Kennametal Inc. · NYSE:KMT
Kennametal — Q3 FY2021 Earnings Presentation
29 slides from Kennametal's earnings presentation, May 4, 2021
Slide 1: FY21 Third Quarter Earnings Call Presentation
FY21 Third Quarter Earnings Call Presentation May 4, 2021
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: Q3 FY21 Overview & Highlights
Strong sales, free operating cash flow and sequential margin improvement Q3 FY21 Overview & Highlights Organic sales modestly down YoY, but improving sequentially: (1)% YoY organic sales decline vs. (17)% decline prior year • Sales up 10% sequentially with 2% benefit from FX, outperforming expecta
Slide 4: Rolling 4Q Adj. Operating Margin
Significantly higher profitability throughout downturn; well positioned for upturn Revenue and Adjusted Operating Margin in Downturns Revenue* Adjusted Operating Margin* $2,900 16% Rolling 4Q Adj. Operating Margin Rolling 4Q Sales ($ in millions) Current $2,700 Current 14% downturn downturn 12% $2,5
Slide 5: Consolidated Q3 FY21 Financial Overview
Solid YoY performance despite reinstating COVID-related temporary costs & mix Consolidated Q3 FY21 Financial Overview Adjusted Reported Change Quarter Ended ($ in millions) from PY March 31, 2021 March 31, 2020 March 31, 2021 March 31, 2020 Sales 0% $485 $483 $485 $483 Organic (1)% (17)% (1)% (17)%
Slide 6: Q3 FY21 Adjusted Operating Income Sequential Bridge
Solid sequential operating leverage despite continued lifting of temporary costs Q3 FY21 Adjusted Operating Income Sequential Bridge Sales of Sales of $441M $485M Strong operating leverage primarily driven by sales, increased production and improved manufacturing productivity Lifting of Temporary Op
Slide 7: Q3 FY21 Adjusted EPS YoY Bridge
YoY influenced by pandemic related effects; Simplification/Modernization on-track Q3 FY21 Adjusted EPS YoY Bridge Main drivers are compensation, mix, lower production and organic sales decline Includes lifting of temporary cost actions Currency Modernization Q3 FY20 Q3 FY21 Operations Simplification
Slide 8: Metal Cutting Business Segment Q3 FY21
Sequential improvement and modernization benefits set-up a profitable recovery Sales by Geography Sales by End Market Metal Cutting Business Segment AsiaPac 23% Americas 37% Aerospace 8% Energy 7% General Engineering Q3 FY21 Summary 53% Transportation EMEA 32% 40% Q3 FY21 sales $308 million; organic
Slide 9: Infrastructure Business Segment Q3 FY21
Market recovery and share gain initiatives driving sequential improvement Sales by Geography Sales by End Market AsiaPac General Energy 26% Infrastructure Business Segment 25% Engineering 37% Q3 FY21 Summary EMEA 17% Americas Earthworks 58% 37% Q3 FY21 sales $177 million; (3)% organic sales decline
Slide 10: Strong balance sheet & cash flow generation allows capital allocation flexibility
Strong balance sheet & cash flow generation allows capital allocation flexibility Total Debt Net Debt Debt Structure & Covenants 800 698 Refinancing significantly extended debt profile 700 • Two $300M notes mature June 2028 & March 2031 610 592 598 • Issued $300M 10-yr notes to refinance notes matur
Slide 11: Primary EPS and Free Operating Cash Flow drivers
Primary EPS and Free Operating Cash Flow drivers Q3 to Q4 Sequential Q4 Year-over-Year EPS Drivers Sales • Mid-single digit growth • Up over ~30%; (~5% FX) • Up modestly Simplification/Modernization • Up ~$17M (FY21 at ~$80M) Temporary Costs • None • ~$40 - $45M headwind Adjusted Effective Tax Rate
Slide 12: Sales momentum and operating leverage positioning us well for recovery
Sales momentum and operating leverage positioning us well for recovery Continued momentum in sales, manufacturing performance and free cash flow are evidence of improving fundamentals and strong execution of initiatives Commercial Excellence initiatives progressing well • Growth initiatives perf
Slide 13: Appendix
Appendix EE <kennametat
Slide 14: Adjusted Segment Results
Adjusted Segment Results Quarter ended ($ in millions) March 31, 2021 March 31, 2020 Metal Cutting Infrastructure Total Metal Cutting Infrastructure Total Sales $308 $177 $485 $303 $180 $483 Organic 0% (3)% (1)% (17)% (17)% (17)% FX 3% 2% 2% (2)% (1)% (1)% Business Days (1)% (1)% (1)% 1% - - Divesti
Slide 15: Balance Sheet
Balance Sheet ASSETS ($ in millions) March 2021 June 2020 Cash and cash equivalents $114 $607 Accounts receivable, net 303 238 Inventories 476 522 Other current assets 74 74 Total current assets $967 $1,441 Property, plant and equipment, net 1,054 1,038 Goodwill and other intangible assets, net 400
Slide 16: Non-GAAP Reconciliations
Non-GAAP Reconciliations The information presented by the Company contains certain non-GAAP financial measures including organic sales decline, constant currency regional sales growth (decline), constant currency end market sales growth (decline), adjusted gross profit and margin; adjusted operating
Slide 17: Non-GAAP Reconciliations (cont’d)
Non-GAAP Reconciliations (cont’d) Constant Currency End Market Sales Growth (Decline) Constant currency end market sales growth (decline) is a non-GAAP financial measure of sales growth (decline) (which is the most directly comparable GAAP measure) by end market excluding the impacts of acquisitions
Slide 18: Non-GAAP Reconciliations (cont’d)
Non-GAAP Reconciliations (cont’d) ($ in millions, except per share data and Gross Operating Operating Effective Net Diluted percents) Sales Profit Expense Income Tax Rate Income(5) EPS Q3 FY21 Reported Results $ 484.7 $ 150.2 $ 108.1 $ 39.5 (8.0%) $ 21.6 $ 0.26 Reported Margins 31.0% 22.3% 8.2% Rest
Slide 19: Non-GAAP Reconciliations (cont’d)
Non-GAAP Reconciliations (cont’d) Three months ended March 31, ($ in millions) 2021 2020 Net income attributable to Kennametal, reported $ 21.6 $ 2.9 Add back: Interest expense 20.9 7.9 Interest income (0.2) (0.2) (Benefit) provision for income taxes, reported (1.7) 30.2 Depreciation 28.2 25.3 Amort
Slide 20: Non-GAAP Reconciliations (cont’d)
Non-GAAP Reconciliations (cont’d) Metal Cutting Infrastructure Metal Cutting Operating Infrastructure Operating ($ in millions, except percents) Sales Income Sales Income Q3 FY21 Reported Results $ 308.1 $ 22.7 $ 176.5 $ 18.3 Reported Operating Margin 7.4% 10.4% Restructuring and related charges - 2
Slide 21: Non-GAAP Reconciliations (cont’d)
Non-GAAP Reconciliations (cont’d) Three months ended March 31, 2021: Metal Cutting Infrastructure Kennametal Organic Sales Decline 0% (3%) (1%) Foreign Currency Exchange Impact 3% 2% 2% Business Days Impact (1%) (1%) (1%) Sales Growth (Decline) 2% (2%) 0% Three months ended March 31, 2020: Metal Cut
Slide 22: Non-GAAP Reconciliations (cont’d)
Non-GAAP Reconciliations (cont’d) Metal Cutting Three months ended March 31, 2021: Americas EMEA Asia Pacific Constant currency regional sales (decline) growth (9%) 0% 10% Foreign currency exchange impact (1%) 7% 5% Regional sales (decline) growth (10%) 7% 15% Infrastructure Three months ended March
Slide 23: Non-GAAP Reconciliations (cont’d)
Non-GAAP Reconciliations (cont’d) Metal Cutting Three months ended March 31, 2020(6): Americas EMEA Asia Pacific Constant currency regional sales decline (15%) (19%) (15%) Foreign currency exchange impact 0% (2%) (1%) Regional sales decline (15%) (21%) (16%) (6) Amounts for the three months ended Ma
Slide 24: Non-GAAP Reconciliations (cont’d)
Non-GAAP Reconciliations (cont’d) Metal Cutting General Three months ended March 31, 2021: Engineering Transportation Aerospace Energy Constant currency end market sales growth (decline) 1% 11% (34%) (16%) Foreign currency exchange impact 3% 4% 2% 4% End market sales growth (decline) 4% 15% (32%) (1
Slide 25: Non-GAAP Reconciliations (cont’d)
Non-GAAP Reconciliations (cont’d) Metal Cutting General (6) Three months ended March 31, 2020 : Engineering Transportation Aerospace Energy Constant currency end market sales decline (18%) (17%) (16%) (6%) Foreign currency exchange impact (1%) (2%) (1%) (1%) End market sales decline (19%) (19%) (17%
Slide 26: Non-GAAP Reconciliations (cont’d)
Non-GAAP Reconciliations (cont’d) Three months ended March 31, ($ in millions) 2021 2020 Net cash flow from operating activities $ 71.8 $ 59.0 Purchases of property, plant and equipment (25.5) (58.5) Proceeds from disposals of property, plant and equipment 0.3 1.9 Free operating cash flow $ 46.7 $ 2
Slide 27: Non-GAAP Reconciliations (cont’d)
Non-GAAP Reconciliations (cont’d) (in thousands, except percents) 3/31/2020 12/31/2019 9/30/2019 6/30/2019 3/31/2019 Average Current assets $ 966,723 $ 1,035,912 $ 1,065,389 $ 1,190,827 $ 1,162,842 Current liabilities 383,131 409,110 418,719 461,726 430,018 Working capital, GAAP $ 583,592 $ 626,802
Slide 28: 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 29: 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