Kennametal (KMT) 8-K Kennametal Reports Strong Start to Fiscal 2005

Exhibit 99.1

	FROM:	KENNAMETAL INC.
		P.O. Box 231
		Latrobe, PA 15650
		724-539-6141
		Investor Relations
		Contact: Beth A. Riley
		Media Relations
		Contact: Joy Chandler
	DATE:	October 27, 2004
	FOR RELEASE:	Immediate

KENNAMETAL REPORTS STRONG START TO FISCAL 2005

– Q1 05 sales up 20 percent

– Strong performance in all business units

– Earnings per diluted share (EPS) of $0.61, up 79 percent

– Raising EPS outlook for FY05 to $2.80 and $3.00

LATROBE, Pa., October 27, 2004 - Kennametal Inc. (NYSE: KMT) today reported fiscal 2005 first-quarter EPS of $0.61 compared with prior year adjusted EPS of $0.34. First quarter EPS exceeded previous guidance and there were no special items. Reported EPS in last year’s 1st quarter were $0.24 and included special items totaling $0.10. The effective tax rate in first quarter was 36 percent compared to prior year’s rate of 32 percent.

EPS Summary

Company Guidance (9/15/04): $0.55 to $0.60

Analyst Estimate Range (10/18/04): $0.50 to $0.60

Reported EPS: $0.61

Kennametal Chairman, President and Chief Executive Officer, Markos I. Tambakeras, said, “We are very pleased to build on our successes of last year with a strong start to Fiscal 2005. We are particularly encouraged by the performance across all our North American businesses, including J&L Industrial Supply. For our Metalworking business, growth in the North American and developing markets was augmented by a return to modest growth in Europe. The investments we have made in the Kennametal Value Business System (KVBS) over the past several years are translating into strong results as the markets we serve continue to perform well.”

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Highlights of the Fiscal 2005 First Quarter

• Record sales up 20 percent on 15 percent organic sales growth, 3 percent benefit from foreign currency exchange and 2 percent from acquisitions.

• Reported net income was $22.7 million versus $8.8 million in the same quarter last year, as improved sales volume was leveraged against a more productive operating structure in the current quarter.

• Net cash flow from operations was $32 million versus $12 million last year. Free operating cash flow totaled $17 million for the quarter versus $2 million in last year’s comparable quarter, due to improved earnings and lower tax payments, partially offset by increased capital investment.

• As of September 30, 2004, total debt was $435 million, down $5 million from June 2004 and down $85 million from September 30, 2003.

• Debt to capital decreased to 31.6 percent versus 40.5 percent at the end of September in the prior year.

• Adjusted Return on Invested Capital improved 210 basis points to 7.6 percent.

Outlook

Demand levels experienced in the fiscal first quarter continue to support expectations of economic strength in the manufacturing sector throughout the remainder of fiscal 2005 in North America and rest-of-world markets. European markets are expected to continue a modest recovery in industrial activity.

Tambakeras said, “We are confident that the talent and drive of our employees, coupled with sound execution of the KVBS processes, will deliver substantial top and bottom line growth throughout 2005. We expect to offset significantly higher raw material prices through pricing and operational efficiencies, and are closely monitoring the potential for a negative impact from capacity constraints. Despite these challenges, we are determined to continue to deliver superior financial performance in the coming quarters. We are focused on continuing to build on our successful start to fiscal 2005 by taking advantage of our broad geographic footprint, lean operating structure and world-class product and service technology to deliver competitive advantage to our customers and value for our shareholders.”

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Organic sales for the second quarter of fiscal 2005 are expected to grow 13 to 15 percent. Reported EPS is expected to be $0.60 to $0.65. The assumed effective tax rate for the second quarter is approximately 20%. The expected tax rate for the full year remains approximately 32%, consistent with original guidance. As the Company indicated previously, it plans to execute a business strategy that will lower its tax rate in one quarter during the fiscal year.

For the full year, organic sales are expected to grow 8 to 10 percent. Reported EPS are expected to be $2.80 to $3.00, up 30 to 40 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 November 22, 2004, to shareowners of record as of the close of business on November 10, 2004.

First quarter results will be discussed in a live Internet broadcast at 10:00 a.m. (Eastern) 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 associated with 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 ended September 30, 2004 and 2003 are shown in the following tables (in thousands, except per share amounts).

Consolidated Statements of Income (Unaudited)

	Quarter Ended
	September 30,
	2004			2003
Sales	$	531,436		$	444,575
Cost of goods sold(1)		358,041			300,468
Gross profit		173,395			144,107
Operating expense(2)		130,949			121,239
Restructuring and asset impairment charges		—			550
Amortization of intangibles		537			470
Operating income		41,909			21,848
Interest expense		6,456			6,600
Other (income) expense, net		(1,574	)		1,337
Income before provision for income taxes and minority interest		37,027			13,911
Provision for income taxes		13,330			4,452
Minority interest		977			695
Net income	$	22,720		$	8,764
Basic earnings per share	$	0.62		$	0.25
Diluted earnings per share	$	0.61		$	0.24
Dividends per share	$	0.17		$	0.17
Basic weighted average shares outstanding		36,373			35,336
Diluted weighted average shares outstanding		37,363			35,989

1)	For the quarter ended September 30, 2003, these amounts include charges of $0.1 million for integration activities related to the Widia acquisition and $2.8 million related to restructuring programs.
2)	For the quarter ended September 30, 2003, these amounts include charges of $1.4 million for integration activities related to the Widia acquisition.

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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 September 30, 2004, there were no special items.

RECONCILIATION TO GAAP - QUARTER ENDED SEPTEMBER 30, 2003 (Unaudited)

										Diluted
			Operating			Operating		Net		Earnings
	Gross Profit		Expense			Income		Income		Per Share
2003Reported Results	$	144,107	$	121,239		$	21,848	$	8,764	$	0.24
MSSG Restructuring		2,843		—			3,393		2,307		0.07
Widia Integration Costs - MSSG		63		(1,448	)		1,511		1,027		0.03
Widia Integration Costs - AMSG		48		—			48		33		—
2003Results Excluding Special Items	$	147,061	$	119,791		$	26,800	$	12,131	$	0.34

EPS for the quarter ended September 30, 2004 of $0.61 is up 79 percent from EPS, excluding special charges, of $0.34 and 154 percent from EPS, as reported, of $0.24 for the quarter ended September 30, 2003.

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FINANCIAL HIGHLIGHTS (Continued)

     SEGMENT DATA (Unaudited):

	Quarter Ended
	September 30,
	2004			2003
Outside Sales:
Metalworking Solutions and Services Group	$	315,870		$	271,129
Advanced Materials Solutions Group		117,886			93,631
J&L Industrial Supply		61,417			48,139
Full Service Supply		36,263			31,676
Total Outside Sales	$	531,436		$	444,575
Sales By Geographic Region:
Within the United States	$	277,147		$	232,614
International		254,289			211,961
Total Outside Sales	$	531,436		$	444,575
Operating Income (Loss), as reported:
Metalworking Solutions and Services Group	$	38,872		$	23,502
Advanced Materials Solutions Group		14,533			11,822
J&L Industrial Supply		5,721			2,685
Full Service Supply		120			(281	)
Corporate and Eliminations (1)		(17,337	)		(15,880	)
Total Operating Income	$	41,909		$	21,848
Operating Income (Loss), excluding special charges:
Metalworking Solutions and Services Group	$	38,872		$	28,406
Advanced Materials Solutions Group		14,533			11,870
J&L Industrial Supply		5,721			2,685
Full Service Supply		120			(281	)
Corporate and Eliminations (1)		(17,337	)		(15,880	)
Total Operating Income	$	41,909		$	26,800

(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 September 30, 2004, there were no special items.

QUARTER ENDED SEPTEMBER 30,

	MSSG		AMSG		J&L		FSS			Corp. & Elim.			Total
2003 Reported Operating Income (Loss)	$	23,502	$	11,822	$	2,685	$	(281	)	$	(15,880	)	$	21,848
Restructuring		3,393		—		—		—			—			3,393
Widia Integration Costs		1,511		48		—		—			—			1,559
2003 Operating Income (Loss) Excluding Special Items	$	28,406	$	11,870	$	2,685	$	(281	)	$	(15,880	)	$	26,800

RECONCILIATION TO FREE OPERATING CASH FLOW INFORMATION (Unaudited)

	Quarter Ended
	September 30,
	2004			2003
Net income	$	22,720		$	8,764
Other non-cash items		5,282			6,473
Depreciation and amortization		15,468			15,351
Change in inventory		(13,022	)		3,728
Change in accounts receivable		(3,058	)		5,054
Change in accounts payable		(3,178	)		(12,512	)
Change in other assets and liabilities		7,595			(14,673	)
Net cash flow provided by operating activities		31,807			12,185
Purchase of property, plant and equipment		(15,219	)		(10,594	)
Proceeds from disposals of property, plant and equipment		506			534
Free operating cash flow	$	17,094		$	2,125

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FINANCIAL HIGHLIGHTS (Continued)

CONDENSED BALANCE SHEETS (Unaudited)

	09/30/04			06/30/04			03/31/04			12/31/03			09/30/03
ASSETS
Cash and equivalents	$	28,688		$	25,940		$	27,528		$	15,086		$	14,720
Trade receivables, net of allowance		369,008			364,725			357,795			324,509			327,464
Receivables securitized		(115,309	)		(117,480	)		(108,916	)		(101,422	)		(95,318	)
Accounts receivable, net		253,699			247,245			248,879			223,087			232,146
Inventories		404,478			388,077			387,202			386,250			387,877
Deferred income taxes		96,144			95,240			87,651			88,020			86,888
Other current assets		37,178			40,443			38,803			39,460			47,003
Total current assets		820,187			796,945			790,063			751,903			768,634
Property, plant and equipment, net		487,616			484,475			481,793			487,530			489,242
Goodwill and Intangible assets, net		545,901			542,014			554,614			500,890			484,662
Other assets		116,319			115,229			59,641			72,802			67,108
Total	$	1,970,023		$	1,938,663		$	1,886,111		$	1,813,125		$	1,809,646
LIABILITIES
Short-term debt, including notes payable	$	116,446		$	126,807		$	8,193		$	12,872		$	11,375
Accounts payable		146,543			148,216			132,246			112,563			107,653
Accrued liabilities		220,496			214,359			202,460			183,835			197,578
Total current liabilities		483,485			489,382			342,899			309,270			316,606
Long-term debt		318,989			313,400			486,119			468,455			508,763
Deferred income taxes		63,113			64,571			38,045			36,087			41,368
Other liabilities		162,627			167,926			192,546			191,585			180,258
Total liabilities		1,028,214			1,035,279			1,059,609			1,005,397			1,046,995
MINORITY INTEREST		17,377			16,232			16,598			16,286			16,089
SHAREOWNERS’ EQUITY		924,432			887,152			809,904			791,442			746,562
Total	$	1,970,023		$	1,938,663		$	1,886,111		$	1,813,125		$	1,809,646

Debt to Capital Reconciliation
(Unaudited)

	September 30,
	2004			2003
Total Debt	$	435,435		$	520,138
Total Shareowners’ Equity		924,432			746,562
Debt to Equity, GAAP		47.1	%		69.7	%
Total Debt	$	435,435		$	520,138
Minority Interest		17,377			16,089
Total Shareowners’ Equity		924,432			746,562
Total Capital	$	1,377,244		$	1,282,789
Debt to Capital		31.6	%		40.5	%

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FINANCIAL HIGHLIGHTS (Continued)

RETURN ON INVESTED CAPITAL (Unaudited)

For the Period Ended September 30, 2004

Invested Capital	9/30/2004		6/30/2004		3/31/2004		12/31/2003		9/30/2003		Average
Debt	$	435,435	$	440,207	$	494,312	$	481,327	$	520,138	$	474,284
Acct. Rec. Securitized		115,309		117,480		108,916		101,422		95,318		107,689
Minority Interest		17,377		16,232		16,598		16,286		16,089		16,516
Equity		924,432		887,152		809,904		791,442		746,562		831,899
Total	$	1,492,553	$	1,461,071	$	1,429,730	$	1,390,477	$	1,378,107	$	1,430,388

					Quarter Ended
Interest Expense	9/30/2004		6/30/2004		3/31/2004		12/31/2003		Total
Interest Expense	$	6,456	$	6,405	$	6,332	$	6,547	$	25,740
Securitization Interest		580		443		356		483		1,862
Total Interest Expense	$	7,036	$	6,848	$	6,688	$	7,030	$	27,602
Income Tax Benefit										9,109
Total Interest Expense, net of tax									$	18,493

						Quarter Ended
Total Income	9/30/2004		6/30/2004			3/31/2004		12/31/2003			Total
Net Income, as reported	$	22,720	$	29,852		$	24,070	$	10,892		$	87,534
Minority Interest Expense		977		(36	)		533		404			1,878
MSSG Restructuring		—		—			—		1,109			1,109
AMSG Restructuring		—		—			—		1,018			1,018
Pension Curtailment		—		—			—		883			883
Gain on Toshiba Investment		—		—			—		(2,990	)		(2,990	)
Strong Tool Note Receivable		—		—			—		1,360			1,360
Total Income, excluding special charges	$	23,697	$	29,816		$	24,603	$	12,676		$	90,792
Total Income, excluding special charges											$	90,792
Total Interest Expense, net of tax												18,493
											$	109,285
Average Invested Capital											$	1,430,388
Adjusted Return on Invested Capital												7.6	%

Return on Invested Capital calculated utilizing Net Income, as reported is as follows:

Net Income, as reported	$	87,534
Total Interest Expense, net of tax		18,493
	$	106,027
Average Invested Capital	$	1,430,388
Return on Invested Capital		7.4	%

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FINANCIAL HIGHLIGHTS (Continued)

For the Period Ended September 30, 2003

Invested Capital	9/30/2003		6/30/2003		3/31/2003		12/31/2002		9/30/2002*		Average
Debt	$	520,138	$	525,687	$	580,135	$	617,016	$	596,715	$	567,938
Acct. Rec. Securitized		95,318		99,316		93,614		100,000		94,319		96,514
Minority Interest		16,089		18,880		18,070		17,594		13,001		16,727
Equity		746,562		721,577		756,511		737,729		713,427		735,161
Total	$	1,378,107	$	1,365,460	$	1,448,330	$	1,472,339	$	1,417,462	$	1,416,340

					Quarter Ended
Interest Expense	9/30/2003		6/30/2003		3/31/2003		12/31/2002		Total
Interest Expense	$	6,600	$	9,108	$	8,979	$	9,594	$	34,281
Securitization Interest		397		413		406		536		1,752
Total Interest Expense	$	6,997	$	9,521	$	9,385	$	10,130	$	36,033
Income Tax Benefit										11,531
Total Interest Expense, net of tax									$	24,502

						Quarter Ended
Total Income	9/30/2003		6/30/2003			3/31/2003		12/31/2002		Total
Net Income, as reported	$	8,764	$	(4,868	)	$	9,699	$	2,470	$	16,065
Minority Interest Expense		695		74			739		709		2,217
MSSG Restructuring		2,307		2,194			754		3,394		8,649
AMSG Restructuring		—		857			773		1,577		3,207
Corporate Restructuring		—		(69	)		195		670		796
J&L Restructuring		—		(45	)		561		327		843
FSS Restructuring		—		—			6		20		26
Widia Integration Costs - MSSG		1,027		1,758			1,337		967		5,089
Widia Integration Costs - AMSG		33		818			13		3		867
AMSG Electronics Impairment		—		15,269			—		—		15,269
Total Income, excluding special charges	$	12,826	$	15,988		$	14,077	$	10,137	$	53,028
Total Income, excluding special charges										$	53,028
Total Interest Expense, net of tax											24,502
										$	77,530
Average Invested Capital										$	1,416,340
Adjusted Return on Invested Capital											5.5	%

Return on Invested Capital calculated utilizing Net Income, as reported is as follows:

Net Income, as reported	$	16,065
Total Interest Expense, net of tax		24,502
	$	40,567
Average Invested Capital	$	1,416,340
Return on Invested Capital		2.9	%

* The September 30,2002 invested capital components utilized represent average balances for the three months ended September 30,2002 due to the Widia acquisition in August 2002.

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