Uncertain economic conditions in some of its major markets and adverse impact from foreign currency exchange have created a challenging environment for Kennametal. Analysts have slashed their estimates, sending the stock to a Zacks Rank # 5 (Strong Sell).
About the Company
Headquartered in Latrobe, PA, Kennametal Inc. (KMT) is a manufacturer, marketer and distributor of high-speed metal cutting tools, tooling systems as well as wear-resistant parts. The company also offers products such as cemented tungsten carbides, super alloys, and coatings and castings.
The company has more than 14,000 employees worldwide and serves customers in more than 60 countries. They operate in two reportable segments; Industrial segment (55% of FY 2015 sales) and Infrastructure segment (45% of FY 2015 sales).
Disappointing Results and Lowered Guidance
Kennametal’s adjusted earnings for Q4 of fiscal 2015 (ended Jun 30, 2015) came in at $0.46 per share, surpassing the Zacks Consensus Estimate of $0.44. However, earnings were down 41.8% from $0.79 reported a year ago.
Revenue in the quarter totaled $638 million, down 17.4% year over year, but surpassing the Zacks Consensus Estimate of $624 million. Organic sales were down 10% year-over-year. Adverse impact of 7% from foreign currency translation also hurt the top line.
For fiscal year 2016, the company expects organic sales to decline between 1% and 3%, with total sales decline between 7% and 9%. According to the management, the “outlook reflects ongoing market uncertainties as well as limited visibility related to customer demand trends.”
They expect 2016 earnings to be in the range from $1.70 to $2.00 per share, which includes adverse foreign exchange impact of about $0.30 to $0.35 per share.
Downward Revisions
Due to weak outlook, analysts have revised their estimates for the company sharply downwards. Zacks Consensus Estimates for the current and the next fiscal year are now $1.80 per share and $2.07 per share respectively, down from $2.12 per share and $3.00 per share 30 days ago.
The Bottom Line
While the company has taken a number of steps to cut costs and improve working capital management, the demand environment remains challenging. The transformation of the company is likely to take some time and till then it is better for investors to avoid this stock.
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