Kennametal reports economic recovery may be gaining momentum
November 2, 2020
Kennametal Inc., Pittsburgh, Pennsylvania, USA, has reported results for its fiscal 2021 first quarter ended September 30, 2020. The company reported sales of $400 million, a decrease of 23% year-over-year from $518 million in the prior-year quarter, but showing an increase of 6% sequentially, outpacing the normal seasonal decline.
Christopher Rossi, Kennametal’s President and CEO, stated, “Our first quarter sales outpaced typical seasonal trends, indicating that the economic recovery may be gaining momentum, although still down year-over-year. This is especially true in our General Engineering and Transportation end-markets, which total more than 60% of our sales. That said, the exact trajectory of the recovery remains difficult to predict.”
Resulting from its simplification and modernisation efforts, the company reported that it had achieved annualised total savings from simplification/modernization of $123 million to date. The total incremental benefits related to simplification/modernisation initiatives in the quarter were said to be approximately $22 million, including incremental restructuring savings of approximately $17 million.
“Our results demonstrate effective execution on several fronts despite low levels of industrial activity,” he commented. “Benefits from our simplification/modernisation initiatives increased, as we move into the final stages of footprint rationalisation, positioning us well for the economic recovery. Furthermore, we continue to gain traction on our growth initiatives, including a recent win in the fit-for-purpose market segment with a major machine tool builder.”
The company reported an operating loss of $17 million, or a negative 4.3% margin, compared to an operating income of $16 million, or 3.2% margin, in the prior-year quarter. The decrease in operating income was said to be due to an organic sales decline and unfavourable labour and fixed cost absorption due to lower volumes.
Also affecting operating income were $29 million of restructuring and related charges, compared to $8 million in the prior-year quarter, partially offset by lower raw material costs, approximately $22 million of incremental simplification/modernisation benefits and cost-control measures.
Adjusted operating income was reported at $11 million, or 2.9% margin, compared to $24 million, or 4.7% margin, in the prior-year quarter. Year-to-date net cash flow provided by operating activities was $10 million, compared to $28 million in the prior-year quarter. The change in net cash flow provided by operating activities was driven primarily by lower earnings.
Looking ahead to its full-year 2021, the company noted that, while there are signs of improvement, overall global market conditions remain unpredictable and visibility into primary end markets remains limited. As a result, the decision was taken not to provide a full-year 2021 outlook at this time, with the exception of capital spending, which is expected to be between $110 million and $130 million.
