Kennametal (KMT) 8-K Kennametal Reports Strong Finish to Fiscal 2004 — Continued Growth Expected In Fiscal 2005

Fiscal 2004 4^th Quarter Earnings Announcement Exhibit 99.1

	FROM:	KENNAMETAL INC. P.O. Box 231 Latrobe, PA 15650 724-539-6141
Confidential Draft		Investor Relations Contact: Beth A. Riley Media Relations Contact: Joy Chandler
	DATE:	July 28, 2004
	FOR RELEASE:	Immediate

KENNAMETAL REPORTS STRONG FINISH TO FISCAL 2004 —
CONTINUED GROWTH EXPECTED IN FISCAL 2005

• Q4 sales up 17 percent — 12 percent organic

• EPS up 80 percent, and above previous guidance

• Continuing good cash flow and debt reduction

• Strong outlook for FY05, EPS up 25-35 percent

LATROBE, Pa., July 28, 2004 — Kennametal Inc. (NYSE: KMT) today reported fiscal 2004 fourth-quarter EPS of $0.81 compared with adjusted earnings of $0.45 in 2003. There were no special items reported in the fiscal 2004 fourth quarter results. Reported results in last year’s fourth quarter were a loss of $0.14 per diluted share due to special items totaling $0.59 per share.

Earnings Per Share

Company Guidance: $0.70 to $0.80
Analyst Estimate Range: $0.76 to $0.81
Diluted Earnings Per Share (“EPS”): $0.81

Total Year 2004
For fiscal 2004, reported EPS of $2.02 compared with earnings of $0.51 last year. Excluding special items in each period, EPS of $2.15 were 52 percent above the prior year’s comparable EPS of $1.41.

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“We were delighted to deliver excellent sales growth and operating leverage in 2004,” said Kennametal Chairman, President and Chief Executive Officer, Markos I. Tambakeras. “Of particular note, Q4 included the highest quarterly sales, and the lowest primary working capital to sales ratio in the company’s history. These results were driven by broad-based strong performances by all business units, and across most end markets. ”

Tambakeras further noted, “In addition to our strong earnings performance, we continue to generate good cash flow and strengthen our balance sheet. Free operating cash flow of $125 million contributed to an 870 basis point reduction in debt to capital, which ended the year at 33 percent.”

Highlights of the Fiscal 2004 Fourth Quarter

• Record sales of $542 million were up 17 percent, primarily on 12 percent organic growth.

• Net income was $29.9 million versus a net loss of $4.9 million in Q4 last year. Net income grew 88 percent compared to last year, excluding special items, reflecting the benefits of increased volume, mix, and a leaner cost structure.

• Net cash flow from operations was $68 million, versus $67 million for the prior year. Free operating cash flow totaled $49 million for the quarter, $5 million lower than Q4 of 2003 due to increased capital expenditures.

• As of June 30, 2004, total debt was $440 million, down $85 million from June 2003.

• Debt to capital decreased to 33 percent versus 42 percent at the end of the prior year.

Highlights of Fiscal 2004

• Sales of $2.0 billion were up 12 percent on a 5 percent improvement from organic sales, 2 percent incremental sales from acquisitions and a 5 percent benefit from foreign currency exchange rates.

• Reported net income totaled $73.6 million versus $18.1 million last year. Excluding special items in both periods, net income improved
57 percent to $78.3 million versus $49.9 million last year.

Outlook

Global industrial economic indicators support expectations of additional growth through fiscal 2005 in North America and rest-of-world markets, and a return to modest growth in the first quarter for our European markets.

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Tambakeras said, “We were very pleased with our performance in fiscal 2004, and the outlook for our end markets remains good. In 2005, we will leverage further the 6 processes of the Kennametal Value Business System (KVBS), our strong geographic and end-market balance and superior technology, to continue to outperform our markets. We will remain focused on growing market share and offsetting challenges such as high raw material costs by consistently finding new ways to add value for our customers and to continue to benefit from the skills and commitment of our employees.”

Sales for the first quarter of fiscal 2005 are expected to grow 9 to 11 percent. Reported EPS is expected to be $0.50 to $0.60.

For the full year, sales are expected to grow 7 to 9 percent. Reported EPS are expected to be $2.65 to $2.85, up 25 to 35 percent.

Kennametal anticipates net cash flow provided by operating activities of approximately $180 to $220; million in fiscal 2005. Purchases of property, plant and equipment, net of proceeds from disposals of property, plant and equipment are expected to be approximately $70 to $80 million. Adjusting net cash flow provided by operating activities for the above items, Kennametal expects to generate between $110 and $140 million of free operating cash flow for fiscal 2005.

Kennametal advises shareholders to note monthly order trends, for which the company makes a disclosure ten business days after the conclusion of each month. This information is available on the Investor Relations section of Kennametal’s corporate web site at www.kennametal.com.

Dividend Declared

Kennametal also announced its Board of Directors declared a quarterly cash dividend of $0.17 cents per share, payable August 25, 2004, to shareowners of record as of the close of business August 10, 2004.

Fourth quarter results will be discussed in a live Internet broadcast at 10:00 a.m. today. Access the live or archived conference by visiting the Investor Relations section of Kennametal’s corporate web site at www.kennametal.com.

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This release contains “forward-looking’’ statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify these forward-looking statements by the fact they use words such as “should,” “anticipate,” “estimate,” “approximate,” “expect,” “may,” “will,” “project,” “intend,” “plan,” “believe,” and others words of similar meaning and expression in connection with any discussion of future operating or financial performance. One can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements are likely to relate to, among other things, our goals, plans and projections regarding our financial position, results of operations, market position and product development, which are based on current expectations that involve inherent risks and uncertainties, including factors that could delay, divert or change any of them in the next several years. Although it is not possible to predict or identify all factors, they may include the following: global economic conditions; future terrorist attacks; epidemics; risks associated with integrating and divesting businesses and achieving the expected savings and synergies; demands on management resources; risks associated with international markets such as currency exchange rates, and social and political environments; competition; labor relations; commodity prices; demand for and market acceptance of new and existing products; and risks related to the implementation of restructuring plans and environmental remediation matters. We can give no assurance that any goal or plan set forth in forward-looking statements can be achieved and readers are cautioned not to place undue reliance on such statements, which speak only as of the date made. We undertake no obligation to release publicly any revisions to forward-looking statements as a result of future events or developments.

Kennametal Inc. aspires to be the premier tooling solutions supplier in the world with operational excellence throughout the value chain and best-in-class manufacturing and technology. Kennametal strives to deliver superior shareowner value through top-tier financial performance. The company provides customers a broad range of technologically advanced tools, tooling systems and engineering services aimed at improving customers’ manufacturing competitiveness. With about 13,500 employees worldwide, the company’s annual sales approximate $2.0 billion, with nearly half coming from sales outside the United States. Kennametal is a five-time winner of the GM “Supplier of the Year” award and is represented in more than 60 countries. Kennametal operations in Europe are headquartered in Fürth, Germany. Kennametal Asia Pacific operations are headquartered in Singapore. For more information, visit the company’s web site at www.kennametal.com.

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FINANCIAL HIGHLIGHTS

Consolidated financial highlights for Kennametal Inc. (NYSE: KMT) for the quarter and twelve months ended June 30, 2004 and 2003 are shown in the following tables (in thousands, except per share amounts).

Consolidated Statements of Income (Unaudited)

	Quarter Ended						Twelve Months Ended
	June 30,						June 30,
	2004			2003			2004			2003
Sales	$	541,858		$	463,765		$	1,971,441		$	1,758,957
Cost of goods sold(A)		356,084			314,974			1,318,074			1,190,053
Gross profit		185,774			148,791			653,367			568,904
Operating expense(B)		134,441			121,757			512,621			464,861
Restructuring and asset impairment charges(C)		—			20,305			3,670			31,954
Amortization of intangibles		664			854			2,234			4,164
Operating income		50,669			5,875			134,842			67,925
Interest expense		6,405			9,108			25,884			36,166
Other (income) expense, net(D)		294			(2,117	)		(1,716	)		(2,531	)
Income before provision for income taxes and minority interest		43,970			(1,116	)		110,674			34,290
Provision for income taxes(E)		14,154			3,678			35,500			14,300
Minority interest		(36	)		74			1,596			1,860
Net income	$	29,852		$	(4,868	)	$	73,578		$	18,130
Basic earnings per share	$	0.83		$	(0.14	)	$	2.06		$	0.52
Diluted earnings per share	$	0.81		$	(0.14	)	$	2.02		$	0.51
Dividends per share	$	0.17		$	0.17		$	0.68		$	0.68
Basic weighted average shares outstanding		36,051			35,396			35,704			35,202
Diluted weighted average shares outstanding		36,952			35,682			36,473			35,479

(A)	For the twelve months ended June 30, 2004, these amounts include charges of $0.1 million for integration activities related to the Widia acquisition, $2.9 million related to restructuring programs, and $0.8 million for a pension curtailment. For the quarter and twelve months ended June 30, 2003, these amounts include charges of $2.0 million and $2.2 million, respectively, for integration activities related to the Widia acquisition.
(B)	For the twelve months ended June 30, 2004, these amounts include charges of $1.8 million related to a note receivable from a divestiture of a business by Kennametal in 2002, $0.5 million related to a pension curtailment, and $1.4 million for integration activities related to the Widia acquisition. For the quarter and twelve months ended June 30, 2003, these amounts include charges of $1.7 million and $5.5 million, respectively, for integration activities related to the Widia acquisition.
(C)	For the quarter and twelve months ended June 30, 2003, these amounts include a non-cash charge of $16.1 million for impairment of long-lived assets within the Electronics business.

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(D)	For the twelve months ended June 30, 2004, these amounts include income of $4.4 million related to a gain on the sale of Toshiba Tungaloy investment and a charge of $0.2 million on a note receivable from a divestiture of a business by Kennametal in 2002.
(E)	For the quarter and twelve months ended June 30, 2003, the effective tax rate was (329.6%) and 41.7%, respectively. These amounts reflect that a portion of the Electronics impairment could not be tax effected, otherwise, the tax rate for the quarter and twelve month period would have been 30%.

FINANCIAL HIGHLIGHTS (Continued)

In addition to reported results under U.S. GAAP, the following financial highlight tables also include, where appropriate, a reconciliation of results excluding special items and free operating cash flow (which are non-GAAP measures), to the most directly comparable GAAP measures. Management believes that each of these non-GAAP financial measures is useful to investors to more easily compare the Company’s financial performance period to period.

For the quarter ended June 30, 2004, there were no special items.

RECONCILIATION TO GAAP — QUARTER ENDED JUNE 30, 2003 (Unaudited)

												Diluted
			Operating			Operating			Net			Earnings
	Gross Profit		Expenses			Income			Income			Per Share
2003Reported Results	$	148,791	$	121,757		$	5,875		$	(4,868	)	$	(0.14	)
MSSG Restructuring		—		—			3,134			2,194			0.06
AMSG Restructuring		—		—			1,224			857			0.02
AMSG Electronics Impairment		—		—			16,110			15,269			0.43
Corporate Restructuring		—		—			(99	)		(69	)		—
J&L Restructuring		—		—			(64	)		(45	)		—
Widia Integration Costs — MSSG		1,146		(1,365	)		2,511			1,758			0.06
Widia Integration Costs — AMSG		865		(305	)		1,170			818			0.02
2003Results Excluding Special Items	$	150,802	$	120,087		$	29,861		$	15,914		$	0.45

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FINANCIAL HIGHLIGHTS (Continued)

RECONCILIATION TO GAAP — TWELVE MONTHS ENDED JUNE 30 (Unaudited)

								Other						Diluted
			Operating			Operating		(Income) /			Net			Earnings
	Gross Profit		Expenses			Income		Expense, net			Income			Per Share
2004Reported Results	$	653,367	$	512,621		$	134,842	$	(1,716	)	$	73,578		$	2.02
MSSG Restructuring		2,850		—			5,023		—			3,416			0.09
AMSG Restructuring		—		—			1,497		—			1,018			0.03
Widia Integration Costs — MSSG		63		(1,448	)		1,511		—			1,027			0.03
Widia Integration Costs — AMSG		48		—			48		—			33			—
Pension Curtailment		779		(520	)		1,299		—			883			0.02
Gain on Toshiba Investment		—		—			—		4,397			(2,990	)		(0.08	)
Note Receivable		—		(1,817	)		1,817		(183	)		1,360			0.04
2004Results Excluding Special Items	$	657,107	$	508,836		$	146,037	$	2,498		$	78,325		$	2.15
2003Reported Results	$	568,904	$	464,861		$	67,925	$	(2,531	)	$	18,130		$	0.51
MSSG Restructuring		—		—			9,060		—			6,342			0.18
AMSG Restructuring		—		—			4,406		—			3,084			0.09
AMSG Electronics Impairment		—		—			16,110		—			15,269			0.43
Corporate Restructuring		—		—			1,137		—			796			0.02
J&L Restructuring		—		—			1,203		—			843			0.02
FSS Restructuring		—		—			38		—			26			—
Widia Integration Costs — MSSG		1,344		(5,149	)		6,493		—			4,545			0.14
Widia Integration Costs — AMSG		865		(327	)		1,192		—			834			0.02
2003Results Excluding Special Items	$	571,113	$	459,385		$	107,564	$	(2,531	)	$	49,869		$	1.41

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FINANCIAL HIGHLIGHTS (Continued)

SEGMENT DATA (Unaudited):

	Quarter Ended						Twelve Months Ended
	June 30,						June 30,
	2004			2003*			2004			2003*
Outside Sales:
Metalworking Solutions and Services Group	$	326,377		$	289,996		$	1,198,505		$	1,086,831
Advanced Materials Solutions Group		119,227			96,699			419,073			353,262
J&L Industrial Supply		59,741			48,158			218,295			196,170
Full Service Supply		36,513			28,912			135,568			122,694
Total Outside Sales	$	541,858		$	463,765		$	1,971,441		$	1,758,957
Sales By Geographic Region:
Within the United States	$	283,453		$	238,323		$	1,020,629		$	946,518
International		258,405			225,442			950,812			812,439
Total Outside Sales	$	541,858		$	463,765		$	1,971,441		$	1,758,957
Operating Income (Loss), as reported:
Metalworking Solutions and Services Group	$	43,720		$	23,616		$	126,657		$	88,213
Advanced Materials Solutions Group		16,793			(7,282	)		53,168			19,762
J&L Industrial Supply		6,137			931			19,547			6,140
Full Service Supply		882			264			818			(56	)
Corporate and Eliminations (1)		(16,863	)		(11,654	)		(65,348	)		(46,134	)
Total Operating Income	$	50,669		$	5,875		$	134,842		$	67,925
Operating Income (Loss), as reported:
Metalworking Solutions and Services Group	$	43,720		$	29,261		$	133,191		$	103,766
Advanced Materials Solutions Group		16,793			11,222			54,713			41,470
J&L Industrial Supply		6,137			867			19,547			7,343
Full Service Supply		882			264			818			(18	)
Corporate and Eliminations (1)		(16,863	)		(11,753	)		(62,232	)		(44,997	)
Total Operating Income	$	50,669		$	29,861		$	146,037		$	107,564

*	Prior year segment data has been restated for organizational changes.
(1)	Includes corporate functional shared services and intercompany eliminations.

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FINANCIAL HIGHLIGHTS (Continued)

OPERATING INCOME / (LOSS) RECONCILIATION (Unaudited):

For the quarter ended June 30, 2004, there were no special items.

QUARTER ENDED JUNE 30,

	MSSG		AMSG			J&L			FSS			Corp & Elim			Total
2003 Reported Operating Income (Loss)	$	23,616	$	(7,282	)	$	931		$	264		$	(11,654	)	$	5,875
Restructuring		3,134		1,224			(64	)		—			(99	)		4,195
Electronics impairment		—		16,110			—			—			—			16,110
Widia Integration Costs		2,511		1,170			—			—			—			3,681
2003 Operating Income (Loss) Excluding Special Items	$	29,261	$	11,222		$	867		$	264		$	(11,753	)	$	29,861
TWELVE MONTHS ENDED JUNE 30,
	MSSG		AMSG			J&L			FSS			Corp & Elim			Total
2004 Reported Operating Income (Loss)	$	126,657	$	53,168		$	19,547		$	818		$	(65,348	)	$	134,842
Restructuring		5,023		1,497			—			—			—			6,520
Widia Integration Costs		1,511		48			—			—			—			1,559
Pension Curtailment		—		—			—			—			1,299			1,299
Note Receivable		—		—			—			—			1,817			1,817
2004 Operating Income (Loss) Excluding Special Items	$	133,191	$	54,713		$	19,547		$	818		$	(62,232	)	$	146,037
2003 Reported Operating Income (Loss)	$	88,213	$	19,762		$	6,140		$	(56	)	$	(46,134	)	$	67,925
Restructuring		9,060		4,406			1,203			38			1,137			15,844
Electronics impairment		—		16,110			—			—			—			16,110
Widia Integration Costs		6,493		1,192			—			—			—			7,685
2003 Operating Income (Loss) Excluding Special Items	$	103,766	$	41,470		$	7,343		$	(18	)	$	(44,997	)	$	107,564

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FINANCIAL HIGHLIGHTS (Continued)

RECONCILIATION TO FREE OPERATING CASH FLOW INFORMATION (Unaudited)

	Quarter Ended						Twelve Months Ended
	June 30,						June 30,
	2004			2003			2004			2003
Net income	$	29,852		$	(4,868	)	$	73,578		$	18,130
Electronics impairment		—			16,110			—			16,110
Other non-cash items		(1,498	)		11,264			13,959			19,346
Depreciation and amortization		17,236			22,224			65,989			84,043
Change in inventory		(3,213	)		23,527			10,255			38,171
Change in accounts receivable		(986	)		10,632			(4,199	)		11,480
Change in accounts payable		16,696			(3,262	)		25,776			(826	)
Change in other assets and liabilities		10,305			(8,269	)		(7,500	)		(4,910	)
Net cash flow provided by operating activities		68,392			67,358			177,858			181,544
Purchase of property, plant and equipment		(20,902	)		(13,447	)		(56,962	)		(49,413	)
Proceeds from disposals of property, plant and equipment		1,227			371			4,225			1,875
Free operating cash flow	$	48,717		$	54,282		$	125,121		$	134,006

CONDENSED BALANCE SHEETS (Unaudited)

	06/30/04		03/31/04		12/31/03		09/30/03		06/30/03
ASSETS
Cash and equivalents	$	25,940	$	27,528	$	15,086	$	14,720	$	15,093
Accounts receivable, net of allowance		247,245		248,879		223,087		232,146		231,803
Inventories		388,077		387,202		386,250		387,877		389,613
Deferred income taxes		95,240		87,651		88,020		86,888		97,237
Other current assets		40,443		38,803		39,460		47,003		48,606
Total current assets		796,945		790,063		751,903		768,634		782,352
Property, plant and equipment, net		484,475		481,793		487,530		489,242		489,828
Goodwill and Intangible assets, net		542,014		554,614		500,890		484,662		473,173
Other assets		115,229		59,641		72,802		67,108		68,534
Total	$	1,938,663	$	1,886,111	$	1,813,125	$	1,809,646	$	1,813,887
LIABILITIES
Short-term debt, including notes payable	$	126,807	$	8,193	$	12,872	$	11,375	$	10,845
Accounts payable		148,216		132,246		112,563		107,653		118,509
Accrued liabilities		214,359		202,460		183,835		197,578		206,993
Total current liabilities		489,382		342,899		309,270		316,606		336,347
Long-term debt		313,400		486,119		468,455		508,763		514,842
Deferred income taxes		64,571		38,045		36,087		41,368		43,543
Other liabilities		167,926		192,546		191,585		180,258		178,698
Total liabilities		1,035,279		1,059,609		1,005,397		1,046,995		1,073,430
MINORITY INTEREST		16,232		16,598		16,286		16,089		18,880
SHAREOWNERS’ EQUITY		887,152		809,904		791,442		746,562		721,577
Total	$	1,938,663	$	1,886,111	$	1,813,125	$	1,809,646	$	1,813,887

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Debt to Capital Reconciliation (Unaudited)

	June 30,
	2004			2003
Total Debt		440,207			525,687
Total Shareowners’ Equity		887,152			721,577
Debt to Equity, GAAP		33.2	%		42.1	%
Total Debt		440,207			525,687
Minority Interest		16,232			18,880
Total Shareowners’ Equity		887,152			721,577
Total Capital		1,343,591			1,266,144
Debt to Capital		32.8	%		41.5	%

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