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Global decline in coal-mining hurts Kennametal profits, outlook

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By Thomas Olson

Published: Thursday, July 25, 2013, 11:39 a.m.

High-tech manufacturer Kenna­metal Inc., which posted lower earnings on Thursday, faces continued slow growth for a year or so in the global markets it serves.

The Unity-based company is watching its costs so that it's well-positioned when markets recover, analysts said. Kennametal cut $31 million, or 6.5 percent, from the cost of goods sold last quarter versus the year earlier.

“I think the company is managing well in the current economic environment,” said Rudolf Hokanson, an analyst at Barrington Research in Chicago. “They are making the adjustments they need to, in terms of internal efficiencies and productivity and managing their resources appropriately, given difficult sales.”

Kennametal makes machining tools for manufacturers and employs about 13,000 people. The company serves customers in 60 countries in aerospace, energy, infrastructure, industrial production and other sectors.

“Industrial markets will improve, but not at a rapid rate, over the next 12 months,” said Eli Lustgarten, an analyst at Longbow Research in Independence, Ohio.

He expects the coal mining market, which Kennametal serves, will remain sluggish domestically and globally for 12 to 18 months.

But with record operating cash flow for the April-June quarter, Kenna­metal increased its quarterly dividend by 12.5 percent, or 2 cents a share, on Thursday. The company will pay 18 cents a share on Aug. 21 to shareholders of record Aug. 6.

“It's a sign of financial strength of the company,” Lustgarten said. “When the growth outlook is not as robust, you find other uses for cash, which include stock buybacks and dividend increases.”

The company increased its stock-repurchase authorization to 17 million shares from 12 million. It has 10.4 million shares available under the new limit.

Kennametal stock closed Thursday at $42.44 a share, up 90 cents.

The company reported that earnings fell 29 percent in the fiscal fourth quarter ended June 30 because of a drop in sales globally.

Kennmetal earned $61 million, or 76 cents a share, in the three-month period, compared with $86 million, or $1.06 a share, the year earlier.

Sales fell 9.2 percent to $671 million from $739 million.

For the full year, Kennametal earnings fell 34 percent to $203 million, or $2.52 a share, from $307 million, or $3.77 a share. Annual sales decreased 5.4 percent to $2.59 billion from $2.74 billion.

Thomas Olson is a Trib Total Media staff writer. Reach him at 412-320-7854 or tolson@tribweb.com.

 

 
 


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