Kennametal Inc. · NYSE:KMT
Kennametal — Q3 FY2019 Earnings Presentation
29 slides from Kennametal's earnings presentation, May 7, 2019
Slide 1: Fiscal 2019 Third Quarter Earnings Call Presentation
Fiscal 2019 Third Quarter Earnings Call Presentation May 7, 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: Q3 FY19 Highlights & Overview
Continuing margin improvement through simplification/modernization initiatives Q3 FY19 Highlights & Overview ▪ Organic sales growth: 3% organic sales growth on top of 11% organic growth in prior year quarter • 10th consecutive quarter of organic sales growth • All segments positive: Infrastructure +
Slide 4: Focus on initiatives yields significant margin gains despite mixed markets
Focus on initiatives yields significant margin gains despite mixed markets Sales by Geography Sales by End Market Industrial Business Segment AsiaPac 19% Americas 40% Aerospace 13% Energy 9% General Engineering 45% Q3 FY19 Highlights EMEA 41% Transportation 33% Q3 FY19 sales $319 million; 1% organic
Slide 5: Organic growth continues, underlying operational performance improved
Organic growth continues, underlying operational performance improved Sales by Region AsiaPac Americas WIDIA Business Segment 28% 46% Q3 FY19 Highlights EMEA 26% Q3 FY19 sales $51 million; 3% organic growth on top of 9% prior year Regions**: EMEA 6%, AsiaPac 3%, Americas (1)% Headwinds this quar
Slide 6: Strong sales growth, sequential improvement in operating margin
Strong sales growth, sequential improvement in operating margin Sales by Geography Sales by End Market Infrastructure Business Segment AsiaPac 17% General Earthworks Engineering 31% Q3 FY19 Highlights EMEA 16% 36% Americas 67% Energy 33% Q3 FY19 sales $228 million; 2% quarterly sales growth YoY; 6%
Slide 7: Modernization continues: +80% efficiency
Modernization continues: +80% efficiency Before After • 6 automated machines • 25 manual machines • Automatic loading and unloading • Manually loaded and unloaded • One operator runs 4-6 machines • One operator per machine • Single set-up; integrated data analytics • Multiple set-ups required • Qual
Slide 8: Improving profitability driven by simplification/modernization
Improving profitability driven by simplification/modernization Consolidated Q3 FY19 Financial Overview Adjusted Reported Change Quarter Ended ($ in millions) from PY March 31, 2019 March 31, 2018 March 31, 2019 March 31, 2018 Sales (2)% $597 $608 $597 $608 Organic 3% 11% 3% 11% FX (4)% 6% (4)% 6% Bu
Slide 9: Simplification/modernization benefits delivering strong EPS growth
Simplification/modernization benefits delivering strong EPS growth Q3 FY19 Adjusted EPS Bridge $0.03 $0.11 $0.77 $0.70 ($0.04) ($0.01) (0.02) Currency Other Simplification/ Taxes Q3 FY18 Operations Q3 FY19 Modernization 8 | © 2019 Kennametal Inc. l All rights reserved. l Proprietary and Confidential
Slide 10: Excluding transportation, underlying markets remain positive
Excluding transportation, underlying markets remain positive INDUSTRIAL INFRASTRUCTURE Energy 9% General General Earthworks Aerospace 13% Engineering Engineering 31% Q3 FY19 Adjusted Segment Results 45% 36% Energy 33% Transportation 33% * all WIDIA sales are classified as general engineering Quarter
Slide 11: Strong balance sheet; significant financial flexibility
Strong balance sheet; significant financial flexibility 800 Debt Maturities Total Debt* Net Debt* 800 Revolver Notes 699 696 698 700 700 600 595 592 600 563 500 700 $ Millions $ Millions Limit 400 500 476 479 0 300 Drawn 400 200 100 300 0 3Q FY16 3Q FY17 3Q FY18 3Q FY19 2019 2020 Feb 2022 June 2023
Slide 12: Focused on delivering fiscal year 2019
Focused on delivering fiscal year 2019 Narrowing full-year FY19 outlook within previous range Previous Outlook Current FY19 Outlook Organic Sales Growth 5% - 8% ~5% Adjusted Effective Tax Rate 22% - 25% ~22% Adjusted EPS $2.90 - $3.20 $3.00 - $3.10 Capital Spending $240M - $260M $200M - $220M Free O
Slide 13: Strengthening foundation for continued improved performance
Strengthening foundation for continued improved performance Summary of Q3 FY19 ▪ Strong quarterly results, with both sales and margins increasing year-over-year ▪ Narrowing outlook for FY19 ▪ Delivering on simplification/modernization initiatives • Driving margin expansion, with further benefits to
Slide 14: Appendix
Appendix Fiscal 2019 Second Quarter Earnings Call Presentation February 5, 2019
Slide 15: Balance Sheet
Balance Sheet ASSETS ($ in millions) March 2019 June 2018 Cash and cash equivalents $113 $556 Accounts receivable, net 403 401 Inventories 589 526 Other current assets 58 63 Total current assets $1,163 $1,546 Property, plant and equipment, net 886 824 Goodwill and other intangible assets, net 463 47
Slide 16: Footnotes
Footnotes (1) Prior period amounts were restated to reflect the retrospective adoption of ASU No. 2017-07, "Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost" on July 1, 2018. (2) The Company revised its statement of cash flow for the three months e
Slide 17: Non-GAAP Reconciliations
Non-GAAP Reconciliations The information presented by the Company contains certain non-GAAP financial measures including organic sales growth, constant currency regional sales growth (decline), constant currency end market sales growth (decline), adjusted gross profit and margin; adjusted operating
Slide 18: Non-GAAP Reconciliations (cont’d)
Non-GAAP Reconciliations (cont’d) Constant Currency End Market Sales Growth (Decline) Constant currency end market sales growth (decline) is a non-GAAP financial measure of sales growth (decline) (which is the most directly comparable GAAP measure) by end market excluding the impacts of acquisitions
Slide 19: Non-GAAP Reconciliations (cont’d)
Non-GAAP Reconciliations (cont’d) ($ in millions, except per share data and Gross Operating Operating Effective Net Diluted percents) Sales Profit Expense Income Tax Rate Income(3) EPS Q3 FY19 Reported Results $ 597.2 $ 208.1 $ 120.1 $ 81.9 11.0% $ 68.6 $ 0.82 Reported Margins 34.8% 20.1% 13.7% Rest
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 Income Sales Income Q3 FY19 Reported Results $ 318.6 $ 57.2 $ 51.0 $ (0.0) $ 227.6 $ 24.9 Reported Operating Margin 18.0
Slide 21: Non-GAAP Reconciliations (cont’d)
Non-GAAP Reconciliations (cont’d) Three months ended March 31, 2019: Industrial Widia Infrastructure Kennametal Organic Sales Growth 1% 3% 6% 3% Foreign Currency Exchange Impact (5%) (4%) (3%) (4%) Business Days Impact 0% (1%) (1%) (1%) Sales Growth (Decline) (4%) (2%) 2% (2%) Three months ended Mar
Slide 22: 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 23: Non-GAAP Reconciliations (cont’d)
Non-GAAP Reconciliations (cont’d) Industrial General Aerospace Three months ended March 31, 2019: Engineering Transportation and Defense 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)
Slide 24: Non-GAAP Reconciliations (cont’d)
Non-GAAP Reconciliations (cont’d) Three months ended March 31, ($ in millions) 2019 2018 (2) Net cash flow from operating activities $ 96.0 $ 116.8 Purchases of property, plant and equipment (2) (57.9) (46.1) Proceeds from disposals of property, plant and equipment 1.1 1.4 Free operating cash flow $
Slide 25: Non-GAAP Reconciliations (cont’d)
Non-GAAP Reconciliations (cont’d) Three months ended March 31, ($ in millions) 2019 2018 Net income attributable to Kennametal, reported $ 68.6 $ 50.9 Add back: Interest expense 8.1 7.5 Interest income (0.8) (1.0) Provision for income taxes, reported 8.6 24.1 Depreciation 24.3 23.9 Amortization 3.6
Slide 26: 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 27: 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 28: 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 $
Slide 29: Non-GAAP Reconciliations (cont’d)
Non-GAAP Reconciliations (cont’d) (in thousands, except percents) 3/31/2016 12/31/2015 9/30/2015 6/30/2015 3/31/2015 Average Current assets $ 1,099,260 $ 1,062,992 $ 1,168,511 $ 1,258,546 $ 1,341,312 Current liabilities 421,415 394,983 438,406 482,744 524,518 Working capital, GAAP $ 677,845 $ 668,00