Kennametal reports highest first-half cash since fiscal 2016
Kennametal Inc. reported results for its fiscal 2024 second quarter ended December 31, 2023, with sales of $495 million, compared to $497 million in the prior year quarter, and earnings per diluted share (EPS) of $0.29, compared with $0.27 in the prior year quarter. Adjusted EPS was $0.30 in the current quarter, whereas EPS was not adjusted in the prior year quarter.
"Once again this quarter we generated strong cash from operations, even though sales were at the lower end of our outlook due to softening market conditions, most notably in December," said Christopher Rossi, president and CEO.
"We have updated our full year outlook to reflect the macro-economic conditions we are now seeing, which includes softening across our end markets and no recovery in China this fiscal year," Rossi continued. "We remain focused on the things we can control including gaining share and accelerating progress on our $100 million in cost reductions by the end of FY27. As a result, we are taking additional actions to increase the savings of our current restructuring program from $20 million to $35 million by the end of FY24. These steps, coupled with our extended share repurchase program, continue to give me confidence that we will drive long-term value for shareholders."
Additional Share Repurchase Program
Kennametal announced that its board of directors authorized an additional share repurchase program. The company intends to repurchase up to an additional $200 million of Kennametal common stock over a three-year period. The company expects to fund repurchases through cash generated from operations.
Fiscal 2024 Second Quarter Key Developments
Sales of $495 million were flat from the prior year quarter, reflecting an organic sales decline of 3%, offset by a favorable business days effect of 2% and a favorable currency exchange effect of 1%.
During the quarter, the company achieved restructuring savings of approximately $5 million from the previously announced action to streamline our cost structure while continuing to invest in our high-return Commercial and Operational Excellence initiatives. This action has been enlarged and is currently expected to deliver annualized run rate pre-tax savings of approximately $35 million, up from the previous estimate of $20 million, by the end of fiscal 2024. Restructuring and related charges of $1 million were recognized during the quarter in connection with the execution of this initiative.
Operating income was $28 million, or 5.7 percent of sales, compared to $35 million, or 7.1 percent of sales, in the prior year quarter. The decrease in operating income was primarily due to lower volumes, higher wages and general inflation and the unfavorable timing of pricing compared to raw material costs in the Infrastructure segment. These factors were partially offset by higher price realization in the Metal Cutting segment and restructuring savings of approximately $5 million. Adjusted operating income was $30 million, or 6.0 percent margin, in the current quarter, whereas operating income was not adjusted in the prior year quarter.
The reported effective tax rate (ETR) for the quarter was 9.0 percent (benefit on income) compared to 17.8 percent (provision on income) in the prior year quarter. The decrease in the ETR year-over-year was driven by a $7.8 million tax benefit due to a change in the Swiss tax rate in the current year quarter, partially offset by a $2.2 million tax benefit from a Swiss tax ruling in the prior year quarter. Adjusted ETR was 8.0 percent (benefit on income) in the current quarter, whereas ETR was not adjusted in the prior year quarter.
Year-to-date net cash flow from operating activities was $88 million compared to $53 million in the prior year period. The change in net cash flow from operating activities was driven primarily by working capital changes including improved inventory levels. Year-to-date free operating cash flow (FOCF) was $36 million compared to $4 million in the prior year period. The increase in FOCF was driven primarily by working capital changes, including improved inventory levels, and proceeds received from the disposal of property, plant and equipment, partially offset by higher capital expenditures.
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