September 19, 2012 / 6:58 PM / in 5 years

Kennametal aims to double sales by 2017

NEW YORK (Reuters) - Kennametal Inc KMT.N said it aims to double its revenue by 2017 through acquisitions, new products, expansion in emerging economies, and growth in its industrial markets, and the tool maker affirmed its 2013 sales and profit forecasts.

“We have a very clear path of doubling our revenue in the next five years,” Chief Executive Carlos Cardoso told an investor conference on Wednesday.

Latrobe, Pennsylvania-based Kennametal, is often considered a proxy for global industrial production, more than larger, more diversified manufacturers.

The company, with fiscal 2012 sales of $2.65 billion, said it was targeting 2017 revenue of $5 billion to $6 billion. It cited expected growth in aerospace, transportation and engineering markets. It aims for 30 percent of sales coming from Asian markets within five years, up from about 17 percent now.

Kennametal forecast fiscal 2013 sales of $2.93 billion to $3.01 billion, and earnings per share of $4.10 to $4.40. Analysts were looking for $4.20 per share on sales of $2.98 billion.

Kennametal’s publicly-traded peers include Lincoln Electric (LECO.O), Timken Co (TKR.N), Joy Global JOY.N, Ametek (AME.N) and Dresser-Rand DRC.N. Some analysts cite Sweden’s Sandvik (SAND.ST) as the closest direct rival, but that company’s market capitalization is five times larger than Kennametal‘s.

Cardoso said the environment for mergers and acquisitions (M&A) was the best he has ever seen, because sellers have seen prices bounce from recession lows but remain nervous about a choppy market.

“We have to be prepared to make the acquisitions if they come together,” he said. “If we’re not prepared, they go to someone else.”

Kennametal shares were up 1.6 percent at $29.17 in late trading.

‘PENT-UP DEMAND’

Kennametal’s comments on the M&A environment were the highlight of the investor meeting, said Douglas Thomas, President of JET Equity Partners LP, which owns Kennametal shares.

“The big key takeaway was when (they) talked about the acquisition pipeline,” he said, adding the company could take on more debt to fund bigger deals, but could itself be a target for a larger industrial company. Thomas called the company’s 2017 goals reachable but not easy.

“A lot of things will have to go right for them to achieve that,” Thomas said, adding that industrial companies cannot count on growth in emerging markets like China. “They’ve proven they can improve operating fundamentals regardless of market conditions.”

Kennametal CEO Cardoso said another recession could keep the company from doubling in size, but that was an unlikely scenario. Political uncertainty in the United States and elsewhere was keeping investment in check, but that could lift after the November 6 election.

“This election is bringing a lot more uncertainty than any other election I remember, and there’s a change of guard in China,” Cardoso said in an interview. “There’s hesitation. Those things create a choppy macro (environment). There’s pent-up demand.”

Cardoso, whose company gets about a third of sales from Europe, the Middle East and Africa, said northern Europe could slip into a brief recession but bounce back quickly. Southern Europe will continue to struggle for two or three years.

Population growth in emerging economies will drive energy and infrastructure spending over the next five years as millions of people move into the middle class.

Kennametal forecast each of its markets -- ranging from oil and gas exploration to durable goods manufacturing and surface mining -- will average mid- to high-single digit annual growth over that period.

Cardoso said most of the company’s growth in emerging economies will be from existing businesses rather than via acquisitions, which are typically aimed at adding new technology rather than geographic markets.

Reporting By Nick Zieminski in New York; editing by John Wallace and Marguerita Choy

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below