PITTSBURGH, Feb. 5, 2025 /PRNewswire/ — Kennametal Inc. (NYSE: KMT) (the “Company”) today reported results for its fiscal 2025 second quarter ended December 31, 2024, with sales of $482 million compared to $495 million in the prior year quarter, and earnings per diluted share (EPS) of $0.23 compared to $0.29 in the prior year quarter. Adjusted EPS was $0.25 in the current quarter compared to $0.30 in the prior year quarter.
“This quarter we once again generated strong cash flow from operations,” said Sanjay Chowbey, President and CEO. “However, conditions in a number of our end markets, primarily in EMEA, continued to weaken resulting in sales at the lower end of our expectations.”
Chowbey continued: “In light of these challenging conditions, we have reduced our full year outlook and have taken the additional restructuring actions we announced in mid-January. By the end of this fiscal year, these actions, along with prior initiatives, will have us on pace to achieve approximately $65 million of the $100 million structural cost improvement program we introduced at our September 2023 Investor Day.”
Fiscal 2025 Second Quarter Key Developments
Sales of $482 million decreased 3 percent from $495 million in the prior year quarter, reflecting an organic sales decline of 6 percent, partially offset by a favorable business days effect of 3 percent.
During the quarter, the Company achieved incremental year-over-year restructuring savings of approximately $6 million from the previously announced action to streamline its cost structure. This action has delivered an annualized run rate pre-tax savings of approximately $35 million and is considered substantially complete as of December 31, 2024. Restructuring and related charges of $1 million were recognized during the quarter in connection with the execution of this initiative compared to $1 million in the prior year quarter.
On January 14, 2025, subsequent to quarter-end, the Company announced additional restructuring actions that are currently expected to deliver annualized run rate pre-tax savings of approximately $15 million by the end of fiscal 2025. The Company expects to incur pre-tax charges of approximately $25 million in connection with the execution of these actions; of which approximately $10 million is for cash-related facilities charges, approximately $10 million is for severance-related cash expenditures, and approximately $5 million is for non-cash facilities charges.
Operating income was $32 million, or 6.6 percent margin, compared to $28 million, or 5.7 percent margin, in the prior year quarter. The increase in operating income was primarily due to lower raw material costs, pricing, incremental year-over-year restructuring savings of approximately $6 million, and within the Infrastructure segment, a net benefit of $2 million consisting of insurance recoveries related to the tornado that struck the Rogers, Arkansas facility late in fiscal 2024 and an advanced manufacturing production credit under the Inflation Reduction Act of approximately $2 million. These factors were partially offset by lower sales and production volumes and higher wages and general inflation. Adjusted operating income was $33 million, or 6.9 percent margin, in the current quarter, compared to $30 million, or 6.0 percent margin, in the prior year quarter.
The reported effective tax rate (ETR) for the quarter was 29.4 percent (provision on income) compared to 9.0 percent (benefit on income) in the prior year quarter. The increase in the ETR year-over-year was primarily driven by a $7.8 million tax benefit due to a change in the Swiss tax rate in the prior year quarter and geographical mix, partially offset by a benefit for the advanced manufacturing production credit under the Inflation Reduction Act. The adjusted ETR was 26.9 percent (provision on income) in the current quarter, compared to 8.0 percent (benefit on income) in the prior year quarter.
Year-to-date net cash flow from operating activities was $101 million compared to $88 million in the prior year period. The change in net cash flow from operating activities was driven primarily by working capital changes, partially offset by lower net income compared to the prior year period. Year-to-date free operating cash flow (FOCF) was $57 million compared to $36 million in the prior year period. The increase in FOCF was driven primarily by working capital changes and lower net capital expenditures, partially offset by lower net income compared to the prior year period.
The Company paid $16 million in cash dividends to Kennametal shareholders during the quarter. The Company has a long history of consistently paying dividends to shareholders since its listing on the New York Stock Exchange in 1967.
During the quarter, the Company repurchased 525 thousand shares of Kennametal common stock for $15 million under its share repurchase program. Inception-to-date the Company has repurchased 1.1 million shares of common stock for $30 million under the $200 million three-year program.
Outlook
The Company’s expectations for the third quarter of fiscal 2025 and the full year are as follows:
Quarterly Outlook:
Annual Outlook:
This Outlook reflects the additional restructuring actions that were announced on January 14, 2025. The Company will provide more details regarding its Outlook during its quarterly earnings conference call.
Segment Results
Metal Cutting sales of $298 million decreased 4 percent from $311 million in the prior year quarter, reflecting an organic sales decline of 7 percent, partially offset by a favorable business days effect of 3 percent. Operating income was $17 million, or 5.6 percent margin, compared to $26 million, or 8.2 percent margin, in the prior year quarter. The decrease in operating income was primarily due to lower sales and production volumes and higher wages and general inflation. These factors were partially offset by pricing, lower raw material costs and incremental year-over-year restructuring savings of approximately $4 million. Adjusted operating income was $18 million, or 6.0 percent margin, in the current quarter, compared to $26 million, or 8.4 percent margin, in the prior year quarter.
Infrastructure sales of $184 million were flat from $184 million in the prior year quarter, driven by a favorable business days effect of 3 percent and a favorable currency exchange effect of 1 percent, offset by an organic sales decline of 4 percent. Operating income was $16 million, or 8.5 percent margin, compared to $3 million, or 1.8 percent margin, in the prior year quarter. The increase in operating income was primarily due to the favorable timing of pricing compared to raw material costs, a net benefit of $2 million from insurance recoveries related to the tornado that struck the Rogers, Arkansas facility late in fiscal 2024, an advanced manufacturing production credit under the Inflation Reduction Act of approximately $2 million and incremental year-over-year restructuring savings of approximately $2 million. These factors were partially offset by lower production volumes and higher wages and general inflation. Adjusted operating income was $16 million, or 8.6 percent margin, in the current quarter, compared to $4 million, or 1.9 percent margin, in the prior year quarter.
Dividend Declared
Kennametal announced that its Board of Directors declared a quarterly cash dividend of $0.20 per share. The dividend is payable on February 25, 2025 to shareholders of record as of the close of business on February 11, 2025.
The Company will host a conference call to discuss its second quarter fiscal 2025 results on Wednesday, February 5, 2025 at 9:30 a.m. Eastern Time. 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, interest expense, adjusted EPS, FOCF, primary working capital, capital expenditures and adjusted effective tax rate for the third quarter and full year of fiscal 2025 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 Russia’s invasion of Ukraine and the resulting sanctions on Russia; the conflict in the Middle East; other economic recession; our ability to achieve all anticipated benefits of restructuring, simplification and modernization initiatives; Commercial Excellence growth initiatives, Operational Excellence initiatives, our foreign operations and international markets, such as currency exchange rates, different regulatory environments, trade barriers, exchange controls, and social and political instability, including the conflicts in Ukraine and the Middle East; changes in the regulatory environment in which we operate, including environmental, health and safety regulations; potential for future goodwill and other intangible asset impairment charges; our ability to protect and defend our intellectual property; continuity of information technology infrastructure; competition; our ability to retain our management and employees; demands on management resources; availability and cost of the raw materials we use to manufacture our products; product liability claims; integrating acquisitions and achieving the expected savings and synergies; global or regional catastrophic events; demand for and market acceptance of our products; business divestitures; energy costs; commodity prices; labor relations; and implementation of environmental remediation matters. Many of these risks and other risks are more fully described in Kennametal’s latest annual report on Form 10-K and its other periodic filings with the Securities and Exchange Commission. We can give no assurance that any goal or plan set forth in forward-looking statements can be achieved and readers are cautioned not to place undue reliance on such statements, which speak only as of the date made. We undertake no obligation to release publicly any revisions to forward-looking statements as a result of future events or developments.
About Kennametal
With over 85 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 8,400 employees are helping customers in nearly 100 countries stay competitive. Kennametal generated $2 billion in revenues in fiscal 2024. Learn more at www.kennametal.com. Follow @Kennametal: Instagram, Facebook, LinkedIn and YouTube.
FINANCIAL HIGHLIGHTS
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended
December 31,
Six Months Ended
December 31,
(in thousands, except per share amounts)
2024
2023
2024
2023
Sales
$ 482,051
$ 495,320
$ 963,999
$ 987,796
Cost of goods sold
337,021
355,723
667,960
685,301
Gross profit
145,030
139,597
296,039
302,495
Operating expense
109,308
107,342
220,962
218,991
Restructuring and other charges, net
1,335
1,033
1,946
4,119
Amortization of intangibles
2,720
2,743
5,438
5,788
Operating income
31,667
28,479
67,693
73,597
Interest expense
6,180
6,847
12,493
13,447
Other income, net
(1,477)
(687)
(3,136)
(597)
Income before income taxes
26,964
22,319
58,336
60,747
Provision for (benefit from) income taxes
7,927
(2,009)
15,833
6,050
Net income
19,037
24,328
42,503
54,697
Less: Net income attributable to noncontrolling interests
1,109
1,220
2,452
1,532
Net income attributable to Kennametal
$ 17,928
$ 23,108
$ 40,051
$ 53,165
PER SHARE DATA ATTRIBUTABLE TO KENNAMETAL SHAREHOLDERS
Basic earnings per share
$ 0.23
$ 0.29
$ 0.51
$ 0.67
Diluted earnings per share
$ 0.23
$ 0.29
$ 0.51
$ 0.66
Basic weighted average shares outstanding
77,724
79,700
77,896
79,863
Diluted weighted average shares outstanding
78,379
80,114
78,495
80,395
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands)
December 31, 2024
June 30, 2024
ASSETS
Cash and cash equivalents
$ 121,151
$ 127,971
Accounts receivable, net
254,141
302,810
Inventories
536,634
514,632
Other current assets
56,848
57,179
Total current assets
968,774
1,002,592
Property, plant and equipment, net
910,124
938,063
Goodwill and other intangible assets, net
344,511
352,988
Other assets
212,396
210,115
Total assets
$ 2,435,805
$ 2,503,758
LIABILITIES
Revolving and other lines of credit and notes payable
$ 1,370
$ 1,377
Accounts payable
198,512
191,541
Other current liabilities
182,346
223,043
Total current liabilities
382,228
415,961
Long-term debt
596,384
595,980
Other liabilities
197,092
203,218
Total liabilities
1,175,704
1,215,159
KENNAMETAL SHAREHOLDERS’ EQUITY
1,219,980
1,249,875
NONCONTROLLING INTERESTS
40,121
38,724
Total liabilities and equity
$ 2,435,805
$ 2,503,758
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
Six Months Ended
December 31,
(in thousands)
2024
2023
OPERATING ACTIVITIES
Net income
$ 42,503
$ 54,697
Adjustments to reconcile to cash from operations:
Depreciation
62,130
60,500
Amortization
5,438
5,788
Stock-based compensation expense
13,375
14,652
Restructuring and other charges, net
1,946
4,119
Deferred income taxes
(1,903)
(7,726)
Gain on insurance recoveries
(7,500)
—
Other
2,666
11,279
Changes in certain assets and liabilities:
Accounts receivable
43,167
20,447
Inventories
(30,695)
(9,471)
Accounts payable and accrued liabilities
(27,214)
(36,220)
Accrued income taxes
606
(17,259)
Accrued pension and postretirement benefits
(2,445)
(5,497)
Other
(1,174)
(7,001)
Net cash flow provided by operating activities
100,900
88,308
INVESTING ACTIVITIES
Purchases of property, plant and equipment
(43,967)
(57,487)
Disposals of property, plant and equipment
405
5,208
Business acquisitions
—
(4,010)
Proceeds from insurance recoveries
7,193
—
Other
(222)
(117)
Net cash flow used in investing activities
(36,591)
(56,406)
FINANCING ACTIVITIES
Net increase in notes payable
—
2,112
Net increase in revolving and other lines of credit
—
20,500
Purchase of capital stock
(30,062)
(28,754)
The effect of employee benefit and stock plans and dividend reinvestment
(6,240)
(7,864)
Cash dividends paid to Shareholders
(31,148)
(31,844)
Other
(599)
(658)
Net cash flow used in financing activities
(68,049)
(46,508)
Effect of exchange rate changes on cash and cash equivalents
(3,080)
(680)
CASH AND CASH EQUIVALENTS
Net decrease in cash and cash equivalents
(6,820)
(15,286)
Cash and cash equivalents, beginning of period
127,971
106,021
Cash and cash equivalents, end of period
$ 121,151
$ 90,735
SEGMENT DATA (UNAUDITED)
Three Months Ended
December 31,
Six Months Ended
December 31,
(in thousands)
2024
2023
2024
2023
Sales:
