By:
Ronald Burgers, AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary
- Kennametal Inc. (NYSE: KMT) operates in manufacturing and application of ceramics, materials, and solutions used in extreme wear metal applications. They function within three segments; Industrial (54% of 2019 revenue), Infrastructure (38%), and Widia (8%).
- KMT
has revenue exposure of 42.7% in the United States, 13.2% in Germany,
10.1% in China.
- KMT
hopes to break into untapped markets with the innovation of new products.
- KMT
recently agreed to sell International Specially Alloys Inc. to AMG
Advanced Metallurgical Group NV for an undisclosed amount.
- KMT
announced a closure of four facilities as part of a restructuring plan.
After tax, estimated savings from the closures are $35 million to $40 million.
Key
points:
Kennametal plans on closing
four faculties, including a plant in the United States, as well as two plants
and a distribution center in Germany. This is part of KMT’s steps toward simplification
and modernization. This is expected to enhance structural benefits and improve
operational efficiency, setting them up for long-term bottom line growth. The closings
are estimated to save the company nearly $35 million to $40 million after tax.
Kennametal sees growth opportunities
for the industrial segment, specifically within the aerospace field, as it has
grown 12% in the past year. They are also hoping to tap into new markets with
the creation of Harvi Ultra 8x, a new tangential milling system.
On October 8th,
2019, KMT signed an agreement to sell certain assets to Advanced Metallurgical
Group N.V. These assets carry a value of $27 million, as reported on their
condensed consolidated balance sheets.
What
has the stock done lately?
Over the past two months,
KMT has seen an increase in value of nearly 5%. The Board of Directors declared
a dividend of $0.20 per share, which is payable on November 26, 2019, to
shareholders of record on November 12, 2019. The fiscal 2020 first quarter reported
an EPS of $0.08, a huge decrease compared to 2019’s first quarter EPS of $0.68.
This is a result from unexpected market slowdowns across all regions in engineering,
energy, and transportation. Sales from the 2020 first quarter totaled $518
million, along with an operating income of $16 million. Within the past three months,
KMT has seen a high and low of $35.10 and $27.62, respectfully.
Past
Year Performance:
KMT has lost value by 17% in the past
year. The stock has seen a 52-week high of $43.98, and a low of $27.49. Over
the past year, operating income increased 7%, and net income increased nearly
21%.
Source:
FactSet
My
Takeaway
KMT was added to the AIM
fund in April of 2018, with a price target of $50.23. At the time, the stock
was trading at $37.29. KMT experienced major losses in the past year due to
market slowdowns. KMT arranged for assets totaling $27 billion to be sold to
Advanced Metallurgical Group N.V., as well as plans to shut down four facilities
as part of their goal to simplification/modernization of their investments. With
a fairly large revenue exposure to China, and the recent talks within trade
agreements with China, KMT can be exposed to a negative impact from this as
well. KMT predicts adjusted earnings per share to decrease nearly $1.00 in the
coming year, as well as a significant decrease in free cash flows. Due to the
outlook on market factors, as well as how KMT has been performing recently, it
is suggested that KMT be sold out of the AIM Fund.
Source:
FactSet
