Kennametal(US:KMT)2024-05-08 15:45Financial Data and Key Metrics Changes - Adjusted EPS decreased to $0.30 compared to $0.39 in the prior year quarter [6] - Free operating cash flow year to date was $84 million, up from $60 million in the prior year [6][12] - Sales decreased 4% year-over-year with an organic decline of 2%, fewer workdays of 1%, and unfavorable currency exchange of 1% [8][29] Business Line Data and Key Metrics Changes - Aerospace and Defense sales increased 10% year-over-year, while Metal Cutting and Infrastructure grew 13% [5][34] - Reported Metal Cutting sales were down 2% compared to the prior year quarter, with flat organic sales [9] - Infrastructure sales were down 7% year-over-year due to negative organic sales of 5% [10] Market Data and Key Metrics Changes - Transportation was flat at 0% this quarter, with strength in EMEA offset by a decline in the Americas [5][34] - General Engineering declined 2% year-over-year due to lower industrial production in EMEA and the Americas [5] - Energy declined 14%, primarily in oil and gas, due to a 20% decline in U.S. land-based rig counts [5][34] Company Strategy and Development Direction - The company aims for above-market growth through innovation, best-in-class customer service, and commercial excellence [17] - Margin expansion is targeted through operational excellence and applying lean principles [17] - A balanced capital allocation strategy is emphasized, including share repurchase programs [24] Management's Comments on Operating Environment and Future Outlook - Management noted that macro conditions remain a headwind in the short term, but long-term growth drivers are intact [39] - The company is focused on improving margins and driving share gain throughout the economic cycle [39] - The outlook for FY24 sales is narrowed to between $2.03 billion and $2.05 billion, with adjusted EPS outlook of $1.40 to $1.55 [13] Other Important Information - The adjusted effective tax rate increased year-over-year to 26.5% due to unfavorable geographical mix [33] - The company continues to execute its share repurchase program, with $15 million of shares bought back in the quarter [31][37] - The leadership transition is set with Sanjay Chowbey taking over as CEO effective June 1st [14][43] Q&A Session Summary Question: Can you walk through the major end markets and any changes in underlying trends? - Aerospace and Defense continues to improve, but is dependent on production issues stabilizing for a major OEM [21] - Energy is expected to be flat, with rig counts anticipated to increase slightly [21] - Mining activity was lower than expected due to lower coal demand in the U.S. and a slower recovery in China [22] Question: Can you provide insights on free operating cash flow development? - The strongest quarters for cash flow are Q3 and Q4, with expectations for continued strong performance [24] Question: How do new product contributions relate to growth? - The modernization has allowed for quicker release of new products, which is a major driver for share gain [56][78] Question: What is the outlook for Aerospace and Defense build rates? - Demand remains solid, but there are short-term constraints due to supply chain issues [75] Question: What are the expectations for seasonality heading into the next fiscal year? - Normal seasonality is expected, with sales typically down about 8% to 10% from Q4 to Q1 [82]