Kennametal Withdraws $500M Credit as April Sales Sink 35%

The company said restructuring actions taken early in the quarter helped bear COVID-19 impacts, though further cost savings are still needed.

Kennametal Sga

Tooling products maker Kennametal reported its 2020 third quarter financial results on Monday, showing an accelerated decline in year-over-year sales that the company said were minimally impacted by COVID-19 outside of China — evidence of a continued underlying slump in demand for industrial products that began in mid-2019.

Pittsburgh, PA-based Kennametal posted total Q3 sales of $483 million, down 19 percent year-over-year (YoY), with organic sales down 17 percent. Sequentially, that compares with Q2 sales of $505 million, which were down 14 percent YoY overall, with organic sales down 12 percent.

Kennametal said its preliminary April sales were down approximately 35 percent YoY.

The company's Q3 operating profit of $38 million, or 7.8 percent margin, compared to $82 million a year earlier. Total Q3 profit of $2.9 million was dwarfed by $70 million of a year earlier.

Kennametal president and CEO Christopher Rossi said that the company's previously announced restructuring and consolidation efforts — updated in January — helped the company bear much of the current COVID-19 business impacts that accelerated in the latter part of Q3 and will in Q4.

As of Monday, all but one Kennametal production facility is open, with that one facility — a Bangalore plant closed since March 26 by mandatory order — set to reopen this week.

Despite those previously-announced restructuring actions, Kennametal said it is taking other aggressive cost-control measures to offset COVID-19 headwinds, which include reductions in discretionary spending, furloughs, extensive travel restrictions and reduced production at global manufacturing facilities to align with current lower demand.

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

By business segment in Q3:

  • Industrial sales of $261 million ($279M in Q2) fell 18 percent YoY, with organic sales down 17 percent. Operating profit of $30 million, or 11.6 percent margin, was down from $57 million and 18.0 percent margin a year earlier.
  • Infrastructure sales of $180 million ($182 in Q2) dropped 21 percent YoY, with organic sales down 17 percent. Operating profit of $22 million, or 12.2 percent margin, was down from $25 million and 11.0 percent margin a year earlier.
  • Widia sales of $43 million ($44M in Q2) fell 16 percent YoY, with organic sales also down 16 percent. Operating loss was $14 million, or 31.7 percent loss margin, was down from a break even profit a year earlier. The Widia segment took a $16 million during Q3 goodwill and asset impairment charge that it didn't have a year earlier.

"Despite the many headwinds we faced in the third quarter, we delivered solid results that were strengthened by our early cost-control actions and the continued benefits of our simplification/modernization investments," Rossi said. "We ended the quarter with a strong liquidity position that will allow us to manage the uncertain times created by COVID-19 and continue to execute on our simplification/modernization strategy."

"As we look ahead, we expect COVID-19 will be a significant operational and market headwind. Early in this crisis we deployed global safety protocols and processes to keep our employees safe while continuing to serve critical industries. We are approaching this challenging time determined to stay focused on the things we can control: keeping our employees safe, serving our customers, delivering savings from simplification/modernization and continuing to execute our strategy so that we are well-positioned for the eventual market recovery."

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