KMT - Earnings call transcript Q1 2020

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Operator

Good morning. I would like to welcome everyone to Kennametal’s First Quarter Fiscal 2020 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.

Kelly Boyer

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

be will recording slide through the will call that X. of for December today’s replay throughout We deck to be referring a call, available and

Investor I’m Kelly President of Relations. Boyer, Vice

are Watson, Chris Business Damon Controller; today Business President Finance me and and Business Officer; call Joining President, Segment; on Corporate Executive Rossi, Audia, Industrial Infrastructure President, Segment. Chief Segment; Chief the Widia and Dragich, Broetz, Alexander Financial Vice and President Pete President Vice Ron Officer; Patrick President Port,

Damon’s Today’s open attention After that contains questions. XXXX. like prepared up for I will Act Reform statement. this your constitute to Private statements direct defined remarks, of disclosure line discussion we At forward-looking under the time, the would as Securities comments Litigation forward-looking our Chris to and

forward-looking implied These uncertainties of detailed from and expressed cause in or SEC that could differ forward-looking such results, assumptions, Company’s and achievements those involve number actual Such uncertainties the materially performance filings. in risks risk or a factors statements. by statements to Kennametal’s are

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

now turn the And over call Chris. I’ll with to that,

Chris Rossi

anticipated, Slide results below market in Engineering due the the Energy the presentation end General for our first quarter call markets. we more everyone, global Transportation, primarily morning, Good X Thank in you, Kelly. you thank to deteriorating than deck, joining today. the on and significantly in conditions were expectations, Starting and

quarter. to basis margins declined XX% last by XX.X% growth were versus EBITDA the XXX EPS first $X.XX Adjusted and EPS three in of $X.XX in decreased result sales decreased to and prior year. margin points versus quarter Decreases year Organic factors. the main adjusted XX% in the

rapid in declined magnified labor absorption. sales to by end change markets, due costs fixed First, the and unfavorable organic

volumes temporary further are to overtime adjusting by demand workers reducing and lower outlook. adjusting the in the to production We

Of actions course, of the full these not will reflected benefit be immediately.

dropped prices and expected quarter down year as quickly. our of for to fiscal Secondly, idea on first give fiscal tungsten $XXX approximately then of the quarter have drop, you To tungsten the fourth $XXX. magnitude of call, most earnings in discussed year of the XXXX an was and XXXX come approximately

moves in fact, the the the In higher until margins priced it’s temporarily inventory through short-term depressed the P&L.

reduction accounted point XXX of basis points This approximately in the for basis EBITDA margin. XXX

the expected second rationalization. of We expect in QX and year. continue will we this effect the under then experiencing due And absorption half finally, are as abate in to footprint

effect this as expect and later are plants closed year decreased We this next.

in terms expenses X%. operating Our decreased dollar

decrease slightly in of sales. increased However, sales to in a terms as result the of XX% percentage

remains expense Our at target XX%. operating margin for

contributed an simplification/modernization improving $X year-over-year our throughout incremental to QX EPS. We the economic are or on focused million performance cycle. financial $X.XX

the of and achieved year that. million $XX top On year the achieved roughly before $XX million last

of rationalization weighted still and back to further the to are footprint benefits that come half So from are year. the

initiatives. continue focus make to ahead, we Looking cost actions, to on in our addition out growth gains on our

our in the challenging example, high more despite low-single grew the environment. margin digits products volume, Americas, For high market

And during reduced moment. discuss industrial by growth year. activity results to we therefore, products, are fiscal organic get weakness In in just our our I which we’ve these encouraged global focus, for a this we new quarter. the Though, fundamental growth areas in addition, on traction increased continue good of expectation will in

Transportation in recovery market environment. in modest the lower pattern will year no rather current the simply the a follow expect are longer seasonal more but We from a second of normal and assuming Energy, the year half

our performance entire improving said, is As I throughout focus on the economic cycle.

So we what driving simplification/modernization are forward program. our

actions. on moved it work at Germany a recently production in to fact, And cost continue facility in restructuring good sees We to make facilities. progress and lower

We other plant the of benefits the in fiscal second to closures expect increase from half and this this year. pending

$XX inefficiencies By XXXX reach million $XX Fiscal by million the abate. actions rate to manufacturing year of will our restructuring half restructuring end material an of effects the fiscal to footprint actions higher million. costs run second level as $XX end expected will raw year, $XX year of savings our million in profitability rationalization the of run XXXX. are FYXXXX to benefit bring from rate a savings additional and Also the

comparison turn to results a to for of Slide historical let’s current forecast year levels. X with our similar fiscal revenue Now

As of chart, you the than significantly work powder be effect higher the out see is simplification/modernization portfolio these result coating, pricing skew primarily structural and the that can full including left just with of I adjusted remember year not rate our for completed, sales. similar fiscal actions, on is This hand to and expected run the rationalizations EPS do strategic XXXX years And the already cost include plant rationalization. numbers reductions, previous mentioned.

to of out important this reduced flow footprint remove rationalization. Again, our The also the to through the permanently our we temporary year’s right is associated with to the increase from expected costs chart, outlook. due the Its restructuring operations hand cost that improvement this in forecast recall flow show system by as significant cash simplification/modernization. done today is in cash work the implied

On Slide of our some X, we launches. highlight product recent

in lower product our advance We part introductions. demand new through of are period this continuing even market end in to initiatives growth

is tool finalists, to and and include Aerospace titanium The R&D used removal Aerospace by XXXX the rough for General rates. milling Our of HARVI design. a customers focus market metal the areas was innovation is Ultra a Engineering. leading XXX named which growth offers Awards testament recently of XX This

on customers. productivity It up delivers the XX% General The by application. in increase Engineering depending HARVI TE tool an is used life end X to mill and

operations focused of finally And is product, is specific growth electric an the also a area the is machining in weight innovations to RIQ used drive KOR precision which which This on lowers allowing trains. Reamer just mill the for times. the Aerospace the faster bringing end market. Those aluminum X, for using two tool growth some of technology, the productivity focused of vehicles. new proprietary on it’s up And that are delivers Another machining manufacturing Kennametal’s tool increase produced are the examples for additive of machining times. that we set and

I’ll first turn it that, in the more who review numbers will with quarter And detail. to over Damon

Damon Audia

Slide Chris, of both review morning, reported and you, X begin our results and on a operating good Thank everyone. with adjusted a basis. an on I’ll

This previously resulted mentioned, Chris year-over-year than our sales As with end of XX% across significantly previously demand negative or deteriorated on exception XX% million. organic declining the in an basis expected $XXX more markets to Aerospace.

benefit volumes. effect X% was of margin of by a year-over-year. partially timing effect XXX This the basis of business was a from currency Foreign lower inventory Adjusted was negative X%. priced largely of gross the profit result and points performance roughly XXX points that basis represented the of offset had days of XX.X% down that higher

in expenses the of XX% discussed the abate point price year-over-year As second strong XXX basis operating and were effect to XX% This higher on year. down continued quarter, the sales. Adjusted sales increase controls. the cost we on half decline X% only focus represented in a the reflects last of the expect a inventory

$X.XX Adjusted was to $X.XX since our adjusted EPS year-over-year compared XXX toughest operating the and year basis an down period basis was Reported first and margin comparable year of in prior X.X% on points quarter respectively. XXXX. against fiscal $X.XX $X.XX

spend a the our will this temporary reflects well of of moments Slide manufacturing our related Turning were couple plant the lower effect volumes significantly drivers $X.XX. This inefficiencies I as to quarter. EPS Operations X, closures. performance as to pending addressing negative the

approximately affected discuss half that In performance expect higher second addition, accelerate the the $X.XX. progress raw of year, as year-over-year benefits cost of will we material detail $X.XX the it’s Simplification/modernization fiscal improvement which more worth later. contributed we and temporary noting I the to through in these initiatives by the

against some was a level this provide the mostly around EMEA followed Asia-Pacific decline felt X% Slide in fiscal with XX% Now, of year X, this XX% standpoint, XX% sales the of respectively. organically color Industrial XX% and QX From on by performance high quarter. QX in positive declined our of through and down X regional segments XXXX. I’ll in Americas

were production markets challenged the by and mostly end in activity. General Our auto Engineering driven and Transportation global manufacturing decelerated

though, experienced slight continues Aerospace was some bright X% non-reoccurring we growth to for be have down would excluding package us. spot year-over-year, deliveries. a And it

market. continue a as to key see We growth Aerospace end

the of in mentioned, margins we end further X.X% volume in continue prior the X contributor XXX As of represented raw new This The end can to Ultra market. the specifically HARVI designed that to us compared basis for like and major KOR that products The approximately decline market. confidence XX adjusted at our in was we operating maintain effect introduce material points in higher growth XX.X% costs decline. the gives year-over-year the Chris the coming to year. strong

industry macro saw however, year-over-year, of Asia-Pacific quarter, the X Segments in was products mixed Americas. that Industrial positives worth while X% Slide we and and declined XX% and America challenges for experienced EMEA XX% to was XX% Turning prior flat the period. both in from noting year similar in EMEA Aerospace that WIDIA, the faced respectively. sales as the positive declines against it’s during both organically the support Regionally, performance

this margin operating half. Widia’s basis segments, by points material in quarter for Adjusted the the Similar the approximately costs other to business second higher operating of will margins a raw loss X.X%. abate affected XXX but quarter, was

General XX% were gains XX% Infrastructure Regionally up against Energy, counts. which respectively. the and to XX% and down red X% down year declines In share in land on in while Earthworks Earthworks the were primarily were Americas driven and down Turning EMEA, outweighed X% by positive Americas activity declined sales market, XX% Africa and by results South and these period. China. was in Engineering X% were only respectively. prior Asia-Pacific organic Slide in reflecting X, U.S. market in end sales By XX% lower were

of Infrastructure reported an profit in period. in sensitive X.X% is more to in compared raw year XX.X% ways. quarter, significantly a Infrastructure this to operating two the margin prior Remember, material of loss costs changes

approximately cost affected basis First, a particularly they raw by in XXX of was points. good sold. of percentage the costs margins as material quarter higher larger evident are This

on changes customers prices a temporary spot in can which timing prices further affected create operating materials of difference, market based certain adjust that Second, merchants. year-over-year

pricing. profitability we abate see to Infrastructure’s customers in higher forward, an costs material expect second with half raw Looking the improvement aligned and as in

Additionally, as the as we of our further benefits see as closure to facility divestiture. recently we Irwin Infrastructure’s the Newcastle finalized expect in well margins announced

our XX cash sheet review balance Now Slide to and flow. turning to

basis, sales than primary primary expected, our result was As of working increases both million. modest as the sales year-over-year and versus to a sequentially On decreased more rapidly expected. slight in decline expectations this of inventory capital working $XXX quarter reductions capital our percentage more XX.X%

support period. continue to to which overtime. increased we footprint Capital hold safety prior $XX stock the million year to our will to during rationalization diminish Additionally, $XX compared million expenditures initiatives,

stated, are previously our Chris efforts As simplification/modernization track. on

first capital expenditures of quarter $XX consistent normal Our decline was a represents with million, This year-over-year million $XX negative flow million. cash operating increased of patterns. $XX free seasonal but

of of context improve second year. in expect our free to half operating we the year cash our and updated the be throughout In our positive flow outlook, the fiscal

no quarter XXXX. at have balance borrowings in We maturities million in continue revolver our well February, our of have significant U.S. remain $XXX plans, pension million. the no debt positioned cash on end overfunded until debt to to regards Our and $XXX

flat our approximately of to I’m million were our remain balance sheet. Overall, we and committed strength year-over-year program. $XX in confident Dividends at the dividend

our performance will flow can Our found cash the on cycles. The position unutilized to initiatives. Slide in our drive simplification/modernization and This balance with cash throughout us XX improve the sheet forward allows full coupled financial cash appendix. flows generation our and revolver economic be ultimately

while reflect also in global Turning only in outlook now half. for second second to our this, FYXXXX easier seasonality To recovery assume anticipated current the comparables to we delay for in reflecting XX half. expects the the previously occur we normal that outlook, Slide the year, the had

now growth range X% outlook the is X%. negative in negative Our to revised organic of

results cadence this tax Our of is I’ll primary $X.XX. our in earnings year our and With This XX%. Unlike share per adjusted regard the in normal expect expected outlook to of range the rate of sales walk to $X.XX through XX% be outlook, the second the full now follow half updated the you occur to to in our drivers. of of year. earnings, roughly not earnings a some our adjusted effective we does of XX% to seasonality

temporary the through call, last our working of on P&L. effect higher way is detailed its we As raw materials our

favorably in we The absorption current of this the are the to the facility this under execute planned point, second is mentioned, our closures that previously Further, the run including to with rate our and announced half plan expected continue abate pending efforts Given on ceased as runway see we actions. manufacturing related German and production to more the full raw simplification/modernization half. year plant savings we’ll we weighted To benefits work. second back effect effects of on materials, the at to from recently are as of begin rationalization these half. prices these in the Chris

our capital are free Moving discussed, spending cash already on maintaining of to million. operating million preceding plans we with forecast flow, $XXX to as prior our first, simplification/modernization and $XXX

to million flow free range remain simplification/modernization on focused initiatives reflect in operating profitability the to of and execution We million $XX to increased expectation. cash the earnings $XX assumes improved flows outlook of economic through Our updated deliver our cycles. the lower our cash

And back over Chris. with the I’ll turn that, to call

Chris Rossi

Thank you, Damon.

to the me XXXX fiscal minute Turning year a Slide and quarter XX, to outlook. summarize let the take

As quarter more first in the was discussed already, year experienced our XXXX plan. slowdown anticipated fiscal we original in we we the than

our no Energy, and sales more conditions is lower current outlook seasonal current reflects line Transportation and conditions. rather normal updated in the market a recovery assumed half with second a However, from market pattern in longer

balance improving the us with position and simplification/modernization sheet continue cycle. our profitability initiatives, to of service cash Strengthen and through are allows directed economic our which at customer our

the savings billion $X.X needed target cost EBITDA achieve profitability sales to range meet targeted will we the structural to reached confident adjusted remain I our of Finally, when $X.X billion.

With operator, questions. the open please that for line

Operator

Thank you.

first Mitchell of begin question now Our will from go We comes the Please Julian ahead. session. Barclays. Instructions] question-and-answer [Operator

Julian Mitchell

morning. good Hi,

Chris Rossi

Good morning, Julian.

Julian Mitchell

and quarter, sort quarterly Morning. because by the I of guide I just guide given now. wouldn’t into shift down know sort normally you the just drill don’t numbers, of but seasonality

for wanted to hone try Just a and second. QX in specifically on

is for think XX% what sales $X.XX I EPS. organic sort you’re around So drop of QX a similar to guiding around adjusted about and of

slightly about what how fair that’s Is margin but a decremental you’re significantly. you not summary QX? a narrower maybe in of So than QX, had that thinking

Chris Rossi

sure. Yes, Julian it’s summary, fair for a

Julian Mitchell

QX and about decremental year-on-year, June quickly margins the the moving guess if How of are And sort think the how still by dropping? do And you quarters? that March normalize? flat sales do even margins I in the is they assumption are

Chris Rossi

around this Yes, wasn’t I And transition mean course if decremental this the effects. temporary Kennametal. volumes. And last time, call was for quarter, driven lower in a you raw the We look by at XX%. I that our of year a then cost think the was margin had mentioned is material numbers as – completely unexpected driven we

of have out say lot modernization effect, We material take a associated closures. you if somewhere with built But was around manufacturing the in and raw the sitting decremental plant efficiencies XX%.

lower was factories was some general, we’re in we decremental turn a that which in hard margin anticipated. dime volume and that given on lot quarter the than we it’s know, that to feel And to line you especially the expect, the on. in working these as a take volume, time would what adjust So we with first

So that through the news as we improve good should year. situation the is advance that

the those And as benefits ramping for increase, with and in decrease. same first call, modernization, programs inefficiencies also associated had sure, on those by will continue the we mentioned and to associated going putting to plant our with closures are up place the token,

progress looking the year as improve forward things. based margins we’re those on So to we through

simplification and point focused driving breakeven well company really Julian And changing on other think customer as then about, I as modernization service. of is higher the thing that, is the

ability advance up in modernization, its is And weather changes of either sort down, advanced to demand, these company going so as as we or improving to it’s modernization. we the

Julian Mitchell

Thanks. around And very on, industrial levels. my cycle last hear company inventory short depending one question, speak we things We just a to. which quick mixed

seasonal yourself levels. your inventory perspectives wanted versus Just your today normal at OEMs how and your partners, on distributor stand

Chris Rossi

Yes, there’s no question.

example, side, has the some see gas. and there first will Americas, And throughout Widia business certainly oil rock QX. expect For in and side been Industrial been and mining we Infrastructure there’s the surface destocking quarter the and we hard in on also and continue destocking the mining and of in on that destocking

plays think this how sort an and the are pulling end we I the lever wait sort understanding and uncertain So that sort distributors out. of to of be see this of users that inventory the terms environment we need rather they’re is we’d that while prudent in – management, and of

Julian Mitchell

you. thank Great,

Chris Rossi

Thanks, Julian.

Operator

question next ahead. comes Ann Morgan. Please Our of from Duignan JP go

Ann Duignan

Yes. good Hi, morning.

Chris Rossi

morning, Ann. Good

Ann Duignan

the a the the now expect address what you in looking saying volumes. you just lower second prices that That’s ago, we’re abate you half? Can to tungsten but much material at raw fact quarter were

to QX So to does that take for longer mean these it’s going abate? into costs

Chris Rossi

Yes.

couple Let me make just general comments. of a

this we purge buy how inventory and depends in the we to externally. know, that it. system the how that internally And you sourced factor of well supply As both or the of as length can on kind we inventory stays chain

have costs currently our sitting And handle in inventory now. good we We through a that models. run on is what the

that So to the start including in we’ll we’re see QX the confident QX. half and abatement second and

the the confidence to have we terms So half, of in in a that. of lot financial second benefit

we costs is add In second half. our on to vary feel to right it P&L, terms different how would that material the But terms benefit through is you like to in of actually does that current anything else transition of will factors. And now overtime? change it in would the there view is how going Damon, that the like

Damon Audia

the second alluded Ann, looking Well, given our half Chris good have we times of lead to, into as inventory, we think year. know the the it’s out I visibility very

QX, prices of level confidence. into a for tailwind high they with a tungsten that moving fairly and turn we where will with know are, into us QX so so currently And it

Ann Duignan

I And isn’t same operating the capital operating liquidate order my inventory, cash is is because there Okay. around risk, up in to to demand What get to that there end question to has negative happen you flow? the $XX goal? can’t flow and $XX free just the million working suppose free second And that cash the any million. risk we with achieve

Chris Rossi

based look think realistic of current what volume. to Yes. view going the is in terms happen – on is sales the I outlook We we of think our at a

So dropping. we on a planning are levels inventory certainly

capital. the But of range is minus in sales that inside turn that’s working flow X% operating cash free So to is and well was outlook in some driving our be. current that X% to volumes the what if minus that out

So don’t we’re sitting going like feel sales based inventory be on that forecast. to I on lot a of

Ann Duignan

month Do a you dollar in have that an inventory market? embedded reduction

Chris Rossi

Yes, we do.

Damon Audia

Yes.

Ann, year our finished just to to the that calls, our And end fiscal of what is XX%. down sales we we in last obviously the change what close think with I end said over the said at XX%, – outlook. we to our the on try goal getting drive that

We’re what there continuing increased of the look an of as the lower start further at was to result this but it planned inventory year. a at reduction its be will is that And that percentage, sales.

Ann Duignan

Okay. I’ll I’ll queue. leave Thank the it in back and you. there of time interest in get

Operator

comes of from Fargo question ahead. Please next go Wells Our Securities. Andy Casey

Andy Casey

Thanks. Good morning.

Chris Rossi

Andy. morning, Good

Andy Casey

short the demand trends? few similar trends cycle down is hit to demand of some then in October. in trends. another took like in you I’d I’m from step have saw to wondering, and companies July other fell your September kind what that indicated and on August of A

Chris Rossi

we’re the down, Kennametal we’re markets. QX in QX on I have that comment can be tell that of but expecting But QX. of terms down was of you in from course, have necessarily Recognizing and the – a would lay QX to – everyone of but demand, down knows, does with we in all don��t markets exception at all normal that months, sort – seasonality looking as there. be we end-market Yes, we to aerospace, general, of terms regions do in QX

Andy Casey

not Chris, of demand you are things aerospace, within pace turning outside positive And in of are the but seeing decline? you thanks. – seeing Okay, stabilization any that,

Chris Rossi

slowdowns and Yes. and situation the what seven four that depending current as be much kind you If past, our like expectation we you from XXXX at, in is can we’ve modeling in at where quarters what and been quarters. to is, on XXXX, – down as with look look of anywhere this

quarters down I was about and a row was seven in think XXXX quarters. down XXXX four

of really it So for us, FYXXXX, trend. as normal is concerns seasonal you only we’re expecting The associated would sales recovery. with that means that kind increase see not a any

course for it’s downturn, So looking recovery. see subject probably this first That’s if a of our might it’s when view. follows that kind to FYXXXX in in us average like terms us of quarter we an

Andy Casey

you detailed that. a then And kind for Okay. question. Thank of just

release One of noted Industrial the was expense. drove What headwinds in that? compensation components of margin that was quarter the in the

Damon Audia

salary Just inflation, Andy.

We cost know, driver that merit Industrial, for of have was sold, and goods for percentage a is our you labor And the increases which them. of higher annual of things nature. a as

Andy Casey

Damon. Okay. Thank you much, very

Operator

Joe comes next Our Goldman Ritchie question of go from ahead. Sachs. Please

Joe Ritchie

Thanks. morning, guys. Good

Chris Rossi

morning, Good Joe.

Joe Ritchie

for Just I don’t but impact to QX, the guide like to did be clear expected guys as It’s expected be as as want know the to QX to to that call, tungsten be be it’s I quarterly, $X.XX you QX. high well? in as, clear, just on you

Damon Audia

be going yes, will to that generally be abate will a a be little But headwind, be quarter bit. percent impact speaking, headwind. still also exact because in will it a it’s – start It may the to Joe. not the It

to the – think where second at remember, the will the impact going margins pricing going quarter, point you other spots. that more that’s customers on have that of the we’ll out, lower in though, pay that the is about, are even talked Infrastructure, levels point Infrastructure. I And to we’ve the current dynamic

Joe Ritchie

own of like talk of bit you were here. the to you simplification downturn modernization how think, you’re higher-level and And your the things saw, Okay, at And maybe a of as decremental limit margins try lot we guess, initiatives, surprised companies market, guess, Clearly, by That quarter that maybe this maybe quarter? all I that I about going question to the a surprised this via much sense. on I right. asking quarter, with you I but just some go guess and a then look delevered little this just forward? business that the this posted cyclicality your how makes

Chris Rossi

I in expect in have almost off, that volume was a the obviously, lower we but what mean, our double of Yes. did thought the our terms planning surprise. dropped we would process. plan lower volumes, We market

If second just you look EPS operations in that in material, another at kind we terms of $X.XX, at half, that the that at which our manufacturing bridge year-over-year of of there. is will the that, the so in a $X the XX% know change margin, raw $X.XX abate took that’s temporary issue. showed sales normal I operating essentially $X.XX And then if million that’s we

the rise so modernization closures. terms that also, the of balance of to things. and $X.XX and in about, talked inflation for then the due of have, manufacturing preparing to things we one fixed-cost the And with that’s of payroll plant inefficiencies And then built lower of we just that normal the is and in, variable volume and temporary volume-related course, the absorption associated lower type

your simplification of to on affect but normal it modernization this volume and be with to volume-related and lower after period modernization, We drops, we’re just any on and going have we fixed-cost to terms labor. $X.XX dependent So less in get that productivity, the really drive essentially, with in given still absorption. obviously, when still but have variable is inflation is, that how deal can the we and in have change going question

go to a that because process to to So shed have labor workers. to through those has we don’t improved ability our direct react

company, past. a is I better the in it today place So in was much think, the than

have facilities. We less

We’re the modernizing facility.

still us. We’re benefits on less the labor. of dependent are of ahead in But modernization keep largely mind,

don’t bad sort given going complete the that performed of FYXXXX actually too this better in company through get and I first which So we this how of the performing expect FYXXXX first was quarter, drop we’re and in wave we volume, think to as modernization.

Joe Ritchie

Thank makes you. That it. sense. Got

Operator

Our from comes of Research. ahead. question Cleveland go Adam Please next Uhlman

Adam Uhlman

Hi guys, good morning.

Chris Rossi

Good morning.

Adam Uhlman

that’s because aerospace growing little from seeing impact still even kind wondering you’re you’re with any bit markets a that or just was you whatever the comps. versus a like guess, bit? you happening between projects sales, the the sales confidence penetrators, there on year? that engines expand the that chunk talk what the onetime of is growth, flagged for a how rest mix that would only of the do across little I looks that of if considering, And versus But through I business something maybe was pulling I back be trends you excluding have could of headwind defense that, aerostructures your surprised your tough

Chris Rossi

Yes.

couple a there’s I would things say. think I of

all, you’re correct. of First

We don’t have definition, more given say that, they’re point by time. reoccur. at of should any these orders in sort package it’s large the okay. I like occur can lumpy, They

happen aerospace they still move for the a dozen, good are won So number. that needle so is when even period you a to can us. measure pretty a size year-over-year, has change that if you’re order, though market can the find sizable And those actually fairly

they’re that in I it’s my tools. not launched displacing prior platforms of in about track that we’re adding we that Kennametal so section customers, at definition, if are increasing the if – from remarks. take – tools those new customers new we of that look initiatives, talked the other The by displacing add. our that companies equation introductions. cannibalizing, were share out know technology growth we space. if and things And and we other They’re we we it’s the Then actually new or product we’re actually these anybody, the tracking one old again, that prepared we’re –

that on that to So we getting – going those. is traction feel like we’re

inside General Widia But And I especially then aerospace there’s other that is done, segment thing Tier X, basically applications would the we – the know Tier Engineering. mention are we is space, is the X there’s know suppliers. Widia in – for that that that that

we’re know General that traction that And customer base of part track those and we aerospace also that growing those so are of considered we gaining terms applications, in and Engineering.

growing So in are that still we’re And a way all that detailed which this the we space. at that equals, track fairly is we we and getting have thing, strong level, a traction confident segment.

Adam Uhlman

pricing quarter, got couple March about Okay, start comment, talked what just price your a that tungsten net so material to costs. of headwind and the on kind right? $X.XX price than this related the And prices And have think And positive that then material December a about, you’ll does to of just Was clarifications then gross a pricing of that was? Or realization is we as headwind? a that you cost follow you. quarter? and lower that’s just

Chris Rossi

cost have so based really actual doesn’t Yes. raws. or anything with of was of covering that price – payment The the that’s P&L, the to on necessarily through just $X.XX do inventory flowing

I bit be question Kennametal or a what’s though, we’re we full in covering we We’ve a If essentially period think in at be price general, raw a is, look ahead of any behind. that time, for has of forecast the price flat. our materials. bit so current raw said year, little in also pretty history your to in expecting in little much balance, might

and pricing. In terms sort to to of marketplace, as pricing do and of in less FYXXXX start we pricing strategic in an place cost be put the plus initiative know, really you

the be for where the change in to feel which And ourselves. We volume, are potentially help infrastructure feel drive on the commensurate us and pretty so run we’ve equation in even a that a to dropping of than intention required to contracts understand, like increase though could actually overall we based also to right index. discipline our other that, were price would hold prices economic change ability lower is on good enough well our the And got in material costs to price. the data

Adam Uhlman

Okay, thank you.

Operator

ahead. Bank Our of question Ross go America. comes next of from Gilardi Please

Ross Gilardi

morning good guys. Hey,

Chris Rossi

Good Ross. morning,

Ross Gilardi

footprint, Chris, extent entire mean, fully what are should XXXX? what if closing, you you, your I you portion just modernized end of to of the envisioned your the – years at footprint net you be manufacturing work company ask by fiscal look ago of wanted to I that the several

Chris Rossi

of we a By XX% we’re closures probably there. FYXXXX, on continue. at Yes, would plant remember, basis, that I we’re of how the percentage end way think will a had I this? of characterize least, – number And

others but FYXXXX, in some in have We there’s FYXXXX.

for restructuring balance. announced closures some plant So those had which to going And we of FYXXXX, has until the these plant that’s second closures. come, a drive

are kind that That’s think some And so to to closures because XX% since a this the effort. still and these larger of kind some think the plants. in heavy of lifting terms of I year needs I basis, there’s close of of hardest that that’s be that level done it’s the why XX%, plant on

So in that’s effort, the it. terms of the I way see

Ross Gilardi

So that’s getting kind was what I at. of

to get about assumption. remember come confident to and that Kennametal. really up factory wanted had the tell to to that of figure it predecessor needs right in off the you more make investment slowdowns much hit I fashion you mean, you a company’s it’s be. continue the I that these that going of still the big – seen in to adjust nimble forward? I incremental CapEx with just company, Chris, us figure, correctly, the How automation, to modernize that ask a we’ve so and margins $XXX does got work are lot that million your pickups if can to to you So where

Chris Rossi

in $XXX general, million I feel good number Yes, about. we still think the

of right obviously, right. but done I that the ballpark. that’s work, lot did is I’ve the and two over then, in still number, since a here believe You’re been that inherent years we’ve number I

you If that versus number. million on prior in in what million CapEx that $XXX spending years, at we’re we’ve of zeroing this look year terms the $XXX got we’re –

last volumes. talked in on some also that, We we higher cases, expecting the were call

until it. And capacity the sake volume additional so we’re capacity just going can of for on to not that support to the bring having

of million spending a if FYXXXX, sort be like to capital subject would unless, might and return to the million, in it we million carry FYXXXX, expected might were $XX we it that $XXX we’re than or fall of $XX million that because FYXXXX. So we were over we so in $XX that by volume I of But maybe largely, said, of $XXX position magnitude nominal shorter to million lower would carry over, more or order before. end

Ross Gilardi

facilities German cash the – the cash baked cash guide? have three You free with associated into current flow free restructuring the

Chris Rossi

do, We yes.

Ross Gilardi

What number? Okay. was that

Damon Audia

cost when we go to other the than Ross, for made. the give out you announcements cash we the didn’t specific back restructurings that

majority $XX cost restructuring million we was cash. vast said to of that go we’ve that a announced announced, of said to FYXXXX. that that the we’ve the the majority was in of $XX out the So but And we that majority going portion cash million FYXXXX of million – the be then said that And of and in majority $XX FYXXXX, when million the $XX the restructuring, FYXXXX. cash we a FYXXXX being range in that plan out going there would to would in

of year. free for into flow cash this combination the are our outlook built so numbers those operating And

Ross Gilardi

Okay. Thanks very much.

Operator

comes ahead. question of Steven next Our Please UBS. from Fisher go

Steven Fisher

good Thanks, morning.

about segments, various rate when about think QX? be exit mid-teens going of then? guys margins the Infrastructure think and by you Industrial think you to will to you Widia profitability? by trajectory and to And both do we the segments how Infrastructure we’re of the Do think as should return your back So various for

Chris Rossi

and Widia look was quarter, the if we Infrastructure Yes, impact material raw at quite both this substantial.

But will of you in when to which that return Infrastructure. – simplification/modernization to pruning affects with year, remove sure, continue of so they’re and that profitability. we those abate the And half effect, underlying for the portfolio are both going second

And some the close that’s other to and actions, about going portfolio infrastructure. talking of plants improve take as some we that pruning the we’re the profitability of of

that’s be so to on that business And and what for standpoint. about our feel based going forecast expecting, the run where to profitability from we’re volume I current actually good through we’re pretty going

because volume highly business. they’re sensitive, obviously, side, small Widia a the On it’s sized

a space. as product essentially run cutting They about the before, talked metal we’ve inside inside same Kennametal portfolio the factories. And they’re overall overall

volume that of matter that couple running the And a of see from numbers through the factories. same fact but perspective hundred look don’t is can P&L great, the so, million its you a dollars profitability

to the you feel that once business going is cost impact, take return again, And we that, out material to profitability.

plants. other thing closing to, is of Widia The is in going to lot of we’ve is, terms into that a profitability monetization these tied said the

definitely So are backend to more as relates their loaded modernization. it productivity improvements

I’m along, industrial pretty have business that don’t then feel that sitting crank And either thinking of overall, So effects again, once mean, continues also. not issues I these – those some about with here and good abate, we to really one of I we’ve onetime businesses. profitability got some

Steven Fisher

Okay.

losses quarter, you but second turned like it the probably QX. So in positive in still QX, sounds

what growth just rate can key within you’re I business you three Infrastructure your Second, guess, construction your regions? us in seeing give in sense a of

Chris Rossi

Sorry. In what region?

Steven Fisher

All your three key regions, Americas, EMEA and APAC. Yes.

Chris Rossi

showing Well, we me here. we’re rates, in terms actually actually, of – look just let growth

flat from the it’s kind same construction the of we to QX, QX, flat market. QX So we markets see thing to of kind and are QX a feel

normal than kind into seasonality, of that’s what we baked the other forecast. So that

Steven Fisher

any And regions is within there there? your major variance

Chris Rossi

No, that was and across Pacific. EMEA all regions, Asia Americas,

Steven Fisher

Okay. Thanks lot. a

Operator

next question Our ahead. Please comes of go Research. from Dankert Chris Longbow

Chris Dankert

guess, good sticking morning theme markets end guys. I the Hey, here. with

the the risk for Infrastructure the that’s moves As when segment, has parse step-down, headwind, of growth at XX%. I energy, steep up Industrial can got pretty you the in double year, what’s by bit? that digits little of to rate I I down obviously, pricing into the just a teens segment look guess, kind into rest move of though, down the energy energy a

Chris Rossi

on year, as just at also rig declines Infrastructure to we saying look we it’s QX. in side, the Infrastructure, to to down expecting I QX the general, the be down. QX, believe we’re – to the And we’re continue at we’re if look Unfortunately, Yes. – through come counts QX going

and we’re that. of across similar business, really metal-cutting It’s the Board, something Pacific. terms In the to anticipating Asia Americas, EMEA

going have that. in hope of planning that year, I we and is – turn don’t a of to this we’re around on we think certainly lot So kind energy

does, it us. be of bit if nice surprise that will a So for a

Chris Dankert

Got were without incremental I of the to it, highlighted would margins there. Just closures What kind guess, stoppages? you how of temporary a Makes big And comments Industrial then it. sense. the backstop some got in quarter like any kind profitability. the within there, those? deal look

Chris Rossi

Yes. quarter, one we were quarter some didn’t facilities. of start the facilities In mentioned – begin to that second that stop it of the closures. production. inefficiencies was EPS. that’s actually that, end $X.XX we the the I inside German for wanted really of buried they preparing And closing was October, And that the It’s we at

of So that these first for Damon? quarter was much closures than in terms that other – there the wasn’t inside those numbers. preparing

Damon Audia

is adjusting year, And I to have may your other and be planning the think you question that think take days inventory the inventory I been the to asking, said there taking we down alluded we production. were production to were this to is, we we – answer Chris, are FY. question we going

decremental take production it what that’s inventory the doesn’t referred we the I for. September of producing enhance the demand would and markets think, but in the started out necessarily there Chris it and that quickly, because so that days as – as was system, move to margin, started no Again, otherwise been to. we reduces really we have

to to of So it’s market with we that the the production cost ways part we’re those reduce as can as outlook. trying rightsize quickly

Chris Dankert

Got it. That’s helpful. Thanks guys.

Operator

comes from question next go Global. Seaport ahead. Please Liptak Our Walter of

Walter Liptak

Hi, Good just with inventory. with the thanks. the morning stick questions same guys. last to Wanted – the

be with right? these going quarter, inventory is half. second your it this that to in closing will come starting sometime facilities sounds out Is it not the in quarter, So like the second

Chris Rossi

Yes.

as and then But we volume. to still come – will is come QX. quarter in it didn’t as the much didn’t down and in it quarter inventory accelerate to the first through think because second expectation simply the our out we much as I continue thought will QX have start that will

Walter Liptak

Okay.

So these what the plant so closing, that’s – the what you’re where – the that’s German held half? now and rationalizations is come alluding are out one inventory these will being three extra second that’s the to, in and right

Chris Rossi

That’s right.

Walter Liptak

you benefit it? you be that? Okay. the factories. I benefits And And you three German other the also of kind What factory includes will from mentioned from quantify Can that getting closing. the presume

Chris Rossi

Yes.

we at look restructuring numbers are associated if from about, think talked I inside you benefits those that closures. – the actions that those the

the $XX some that closure in to $XX in plant was $XX restructuring So are included benefits, actions, that $XX the million then action, inside some had FYXXXX also range. million was the the which of the the closures to million range. And of million FYXXXX

Walter Liptak

flows in. Okay, right, great. all Yes, if

same kind into levels the where two able these With levels, issue, quickly? there’s those into you inventory since down to of be you inventory XXXX where because inventory larger of closing, as maintain going facility a draw even you a won’t have run at round XXXX them of to won’t higher

Chris Rossi

– closures first of a plant plants Yes. I closure in the there the large mean, are is half FYXXXX.

have does that inventory some so associated And with.

level, those. to that as an continue we was have elevated also elevated need And those – don’t inventory. FYXXXX, closures other in to plant for inventory close, but the even So we are also start will there

elevated So FYXXXX. it until level you’re will be in that could But first elevated other close of continue drop still off. correct, half at the slightly it facility – to we an

Walter Liptak

Okay.

and I on just EMEA across is a trends is down start it in like I then the on Asia if ask kind to synchronized Americas closing one day all closer Okay. looking And sooner they’re just EMEA regions start the – guess, can or sooner went more any in down day Are slowdown The negative most. global basis. to or, we regions of a then a or quick the bottoming?

Chris Rossi

Yes.

stay Industrial necessarily market to you started to countries I levels, – actually are low And mode. ago. is EMEA that, think getting don’t as that go. we you drop a quite Asia first in many was while that know that Pacific but of are as then of kind them That know at continuing see of off nary second. continues, inside some recession know, any it’s of a EMEA was And the I worse.

it kind last the at seems I worse to So to of guess, gotten that few levels. stabilized in seems the – current argue, but has quarters, I could situation it have

little And it as two shape Americas, bad gotten as it markets. other in while a then the has those weaker, certainly not a

to my being the just – around absence the clarity And trying – anticipate more just there, be they’re prudent. for Americas to And that or think the about so people uncertainties. I opinion planning deal trying these trade in are and of prudent with is

on So we’ve what the put seen there I in as Asia Pacific. but wouldn’t same of order is a or EMEA slowdown, magnitude

Walter Liptak

Okay, great. Thank you.

Operator

for it turn to remarks. closing This the Rossi and back Chris session, concludes question-and-answer I’ll

Chris Rossi

the interest everyone, And you certainly thanks, support follow-up you. any you. Thank if reach Please us joining Thank your out appreciate Kelly, today. have for Kennametal. on and We to questions. call of

Operator

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

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

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

Kennametal (KMT) 5 Nov 192020 Q1 Earnings call transcript