Kennametal won't sell JLK - for now

By Staff -- Industrial Distribution, 6/1/2000

LATROBE, Pa.-Kennametal Inc. will not sell JLK Direct Distribution in the near term and a new interim management team hopes to continue improving its performance.

Kennametal ruled out selling the $531 million distributor in late April because the offers received were not high enough. Kennametal CEO and president Markos Tambakeras said the company remains committed to realizing full value for JLK.

"It wasn't an acceptable value," Tambakeras said. "We have said all along this would not be a fire sale ... The overriding factor in determining not to sell now is where the distribution business is in the minds of potential buyers today."

"JLK remains a non-core, good business," he said, and "we're committed to realizing acceptable value for our shareholders."

At the same time, JLK CEO Richard Orwig resigned and was replaced by Jeffery Boetticher, a member of JLK's board of directors who previously was CEO of Black Box, a leading catalog company.

JLK's executive office now includes Boetticher, Tambakeras and Irwin Elson, a co-founder and president of JLK's predecessor. Tambakeras said JLK's board would recruit a permanent CEO.

During a conference call with investors and analysts, Tambakeras noted the company's performance is improving after a rocky two years. Through March, sales for the first nine months of JLK's fiscal year fell five percent while net income dropped four percent to $14.7 million. Those figures exclude last year's sale of the Strong Tool Co. steel mill supply business.

Tambakeras said the March and April results show that JLK is turning the corner after its recent investments in a new enterprise resource planning system and an online catalog, which was launched in April. Before he left, Orwig said the business system conversion went well and the next step would be to integrate JLK's e-catalog and customer order process into the system.

"JLK is a good business with good assets," Tambakeras added. "It maintained profits and margins at year-ago levels while implementing business systems and e-commerce capabilities. Its core catalog operations show renewed growth."

Tambakeras also said he has ruled out major spending on e-commerce initiatives beyond what already is in the works, which includes adding new features to an integrated business system. He believes the new online catalog contains enough functionality for now. "When you strip away a lot of the marketing [by dot-com firms], the JLK capability is as good as anything else out there," he said.

He also would not rule out further layoffs or facility closings at JLK.

Kennametal, meanwhile, expects to focus on its core businesses in metalworking, engineered products and mining and construction. Tambakeras said the parent company has loosened its exclusive arrangements with JLK, which is opening doors with several other integrators.

"We have been establishing a much more arms-length relationship," he said.

Kennametal's third quarter performance included a 22 percent earnings gain on four percent sales growth.