KMT - Earnings call transcript Q3 2019

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Operator

Good morning, ladies and gentlemen. I would like to welcome everyone to Kennametal's Third Quarter Fiscal Year 2019 Earnings 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 that this event is being recorded. would Vice turn President I to conference time, Boyer, Kelly of this like the to over At Investor Relations. ma'am. ahead, go Please

Kelly Boyer

Thank presentation Quarter and to everyone, our earnings Yesterday you, for and issued our operator. us posted website. release joining our evening, thank we review on Year Fiscal you third press XXXX slides Results. Kennametal's Welcome,

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

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

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

Christopher Rossi

for company a joining and pleased the we and terms results on sales thank in report Kelly. both that strong morning, Good you delivered total to I'm basis, call FYXX you, Thank everyone, margins. of today. QX in

are by level the foreign exchange days organic organic sales in X%. affected Although of increased of This general total a the an in We of during XX%, Furthermore, macro negatively comparables slower on X% US Those resulted consecutive year. segments, X%. respectively. than Infrastructure business a with Industrial X% potential tariffs Europe and economic top by Furthermore, growth anticipated sales achieved included X% X%, and strong quarter at just of growth sales we top tough US is sales decreased in performance between as quarter, on uncertainty such issues growth, of XX% March. and global and and March. growth, is XXth the the and circulating WIDIA XX% slower of around and sales all three organic X% the last posting by X%, believe

both been and at the and EMEA based read positive temporary markets remain perspective, From a the to that X% initial steady. underlying is Americas a have numbers seems on Our however respectively. issue, X% regional this April and posted

slightly declined X%, the in slowdown driven China. Asia-Pacific mainly by quarter the in by

positive seeing signs China more in some are we recently. However,

encouraged in regard. we're that So

quarter, We from up our of total is a up of year-over-year XX%. company at the target for expenses our the In XX.X%, quarter. prior-year $X.XX at in adjusted per earnings basis, XX.X% we terms maintained margins, on posted On margin XX% around from an quarter. our EBITDA now $X.XX operating share basis, prior-year

We simplification/modernization continue drive to our in increase initiatives. results from

$X.XX is multiyear achieved top general, last simplification/modernization is well. compares $X.XX of to benefits on and quarter, our progressing increased program year. the That This quarter to this $X.XX. sequentially In

benefits annualized this point and of phase with breakeven EBITDA commitment Day. changes the expected our million to our last from FYXX end reduce ranging of objectives achieving adjusted further In fact, next our structural These million the Investor that FYXX. as presented in we are $XX demonstrate program by $XX restructuring to announced the

review X. growth Industrial Slide Now results, prior-year the of year-over-year this with starting Industrial on organic X% segment growth of XX% let's on organic quarter. in quarter, the top achieved

As expected, and it auto centered negative this down transportation in again in a to was quarter, Asia decrease production. mainly related as X%, a posting Europe,

auto, that mainly some current levels encouraging production seen this down in news quarter will was reflects generation. recent power auto remain several in a our have quarters of of of for while some we is specifically out China, growth, Energy, positive While X% and after terms at softness, expectation longer. end-market

Our remain of consecutive versus year-over-year QX. growth. to flat industrial, This growth XXth Engineering, in slightly rate expectation X% QX quarter, the that in posted in is end-market the which a quarter positive the of biggest healthy represents market General will

quarter quarter growth Our consecutive XXth the expectation achieving This finally, the growth the at is are consecutive this grew the initiatives. end-market steady. will of and for is double-digits, Xth remain Aerospace our Aerospace with for end-market XX%. again we reflects And success year-over-year

simplification/modernization that end-market margin the up now success is and strong. by expectation year-over-year XX.X%, work. Aerospace remain Industrial the significantly continuing will is basis reflects XXX in Our operating associated with The points adjusted our

by margin X this posted negatively X% this Slide the on The growth WIDIA was costs X% with the of organic prior-year in quarter. quarter to for portfolio one-time simplification. affected quarter associated Turning top overview, WIDIA

this Excluding year-over-year. the increased margin effect, have would

of reflects the at EMEA's high results region. growth initiatives. Aerospace our by success X% look with rate continuing Let's

growth be strong. X% continues to Pacific's rate Asia

related slowdown to new shift ongoing disruptions emission standards. However, performance was to automotive India OEMs in meeting vehicles and to compared the prior temporary the in production region the dampened election national as quarters due the upcoming to the in

will recover the organic We reflective these region, By is upgrading decline slight this Infrastructure an EMEA at our the Americas as sales distribution a Infrastructure's the growth XX% top of underlying continue this market results. growth X, quarter. achieved we that process led On abate. followed issues of X% growth this on by XX% quarter Slide of conditions. we network. levels expectation prior-year showed in as the growth quarter, Our Americas X%. summarize is temporary believe X% decline of the not of

posted driven Pacific positive By X%. for X% posted and of results a grew Asia the XX% by China. end-market, at General Engineering Energy quarter, negative rate

in counter-flow end-market, market growth of As yesterday with the we continuing part energy a seats. the a in announced efforts Denver, our leader Energy our distribution space agreement for Gardner valves

in not sales XX for materialize change. to Earthworks customer large due technology life a not proprietary we X% of do reduced up offering This primarily to steel unexpected is of downtime. the Therefore, Our seat the increase posted underlying decline through and substantial a a single them. year-over-year delivers negative was seats, decline productivity believe the did whose reflective forecasted times market.

encouraged XX.X%, our with by initial fact, material we full-year be Operating the costs. in year-over-year. quarter primarily level basis, in margin quarter, lower unexpected expectation On will we sales flat fourth In this is given this margin activity entered Infrastructure that increased in the a the driven expected, relatively the full-year end-market. to are of sequentially, Earthworks, as as decline

comp work the investment modernization additional As reported benefits capital to optimize production we our complete essentially is last processes. quarter, to the Rogers facility with as modernized in

great of example is manufacturing it is over a simplification/modernization change through Damon, illustration making massive a I on of an to turn efficiency. I X. Slide how monetization in walk will Before This our

very manual highly was intensive. process before labor and Our

The improving more intervention X setups improving actions. an quality our improvement machines this labor more than machine customers. at the X operating which and employees that, has breakeven physically Today, make performs point efficiency is example single For all stage our I'll machine different flexibility part reducing this features Damon. call of of robotic scrap simplification/modernization less different and a pieces while our the requires consistent that to This it to and process modernized manual by significant the delivery X eliminated. performance quality, And turn been those moving and in the over This with different between another XX% delivered and benefits stage with automated higher of XX% since company. with is example, the handling, reduced for completed plan, machines. machines, the one parts enables also

Damon Audia

Thank you, everyone. good and Chris, morning

percentage primarily sales Aerospace due facilities, $XX lower operating are in organic decreasing and unfavorable foreign organic sales decreased to $XXX in of XX consecutive by X%, Turning simplification/modernization certain reinforces driven favorable growth, Slide million results. primarily and business is a material delivering higher related third of Engineering X% This which and adjusted as that and simplification/modernization on growth million cost Adjusted gross sales points, sales of our progress, benefits organic General in reducing initiatives by basis, the efforts to improved by effects expenses initiatives. volume from partially from operating Adjusted growth cost to decreased currency effect headwinds cost. X%. labor quarter expense, basis have expenses compensation offset margin quarter foreign to offset $XXX absorption of points currency, by profit the XX%, XXth were to to our raw million, currency and growth. of XXX of On success due continue in with X, foreign in unfavorable days part in we to fixed unfavorable XX.X%, sales focus basis

outlook. with XX.X%, for maintain in margin expenses which this last to XXXX. year around is which the XX of As several sales points a the since to operating we quarters, demonstrated line quarter expect have third as fiscal now level, percent we operating is performance basis increased long-term Adjusted best our

XX.X%, adjusted our due $X.XX prior adjusted in to of on quarter. XXXX. effective prior basis the Adjusted illustrates year-over-year business the biggest tax simplification/modernization driver There have reflect in primarily versus increased this savings. worth the versus the to to Year-to-date favorable was initiatives main the of basis third running this EBITDA incremental $X.XX $X.XX. effect quarter noting in year. now in the this rate quarter. $X.XX savings to mentioned, negative EPS XX.X% to was all compared simplification/modernization driven XX.X% versus savings quarter delivered the The in US XXX simplification/modernization affecting The of the is day-to-day X for and drivers was margin significantly delivered points in year. we last some reform. quarter our quarter $X.XX the decrease which headwinds year. EPS effectively The our fiscal-year an the in adjusted key Chris were Slide Operations improved tax As by is of $X.XX tailwinds prior-year The quarter the the quarter. $X.XX

material our a our than continue price the with First, raw for cost covered team's the products. quarter, value of inflation is which this is to price again historical ability to This of performance. consistent more testament

implement further facility To as utilization. improve put lower of simplification/modernization costs. moves, currently productivity we that operating certain different would families simplification to for a expect, different as and levels you Second, rationalization, we more product facilities at we lower to are and in world in around our preparation our perspective, product efforts further little plans, moving are facilities the

facilities temporarily However, while this utilization levels. operate some at lower doing will

reduce variable workers fixed projects of types can a temporary costs, on costs such actions effects The Although actions restructuring including of change depending we can the these the announced and temporary the address will the them. quarter-to-quarter yesterday. timing create headwind of until we as overtime,

were The year lower currency was prior other $X.XX headwind. affecting items $X.XX, which and contributed rate, the a EPS tax which quarter versus this a

than our and delivered in growth. Turning performance Americas, regions. in the growth the performance; in This Asia profitability more and strength our revenue organic growth weakness X% in Transportation influenced to of X strong quarterly continued in million which Engineering and the both growth and markets centered two segment $XXX Pacific and Slide EMEA was with offset This sales the with negative Industrial General end-market, Aerospace.

simplification plans areas simplification/modernization XX.X%. expanded in Our growth growth grew benefits continue incremental year-over-year, improved down margin margins execute in year-over-year such Aerospace by quarter WIDIA's organic EMEA, XXX as and X%. the drive reflecting was distribution a points profitability. with one-time operating the to through to focus was changes X% to of key America associated operating strategic year-over-year, WIDIA's delivered adjusted continued on growth XXX work business and portfolio points areas cost to basis with product we X% network. efforts as these Industrial's adjusted basis the down streamline X.X% our to in which coupled upgrade WIDIA in

$XXX excluding sales Infrastructure and Chris WIDIA's Americas one-time the operating X% As growth year-over-year. organic helped of EMEA margin strong deliver this The margin growth. increase operating adjusted cost, said, reported in will million. adjusted

mainly cost X.X% was raw versus material margins As lower the points to second material mainly due operating expected, due quarter. basis The quarter, customer versus adjusted material increased XX.X% year, discussed last and index sequentially of raw in higher down adjusted third XX.X% last raw XXX to cost. adjustments the the operating to quarter price the margin timing

be been material relatively with have cost costs a prices our our fourth few in quarters, aligned material will customer quarter. stable for the now As better

incremental the raw to simplification/modernization partially price organic Infrastructure material benefits. variance, addition versus manufacturing growth by In and sales also expenses offset incremental saw

grade this Turning a March the strong we quarter. investment Slide Primary flat remained percentage from of balance XX, sales as maintain sheet. at XX.X% a working continue last capital relatively to

the temporary service, to continue product working improved simplification than increased changes capital stronger terms, in on million flow million, $XX increased and of to anticipated US quarter to and commodity primary strategic an between cash in We inventory. the as versus prior-year March high improve. mainly well increase by quarter, the due working down but quarter. quarter $XX as high of Net percentage XX $XXX were in inventory $XX in as decrease products continue from increased in sales expect reflective offset due customer increase to capital a to million, $XXX this volume In for in to facilities is increase in to of capital maintain year-over-year the a million spending. at expenditures. partially moves expenditures to dollar. was a operating prices, inventory look capital million for related lower of changes capital million also partially due our opportunities $XX the to range, Free compared prior organization, in increased in in year-over-year sales primary on approximate primary capital dollar capital higher as inventory the prior-year year, million further we'll $XXX mainly March a March, working in - profitability Cash was primary part working nevertheless The hand

paid capital $XX expect the consistent we to million, years, were last previous further with Dividends year. increase fourth with in As spending quarter.

outlook; see Turning the refining the adjusted XX Slide our for within based we previous on year FYXX for our the estimate are XXXX we environment outlook fiscal EPS range. today,

since in EPS of of midpoint of aligned that our throughout to original team's $X.XX headwind the March It's related adjusted then, the noting be outlook despite our year. of year. slower we $X full the outlook expect the as with our discussed. ability tariff increased we to EPS $X.XX remains midpoint pleased We range with for to foreign the as exchange Overall, execute worth current the well costs, remain

Since sales our introduced of period. growth with acceptance as outlook, Regarding we've markets year-to-date our derived is made stringent Based Rogers the the but generally flow X% plant $XXX suppliers for X% early Based has equipment. in on the in payments Free of timing softened the experience capital timing $XXX a million new positive organic to include certain until be to expenditure indications in for modernization equipment April, remain now quarter effort, more payment capital discussed, expected equipment. a sales do organic and have outlook been third in approximately the March. for provision affects million of payments expenditures we cash final cash of from Contract factory made, testing our positive the operating due fiscal complete. growth reduced $XXX year million, the where recorded to expenditures, our we month capital in testing record payment to expenditures mainly $XXX of of for is is until million. our expect as not capital of any on not We've XXXX. we with range

Chris. have the to Therefore, equipment plants. additional capital an the from testing With helps that plan on the the I'll equipment call start-up of new savings learned remains shorten we for deriving in of effect the to delaying turn still While may process balance, expenditures, this the recording the have that, on-track. back

Christopher Rossi

Thank be really from you, lot years initiatives, this our quarter with which We're EBITDA and organic benefits sales margins by X% is of simplification/modernization further Damon. increased being in work derived We accomplished increasing to There's detailed a with to had Kennametal's important of X%. and cornerstone come. up profitability adjusted well progressing a work. the strong

This quarter, again. simplification/modernization from the benefits increased

associated Our making. we're announcement regarding demonstrates these further progress the yesterday initiatives restructuring with that

range. We our the within of the point And end-markets to EPS operator, on August. markets earnings call report breakeven the are now the previous quarter full-year focused and our FYXX our narrowing it up on that, generally operating outlook the third with results full-year improve providing open let's We with and company. remain look staying to forward for next in full-year I questions. results in guidance, for continuing consistent our by the lowering anticipate

Operator

be Instructions] Walkman Jefferies. [Operator the Please go Thank Rossi. you, Mr. will of And ahead. Steve [ph] question first from

Unidentified Analyst

describe Maybe it Infrastructure, of sort had just one to off I'm Can you margin it I just couple guess with about understand - XQ year figure a trying And that issue. next headwinds the with think a little I you the let's what of just I that about in starting that think And is? that? maybe you out to sort whether I'm kick customer to continues bit guess unintended just trying how those or mentioned. of or in was more where specifically,

Christopher Rossi

improved from of meet that the exactly case, that, going think with believe our certain we is in of sales the nature particular had sure - pretty they based happen. I forecast the reflective to Infrastructure, as And In their we're why, XX.X%, underlying do said, So let for got didn't large buy X.X% it the this our is good customer to sequentially, and Steve, to them of a they're going conversations was inside not customers the markets. the business actually that feedback was they to but us think that what there indication are give and not the margins we you that - we've quarter-over-quarter. on people, forecast

it's So - an But would not affecting expecting. issue. the - underlying some and I that they exactly may - And unique far that's customer sure. as differential not on as underlying market. But is have that had basis were concerned, so it the particular we not we're market something of to we're characterize issue, that not volume was is this

here - through going Now We encouraging was that in April, market segment, quarter. that particular as the surprise saw have we month progress should results. we very this didn't fourth anything another see we indicate actually to in the in

feel the part so, good forward. of business And pretty about going that we

Unidentified Analyst

to words Chris, seems to this your put that getting just want passed that don't mouth, I is does customer in worse? issues it but or mean not be

Christopher Rossi

to Yes, I of are think the incoming the other parts they this know offset part total at issues continued look the it it's in potentially from - the order in of extent coming is that's volume but the going status we I business; flow that. more having don't exact than if when customers and for of other

Unidentified Analyst

is longer bit then do think a guidance, And - the that I there? I here. us of on the think the you little through, guess But held so implies working maybe reverse just help that guess I going flow you've stick next CapEx just flow, year? build how cash capital we've overall sort the around to that the mean cash does cut trajectory and

Christopher Rossi

capital, sort of Yes, we've I XX% on think keep trying to generally around it that been level. working

focused was areas inventory more Steve, past, conscious increase in simplified portfolio. some on is help skews talked an General a invest we've strategic improve We're and service a that we've the growth that of done fact the to high growth I helping mentioned, on to in to Damon higher things had General I moving call And that about we've what that Engineering there decision Aerospace. in as fuel think volume, side. customer we've the made inventory, we've profit And lot us seen but high Engineering the the more the of our and for would

naturally that little a Now, lot of in capital drove little less sale, with uptick slower we a did it. March working bit the because of see

move then, as to And have Damon and rationalize So, make service. go consciously product there customer around. support make away. we We to sure to moves, we inventory that as things disrupt that we start decisions part a want some buffer increase mentioned, should footprint, little the to did not

completed period or term go will go of we because that eventually, down, that So and given away away that up modernization. go time eventually long in will but any should the might have

Unidentified Analyst

long-term quick Any going one the one in. in the you've targets couple out just the I'm laid for company next years? of sneak to that And over changes

Christopher Rossi

since Yes, the we've - Day. last we haven't updated guidance Investor our

million that's EBITDA million $XXX that So to in our is out view latest there. still $XXX

we - on the little when going talk Day. that happen we and would to what think, with certainly about the be quarter FYXX more what's Investor I'm get the FYXX. I a already here fourth the to appropriate naturally FYXX time where last granularity presented that to to we've numbers, Steve, sets with give in at going stage But for the an stick

Operator

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

Julian Mitchell

- just Maybe more in customer orders the one Infrastructure about upbeat comments maybe and said and your markets April Industrial customer's improvement what you regions heard drilling But question did WIDIA, what that, forth. regarding you first specific in? April. demand beyond just about or see talk so a I on into

Christopher Rossi

a X% organically healthy little Really, bit, huge we saw not and for spot Aerospace, sort of in say, was play saw did WIDIA Transportation, stabilized and Engineering a that of but at would on positive for we side, most and XX% the - growth the were slow down and I think previous we the of which of levels. - There except year. kind from Julian, in - General XX% - that's Energy general that's for bright Industrial that's and General markets in remain not Yes, the course QX Engineering, Aerospace. the side, X% them. they

going that, General focus, quite we the view good those Engineering that's feel both in of Aerospace for about outlook and So two our especially areas think we is that remain to and steady.

Julian Mitchell

as manufacturers short had elevated you destocking recent and have in distribution with And any in inventory months wonder secondly, on then several the current your I still levels cycle complained levels perspectives quarter partners, some if well. of just about inventory

Just wondered was what your on that view topic.

Christopher Rossi

Yes.

bigger uncertainty growth the relates - kind business, such a at growth partners. see didn't general also have the the as any As least the global from it the as US existed destocking and the WIDIA been tariffs as may Industrial, our big was between slowdown that economic earlier we potential distributor March. know do and of we really that some didn't quarter, about to really on in that and talked We US of partner, that this quarter, factors distribution the to economic the we contributed But far the in see any Europe destocking.

Operator

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

Ann Duignan

Boeing you Aerospace business, just may of how much on build XXX of your impact even rates is the to in fiscal it what your into slowdown the your or the XXX on later, what might 'XX business that the have going business? Could us, and be exposures remind impact

Christopher Rossi

situation really can seen that we've relative far of much. obviously customer is what is you tell key I ours. the Boeing so not Boeing Yes. to a

We haven't business seen flows direct Tier Tier any of X. there's Boeing slowdown and of lot in that to the a both course from X from to business business,

we in So any area. really seen that slowdown haven't

of be just understand now, see that but that's the non-Boeing as there's know And affecting to as going business Aerospace issues, that's continue. right inside very see is what we that strong. Ann, I working through Boeing it a we to still much. lot of continues if So, I the don't other don't far

okay Aero but directly general, you won't still be indirectly to upbeat Boeing disproportionately build? in about quite we feel of terms in leveraged or So,

Christopher Rossi

that. Yes, other Boeing's know It I that is would [ph] Ann, Boeing the I'm percentage overall as don't don't not relative about our what want I relates we area, contribution actually business compensate pool. significant is, that it our sure to you that the specific to but believe - think is But for overall to with have share - to in not going I'm we talk

Ann Duignan

and II cadence and could maybe is spend you we are the bit inning into that then with Maybe I on simplification the restructuring of gears all more in? XXXX all of Phase the the a switch and spend we give disruption end everything and the this us? Is done color fiscal little slide behind and what us

Christopher Rossi

think I know, XXXX playing these maybe basically just see terms break-even out lower as of make enable and of we're restructuring let you for XXXX. in the by to - simplification/modernization, thing point through processes. the and this improving trying comments our general program fill some gaps the profitability improve growth the - about how in we through We're and service Yes, overall simplification/monetization Damon terms this of me company, modern can really really customer in its

I think another sort the this company. mind of towards this that latest structural restructuring inside in moving indication we're my is lower just ultimately cost

it's just on labor to we're section, products footprint, we As the cost as going we Damon's in frankly think, the about much efficient. less be we're modernize, talked around, moving rationalizing more footprint dependent lower to I and remaining countries. And

lot very which demand, that of made labor So they unlike terms really of Kennametal old there dependent the flexibility was based adjustment on needed to heavily was be the a whenever workforce. in and challenges had

rationalized is putting footprint a modernization in overall an place. different this see we and us So

Now the case, of overall this to of But restructuring program. specific Damon this is this the relative in a see thing more just maybe subset I'll how kind comments we make on let going. some

Damon Audia

as the FYXX as phase just think I overall part the to to, next efforts of is this objectives. deliver our Chris So alluded restructuring

that million, tell discrete depending $XX we is have FYXX one on planned $XX phased be QX cash cost, is million call be will again XX As a this cost probably to related the about in of here the that through next, months million talked But in cash. over to release, that XX we will I'll it, savings press you, to that primarily and of - months. we $XX primarily between actions said timing the the million $XX

be little will a saving cash goes lumpy out this it corresponding so and and And when the kicks-in.

start So of fourth the to expect benefits go when we into in rate that expect the as sort said we run the point the we quarter FYXX through we've to of of related that is, all this. release is

Ann Duignan

just this Engineering will going does inventory sound a your for Aerospace, it real all beyond and is quick carry of that more if higher General to needs working though And you're capital structurally clarification; that correct? be

Damon Audia

inventory higher The as products profitability, that talking about. volume think reflects higher Chris currently about been that alluded to, we've - the

level that. does of inventory Our current reflect

So, anticipate target - fill going looked we've significant forward I we there. in achieved those change as to don't where levels have rates a the

trying around to primary that goal. continues working capital again, range XX% So our keep be to that

Operator

Mr. line side. from your go be will Are side? muted Andy of question on is next you The open ahead. your Casey, Casey Fargo. on Wells Please this

Unidentified Analyst

Good [ph] for Casey. morning. our This standing actually taking in question. is Andy for Thanks Patrick

Just is you that margins - year-over-year segment on to remind on delta the happen. business, that you Can would up more quarter to you have the wanted to to modernization bit head side. WIDIA called adjusted make XX-basis the needed bit one-time then cost the out I been under have for saw excluding And in a initiatives? guys due absorption margin would a There like basis a higher. the little you point facility guys that what the little follow-up fund us

the margin excluding the - what would one-time Just that what business? cost, have what the for would WIDIA adjusted the have been wanted see operating to been,

Christopher Rossi

constant for both think Let charge, operating when a leverage over - leverage you currency we it's been basis, take underlying have leverage on quite we The good. asked XXX%. And that first. the and WIDIA me know a actually - operating WIDIA WIDIA, just without question the would about I Industrial

not suited is simplification about going to that for, good portfolio suited infrastructure trying that particular on into pretty feel aren't make space very part of that. is to the we charge quite product And narrow that and our that sure quite customers WIDIA for. white So portfolio focused is

focused without sure kind And cleaning we overall, legacy quite very is so, have adjustment up the some and good But And leverage that as about that make about. to that want we feel portfolio XXX%. said, would been issues I it operating on we're therefore of that. the existed

of have largely to sort And that associated on facilities Now the have in on at out bar preparing terms look were Industrial we in largely for $X.XX - bridge, under-absorption excuse the rationalization, were of if the - - of Damon characterize of been talked on positive. minus about impact me, of on the the on plant specific operating when sort bucket the would involved this, was the operations the And side. they Infrastructure sort take under-utilization just as EPS. that of with that we we factories,

feel transform about are. before, we talked modernization can we So Industrial trying as pretty you're be about we've good given underlying at in leverage. time net point the to any And disruptive way the

won't So, it but it's on unexpected forever. not also last last

Unidentified Analyst

is your comments follow-up the phases; then, to one next restructuring mean the restructuring probably And guys you of that's would on? to next the on segments is I for next a going particular more to on primarily there the broad assume segments over in that what any based, XX but months phase I going just it's months? focused pretty focus be bigger be XX

Christopher Rossi

a guess for little could - you WIDIA larger the restructuring since probably segment, opportunity the has the argue, segments, all. heavily greatest it which towards it's I and modernization. footprint weighted to manufacturing across because bit Industrial a that affects more applies Yes, simplification/monetization also we're doing all

Operator

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

Ross Gilardi

I just outlook. free ask about flow your to cash want

to think in need do to fiscal your guys You quarter north hit $XXX fourth million of I guide.

new income CapEx you I up up got said And net restructuring implied program. think. this quarter your be little You bit, is fourth the a you've in going will but

quarter your you So, I'm fourth business to just of much hit the trying numbers? out how squeeze to cash the that in understand

Damon Audia

think I as cash generate we we've our fourth do historically, the lot here. Again, Ross. quarter a in Yes, done of

were and year, I the line look where I sort at quarter is, midpoint if range, the of quarter some fourth the and spent seasonal about again in fourth $XX million it's in stronger what selling, we with little inventory capital of around with see see our Generally last you reduction. think spending think we we you'll that. -

million million. we to to So still $XXX looked get numbers, of overall, we that into as at $XXX think the that be we'll able range

Christopher Rossi

also, the how going, restructuring think Ross, you Damon, restructuring the charge? on I see actual flows the cash - do

Damon Audia

the so the we again depending - the the dependent of portion, in in out that go lot XXXX, flows on a to large them, be cash in a upon work a going just cash that think then activity, small of the I QX are through will as portion make project, of FYXX?

Ross Gilardi

free outlook at preliminary of is Can like maybe cost CapEx just be going a that going to thoughts on really flow flow the mean until real And again the year XXXX is, cash is that deferred help on isn't restructuring restructuring another year? of you cash and I'm just to us speaking given year the on statement I 'XX cost lot to such just that to explain drop-through the any you what deferral elevated generally - that be could and next spending capital into the XXXX? get trying thought,

Damon Audia

it, Day right you $XXX run I the around of million to rate. that's our said we've ago that way if at on Investor spending, what were said a to we look in to modernization-related years incremental normal we spend about is million traditional $XXX going our think Ross, think couple

in about modernization, was If $XX you look at what related million. we to FYXX spent that

at look put another the you we're million. would about this what midpoint If that spending $XX year, of

$XXX about $XXX of that's million. So, that million

So, the of effectively you've FYXX. $XXX of rolling rational the into balance million at, looking sort about

to to actions; So, phase the with are elevated this FYXX through announced. spend also into that is benefits next we've some there through about FYXX. - you're restructuring we've going flow And starting the see in CapEx actions those talked of an

and implement continue to simplification. continue to opportunities those And and for so look we to modernization expect the would

may again, be there be to - could there actions further So or come.

Ross Gilardi

growth contribute is wanted organic external amongst is this different I operationally, ask a of the just that and outlook again to movement lastly, you the could Why bit And facilities. more issue products that or reduction an purely at that with to in then demand? little about the all -

Christopher Rossi

our I has that the necessarily moving we service. effect in customer of - terms of think and of on thing, Yes, type think the product don't that

macro small of therefore, plants acquisitions. is Ross, that manufacturing so belief environment then, has lot more it's history, of through a And - a long it's a issue. company And the our up were built

And the simplifying so, it. and is rationalize modernizing of footprint the a big part footprint to

committed we what something that's years, doing. in happen. do the should around now stuff getting And we of lead the better maybe on the cost be that I but terms last better increases company's it's about, extends so, world make as shipping talked the I in much too. a we're our place before we're but put product it for with us only customers going be because And with is the opportunity not better to to to that XX able rationalized times, better to is And done to have simultaneously been And customers profitability. serve think probably to business footprint to going this we're all over and it a were we've service and are think much to going also place this more at

Operator

[ph] Your Adam ahead. question Cleveland from will be Research. go next of Please

Unidentified Analyst

wondering back if infrastructure I volume was could related margins to outside we headwinds. go the of the

it, to might the said we expect a fiscal I additional missed think volume you into of getting sort - I you quarter; cost mentioned that pricing? just think wondering that quarter. if was that I in some new should normalized you incremental you lot and expansion trying improves the material of the but moderating fourth are think I'm next price I that in about or in for year, have think is could had headwind a environment? cost margin you you the that I dimensionalize

Christopher Rossi

his believe be the of continue are and is have those correct quarter going then for with and would that, modernization fourth going addressed fourth team quarter. improvement. driver that And stage future we as drive we what's we'll third also expect piece talked there some focused price there a quarter simplification it we on my good that's we we'll even as I over and and was the quarter about in the manufacturing that. quarter, raw improve itself that third that's to big improvement also we beyond so - saw is overall the and Infrastructure then that saw the going the mean and help a going I in significant in to performance And the is that sets FYXX. and beyond that'll FYXX. fiscal Yes, team think And of material to in well. And is in the and make assessment also, underlying in inefficiencies fourth the general, But then quite Ron volume it year the really margins is better business

Unidentified Analyst

you're seeing that macro those on or own Is about? just could earlier rates in Thanks. that expand signs these you positive if order Okay, your got you. recently. feeling you're And then more China, had you mentioned are I'm better within that indicators wondering comments.

Christopher Rossi

Yes, quite from things Machine that's the anywhere from to are improve our And improving they was Recently to we China. April, was production, kind we in from specifically are the got sort general, upbeat actually X% about of expected heard there customers. like in that top Show to industrial feedback in QX of Auto X% around industry. alluded improving optimistic and things in OEM people Tool that to of auto to XX and it, the in cautiously And China. we're lot opportunity customers talk things China and we

is think demand some which the consumer basis the behavior, also, me, - change behavior, Government of to we Chinese that for to of drive to ultimately the are then ultimately more auto is optimism. implementing is excuse that's trying policies And that going So which customer production. I know going

So actually the things general, those kind we that our are that quarter. stabilized, through of we're that third lifting really in the hearing from - things haven't And basic customers, the up been it there. situation has have least seems at might

start So that to may pretty it encouraged improve. we're

Operator

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

Walter Liptak

planned timing ask a benefits. follow-up rationalization the to the the and of on want the and costs just I

do the the me, to benefits get then sounds some quarter. and of like much it the much by in costs we or in the how get So not starting end benefits, all get do And in this we XXXX XXXX? current to going of how clear we're the XXXX of it's benefits

Damon Audia

going in to and the they're Walter, the disclosed any start depending of and benefits to multiple FYXX, in first of phase over so haven't programs Yes, on in specifics, again of FYXX restructuring the but are part of discrete this so, events will we FYXX. as happen that QX course there the are

full million we as soon to again, quarter start we'll we as the full $XX some rate FYXX. talked see FYXX. But to will first as run benefit starting that about, seek savings that you $XX we've exit So, expect benefit the of to that would see million,

Walter Liptak

handicap factories. risks of are some wonder or talk next risks this to the lifting wonder I of these if - experience it - restructuring. how how compared lot you're heavier about now. relocating sounds especially modernization. phase - a like controllable the are there's Is they you the the Modernization, I got could there, would or And that just if phase you've with this of you

Christopher Rossi

didn't we Rogers think about infrastructure a the had modernization, learned Yes, a we've talked the lot were significant of business, facility we go plant ahead largely was a And schedule, that In the we - imagine, from our and you can very I according we mean but things sized transformation to about. perfectly. if opportunity that infrastructure to plan, fact in that's of was that internal it do

An next the - start-up Rogers of acceptance kind adjustments lesson I engaged of - on talked that top where time right, it or the easier. that Damon little we you're especially if plants But believe example And of talked mitigation I learning's capital ultimate made you're much testing that a our how we've that I risky. factory that Rogers, we the we phase from any good modernization more really given down that shutting that more a experience, have equipment, That around, improved about becomes can the of and robust that. that sure had that from while of absolutely lot strengthened that stay we the a process they makes product think you're and is learned was believe fully timing go think that moving testing. plan - supplier actually make a do this or we about is - expenditure a so, we we've I given

transformations even complex so we good when to plant what think understand I large you're needs we've especially And that these though mitigated pretty the more doing I and got happen, feel get risk it'll

Operator

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

Chris Dankert

down guess pull up slow we're of of hopefully how case, thread an to on XXXX, $XX progress? bit simplification/modernization, the at been a is or bit lever the savings there more kind I projects into but of we a million kind here it's kind of see of demand opportunity these deliver kind a to fixed and do that the beyond fairly rate

Christopher Rossi

this simplification/modernization program guess I flying is of Yes, challenges one fixing airplane of the it. you're the via

the we So there demand other a slowed were little disrupt times want so while didn't because we service. we intentionally where can I'll to In that the the section the processes facility, our Rogers simpler. to customer And extent actually things moving sort own just internal had lower example. much that of is we plant demand, of just make manufacturing from and to one our of there give an schedule, beat

company little and wouldn't the So I wouldn't, forward. expect simplification, we're is would and the huge a to theoretically, making that success we going investment should modernization But fundamental acceleration, is tell what it but I this easier. I that you a of get believe

driving that in of of happens biggest And focused so what demand, terms is with And far what that's single on. we're shareholder value. have regardless by lever we for self-improvement the

Chris Dankert

sense. makes Yes,

Damon Audia

that understand. your to about is The going this you was. to think if FYXX, what necessarily Just a reduction. I you make lot the is labor comment, is is sure in to about now comment be savings made spoke Again think want saying of - a what, sure for we restructuring - this which we're I million you make $XX

we'd were take get at out the July the in that we we benefit. a only to To we year. January take extent were - to X, So would the out to the labor half-year X, extent in full get

million is as QX said, so, And of the rate. $XX going be to run your savings to $XX exit we've million

overall savings on depending FYXX. we'll a when come out, again, different for So have impact people

Chris Dankert

some this in guess, no? savings first I the clarify you be also of impacting fiscal actions to just year then the should took XXXX, Well, the half of

Damon Audia

Correct.

Chris Dankert

guess what of Automotive the I much just third how - out performance rail, on what business, the did? with size versus can much transportation or a trucker heavy And just quarter; declined how break the then in clarification kind you the Automotive

Christopher Rossi

Yes, I'm that. not like we down sure break it that

Chris Dankert

so Got thanks guys. much, it. Well,

Damon Audia

again, you Chris, if we read the high heavy is demand now. the truck heavy truck markets, know right -

China. think light weaker Automotive, for I the one through and Class this US the truck balance to high you think specifically if duty But both - going about Europe, of and vehicle year, heavy a segment is heavy there orders. the be in the tends the demand in X

Chris Dankert

Right. I guess. concerned transportation been would kind truck propping was that a was whole my concern, much heavy big of off, things business guess is that with have I if up how the

Christopher Rossi

largely more - sensitivity so think Automotive drop seeing should kind driven the think expecting transportation vehicles, on I see I we're a offset of because smaller us the not and is is we - and Automotive side. some think and - by that what - we're the further so for I our is

Chris Dankert

Thanks it. guys. Got

Christopher Rossi

understand Now I question. your

Sorry, you go one? ahead. Did have another

Chris Dankert

me. from it that's No, Thanks.

Operator

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

Joel Tiss

to any little and us much battle can maybe get a back it's give you're market sense before? you where were a to where characterization share; bit try where wonder your I you easier of to more regaining of or

Christopher Rossi

on General Engineering automotive and strong, supply customers focused that very is past, that very space company a Yes, of fine me, to is we're the have as we're it Aerospace, and been - seems heavily the you organizations. in can chain focused has and very on management tell, full that

we is do, on, we're focus we our engineering parts work - it's it to additional A them Engineering - only can focus do great now like than going but so, more for shift a and to of proposition. value company an are that's of that area and we the there paid value. on the shifting our and But continuing that lot and And are that custom to feel has Automotive we're that applying we're done. having getting we're the now company resources Aerospace, we're General different getting some technical something

we're Engineering that getting the share we General Aerospace believe type space. of business want we and the gaining in we're So, Automotive and in

Joel Tiss

transitory at is back that's free - roughly clarification; free held flow so operating just to $XX million issues, $XXX a and the then, cash flow, cash million, restructuring of sort the right? $XXX that sorry, - to by And of XXX at million

Christopher Rossi

you that? don't Damon, clarify why

Damon Audia

you When million say issues... $XX transitory of

Joel Tiss

mentioned you to trying normalized me with cash free be maybe the can't XXXX, asking get to and was I Ross, flow - and Well, was about in remember, the - like somebody about sounded else just asking, of be by front more a wanted would to It I that. I'm run it was it two rate sure something

Damon Audia

I think so.

guidance level more that would FYXX cash. - we FYXX. goals next higher maintaining the on the this modernization. had $XXX talking - a may would we the is be further of million capital guidance, is those in have restructuring $XXX - may related do outlook was as to. Ross FYXX the think CapEx is have you the we I but on And going some guidance pertain FYXX question talked coming is what we're we through And FYXX, expect to today to we've quarter our give that referring move to about does not an today, what were along beyond of part in about of to There for towards - fourth spend. opportunities assumes through phase the FYXX fourth recall current that quarter million any about Our there of improvements to talked based we've The - would that with move

Joel Tiss

years like I'm operating it is of and a XX, million cash of still or have to was XX because a XX% X% $XXX Kennametal year free margins roughly and and and flow that they Okay. free between company had $XXX operating all Yes, just million XXX underneath margins, XX% XX for flow. whatever that cash

just the you. I what Thank kind was I'm So then, and disconnect of wondering was done.

Christopher Rossi

an based here. to alluded have CapEx the obviously a increased product decisions we're past but significant strategic the of temporary - issues company increase some of probably there rates through go we we've as around increased some fill in the we've improved on levels what is to we that as the well and inventory now movement level versus had as Right

I are bit So again, there reasons was [indiscernible]. understandable think the calculated given how why just a little some you lower cash

Operator

from ahead. next question of Capital go The be Markets. will [ph] KeyBanc Steve Please

Unidentified Analyst

and you are back-half was Just to XX/XX question, moderating in CapEx quick more more modernization, cadence front next the timing weighted. or think moving a growth half of and skew a heavily back year modelling would [ph] as historical half? This about second year really earnings expect we half around a rate Kennametal heavier benefit balanced back

Christopher Rossi

but year. plan don't We're based about - on numbers markedly see I think it's still closer the seen change but FYXX this was to year. I this going would you're will we what working a to driving what what in saw through follow what talking I I see the historical don't from - we've

Operator

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

Christopher Rossi

making was time for feel I continued company, interest this and here exciting transforming of got be Kennametal. something joining team it's and company incredibly really thanks we've the and focused to that's than part time like our operator it you, Thank on the different an appreciate your call ever everyone today. We in a company, before.

should all If please questions, be to for to you. reach by any you Kelly, answer out Thank means, them happy you. have

Operator

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

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

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

Kennametal (KMT) 7 May 192019 Q3 Earnings call transcript