Kennametal expects to consolidate plants as it shrinks manufacturing in continuing streamlining; profit drops
Kennametal Inc. has cut more than 800 people from its global workforce under a restructuring program meant to reduce costs as sales to energy companies plummet.
CEO Don Nolan said Thursday that the Unity-based tooling company eliminated 6 percent of its 13,500 employees. It was the first time the company has said how many people lost their jobs since the beginning of the year through plant closings and a voluntary buyout of white-collar workers.
The company said Thursday that it has closed six plants, sold one and is consolidating two others as it shrinks its manufacturing footprint and tries to increase profitability.
“We've been working hard to improve the business and we're beginning to see some of the benefits,” Nolan told analysts on a conference call to discuss earnings for the April-June period, the fourth quarter of the company's fiscal year.
The company wouldn't identify the plants, but spokeswoman Christina Sutter said three of the closed plants are in the United States; two are in a region covering Europe, the Middle East and Africa; and one is in Asia. Earlier this year, Kennametal announced it was closing plants in Derry; Grant, Ala.; and Switzerland. And it sold a plant in the United Kingdom.
Nolan, who became CEO in November, is selling off or closing less-profitable parts of the company to concentrate on its core business of making drilling and cutting tools for a range of industries, including automakers, coal miners and oil and gas drillers.
Nolan said the company would lose about $150 million to $250 million in annual sales from the operations it wants to dispose, though he declined to provide specifics. “It's not clear which will be sold and at what time,” he said.
Though Nolan's work is aimed at improving the company's performance in the future, its most recent quarter showed substantial weakness, with profit dropping 54 percent.
Kennametal said it had net income of $21.1 million, or 26 cents a share, in the last quarter of its fiscal year. The results compared with net income of $45.5 million, or 57 cents a share, in the same quarter last year.
Sales fell 17 percent to $637.7 million, down from $772.2 million.
Oil and gas companies are buying fewer of Kennametal's products as they cut back on drilling activity to deal with low energy prices.
Despite the performance, Nolan said the company's results were better than expected because efforts to cut costs are working. Operating expense declined 15 percent to $130.9 million.
And the company hit a record level of free operating cash flow of $267 million in the quarter, up from $156 million last year. Free operating cash flow is money that is available to the company after it accounts for capital expenses.
Given the industries served by Kennametal products, it's a surprise the company's revenue wasn't lower, said John Tumazos, of Tumazos Very Independent Research, in Holmdel, N.J.
Oil and gas drillers and coal miners have cut their activity significantly, which means they buy fewer drilling tools from Kennametal, Tumazos said.
“I think considering what they do they're doing well,” he said.
Kennametal shares closed up 49 cents, or 1.5 percent, to $33.16.
Alex Nixon is a staff writer for Trib Total Media.
