Kennametal Inc., Pittsburgh, Pennsylvania, USA, has announced its results for its fiscal 2020 third quarter ended March 31, 2020. In the third quarter 2020, the company reports sales of $483 million, down 19% from its $597 million in the prior year quarter.
“Despite the many headwinds we faced in the third quarter, we delivered solid results that were strengthened by our early cost-control actions and the continued benefits of our simplification/modernisation investments,” stated Christopher Rossi, President and CEO, Kennametal, Inc.
Commenting on the impact of the coronavirus (COVID-19), the company explained that excluding China, the effect of COVID-19 on the third quarter was minimal from a revenue standpoint. Its facilities have operated throughout the crisis, unless there was a government mandated lockdown of a certain region where the company has a facility. Kennametal states it currently has all but one production facility in operation, which is expected to reopen mid-May 2020.
“Kennametal is considered an essential business by governments around the world, so we have kept almost all of our production facilities open and serving customers throughout this crisis. We ended the quarter with a strong liquidity position that will allow us to manage the uncertain times created by COVID-19 and continue to execute on our simplification/modernisation strategy.”
In addition to the previously announced restructuring actions, the company reports that it is taking other cost-control measures to offset the market headwinds. These measures include, among other things, reductions in all discretionary spending, furloughs, extensive travel restrictions, and reduced production at global manufacturing facilities to align with the current lower demand environment.
Kennametal’s operating income was $38 million, or 7.8% margin, compared to $82 million, or 13.7% margin, in the prior year quarter. The company states that the decrease in operating income was due primarily to organic sales decline, unfavourable labour and fixed cost absorption due to lower volumes and simplification/modernisation efforts in progress, $21 million of restructuring and asset impairment charges compared to $3 million in the prior year quarter, partially offset by approximately $15 million of incremental simplification/modernisation benefits, lower raw material costs and lower variable compensation expense. Adjusted operating income was $59 million, or 12.2% margin, compared to $85 million, or 14.3% margin, in the prior year quarter.
The company’s simplification/modernisation initiative, total incremental benefits were approximately $15 million in the quarter, which includes incremental restructuring savings of approximately $5 million. It also achieved annualised total savings inception to date from simplification/modernisation of $87 million.
Regarding it’s outlook for the fourth quarter, Kennametal reports that due to the increased uncertainty in the global economy and its end markets caused by COVID-19, it is withdrawing its previously announced outlook for fiscal year 2020. The company states that it will provide more details regarding its fourth quarter assumptions.
Rossi added, “As we look ahead, we expect COVID-19 will be a significant operational and market headwind. Early in this crisis we deployed global safety protocols and processes to keep our employees safe while continuing to serve critical industries. At the same time, however, COVID-19 is creating extensive uncertainty and limited visibility into our end markets, prompting us to withdraw our outlook for fiscal year 2020. We are approaching this challenging time determined to stay focused on the things we can control: keeping our employees safe, serving our customers, delivering savings from simplification/modernisation and continuing to execute our strategy so that we are well-positioned for the eventual market recovery.”