Kennametal Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 1, 2023

There are 6 speakers on the call.

Operator

Good morning.

Speaker 1

I would like to welcome everyone to Kennametal's 4th Quarter Fiscal 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Please note that this event is being recorded. I would now like to turn the conference over to Michael Pizzi, Vice President of Investor Relations.

Speaker 2

Thank you, operator. Welcome, everyone, and thank you for joining us to review Kennametal's 4th quarter and fiscal 2023 results. This morning, we issued our earnings press release and posted our presentation slides on our website. We will be referring to that slide deck throughout today's call. I'm Michael Pizzi, Vice President of Investor Relations.

Speaker 2

Joining me on the call today are Christopher Rossi, President and Chief Executive Officer and Pat Watson, Vice President and Chief Financial Officer. After Chris and Pat's prepared remarks, We will open the line for questions. At this time, I'd like to direct your attention to our forward looking disclosure statement. Today's discussion contains comments that constitute Forward looking statements and as such involve a number of assumptions, risks and uncertainties that could cause the company's actual results, performance or achievements to differ materially from those expressed in or implied by such statements. These risk factors and uncertainties are detailed in Kennametal's SEC filings.

Speaker 2

In addition, we will be discussing non GAAP financial measures on the call today. Reconciliations to GAAP financial measures that we believe are most directly comparable Can be found at the back of the slide deck and on our Form 8 ks on our website. And with that, I'll turn the call over to Chris.

Speaker 3

Thank you, Mike. Good morning and thanks for joining us. I'll start the call today with a review of the year, then the quarter and a few recent customer wins, as well as an example of the industry leading innovation we are bringing to market. Then Pat will cover the quarterly financial results as well as the Fiscal year 'twenty four outlook. Finally, I'll make some summary comments and then open the call for questions.

Speaker 3

Beginning on Slide 3, Fiscal year 'twenty three presented us with several macroeconomic headwinds that the team successfully navigated to deliver results in line with our full year Sales increased year over year at 9% organically, offset by negative foreign exchange of 5% and unfavorable business days of 1%. At the segment level, Metal Cutting reported 10% and Infrastructure reported 7% organic growth. Price continued to be a significant part of the sales increase and is one of the strategic levers we use to offset inflation. On a constant currency basis, all regions grew with EMEA leading at 11% and Americas at 9%, both driven by growth in all end markets. And Asia Pacific grew at 3%, which continues to be affected by a slower China recovery.

Speaker 3

Moving to our end market results, you may have noticed that we have reclassified some of our end market sales in the press release and slides. Beginning this quarter, to better align with the company's strategic goals and growth initiatives, certain end markets that we report externally have been redefined. The changes include the following. We've created a new aerospace and defense end market, which includes defense sales, Mainly powder sales and ammunition cores within our infrastructure segment and certain metal cutting tooling Sales to defense contractors. This change results in certain defense sales being reclassified from general engineering in both segments to the new aerospace and defense end market.

Speaker 3

This aerospace and defense end market also includes the sales previously classified as aerospace for metal cutting. Finally, Infrastructure's ceramic sales, which includes wear parts and evaporator boats for food packaging production, have been reclassified from Energy to the general engineering end market. We will discuss these end markets and how they connect to our growth initiatives in our Coming Investor Day on September 8. Refer to Slide 18 in the appendix for additional information and a reconciliation of these changes. By end market for fiscal year 'twenty three, Aerospace and Defense reported 14% growth, energy grew 11%, Transportation grew 8%, general engineering grew 7% and earthworks grew 5%.

Speaker 3

Shifting to profitability, for the full year adjusted operating margin was 9.6% compared with 11.1% in the prior year. The pricing actions taken in both business segments substantially covered all forms of inflation on a dollar basis. The The Metal Cutting segment's volume came through at the expected operating leverage and operating margins increased year over year despite the negative effects of foreign exchange. In the Infrastructure segment, our intentional extension of the shutdown of powder production into January resulted in under absorption within the segment, which negatively affected margins. This action, however, had the intended effect of lowering safety stocks as supply chain lead times and reliability Across both segments, in early June, we announced the initiation of an action to streamline our cost structure, while optimizing investments in commercial and operational excellence initiatives.

Speaker 3

This action is currently expected to deliver annualized pre tax savings of approximately $20,000,000 by the end of fiscal year 2024. We expect a pre tax charge of approximately $20,000,000 in connection With the execution of this initiative, which is primarily severance related cash expenditures, approximately $7,000,000 of that charge was during the quarter and has been excluded from our adjusted results. Pat will have more details on this when he discusses the outlook. Pre operating cash flow for the year was $169,000,000 the highest level in over 8 years, driven primarily by working capital changes, including improved inventory levels. Inventory reduction is a key area of focus, and I am pleased with our team's efforts to deliver on this commitment.

Speaker 3

In summary, we managed through many challenges in fiscal year 'twenty three, while continuing to advance our strategic initiatives to position the company for improved performance. Let's turn to Slide 4 for a review of the quarter. Sales increased year over year at 7% organically, offset by foreign exchange of 2% and unfavorable business days of 1%. At the segment level, metal cutting grew 10% organically, Which once again this quarter significantly outperformed our largest competitor and infrastructure grew 3%. As expected, price continues to be a significant part of the sales increase and it largely offset inflation.

Speaker 3

On a constant currency basis, EMEA posted 12% growth, driven primarily by general engineering and an improving Supply chain in the transportation end market. The Americas grew 3%, mainly driven by Aerospace and Defense. Asia Pacific reported 3% growth reflecting a slower China recovery. By end market, Aerospace and Defense reported 12% growth, General engineering grew 7%, transportation grew 7%, energy grew 6% and earthworks declined 1%. In Aerospace and Defense, aircraft build rates are still well below pre pandemic levels and our strategic focus continues to drive share gains.

Speaker 3

Transportation growth in the 4th quarter was driven by strong EMEA performance as our customers' supply chain conditions improve, while Asia Pacific experienced lower And due to a slower reopening in China. We maintain a leading position in both traditional and emerging transportation applications, And we continue to win tooling content to capitalize on this megatrend and enhance our position in the hybrid and electric vehicle market. Let me take a moment to provide some additional color around the end market conditions we experienced as we exited fiscal year 'twenty three and what we see moving forward in the near term. Sequentially, Q4 sales grew 3%, which is slightly below our historical pattern. This was driven by the following factors: Moderation of industrial production and general engineering within both segments, which we experienced in the latter part of the quarter, Lower oil and gas within infrastructure and the continued slow recovery in China.

Speaker 3

This moderation in growth is anticipated to continue into The Q1 of fiscal year 'twenty four, steady with the levels we experienced exiting the Q4 and slightly below our historical sequential trend. That said, we expect our end markets to moderately improve throughout fiscal year 'twenty four and growth to accelerate as the year progresses With stronger performance in the second half of fiscal year 'twenty four. Pat will provide more detail on how these trends affect fiscal year 'twenty four when he discusses our outlook. Turning now to profitability in the quarter. As mentioned earlier, price was a significant portion of the year over year sales increase And the pricing actions taken in both business segments substantially covered all forms of inflation on a dollar basis.

Speaker 3

Metal Cutting's operating margins increased year over year as a result of commercial and operational excellence initiatives. The Infrastructure segment accounts for the company's operating margin decline year over year. Lower volumes and product mix drove this decline. As we noted last quarter, we expected and did experience sequential margin improvement within the infrastructure segment from the Q3 level. Operating expense as a percentage of sales was slightly higher compared to prior year at 20% this quarter.

Speaker 3

Adjusted EPS declined to $0.51 compared to $0.53 in the prior year quarter, with the decline largely driven by the factors I discussed. Free operating cash flow this quarter increased significantly to $109,000,000 from $52,000,000 in the prior year quarter, driven mainly by improved inventory levels. And finally, we continued the share repurchase program this quarter with $12,000,000 of shares bought back, bringing the total amount of repurchased since the beginning of the program $135,000,000 Our share repurchase program reflects the confidence we have in our ability to execute our strategic initiatives For long term value creation, despite quarterly macroeconomic headwinds and uncertainties. Now let's turn to Slide 5 to review some Recent commercial wins that resulted from successful execution of our strategic growth initiatives. First is a win in general engineering for our metal cutting business.

Speaker 3

We delivered a custom solution included both WIDIA and Kennametal tooling technologies. This mix of high performance and fit for purpose tools Met the customers' very technical needs and reduced their cost by 15%. Our tools outperformed in producing a wide range of aluminum steel components for medical and general engineering customers. Next is an aerospace win. We secured an initial order Providing tooling for the enclosure of aerospace sensors.

Speaker 3

We provided a solution that reduces the customer setup time by 90%. Turning to EV, we provided tooling for a new class of high performance engines for a European OEM. We won by demonstrating Innovative machining applications while collaborating with machine tool builders and the customers. In our infrastructure business, We leveraged our proprietary additive manufacturing capability to help an oil and gas customer with a complex shaped solution for a critical flow control valve. We also developed a new material grade to meet the customer's stringent wear resistance specifications.

Speaker 3

And finally, we provided an improved drum design For a mining application that reduced the fuel consumption of the customer's fleet and increased our share of wallet. These are just some examples of wins that demonstrate our ability to gain Share with both existing and new customers. Now on slide 6, I'd like to highlight an example of how innovation as a competitive advantage continues to deliver enhanced Product offerings to our customers. This slide shows our new DrillFix Pro tool from our metal cutting product portfolio. Notably, the Drill Fix Pro can be used with many different materials and drilling needs across several end markets and applications such as Suspension parts for EV platforms and high temperature alloy applications within aerospace.

Speaker 3

And the proprietary cooling design allows for superior finish, Lower cost per hole and increased tool life over previous platforms. These enhanced features demonstrate our ability to provide robust, versatile, cost effective Solutions to address the needs of our customers. Now, let me turn the call over to Pat, who will review the Q4 financial performance and the outlook.

Speaker 4

Thank you, Chris, and good morning, everyone. I will begin on Slide 7 with a review of Q4 operating results. The quarter's results demonstrate our ability Execute our initiatives in the face of continued headwinds from inflation, foreign exchange and the slower pace of recovery in China. Sales increased by 4% year over year with 7% organic growth, partially offset by headwinds from foreign currency of 2% and unfavorable workdays of 1%. As Chris pointed out, price remains a large portion of the sales Chris, on a sequential basis from Q3, sales growth of 3% was at the lower end of our normal Q4 seasonal pattern of up 3% to 4%, driven by a lower than normal volume increase.

Speaker 4

Operating expense as Percentage of sales increased 70 basis points year over year to 20%, driven by the effects of inflation. Adjusted EBITDA and operating margins As in prior quarters, higher pricing substantially offset higher raw material wage and general inflation in the quarter on a dollar basis. Lastly, foreign exchange headwinds from the strong U. S. Dollar were approximately $2,000,000 The adjusted effective tax rate decreased year over year to 19.7%, primarily due to adjustments related to valuation allowances And reserves related to certain tax positions.

Speaker 4

Adjusted earnings per share was 0 point This is adjusted EPS of $0.53 in the prior year period. The main drivers of our EPS performance are highlighted on the bridge on Slide 8. The year over year effect of operations this quarter was negative 0 point 0 $3 due to lower volume and the litigation settlement charge related to legacy operations. You can also clearly see the effects of the tax rate, foreign exchange, which improved slightly from last quarter and the reduction in pension income on EPS with taxes contributing positive $0.05 in currency and reduced pension income each contributing negative $0.02 Please note that our U. S.

Speaker 4

Pension plan remains overfunded and the change in pension income is non cash and is driven by market factors. This change in assumptions Has affected each quarter this fiscal year. Slides 9 and 10 detail the performance of our segments this quarter. Turning to Slide 9 for metal cutting. Reported metal cutting sales were up compared to the prior year quarter with 10% organic growth, partially offset by unfavorable foreign exchange and business days of 2% each.

Speaker 4

We achieved growth in all regions and end markets on a constant currency basis. By region, EMEA led at 12%, followed by the Americas at 8% and Asia Pacific at 1%. EMEA's year over year performance reflects growth driven by supply chain improvements affecting OEM backlogs in transportation and volume in general engineering. America's year over year growth this quarter was driven by the execution of our growth initiatives in Aerospace and Defense and in the general engineering end market. Asia Pacific's growth, as Chris noted, was primarily adversely affected by a slower recovery Looking at sales by end market, Aerospace and Defense grew 19% year over year as our strategic initiatives continue Energy, which experienced some demand moderation in the 4th quarter, grew 3%.

Speaker 4

And lastly, grew 7% year over year benefiting from improved customer supply chains in EMEA, somewhat offset by weaker conditions in Asia Pacific. Metal Cutting adjusted operating margin of 12.6 percent increased 130 basis points year over year. Turning to Slide 10 for Infrastructure. Organic sales increased by 3% year over year, offset by unfavorable foreign Change of 2% and business days of 1%. Regionally, EMEA grew 13%, followed by Asia We grew 7% mainly in EMEA from the delivery of a large order for pelletizing dyes used in plastics manufacturing, but all regions saw growth.

Speaker 4

General Engineering grew 5% due to improved demand in EMEA and Asia Pacific partially offset by lower demand in the Americas. Earthworks declined 1% with modest growth in the EMEA and Asia Pacific regions offset by lower construction volume in the Americas. And lastly, Aerospace and Defense declined 4% due to order timing when compared to the prior year. Adjusted operating margin declined year over year 9.6%, primarily due to 2 factors. First, as discussed on prior calls, the favorability of price over material cost We had experienced is now negligible as raw material costs reflecting the current market costs are now flowing through the P and L.

Speaker 4

The second significant factor affecting the margin this quarter was lower sales volume, primarily in the Earthworks end market in America's road Rehabilitation, we are seeing and hearing from our customers about fewer projects this construction season. Customers are telling us that there are two factors causing this. 1st, our customers do not have enough labor to support the available work. And secondly, Higher cost per mile have left municipalities with fixed budgets no option but to rehabilitate fewer miles of road. Sequentially, As we noted on our last call, we did see margin improve 480 basis points over the prior quarter.

Speaker 4

This improvement Was primarily driven by increased sales volume and the abatement of the unfavorable absorption effects from powder plant shutdowns earlier in the fiscal year. Now turning to Slide 11 to review our free operating cash flow and balance sheet. Our full year free operating cash flow was 100 $69,000,000 nearly double the $85,000,000 reported in the prior year. We are very pleased with the team's effort to deliver the best free operating cash flow since 2015. The primary driver for the increase in cash flow was improved working capital, specifically Year over year primary working capital increased to $662,000,000 On a percentage of sales basis primary working capital increased to 30 Net capital expenditures were $89,000,000 compared to $96,000,000 in the prior In total for the year, we returned approximately $114,000,000 to shareholders through our share repurchase and dividend programs.

Speaker 4

We We repurchased $12,000,000 of shares in Q4. Inception to date, we have repurchased $135,000,000 or 4,700,000 shares, representing approximately 6% of outstanding shares and as we have every quarter since becoming a public company Over 50 years ago, paid a dividend to our shareholders. Our commitment to returning cash to shareholders reflects At quarter end, we had combined cash and revolver availability of approximately $806,000,000 And we were well within our financial covenants. Additionally, our revolver is fully paid down at the end of the quarter. The full balance sheet can be filed on Slide 23 in the appendix.

Speaker 4

Turning to Slide 12, I want to take a moment to talk about our full year EBITDA margin, so everyone can see how macro forces we faced affected EBITDA margin. As you can see on the slide, our FY 'twenty two Full year EBITDA margin was 18.1% and it declined to 15.5% in FY 2023. For the full year, volume was a positive factor that added 40 basis points to margin. However, we also had approximately 70 basis points of margin dilution from unfavorable absorption in infrastructure due to lowering safety stock and from supply chain disruptions in Q1 in both segments. As we have been discussing this year, in this high inflation environment, we have been covering cost inflation with price on a dollar basis.

Speaker 4

The net effect of this is 120 basis points of margin dilution for the full year. Additionally, lower pension income and the stronger dollar were 60 10 basis points dilutive respectively. In total, the macro forces of price over inflation, Foreign exchange and lower pension income accounted for approximately 190 basis points of margin dilution in FY 'twenty three. Looking ahead to FY 'twenty 4, we expect the headwinds from pension income, unfavorable foreign exchange and cost inflation to moderate. We do not expect supply chain issues to be as disruptive going forward and we will continue to execute on our commercial and operational excellence This is to grow the business and increase profitability.

Speaker 4

So let's turn to Slide 13 to review our FY 'twenty four outlook. We are providing an outlook for both full year and the Q1. Beginning with the Q1, we expect 1st quarter sales to $485,000,000 $510,000,000 with volume ranging from negative 5% to flat, price realization of approximately 3 And with neutral foreign exchange effects. Let me share some detail on the sales assumption underlying the Q1 outlook. Our Q1 range reflects a seasonal decline that is slightly greater than our historical average on top of a seasonal decline last year that was better than our The decline reflects our expectation that the energy and general engineering markets will continue to perform at the lower level we saw in Q4 and that the recovery in China remains slow.

Speaker 4

We expect the current inflationary environment to persist, but at a moderating We expect a raw material headwind of $8,000,000 due to pricing ahead of raw materials in Q1 of the prior year. Foreign exchange And non cash pension income are expected to be neutral to earnings per share. Interest expense is assumed to be approximately $7,000,000 And an effective tax rate of approximately 5%, which includes a one time discrete item, which is driving the lower first quarter rate. We expect adjusted EPS in the range of $0.30 to $0.40 Turning to Slide 14 regarding our full year We expect FY 'twenty four sales to be between $2,100,000,000 $2,200,000,000 with volume ranging from down 2% Up 3%. I want to spend a moment to review the volume assumptions in this outlook in more detail.

Speaker 4

For the full year, as I just mentioned, the moderation in growth we experienced exiting FY2023 is anticipated to continue at that level Into the Q1 of FY 'twenty four, we expect growth to accelerate as the year progresses with second half growth outpacing the first half driven by Proving conditions in the energy, general engineering and transportation end markets and an improvement in China. For the full year, we expect aerospace and defense Volume to remain strong, energy and transportation to moderately increase with general engineering and earthworks flattish. Based on current tungsten prices, we expect net price realization of 3%, with our inflationary pricing actions partially offset by lower prices Customers with index pricing due to higher material content. We expect foreign exchange to be neutral. From a cost perspective, We expect the current inflationary environment to persist into FY 'twenty four, but it is assumed to moderate.

Speaker 4

We expect price to offset raw material, wage and general cost increases on a dollar basis. As a result of pricing ahead of raw materials in Q1 of Prior year, we anticipate raw material costs to negatively affect Q1 by approximately $8,000,000 In addition, Our FY 'twenty four outlooks reflects the current pricing level for Tungsten. Q2 effect of this is an approximate The $10,000,000 headwind, assuming this pricing level remains constant in the second half of FY 'twenty four, we will begin to benefit Lower material costs in Q4. Collectively, these headwinds are primarily affecting our Infrastructure segment. Foreign exchange and non cash pension income are expected to be neutral to earnings per share.

Speaker 4

Approximately $15,000,000 of savings from our previously announced Restructuring initiative has been included and we expect it to be realized more in the second half of the year. We remain on target to achieve an annualized run rate Approximately $20,000,000 at the end of FY 'twenty four. Depreciation and amortization is expected to be approximately $135,000,000 And we expect interest expense of approximately $28,000,000 and an effective tax rate for the full year of approximately 24%. We expect adjusted EPS to be in the range of $1.75 to 2 $0.15 On the cash side, the full year outlook for capital expenditures is $100,000,000 to $110,000,000 and the outlook for primary working capital is 30% to 32%. Taken together, we We continue to expect free operating cash flow at approximately 100% of adjusted net income in line with our long term target.

Speaker 4

And with that, I'll turn it back over to Chris.

Speaker 3

Thanks, Pat. Turning to Slide 15, let me take a few minutes to summarize. Overall, we're Pleased with our strong free operating cash flow in the quarter and remain confident in our ability to continue to return cash to shareholders while investing We see additional opportunities to drive greater operational efficiencies from our modernized plants and drive share gain by optimizing our investments in commercial excellence and technology. Looking ahead to fiscal year 'twenty four, Volumes associated with key end markets such as airline bill rates and light vehicle production still remain below Peak pre COVID levels and our oil and gas customers expectation that spending will remain durable in a volatile commodity environment provides us with confidence As the year progresses into the second half, we will see growth accelerate. We are looking forward to providing more details On these end market conditions as well as an update on the company's growth and innovation strategy and operational and financial targets To fiscal year 2027 at our upcoming Investor Day.

Speaker 3

See Slide 16 for more specifics and a registration link to the event. And with that, operator, please open the line for

Speaker 1

Thank Our first question comes from Julian Mitchell from Barclays. Please go ahead.

Operator

Hey, this is Kieran Patel O'Connor on for Julian. I just wanted to ask on your fiscal 'twenty four guidance. It looks like It implies an EBIT margin of around 11%. So the margins are up year on year more than 100 basis points on our math. So I just want to check if that was roughly correct?

Operator

And Just any differences to call out in terms of margin expansion by segment embedded within your guide?

Speaker 4

Yes. That sounds reasonable, Karen. I think if we think about the margin in terms of the segments, just a couple of things to kind of think about as we talked about on the call. First off, start with the infrastructure. Infrastructure will have some material headwinds here in the first half in Q1 as we talked about Price basically being ahead of raw material costs in the prior year and the additional APT headwind as we We move into the Q2.

Speaker 4

Those being the negative items, the positive items affecting the year for us is at the mid Volume will be up slightly. We will get the benefits of about $15,000,000 from our restructuring As well as in predominantly within the infrastructure segment again, we had absorption issues in 2nd quarter and Q3 in infrastructure and in Q1, we had some supply chain disruptions that approximately 15,000,000 And dollars we'll see come back and we'll also see some productivity come through our plants given our operational excellence initiatives. Overall, I think we'll have both segments will be margin will be up on a year over year basis at the midpoint.

Operator

Got it. That's helpful. Thank you. And then just my follow-up would be, you're just kind of thinking about the EPS cadence through the year. It sounds like EPS is a little more 2H weighted this year than maybe it normally is.

Operator

And I know some of the factors you called out like restructuring, better top line growth as the year progresses, There's maybe narrower raw material headwinds in the second half. So I just wanted to check if you give us any rough split on EPS in the first half versus the second half of fiscal twenty twenty four?

Speaker 4

Thanks. Yes. No, I think if you think about that, you're right, it's going to be weighted towards that second half, A bit more, we would normally think by 40% of the EPS will be coming through in the first half. I think it will be less that This year, we'll get a bit more in the back, pick up the benefits from restructuring in the back half, obviously get the relief On the raw material as we get out to the Q4 as well, raw material should be a net positive for us.

Speaker 1

There are no more questions in the queue. This concludes the question and answer session. I would like to turn the conference back over to Chris Rossi for closing remarks.

Speaker 3

Thanks, operator, and Thanks everyone for joining the call today. I hope that you will be able to join us next month at our Investor Day on September 8 at the New York Stock Exchange.

Speaker 2

We have a call in the queue. A question in the queue.

Speaker 1

Question from Steve Barger from KeyBanc Capital Markets. Please go ahead.

Speaker 5

Hey, thanks. Busy morning. Sorry, I forgot to punch into the queue. But we've seen morning. We've seen the metal working index decline for most of the year and year over year IP just printed negative for June.

Speaker 5

Just given Kennametal's historical relationship To the cycle, how confident are you in the volume outlook, especially in the back half of the year? Can you just talk about how you see that?

Speaker 3

Yes, I think what we're seeing is maybe a few data points. As Pat said in his comments, we kind of see the first half progressing certainly the Q1 kind of progressing at the levels we saw in Q4, So not really deteriorating. And then second half of our year, which of course is the first half of calendar year 2024, We see some improvements and a couple of things are driving that. If you look at aircraft OEM build rates, according to Boeing and Airbus, first half 2nd half, they're going to be up about 12%. We also look at light vehicle production that's going to increase globally about 2% From first half to second half.

Speaker 3

And then, we think there'll be a gradual improvement in industrial production in Europe as the year progresses. And also, the China recovery has been slow, but we understand the Chinese government is looking some stimulus measures, which We think will help the acceleration of China. And then also on the oil and gas front, the rig count at its current level It's pretty low and it's expected to increase by the time we get into Q4. And then I'd finally say on U. S.

Speaker 3

Manufacturing, Trian, as I said, it will stay about the Q4 levels in the first half, then it will improve from there. And there's a couple of data points we've got. We look at The National Association of Manufacturers forecast of manufacturing production and That's expected to be about 1.2% year over year for calendar year 'twenty four. So we think that will accelerate some of the benefits in the second half of our year. And then we also look at the PMIs, I think the S and P U.

Speaker 3

S. Manufacturing PMI in June was at 46.3 and it's In July, it's at 49. So it's still in the contraction territory as you know, but it's moving in the right direction. And we think that Once we get through the first half of our year that we see that the industrial production should start to ramp up overall. And we don't have a huge increase in volume year over year implied in these in our forecasts.

Speaker 3

If you look at infrastructure, Sure, it will probably be for the full year flat to slightly down and metal cutting be slightly up. So at the midpoint of our guidance, we're not assuming Huge amount of volume improvement. If you're more optimistic about the second half of the year, that'll take us to the high end of the range. If you're a little more pessimistic, that could be at the lower end of the range.

Speaker 5

Yes, thanks. That's great color. I appreciate that. In In terms of the volume expectations, for a while now, volume has been kind of hard to come by in an environment where the end markets have Pretty resilient and you make a good case for how you see the back half. But are you expecting that your volume Guidance is a function of the cycle itself or can we really start to expect commercialization to drive some outgrowth Because you often spend time talking about the new business wins, but something must be offsetting that on the other side.

Speaker 3

Yes. This is a combination of I would say that for the most part, we're not counting on the markets To give us very much, a lot of this is driven by the commercial excellence initiatives.

Speaker 5

Do you think the commercial excellence initiatives will drive more volume than the cycle itself as you go through the year?

Speaker 3

As we go through the year, I think in infrastructure, the commercial initiatives are going to drive a good portion of that. And in metal cutting, it's probably a little bit of a fifty-fifty split Roughly.

Speaker 5

Got it. And Pat, you expect you talked about growth picking up as the Your progress is, but you have that $10,000,000 unfavorable impact from tungsten in 2Q. Does that mean 2Q generally looks More like 1Q or can you kind of help us with the first half cadence just given some of the puts and takes in 1Q and 2Q?

Speaker 4

Yes, Yes, I think Q2 is going to look much like Q1.

Speaker 5

Got it. Okay, thanks very much.

Speaker 3

Thanks, Steve. Take care.

Speaker 1

This concludes our question and answer session. I would like to turn the conference back over to Chris Rossi for closing remarks.

Speaker 3

Okay. So just a reminder, we have our Investor Day on September 8th at New York Stock Exchange. Hopefully, you'll all you'll be able to see you all there. And if you have any questions, don't hesitate to call Mike. And as usual, we certainly appreciate your interest and support.

Speaker 3

Thank you.

Speaker 1

A replay of this event will be available approximately 1 hour after its conclusion. To access the replay, You may dial toll free within the United States, 877-344-7529. Outside of the United States, you may dial 412-317-0088. You will be prompted to enter the conference ID 3,366,385, then the pound or hash symbol. You will be asked to record your name and company.

Speaker 1

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.

Powered by Quartr
Earnings Conference Call
Kennametal Q4 2023
00:00 / 00:00