.9 8.1 Interest income (0.2) (0.8) Provision for income taxes, reported 30.2 8.6 Depreciation 25.3 24.3 Amortization 3.4 3
Slide 20: 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 Q3 FY20 Reported Results $ 260.7 $ 30.1 $ 42.7 $ (13.5) $ 179.6 $ 21.9 Reported Operating Mar
Slide 21: Non-GAAP Reconciliations (cont’d)
Non-GAAP Reconciliations (cont’d) Three months ended March 31, 2020: Industrial Widia Infrastructure Kennametal Organic Sales Decline (17%) (16%) (17%) (17%) Foreign Currency Exchange Impact (2%) (1%) (1%) (1%) Business Days Impact 1% 1% 0% 0% Divestiture Impact 0% 0% (3%) (1%) Sales Decline (18%) (
Slide 22: Non-GAAP Reconciliations (cont’d)
Non-GAAP Reconciliations (cont’d) Industrial Three months ended March 31, 2020: Americas EMEA Asia Pacific Constant currency regional sales decline (16%) (19%) (12%) Foreign currency exchange impact 0% (3%) (2%) Regional sales decline (16%) (22%) (14%) Widia Three months ended March 31, 2020: Americ
Slide 23: Non-GAAP Reconciliations (cont’d)
Non-GAAP Reconciliations (cont’d) Industrial Three months ended March 31, 2019: Americas EMEA Asia Pacific Constant currency regional sales growth (decline) 4% (1%) (2%) Foreign currency exchange impact (2%) (7%) (5%) Regional sales growth (decline) 2% (8%) (7%) Widia Three months ended March 31, 20
Slide 24: Non-GAAP Reconciliations (cont’d)
Non-GAAP Reconciliations (cont’d) Industrial General Three months ended March 31, 2020: Engineering Transportation Aerospace Energy Constant currency end market sales decline (18%) (17%) (16%) (6%) Foreign currency exchange impact (2%) (2%) (1%) (1%) End market sales decline (20%) (19%) (17%) (7%) W
Slide 25: Non-GAAP Reconciliations (cont’d)
Non-GAAP Reconciliations (cont’d) Industrial General Three months ended March 31, 2019: Engineering Transportation Aerospace Energy Constant currency end market sales growth (decline) 5% (8%) 13% (2%) Foreign currency exchange impact (5%) (5%) (4%) (3%) End market sales growth (decline) 0% (13%) 9%
Slide 26: Non-GAAP Reconciliations (cont’d)
Non-GAAP Reconciliations (cont’d) Three months ended March 31, ($ in millions) 2020 2019 Net cash flow from operating activities $ 59.0 $ 96.0 Purchases of property, plant and equipment (58.5) (57.9) Proceeds from disposals of property, plant and equipment 1.9 1.1 Free operating cash flow $ 2.4 $ 39
Slide 27: Non-GAAP Reconciliations (cont’d)
Non-GAAP Reconciliations (cont’d) (in thousands, except percents) 3/31/2019 12/31/2018 9/30/2018 6/30/2018 3/31/2018 Average Current assets $ 1,162,842 $ 1,119,034 $ 1,121,482 $ 1,546,166 $ 1,240,587 Current liabilities 430,018 412,053 439,171 886,531 477,790 Working capital, GAAP $ 732,824 $ 706,98
Slide 28: Non-GAAP Reconciliations (cont’d)
Non-GAAP Reconciliations (cont’d) (in thousands, except percents) 3/31/2018 12/31/2017 9/30/2017 6/30/2017 3/31/2017 Average Current assets $ 1,240,587 $ 1,128,382 $ 1,075,915 $ 1,113,901 $ 1,043,046 Current liabilities 477,790 407,621 396,967 461,478 426,799 Working capital, GAAP $ 762,797 $ 720,76
Slide 29: Non-GAAP Reconciliations (cont’d)
Non-GAAP Reconciliations (cont’d) (in thousands, except percents) 3/31/2017 12/31/2016 9/30/2016 6/30/2016 3/31/2016 Average Current assets $ 1,043,046 $ 971,745 $ 991,837 $ 1,075,341 $ 1,099,260 Current liabilities 426,799 390,151 402,574 427,275 421,415 Working capital, GAAP $ 616,247 $ 581,594 $