Kennametal Inc. (KMT - Free Report) has announced that it is taking certain measures as part of its simplification/modernization initiatives, which are meant to help it simplify the business structure, improve efficiency and boost shareholder value.
It is worth noting that the company’s share price increased roughly 1% yesterday, ending the trading session at $33.90.
Inside the Headline
Kennametal proposes to restrict its operations in Germany. It plans to close manufacturing facilities in Lichtenau and Essen by merging their operations with lower-cost Industrial facilities of the company. It also plans to shut Neunkirchen-based distribution center. In addition, the company put forward an idea to outsource distribution operations (related to Essen and Neunkirchen facilities) to a logistics specialist (third-party).
In addition to these moves, Kennametal decided to stop operating its Irwin, PA-based manufacturing facility. Operations of this facility will be combined with Rogers, AR-based Infrastructure plant.
The above-mentioned restructuring moves are likely to be completed in the next two years and help the company in progressing toward fiscal 2021 (ending June 2021) targets. The suggested restricting actions are part of its previously announced simplification/modernization drive for fiscal 2020, which will likely yield annualized savings of $35-$40 million and incur pre-tax charges of $55-$65 million by fiscal 2020 end.
The company predicts that facility closures scheduled for fiscal 2021 will result in annualized savings of $25-$30 million.
Snapshot of Kennametal’s Three Initiatives
Three restructuring initiatives — including growth, modernization and simplification — have been proving beneficial for Kennametal over time. While the growth initiative is being helpful in boosting sales through the improvement in commercial execution, the simplification initiative is helping in improving operational efficiency and reducing costs. The modernization initiative is in progress now and is contributing to strong operating leverage.
Notably, in third-quarter fiscal 2019 (ended Mar 31, 2019), the above-mentioned initiatives boosted the company's bottom line by 11 cents, higher than the positive impact of 10 cents recorded in the previous quarter.
The industrial tool maker, with a market capitalization of roughly $2.8 billion, currently carries a Zacks Rank #5 (Strong Sell). The company faces headwinds from rising costs of sales and operating expenses, high debts, and unfavorable movements in foreign currencies. Also, organic sales growth of 5% predicted for fiscal 2019 (ended Jun 2019, results not yet released) is at the lower end of the previous projection and down on a year-over-year basis.
The company’s share price has declined roughly 15.7% in the past three months. This compares unfavorably with the industry’s decline of 5.2%.
Moreover, earnings estimates for the company have been lowered in the past 60 days. Currently, the Zacks Consensus Estimate for earnings of $3.05 for fiscal 2019 and $3.28 for fiscal 2020 (ending June 2020) reflects declines of 0.3% and 3.5%, respectively.
Kennametal Inc. Price and Consensus