Kennametal Inc. reported net income of $28 million on sales of $556 million for the second quarter, and net income of $51 million on sales of $1088 million for the six months ended Dec. 31, 2004.

Second Quarter Results—Net income of $28 million ($0.74 per share) compares to net income of $11 million ($0.34 per share, adjusted) for the second quarter of fiscal 2004. The improved net income reflects improved sales volume leveraged against a more productive operating structure and a lower tax rate in the current quarter. EPS exceeded October guidance and there were no special items. Reported EPS in last year's second quarter were $0.30 and included special items totaling $0.04.

Record sales of $556 million compare to sales of $461 million for the year-ago second quarter. Sales represent an increase of 21% on 16% organic sales growth, 3% benefit from foreign currency exchange and 2% from acquisitions.

Net cash flow from operations was $51 million versus $43 million last year. Free operating cash flow was maintained at the prior year level of $34 million. The effective tax rate in the second quarter was 20% compared to prior year's rate of 32%. Debt to capital decreased to 28% versus 37% at the end of the prior year quarter. Adjusted Return on Invested Capital improved 310 basis points to 8.6% versus 5.5% in the prior year.

Six-Month Results—Net income of $51 million ($1.35 per share) compares to net income of $20 million ($0.68 per share, adjusted) for the second quarter of fiscal 2004. The improved net income reflects the benefits of increased volume and a leaner cost structure. Reported EPS for the prior year period included special items totaling $0.14.

Record sales of $1088 million compare to sales of $905 million for the first half of fiscal 2004. The 20% Increase in sales reflect 15% organic sales growth, 3% benefit from foreign currency exchange and 2% from acquisitions.

Net cash flow from operations was $83 million versus $55 million last year. Free operating cash flow totaled $51 million for the six-month period versus $36 million in last year's comparable period, with growth in cash from operations more than offsetting increased capital expenditures.

Comments—Kennametal Chairman, President and CEO, Markos I. Tambakeras, said, "We were very pleased to deliver record sales and earnings in the December quarter. Broad market momentum exceeded even our robust expectations, with contributions from all geographies and nearly every end market. The return to good growth in Europe was particularly encouraging. Effective execution of our strategy through the deployment of the Kennametal Value Business System is allowing us to leverage improved market conditions into strong penetration of new markets, and the gain of new customers. Metalworking and the J&L distribution business were notable earnings growth drivers."

Outlook—The broad nature of the strong demand experienced through the fiscal first half strengthened expectations of sustained economic strength in global manufacturing sectors throughout the remainder of fiscal 2005. Tambakeras said, "While we are pleased with our record December quarter, we remain focused on continuing to leverage the market environment for further customer and market penetration. This drive to deliver continued growth remains balanced by a relentless focus on cost control and cash flow."

Organic sales for the third quarter of fiscal 2005 are expected to grow 8 to 10, despite tougher comparisons. Reported EPS is expected to be $0.80 to $0.85. The effective tax rate for the third quarter is expected to be between 37 and 38%, an increase over prior expectations of 35%. The full year rate is still expected to be approximately 32%, consistent with original guidance. As stated previously, the execution of a business strategy, as well as the impact of tax planning, will result in fluctuations of the tax rate from quarter to quarter with the full year rate expected to be approximately 32%.

For the full year, organic sales are expected to grow 11 to 13%. Reported EPS are expected to be $3.05 to $3.15, up about 40 to 45% from the previous year.

Kennametal anticipates net cash flow provided by operating activities of approximately $185 to $215 million, or between 8 and 9% of sales, in fiscal 2005. Purchases of property, plant and equipment, net of proceeds from disposals of property, plant and equipment are expected to be approximately $70 to $80 million. Adjusting net cash flow provided by operating activities for the above items, Kennametal expects to generate between $115 and $135 million of free operating cash flow for fiscal 2005.

Kennametal advises shareholders to note monthly order trends, for which the company makes a disclosure ten business days after the conclusion of each month.

Kennametal Inc. aspires to be the premier tooling solutions supplier in the world with operational excellence throughout the value chain and best-in-class manufacturing and technology. Kennametal strives to deliver superior shareowner value through top-tier financial performance. The company provides a broad range of technologically advanced tools, tooling systems and engineering services aimed at improving customers' manufacturing competitiveness. With about 14,000 employees worldwide, the company's annual sales approximate $2.0 billion, with nearly half coming from sales outside the United States. Kennametal is a five-time winner of the GM "Supplier of the Year" award and is represented in more than 60 countries.