(EDGAR Online via COMTEX) -- Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)
OVERVIEW
Table of Contents
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
We generated net cash flows from operating activities of $15.8 million during the three months ended September 30, 2021 compared to $9.6 million during the prior year period. Capital expenditures were $17.8 million and $39.3 million during the three months ended September 30, 2021 and 2020, respectively, with the decrease primarily related to lower capital spending on our simplification/modernization initiative.
RESULTS OF CONTINUING OPERATIONS
SALES
Sales for the three months ended September 30, 2021 were $483.5 million, an
increase of $83.2 million, from $400.3 million in the prior year quarter. The
increase in sales was driven by organic sales growth of 19 percent and a 2
percent favorable currency exchange impact.
Three Months Ended September 30, 2021
(in percentages) As Reported Constant Currency
End market sales growth:
Transportation 17% 14%
General engineering 25 23
Earthworks 8 3
Energy 25 23
Aerospace 21 19
Regional sales growth:
Asia Pacific 12% 7%
Europe, the Middle East and Africa (EMEA) 21 18
Americas 26 24
GROSS PROFIT
Table of Contents
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESTRUCTURING AND RELATED CHARGES AND ASSET IMPAIRMENT CHARGES
As of September 30, 2021, we have $25.9 million of U.S. net deferred tax assets, of which $57.0 million is related to net operating loss, tax credit, and other carryforwards that can be used to offset future U.S. taxable income. Certain of these carryforwards will expire if they are not used within a specified timeframe. At this time, we consider it more likely than not that we will have sufficient U.S. taxable income in the future that will allow us to realize these net deferred tax assets. However, it is possible that some or all of these tax attributes could ultimately expire unused, especially if our end markets do not continue to recover from the COVID-19 global pandemic. Therefore, if we are unable to generate sufficient U.S. taxable income from our operations, a valuation allowance to reduce the U.S. net deferred tax assets may be required, which would materially increase income tax expense in the period in which the valuation allowance is recorded.
BUSINESS SEGMENT REVIEW
Table of Contents
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Our sales and operating income (loss) by segment are as follows:
Three Months Ended September 30,
(in thousands) 2021 2020
Sales:
Metal Cutting $ 298,430 $ 247,876
Infrastructure 185,079 152,429
Total sales $ 483,509 $ 400,305
Operating income (loss):
Metal Cutting $ 29,164 $ (23,626)
Infrastructure 26,036 7,268
Corporate (594) (820)
Total operating income (loss) 54,606 (17,178)
Interest expense 6,321 10,578
Other income, net (3,459) (4,019)
Income (loss) before income taxes $ 51,744 $ (23,737)
METAL CUTTING
Three Months Ended September 30,
(in thousands, except operating margin) 2021 2020
Sales $ 298,430 $ 247,876
Operating income (loss) 29,164 (23,626)
Operating margin 9.8 % (9.5) %
(in percentages) Three Months Ended September 30, 2021
Organic sales growth 19%
Foreign currency exchange effect(1) 2
Business days effect(2) (1)
Sales growth 20%
Three Months Ended September 30, 2021
(in percentages) As Reported Constant Currency
End market sales growth:
Transportation 17% 14%
General engineering 25 23
Energy 4 1
Aerospace 21 19
Regional sales growth:
Asia Pacific 11% 7%
EMEA 23 21
Americas 24 22
Table of Contents
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the three months ended September 30, 2021, Metal Cutting sales increased 20 percent from the prior year quarter. Aerospace end market sales increased in all regions as airplane manufacturing began to recover. Energy sales increased in the Americas as oil and gas drilling improved, partially offset by declines in Asia Pacific driven by China wind power generation. Sales in our general engineering end market increased in all regions, as manufacturing activity continues to recover from the COVID-19 pandemic. Transportation end market sales increased in all regions due to improved automotive manufacturing levels, despite the ongoing supply chain challenges caused by the shortage of semiconductors. On a regional basis, the sales increases in the Americas and EMEA were driven by increases in all end markets. The sales increase in Asia Pacific was driven by increases in the general engineering, aerospace and transportation markets slightly offset by a decrease in the energy market. For the three months ended September 30, 2021, Metal Cutting operating income was $29.2 million compared to an operating loss of $23.6 million in the prior year quarter. The year-over-year increase was driven primarily by organic sales growth, $1 million of restructuring and related charges compared to $26 million in the prior year quarter, favorable product mix, approximately $4 million of incremental simplification/modernization benefits and favorable pricing, partially offset by approximately $11 million due to the restoration of previously reduced salaries and other cost-control measures that were taken in the prior year and certain manufacturing inefficiencies.
INFRASTRUCTURE
Three Months Ended September 30,
(in thousands) 2021 2020
Sales $ 185,079 $ 152,429
Operating income 26,036 7,268
Operating margin 14.1 % 4.8 %
(in percentages) Three Months Ended September 30, 2021
Organic sales growth 19%
Foreign currency exchange effect(1) 3
Business days effect(2) (1)
Sales growth 21%
Three Months Ended September 30, 2021
(in percentages) As Reported Constant Currency
End market sales growth:
Energy 39% 37%
Earthworks 8 3
General engineering 25 23
Regional sales growth:
Americas 28% 28%
EMEA 14 8
Asia Pacific 12 7
For the three months ended September 30, 2021, Infrastructure sales increased by 21 percent from the prior year quarter. The U.S. oil and gas market drove a year-over-year increase in the energy market. Sales in our earthworks end market increased primarily due to growth in mining, partially offset by a decline in construction. In general engineering, the increase in sales was across all regions. On a regional basis, the sales increase in the Americas was driven by increases in all end markets. The sales increase in EMEA was driven by increases in the general engineering and earthworks markets slightly offset by a decrease in the energy market. The sales increase in Asia Pacific was driven by increases in the general engineering and energy markets slightly offset by a decrease in the earthworks market.
Table of Contents
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the three months ended September 30, 2021, Infrastructure operating income was $26.0 million compared to $7.3 million in the prior year quarter. The year-over-year change was driven primarily by organic sales growth, favorable pricing, restructuring and related charges in the prior year quarter of $3 million that did not repeat in the current quarter and favorable product mix, partially offset by approximately $3 million due to the restoration of previously reduced salaries and other cost-control measures that were taken in the prior year and higher raw material costs.
For the three months ended September 30, 2021, Corporate expense decreased by $0.2 million from the prior year quarter.
LIQUIDITY AND CAPITAL RESOURCES
Table of Contents
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
At September 30, 2021, cash and cash equivalents were $107.3 million, Total Kennametal Shareholders' equity was $1,325.0 million and total debt was $592.9 million. Our current senior credit ratings are at investment grade levels. We believe that our current financial position, liquidity and credit ratings provide us access to the capital markets. We believe that we have sufficient resources available to meet cash requirements for the next 12 months. We continue to closely monitor our liquidity position and the condition of the capital markets, as well as the counterparty risk of our credit providers. There have been no material changes in our contractual obligations and commitments since June 30, 2021.
Nov 02, 2021
COMTEX_396244941/2041/2021-11-02T16:38:16
Is there a problem with this press release? Contact the source provider Comtex at editorial@comtex.com. You can also contact MarketWatch Customer Service via our Customer Center.
(c) 1995-2021 Cybernet Data Systems, Inc. All Rights Reserved
