Kennametal Inc. KMT has provided updates on its restructuring actions, announced in July 2019. These moves are part of the company’s simplification/modernization initiatives, meant for simplifying the business structure, improving efficiency and boosting shareholder value.
Notably, the company’s share price lost 2.5% yesterday, ending the trading session at $35.11.
Inside the Headline
As noted, Kennametal ceased operations at its manufacturing facilities based in Irwin, PA and Lichtenau, Germany, by merging their operations with its lower-cost facilities. Also, the company progressed toward shutting its Neunkirchen-based distribution center. Talks with representatives of employees have been completed and distribution operations have been outsourced to a logistics specialist (third-party).
These restructuring moves are likely to start yielding benefits in the form of lower structural costs from the second half of fiscal 2020 (ending June 2020). The suggested restricting actions are part of the company’s 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.
Additionally, Kennametal predicts that facility closures scheduled for fiscal 2021 (ending June 2021) will result in annualized savings of $25-$30 million. Meanwhile, it now predicts to incur pre-tax charges of $55-65 million versus $60-75 million estimated earlier.
In relation to its previous plan of closing Essen, Germany-based manufacturing facility, Kennametal instead decided to lower activities at this facility. The agreement reached with employee representatives aims at achieving lower operating costs and workforce. Moreover, the company is working on other facility closure plans.
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 helping boost 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 first-quarter fiscal 2020 (ended Sep 2019), the above-mentioned initiatives boosted the company's bottom line by 7 cents.
Zacks Rank, Price Performance and Earnings Estimates
The industrial toolmaker, with a market capitalization of roughly $3 billion, currently carries a Zacks Rank #3 (Hold). The company gains from restructuring moves, shareholder-friendly policies and a diversified customer base.
In the past three months, its shares have gained 24.4% versus the industry’s growth of 21.4%.
Moreover, earnings estimates for the company have been unchanged at $1.78 for fiscal 2020 and $2.42 for fiscal 2021 in the past 60 days.
Kennametal Inc. Price and Consensus