Kennametal increases outlook after third quarter sales growth
Kennametal Inc. reported sales of $536 million for its fiscal 2023 third quarter ended March 31, 2023. It represents a 5% increase year-over-year, which the company says was driven by 8% organic growth.
"We delivered year-over-year organic sales growth and strong cash flow in the quarter and continued the successful execution of our strategic initiatives, while navigating macroeconomic headwinds, such as a slower recovery in China and high inflation," said President and CEO Christopher Rossi. "Driven by these results and the continued confidence in our strategic initiatives, we are raising our full year sales and EPS outlook."
Fiscal 2023 Third Quarter Key Developments
Operating income was $52 million, or 9.8% of sales, compared to $53 million, or 10.4 percent of sales, in the prior year quarter. The slight decrease in operating income was pr
Primarily due to higher raw material costs of approximately $20 million, under-absorption of approximately $5 million within the Infrastructure segment, higher wages, general inflation and unfavorable foreign currency exchange of approximately $3 million. These factors were offset by higher price realization and, in the metal cutting segment, higher sales volumes. Operating income was not adjusted in the current quarter, whereas adjusted operating income was $58 million, or 11.4% margin, in the prior year quarter.
The reported effective tax rate (ETR) for the quarter was 24.4% compared to 28.3% in the prior year quarter. The year-over-year change in ETR is primarily due to geographical mix. The ETR was not adjusted in the current quarter, whereas the adjusted ETR was 27.7% in the prior year quarter.
Year-to-date net cash flow from operating activities was $126 million compared to $93 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, partially offset by lower net income. Year-to-date free operating cash flow (FOCF) was $60 million compared to $34 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 lower net income and higher capital expenditures.
During the quarter, the company repurchased 262 thousand shares of Kennametal common stock for $7 million under its share repurchase program. Inception-to-date the Company has repurchased 4 million shares of common stock for $123 million under the $200 million three-year program.
The Company paid $16 million in cash dividends to Kennametal shareholders during the quarter. The Company has a long history of consistently paying dividends to shareholders since its listing on the New York Stock Exchange in 1967.
Outlook
The company's expectations for the full fiscal year 2023 are as follows:
- Adjusted EPS is expected to be $1.50 – $1.70
- Sales expected to be $2.07 – $2.1 billion, including a currency headwind of approximately $100 million
- Pricing actions expected to cover raw material costs, wages and general inflation
- Metal Cutting volume levers at expected rate
- Infrastructure operating margin expected to return in Q4 to approximately Q1 FY23 level
- Free operating cash flow of 100% of adjusted net income
- Primary working capital as a% of sales maintained at 31% – 33% throughout the year
- Capital spending expected to be approximately $100 million
- Adjusted ETR is expected to be approximately 24%
- $200 million three-year share repurchase program to continue
The company will provide more details regarding its outlook during its quarterly earnings conference call.
INDUSTRIAL SUPPLY MAGAZINE
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