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Machinery company Kennametal Inc. (KMT - Free Report) reported better-than-expected bottom-line results for second-quarter fiscal 2017 (ended Dec 31, 2016). The company’s adjusted earnings were 24 cents per share, above the Zacks Consensus Estimate of 22 cents. Also, the bottom line surged 50% from the year-ago tally of 16 cents.
Kennametal generated revenues of $487.6 million in the quarter, below the Zacks Consensus Estimate of $489.8 million. On a year-over-year basis, the top line decreased 7%. The fall was triggered by 1% adverse impact from foreign currency translation, 2% negative impact of fewer business days and 6% divestiture-related losses, partially offset by 2% organic revenues growth.
On a geographical basis, Kennametal generated sales of $223.7 million from its North American operations, decreasing 4.3% year over year. Business in Western Europe remained weak, with revenues of $118.3 million declining 18.9% year over year. Revenues from Rest of the World inched up 0.7% year over year to $145.5 million.
Segmental Details
Kennametal Inc. (effective from the start of fiscal 2017) reports its revenue results under three segments viz. Industrial, WIDIA and Infrastructure. The company’s segmental performance is briefly discussed below:
The Industrial segment’s net sales in the quarter were $267.5 million, down roughly 0.4% year over year. Organic revenue growth of 4% was offset by 1% negative impact from foreign currency translation, 2% fall due to fewer business days and 1% negative impact from divestitures.
Organic sales in aerospace & defense and general engineering end markets increased, while it decreased in energy and transportation end markets. On a geographical basis, revenues grew 7% in Asia and 4% in the Americas, offset by 2% decline in Europe.
The WIDIA segment’s revenue totaled $42.9 million, up 1.3% year over year. The year-over-year growth was driven by 5% increase in organic revenues, partially offset by 3% fall due to fewer business days and 1% adverse impact from foreign currency translation. On a geographical basis, revenues grew 19% in Asia, offset by 4% decline in the Americas and 2% in Europe.
The Infrastructure segment’s revenues totaled $177.2 million, declining 18.9% year over year. The decline was because of 2% fall due to fewer business days, 14% adverse impact from divestiture and 1% negative impact from foreign currency translation.
Organic revenues declined due to weak sales in earthworks and general engineering end markets, partially offset by growth in energy. Geographically, revenues were flat in the Americas while declining 8% in Europe and 7% in Asia.
Margins
In the quarter, Kennametal’s adjusted cost of goods sold decreased 4.6% year over year, representing 69.2% of total revenue compared with 71.8% in the year-ago quarter. Adjusted gross margin improved 260 basis points (bps) to 30.8%.
Adjusted operating expense, as a percentage of total revenue, was 22.6%, down 90 bps year over year. Adjusted operating margin grew 350 bps year over year to 7.3%.
Balance Sheet and Cash Flow
Exiting the fiscal second quarter, Kennametal had cash and cash equivalents of $102 million, down from $119.4 million recorded at the previous quarter-end. Long-term debt and capital leases were roughly flat at $694 million.
In the quarter, Kennametal generated net cash of $24.7 million from its operating activities down from $65.8 million in the year-ago quarter. Capital spending was $28.3 million compared with $24 million in second-quarter fiscal 2016. Free operating cash outflow in the quarter was $1.2 million versus $44.3 million generated in the year-ago quarter.
Concurrent with the earnings release, Kennametal announced that its board of directors has approved a quarterly cash dividend of 20 cents per share, payable on Feb 28 to shareholders on record as of Feb 14.
Outlook
For fiscal 2017, Kennametal reiterated its adjusted earnings guidance within $1.20−$1.50 per share range. Free cash flow will likely come in a band of $90−$110 million.
The company anticipates its restructuring programs, including headcount reduction initiatives and others, to yield pre-tax savings of approximately $147−$162 million by Dec 2018. Charges related to these initiatives will likely be $155−$175 million.
Of these programs, the company predicts its headcount reduction initiatives to result in estimated annualized savings of $72 million by Jun 2017. Related charges will be roughly $50 million. In addition, the other programs are likely to generate savings of $75−$90 million by Dec 2018. Related charges will be $105−$125 million.
With a market capitalization of $2.9 billion, Kennametal currently carries a Zacks Rank #2 (Buy). Some other stocks worth considering in the machinery industry include ABB Ltd. , II-VI Incorporated and Pioneer Power Solutions, Inc. (PPSI - Free Report) . While both ABB Ltd. and II-VI Incorporated sport a Zacks Rank #1 (Strong Buy), Pioneer Power Solutions, Inc. carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
ABB Ltd.’s earnings estimates for 2017 have been revised upward over the last 60 days. Average earnings surprise for the last four quarters is a positive 23.50%.
II-VI Incorporated reported better-than-expected results in the last four quarters, with a positive average earnings surprise of 59.23%. Also, bottom-line expectations for fiscal 2017 and fiscal 2018 have improved over the past 60 days.
Pioneer Power Solutions, Inc.’s earnings estimates for 2017 improved over the last 60 days.
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Kennametal (KMT) Tops Q2 Earnings, Sales Lag; Keeps View
Machinery company Kennametal Inc. (KMT - Free Report) reported better-than-expected bottom-line results for second-quarter fiscal 2017 (ended Dec 31, 2016). The company’s adjusted earnings were 24 cents per share, above the Zacks Consensus Estimate of 22 cents. Also, the bottom line surged 50% from the year-ago tally of 16 cents.
Kennametal generated revenues of $487.6 million in the quarter, below the Zacks Consensus Estimate of $489.8 million. On a year-over-year basis, the top line decreased 7%. The fall was triggered by 1% adverse impact from foreign currency translation, 2% negative impact of fewer business days and 6% divestiture-related losses, partially offset by 2% organic revenues growth.
On a geographical basis, Kennametal generated sales of $223.7 million from its North American operations, decreasing 4.3% year over year. Business in Western Europe remained weak, with revenues of $118.3 million declining 18.9% year over year. Revenues from Rest of the World inched up 0.7% year over year to $145.5 million.
Segmental Details
Kennametal Inc. (effective from the start of fiscal 2017) reports its revenue results under three segments viz. Industrial, WIDIA and Infrastructure. The company’s segmental performance is briefly discussed below:
The Industrial segment’s net sales in the quarter were $267.5 million, down roughly 0.4% year over year. Organic revenue growth of 4% was offset by 1% negative impact from foreign currency translation, 2% fall due to fewer business days and 1% negative impact from divestitures.
Organic sales in aerospace & defense and general engineering end markets increased, while it decreased in energy and transportation end markets. On a geographical basis, revenues grew 7% in Asia and 4% in the Americas, offset by 2% decline in Europe.
The WIDIA segment’s revenue totaled $42.9 million, up 1.3% year over year. The year-over-year growth was driven by 5% increase in organic revenues, partially offset by 3% fall due to fewer business days and 1% adverse impact from foreign currency translation. On a geographical basis, revenues grew 19% in Asia, offset by 4% decline in the Americas and 2% in Europe.
The Infrastructure segment’s revenues totaled $177.2 million, declining 18.9% year over year. The decline was because of 2% fall due to fewer business days, 14% adverse impact from divestiture and 1% negative impact from foreign currency translation.
Organic revenues declined due to weak sales in earthworks and general engineering end markets, partially offset by growth in energy. Geographically, revenues were flat in the Americas while declining 8% in Europe and 7% in Asia.
Margins
In the quarter, Kennametal’s adjusted cost of goods sold decreased 4.6% year over year, representing 69.2% of total revenue compared with 71.8% in the year-ago quarter. Adjusted gross margin improved 260 basis points (bps) to 30.8%.
Adjusted operating expense, as a percentage of total revenue, was 22.6%, down 90 bps year over year. Adjusted operating margin grew 350 bps year over year to 7.3%.
Balance Sheet and Cash Flow
Exiting the fiscal second quarter, Kennametal had cash and cash equivalents of $102 million, down from $119.4 million recorded at the previous quarter-end. Long-term debt and capital leases were roughly flat at $694 million.
In the quarter, Kennametal generated net cash of $24.7 million from its operating activities down from $65.8 million in the year-ago quarter. Capital spending was $28.3 million compared with $24 million in second-quarter fiscal 2016. Free operating cash outflow in the quarter was $1.2 million versus $44.3 million generated in the year-ago quarter.
Concurrent with the earnings release, Kennametal announced that its board of directors has approved a quarterly cash dividend of 20 cents per share, payable on Feb 28 to shareholders on record as of Feb 14.
Outlook
For fiscal 2017, Kennametal reiterated its adjusted earnings guidance within $1.20−$1.50 per share range. Free cash flow will likely come in a band of $90−$110 million.
The company anticipates its restructuring programs, including headcount reduction initiatives and others, to yield pre-tax savings of approximately $147−$162 million by Dec 2018. Charges related to these initiatives will likely be $155−$175 million.
Of these programs, the company predicts its headcount reduction initiatives to result in estimated annualized savings of $72 million by Jun 2017. Related charges will be roughly $50 million. In addition, the other programs are likely to generate savings of $75−$90 million by Dec 2018. Related charges will be $105−$125 million.
Kennametal Inc. Price and Consensus
Kennametal Inc. Price and Consensus | Kennametal Inc. Quote
Zacks Rank & Other Stocks to Consider
With a market capitalization of $2.9 billion, Kennametal currently carries a Zacks Rank #2 (Buy). Some other stocks worth considering in the machinery industry include ABB Ltd. , II-VI Incorporated and Pioneer Power Solutions, Inc. (PPSI - Free Report) . While both ABB Ltd. and II-VI Incorporated sport a Zacks Rank #1 (Strong Buy), Pioneer Power Solutions, Inc. carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
ABB Ltd.’s earnings estimates for 2017 have been revised upward over the last 60 days. Average earnings surprise for the last four quarters is a positive 23.50%.
II-VI Incorporated reported better-than-expected results in the last four quarters, with a positive average earnings surprise of 59.23%. Also, bottom-line expectations for fiscal 2017 and fiscal 2018 have improved over the past 60 days.
Pioneer Power Solutions, Inc.’s earnings estimates for 2017 improved over the last 60 days.
Zacks’ Best Private Investment Ideas
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>