Kennametal Inc. (NYSE:KMT) Q4 2016 Earnings Conference Call - Final Transcript

Aug 02, 2016 • 08:30 am ET

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Kennametal Inc. (NYSE:KMT) Q4 2016 Earnings Conference Call - Final Transcript

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Presentation
Executive
Ron De Feo

at the top of the Company. Six of the nine members of the management team are new to their positions within the past year, but only two are new to the Company.

We've eliminated over 20% of the top 100 paid positions in the Company in the past few months. We found the talent we need from within the Company. Change happens from the top down. I'll discuss more details about our initiatives to lower costs and improve productivity when I discuss the outlook later on in the call.

With regard to the fourth quarter, noted on slide 4, our adjusted results are as expected. We reported a fourth quarter loss of $0.83 per share versus fourth quarter earnings in fiscal 2015 of $0.26. On an adjusted basis, fourth quarter EPS of $0.44 per share was flat versus last year's EPS of $0.44 as well.

The press release details the specific adjustments that were made. Total year results are on slide 5 with a loss of $2.83 per share in fiscal year '16 versus a loss of $4.71 per share in fiscal year 2015. On an adjusted basis, EPS was $1.11 compared to fiscal year 2015 adjusted EPS of $2.00 per share. Slide 5 also details the full-year revenue splits by geography and by end markets for your information.

So now let me turn to the results by business segment regarding our industrial business on slide 6. The adjusted operating margin for the quarter was 12.4%, an improvement over the previous three quarters but still below a year ago. Margins were positively impacted by lower raw material costs and lower operating costs, despite an organic sales decline of 8%, which was the biggest negative factor impacting year-over-year margins.

We continue to experience weak end markets, energy, commodities, and general engineering have been weak for over a year. We did some slight -- we did see some slight recovery in the last quarter in some of our markets and we believe that destocking has stabilized. We expect to see some modest improvement in some of our end markets in 2017, however, as I said in our last earnings call whether a slight recovery happens or not, we have a lot we can do on our own to improve.

We also mentioned on our last call our initiatives to build the indirect channel and be where the customer wants to buy. We estimate that our industrial business is now slightly above 50% indirect. The important point to note here is that we're focused on making this change without sacrificing customer service and support. This is about efficiency, best value for the end-user, and making the right decisions for profitability. Looking to the future, we're positioning ourselves for when the markets recover but even without much growth we know margin improvements are possible.

Turning to page 7 on our infrastructure business, this business improved profits despite an 11% decline in revenue. The adjusted operating margin for the quarter was 3.4%, which is above