Oct. 29, 2009 (PR Newswire) -- LATROBE, Pa., Oct. 29 /PRNewswire-FirstCall/ -- Kennametal Inc. (NYSE: KMT) today reported that sales for its first fiscal quarter ended September 30, 2009 improved sequentially by 6 percent from the preceding quarter. The improvement in sales was driven by a modest uptick in industrial activity in certain markets and follows three consecutive quarters of sharp sequential decline during the global economic downturn. Compared to the record level set for the September quarter one year ago, sales were lower by 36 percent.

Reported fiscal 2010 first quarter earnings (loss) per diluted share (EPS) were ($0.12), compared with prior year quarter reported EPS of $0.47. The current quarter reported EPS included restructuring and divestiture related charges amounting to $0.08 per share. The prior year quarter reported EPS included restructuring related charges of $0.10 per share. Absent these charges, adjusted EPS for the current quarter was ($0.04), compared with the prior year quarter adjusted EPS of $0.57. Adjusted EPS for the current quarter improved sequentially by $0.09 from the quarter ended June 30, 2009.

Kennametal's Chairman, President and Chief Executive Officer Carlos Cardoso said, "We are encouraged by the improvement in our business during the September quarter. In addition to the positive impact of higher sequential sales, our results benefited from increased permanent savings from our restructuring programs. We also continued to focus sharply on generating strong cash flow and maintaining a solid financial position. Our September quarter performance demonstrates the positive effect and future potential of the many difficult actions that we took during the global economic downturn. This, along with our market leading capabilities and talented employees worldwide, further enhances our ability to expand our sales and achieve higher levels of profitability in an improving global economy."

Reconciliations of all non-GAAP financial measures are set forth in the attached tables and descriptions of certain non-GAAP financial measures are contained in our report on Form 8-K to which this release is attached.

Fiscal 2010 First Quarter Key Developments

--  Sales for the quarter were $409 million, compared with $643 million in
the same quarter last year. Sales declined organically by 36 percent,
while the favorable impact of 3 percent from a business acquisition made
in the prior fiscal year was offset by a 3 percent decrease from
unfavorable foreign currency effects.
--  The company continued to realize benefits from cost reductions and
improved operating efficiencies resulting from a series of restructuring
programs that have been undertaken over the past eighteen months.
Pre-tax benefits from these restructuring programs reached approximately
$30 million in the current quarter most of which were incremental to the
same quarter one year ago. As a result, the company is nearing its
target to achieve approximately $125 million in annual pre-tax benefits
from these initiatives. During the September quarter, the company
recognized pre-tax charges related to these initiatives of $9 million,
or $0.06 per share.  Pre-tax charges recorded to date for these
initiatives were $90 million. Including these charges, the company
expects to recognize approximately $115 million of pre-tax charges
related to its restructuring plans.  The majority of the remaining
charges are expected to be incurred over the next six to nine months,
most of which are expected to be cash expenditures.
--  Operating loss was $10 million for the current quarter compared to
operating income of $52 million for the prior year quarter.  Absent
restructuring related charges recorded in both periods, operating loss
for the current quarter was $1 million compared to operating income of
$61 million in the prior year quarter. The adjusted operating loss for
the current quarter improved sequentially from the June 2009 quarter.
This sequential improvement was driven by higher sales, increased
permanent savings from restructuring programs, one-time benefits from
certain labor negotiations in Europe, and ongoing cost discipline. The
combined benefit of these items more than offset a sequential decline in
temporary cost reductions as well as a sequential increase in corporate
costs and expenses.  The sequential decline in temporary cost reductions
was related to the difference in savings between employee furloughs in
place during the preceding quarter and salary reductions placed into
effect at the beginning of the current quarter.
--  The reported effective tax rate was 39.6 percent.  On an adjusted basis,
the effective tax rate was 41.8 percent compared to an adjusted rate of
19.0 percent in the prior year quarter.  The change in the adjusted rate
was driven primarily by certain favorable tax settlements amounting to
$1.5 million.
--  During the current quarter, the company incurred pre-tax charges of $2
million related to the June 2009 divestiture of its high speed steel
business. The company expects to incur additional pre-tax charges
related to this divestiture of $2 million to $3 million over the next
three to six months. All cash proceeds related to this divestiture have
been received.

--  Reported EPS was ($0.12), compared with prior year quarter reported EPS
of $0.47.  Adjusted EPS was ($0.04) compared to prior year quarter
adjusted EPS of $0.57.  A reconciliation follows:

Earnings (Loss) Per Diluted Share Reconciliation

First Quarter FY 2010                    First  Quarter FY 2009

Reported EPS                    ($0.12)  Reported EPS            $0.47
Restructuring and                        Restructuring and
related charges                0.06      related charges       0.10
Divestiture related charges     0.02
------                          ------
Adjusted EPS                    ($0.04)    Adjusted EPS          $0.57
======                          ======

--  Cash flow from operating activities was $17 million in the current
quarter, compared with $38 million in the prior year quarter.  Free
operating cash flow of $9 million was generated during the current
quarter compared to an outflow of $5 million in the prior year quarter.

--  At the outset of the current quarter, Kennametal completed two actions
to further enhance liquidity and strengthen financial position. The
first action involved an amendment to the company's existing $500
million revolving bank credit facility. This amendment provides
additional flexibility with respect to financial covenants while
maintaining the size and maturity of the facility. The second action
involved the issuance of 8,050,000 shares of common stock generating net
proceeds of approximately $120 million which were used to pay down
outstanding indebtedness under the revolving credit facility.

Segment Highlights of Fiscal 2010 First Quarter

Metalworking Solutions & Services Group (MSSG) sales decreased by 43 percent from the prior year quarter, driven by an organic sales decline of 39 percent and unfavorable foreign currency effects of 4 percent. Global industrial production began to show some slight improvement as sales increased sequentially from the June quarter. On a regional basis, Europe and North America reported organic sales declines of 42 percent and 39 percent, respectively, compared to the prior year September quarter. Latin America, India and Asia Pacific also experienced year-to-year organic sales declines of 31 percent, 25 percent and 39 percent, respectively.

MSSG operating loss was $13 million for the September quarter compared to operating income of $42 million for the same quarter of the prior year. Excluding restructuring related charges recorded in both periods, MSSG operating loss was $8 million compared with operating income of $49 million in the prior year quarter. The primary driver of the year-to-year decline in operating results was reduced sales and production volumes, offset in part by restructuring benefits and continued cost reduction actions.

Advanced Materials Solutions Group (AMSG) sales decreased 25 percent from the prior year quarter, driven by a 30 percent organic decline and a 2 percent unfavorable impact from foreign currency effects, partially offset by the favorable impact from a prior year acquisition of 7 percent. The organic decline was primarily driven by lower sales in the engineered products business, as well as reduced demand for energy related products.

AMSG operating income was $23 million in the current quarter compared to operating income of $30 million in the same quarter of the prior year. Absent restructuring related charges recorded in both periods, AMSG operating income was $24 million in the current quarter compared to $31 million in the prior year quarter. The year-to-year decline in operating income was primarily due to lower sales and production volumes in the engineered products and energy related businesses. A considerable portion of the sales decline impact was offset by a combination of restructuring benefits and continued cost reduction actions.

Sale of Gage Business

On October 9, 2009, Kennametal completed a minor divestiture involving the sale of its gage business for cash proceeds of approximately $1 million. This business utilized two manufacturing plants that were included in the assets divested.