KMT - Earnings call transcript Q1 2019

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Operator

Good morning. I would like to welcome everyone to Kennametal's First Quarter Fiscal 2019 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Please note that this event is being recorded. to of conference Investor like Boyer, to now President Vice Relations. would turn over the Kelly I Please go ahead ma'am.

Kelly M. Boyer

results. quarter Thank you, us year our first joining our release slide and you thank we posted XXXX earnings fiscal our press operator. Welcome to everyone review and Yesterday issued evening, on presentation for website. Kennametal's

Vice available call President I'm of the recording will referring that to a X. Relations. be Investor December slide will of and for be We Kelly through Boyer, deck throughout today's replay call

Infrastructure will the our me After that of President defined that constitute discussion Securities forward-looking forward-looking remarks, time, contains risks, XXXX. statements your number uncertainties forward-looking assumptions, Pete President, Damon's Patrick comments Broetz, involve and prepared Joining Chief Litigation Such the and Vice open and I as Business are and Finance Chief the Private a under call Today's Alexander could statements disclosure direct to Officer; on Act today segment. questions. achievements Dragich, to Business Reform would of in Kennametal's in SEC President the actual WIDIA performance statements. slide Port, and President, detailed materially and Chris Business Industrial At on X we results, cause implied uncertainties from Chris filings. Executive those Watson, factors company's expressed attention Financial Audia, of by Controller; risk differ or Rossi, up or These forward-looking such are listed statement. segment, line Vice for segment; President Officer; and Damon Corporate to this like President, Ron and

on that can believe to website. the measures at to With I'll slide turn call on back be GAAP of and over Form are non-GAAP most that, we addition, financial call the financial X-K comparable our In today. on be found deck the our Chris. the now directly discussing Reconciliations we measures will

Christopher Rossi

today. Thank thank you, call the for you and Kelly. everyone, joining Good morning,

like to welcome take earnings call, to is Kennametal. first Damon's I'd him to this this As quarterly opportunity

of of in join know, companies. this delighted to years We're finance experience he than XX Damon him many As manufacturing welcome. have you brings the team, role more to

I'm remains for to X% another consolidated at delivered Turning at and The company rate the sales organic XX% pleased that X, we've solid growth strong level. to report slide quarter. an

at the all a was at posting perspective, From region end WIDIA XX% three and quarter, X% Asia-Pacific consecutive For year-over-year seventh and performance growth. and at the Americas reported Industrial both every across growth Infrastructure market rates with growth. grew regional pleased grew segment, and double-digit segments positive with XX%, very respectively, I and posting and X%. X% the EMEA

by operating and in significant strengthened Operating continuing adjusted improvement leverage to improved XXX substantial reflecting of further quarterly profit The growth great in margin execution operating our year-over-year a a this of team. operating margins a basis initiatives. progress again with were Our XX.X%, expenses as as points result the modernization gross in quarter, increased by improvement simplification, percentage margin a sales.

$X.XX year-over-year underlying strength initiatives. was multi-year And accelerated program XXXX more our quarter we through we benefits performance much FY or first that the have plan. in all as of the in the as making our Kennametal move from our as is best achieved $X.XX years reminder, $X.XX EPS of to and by improvement that augmented for as we we includes efforts. of $X.XX for increase business The further operational margin with from market opportunity the the brand $X.XX our expected, as a plan, simplification, demonstrating the modernization our increased the of demonstrates is facilities. strategic the inside As improvements seven in Adjusted This and performance quarter. XX% in the quarter are

of quarter at year grew look to XX% the last with conditions and a to first organic sales Remember, year XX% implementing results. of the fiscal growth Let's X the quarter, turn total pleased I'm team strong to these years. simplification rate. first slide strong sales the for very XXXX, XX% organic at stayed In the in growth a while These we leveraging strategies. our are results market over last a testament two growth.

Industrials, we is encouraged years growth continue that Looking initiatives. are forward, barely multi-year. two we the typically by to progress the on into as of cycle strength and markets our Remember we the are well the be for cycle end this making

review quarterly the by results strong let's segment. Now,

slide September. IMTS segment the the on I Industrial for my show moment a Turning reflect time to X this trade take at to overview. want to

of As I a there are couple think key observations.

you of was First, you positive were great views this that I that attendees We with lot was market think record at expressed for attendance optimistic. further our also a a of I future by enthusiasm customers agree attended who about manufacturing. there the most event reinforces fact year, the would environment. think of the the the those that and views talked there

Second, IMTS new you've are customer innovator our about plans is offerings. These however, our At a to are products we and same growth strengthen continuously our of further for customers' and the modernization. help a simplification we our heard talk we for future. time, forget cannot technology me improve introducing highlighted course Kennametal lot performance. products new several to At critical that

unmatched market-leading For rock HARVI titanium a milling for applications. aerospace particularly is with applications tool example, rates, removal metal for XX Ultra the well-suited

of modular continuation We their user to modernization in FS system. term. long simplification, with in confidence with is life. also plans more a ability a tool XX% our the execute which over coupled provides XX% the us highlighted productivity give these our improvement KenTIP in while of the to delivering machining, the FS, drill KenTIP types innovations, It's

growth good in posted with a strength at saw Industrial quarterly on by with XX%. quarter, a the rates and X%, key at gain in increasing a Americas margin healthy quarter. success of also end growth and Industrial posted all at at sales at growth X% us. Adjusted the XX%, percentage in increased growth initiatives. operating end X%. XX%, simplification, followed modernization engineering points in the General to our delivered on markets reflecting area X%. XX%. leading for at at year-over-year basis looking XX.X%, of regions All Now energy solid aerospace rate largest year-over-year at XX% XXX of double-digits Asia-Pacific organic Europe our We market Transportation growth the grew largest

come. while opportunity to continue demand, more strong We expansion customer plan, balance with multi-year margin further our execute improvement we to for margin on

to Turning organic growth X overview. sales X% posted quarterly WIDIA on WIDIA the XX%. year-over-year for slide growth, of

EMEA X%. in reflect Adjusted regions the quarter and leading the by XX%, at operating Asia-Pacific numbers to As quarterly reported year-over-year with at performance Americas segment, the Industrial margin the India. with results for to positive all the year-over-year followed WIDIA, basis XXX increased Business points by X.X%. growth, XX% Asia-Pacific, growth regards rate In XX% mainly in continued and strong With regional at

this making of in and aerospace. particularly further partner profitability. In Bangalore growth in accelerate performance establishing capacity continue strengthening Americas, EMEA the and progressing distribution our grow are in the operational our region. select to solid in network brand. network other at we addition, saw and a portions We're to steady In are Asia-Pacific facility our also us help exit quarter, to we improvements our progress we portfolio the drive In countries and China distributor our our WIDIA to

pleased the with is can see progress. steady WIDIA am and improvements I you making As

our Infrastructure of X% positive organic markets on this Turning XX%. to end slide grew growth. overview. All X, year-over-year for reported quarter, Infrastructure growth

Adjusted to posted General a double-digit was due Asia-Pacific growth slightly XX% growth to the markets, rig flat oil at at to year. South Infrastructure, end for and XX%. XX.X% primarily African by the double-digit count South effect also this the coal mainly from the regard decreased year-over-year of XX%, respectively. posted Americas mentioned EMEA, improve to delivered U.S. activity X%, with coal continues and strong industry in engineering in strongest and XX% margins temporary XX.X% gas XX% operating average the at production slightly due smallest quarter land increased With energy prior region Africa. the to growth increasing year-over-year. earlier. disruption Earthworks

it's note improve our to Industrial. important I to than margins Infrastructure cost that segment slightly Although, commodity more is only think exposed year-over-year,

Our raw team ensuring excellent materials in did covered job price an the quarter.

of raw leverage with effect expectations. line price materials, Infrastructure's over the our in was Excluding

further margin redesign our to our pruning. including execute will get margins margin In as multi-year and to improvement on initiatives. The improvement enhanced due product product plan simplification, stronger track continue and modernization initiatives, we portfolio was addition, on strategic our is

inefficient to in point modernization. an was slide process cases manual case, X, in through as machines flow particularly we I illustrates In old putting are can model turning the and it costs. The many example, and our times many loading simplification, multiple inefficiency since For this before of poor thought case with unloading leading some all of of another was example higher labor as this modernization. to processes XX interesting times. you a see product

we machinery increased and updated efforts, and delivery modernization unloading loading improved our decreased have performance, through automated result optimized The and costs. with flow. throughput quality is Now and

to flexibility half. XXX%, been improves this time increase amount simplification, downturns our this improved XXXX company to and of beyond. the potential less the only in to deliver than In allowing are FY our Kennametal. given Not fact, the at still one over process, modernization the reduced labor also an of the and us automation exciting in is benefits during labor. benefits by majority that has has type just our expected advancement reduced of and but mind increased Keep inside It's and example efficiency further this ahead

who go on a projects. I'll We slide report. applying to are Damon financial other simplification, learning X to that, With begin as we these will learnings with modernization turn detailed over it and

Damon J. Audia

to at my everyone. here, point joining several execute of I month simplification investors Kennametal included over opportunities. analysts on visits, excited can that modernization many about instrumental say forward and we I'm more our and to several plans. has growth, even excited getting our months. the morning, and next I After an know be to Good which I'm as site first seeing look such our

increased incremental associated XX% favorable with These initiatives. our organic and our will by to by organic review higher by margin simplification in by million temporary offset XX% partially raw were year-over-year cost modernization driven million. profit offset and sales improvements manufacturing operations being our mix, headwinds to consistent growth, and the Adjusted with year-over-year demand end to market, XXX part to last basis increased profit points benefits every and in increases currency strong $XXX coupled modernization certain quarter the progress again material in We grew of efforts. growth constant which quarters. raw of and several Price X%. basis. due both currency. of partially reported foreign the sales gross Sales quarter gross Sales XX% approximately region Adjusted of with of segment with adjusted at on in geographic increased September X% market a begin is our cost inefficiencies covered a $XXX facilities, quarter in results with material the this

As cost quarter. of material actions raw align of we've in impact goods in sold timing versus may mentioned of pricing before, our cost the not the our always the

we've our the where One the item with in is accounting in of operating to first year implemented pension-related focus contributed by accordance higher goods containment of change the margin However, of in pension flat end recorded charges GAAP, The XX% quarter now over to XX.X% a cost to on and of cost the were XXXX. The fiscal to The of increasing we expenses adjusted time we operating XXX Adjusted offset sales price. non-operating basis, In us which standard a note, operating respect sales. record of demand profit in quarter continue to raw XX.X%. have markets. of are shown are we as higher new gross operating income. basis quarter both historically to improved and our operating this to income. basis sales statement. On increases expense improvements points, with sold percentage our income even since components material by highest with operating margin as ability demonstrated points first to in with expenses margin adjusted in the cost effectively operating adjusted XXX requires most cost expense, on components decreasing percentage cost

organic on XX.X% of change position, million business. to has XX% $X.X The amount our modernization this currency drivers this taxes basis is reflect increase the $X.XX, effects is prior adjusted initiatives reflecting the effective our Year-over-year in expanded Slide $X.XX. prior-year this resulted adjusted million shifting modernization effect day-to-day effects in the the adjusted quarter. profitability $X.X the in adjusted EPS quarter quarter, year for $X.XX due headwinds and delivering unique to quarter. in compared by quarter an to the favorable to $X.XX the the the as operating which certain the was non-operating of and the growth, net been of excludes Industrial XXXX. U.S. of in income tax favorable EPS in X quarterly this Given of It modernization strong sales occurred of main for due pension approximately the mix to Slide and our tax year year. The the bridge demand primarily affecting was coupled XX% part $X.XX benefits, and also quarter in change. in income unfavorable year. primarily versus first for as well and prior-year the rate XX.X%, and an EPS by to which in due the valuation year-over-year basis partially of year. running our offset $X.XX inefficiencies timing to tax assets, reform allowance XX The in the of performance. margins of progress. current the temporary efforts U.S. the the $X.XX illustrates facilities manufacturing Reported XXX Adjusted in quarter to the summarizes deferred incremental improved release in sales $X.XX, quarter of The with the simplification from in points second prior operations is segment versus simplification prior fiscal on EPS market the increase to compared incremental year-over-year of essentially

mix, contributing continued India. primarily operating by strong XXX leverage. margin are basis adjusted operating our and As points costs. favorable organic growth. and sales end basis fuel points markets our raw to WIDIA to operating simplification continue modernization up margins selectivity to efforts as initiatives growth, in sales and higher growth by due increased Further to X.X% robust offset year-over-year, double-digit growth part adjusted sales to organic primarily reflecting organic XX.X% Infrastructure's partially reported Chris of material XX mentioned,

look As impacted Chris materials heavily margins quarter. the price generally impacted the This have offset more price changes to it versus in the raw highlighted, by Infrastructure is material as we equation. raw did as

expectations. leverage Infrastructure our and deliver line Excluding the with in quarter these would impacts have in strong

a consecutive opportunities for As improve than continue figure. percentage on was June shown XX, primary working we slide our having of will flat less as primary XX% sales working for year-end levels of versus XX.X% Even capital our two quarters, at further effectively capital. look achieved to

and XX, Turning an the to metrics. on sheet and liquidity balance update slide

grade We with balance continue to credit maintain a strong ratings. sheet significant liquidity and investment

notes early forward. the appendix September net we was the June $XXX in $XXX of early a The provides XX, decrease of can the $XXX presentation. found due the at million redemption our million full flexibility notes. outstanding the from the debt first of February in primarily have $XXX balance going At of With $XXX on sheet of redemption million to of September, debt million. our until slide $XXX no maturities Cash be quarter, the XXXX, end now hand us million and which of million significant was in term

free First quarter. payments, prior-year capital cash from $XX operating which million, the by higher The working reflective restructuring improvement expenditures. and is offset higher from quarter capital million in negative improved and year-over-year $XX negative was year-to-date the of $XX increased million improved first cash operations partially lower flow

flow at of the to free cash and $XX The adjustment Day, to our and last million $XX slide Investor footnotes quarter, any in I that simplification net in proceed annual prior-year included in nor operating the operating flows. note we flow capital in line remain in our cash the cash we as modernization of recorded million we we did first pleased were compared prior-year XX. expenditures XXXX the Regarding cash with with in quarterly expenditures year, description would on were our maintaining capital plans. quarter with Overall, through increase, million full in not an period the in the of dividends. our presentation affect and $XX expectations, like expect as adjustment Dividends capital spending, A statement free flow quarter. paid adjustment to we committed operating we to is statement the quarter flows. discussed the free of to cash are consistent December our

XXXX to and slide Now turning XX our outlook. fiscal-year

are line As strong range the we off to a communicated which quarter XXXX continue what we our EPS to to in August $X.XX Chris in full said, for the Based start. is year year, expect environment we today, $X.XX we adjusted with the of call. on see fiscal fourth during in

continued headwinds landscape are the In in strengthening actions. quarter outlook U.S. to of potential assessing increased saw associated the tariffs, to and we we the dollar, with tariffs. first in actively We related the are evolving multiple with this corresponding maintaining components there even impact the regard understand the are which to our mitigation

With quarter, steel respect expect material, raw not last procured said large understanding to not to as overall a tungsten of subject we the have a be part as to our we to As on impact is tungsten to material powders our be tariffs, majority minimal such not the of on tariffs. do continue steel effect from on would believe of tariffs China, just net we earnings based the our costs. our

cost we our Given global will we experience to ship tariffs around as operations, some world. the products related

tariffs to macro to of general is EPS question related The a conditions business the sites more our Currently, in able mitigate actions As we net current the other these such, impacts effect customers impact our difficult we help answer. effects. outlook. address tariffs on in are we the believe to or to will these minimize evaluating be alternative via alternatives production potential to

region. confident the XXXX. we the changes. showing we growth of in X% end remain of our now $XXX range Further, is operating markets. of remain one to the general for capital us all broad X% Right particularly be assumption to any expected any health cash flow diversification expenditures closely, with We $XXX or one $XXX encouraged market end Therefore, are markets markets million for helps end in million market our Free growth, year exposure any million. reduce of with fiscal organic sales of by in our regions to to end China million and to the $XXX watching

the XX%. adjusted continue to range We in XX% effective our be to tax of to expect rate

Now, I'll to turn the call back over Chris.

Christopher Rossi

Damon. you, Thank

So year with December strong to is XX, margins XXXX we and XXXX to the expansion sales a year-over-year. execution presented our in start at slide about on XXXX we're our remain for all margin the off expectations Day. targets summarize line with up Investor FY FY and

As in result service efficiency, more a levels the a let's sales that, best into with focus the company manage possible. will questions. on company on for long-term. and innovative changes a with we is customer before, for said well-positioned up I These transformed a Kennametal, competitive a are it operator, are with the focus significantly and that transforming operates profitability with profitable open products the that service and most it And

Operator

Mr. Rossi. Thank you,

will Steve ahead. begin the now first go We from question-and-answer session. Jefferies. will be Please your question of Volkmann And

Stephen Edward Volkmann

morning, Good Hi. everybody.

Christopher Rossi

Good you? How morning, are Steve.

Stephen Edward Volkmann

benefits in $X.XX, for so your quarter, that reading running to half was what of about little and of a think had might think remember, full-year like wanted am just asking. the first any you're thank right the the sort be? ahead well, I'm saw you've to But the impact if it just sort change see feels to I improvement the if I bit plan. you ask I you I of if that of for goal you $X.XX wanted

Christopher Rossi

would But year, before down recall let I $X.XX of the good we we FY us know for XXXX $X.XX we as us. we've feel actually Yeah, breaking good be the But right and the you be Day. to and sort through about on Investor and on hard giving specific don't said a – cadence overall on it's full about the as track feel by quarter-to-quarter; number of little about progress lumpy. alone the it you Steve. the talked bit working for it much know; year, plan can where is a our generally, predict pretty that

So the of feel so it we're ahead you $X.XX, read FY what accomplish we're we behind track wouldn't like know it, XXXX. in we we'd I thought on somehow or

Stephen Edward Volkmann

maybe actually mentioned you times your then quick that And or cost-positive enough. was were Infrastructure, bit in actually on just in you of a prepared a Infrastructure behind? fair Okay, price a follow-up, cost price specifically, remarks, couple

Christopher Rossi

Actually, were slightly in Infrastructure, we ahead.

Stephen Edward Volkmann

Okay. Thank you.

Christopher Rossi

Thanks, Steve.

Operator

from ahead. be Please Joe Goldman The next question Sachs. of will Ritchie go

Ashay Gupta

morning, everyone. Hi. Good

Christopher Rossi

Good morning, Joe.

Ashay Gupta

is on for This Ashay Joe.

Christopher Rossi

Okay.

Ashay Gupta

off from you good, had guidance with second, starting standpoint, obviously, simplification price through. cost the was a great growth guys, a for Just quarter so a came

versus of maybe low-end went So takes you touch not what the the behind could through of the the for guide and puts raising maybe thinking the just us talk on the and year? high-end

Christopher Rossi

good a guidance, the all, any first feel had think impacts you It's absorbed than some we planned make and very question. we've comments. of stronger just of tariffs if general in because the We the current I me Yeah. headwinds forecast. good we let mean FX about it, about also

margin Now, volume. it our growth really Kennametal stay simplification, to numbers here the improvements and basic philosophy on relates to execute, is taking because make try on want or to focus challenge more modernization cost using in to estimates their organization growth, out, to not conservative we as

go feel it's forward. we've given early But generally about is, the other speaking, macro the in I of thing and plays we year, we'll is quite good guidance look feel here about and generally, So the out a quite that the have would guidance environment see overcome. we there pieces as moving we to good the the how lot still reaffirming say uncertainties

Damon J. Audia

just Damon. to the FX – to And perspective. is put And just put this in

expect to the impact we today, look full-year they relative $X.XX would to currency that $X.XX in as currency. be rates as original on impact we the to the of outlook quarter, is at based our and $X.XX about headwind first our range in current So sit

Ashay Gupta

I And guess Got follow it. a as helpful. up. Very

think the you $X.XX where like it to I So guys everyone upside. have didn't targets surprised from know the I simplification,

where these you we're can maybe touch you're if recognize like, the new maintained if could areas of you year, the obviously curious investment more working et you areas on, discovered that for in guide through just you're you new cetera, put finding investment? As initiatives FCF

Christopher Rossi

Yeah.

you thought think we're and expected. real approach, these you know terms so in find in have end-to-end of you when that good of pretty rethinking things different But was things important multiple savings learned know about across our about. we're of my assessment that the you always hadn't know broad a things as my well we doing processes, you're because we opportunities kind know I that we of learning I've go. achieve. going think it's thought is And We or first multi-pronged regions we there's And can in where about what all, you potential the of facilities. feel changes experience I types program the you is one

it's So like essentially but believe we'll continue you terms program to the look in upside. for thought so of broad know unfolding we that we for those, is because the now

of make we details seeing some Pete a he's upside a biggest industrialization, of on part things and he's comments, if let talk about. see because I'll additional Now, modernization, hadn't to couple the closer little

Peter A. Dragich

exciting. which Thank as learn you go Chris thing, through we you, certainly said, of a have looks vision in we as and like the is very what And future you fact go Chris.

that planned. As we we out potentially might are not with additional exactly that team, also a do forward think are like anything see we this things work opportunities, moving as like but

I this in it's point, with regard what with modernization, we where line So overall think balanced are in and expected. we given at overall that

Christopher Rossi

Thanks, Pete.

Ashay Gupta

a Thanks it. Got lot.

Operator

Duignan the And be question ahead. next from Please of JPMorgan. Ann will go

Ann P. Duignan

Hi, good morning.

Christopher Rossi

Hey Ann.

Ann P. Duignan

that about because Hey, of the talk at show the a record at cycle. peak when time we're Chris, here trade I was we at just attendance generally giggling the seeing

just fingers case. So the that's crossed not

Christopher Rossi

Okay.

Ann P. Duignan

bit you ask positive there for little negative any any in two you was I mix Industrial you're maybe you. energy talk for just from from to talk wanted whether mix the aerospace businesses us of in just Infrastructure, both about could or year? what Industrial mix mix about a in thinking if Thank So those and about the through mix and Infrastructure? remainder if could just

Christopher Rossi

Yeah.

focus saw was grow favorable would the one say we mix very saw good you is – and side, On a Industrial areas growth that aerospace I would of to if we traction so and that there, our will. – in

On We leverage in of cost. don't mix. think was to really explained price is the most situation Infrastructure there related any Infrastructure strong side, I that changes in the

certainly, products I high "in parts The in delivering that the really that conscious we're parts given to us. fall capacity that growth And we've are shifting and market the the improve deemphasizing thing rates where our we've too, some portfolio we fill to we've doing that's And we're the business liberate to, for product lifecycle has actually that most very could our to good been has to of have leverage able in you about an mix, what focus profitability we're as improve area. so driven mix" operating opportunity pruned year-over-year selectivity a other that market business. well the portfolio, that is Industrial think category product folks favorable understanding in end management, in on to talked product strong helped have utilization and and engineering fundamentals, be potential more profitable. the we other general And factories, some in side of where to in particular, the

Ann P. Duignan

there. as as outlook same strong you. could energy, And please? you was I I'll leave forward, on Thank if remaining then it the about that? or anticipate going talk And mean And aerospace it would you your

Christopher Rossi

of even aerospace us in still The the mean and fundamentals for the in side. Americas Industrial us. industries EMEA look those largely is underlying very on I which energy, sound Yeah. and and fundamentals the to Infrastructure

to be to on continue and grow in areas. focused the them we're so And encouraged by potential those

Ann P. Duignan

leave the you. in there time. it Okay. of interest Thank I'll

Christopher Rossi

Ann. Thanks,

Operator

Mitchell The Barclays. go next will of ahead. be from question Please Julian

Julian Mitchell

to Thank Damon. to you, issue welcome warm and just a wanted

my start talked June of price we the and us the question well When just QX, about commodity sequentially you we're sure looking just seasonality a I'm see you the help guess, Infrastructure? headwinds those? it cost ahead, up margins phasing quarter just of in think one. to I really about of year-on-year of, but in in question margins, the will Infrastructure sort first terms In maybe thinking around as as be from increases do more Is traction when understand this

Christopher Rossi

mean, raw to I a lot got exposure Infrastructure costs. we has business Yeah, material as of the the said,

we're the just the feel moved raw operating in But the peel as we've in the material much I from business. different And with some I and – business in pieces, dampening Industrial, quite getting Starting you'll with that as it the some benefit it's leverage of the covered had than general that price. past. side. Pete put he we and we modernization, fact So back Ron of over frankly – and Infrastructure a in good on Infrastructure in see they the moved initiatives costs the actual as have, in before combination was in That's has the that the better we the of our plants onion running there're think business. about think leverage continued have we're

in see on So covering of once continue you price this take we Infrastructure, the the margin out operating effect to improvement the should cost.

Julian Mitchell

a maybe slowdown just you there general, that's the midpoint your you're last assume to a Obviously, automotive guess question f be market? up three your next outlook my transport segment. the the firm-wide, auto I Thank growth on the for the of see XX% that of months? held growth in in lot did. or got areas the expectations second around or balance nine months, you. own of one well Should X.X% production sharpest just that about rate the will we the September When just And year, six little that talk would the has four very Transportation months Transportation concerns you've the about bit And about then quarter. against a thinking in

Christopher Rossi

Yeah, indicative I more a cars try bit think numbers the that's mixed are And of sales our the of consuming that I look as at produced are actual versus things little are tools. one we to the Transportation the numbers, think is a production bag. and of when

a concerned Americas, little stable numbers. projections flat. this I bit there characterize Asia I looks in are that be the it is flat at China, stable If that mainly as positive I'd And it's production point or then but the look characterize to think EMEA, as Pacific, slightly around production. at like to questions you would

know about everyone's the on for think and you the mark macro-environment same China. that what's question is – is question impact only So the the asking I area

questions, we automotive look those at So same have but an opportunity. we also as

these We space. really they're other But look general have in and to our areas so not segments. engineering at grow the if are much business some you automotive, really that of chunk it, a good in of and aerospace in our strategies,

an fact is So stable fine with is forward. that we're of of automotive in us. the It's area going just not that growth terms sort emphasizing

Julian Mitchell

Understood. Thank you.

Christopher Rossi

Thanks, Julian.

Operator

Please Cleveland The Uhlman be go of Research. ahead. next from will question Adam

Adam Uhlman

forward. year Welcome, Damon. good the Hi, quarter facility outlook it because margin like had segment should seem you this does going disruptions mentioned be for to the morning. I efficiency and improving that the wanted back were to go that there incremental hurt Infrastructure

kind of us how Any lot the a you're margins there's year? of fiscal progress we on about pieces. directionally guidance can moving you as So through thinking the give

Christopher Rossi

Yeah.

and you we quarter quarter temporary was at year, kind it inefficiencies. expected we know the that that remain of in year. $X.XX really that experienced the the the mentioned last time throughout about level over You per as second started manufacturing And and

an we "inefficiency" into it's prior-year try to we going as $X.XX line we quarter, the reason experience modernize the the our in think due had we said but time temp another forward. that this We've labor forecast So busy facilities. quarter basically we what in over and baked that with in we've referenced got higher in got is

where don't we over and of is than temporary to the any the margins temp use labors versus that labor, I different our we leverage time believe So our what expected. operating be planned that and

the So on and we're very we we call the means leverage Infrastructure once that we're which price side specifically, pleased covering their initiatives, as the already. with I said, that talked they're costs, getting, simplification operating progressing which of – about on modernization some had we actually out pull

Adam Uhlman

then from us mentioned now you is And secondly, the what earnings in think I revenue give forecast to the Okay. impact could related that's currency? outlook, currency that you the

Christopher Rossi

Yeah.

with I the X% current of a our happening headwind X% think in what's estimates to could sales based growth FX. total area consolidated the that on revenue be of from

Adam Uhlman

you. Thank

Operator

Please ahead. And the Fargo come Casey next question go Securities. from of Wells will Andy

Andrew M. Casey

Thank has Good How going? everybody you. morning, everybody.

Christopher Rossi

Good. How are you doing, Andy?

Andrew M. Casey

$X.XX to you highlighted segment? the I'm modernization fine. chart Thanks. that Chris, in that the skewed of was any simplification, doing for specific

Christopher Rossi

Yeah.

actually about business we've modernization, as was simplification, think talked I of Infrastructure terms before in ahead.

For example, the first that be Rogers, the that the Rogers an facility. facility to facility is we did happens Infrastructure and

towards there the plan the simplification, talking would start given we modernization too. improvements more about to naturally, So side, where in the sequenced – come will keep Industrial is that the from. improvements but But future say heavily that the really some Industrial weighted opportunity it's and we've Infrastructure, I that's as were on way

Andrew M. Casey

question, directly then there you've but outside answered I other that to this, you. Thank the of items kind And margins Infrastructure were in Okay. cost? ask dampened price the also of quarter any wanted

Christopher Rossi

see don't anything. I No,

Andrew M. Casey

from U.S. noted me. a in some demand see reported, slowdown quarter-end like the Thank did in you September. then look U.S. that any anything Excuse And your Okay. It or toward have companies it you. doesn't like other already region? numbers, but

Christopher Rossi

No, in that U.S. not see we the did

that's But area we strong. would definitely got tail In it, terms other continue be in situation watch. little with it there to was most tariff see I China, much to say, September. bit the we we U.S. that continue will didn't in of just area, think would to only sectors, saw a the about, off what's be other talk I in where that happening But of the the so an

of that an kind thing talked only the around we've uncertainty China. already So is about

for markets sales based Now, thing feel XX% the terms end company, and of of subject about I'd is China across so on total both itself the other XX% a about is – to very is, number revenue we I – last us well year's regions. point the diversified are by of out in a

Andrew M. Casey

very you Thank Okay. much.

Christopher Rossi

Thanks, Andy.

Operator

from The Liptak Please will go next Global. of ahead. Seaport Walter question be

Walter Scott Liptak

Good thanks. guys. Hi, morning,

Christopher Rossi

Walt. Hey,

Walter Scott Liptak

simplification. now say about implementation, of that I in and about in the wanted benefits? a would ask terms question – you again, to What inning we're automation

Christopher Rossi

Yeah.

I think we're you? second still to in inning, the early innings of the game here. is I don't say know, that sound how I would

Damon J. Audia

me. to right all Sounds

Walter Scott Liptak

Europe out of a should the things roll expect with maybe parts versus out seeing Okay. And that Or or are difficult get simplification, differences any you the then U.S., in you other more rolling we know world? as the between bit get U.S. out any little start the, you of automation? to it this

Christopher Rossi

It's around be reality a we're regions actually and – is question. world. The happen Yeah. to the in good based we've picked facilities they lead various

So difference of India got and going transforming we're there's And the it's the the really in don't to And me to have learnings the as We've we it challenges, of We're in share you to here in where it's China you example, any China. of go, learning the I you are not between and regions. those Europe. that we've programs as sure first, these kind facilities think question challenges in characterizing various on the process operating U.S. is do EMEA, in same and you that do got about you seems going terms then we're making to news as we're we're modernizing across in good do the think for said I move that that the so in I a regions. as the – U.S. a world.

of in than it's is bottom-line not one various question multi-pronged a So other. is regions simpler a it's and approach the

Walter Scott Liptak

you. Okay. Thank All right. Great.

Christopher Rossi

Thanks, Walt.

Operator

Steven go question UBS. from next ahead. of be will The Please Fisher

Steven Fisher

Good morning. Thanks.

Christopher Rossi

Steve. Hi,

Steven Fisher

come of margin couple if Wondering over of improvement on just through to could thinking how this you self-help trajectory the clarify the years. will next your latest

about ago, hockey to talking we think so get margins. to is to have benefit a go going a your back stick end targeted at towards of if kind the the I we program were or it – maybe the of year

more you loaded? would a Just it's provide mean color Are If more on I changed that has thinking some that could just all? that be curious, now great. that, maybe at you front-end smoother trajectory,

Christopher Rossi

to thinking say we scenario just this you Investor back don't that said be I Steven, at tend our We really Yes characterized in the savings a the you're smooth what of believe come basis more is part footprint programs maybe that that point. our it loaded. had we changed Day, at haven't as a said as of on should we though I reiterate rationalization, to stick. But December hockey in about types would back-end But those view terms of said. did

Steven Fisher

Okay.

So be benefits to the line three two margin next the years? bottom should over ratable – margin

Christopher Rossi

we XXXX Right. at That's the Investor characterized Day. it the December in, back way

Steven Fisher

extent? it it could that seeing why not if price you're the I'm like seeing Industrial then wondered about I just And sounds in sorry little Okay. missed talk bit and Infrastructure if well this, you a And as same I dynamic? more the but in to cost

Christopher Rossi

of through cost are margins we in as covering I that cost it the much Industrial we as cost seeing as No, price just are that does are flow reason and think in – in is covering the less doesn't total it we of far is the content the portion Infrastructure overall it and material product.

Steven Fisher

a Easy Thanks enough. lot. Okay.

Operator

go Merrill of The next Ross ahead. Bank be question Gilardi of will Lynch. America from Please

Ross Gilardi

Thank guys. you. morning, Good

Christopher Rossi

Hey, Ross.

Ross Gilardi

Chris. Hey,

margins. So customers if of would to think what on bit are some you, a Does time here, from harder it your little I because distribution distributor, having struggling just Industrial there? some just point at typically customers prices, a are prices on gross pricing back seeing the seem incrementally to you to raising come it be get raise harder would

Christopher Rossi

our mean marketplace I talking many pricing, of the whole Yeah. in at if of taking look our consistent subject the in actions competition customers we is I we're would actions is the all doing. to the that – pricing is competitive that feeling taken, with of still what – we're are first the and we've

value part job understanding I Kennametal think then Ross, of we're pricing. good you You where historically proposition of opportunity don't strategic know of focused had of pricing an their on some done and the more has know where products we accordingly. a

that – are part really is delighted a know And improvement but customers we've you saw know based consistent the I the reflects have with we fact price you you Industrial now and haven't pricing competition end don't to our that the of of pretty been is doing. feedback think the value so that we're leverage operating what the in increase, any on

Ross Gilardi

that time important auto that And your but growing on I understand quarter. from it's maybe last Thanks. you market Got then you relatively as today. over you're Could was shed on clearly, part walk nonetheless, still you through global diversifying more are end little light bit question away seeing? a not of mean earlier X% just I it. the a I mean Transportation, business the outgrowth the

Transportation, type platforms sustainable? it And up is how much new us is on you some or truck auto? and coming gain is out from and China all auto that of you within help for just other at versus So share can

Christopher Rossi

Yeah.

growth a you portfolio when better actually value I that understanding happening the brings. with – Transportation what's job the of product see doing is we're think that we're I think

raising many of significantly we on custom are provide in based prices we the solutions that that business. simply some cases in So

the happening capacity custom standard de-emphasizing as that's industry liberated other The not the and at, to we can't product they the good is price thing some automotive on we products. where pay also more some liberate more because by capacity money make that's the of either solutions put will consumes shelf

So growth that's helped fuel the there.

most channels exposure, we focused China of automotive of distribution distributors, those say. In are through terms sell basically I would on

I'll anymore it if he to add here wants to to color to So that. turn Pete see over

Peter A. Dragich

addition point, have success to we've you excellent we said opportunity as we've The understanding and value Transportation freed in had to that had job think we And I market. Chris with Yeah. capacity, service team's differentiation the customers from higher an on up where bring great executing done And commercial a Chris to to profitability. as the standpoint that.

I too, going China distribution. at Transportation, thing would look The other say, is through we particularly in

We to additional well end with diversify Transportation looking are market. of outside as the there distributors

Ross Gilardi

guys. Thanks,

Christopher Rossi

Thanks, Ross.

Operator

Research. from Please The next ahead. Longbow question Chris will Dankert of be go

Chris Dankert

Damon. morning, good welcome, Hey, and everyone,

Damon J. Audia

Thank you.

Chris Dankert

of on missed apologize Africa and Just there that Just you I I be track? South guys quantified have color the back delays – but kind hopeful? any is if and coal would here, wanted to it

Christopher Rossi

in to had in it that of planning are a offset of couple number. the we say Kennametal, there then bankrupt, up capacity the first the a externally, of haven't the are that to – of context given that. overall mean situation players I terms small just number, And all, it that was ramp gone understanding to South it's would there very slow But causing mines but ramp up. it's that's still is Yeah, Africa and as my I qualified they're

that we there, broke mines we think drop-off specific So you online the just bankrupt is to necessarily earthworks about. region, segments issue. see that be in hadn't would out in to it be But they're talk offset don't is never bringing to the if went and demand the capacity we still know I demand, frankly, the a new try something would

Chris Dankert

kind just out auto you organic growth Asia. following in give up, Got help it, impressive elsewhere, across-the-board there, But thing. obviously, Anything And in it's or break there? market India broadly got whether in then pretty is a and growth double-digit about the picture just growth what's of China Thanks. hammering to better you of that it. posted there lot the a of guys driving

Christopher Rossi

our Pacific the numbers would India, major driver say is of comes growth for from from. the Asia where I that growth Yeah. that's bulk the internal really

be that number we bought As brand. a the back think we've a well, of when think bringing I I brand WIDIA position, front originally done used to and WIDIA company center. good share in job – to a the one market We company,

lot getting what's Asia-Pac a And in his of in job and a driven good team so, Alexander Kennametal back done the of game that putting have India, WIDIA traction, that's and growth.

Chris Dankert

much, Got it. guys. Thanks so

Operator

go ahead. BMO of Capital question will Joel the And Tiss next be from Markets. Please

Joel G. Tiss

guys. going? Hey, it How's

Christopher Rossi

Joel. Good, are How you?

Joel G. Tiss

right. All

like de-emphasized give the the sort idea are the So of years? radar of can next just percent little products over a you characterization ones of be or to us couple what still here, any couple on

Christopher Rossi

portfolio. been whole initiative, in what sales from trying where remember our – we were had to operating generate they a had that new products to in if an of lot simplification you the XX% environment incrementalism and Yeah, amounted we was of product Kennametal

were a proposition different, differentiate could them necessarily different products in price and So have the that but enough we for. change marketplace didn't value to they weren't

that. year. portfolio, innovation, and benefits really that from was lot this play there's And I and to largely simplification and over a specific describe more types product just that derive beyond thinking so of characterize will I how to more that, to of for you a of But of I think of process, unwind it. we're kind those of don't I maintenance opportunity that out terms to part incremental go into we'll I still the about in and So streamline a mode history wanted the percentage start have things, then, can number of think

Joel G. Tiss

efforts, should of of as rate thinking years like would as view of a a the cash your way margins? flow other of couple go can road? of sort the or the decremental fair. Thank out down end the be get That's us flow free road, about also, any you like the as years what then the numbers, you we couple just And sense cash Okay. we that give to the down run free And we you. operating modernization

Christopher Rossi

Yeah.

throughout it's side, projections, increasing spend. that operating the fact we're cash we free and cash EBITDA what the despite generate On flow CapEx based clear the said, to on we're going our entire that free to cycle, the continue flow

understood that's still the it's margins, sure your that? way that could out. the to repeat going feel I we you So play not question I'm on And

Joel G. Tiss

sort of your the margins if of your of wonder bit, profitability, get kind we that framework whatever XX%, change a end go historically, may bit incrementals a to over decremental Yeah, couple that tighter, little be thinking maybe you little lower. bit of I decremental the or And be the onto we should XX%, similar, to next have, downturn maybe hold been your into little margins coming whenever would maybe years modernization? able you'd a be as

Christopher Rossi

that the things move incremental on sort I it even a of of the we've the that through course XX% is be quarter. it we some think said. about way in any should around that the bit, we little And Yeah can based given as particular about talked leverage quarter, go we think way it in operational works, in of this modernization range underlying

that's you and was as in leverage that to kind augment got do the the we the to we of going And is underlying we're slide, I'm sort like thinking modernization and So dependent we that business. as the simplification, cycle, of talked XX% then of modernize down terms then top. be for on going about example in And a on be the on labor. less added

should And in help two happening. downturn things us actually because so it a are

to extra the this back because then carry having the company. going on point we're fundamentally, to up breakeven head market all First for And of not we're of count end of come less dependent the waiting labor. to all, lowering we're

So things period all modernized. being a we compared to should equal better see performance where margin we hadn't

Joel G. Tiss

Thank Okay. you very much.

Operator

Rossi, conclude gentlemen, for And the conference ladies his to, session. closing would to and that question-and-answer remarks. back will our hand like Chris I

Christopher Rossi

Thank make In three you, let closing, operator. me points.

proud the and quarter. the that strong shareholders really results our we team for I'm first First, delivered in of the

we our on and Secondly, to make continue modernization simplification, growth progress initiatives.

market deliver the you, for that We Thank call XXXX joining Our fiscal everyone, plans, original Thank our focus your reaffirming simultaneously balancing seeing. these demand to, and Kelly, out confident outlook reach any we with on time EPS year will adjusted to track through interest in XXXX remain you as good questions strong have. third, appreciate continued today. fiscal guidance. feel Kennametal. remain executing quite the about are we're while follow-up And may our we on and you. Please

Operator

within event the you gentlemen, and conclusion. the Outside the conference Ladies the one sir. United To its of hour United you dial replay dial concluded. has after of States available may replay XXX-XXX-XXXX. be this Thank toll-free A XXX-XXX-XXXX. access will may you States approximately

ID hash the or to then conference You the XXXXXXXX enter be will symbol. pound prompted

Thank today's disconnect you lines. time, your presentation. may to be company. attending will for You asked record you name and your At this

Kennametal (KMT) 6 Nov 182019 Q1 Earnings call transcript