QUOTE AND NEWS
newratings.com  3 hrs ago  Comment 
WASHINGTON (dpa-AFX) - Kennametal Inc. (KMT) announced that Chairman, President and CEO Carlos Cardoso has decided to retire from the company effective on December 31, 2014. The company's Board expects to complete search for Cardoso's...
newratings.com  Jul 31  Comment 
WASHINGTON (dpa-AFX) - Kennametal Inc. (KMT) Thursday reported fourth-quarter net income attributable to the company of $45.46 million or $0.57 per share, down from $60.82 million or $0.76 per share in the prior year. On an adjusted basis,...
Clusterstock  Jul 21  Comment 
In this week's Barron's cover story, Reshma Kapadia highlights six stocks that are set to benefit from a global economic recovery. Kapadia's picks come from four of the market's most under-loved sectors this year: technology, energy,...
Market Intelligence Center  Jul 2  Comment 
After Tuesday’s trading in Kennametal Inc. (KMT) the algorithms behind MarketIntelligenceCenter.com's Artifical Intelligence Center picked out a trade that offers a 2.16% or 7.29% (for comparison purposes only), while providing 4.96% downside...
DailyFinance  Jun 12  Comment 
ANGUILLA, BRITISH WEST INDIES -- (Marketwired) -- 06/12/14 -- KMT-Hansa Corp. (NEX: KMC.H) ("KMT") announces the appointment of Ms. Jingjing Zhang of Shenzhen, China as a director of KMT. Ms. Zhang replaces Mr. Yoshinori Suzuki as a director....
Market Intelligence Center  May 28  Comment 
Kennametal Inc. (KMT) traded between $45.49 and $45.78 before closing at $45.53 Tuesday and presents some attractive trading opportunities today. MarketIntelligenceCenter.com’s patented algorithms selected a Jul. '14 $45.00 covered call for a...
Market Intelligence Center  May 22  Comment 
For a hedged play on Kennametal Inc. (KMT) MarketIntelligenceCenter.com’s patented trade-picking algorithms recommend the Jul. '14 $45.00 covered call for a net debit in the $43.90 area. That is also the break-even stock price for the covered...
Market Intelligence Center  May 21  Comment 
For a hedged play on Kennametal Inc. (KMT), MarketIntelligenceCenter.com’s option-trade picking algorithms recommend the Jul. '14 $45.00 covered call for a net debit in the $43.77 area. That is also the break-even stock price for the covered...
SeekingAlpha  May 13  Comment 
By Markus Aarnio: Kennametal (KMT) manufactures and supplies tooling, engineered components, and advanced materials consumed in production processes worldwide. (click to enlarge) Insider selling during the last 30 days Here is a table...
SeekingAlpha  May 2  Comment 
Kennametal Inc. (KMT) Q3 2014 Results Earnings Conference Call May 01, 2014, 10:00 AM ET Executives Quynh McGuire - Director of IR Carlos M. Cardoso - Chairman, President and CEO Frank P. Simpkins - VP and Chief Financial Officer ...




 

Kennametal Inc. (NYSE:KMT) is an industrial equipment manufacturer, particularly metal-cutting tools, drill bits, and other pieces of equipment where resistance to wear is required. These products are used in many end markets, primarily industry and construction. KMT operates in an oligopoly, and produces niche industrial products with few competitors, giving it pricing power in the market. Being an industrial supplier, however, means that the company's success depends on the health of industrial end markets. Any economic shocks in an industry using machine tools directly affects KMT returns, so when oil prices rise, for example, the expansion of the oilfield services industry leads to increased demand for KMT's tungsten-carbide tools. The company earned $2 billion in sales but incurred a net loss of $120 million in 2009.[1]

End markets often reflect the state of the economy they operate in, so KMT has made several acquisitions and divestments to shift some of its dependence away from the U.S. economy and towards more international markets, in order to reduce its risk. Rising costs for materials like steel and tungsten affect the entire machine tools industry, and force Kennametal to raise prices or cut costs to avoid shrinking margins.

Company Overview

Kennametal operates two main segments:[2]

  • Metalworking Solutions and Services Group (MSSG) (62% of sales) -- The MSSG segment produces metal-cutting tools and tooling systems and sells them to industrial manufacturing companies and distributors, including Updike Supply.
  • Advanced Materials Solutions Group (AMSG) (38% of sales) -- The AMSG segment manages the production and sale of cemented tungsten carbide products used in mining, highway construction and engineering applications requiring wear and corrosion resistance. AMSG's most renowned product, tungsten carbide tooling, is sold to engineering firms, construction firms, and industrial suppliers, including Greenfield Industries.

Business Growth

FY 2009 (ended June 30, 2009)[1]

  • Net sales decreased 22% to $2 billion. The company attributes fall to a decline in global demand levels which caused organic sales to decrease in all major metalworking markets.
  • The company incurred a net loss of $120 million compared to a gain of $168 million in the previous year.

Trends and Forces

End markets determine Kennametal production

Since Kennametal is primarily an industrial supplier, the health of the economy's end markets are crucial to Kennametal's success. Increased global industrial production will directly affect Kennametal's product manufacturing by causing demand for its industrial tools to rise. The general engineering end market is KMT's main buyer (43% of sales). This end market involves KMT selling its tungsten carbide tooling and advanced materials to various manufacturing businesses, from waste water treatment to animal food processing. The automotive industry affects Kennametal's second-largest end market, on-highway vehicles (28% of sales). KMT sells axles and bearings to the automotive industry. Every market trend affects the outcome of Kennametals' business strategies. High oil prices, for example, have caused increased exploration for new energy taps, which in turn increase demand for KMT's earth-drilling tools.

Kennametal has Dumped Big Subsidiaries for Niche Acquisitions to Expand Internationally

Since Kennametal products are sold to several end markets, the state of an economy drives Kennametal's success; the strength of an economy is an indicator of the strength of its end markets. KMT believes the U.S. is entering a recession, and hopes that international expansion will reduce revenue loss by causing the company to be less dependent on the U.S. economy. To this end:

Some of Kennametal's past acquisitions include

  • Camco
  • Sintec
  • International Specialty Alloys, Inc.
  • KENCI, S.A.
  • Federal Signal's cutting tools business

Some of the company's divestments include

  • Full Service Supply
  • J&L Industrials

Kennametal Adjusts to Changing Raw Material Costs

Steel, Cobalt, and Tungsten are the three main raw materials used in Kennametal product manufacturing. Tungsten APT prices have increased 160% in the last five years. Since 2004, Cobalt prices have decreased 22%. Both have seen price increases thanks to the economic growth of emerging markets and rising demand for industrial equipment. To offset these increases in cost, Kennametal has increased net product prices.[3]

Competition

Machine Tools & Accessories

  • Stanley Works (SWK)- SWK is manufactures consumer and industrial tools.
  • Timken Company (TKR)- TKR is the world's largest manufacturer of tapered roller bearings and a U.S. producer of steel alloy.
  • Kaydon (KDN)- KDN is a manufacturer of specialty bearings, and also manufactures machine parts and steel alloys.
  • CompX International (CIX)- CIX manufactures security products and precision ball bearing slides.
  • Hardinge (HDNG)- HDNG produces machine tools in Western Europe.
  • Thermadyne Holding (THMD)- THMD produces gas and electric arc cutting and welding products for the Americas.
  • RBC Bearings (ROLL)- ROLL manufactures bearings; 90% of its sales are from the U.S. and it has the second-highest return on equity in the past year.
  • Flow International (FLOW)- Flow produces high-pressure waterjet cutting tools and had the highest revenue growth of machine tools companies in the past quarter.

Metal Cutting Tools

  • Sandvik (STO:SAND)- This Sweden- based company is the highest global manufacturer of metal cutting tools.
  • Iscar Metalworking- Iscar is a Berkshire Hathaway-owned machine tools company located in Israel.

References

  1. 1.0 1.1 KMT 2009 10-K " Selected Financial Data" pg. 12
  2. KMT 2009 10-K "Business Segment Review" pg. 1-2
  3. KMT 2009 10-K "Raw Materials and Supplies" pg. 3
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