Kennametal Closing TN Plant, Combines Business Segments as Sales Sink

It's the sixth factory closure for Kennametal since July 2019, which began major cost cuts even before the pandemic arrived.

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Tooling products manufacturer Kennametal reported its 2020 fourth quarter and full year financial results on Monday that showed a major hit taken from pandemic business impacts, while also announcing another factory closure and significant updates to the company’s ongoing realignment strategy.

Pittsburgh, PA-based Kennametal said it is closing its Johnson City, TN plant by the end of its fiscal 2021 (through June 2021), marking the sixth such closure since initially announcing the company’s simplification/modernization initiative in July 2019, not including its closures in Essen, Germany stated in that first announcement. The Johnson City operations will be consolidated into other newly modernized facilities, with the closure expected to complete by the end of Kennametal’s fiscal 2021.

“These footprint actions over the last 18 months are lowering our structural and operating costs for improved performance throughout the economic cycle," said Christopher Rossi, Kennametal president and CEO. "Notably, this closure marks the completion of the global footprint rationalization program as outlined in our original simplification/modernization plan, making it an important achievement for the Company. At the same time, we recognize the effect this has on our employees and will support them throughout the transition."

Kennametal said it is accelerating its previously-announced cost reduction actions, saying that by the end of its fiscal 2021, it will have reduced company headcount by approximately 20 percent since the simplification/modernization program’s inception. The company said actions already taken have resulted in about $180 million of savings to-date, and fiscal 2020 restructuring actions resulted in annual savings of about $33 million. Kennametal now expects fiscal 2021 annual savings of $65 million to $75 million, up from its previous forecast of $25 million to $30 million.

This comes after Kennametal announced June 9 that it was increasing the reduction in compensation for salaried employees from 10 percent to 20 percent based on job level through the first half of the company’s fiscal 2021. Those pay cuts were effective July 1.

Further on the restructuring side, the company announced Monday that it has combined its former Industrial and WIDIA business segments to form one Metal Cutting business segment. The company’s Infrastructure segment remains unchanged.

"We combined into one metal cutting organization to more effectively direct our commercial resources, technical expertise, and products toward capturing a larger share-of-wallet and expanding into a multi-billion-dollar segment of metal cutting that we previously had not focused on,” Rossi explained. “This represents more than a 40 percent estimated increase in addressable market for the company. Furthermore, we will leverage our newly-modernized manufacturing capability for improved operational and financial performance to serve this new segment."

As COO of Metal Cutting, Pete Dragich is responsible for demand fulfillment for the segment, including operations for all metal cutting facilities globally and the P&L. Ron Port, chief commercial officer for Metal Cutting, is responsible for demand generation for the new segment including sales, marketing, brand strategy, product management and digital customer experience. Both will continue to report to Rossi.

Finally, Kennametal said it expects its fiscal 2021 spending to range from $110 million to $130 million, with the majority to occur in the first half of the fiscal year.

Financial results

Kennametal’s Q4 financial results reflected major challenges industrial suppliers faced over the April-June period from COVID-19 business impacts. The company posted total Q4 sales of $379 million, down 37 percent year-over-year (YoY), with organic sales down 33 percent. Sequentially, sales were down 21.5 percent from Q3, which were down 19 percent YoY.

The company’s Q4 operating profit was $16 million on 4.1 operating margin, down from $85 million and 14.1 percent margin a year earlier. Kennametal said the decline was primarily due to lower organic sales, labor and fixed cost absorption from lower volumes, and an $18 million pre-tax restructuring and related charge. Q4 net loss was $9.1 million, compared to a $62 profit million a year earlier.

By business segment in Q4:

  • Industrial sales of $195 million fell 39 percent YoY, with organic sales down 36 percent. Operating profit was $4 million with a 1.8 percent margin, compared to $47 million and 14.9 percent a year earlier, respectively.
  • WIDIA sales of $32 million fell 35 percent YoY, with organic sales down 32 percent. Operating loss was $3 million with 10.3 percent loss margin, compared to a loss of $1 million and 1.9 percent loss margin a year earlier, respectively.
  • Infrastructure sales of $152 million fell 36 percent YoY, with organic sales down 29 percent. Operating profit was $15 million with 10.1 percent margin, compared to a $39 million profit and 16.5 percent margin a year earlier, respectively.

For the full year, Kennametal’s 2020 had total sales of $1.89 billion, down 21 percent from 2019, with organic sales down 18 percent. Operating profit of $22 million on 1.2 percent margin was a fraction of 2019’s $329 million and 13.8 percent margin. The company took a net loss of $5.7 million, compared to a $242 million profit in 2019.

Kennametal withdrew $500 million of its $700 million revolving credit facility during Q3 to boost its cash flow and liquidity.

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