Kennametal(US:KMT)2022-11-01 16:13Financial Data and Key Metrics Changes - Sales increased by 9% organically year-over-year, offset by a 7% negative foreign exchange impact, resulting in a total sales increase of 2% [7][20] - Adjusted EPS declined to $0.34 from $0.44 in the prior year quarter, primarily driven by macroeconomic factors [13][24] - Operating expenses as a percentage of sales increased to 21.9%, influenced by annual salary increases and increased travel costs [12][21] Business Line Data and Key Metrics Changes - Metal Cutting sales increased 9% organically year-over-year, with a foreign currency headwind of 8% [27] - Infrastructure organic sales increased by 10% year-over-year, also impacted by a 5% foreign exchange headwind [30] - Aerospace reported strong growth of 25% year-over-year, while general engineering grew 8% [28] Market Data and Key Metrics Changes - The Americas led with double-digit growth, while Asia Pacific faced challenges due to COVID-19 lockdowns in China [8][27] - EMEA sales were negatively affected by disruptions from the Ukraine crisis and the exit from Russia [8][28] - Energy markets showed strong double-digit growth, particularly in the U.S. oil and gas sector [30] Company Strategy and Development Direction - The company is focused on gaining market share through innovative products and operational excellence initiatives [14][46] - There is an emphasis on growth in electric vehicles, aerospace, and digital markets, aligning with megatrends [15][46] - The company plans to supplement organic growth through acquisitions [15] Management's Comments on Operating Environment and Future Outlook - Management acknowledged macroeconomic challenges such as high inflation and foreign exchange impacts but expressed confidence in long-term growth drivers [9][46] - The company expects sales for FY 2023 to be between $2 billion and $2.08 billion, with a volume increase of flat to 4% [41] - Management anticipates that supply chain disruptions will continue but expects them to fully abate by the end of the fiscal year [40] Other Important Information - The company repurchased $19 million of shares during the quarter, reflecting confidence in its strategic initiatives [36] - Free operating cash flow was negative $40 million, consistent with typical first-quarter patterns due to seasonal sales [35] Q&A Session Summary Question: Volume and Price Dynamics - Volume was up year-over-year, contributing approximately $4 million to operating income, with a model suggesting a volume increase of around $8 million [51][54] Question: End Market Performance - Aerospace increased, while EMEA weakened slightly due to the Ukraine conflict; general engineering remained steady [55] Question: Supply Chain and Pension Headwinds - Temporary supply chain issues are expected to mitigate by the end of the fiscal year, with specific guidance on pension and FX impacts provided [58][59] Question: Raw Material Costs - Raw material costs are expected to stabilize, but year-over-year headwinds will persist [66] Question: Competition and Pricing Strategy - Pricing strategies are based on value provided to customers, with limits on how much further prices can be increased due to competitive pressures [88][90] Question: Infrastructure Stimulus Impact - The company has not yet seen significant benefits from the infrastructure stimulus package, expecting more impact in fiscal year 2024 [105] Question: Force Majeure Details - The force majeure event affected raw material supply to infrastructure plants, but customer service levels were maintained [107]