KMT - Earnings call transcript Q2 2019

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Operator

Good morning. I would like to welcome everyone to Kennametal's Second 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. [Operator Instructions] Please note 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 Boyer

results. quarter Thank you, us year our second joining our release slides 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 this recording will referring that to a Xth. Relations. be Investor March slide will of and for be We Kelly through Boyer, deck throughout today's replay call

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

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

Christopher Rossi

of is you thank earnings today. customer share growth for adjusted quarter morning, at the to significantly rate the XX% The everyone, implemented an solid X% we very represents Kelly. in pleased the segment of last at at that Industrial you, grew have of growth for results a X% and years. reported highest multiple Every report and quarter every I'm quarter actions which second sales it rate organic year. and and call regional levels on X%, was improved growth given Infrastructure joining Thank level, and Good growth and top year-over-year, strong that with second another with the this a improve delivered quarters margins. Video per X% X%. led helped and X% have and region X%. at Asia-Pacific at income profitability the Consolidated eight deliver growth margin consecutive in quarter service From Americas to increased operating seven EMEA we perspective, X% have our quarter of

continuing reflecting augmented initiatives. Our the the Adjusted quarter, result quarterly XXX in planned, simplification, we our to a leverage modernization execution $X.XX significantly or business. of and basis by a the year-over-year increase the fundamental which $X.XX since performance XX% EPS by from second and business our Again, increased our simplification, improvements in with line in our XXXX strategic increased was the This the XX.X%, are quarter of as quarter testament year-over-year best includes to our to both growth performance Operating improved progress again efforts, by making was $X.XX the really expectations. quarter. to $X.XX is for operating of initiatives. is as underlying points modernization team. The adjusted operational margin great this

the margin from our expected, benefits improvement state results segment opportunity the further markets. with for the increase end thoughts discuss about review for of continue of our to we more and quarter now program the the ahead. As I’ll

segment. This quarter of strong Industrial year X of review the of on the XX%. In the Industrial Turning second X%. is was growth a of prior to top organic quarterly fiscal for very Slide business sales year for XXXX

In this Pacific terms led temporary by diesel testing. qualification growth of X% as at in emission German EMEA Growth results automotive with customers dampened X%. quarter, regional was XX%, America's and associated the sales through with double-digit grew Asia of decreased challenges EMEA work

however, sales else, China watching China to of Asia are that region. XXXX Pacific seeing fiscal But total increase which close disruption. Chinese the by perspective to China is market. was infrastructure of affected broad Kennametal we across automotive Like XX% develops. year provide of the significantly sales, the to some we everyone Absent level with saw on how same related was only approximately half based to not see

the growth Aside outlook rate the on strength is in Aerospace at based strong markets. our from and aerospace largest for will market the we continue growth our automotive, uncertainties as at growth a of quarter. particularly posting the of to XX% be market remains for see quarters strong. rate it engineering, optimistic General continue end well good industry, other are has to healthy X%, energy as been X% we also several posted this in for end as which

I to well significantly growing initiatives, modernization and Adjusted the operating year-over-year efforts. our these on getting increasing as in on initiatives. focused points with Industrial the our XXX are as we XX.X%, know, growth by is pleased reflecting expansion organic margin end simplification, traction and success basis in am you team margin growth our As markets increased

balance with we our improve customer on that, for to continue expansion With improving on is which margin while to demand, and helping We levels margin come. to already profitability fill products, improvement drive plan high volume, rates opportunities are we execute high margin further service improvement. customer strong our more multi-year

the posted which regions growth quarterly followed to reported are in performance operations in X%. organic of on and XX% X%, Bangalore. X% at top India Americas, X% a mainly for X% Turning of performance In growth growth in is Video very Double-digit with EMEA solid All at EMEA number. reflects our Video year-over-year leading and strong. last Americas of sales by In X saw Aerospace. continued leveraging quarterly solid year-over-year we the Asia-Pacific XX%, remains quarterly where overview. Slide the demand growth strong the on growth in growth, organic at year Asia-Pacific we

However, our our were changes we are network. results distribution influenced by making the in

points in We service continue our XXX X.X%, strong regions. profitability. also Adjusted to that levels and leverage across went drive quarter year-over-year by operating and fine-tune all to portfolio increased upgrade the customer network basis product increasing operating are to margin

year-over-year organic X%. Again, our of grew to growth at when gas a Infrastructure X U.S. decline year's result X.X% this land believe and of X% for overview. year-over-year engineering quarter prior project-based of strong being and the viewed market strong spends sales business Pacific the Adjusted from strong General year. regions the and strength, of level X% previous region very to as Asia with XX%. Turning and reported to inconsistent rate but project for operating Slide margin Infrastructure lumpy at and growth. simply XX%. rig on the delivered growth average not X%, difference improve quarter All growth smallest context year-over-year is very XX.X% X%. year-over-year. rather that year-over-year of in infrastructure however posted increasing in Oil XX% count earthworks this to X% the of growth is strong by indicative portions patterns. the to The market EMEA end that posted in X% do large timing overall activity energy due posted growth and growth. Americas declined The continued decreased We growth at the

to the abate we due material in the issue pricing the year-over-year. of margins the index half. As now timing the raw year, of this fiscal material stabilized since second mainly should expected, prices adjustments, improve will have compressed operating full as margins timing year Consequently, expect customer effectively start

line in effect this infrastructures expectations. Excluding timing with our leverage was

and The multi-year are for plan products. The initiatives. are and track improvement delivering example industrial both Slide significant video operational with we simplification, we of operations an that manufacturing X as our expect margins We stronger results. turn get our are support strategic upgrades photo execute will to on and on modernization. Please improvements making show margin

to with machine well over initiatives. standpoint the our further XX%. customers to so projects scrap to not online. are and up the man Through growth. They only know excited our From by that, team for new are value manufacturing product increasing example invested had the For future improving XX% turn and years they With as and seeing at for coming by modernization when as we're reduced this to operations much performance Kennametal simplification, company in the adding ratio we for like I'll the about up is as XX% excited also naturally is that financial under output employee an they call increased and many positioning about see but investments benefits, our members Damon. us quality

Damon Audia

everyone. morning, Good

to the and year-over-year a Turning offset manufacturing improvements X. effect foreign cost by the offset by currency modernization by certain organic $XXX almost approximately organic covered of efforts the geographic to several raw this gross segment margin second due constant by X%. incremental partially material and Sales driven business million. benefits Slide costs X% Sales expenses the and XX grew timing quarter consistent being of of in increased X% which with higher region simplification, short headwinds in Adjusted term underway. sales increase with in our profit gross simplification, increases Adjusted at million modernization primarily Price material again raw to favorable X%, with $XXX increased partially every growth sales increased points the quarters. to sales facilities is growth every in profit in to and year-over-year our quarter, currency. last XX%, basis These quarter associated initiatives. X% were

a know, as material end Adjusted primarily expenses On with improved to percentage cycle. markets. decreased to the simplification, XXX X% reducing have adjusted demonstrate $XXX by we due XX.X% basis, to even to million have higher in million decreasing operating success of offset benefits in points we from restructuring you continued price our to demand raw initiatives. continue our cost operating or basis to ability with costs sales over expenses our $X As increases

effective prior the XX.X% both as of significantly best is EPS $X.XX the illustrates a percentage is a tax in in U.S. year-over-year year XXXX. in be second in The actions to drivers adjusted prior operating since year-over-year gross year. primarily due around Going quarter taken adjusted XX% adjusted forward, The a result $X.XX. operating of XX.X% was we quarter to basis the in of X improvement quarter Adjusted versus is expect EPS long-term in Biggest of to our The effect performance by profit Slide our compared fiscal sales for expenses of quarter as date to operating sales modernization reform. affecting decrease an our main significantly points the $X.XX. the also expenses outlook. increasing an to XXX margin basis versus rate favorable and year. was to with XX.X% which as increase percent XX% on the tax the delivering the contributed in line adjusted year to quarter. to improved The EPS this is prior driver incremental the initiatives quarter due operations simplification, $X.XX which

this For running of business. the operations [ph] day-to-day bridge essentially the

of items of we these $X.XX $X.XX. of effects rate the tax to addition headwinds and currency recognized incremental lower In favorable

reflecting points an Slide primarily strong Further, segment the up initiatives short year-over-year, and growth. and end margins of due modernization reflecting sales and are India. our fuel growth, to X.X% Infrastructures simplification, by as by manufacturing solid XXX and demand organic profitability expanded offset operating Selectivity to organic modernization our part adjusted quarterly underway. due contributing to basis primarily benefits. margins simplification, mix Turning of in modernization in adjusted costs, performance. organic XXX XX.X%, timing growth, incremental expenses operating Video and modernization to Year-over-year, partially partially sales benefits, certain simplification Industrial facilities higher reported simplification, efforts points market points by to primarily continue to adjusted margins decreased basis organic our term efforts continued material incremental sales to basis X, growth by to a favorable operating sales operating sales growth leverage. offset X.X% XXX raw our

the costs anticipated Chris this and of compression margin fiscal of last to material mentioned, expected the couple in the change update quarters year raw As was in XXXX. half is over second given

of to sales working Turning points XX. Primary percentage XX% Slide December from last a basis to as capital this quarter. XX decreased XX.X%

primary opportunities inventory We high to inventory, improved continue of a a working maintain expect working commodity dollar capital to for higher customer result and for in primary but prices sales high percent on is further our year-over-year as this increased In capital increased service. strategic of terms, of look improve. will profitability products to range, which reflective nevertheless as volume,

strong sheet changes. prior million, capital in $XX grade in a $XX million expenditures and million $XX was flow prior at capital $X due year, due XX increased maintain in to hand December quarter the significant in down capital with was continue in working Free working balance primarily mainly changes prior year the quarter capital to from the December versus cash the second capital quarter. Cash ratings. to compared the year million million We $XX $XX increased a were in operating the Net spending. to primary quarter, primary second and million, investment liquidity on of decrease and $XXX expenditures credit million

years, in million previous last half half with consistent year. XXXX second date line free paid were of we to operating capital cash year. our the expect we to second expect through the is the increase the year. and flow spending with increase in proceed operating we the free cash to as our flow substantially $XX fiscal with of Dividends Overall, As outlook

we year Slide fiscal we environment outlook. XX today, on outlook. the to our XXXX reaffirming Based for our see Turning are

to to of in year. the Even for headwinds in range evolving the the segment adjusted continue the $X.XX tariffs. with continued $X.XX and expect in associated landscape related strength to full with the uncertainty China dollar transportation the the U.S. in the We EPS

helps diversification to or exposure market region. one our broad any reduce end market us end Our

to region winning growing in markets the and as dampen we $XXX expected such million. are range of Free customers. for is the to of or end million and will organic of in We be $XXX help flow volatility in expenditures confident X% of operating million key key any with XXXX. one Those with fiscal sales growth to $XXX capital year our end our actions are assumption cash X% effects of to particular $XXX in market million

substantially half with we mentioned is turn back in increase the the of earlier, I the As expect pattern. year to with prior to consistent And which that, Chris. call spending capital the I'll year second

Christopher Rossi

another Slide discussed. XX strong QX to in despite my our holding turn Please areas that Damon. we've Thanks, year delivered quarter uncertainty full and for guidance summary. We the are of

execution quarter through results segments us to progress confident I'm improve first We keep in achieving our half financial see year initiatives. multi-year targets. open performance and in the pleased improvement and of simplification, plan. growth for year the business a trajectory questions. let's growth the operator, our to up continue really very that modernization fiscal our to and all deliver with it through each continues the EBITDA disciplined company's With on The our of XXXX remain

Operator

ahead. be Instructions] [Operator Goldman And first from Thank question you, of Joe will Please sir. Sachs. go your Ritchie

Ashay Gupta

Hey. Good morning, everyone. Joe. on This is for Ashay Gupta

Christopher Rossi

Morning.

Ashay Gupta

puts the high difference low and broad guidance to I off. the about getting and Maybe to the end well. talk mean, in between between just the takes what's you start the the range guess in the pretty versus I quarter just came end? execution maintaining

Christopher Rossi

Good question.

we XX% at takes feel things, typically China the and and with an EPS - and of all, headwinds of split of macroeconomic a to possibility we sort And of still XX% risk and is performed has of types to as that we at additional - range. you this First FX us. environment those look business know for with all the associated the puts XX% macro XX% sort

guidance would about I the that I way that's - would range. so And think

Ashay Gupta

out significant your and was mean, just maybe I of standpoint auto growth for maybe digging China the in a a transportation for half you order into was quarter. just specifically Got the baked China and it. parse Can in from what's back was the pretty XQ into clearly And deceleration the second. guidance year?

Christopher Rossi

make is And based the just certainly fiscal then you a But talk said see associated the for a that know, understands on the And industry significant about China. and that with point. on year actually Kennametal, potential an put and XX% us area We all call about disruption general in of fact this in depressed China. want as for last half did across in the got we'll we've it to while I that overall good subject more situation remember, about is at to markets. it Everyone was remarks, growth of perspective of China just seen comments diversification Yeah. specifically automotive then of infrastructure. decline level prepared couple is we in China. a hasn't there our revenue infrastructure

results. going it's overwhelm important, is going company’s not to to - China but So the not it's

know, inside are there general also think engineering important is sector weakness been that but that. there aerospace general automotive You some is offset and and China engineering I is other to in markets so helping while including an there's China, too

our for the So year – fiscal that ahead quite and is we guidance. match the the I the match that we believe realistic view can comfortable of feel what's rest of

Ashay Gupta

you. Got it. Thank

Operator

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

Julian Mitchell

just… Hi, morning. good Maybe

Christopher Rossi

Hey, Julian.

Julian Mitchell

Hi.

first question for way quantifying any worse? conviction the first be the But line was just maybe margins, if us infrastructure half QX was headwind Just just in cost year. headwind up And that what the appreciate around was fiscal they'll or clarify the with of understand of to in if that the Thank thought year? there help what maybe you. the a margins bit to those the

Christopher Rossi

Yeah.

of couple raw materials comments a general. on Just in

I And able we for your sensitive we typically saw in [ph] higher of percentage also in we'll compression a it's QX think specifically that was Julian cost know, the for the as they're material be costs. company, that margin have and case the Infrastructure, answer price we've long-term, still actually far because it's we you covered do that much in As part as several was as And to expected, cost. and to material expect you question the a raw quarters. note temporary nature. quarter important more have to

business think raw you margin customer material this adjustment. If was between and price a the mostly difference due about to timing compressed indexes

we have that other APT But certain flow the we we still at through. lower the higher words, our drops contracts to So in in bought soon as that inventory price. that to are we have required needs as APT cost Index had

the that we reason the is that going lower itself, quite cost. So is a reverse buying confident can situation material be that now at we're to raw

So we margins. good P&L expectation making the the about my and in should and feel will second whole year-over-year, company. fall we the year that a margins half is pretty as improvement infrastructure through for as well those And full see

Julian Mitchell

my question revenue around Thanks. then earthworks would trajectory. second Great. And the be

You a know QX, and flat sales understand down lumpy very I in an QX. to it's extent. bit project-based

how any appreciate quickly what the sits maybe help us you could on the orders can around? So turn are color maybe earthworks doing revenues the understand in provide backlog or where to

Christopher Rossi

anything just I your and know be simply if I'm bit projects, Ron out the to opportunities in talk want - behind Yeah. let negative it. But add it was we little Earthworks there. of like detail backlog about and due anything project just looked it you a going a when a is don’t Ron explained And backlog the at specific there of to still that. point to couple that. we to things. or that of the condition timing the But the to about underlying seem

Ronald Port

Yeah.

construction underground and the conditions I that been based The foundation see. those customer has and released right. is those timing being project the on cutting absolutely foundation the actual lumpy sales in projects timing mining - the of conditions that good. of [indiscernible] experienced the You're road totally drilling are mean, and we've

Julian Mitchell

Great. you. Thank

Christopher Rossi

Thanks, Julian.

Operator

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

Joel Tiss

going? is it How Hey.

Christopher Rossi

Hey, Joel. you? How are

Joel Tiss

seem if flow confidence and you paper? could you a and second of us little kind you're little flatter All customer bridge you right. and wonder good we're organic that us in if have that sense because like just wondered I are just could you in that you. that you're little wonder hearing I a it trending through guys of to - just what and seems feedback like I all things a the know, rebuilding you because volume, the customer in relationships and seeing generally help it guys them give growth the does half gives in really Thank

Christopher Rossi

there's But terms created of is There Yeah. out areas and lot increase. a sort sort markets on there's noise still China of there out frankly in and the stay regions think a there we of demand and or lot in actually other I so it's a and it's of talk and little many much steady automotive. seeing there's actually - of segments we're a to industries broad market lot because about sort focus these in global end German of continuing -

considered, - we and don't not region, the So by segment just you intimacy in by go we taking break into good level areas. know, all customer and point, high We a it we're sort many things detail have actually your view. of do of down these to

are that. feel holding good we guidance we what of possibility sales to about and our to a and to so range range feel original a end the balanced going have we're view that There's is get the be. a we feel that to to high good good be we So

Joel Tiss

the half? wallet customers what you gaining with - share of guys for that And or is that or are part is a any seeing share gaining of is big second

Christopher Rossi

heightened a that on market. that that with penetrate quite General but we some in, the custom - in can we got share bring - on, and specific engineering, fits focus with have I some cases business, products played engineered focus typically of believe to a we well a that are how strategic picking we've these proposition. haven't up aerospace, value I to our segment but focused like in solutions initiative we've we Yeah, always that and our which Markets of new markets. think

manage we've you've up that up up we the is over those surprise profits focus feel be got we're picking measure segments expect over to time of we The doesn't time. also it know, set absolutely So share kind the one to like we in feel But marketplace, certain we me got. as you things and that that the to bringing share about so of that share. and value are good But areas. picking

Joel Tiss

great. you It's much. Thank very

Operator

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

Steven Fisher

Joe's Hi. there, re-acceleration assumption a I Can bit organic on wanted second the about segments Thanks re-acceleration up more in about very of of in see you question much. growth you just markets half? specific driving maybe growth to the little be follow the which that half. and do just in the second

Christopher Rossi

model Yeah. that dampen case We've that be to kind is we India, we've not particular kind broad-based continue growth, recovery some got see like in - to areas the which - of of is And end not continue its so going results. in China, market. But that there. the any and the that's growth to also we're automotive expecting Germany

is U.S. going it. a is to quite quite going good regions that's all actually old Also help help strong that have and we focus growth. - good So U.S., drive presence and to to and drive the again on again that's across to the obviously the actually aerospace, here

Steven Fisher

the on check Okay. for would then margins That's I for year segment, infrastructure that in just should and the XX% buying really margins want up to see really like the year-over-year. assumption strong mean, something implying margins be model that with the that we that? helpful. second And my half the here, is the

Christopher Rossi

what average this it's an not we with was is a of the look ton dropped if think ‘XX metric just QX $XXX around fact in like this in I driven We're by it of QX year XXX. is fiscal is - index XXX and Index already at going unit QX. we improvement. APT lot was And pay, to The significant the that margin per that to

come also its on improvement. So why team and of significantly that modernization. Ron Plus, his down that's confidence simplification, that focused have lot and a to are it's drive we going margin

have of for project complete. wide and Kennametal very the XXX% We almost a starting first projects to with – our one is that plant Rogers is facility modernization

that's to the pretty productivity have that. of we visibility so coming And good out

margin we're built those that forecasting. make combined things give going is two us So that the - those to confidence improvements

Steven Fisher

Thanks.

So in does of maybe up the margins say Infrastructure imply to then fourth quarter in a segment? mid like kind spike that teens the a

Damon Audia

I Yeah, think…

Christopher Rossi

Go ahead Damon.

Damon Audia

I costs down think because it you grows the sort alluded has six over see been first sequentially coming APT [ph] months. of to as will last

get fourth going And quarter that so the raw as to quarter. sort then move third costs lower the see in and we lower of you're material into

So raw - it material will be at change to again pricing other the have actions will will and of improve the the look that you cost effect. some year-over-year the

you quarter. would stronger generally bit to third be the a So net-net fourth little speaking than quarter expect

Christopher Rossi

all going for not fourth to we're wait But have to it in the quarter.

Steven Fisher

Okay. Thanks it. a lot. Appreciate

Operator

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

Walter Liptak

Thanks. morning. Good

Christopher Rossi

Walt, morning. good

Walter Liptak

in world you about or to going you those half, I sounds regions detail, ask its disruptive be want revenue? of enhance Have it programs period than are I a the know, about to half. is going the like ramping. first to CapEx to found be you some second businesses the that in be they into And and can the production immediately or to the projects there going in us whether wonder if can busier and give these

Christopher Rossi

Yeah.

first entire in in CapEx, sort we are question of the of product specific project-specific broad-based of terms programs any your Industrial well have are that it's not portfolios, as part infrastructure. These as The and covering region. the Video

spend to more is to modernization it way capital, another. there I you a pretty start particular broad-based lag, you spend is the region the on. then the about equipment do the got And they're a and happening install versus to think not turn time you So where think then there's

simplification are So going it to as the modernization. is continue quite a improvements we move long through and from gestation we period. modernization to that expect But accelerate

Day about plant the back-end the only progress linear. consolidations talked of that linear loaded, year-over-year late. we maybe be are little It that because fairly while loaded is but some last back-end something know, And at and a our happening will you bit fairly Investor

you on know, across being through these it's progressed You are all set of as any all - more maybe not things little right. smoothly given a regions. lumpy, quarters not Because turned it

know detail and activity, you just on but any XXXX I you'll still results each broad to in going still EBITDA there would and that's more quarter hard we expect terms, way it's give So specifics still we're see so much really targets forward. the is behind the much those think so our for benefits, modernization track simplification, that in the because

Walter Liptak

right. All Okay.

a the one you're as Let How you know, EPS big tracking first a have think for of vice growth guidance, half? to guess second of versa me and the have the towards, get growth with two your high range the quarters end the the growth try in end on to about to – high of organic You'd we in year. revenue of the reacceleration end growth the pretty the lower should organic organic I the lower guide? organic you the growth

Christopher Rossi

mean, do X.X% at growth if low and we the second about end for the be math at half I to the be high low the the end Yeah. X%. be will it would

and organic somewhere [ph] guidance. I we’re scenarios year. things the that high going that's have that, think working probably do reality know, is we're in the we're of the get the reaffirming why we growth between in end to to that of end, the X% X.X% tail you and So be on And to that middle

we're towards higher as recovery are of forecast our to to cause you mind, base in do keep it's those the get number on things We've going growth. we're that those you be got have, the not know, market end. lay - to are we traction just starting all - Now a that into we that initiatives

Walter Liptak

Okay. Thank you.

Damon Audia

was half X%. for Growth first the about

I with So fairly year-to-date. we're our guidance think in-line

Walter Liptak

it. Thank you. Okay. Got

Operator

Lynch. of The Please go Bank question from Merrill of will next Feniger be Michael ahead. America

Michael Feniger

for Hey, taking guys. question. Yeah, thanks my

focus organic growth. mean, infrastructure still seeing lot customers your was know, some And there in curious seeing there's you pretty I'm third if quarter any second on there's a of strong. just the we’re of of quarter? energy CapEx. I and know on or what Just start been that I the and the you're change cutting

Christopher Rossi

Yeah.

be of still our America and upwards. we've Our on energy Pacific projections going in side. But model to in Asia trending for sort in general it's are EMEA the energy flat that got

Michael Feniger

in inventories build little area anything quarter. that the on with distributors? a specifically Perfect. color with are seeing And inventory you bit just more your What can then you give was the and

Christopher Rossi

Yeah.

unusual not we're year. wouldn't unusual. this see side, activity distribution time the anything that you seeing On No of

if the versus year. of is increases higher associated costs look large inventory we part know, a at last that material You with

replace come with service that cost our so that lower we inventory on inventory profit to also as SKUs. portion naturally cost And the customer volume, high materials. the improving raw a down There's higher increased related obviously high was of

saw terrific especially look I way in of driving is, A is at the investment. leverage was you what's improvement the that business. actually that industrial increase operating So the that in a lot that

to thought to So that And trying address good. target pretty good a And process. drive feel had. go now us. return to that, on to done continue a we're we initiatives around right level we're was thought investment been always capital We'd a and the overall build very that process place That's to below investment be good we that's with trying very but we inventory for happy feel in with like working XX%. with and a like the business with

Michael Feniger

there way on know could margin I or industrial a is just the quantify IN inventory that can quarter? helped Do you - much in If how the that. build ask benefited you

Damon Audia

wasn't the inventory really up didn't that sequentially It much. really,

piece material So it increase year-over-year again, at was the you if of the the look cost. bigger raw

Michael Feniger

you. Thank

Operator

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

Chris Dankert

taking Thanks Hey. question. for my Morning, guys.

Christopher Rossi

Hi, Chris.

Chris Dankert

in the quarter? is just benefit of versus too kind benefit breakout the selectivity price industrial versus or dig kind of kind apart? increase any inside anything margin on convoluted you to was I last that mix guess, here, saw it - for kind is bit of break you I a impressive question Is little restructuring know, there of the and that, the more guys there

Christopher Rossi

Yeah.

of in lot is the will, where we've - of you a simplification we of our on a that of you a that bucket sort at sales quarter-over-quarter was. the is the or year-over-year, portion or improvement - was know, And that of I just space to OpEx was good that driving as productivity. me, saw we want that industrial driven excuse would out got below kind which and where - got classify part target think the the as restructuring I below which we've if point I simplification. company XX% - that operating that

out. definitely So that sales helped initiatives simplification cost productivity to take around has

on prices And we're know, adopted many that's and many the charging have right proposition in out costs, good material price the see that's the have pricing where in simply to had extent we because activity lesser and a video is have we of then for have EPS call as And been obviously years You for the but that the what simplification can for the trying you strategic pricing price, on we that realized we model we a quantify raised - lot and would think that putting price this to product. dug bridge, this, we customers. chunk out into value modernization. we industrial infrastructure we of cover not in go a under there to we're actually happened and just market a cases I

and significantly they the in explained customers that it, most once And we value our proposition. in so some we raised cases quite prices cases interestingly accepted enough

So it being that just engineering all capacity before. this to selectivity break money the the was and focus best and me definitely just we’re had pricing it to thing I able manufacturing to we frankly our of table ones and to it's notion try everybody me kind everything can't driven the just limited profitable simplification where tells on together. probably value products company by we deliver to lot out on. high be that the can't of all on capacity for hard I a described, of combination leaving of it's and the But that blended But - need

Chris Dankert

a about the Got you little that revisiting pricing it. just kind on guess And pick selectivity, been what's Is down repriced do there? has left are like that percent way insofar of quantify kind as there versus path, of the and far kind what evaluated think your when That's to bit kind really to any of at of proposition more, helpful. of portfolio value to you of how things. you I side

Christopher Rossi

good question. it's Yeah, a

the - still into made to we see we progress and think I roll last significant do. more starting P&L. the you're definitely last work the had in year that to in But

So initiative. ongoing it's an

before focus, - that have the and especially improvement, maybe in you I kind situation productivity of the any focus is a didn't know, think company fruit you get like hanging always with low where brought we we've now the the proper there.

they've expect to And so But in hard comps? the substantial. year. Will You and to left you we forever, got get think - I can won't. now we've because been work. think has these next through improvements we seen next you've continue do year I don't it get pop same do been sustain quite we've that you as the the [ph] as

fruit the lot of incremental comparable you hanging just as nature nature also next the but get continuous of a more do to then some go to got you benefits. the Just low improvement the with map, hard and work

Chris Dankert

it. Got Thanks guys. much so

Operator

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

Ann Duignan

back The quarter, Hi, morning. we quick had or extra you do days half? two in Yeah. good lose two the we when Two lose those days that clarifications. in the did them

Christopher Rossi

Damon or Pat. You know,

Damon Audia

half, days Ann. negative fractionally back in the a was There

Ann Duignan

a XX-XX wouldn't guess I question. that that on negative was that wouldn't And normalized I be be headwind? split. fractionally your mean, my

Damon Audia

XX-XX. the in baked Its

Ann Duignan

okay. margins. to XX-XX, pricing, coincident for is then up question with hear unusual raw into talk my infrastructure baked on It's second Its company giving me material about index. And

talk why downside And So lag there increases, also the a about give a but have lag then to as there's up you it immediately? you price generally well. is can for on

more I'd could just So if on appreciate give it? that color you

Christopher Rossi

how do the describe Ron, to you contracts works? want

Ronald Port

Yeah.

two is it quarter-to-quarter. areas the customers we APT. sequentially that consistent are lag starts had based one we There with our deal this, that point against stabilize, which prices the that on with at energy index lag So a pricing becomes stabilize

that's those sell to and our spot are. a part industries of raw material of other the On buy towards where trend the tends more that powders business we where

Ann Duignan

That's Actually, spend with versus in lags? you much you of any side powder Okay. on how index your coincident of how sense. that, much helpful. much know, or Can related like powders quantify the makes that is change is how powder

Ronald Port

don't No give and level we of I - out detail. mean, that want to we

Ann Duignan

in Okay. scheme big I'll then. leave the were you. there my things. it of questions Thank Those

Operator

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

Christopher Rossi

Thank you, operator.

Let time and our the pleased everyone interest clearly The monetization very that's another per any and improvement of performance. our me thank we follow-up want year-over-year quarter saying talked you. please the and made we've result, share of delivered means on with usual at all We representative close as progress reach sales and to are about strong consecutive certainly really continued the margin earnings as call eight Thank Kelly good a the Kennametal and that growth. quarter your to These by underway growth I'm second that Kennametal transformation team by continued for appreciate with today. in I Have day. joining strategic out simplification, questions. issues. results

Operator

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

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

you to concluded. attending and has conference Thank now company. asked name record be presentation. will your for You The today's

lines. disconnect now your may You

Kennametal (KMT) 5 Feb 192019 Q2 Earnings call transcript