Kennametal Fiscal 2Q Sales Down by 1% - Modern Distribution Management

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Kennametal Fiscal 2Q Sales Down by 1%

Kennametal had a 10 percent organic sales decline for the period.
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Kennametal Inc. (NYSE: KMT), Latrobe, PA, reported fiscal 2013 second-quarter results were $633 million, down by 1 percent from the prior-year period. Sales decline reflected a 10 percent organic decline and a 1 percent unfavorable effect from currency exchanged, offset by a 9 percent increase from acquisitions and 1 percent from more business days.

"We again sustained strong performance, in both profitability and return on invested capital, despite generally lackluster activity in the global industrial markets," said Kennametal President and CEO Carlos Cardoso. "While recovery is progressing more slowly than expected, we have kept our organization agile and ready for the resumption of growth. Our Stellite acquisition is contributing to earnings and opening us to new growth opportunities in the energy and power generation industries.”

Profit for the fiscal second quarter was $43.3 million, down from $74.5 million a year ago.

Operating income was $66 million, compared with $94 million in the same quarter last year. Stellite contributed $5 million of operating income in the current year quarter. Operating income decreased due to lower absorption of manufacturing costs related to reduced sales volume and an inventory reduction initiative, as well as an unfavorable sales mix. The company reduced operating expense with additional cost-control measures to partially offset these effects. Excluding Stellite, adjusted operating margin was 10.7 percent, compared with an operating margin of 14.7 percent in the prior year.

Industrial segment sales of $361 million declined 12 percent from $410 million in the prior-year quarter, reflecting a 10 percent organic decline and a 2 percent unfavorable effect from currency exchange. On an organic basis, sales declined 15 percent in general engineering and 8 percent in transportation, while aerospace and defense sales grew 10 percent.

Inventory destocking affected indirect sales in general engineering, as distributors responded to the slow macro environment. The decline in transportation reflected lower vehicle production rates and extended plant shutdowns, while aerospace and defense sales grew with increased production of commercial aircraft. On a regional basis, sales declined approximately 15 percent in Asia, 9 percent in Europe and 8 percent in the Americas.

Industrial segment operating income was $37 million compared with $63 million in the prior year. Industrial operating income decreased due to lower absorption of manufacturing costs related to reduced sales volume and an inventory reduction initiative, as well as an unfavorable sales mix.

Infrastructure segment sales of $272 million increased 17 percent from $232 million in the prior year, driven by 26 percent growth from Stellite, partially offset by an 8 percent organic decline and a 1 percent unfavorable effect from currency exchange. On an organic basis, sales declined by 13 percent in energy and 6 percent in the earthworks markets. Earthworks sales declined from persistently weak coal mining activity in North America, where a number of mine closures further depressed sales. Energy sales fell globally due to reduced drilling activity in oil and gas. On a regional basis excluding the impact of Stellite, sales decreased 12 percent in the Americas and 3 percent in Asia and remained flat in Europe.

Infrastructure segment operating income was $31 million, compared with $33 million in the same quarter of the prior year. Operating income benefited from Stellite operating income of $5 million, which was more than offset by the effects of the organic sales decline and lower absorption of manufacturing costs, as well as an unfavorable sales mix.

Year-to-date, total sales were $1.26 billion, compared with $1.3 billion in the same period last year. Sales decreased by 3 percent, driven by an 8 percent organic decline and 4 percent unfavorable effect from currency exchange, partially offset by a 9 percent increase from Stellite.

Profit was $90.4 million, compared with $148 million for the first six months a year ago.

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