Kennametal posts loss for quarter, fiscal year
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With the covid-19 pandemic slowing the global economy, Kennametal Corp. said Tuesday it has accelerated its modernization and restructuring that by next summer will have reduced its global workforce by 20% from when the cost-cutting measures began more than a year ago.
The Pittsburgh-based company, which makes tools for metal cutting in a number of industries, anticipates saving $180 million from its cost-cutting efforts, CEO Christopher Rossi told analysts in an earnings call.
Kennametal had announced in June it was cutting 10% of its salaried workforce by the end of 2020, as part of the overall cost-cutting initiative. The company has not filed a layoff notice with the state Department of Labor and Industry.
Closing six manufacturing plants, including the Carbidie plant along Arona Road in Hempfield last year, was part of the company’s simplification and modernization efforts. The last of those plant closings is to be in Johnson City, Tenn. Production also was moved to lower-cost countries, Rossi said.
Kennametal’s restructuring actions for the current fiscal year ending June 30, 2021, will result in annual savings of $65 million to $80 million, once those changes are completed.
As an indication of the financial pain that covid-19 caused, Kennametal posted a net loss of $8.4 million on sales of $379 million, resulting in a loss of 11 cents per share, for the quarter ending June 30. Kennametal’s balance sheet had net income of $63 million on sales of $603 million, boosting earnings to 75 cents a share, a year ago.
For the 2020 fiscal year, sales shrunk to $1.88 billion, from $2.37 billion in fiscal year 2019. Net income plunged from $247.8 million in fiscal year 2019, to a $5.04 million loss in fiscal 2020. The company lost 7 cents a share compared to a $2.94 gain per share in the previous fiscal year.
Looking at the first quarter of its 2021 fiscal year, Rossi he sees demand for Kennametal products as stable or a modest improvement, but there still is a lot of uncertainty because of covid-19.
Kennametal, whose stock closed at $26.02, a drop of $2.43, or 8.5% a share Tuesday, is facing the same kind problems as other metalforming companies. A survey of metalforming companies found 86% reported revenues lower than the pre-covid-19 levels, according to a recent survey of members of the Precision Metalforming Association of Independence, Ohio, and the National Tooling and Machining Association. One-half of the companies reported that revenues dropped by 25%.
Richard Wolfe, an equity analyst with CFRA Research, keeps a “hold” on Kennametal stock. Wolfe does see “sequential improvement on the top line as economies reopen” and it will be in a favorable position as the market recovers, given its aggressive cost control and modernization actions.
For metalforming companies hurt by the covid-19 pandemic, business in June was a little better than July, but it likely that “it will continue to go up and down the rest of the year,” said David Klotz, president of the Precision Metalforming Association.
What manufacturers need is cash, Klotz said.
“Cash flow is still the biggest issue now,” Klotz said, adding that some suppliers are demanding cash on delivery for the metal they sell, because of the uncertainty of the future.
Manufacturers are waiting for another Paycheck Protection Program under the next stimulus package, which is being debated in Congress, Klotz said. That money helped keep workers on the payroll, he noted.