Kennametal (KMT) 8-K Kennametal Reports Record Second Quarter

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:	January 26, 2005
	FOR RELEASE:	Immediate

KENNAMETAL REPORTS RECORD SECOND QUARTER

- Q2 05 sales up 21 percent

- Earnings per diluted share (EPS) of $0.74, up 118 percent

- EPS outlook for FY05 increased to $3.05 - $3.15

LATROBE, Pa., January 26, 2005- Kennametal Inc. (NYSE: KMT) today reported fiscal 2005 second-quarter EPS of $0.74 compared with prior year adjusted EPS of $0.34. Second quarter EPS exceeded October guidance and there were no special items. Reported EPS in last year’s second quarter were $0.30 and included special items totaling $0.04. As previously stated, the effective tax rate in the second quarter was 20 percent compared to prior year’s rate of 32 percent.

EPS Summary

Company Guidance (10/27/04): $0.60 to $0.65
(Updated to $0.74 on 01/14/05)

Analyst Estimate Range (01/13/05): $0.61 to $0.72

Reported EPS: $0.74

For the first six months of fiscal 2005, EPS were $1.35 compared with prior year adjusted EPS of $0.68. Reported EPS for the prior year period were $0.54 and included special items totaling $0.14.

Kennametal Chairman, President and Chief Executive Officer, Markos I. Tambakeras, said, “We were very pleased to deliver record sales and earnings in the December quarter. Broad market momentum exceeded even our robust expectations, with contributions from all geographies and nearly every end market. The return to good growth in Europe was particularly encouraging. Effective execution of our strategy through the deployment of the Kennametal Value Business System is allowing us to leverage improved market conditions into strong penetration of new markets, and the gain of new customers. Metalworking and the J&L distribution business were notable earnings growth drivers.”

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Highlights of the Fiscal 2005 Second Quarter

•   Record sales up 21 percent on 16 percent organic sales growth, 3 percent benefit from foreign currency exchange and 2 percent from acquisitions.

•   Reported net income was $28 million versus $11 million in the same quarter last year, as improved sales volume was leveraged against a more productive operating structure and a lower tax rate in the current quarter.

•   Net cash flow from operations was $51 million versus $43 million last year. Free operating cash flow was maintained at the prior year level of $34 million.

•   As of December 31, 2004, total debt was $405 million, down $35 million from June 2004 and down $76 million from December 31, 2003.

•   Debt to capital decreased to 28 percent versus 37 percent at the end of the prior year quarter.

•   Adjusted Return on Invested Capital improved 310 basis points to 8.6 percent versus 5.5 percent in the prior year.

Highlights of the Fiscal 2005 First Half

•   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 $51 million versus $20 million in the same period last year, reflecting the benefits of increased volume and a leaner cost structure.

•   Net cash flow from operations was $83 million versus $55 million last year. Free operating cash flow totaled $51 million for the six-month period versus $36 million in last year’s comparable period, with growth in cash from operations more than offsetting increased capital expenditures.

Acquisition

Kennametal Inc. today separately announced that it has signed a definitive agreement to purchase Extrude Hone Corporation for approximately $137 million, net of acquired cash and estimated direct acquisition costs. The acquisition, which is expected to close by the end of March, remains subject to customary regulatory approval and negotiated conditions of closing.

The acquisition is expected to be modestly accretive to both earnings and margins beginning in the June quarter of FY05. Kennametal plans to fund the acquisition through existing credit facilities.

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Outlook

The broad nature of the strong demand experienced through the fiscal first half strengthened expectations of sustained economic strength in global manufacturing sectors throughout the remainder of fiscal 2005.

Tambakeras said, “While we are pleased with our record December quarter, we remain focused on continuing to leverage the market environment for further customer and market penetration. This drive to deliver continued growth remains balanced by a relentless focus on cost control and cash flow.”

Organic sales for the third quarter of fiscal 2005 are expected to grow 8 to 10 percent, despite tougher comparisons. Reported EPS is expected to be $0.80 to $0.85. The effective tax rate for the 3rd quarter is expected to be between 37 and 38 percent (this is an increase versus prior expectations of 35 percent). The full year rate is still expected to be approximately 32 percent, consistent with original guidance. As stated previously, the execution of a business strategy, as well as the impact of tax planning, will result in fluctuations of the tax rate from quarter to quarter with a full year rate expected to be approximately 32 percent.

For the full year, organic sales are expected to grow 11 to 13 percent. Reported EPS are expected to be $3.05 to $3.15, up about 40 to 45 percent from the previous year.

Kennametal anticipates net cash flow provided by operating activities of approximately $185 to $215 million, or between 8 and 9 percent of sales, 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 $115 and $135 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 atwww.kennametal.com.

Dividend Declared

Kennametal also announced its Board of Directors declared a quarterly cash dividend of $0.17 cents per share, payable February 23, 2005, to shareowners of record as of the close of business on February 8, 2005.

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Second 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 atwww.kennametal.com.

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 14,000 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 quarters ended December 31, 2004 and 2003 are shown in the following tables (in thousands, except per share amounts).

Consolidated Statements of Income (Unaudited)

	Quarter Ended						Six Months Ended
	December 31,						December 31,
	2004			2003			2004			2003
Sales	$	556,218		$	460,778		$	1,087,654		$	905,353
Cost of goods sold(1)		374,804			313,146			732,845			613,614
Gross profit		181,414			147,632			354,809			291,739
Operating expense(2)		139,513			124,723			270,462			245,962
Restructuring and asset impairment charges		—			3,120			—			3,670
Amortization of intangibles		634			486			1,171			956
Operating income		41,267			19,303			83,176			41,151
Interest expense		6,121			6,547			12,577			13,147
Other income, net(3)		(1,240	)		(3,855	)		(2,814	)		(2,518	)
Income before provision for income taxes and minority interest		36,386			16,611			73,413			30,522
Provision for income taxes		7,277			5,315			20,607			9,767
Minority interest		928			404			1,905			1,099
Net income	$	28,181		$	10,892		$	50,901		$	19,656
Basic earnings per share	$	0.77		$	0.31		$	1.39		$	0.55
Diluted earnings per share	$	0.74		$	0.30		$	1.35		$	0.54
Dividends per share	$	0.17		$	0.17		$	0.34		$	0.34
Basic weighted average shares outstanding		36,744			35,604			36,550			35,470
Diluted weighted average shares outstanding		38,016			36,260			37,702			36,124

1)	For the quarter ended December 31, 2003, these amounts include charges of $0.8 million for a pension curtailment. For the six months ended December 31, 2003, 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.
2)	For the quarter ended December 31, 2003, these amounts include charges of $1.8 million related to a reserve for a note receivable from a divestiture of a business by Kennametal in 2002, and $0.5 million related to a pension curtailment. For the six months ended December 31, 2003, these amounts include charges of $1.8 million related to a reserve for 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.
3)	For the quarter and six months ended December 31, 2003, 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 reserve for a note receivable from a divestiture of a business by Kennametal in 2002.

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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 and six months ended December 31, 2004, there were no special items.

RECONCILIATION TO GAAP – QUARTER ENDED DECEMBER 31, 2003 (Unaudited)

								Other						Diluted
			Operating			Operating		(Income) /			Net			Earnings
	Gross Profit		Expense			Income		Expense			Income			Per Share
2003 Reported Results	$	147,632	$	124,723		$	19,303	$	(3,855	)	$	10,892		$	0.30
MSSG restructuring		7		—			1,630		—			1,109			0.03
AMSG restructuring		—		—			1,497		—			1,018			0.03
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
2003 Results, excluding special items	$	148,418	$	122,386		$	25,546	$	359		$	12,272		$	0.34

EPS for the quarter ended December 31, 2004 of $0.74 is up 118 percent from adjusted EPS of $0.34 and 147 percent from reported EPS of $0.30 for the quarter ended December 31, 2003.

RECONCILIATION TO GAAP – SIX MONTHS ENDED DECEMBER 31, 2003 (Unaudited)

								Other						Diluted
			Operating			Operating		(Income) /			Net			Earnings
	Gross Profit		Expense			Income		Expense			Income			Per Share
2003 Reported Results	$	291,739	$	245,962		$	41,151	$	(2,518	)	$	19,656		$	0.54
MSSG restructuring		2,850		—			5,023		—			3,416			0.10
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
2003 Results, excluding special items	$	295,479	$	242,177		$	52,346	$	1,696		$	24,403		$	0.68

EPS for the period ended December 31, 2004 of $1.35 is up 99 percent from adjusted EPS of $0.68 and 150 percent from reported EPS of $0.54 for the period ended December 31, 2003.

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FINANCIAL HIGHLIGHTS (Continued)

SEGMENT DATA (Unaudited):

	Quarter Ended						Six Months Ended
	December 31,						December 31,
	2004			2003			2004			2003
Outside Sales:
Metalworking Solutions and Services Group	$	336,230		$	283,493		$	652,100		$	554,622
Advanced Materials Solutions Group		122,327			94,751			240,213			188,382
J&L Industrial Supply		61,338			50,341			122,755			98,480
Full Service Supply		36,323			32,193			72,586			63,869
Total Outside Sales	$	556,218		$	460,778		$	1,087,654		$	905,353
Sales By Geographic Region:
Within the United States	$	301,524		$	252,734		$	603,307		$	501,645
International		254,694			208,044			484,347			403,708
Total Sales by Geographic Region	$	556,218		$	460,778		$	1,087,654		$	905,353
Operating Income (Loss), as reported:
Metalworking Solutions and Services Group	$	42,723		$	22,684		$	81,595		$	46,186
Advanced Materials Solutions Group		13,869			9,407			28,402			21,229
J&L Industrial Supply		5,866			4,306			11,587			6,991
Full Service Supply		546			(159	)		666			(440	)
Corporate and eliminations(1)		(21,737	)		(16,935	)		(39,074	)		(32,815	)
Total Operating Income, as reported	$	41,267		$	19,303		$	83,176		$	41,151
Operating Income (Loss), excluding special items:
Metalworking Solutions and Services Group	$	42,723		$	24,314		$	81,595		$	52,720
Advanced Materials Solutions Group		13,869			10,904			28,402			22,774
J&L Industrial Supply		5,866			4,306			11,587			6,991
Full Service Supply		546			(159	)		666			(440	)
Corporate and eliminations(1)		(21,737	)		(13,819	)		(39,074	)		(29,699	)
Total Operating Income, excluding special items	$	41,267		$	25,546		$	83,176		$	52,346

(1) Includes corporate functional shared services and intercompany eliminations.

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FINANCIAL HIGHLIGHTS (Continued)

OPERATING INCOME (LOSS) RECONCILIATION (Unaudited) :

For the quarter and six months ended December 31, 2004, there were no special items.

	QUARTER ENDED DECEMBER 31,
	MSSG		AMSG		J&L		FSS			Corp & Elim			Total
2003 Reported Operating Income (Loss)	$	22,684	$	9,407	$	4,306	$	(159	)	$	(16,935	)	$	19,303
Restructuring		1,630		1,497		—		—			—			3,127
Pension curtailment		—		—		—		—			1,299			1,299
Note receivable		—		—		—		—			1,817			1,817
2003 Operating Income (Loss), excluding special items	$	24,314	$	10,904	$	4,306	$	(159	)	$	(13,819	)	$	25,546

	SIX MONTHS ENDED DECEMBER 31,
	MSSG		AMSG		J&L		FSS			Corp & Elim			Total
2003 Reported Operating Income (Loss)	$	46,186	$	21,229	$	6,991	$	(440	)	$	(32,815	)	$	41,151
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
2003 Operating Income (Loss), excluding special items	$	52,720	$	22,774	$	6,991	$	(440	)	$	(29,699	)	$	52,346

RECONCILIATION TO FREE OPERATING CASH FLOW INFORMATION (Unaudited) :

	Quarter Ended						Six Months Ended
	December 31,						December 31,
	2004			2003			2004			2003
Net income	$	28,181		$	10,892		$	50,901		$	19,656
Other non-cash items		(1,235	)		4,746			4,047			11,219
Depreciation and amortization		16,141			16,489			31,609			31,840
Change in inventory		292			11,709			(12,730	)		15,437
Change in accounts receivable		18,050			18,343			14,992			23,397
Change in accounts payable		(8,171	)		3,332			(11,349	)		(9,180	)
Change in other assets and liabilities		(1,825	)		(22,354	)		5,770			(37,027	)
Net cash flow provided by operating activities		51,433			43,157			83,240			55,342
Purchase of property, plant and equipment		(20,550	)		(11,259	)		(35,769	)		(21,853	)
Proceeds from disposals of property, plant and equipment		2,827			1,854			3,333			2,388
Free operating cash flow	$	33,710		$	33,752		$	50,804		$	35,877

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FINANCIAL HIGHLIGHTS (Continued)

CONDENSED BALANCE SHEETS (Unaudited) :

	12/31/04			09/30/04			06/30/04			03/31/04			12/31/03
ASSETS
Cash and equivalents	$	32,168		$	28,688		$	25,940		$	27,528		$	15,086
Trade receivables, net of allowance		367,940			369,008			364,725			357,795			324,509
Receivables securitized		(115,253	)		(115,309	)		(117,480	)		(108,916	)		(101,422	)
Accounts receivable, net		252,687			253,699			247,245			248,879			223,087
Inventories		421,183			404,478			388,077			387,202			386,250
Deferred income taxes		99,731			96,144			95,240			88,480			88,820
Other current assets		39,605			37,178			40,443			38,803			39,460
Total current assets		845,374			820,187			796,945			790,892			752,703
Property, plant and equipment, net		506,253			487,616			484,475			481,793			487,530
Goodwill and intangible assets, net		543,062			546,487			542,014			554,614			500,890
Other assets		133,451			115,733			115,229			57,743			70,970
Total	$	2,028,140		$	1,970,023		$	1,938,663		$	1,885,042		$	1,812,093
LIABILITIES
Short-term debt, including notes payable	$	28,888		$	116,446		$	126,807		$	8,193		$	12,872
Accounts payable		142,465			146,543			148,216			132,246			112,563
Accrued liabilities		226,568			217,636			211,504			200,304			181,755
Total current liabilities		397,921			480,625			486,527			340,743			307,190
Long-term debt		376,268			318,989			313,400			486,119			468,455
Deferred income taxes		56,340			65,973			67,426			39,132			37,135
Other liabilities		174,855			162,627			167,926			192,546			191,585
Total liabilities		1,005,384			1,028,214			1,035,279			1,058,540			1,004,365
MINORITY INTEREST		19,249			17,377			16,232			16,598			16,286
SHAREOWNERS’ EQUITY		1,003,507			924,432			887,152			809,904			791,442
Total	$	2,028,140		$	1,970,023		$	1,938,663		$	1,885,042		$	1,812,093

Debt to Capital Reconciliation (Unaudited):

	December 31,
	2004			2003
Total debt	$	405,156		$	481,327
Total shareowners’ equity		1,003,507			791,442
Debt to equity, GAAP		40.4	%		60.8	%
Total debt		405,156		$	481,327
Minority interest		19,249			16,286
Total shareowners’ equity		1,003,507			791,442
Total capital	$	1,427,912		$	1,289,055
Debt to Capital		28.4	%		37.3	%

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FINANCIAL HIGHLIGHTS (Continued)

RETURN ON INVESTED CAPITAL (Unaudited):

For the Period Ended December 31, 2004

	12/31/2004		9/30/2004		6/30/2004		3/31/2004		12/31/2003		Average
Invested Capital
Debt	$	405,156	$	435,435	$	440,207	$	494,312	$	481,327	$	451,287
Accounts receivable securitized		115,253		115,309		117,480		108,916		101,422		111,676
Minority interest		19,249		17,377		16,232		16,598		16,286		17,148
Shareowners’ equity		1,003,507		924,432		887,152		809,904		791,442		883,288
Total	$	1,543,165	$	1,492,553	$	1,461,071	$	1,429,730	$	1,390,477	$	1,463,399

	Quarter Ended
	12/31/2004		9/30/2004		6/30/2004		3/31/2004		Total
Interest Expense
Interest expense	$	6,121	$	6,456	$	6,405	$	6,332	$	25,314
Securitization interest		757		580		443		356		2,136
Total interest expense	$	6,878	$	7,036	$	6,848	$	6,688	$	27,450
Income tax benefit										8,784
Total Interest Expense, net of tax									$	18,666

	Quarter Ended
	12/31/2004		9/30/2004		6/30/2004			3/31/2004		Total
Total Income
Net Income, as reported	$	28,181	$	22,720	$	29,852		$	24,070	$	104,823
Minority interest expense		928		977		(36	)		533		2,402
Total Income, excluding special items	$	29,109	$	23,697	$	29,816		$	24,603	$	107,225
Total Income, excluding special items										$	107,225
Total Interest Expense, net of tax											18,666
										$	125,891
Average invested capital										$	1,463,399
Adjusted Return on Invested Capital											8.6	%
Return on Invested Capital calculated utilizing Net Income, as reported is as follows:
Net Income, as reported										$	104,823
Total Interest Expense, net of tax											18,666
										$	123,489
Average invested capital										$	1,463,399
Return on Invested Capital											8.4	%

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FINANCIAL HIGHLIGHTS (Continued)

RETURN ON INVESTED CAPITAL (Unaudited):

For the Period Ended December 31, 2003

	12/31/2003		9/30/2003		6/30/2003		3/31/2003		12/31/2002		Average
Invested Capital
Debt	$	481,327	$	520,138	$	525,687	$	580,135	$	617,016	$	544,861
Accounts receivable securitized		101,422		95,318		99,316		93,614		100,000		97,934
Minority interest		16,286		16,089		18,880		18,070		17,594		17,384
Shareowners’ equity		791,442		746,562		721,577		756,511		737,729		750,764
Total	$	1,390,477	$	1,378,107	$	1,365,460	$	1,448,330	$	1,472,339	$	1,410,943

	Quarter Ended
	12/31/2003		9/30/2003		6/30/2003		3/31/2003		Total
Interest Expense
Interest expense	$	6,547	$	6,600	$	9,108	$	8,979	$	31,234
Securitization interest		483		397		413		406		1,699
Total interest expense	$	7,030	$	6,997	$	9,521	$	9,385	$	32,933
Income tax benefit										10,539
Total interest expense, net of tax									$	22,394

	Quarter Ended
	12/31/2003			9/30/2003		6/30/2003			3/31/2003		Total
Total Income
Net income, as reported	$	10,892		$	8,764	$	(4,868	)	$	9,699	$	24,487
Minority interest expense		404			695		74			739		1,912
MSSG restructuring		1,109			2,307		2,194			754		6,364
AMSG restructuring		1,018			—		857			773		2,648
Corporate restructuring		—			—		(69	)		195		126
J&L restructuring		—			—		(45	)		561		516
FSS restructuring		—			—		—			6		6
Widia integration costs - MSSG		—			1,027		1,758			1,337		4,122
Widia integration costs - AMSG		—			33		818			13		864
AMSG electronics impairment		—			—		15,269			—		15,269
Pension curtailment		883			—		—			—		883
Gain on Toshiba investment		(2,990	)		—		—			—		(2,990	)
Note receivable		1,360			—		—			—		1,360
Total Income, excluding special items	$	12,676		$	12,826	$	15,988		$	14,077	$	55,567
Total Income, excluding special items											$	55,567
Total Interest Expense, net of tax												22,394
											$	77,961
Average invested capital											$	1,410,943
Adjusted Return on Invested Capital												5.5	%
Return on Invested Capital calculated utilizing Net Income, as reported is as follows:
Net Income, as reported											$	24,487
Total Interest Expense, net of tax												22,394
											$	46,881
Average invested capital											$	1,410,943
Return on Invested Capital												3.3	%

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