Kennametal sees first quarterly consolidated organic growth in over two years

February 28, 2017

Kennametal Inc has reported results for its fiscal 2017 second quarter ended December 31, 2016, which saw sales of $488 million, compared with $524 million in the same quarter 2015. Operating income was $24 million, compared to operating loss of $234 million in the same quarter last year.

“The second quarter results reflect positive performance from our growth and cost reduction initiatives,” stated Ron De Feo, Kennametal President and CEO. “Total company organic sales in the quarter grew 2%, marking the first quarterly consolidated organic growth in over two years. Organically, Industrial grew 4%, Widia 5%, and Infrastructure was flat versus prior year. Adjusted gross profit margin increased 260 basis points and adjusted operating expense decreased 90 basis points, resulting in adjusted operating margin improving 350 basis points. We are pleased to see these improvements during a quarter where end markets were still relatively quiet.”

The company stated that adjusted operating income was $36 million, compared to $18 million in the prior year quarter. The increase in adjusted operating income reflects incremental restructuring benefits, higher absorption and productivity, the positive effects of lower raw material costs and sales volume growth, partially offset by the negative impacts of unfavourable price and mix.

“There is much work to do however as we strive to simplify, modernize and energize this company. The progress we are making in lowering employment costs is generally on track and evident now in our run rates. We are at the beginning stages of product line simplification, and the End-to-End initiatives by product line are accelerating as we examine all our value streams for simplification and efficiency,” added De Feo.

Factory modernisation

“Factory modernisation is underway. This is a multi-year program that will likely take time to manifest in the quarterly numbers. In addition, we may accelerate some capital expenditures, which will put pressure on short-term free cash flow. But these are all very positive decisions, as we believe that they will result in excellent project returns. We will be monitoring revenue run rates as the business has shown more rapid improvements than initially expected,” De Feo continued, “meaning we may not be able to modernise fast enough to keep up with demand in select locations, causing us to keep direct hourly employment in certain circumstances somewhat higher than previously anticipated. But this is a good problem to have overall. We are particularly pleased to see the Infrastructure results which reflect the substantial improvements we have been making.”

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