Kennametal(US:KMT)2020-08-04 18:56Financial Data and Key Metrics Changes - For Q4, the company reported an organic sales decline of 33% compared to a 2% decline in the prior year quarter, marking the worst quarterly organic decline since the Great Recession in 2008 [23][41] - Adjusted EBITDA margin for the quarter was 17.7%, a decrease of 330 basis points from 21% in the prior year [25][42] - The company reported a GAAP earnings per share loss of $0.11 versus earnings per share of $0.74 in the prior year period [46] Business Line Data and Key Metrics Changes - Industrial sales in Q4 declined 36% organically, with the Americas posting a 40% decline [51] - Widia sales declined 32%, with the largest decline in Asia-Pacific at 41% [56] - Infrastructure organic sales declined 29%, primarily driven by a 47% drop in energy due to falling oil prices [58] Market Data and Key Metrics Changes - All regions reported negative growth, with the Americas declining by 39%, EMEA by 34%, and Asia Pacific by 24% [24] - The decline in demand was broad-based, with significant decreases in transportation and general engineering down 45% and 32% respectively [53] Company Strategy and Development Direction - The company is focusing on simplification and modernization to reduce costs and improve customer service, with six plant closures planned [18][19] - A new strategy combines Industrial and Widia into a single Metal Cutting organization to capture a larger market share [35][36] - The company aims to target a multibillion-dollar segment within Metal Cutting that was previously overlooked, expecting a 40% increase in served market opportunity [36] Management's Comments on Operating Environment and Future Outlook - Management noted that while there are signs of improvement from Q4 to Q1, uncertainty remains due to COVID-19, and they will not provide an annual outlook for fiscal year '21 [26][29] - The company plans to continue aggressive cost control actions to protect margins and liquidity, with capital expenditures significantly reduced to $110 million to $130 million for the full year [30][72] Other Important Information - The company expects to recognize full-year run rate savings from fiscal year '20 actions, bringing total savings to approximately $180 million by fiscal year-end [31] - The adjusted effective tax rate for the quarter was significantly higher at 51.2% due to geographical mix and changes in taxable income [45] Q&A Session Summary Question: Can you clarify the benefits from modernization in '21? - Management confirmed that the benefits from modernization in '21 are not the run rate but will contribute positively [84] Question: How much did temporary cost reductions benefit in '20? - The benefit from temporary cost reductions in FY20 was about $0.40 to $0.45, which will become a headwind in FY21 [85] Question: What is the expected run rate from restructuring in '21? - The restructuring savings will be embedded in the $80 million of simplification and modernization savings [89] Question: What is the decremental margin being managed to? - Decremental margins were in the mid-20s percent, with expectations of traditional decrements in the second half of FY21 [95][98] Question: How will working capital affect cash flow in the first half of FY21? - Working capital is expected to be a modest use of cash in the first half due to reductions in payables and receivables [102] Question: What signals will trigger the transition from temporary cost savings to headwinds? - The transition will be triggered by end market demand; if demand worsens, cost control measures will be maintained [108] Question: What has changed in the Widia strategy? - The strategy now focuses on fit-for-purpose tools, leveraging modernized manufacturing capabilities to meet customer needs [110][116] Question: How does the company view its energy business post-COVID? - The company sees opportunities to grow outside the U.S. and in other mining adjacencies, despite cyclical challenges in the energy sector [141][145]