Kennametal Inc. · NYSE:KMT
Kennametal — Q2 FY2021 Earnings Presentation
28 slides from Kennametal's earnings presentation, Feb 2, 2021
Slide 1: FY21 Second Quarter Earnings Call Presentation
FY21 Second Quarter Earnings Call Presentation February 2, 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: Q2 FY21 Overview & Highlights
Strong results despite declining YoY sales; end-markets improved sequentially Q2 FY21 Overview & Highlights Organic sales down due to declining end-markets: (14)% organic sales decline vs. (12)% decline prior year • Sales up 10% sequentially with 1% benefit from FX, outperforming expectations and
Slide 4: Trailing 12 Month Adj. Operating Margin
Substantially improved profitability throughout downturn; well positioned for upturn Revenue and Adjusted Operating Margin in downturns Revenue* Adjusted Operating Margin* $2,900 16% Trailing 12 Month Revenue ($ in millions) Trailing 12 Month Adj. Operating Margin $2,700 14% Current Current 12% down
Slide 5: Consolidated Q2 FY21 Financial Overview
Increasing margins despite reduced volumes proving effectiveness of initiatives Consolidated Q2 FY21 Financial Overview Adjusted Reported Change Quarter Ended ($ in millions) from PY Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019 Sales (13)% $441 $505 $441 $505 Organic (14)% (12)% (14)% (12
Slide 6: Q2 FY21 Adjusted EPS Bridge
Higher Simplification/Modernization benefits partially offsets continuing low volumes Q2 FY21 Adjusted EPS Bridge Main drivers: lower volumes and associated under absorption, partially offset by temporary cost-control actions and raw materials ($0.25) Other Taxes Currency Simplification/Modernizatio
Slide 7: Metal Cutting Business Segment
Sequential improvement and modernization benefits set up a profitable recovery Sales by Geography Sales by End Market Metal Cutting Business Segment AsiaPac 24% Americas 38% Aerospace 8% Energy 8% General Engineering Q2 FY21 Summary 53% Transportation EMEA 31% 38% Q2 FY21 sales $283 million; (14)% o
Slide 8: Infrastructure Business Segment
Improving sentiment and increased Simplification/Modernization benefits Sales by Geography Sales by End Market General AsiaPac Energy 25% Infrastructure Business Segment 26% Engineering 36% Q2 FY21 Summary EMEA 18% Americas Earthworks 56% 39% Q2 FY21 sales $158 million; (14)% organic sales decline v
Slide 9: Strong balance sheet and cash flow
Strong balance sheet and cash flow allow continued focus on strategic initiatives Debt Structure & Covenants 800 Total Debt Net Debt Debt Structure 697 • Two $300M notes; mature February 2022 & June 2028 700 629 • $700M revolver matures June 2023; $25M outstanding at Dec 31st 595 $ Millions 600 595
Slide 10: Primary 2H FY21 EPS and Free Operating Cash Flow drivers
Primary 2H FY21 EPS and Free Operating Cash Flow drivers Year-over-Year Change 2H FY21 Notes Simplification/Modernization + • Full year benefits ~$80M • $45M achieved fiscal year-to-date • ~$50M-$55M YoY headwind EPS Drivers Temporary Cost-Control Actions ─ (~$10M in 3Q and $40-$45M in 4Q) • Sequent
Slide 11: Strong execution of initiatives producing higher margins
Strong execution of initiatives producing higher margins, positioning us for recovery Commercial Excellence initiatives progressing well Fit-for-purpose initiative on-track as we roll out program globally Good initial feedback from distributors on updated brand strategy Operational Excellenc
Slide 12: Appendix
Appendix Fiscal 2019 Second Quarter Earnings Call Presentation February 5, 2019
Slide 13: Adjusted Segment Results
Adjusted Segment Results Quarter ended ($ in millions) December 31, 2020 December 31, 2019 Metal Cutting Infrastructure Total Metal Cutting Infrastructure Total Sales $283 $158 $441 $324 $182 $505 Organic (14)% (14)% (14)% (10)% (14)% (12)% FX 1% 1% 1% (2)% (1)% (1)% Business Days - 1% 1% - (1)% - D
Slide 14: Balance Sheet
Balance Sheet ASSETS ($ in millions) December 2020 June 2020 Cash and cash equivalents $103 $607 Accounts receivable, net 275 238 Inventories 497 522 Other current assets 73 74 Total current assets $949 $1,441 Property, plant and equipment, net 1,073 1,038 Goodwill and other intangible assets, net 4
Slide 15: Non-GAAP Reconciliations
Non-GAAP Reconciliations The information presented by the Company contains certain non-GAAP financial measures including organic sales decline, constant currency regional sales growth (decline), constant currency end market sales decline, adjusted gross profit and margin; adjusted operating expense
Slide 16: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Constant Currency End Market Sales Decline Constant currency end market sales decline is a non-GAAP financial measure of sales decline (which is the most directly comparable GAAP measure) by end market excluding the impacts of acquisitions(1), divestitures(2) and fo
Slide 17: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) ($ in millions, except per share data and Gross Operating Operating Effective Net Diluted percents) Sales Profit Expense Income Tax Rate Income(5) EPS Q2 FY21 Reported Results $ 440.5 $ 121.5 $ 97.8 $ 19.0 (39.0%) $ 19.4 $ 0.23 Reported Margins 27.6% 22.2% 4.3% Rest
Slide 18: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Three months ended December 31, ($ in millions) 2020 2019 Net income (loss) attributable to Kennametal, reported $ 19.4 $ (5.9) Add back: Interest expense 8.3 8.1 Interest income (0.1) (0.2) Benefit for income taxes, reported (5.7) (45.3) Depreciation 27.9 26.5 Amor
Slide 19: 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 Q2 FY21 Reported Results $ 282.9 $ 13.7 $ 157.6 $ 6.3 Reported Operating Margin 4.8% 4.0% Restructuring and related charges - 3.5
Slide 20: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Three months ended December 31, 2020: Metal Cutting Infrastructure Kennametal Organic Sales Decline (14%) (14%) (14%) Foreign Currency Exchange Impact 1% 1% 1% Business Days Impact 0% 1% 1% Divestiture Impact 0% (1%) (1%) Sales Decline (13%) (13%) (13%) Three months
Slide 21: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Metal Cutting Three months ended December 31, 2020: Americas EMEA Asia Pacific Constant currency regional sales decline (20%) (12%) (6%) Foreign currency exchange impact (1%) 3% 3% Regional sales decline (21%) (9%) (3%) Infrastructure Three months ended December 31,
Slide 22: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Metal Cutting Three months ended December 31, 2019(11): Americas EMEA Asia Pacific Constant currency regional sales decline (9%) (14%) (7%) Foreign currency exchange impact 0% (3%) 0% Regional sales decline (9%) (17%) (7%) (11) Amounts for the three months ended Dec
Slide 23: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Metal Cutting General Three months ended December 31, 2020: Engineering Transportation Aerospace Energy Constant currency end market sales decline (12%) (4%) (43%) (18%) Foreign currency exchange impact 1% 1% 1% 2% End market sales decline (11%) (3%) (42%) (16%) Inf
Slide 24: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Metal Cutting General (11) Three months ended December 31, 2019 : Engineering Transportation Aerospace Energy Constant currency end market sales decline (10%) (13%) (6%) (9%) Foreign currency exchange impact (1%) (1%) (1%) (1%) End market sales decline (11%) (14%) (
Slide 25: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Three months ended December 31, ($ in millions) 2020 2019 Net cash flow from operating activities $ 57.7 $ 59.6 Purchases of property, plant and equipment (29.3) (75.1) Proceeds from disposals of property, plant and equipment 0.6 0.4 Free operating cash flow $ 29.0
Slide 26: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) (in thousands, except percents) 12/31/2019 9/30/2019 6/30/2019 3/31/2019 12/31/2018 Average Current assets $ 1,035,912 $ 1,065,389 $ 1,190,827 $ 1,162,842 $ 1,119,034 Current liabilities 409,110 418,719 461,726 430,018 412,053 Working capital, GAAP $ 626,802 $ 646,6
Slide 27: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) (in thousands, except percents) 12/31/2018 9/30/2018 6/30/2018 3/31/2018 12/31/2017 Average Current assets $ 1,119,034 $ 1,121,482 $ 1,546,166 $ 1,240,587 $ 1,128,382 Current liabilities 412,053 439,171 886,531 477,790 407,621 Working capital, GAAP $ 706,981 $ 682,3
Slide 28: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) (in thousands, except percents) 12/31/2017 9/30/2017 6/30/2017 3/31/2017 12/31/2016 Average Current assets $ 1,128,382 $ 1,075,915 $ 1,113,901 $ 1,043,046 $ 971,745 Current liabilities 407,621 396,967 461,478 426,799 390,151 Working capital, GAAP $ 720,761 $ 678,948