Latrobe, Pennsylvania-based Kennametal reported its 2016 first quarter financials on Tuesday, and followed by announcing continued cost-cutting measures that include selling off non-core businesses.
The tooling and industrial materials manufacturer posted a Q1 revenue of $555 million for the period ended Sept. 30, a 20 percent drop from Q1 2014. The decline included a 13-percent decrease in organic sales, which the company attributed to weakening end markets and a negative 7 percent impact from currency headwinds.
Kennametal, which announced a new CFO on Aug. 27, posted a net loss of $6.2 million for Q1, whereas it had a $39.5 million profit last year.
The company's Q1 industrial segment had sales of $313 million, down 17 percent from last year. Organic sales declined 8 percent, while currency headwinds hurt sales by 8 percent. Kennametal's Infrastructure segment sales declined 24 percent to $242 million, including a 19 percent drop in organic sales and a negative 5 percent currency impact.
Kennametal announced Tuesday that it has agreed to sell off a a number of its non-core businesses related to certain castings, steel-plate fabrication, and deburring for an estimated $70 million in cash, which it will use to pay down debt. Those businesses include Kennametal Extrude Hone Corp. and its subsidiaries Kennametal Stellite S.r.l. (based in Bellusco, Italy), Kennametal Stellite S.p.A. (based in Milan, Italy), and Kennametal Stellite GmbH (based in Koblenz, Germany). The deal also includes the assets of the businesses of Tricon, which has manufacturing operations in Birmingham, Ala., Chicago, Ill. and Elko, Nevada, as well as Landis, which has manufacturing operations in Waynesboro and all of the assets located at the Biel, Switzerland manufacturing facility.
Those businesses represented approximately $220 in annual revenue.
"This is an important step in our portfolio simplification efforts and dramatically reduces our complexity, as we are divesting 18 total facilities: 11 manufacturing facilities and seven smaller facilities," said Kennametal CEO Don Nolan in an conference call with investors Tuesday.
The Pittsburgh Business Times reports that the buyer of those businesses is Chicago-based holding company Madison Industries.
The sale, expected to close during Kennametal's Q2, follows the company's September announcement that it is relocating its corporate headquarters to downtown Pittsburgh.
"We remain focused on what we can control and continue to execute our strategy to concentrate on our core businesses and deliver benefits from realigning our cost structure, adjusting our footprint and simplifying our portfolio," Nolan said. "We are on track to achieve our restructuring goals and made a significant step in our portfolio alignment announcing that we have entered into an agreement to sell several non-core businesses representing approximately $220 million in annual revenue."
Nolan said the divestment is part of the company's ongoing cost reductions aimed to mitigate the impact of low oil and gas prices and a strong U.S. dollar.
The company also lowered its outlook for fiscal 2016, expecting a full-year sales decline of 10 to 14 percent, with organic sales declining 6 to 10 percent. Kennametal's previous outlook projected a sales decline of 7 to 9 percent, with organic sales down 1 to 3 percent.
"We are clearly impacted by the declining global commodity cycle in this business," Nolan said. "Our business has been particularly impacted by weakness in oil and gas. The weakness in these end markets are spilling into the general engineering sector, we believe there has been destocking, particularly in the indirect channel. While these are global trends; we have felt the impact, most acutely, here in the Americas, where our relative exposure to the oil and gas market is greater."
When asked how quickly Kennametal expects to return to profitability, CFO Jan Kees van Gaalen said simply, "We expect to get back to profitability in Q2," adding he expects the turnaround to come from portfolio relocation, cost savings, and top line growth.
