Kennametal(KMT) - 2024 Q3 - Quarterly Results

Financial and Operational Highlights Kennametal reported Q3 FY2024 sales and EPS declines due to market softness, while achieving strong year-to-date cash flow and productivity gains - Sales decreased by 4%, reflecting a 2% organic decline, a 1% unfavorable business days effect, and a 1% unfavorable currency exchange effect[6] - Performance was affected by market softness in the energy end market and a slow recovery in China[4] - The company is on track to deliver approximately $35 million in annualized savings in fiscal 2024 as part of its $100 million productivity target by the end of fiscal 2027[5][7] Q3 FY2024 Financial Performance | Metric | Q3 FY2024 | Q3 FY2023 | Change | | :--- | :--- | :--- | :--- | | Sales | $516 million | $536 million | -4% | | EPS (Diluted) | $0.24 | $0.39 | -38.5% | | Adjusted EPS | $0.30 | $0.39 | -23.1% | | Operating Income | $35 million | $52 million | -32.4% | | Operating Margin | 6.8% | 9.8% | -3.0 p.p. | | Adjusted Operating Margin | 8.1% | 9.8% | -1.7 p.p. | Year-to-Date Cash Flow | Cash Flow Metric (YTD) | FY2024 | FY2023 | | :--- | :--- | :--- | | Cash from Operations | $163 million | $126 million | | Free Operating Cash Flow | $84 million | $60 million | Segment Performance Both Metal Cutting and Infrastructure segments experienced Q3 sales and operating margin declines due to lower volumes and cost pressures Metal Cutting Metal Cutting sales decreased by 2% to $327 million, with operating income and margin declining due to lower volumes and restructuring - The 2% sales decrease was driven by a 1% unfavorable currency exchange effect and a 1% unfavorable business days effect, with organic sales remaining flat[15] Metal Cutting Segment Performance | Metric | Q3 FY2024 | Q3 FY2023 | | :--- | :--- | :--- | | Sales | $327 million | $334 million | | Operating Income | $31 million | $44 million | | Operating Margin | 9.4% | 13.1% | | Adjusted Operating Income | $35 million | $44 million | | Adjusted Operating Margin | 10.8% | 13.1% | Infrastructure Infrastructure sales decreased by 7% to $189 million, with operating income and margin declining due to lower volumes and cost timing - The 7% sales decrease was driven by a 5% organic sales decline, a 1% unfavorable currency exchange effect, and a 1% unfavorable business days effect[16] Infrastructure Segment Performance | Metric | Q3 FY2024 | Q3 FY2023 | | :--- | :--- | :--- | | Sales | $189 million | $203 million | | Operating Income | $5 million | $10 million | | Operating Margin | 2.7% | 4.8% | | Adjusted Operating Income | $7 million | $10 million | | Adjusted Operating Margin | 3.8% | 4.8% | Shareholder Returns Kennametal returned $31 million to shareholders in Q3 via dividends and share repurchases, and authorized a new $200 million buyback program - Returned approximately $31 million to shareholders in Q3, consisting of $15 million in share repurchases and $16 million in dividends[7] - Repurchased 609 thousand shares for $15 million during the quarter, with $178 million used under the existing $200 million program inception-to-date[12] - The Board authorized an additional $200 million, three-year share repurchase program in February 2024[12] - A quarterly cash dividend of $0.20 per share was declared, payable on May 28, 2024[17] Fiscal 2024 Full-Year Outlook Kennametal tightened its FY2024 outlook, projecting sales of $2.030-$2.050 billion and adjusted EPS of $1.40-$1.55, with strong free cash flow - The company expects pricing actions to cover raw material costs, wages, and general inflation[14] - Primary working capital as a percent of sales is expected to be maintained at approximately 32% throughout the year[14] Fiscal 2024 Full-Year Outlook | Outlook Metric | Expected Value | | :--- | :--- | | Sales | $2.030 - $2.050 billion | | Adjusted EPS | $1.40 - $1.55 | | Interest Expense | ~$28 million | | Adjusted ETR | ~21% | | Capital Spending | $100 - $110 million | | Free Operating Cash Flow | > 125% of adjusted net income | Financial Statements Unaudited financial statements detail Q3 FY2024 net income of $19.0 million, with total assets at $2.52 billion and liabilities at $1.21 billion Condensed Consolidated Statements of Income Q3 FY2024 sales were $515.8 million, resulting in $19.0 million net income and $0.24 diluted EPS, with nine-month sales at $1.50 billion Q3 FY2024 vs Q3 FY2023 (Three Months Ended March 31) | (in thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Sales | $515,794 | $536,036 | | Gross Profit | $153,262 | $167,914 | | Operating Income | $35,227 | $52,471 | | Net Income Attributable to Kennametal | $18,976 | $31,937 | | Diluted EPS | $0.24 | $0.39 | Condensed Consolidated Balance Sheets As of March 31, 2024, total assets were $2.52 billion, with total liabilities at $1.21 billion and long-term debt at $595.8 million Balance Sheet Highlights (as of March 31, 2024) | (in thousands) | March 31, 2024 | June 30, 2023 | | :--- | :--- | :--- | | Total Current Assets | $999,937 | $1,026,789 | | Total Assets | $2,518,645 | $2,547,234 | | Total Current Liabilities | $413,245 | $433,975 | | Long-term Debt | $595,778 | $595,172 | | Total Liabilities | $1,212,751 | $1,233,066 | | Kennametal Shareholders' Equity | $1,264,559 | $1,275,447 | Non-GAAP Reconciliations Non-GAAP reconciliations provide adjusted Q3 FY2024 operating income of $41.7 million and EPS of $0.30, defining FOCF and organic sales growth - Management presents non-GAAP measures like adjusted operating income, adjusted EPS, FOCF, and organic sales growth to provide useful information on operational performance, consistent with how management assesses the business[26] - For Q3 FY2024, GAAP results were adjusted for $6.5 million in pre-tax restructuring and related charges[28] Reconciliation of GAAP to Non-GAAP Measures Q3 reported operating income of $35.2 million was adjusted to $41.7 million, and EPS of $0.24 to $0.30, due to restructuring charges Q3 FY2024 GAAP to Non-GAAP Reconciliation | (in thousands, except per share data) | Reported (GAAP) | Adjustments | Adjusted (Non-GAAP) | | :--- | :--- | :--- | :--- | | Operating Income | $35,227 | $6,465 | $41,692 | | Operating Margin | 6.8% | | 8.1% | | Net Income | $18,976 | $4,957 | $23,933 | | Diluted EPS | $0.24 | $0.06 | $0.30 | Free Operating Cash Flow (FOCF) FOCF, defined as operating cash flow less capital expenditures plus asset disposals, increased to $84.5 million for the nine months ended March 31, 2024 YTD Free Operating Cash Flow (Nine Months Ended March 31) | (in thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Net cash flow provided by operating activities | $163,460 | $126,182 | | Purchases of property, plant and equipment | ($84,240) | ($71,083) | | Disposals of property, plant and equipment | $5,270 | $4,774 | | Free operating cash flow | $84,490 | $59,873 | Organic Sales Growth (Decline) Organic sales, a non-GAAP measure, declined by 2% in Q3, with flat Metal Cutting and a 5% decline in Infrastructure segments Q3 FY2024 Sales Decline Breakdown | Effect | Metal Cutting | Infrastructure | Total | | :--- | :--- | :--- | :--- | | Organic sales decline | 0% | (5)% | (2)% | | Foreign currency exchange effect | (1)% | (1)% | (1)% | | Business days effect | (1)% | (1)% | (1)% | | Total Sales decline | (2)% | (7)% | (4)% |