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Kennametal's Fiscal 2025 Second Quarter Results

Kennametal Inc. (NYSE: KMT) has released its results for the second quarter of fiscal 2025, which ended on December 31, 2024. The company reported sales of $482 million, down from $495 million in the same quarter last year. This decline is primarily attributed to an organic sales decrease of 6%, though a favorable business days effect positively impacted results by approximately 3%. The diluted earnings per share (EPS) decreased to $0.23 from $0.29 year-over-year, with an adjusted EPS of $0.25 compared to $0.30.

During this quarter, Kennametal's President and CEO, Sanjay Chowbey, emphasized the company's ability to generate strong cash flow from operations, which totaled $101 million—a significant rise from $88 million in the previous year. Despite these robust cash flow figures, market conditions, especially in the EMEA region, have necessitated a downward revision of the company’s overall sales outlook for the fiscal year.

Financial Highlights

• - Sales: $482 million (down 3% from Q2 FY2024)
• - Operating Income: Recorded at $32 million, a margin of 6.6%, an improvement over the prior quarter’s operating income of $28 million at a 5.7% margin. This increase in operating income is attributed to lower raw material costs and restructuring savings of about $6 million.
• - Free Operating Cash Flow: The company reported $57 million, compared to $36 million in the prior year, underscoring better working capital management and reduced capital expenditures.

Kennametal also confirmed that it returned approximately $31 million to shareholders, a total comprising $15 million in stock repurchases and $16 million in dividends. Notably, Kennametal has maintained a consistent tradition of paying dividends since its public listing in 1967.

Restructuring and Cost Improvement Programs

In response to ongoing market challenges, Kennametal has implemented additional restructuring initiatives aimed at achieving significant cost savings. The company anticipates that these new actions will generate around $15 million in annualized savings by the end of fiscal 2025. The leadership has expressed confidence in reaching about $65 million of a planned $100 million structural cost improvement program introduced earlier in September 2023.

Umn Subsequently, the company revealed that an extraordinary $7.8 million tax benefit occurred in the previous fiscal year due to a change in Swiss tax rates, contributing to the notable fluctuations in the effective tax rate, which jumped to 29.4% from a previous benefit of 9.0% for the same period last year.

Quarterly and Annual Outlook

Looking ahead, Kennametal forecasts third-quarter sales for fiscal 2025 to be between $480 - $500 million, with an anticipated operational impact due to fluctuating foreign exchange rates expected to be about 3% against the same quarter in fiscal 2024. The company is also adjusting its full-year sales guidance to a range of $1.950 - $2.0 billion with an anticipated adjusted EPS of between $1.05 - $1.30.

As Kennametal navigates these uncertain times, management continues to monitor economic conditions closely and is taking decisive actions to sustain its market competitiveness. A conference call is scheduled for February 5, 2025, to discuss additional details regarding these financial results. Investors can tune in via the Kennametal investor relations website.

In conclusion, even though Kennametal is currently facing challenges in some of its key markets, its commitment to operational excellence and financial discipline is evident in its performance metrics and strategic responses to market conditions. With ongoing restructuring efforts and careful cash flow management, the company is positioned to adapt and respond as needed in the coming quarters.