Kennametal Reports Fiscal 2023 and Fourth Quarter Results
- FY23 sales increased 3% YoY to $2.1 billion, with Q4 sales up 4% YoY to $550 million.
- Strong cash from operations of $258 million and FOCF of $169 million; highest FOCF in the last eight years.
- FY24 Q1 sales are expected to be $485 - $510 million.
- None.
- FY23 sales increased 3 percent year-over-year to
; 9 percent on an organic basis$2.1 billion - FY23 earnings per diluted share (EPS) of
and adjusted EPS of$1.46 $1.52 - Q4 sales increased 4 percent year-over-year to
; 7 percent on an organic basis$550 million - Returned
to shareholders in FY23;$114 million in share repurchases and$49 million in dividends$65 million - Strong cash from operations of
and FOCF of$258 million ; highest FOCF in the last eight years$169 million - Provides FY24 Q1 and annual Outlook
"In fiscal year 2023 we generated
Rossi continued, "Now as we look ahead to fiscal year 2024, we remain confident in our strategy and growth initiatives and the actions we will continue to take to improve margins. We look forward to sharing more details on the Company's growth and innovation strategy, as well as outlining our operational and financial targets to fiscal year 2027, at our upcoming Investor Day on September 8."
Fiscal 2023 Fourth Quarter Key Developments
Sales were
To better align with the Company's strategic goals and initiatives, certain of the end markets that are reported externally and used to analyze sales performance have been redefined. The changes include 1.) defense sales were moved from general engineering and are now combined with aerospace sales for a new "aerospace and defense" end market, 2.) certain Metal Cutting sales have been reclassified from general engineering to the aerospace and defense end market, and 3.) Infrastructure's ceramics sales have been reclassified from energy to the general engineering end market.
During the quarter, the Company announced an initiative to streamline our cost structure while continuing to invest in our high-return Commercial and Operational Excellence initiatives. This action is currently expected to deliver annualized run rate pre-tax savings of approximately
Operating income was
The reported effective tax rate (ETR) was 19.9 percent and the adjusted ETR was 19.7 percent, compared to a reported ETR of 27.8 percent and an adjusted ETR of 27.6 percent in the prior year quarter. The year-over-year change in both the reported and adjusted ETR's was primarily due to adjustments related to valuation allowances against deferred tax assets and reserves related to uncertain tax positions.
Reported EPS in the current quarter includes restructuring and related charges of
During the quarter, the Company repurchased 443 thousand shares of Kennametal common stock for
The Company paid
Fiscal 2023 Key Developments
Sales of
Operating income was
Net cash flow provided by operating activities in fiscal 2023 was
In fiscal 2023, Kennametal continued its focus on delivering shareholder value by returning
Outlook
The Company's expectations for the first quarter of fiscal 2024 and the full year are as follows:
Quarterly Outlook:
- Sales expected to be
-$485 ; foreign exchange anticipated to be flat compared to the first quarter of fiscal 2023$510 million - Adjusted ETR is expected to be approximately 5 percent
- Adjusted EPS is expected to be
-$0.30 $0.40
Annual Outlook:
- Sales expected to be
-$2.1 $2.2 billion - Interest expense is expected to be approximately
$28 million - Adjusted EPS is expected to be
-$1.75 $2.15 - Pricing actions expected to cover raw material costs, wages and general inflation
- Infrastructure margin improvement
- Free operating cash flow of 100 percent of adjusted net income
- Primary working capital as a percent of sales maintained at 30 - 32 percent throughout the year
- Capital spending expected to be approximately
-$100 $110 million - Adjusted ETR is expected to be approximately 24 percent
three-year share repurchase program to continue$200 million
The Company will provide more details regarding its fiscal 2024 assumptions during its quarterly earnings conference call.
Fiscal 2023 Fourth Quarter Segment Results
Metal Cutting sales of
Infrastructure sales of
Dividend Declared
Kennametal also announced that its Board of Directors declared a quarterly cash dividend of
The Company will discuss its fiscal 2023 fourth quarter and full year results in a live webcast at 8:00 a.m. Eastern Time, Tuesday, August 1, 2023. The conference call will be broadcast via real-time audio on Kennametal's investor relations website at https://investors.kennametal.com/ - click "Event" (located in the blue Quarterly Earnings block).
This earnings release contains non-GAAP financial measures. Reconciliations and descriptions of all non-GAAP financial measures are set forth in the tables that follow.
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 relate strictly to historical or current facts. For example, statements about Kennametal's outlook for sales, adjusted operating income, adjusted EPS, FOCF, primary working capital, capital expenditures and adjusted effective tax rate for the first quarter and full year of fiscal 2024 and our expectations regarding future growth and financial performance are forward-looking statements. Any forward-looking statements are based on current knowledge, expectations and estimates that involve inherent risks and uncertainties. Should one or more of these risks or uncertainties materialize, or should the assumptions underlying the forward-looking statements prove incorrect, our actual results could vary materially from our current expectations. There are a number of factors that could cause our actual results to differ from those indicated in the forward-looking statements. They include: uncertainties related to changes in macroeconomic and/or global conditions, including as a result of increased inflation and
About Kennametal
With over 80 years as an industrial technology leader, Kennametal Inc. delivers productivity to customers through materials science, tooling and wear-resistant solutions. Customers across aerospace and defense, earthworks, energy, general engineering and transportation turn to Kennametal to help them manufacture with precision and efficiency. Every day approximately 8,700 employees are helping customers in more than 60 countries stay competitive. Kennametal generated
FINANCIAL HIGHLIGHTS | |||||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) | |||||||
Three Months Ended | Twelve Months Ended | ||||||
(in thousands, except per share amounts) | 2023 | 2022 | 2023 | 2022 | |||
Sales | $ 550,234 | $ 530,016 | |||||
Cost of goods sold | 374,568 | 360,364 | 1,431,745 | 1,364,479 | |||
Gross profit | 175,666 | 169,652 | 646,439 | 647,977 | |||
Operating expense | 109,983 | 102,670 | 437,292 | 419,093 | |||
Restructuring and other charges, net | 6,605 | 1,080 | 4,106 | (1,243) | |||
Gain on divestiture | — | — | — | (1,001) | |||
Amortization of intangibles | 3,148 | 3,237 | 12,624 | 12,988 | |||
Operating income | 55,930 | 62,665 | 192,417 | 218,140 | |||
Interest expense | 7,097 | 6,697 | 28,496 | 25,914 | |||
Other (income) expense, net | 1,716 | (3,378) | 4,300 | (14,507) | |||
Income before income taxes | 47,117 | 59,346 | 159,621 | 206,733 | |||
Provision for income taxes | 9,377 | 16,501 | 36,255 | 56,532 | |||
Net income | 37,740 | 42,845 | 123,366 | 150,201 | |||
Less: Net income attributable to noncontrolling interests | 1,314 | 1,136 | 4,907 | 5,578 | |||
Net income attributable to Kennametal | $ 36,426 | $ 41,709 | $ 118,459 | $ 144,623 | |||
PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL SHAREHOLDERS | |||||||
Basic earnings per share | $ 0.45 | $ 0.51 | $ 1.47 | $ 1.74 | |||
Diluted earnings per share | $ 0.45 | $ 0.50 | $ 1.46 | $ 1.72 | |||
Dividends per share | $ 0.20 | $ 0.20 | $ 0.80 | $ 0.80 | |||
Basic weighted average shares outstanding | 80,305 | 82,386 | 80,803 | 83,252 | |||
Diluted weighted average shares outstanding | 81,091 | 83,060 | 81,402 | 83,944 |
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) | |||
(in thousands) | June 30, 2023 | June 30, 2022 | |
ASSETS | |||
Cash and cash equivalents | $ 106,021 | $ 85,586 | |
Accounts receivable, net | 307,313 | 295,346 | |
Inventories | 557,630 | 570,836 | |
Other current assets | 55,825 | 72,940 | |
Total current assets | 1,026,789 | 1,024,708 | |
Property, plant and equipment, net | 969,068 | 1,002,041 | |
Goodwill and other intangible assets, net | 362,715 | 369,955 | |
Other assets | 188,662 | 176,820 | |
Total assets | $ 2,547,234 | $ 2,573,524 | |
LIABILITIES | |||
Revolving and other lines of credit and notes payable to banks | $ 689 | $ 21,186 | |
Accounts payable | 203,341 | 227,887 | |
Other current liabilities | 229,945 | 236,576 | |
Total current liabilities | 433,975 | 485,649 | |
Long-term debt | 595,172 | 594,364 | |
Other liabilities | 203,919 | 202,264 | |
Total liabilities | 1,233,066 | 1,282,277 | |
KENNAMETAL SHAREHOLDERS' EQUITY | 1,275,447 | 1,252,577 | |
NONCONTROLLING INTERESTS | 38,721 | 38,670 | |
Total liabilities and equity | $ 2,547,234 | $ 2,573,524 |
SEGMENT DATA (UNAUDITED) | Three Months Ended | Twelve Months Ended | ||||
(in thousands) | 2023 | 2022 | 2023 | 2022 | ||
Outside Sales: | ||||||
Metal Cutting | $ 336,852 | $ 316,449 | ||||
Infrastructure | 213,382 | 213,567 | 808,419 | 785,183 | ||
Total sales | $ 550,234 | $ 530,016 | ||||
Sales By Geographic Region: | ||||||
$ 271,510 | $ 263,915 | $ 965,544 | ||||
EMEA | 168,449 | 152,157 | 605,995 | 600,402 | ||
110,275 | 113,944 | 427,425 | 446,510 | |||
Total sales | $ 550,234 | $ 530,016 | ||||
Operating Income: | ||||||
Metal Cutting | $ 37,170 | $ 34,094 | $ 135,763 | $ 121,386 | ||
Infrastructure | 19,214 | 29,191 | 59,757 | 98,871 | ||
Corporate (1) | (454) | (620) | (3,103) | (2,117) | ||
Total operating income | $ 55,930 | $ 62,665 | $ 192,417 | $ 218,140 |
(1) Represents unallocated corporate expenses. |
NON-GAAP RECONCILIATIONS (UNAUDITED)
In addition to reported results under generally accepted accounting principles in
Management believes that presentation of these non-GAAP financial measures provides useful information about the results of operations of the Company for the current and past periods. Management believes that investors should have available the same information that management uses to assess operating performance, determine compensation and assess the capital structure of the Company. These non-GAAP financial measures should not be considered in isolation or as a substitute for the most comparable GAAP financial measures. Investors are cautioned that non-GAAP financial measures used by management may not be comparable to non-GAAP financial measures used by other companies. Reconciliations and descriptions of all non-GAAP financial measures are set forth in the disclosures below.
Reconciliations to the most directly comparable GAAP financial measures for the following forward-looking non-GAAP financial measures for the first quarter and full fiscal year of 2024 have not been provided, including but not limited to: FOCF, adjusted operating income, adjusted net income, adjusted EPS, adjusted ETR and primary working capital. The most comparable GAAP financial measures are net cash flow from operating activities, operating income, net income attributable to Kennametal, ETR and working capital (defined as current assets less current liabilities), respectively. Primary working capital is defined as accounts receivable, net plus inventories, net minus accounts payable. Because the non-GAAP financial measures on a forward-looking basis are subject to uncertainty and variability as they are dependent on many factors - including, but not limited to, the effect of foreign currency exchange fluctuations, impacts from potential acquisitions or divestitures, gains or losses on the potential sale of businesses or other assets, restructuring costs, asset impairment charges, gains or losses from early extinguishment of debt, the tax impact of the items above and the impact of tax law changes or other tax matters - reconciliations to the most directly comparable forward-looking GAAP financial measures are not available without unreasonable effort.
THREE MONTHS ENDED JUNE 30, 2023 (UNAUDITED) | |||||
(in thousands, except percents) | Sales | Operating | ETR | Net income(2) | Diluted EPS |
Reported results | $ 550,234 | $ 55,930 | 19.9 % | $ 36,426 | $ 0.45 |
Reported margins | 10.2 % | ||||
Restructuring and related charges | — | 6,605 | 18.6 | 5,226 | 0.06 |
Differences in projected annual tax rates | — | — | (18.8) | 25 | — |
Adjusted results | $ 550,234 | $ 62,535 | 19.7 % | $ 41,677 | $ 0.51 |
Adjusted margins | 11.4 % |
(2) Attributable to Kennametal. |
THREE MONTHS ENDED JUNE 30, 2023 (UNAUDITED) | ||||
Metal Cutting | Infrastructure | |||
(in thousands, except percents) | Sales | Operating | Sales | Operating |
Reported results | $ 336,852 | $ 37,170 | $ 213,382 | $ 19,214 |
Reported operating margin | 11.0 % | 9.0 % | ||
Restructuring and related charges | — | 5,341 | — | 1,275 |
Adjusted results | $ 336,852 | $ 42,511 | $ 213,382 | $ 20,489 |
Adjusted operating margin | 12.6 % | 9.6 % |
THREE MONTHS ENDED JUNE 30, 2022 (UNAUDITED) | |||||
(in thousands, except percents) | Sales | Operating | ETR | Net income(2) | Diluted EPS |
Reported results | $ 530,016 | $ 62,665 | 27.8 % | $ 41,709 | $ 0.50 |
Reported margins | 11.8 % | ||||
Restructuring and related charges | — | 1,662 | 23.2 | 1,268 | 0.02 |
Charges related to Russian and Ukrainian operations(3) | — | 890 | — | 890 | 0.01 |
Differences in projected annual tax rates | — | — | (23.4) | (191) | — |
Adjusted results | $ 530,016 | $ 65,217 | 27.6 % | $ 43,676 | $ 0.53 |
Adjusted margins | 12.3 % |
(2) | Attributable to Kennametal. |
(3) | During fiscal 2022, the Company ceased operations in |
THREE MONTHS ENDED JUNE 30, 2022 (UNAUDITED) | ||||
Metal Cutting | Infrastructure | |||
(in thousands, except percents) | Sales | Operating | Sales | Operating |
Reported results | $ 316,449 | $ 34,094 | $ 213,567 | $ 29,191 |
Reported operating margin | 10.8 % | 13.7 % | ||
Restructuring and related charges | — | 1,044 | — | 581 |
Charges related to Russian and Ukrainian operations(3) | — | 750 | — | 140 |
Adjusted results | $ 316,449 | $ 35,888 | $ 213,567 | $ 29,912 |
Adjusted operating margin | 11.3 % | 14.0 % |
(3) | During fiscal 2022, the Company ceased operations in |
TWELVE MONTHS ENDED JUNE 30, 2023 (UNAUDITED) | ||||
(in thousands, except percents) | Sales | Operating | Net income(2) | Diluted EPS |
Reported results | $ 2,078,184 | $ 192,417 | $ 118,459 | $ 1.46 |
Reported operating margin | 9.3 % | |||
Restructuring and related charges | — | 6,605 | 5,226 | 0.06 |
Adjusted results | $ 2,078,184 | $ 199,022 | $ 123,685 | $ 1.52 |
Adjusted operating margin | 9.6 % |
(2) | Attributable to Kennametal. |
TWELVE MONTHS ENDED JUNE 30, 2022 - (UNAUDITED) | ||||
(in thousands, except percents) | Sales | Operating | Net income(2) | Diluted EPS |
Reported results | $ 2,012,456 | $ 218,140 | $ 144,623 | $ 1.72 |
Reported operating margin | 10.8 % | |||
Restructuring and related charges | — | 4,238 | 2,663 | 0.03 |
Charges related to Russian and Ukrainian operations(3) | — | 2,706 | 2,706 | 0.03 |
Gain on | — | (1,001) | (791) | — |
Adjusted results | $ 2,012,456 | $ 224,083 | $ 149,201 | $ 1.78 |
Adjusted operating margin | 11.1 % |
(2) | Attributable to Kennametal. |
(3) | During fiscal 2022, the Company ceased operations in |
Free Operating Cash Flow (FOCF)
FOCF is a non-GAAP financial measure and is defined by the Company as cash provided by operations (which is the most directly comparable GAAP financial measure) less capital expenditures plus proceeds from disposals of fixed assets. Management considers FOCF to be an important indicator of the Company's cash generating capability because it better represents cash generated from operations that can be used for dividends, debt repayment, strategic initiatives (such as acquisitions) and other investing and financing activities.
FREE OPERATING CASH FLOW (UNAUDITED) | Twelve Months Ended | ||
June 30, | |||
(in thousands) | 2023 | 2022 | |
Net cash flow from operating activities | $ 257,945 | $ 181,444 | |
Purchases of property, plant and equipment | (94,385) | (96,924) | |
Proceeds from disposals of property, plant and equipment | 5,029 | 924 | |
Free operating cash flow | $ 168,589 | $ 85,444 |
Organic Sales Growth
Organic sales growth is a non-GAAP financial measure of sales growth (which is the most directly comparable GAAP measure) excluding the impacts of acquisitions, divestitures, business days and foreign currency exchange from year-over-year comparisons. Management believes this measure provides investors with a supplemental understanding of underlying sales trends by providing sales growth on a consistent basis. Management reports organic sales growth at the consolidated and segment levels.
ORGANIC SALES GROWTH (UNAUDITED) | ||||||
THREE MONTHS ENDED JUNE 30, 2023 | Metal Cutting | Infrastructure | Total | |||
Organic sales growth | 10 % | 3 % | 7 % | |||
Foreign currency exchange effect(4) | (2) | (2) | (2) | |||
Business days effect(5) | (2) | (1) | (1) | |||
Sales growth | 6 % | — % | 4 % |
TWELVE MONTHS ENDED JUNE 30, 2023 | Total | |
Organic sales growth | 9 % | |
Foreign currency exchange effect(4) | (5) | |
Business days effect(5) | (1) | |
Sales growth | 3 % |
(4) | Foreign currency exchange effect is calculated by dividing the difference between current period sales and current period sales at prior period foreign exchange rates by prior period sales. |
(5) | Business days effect is calculated by dividing the year-over-year change in weighted average working days (based on mix of sales by country) by prior period weighted average working days. |
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SOURCE Kennametal Inc.
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