Kennametal Inc. (KMT Quick QuoteKMT - Free Report) provided an update on its simplification/modernization initiatives — meant for simplifying the business structure, improving efficiency and boosting shareholder value. Also, the company mentioned its cost-saving actions to deal with the pandemic-induced financial crisis.

Notably, Kennametal’s share price decreased 0.4% yesterday, ending the trading session at $31.08.

Inside the Headline

As noted, structural cost-reduction actions — part of the company’s simplification/modernization initiatives — have been accelerated. With the move, Kennametal expects to be done with the restructuring of 10% employees (salaried) in the first half of fiscal 2021 (ending December 2020).

The suggested restructuring actions are anticipated to boost the company’s savings in fiscal 2021 (ending June 2021) — with annualized savings now predicted to be $65-$75 million versus $25-$30 million mentioned earlier. Pre-tax charges are now expected to be $90-$100 million in the year.

Additionally, the company’s cost-saving actions to combat some of the adverse impacts of the pandemic include a 20% reduction in cash compensation for the board of directors and lowering of salaried employees’ compensation by 10-20%. Notably, actions initiated earlier (furloughs and others) for salaried employees will be stopped. The actions will be implemented from Jul 1, 2020, and will hold good through the first half of fiscal 2021.

Production reduction at manufacturing facilities and temporary shutdowns are other actions, which will be considered by the company to deal with the difficult environment.

Brief on Kennametal’s Three Restructuring Initiatives

Three restructuring initiatives — including growth, modernization and simplification — have been aiding Kennametal over time. While the growth initiative — through improved commercial execution — is boosting sales, the simplification initiative is lowering costs and enhancing operational efficiency. The modernization initiative is in progress now and is contributing to strong operating leverage.

Notably, in third-quarter fiscal 2020 (ended March 2020), the above-mentioned initiatives boosted the company's bottom line by 15 cents per share.

Zacks Rank, Price Performance and Earnings Estimates

The industrial toolmaker, with a market capitalization of $2.6 billion, currently carries a Zacks Rank #3 (Hold). The company gains from shareholder-friendly policies, innovation capabilities, simplification/modernization activities and healthy liquidity position. However, end-market difficulties due to the pandemic are headwinds.

In the past three months, its shares have gained 54.4% versus the industry’s growth of 19.7%.

Moreover, earnings estimates for the company have been lowered in the past 60 days. Currently, the Zacks Consensus Estimate for earnings is pegged at 91 cents for fiscal 2020 and $1.18 for fiscal 2021, reflecting declines of 1.1% and 18.1% from the 60-day-ago figures. Also, the consensus estimate for fourth-quarter fiscal 2020 (ending June 2020) is at 12 cents, down 60% from the 60-day-ago figure.

Kennametal Inc. Price and Consensus