Kennametal counts on strategy to realize 'tremendous potential'

Sign up for one of our email newsletters.Updated 17 hours ago Kennametal Inc. is on target to complete a restructuring plan to reduce its global workforce by 1,000 jobs and improve efficiency, actions designed to save the company $100 million, according to...

Kennametal counts on strategy to realize 'tremendous potential'

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Updated 17 hours ago

Kennametal Inc. is on target to complete a restructuring plan to reduce its global workforce by 1,000 jobs and improve efficiency, actions designed to save the company $100 million, according to the company's chief executive.

Chief Executive Officer Ronald De Feo is guiding the industrial toolmaker through an “improvement plan” that he anticipates will be completed by June 30, coinciding with the end of its fiscal year. With that restructuring and improving markets, De Feo sees fiscal 2017 as a significant improvement over the previous year as the company gets stronger and focuses on its growth initiative.

“There is tremendous potential in our current portfolio if we execute the strategy we have in place,” De Feo said.

Earlier this month, De Feo told analysts in conference calls that the company has identified 90 percent of its workforce cuts. While some of those workers remain on the job, the company expects to save $64 million this fiscal year and another $75 million to $90 million in 2018.

This month marks the one-year anniversary that De Feo took over from former CEO Donald Nolan, who was removed after 15 months as the firm struggled to stem losses in a tough market made worse by the energy slump. De Feo, who had been on Kennametal's board since 2001, served as CEO of Terex Corp. for 20 years before retiring in 2015.

In Kennametal, De Feo oversees a market leader in metal-cutting tools and tooling supplies for the mining and highway construction industries that has $2.6 billion in annual sales. In the midst of the corporate-wide employee reduction initiative, the company has nearly 11,000 employees globally, including about 4,200 in the United States.

Although Kennametal moved its corporate headquarters from Westmoreland to Downtown Pittsburgh in September 2015 under Nolan's tenure, it maintains its technology center and some corporate functions at its sprawling 79-acre campus in Unity Township, where about 450 employees work.

De Feo emphasized how important the company has been to the region and the support he has received from Westmoreland and Allegheny counties. Business, economic development and political leaders in Westmoreland worked to convince Kennametal to retain a corporate presence here because of its importance to the local economy.

“It is clear that Kennametal is a critical member of the community, and it is important for us to build on that,” De Feo said.

The company's workforce in Western Pennsylvania likely will stay at the current level this year, with slight variations, De Feo said.

Some reductions in Kennametal's global workforce have been achieved through voluntary retirements, but the company has made cuts at the executive level as it strives to become more profitable, De Feo said.

Most of those cuts are not in manufacturing locations, De Feo said.

“There's not major changes in our manufacturing footprint. We're building more capability at a lower cost. We have more capabilities in areas that are more profitable,” he said.

The changes that De Feo and the leadership team have implemented have sat well with Wall Street.

Equity analyst Matt Miller at CFRA Research of New York, an independent equity research firm, upgraded its view of Kennametal shares earlier this month from hold to buy. It raised its prediction of earnings per share by 3 cents to $1.38 per share this fiscal year and raised its prediction for earnings per share in fiscal year 2018 by 20 cents to $1.90 a share.

A key market for Kennametal has been the energy sector, which De Feo believes has bottomed out.

“We're seeing a modest improvement by our larger customers,” he said.

He believes the Trump administration is bringing a balanced energy strategy, globally and domestically.

The coal industry anticipates a gradual improvement as a result of changes Trump proposes in the regulatory environment, said Luke Popovich, a spokesman for the National Mining Association, a Washington, D.C.-based trade group.

“They will lift some of the heaviest regulatory burden ... to remove the regulatory boulder off our backs,” Popovich said.

In the oil and national gas industries, the rig count for drilling operations is predicted to be 50 percent higher this year than in 2016, said John Tumazos, an investment advisor who follows the metal industry for his Tumazos Very Independent Research LLC of Holmdel, N.J.

Iron ore prices are on the rise, and metallurgical coal prices are up 150 percent over last year, which should bode well for the company as mining activity is likely to increase, Tumazos said.

“There are a number of end markets (for Kennametal) that are improving, and it would be logical to expect some better surprises” for the company, Tumazos said.

Joe Napsha is a Tribune-Review staff writer. Reach him at 724-836-5252 or jnapsha@tribweb.com.

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