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

Aug 02, 2016 • 08:30 am ET


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


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Ron De Feo

$100 million and $120 million. Pre-operating cash flow is forecasted to fall between $90 million and $110 million, the effective tax rate is forecast to be 13% to 17%.

So if we step back, and we did, as a management team, and look at this performance, we concluded that this was a solid plan but we felt, frankly, we needed to be more aggressive. So as noted on slide 20, we're executing a growth and cost reduction program, which is aided by our new organizational structure announced a couple of months ago. For 2017, we will report three P&L segments: industrial, infrastructure, and video.

We know we need to outperform the market. By simplifying and empowering the organization, we believe we can achieve faster growth. But it will take time for the organization to digest this and execute at -- on this at a very peak level. Therefore, we've announced the workforce reduction of approximately 1,000 people targeting annual savings of $100 million to $110 million on a run rate basis so we expect to hit that run rate leaving fiscal year 17. The estimated cost for this is $80 million to $95 million. Neither the cost nor the benefit is in our outlook. We are however, almost halfway complete with this recently announced initiative to reduce our workforce.

Perhaps more interesting to investors is that we've also developed a list of productivity and investment programs that are expected to yield $200 million to $300 million in savings over the next two to three years. We expect to have less than two-year paybacks on most of these projects. Later this calendar year, we will highlight key programs and projects for investors.

This is part of our fix in place manufacturing strategy. There's a lot to do to improve this Company that's already been identified. We will be going about prioritizing and putting in place teams of people to begin to harvest what is clearly big opportunities for us.

So to summarize on slide 21, we have a solid consumables business with strong free cash flow through the cycle. We expect to maintain our conservative capital structure and dividend policy. And the challenging end markets have driven us to try and make bolder changes within the enterprise, this will improve our franchise for the mid-and longer-term. The challenging end markets aren't going to change but the performance of the Company needs to and that's what we're about.

So Rocco, I'd now like to open it up to questions.