Kennametal sales down 1% in fourth fiscal quarter
In its fourth quarter and fiscal 2024 reporting, Kennametal Inc. said its sales of $543 million decreased 1% from $550 million in the prior year quarter, reflecting an unfavorable currency exchange effect of 2% and an organic sales decline of 1%, partially offset by a favorable business days effect of 2%.
Operating income was $61 million, or 11.3% margin, compared with $56 million, or 10.2% margin, in the same quarter last year. The increase in operating income was primarily due to lower raw material costs, restructuring savings of approximately $7 million, lower restructuring, and related charges of approximately $5 million and pricing. These factors were partially offset by lower sales and production volumes, higher wages and general inflation, charges of approximately $4 million, consisting of repairs and impairments of fixed assets and inventory due to the tornado that affected the company's Rogers, Arkansas facility during the quarter, and unfavorable foreign currency exchange of approximately $2 million. The company is continuing to work with its insurance provider to finalize a claim for insurance recoveries related to a tornado. Adjusted operating income was $63 million, or 11.5% margin, compared with $63 million, or 11.4% margin, in the prior year quarter.
"Thanks to the hard work and diligence of our global team, we delivered a strong finish in fiscal year 2024 despite persistent market softness, foreign exchange headwinds and a natural disaster affecting our facility in Arkansas," said President and CEO Sanjay Chowbey. "We successfully met our revenue and EPS outlook and generated $277 million in cash from operations, the highest as a percent of sales in over 25 years.
"I recently shared with our team the three Value Creation Pillars that will be guiding us in fiscal 2025 and beyond: Delivering Growth, Continuous Improvement and Portfolio Optimization," he added. "I'm confident that our work across these pillars will help us deliver above-market growth, expand margins, improve customer service and increase return on invested capital."
Fiscal 2024 Key Developments
Sales of $2,047 million decreased 2% from $2,078 million in the prior year, reflecting an organic sales decline of 1% and an unfavorable currency exchange effect of 1%.
Operating income was $170 million, or 8.3% margin, compared with $192 million, or 9.3% margin, in the prior year. The decrease in operating income was primarily due to lower sales and production volumes, higher wages and general inflation, higher restructuring and related charges of approximately $6 million, charges of approximately $4 million, consisting of repairs and impairments of fixed assets and inventory due to the tornado that affected the Company's Rogers, Arkansas facility during the fourth quarter, and unfavorable foreign currency exchange of approximately $2 million. These factors were partially offset by pricing, restructuring benefits of approximately $21 million and lower raw material costs. Adjusted operating income was $183 million, or 8.9% margin, compared with $199 million, or 9.6 percent margin, in the prior year.
Net cash flow provided by operating activities in fiscal 2024 was $277 million compared to $258 million in the prior year. 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 compared to the prior year. Free operating cash flow (FOCF) was $175 million compared to $169 million in the prior year. The increase in FOCF was driven primarily by working capital changes, including improved inventory levels, partially offset by higher capital expenditures and lower net income compared to the prior year. FOCF was 146 percent of adjusted net income in fiscal 2024.
In fiscal 2024, Kennametal continued its focus on delivering shareholder value by returning $129 million to the shareholders through $65.4 million in share repurchases and $63.4 million in dividends, while investing $108 million in capital expenditures.
Quarterly Outlook:
Sales expected to be $480 - $500 million; foreign exchange anticipated to be a headwind of 1 percent compared to the first quarter of fiscal 2024
Adjusted ETR is expected to be approximately 27.5 percent
Adjusted EPS is expected to be $0.20 - $0.30
Annual Outlook:
Sales expected to be $2.0 - $2.1 billion
Adjusted EPS is expected to be $1.30 - $1.70
At the midpoint, improved operating performance offset by higher ETR and currency headwinds
Pricing actions expected to cover raw material costs, wages and general inflation
Interest expense is expected to be approximately $27 million
Adjusted ETR is expected to be approximately 27.5 percent
Free operating cash flow of greater than 125 percent of adjusted net income
Primary working capital as a percent of sales at approximately 30 percent by fiscal year-end
Capital spending expected to be approximately $110 million
The Company will provide more details regarding its fiscal 2025 assumptions during its quarterly earnings conference call.
Fiscal 2024 Fourth Quarter Segment Results
Metal Cutting sales of $335 million decreased 1 percent from $337 million in the prior year quarter, reflecting an unfavorable currency exchange effect of 2 percent, partially offset by a favorable business days effect of 1 percent. Operating income was $44 million, or 13.2 percent margin, compared to $37 million, or 11.0 percent margin, in the prior year quarter. The increase in operating income was primarily due to pricing, restructuring savings of approximately $5 million, lower restructuring and related charges of approximately $5 million and lower raw material costs. These factors were partially offset by lower sales and production volumes, higher wages and general inflation and unfavorable foreign currency exchange of approximately $2 million. Adjusted operating income was $45 million, or 13.4 percent margin, compared to $43 million, or 12.6 percent margin, in the prior year quarter.
Infrastructure sales of $209 million decreased 2% from $213 million in the prior year quarter, reflecting an organic sales decline of 2% and an unfavorable currency exchange effect of 1 percent, partially offset by a favorable business days effect of 1%. Operating income was $18 million, or 8.5% margin, compared to $19 million, or 9.0% margin, in the prior year quarter. The decrease in operating income was primarily due to charges of approximately $4 million, consisting of repairs and impairments of fixed assets and inventory due to the tornado that affected the Company's Rogers, Arkansas facility during the quarter, lower production volumes, higher wages and general inflation and unfavorable foreign currency exchange of approximately $1 million. These factors were partially offset by the favorable timing of pricing compared to raw material costs, restructuring savings of approximately $2 million, an advanced manufacturing production credit under the Inflation Reduction Act of approximately $1 million and lower restructuring and related charges of approximately $1 million. Adjusted operating income was $18 million, or 8.7% margin, compared to $20 million, or 9.6% margin, in the prior year quarter.
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