Kennametal Q1 Results Miss Estimates; To Sell Several Non-core Businesses

(RTTNews) - Kennametal Inc. (KMT) reported loss for the 2016 fiscal first quarter ended September 30, 2015. The company has signed a definitive agreement to sell several non-core businesses related to certain castings, steel-plate fabrication and deburring for an aggregate price of approximately $70 million in cash. The company cut total sales outlook for fiscal 2016.

"We are on track to achieve our restructuring goals and made a significant step in our portfolio alignment announcing that we have entered into an agreement to sell several non-core businesses representing approximately $220 million in annual revenue. This transaction is expected to be accretive to our operating margin upon closing," said Don Nolan Kennametal President and CEO.

The company now expects fiscal 2016 total sales to decline in the range of 10 to 14 percent and organic sales to decline in the range of 6 to 10 percent. Previously, the decline in total sales was projected to be in the range of 7 to 9 percent, with a decline in organic sales of 1 to 3 percent.

Kennametal now expects consolidated adjusted earnings per share to be in the range of $1.50 to $1.70 for the full fiscal year. Top line softness is expected to negatively impact the company's original guidance by $0.65 to $0.70 per share, including the negative impact of mix. Better than anticipated currency, taxes and other are expected to be a benefit to prior earnings per share guidance of $0.20 to $0.25 per share.

In order to partially offset the impact of top line softness, the company has implemented cost reductions which are expected to generate between $0.20 and $0.25 per share of cost savings in the remainder of the fiscal year. In addition, these additional cost reductions will position Kennametal for stronger profitable growth in the future when end market demand improves.

Wall Street currently is looking for fiscal year 2016 earnings of $1.72 per share on annual revenues of $2.41 billion.

Net loss attributable to the company for the quarter was $6.23 million or $0.08 per share, compared to net income of $39.49 million or $0.49 per share in the same quarter last year.

On a combined basis, pre-tax restructuring and related charges were $15 million, or $0.14 per share, and pre-tax benefits were approximately $21 million, or $0.20 per share in the quarter. In the same quarter last year, pre-tax restructuring and related charges were $7 million, or $0.07 per share, and pre-tax benefits were approximately $5 million, or $0.04 per share.

Adjusted earnings per share fell to $0.14 from $0.56 in the prior year quarter. Analysts polled by Thomson Reuters expected the company to report earnings of $0.22 per share for the quarter. Analysts' estimates typically exclude special items.

Sales for the quarter declined 20 percent to $555 million, from last year's $695 million, reflecting a 13 percent organic decline due to weakening in our served end markets and a 7 percent unfavorable currency exchange impact. Wall Street analysts had a consensus revenue estimate of $572.15 million for the quarter.

Kennametal also announced that its board of directors declared a quarterly cash dividend of $0.20 per share. The dividend is payable November 24, 2015 to shareholders of record as of the close of business on November 10, 2015.

Transaction proceeds are expected to be used for debt reduction. The transaction is anticipated to close within the company's fiscal second quarter, and the after-tax loss on the sale is currently estimated to be in the range of approximately $100 million to $120 million.

The company expects the divestiture impact to be approximately $125 million less in fiscal 2016 sales and operating EPS neutral. The transaction will be immediately accretive to our operating margin. This impact from the sale of non-core businesses has not been reflected in Kennametal's current sales guidance.