A couple of days after announcing completion of the
Allegheny Technologies Incorporated
) tungsten materials business,
) at its Analysts Day held on Nov 6, 2013 provided details on
integration synergies expected out of the transaction.
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Let us first get a quick look at the acquisition details provided
earlier by Kennametal:
The agreement was announced by Kennametal on Sep 16, 2013.
Allegheny Technologies' tungsten materials business is a leading
producer of tungsten metallurgical powders and also provides
tooling technologies and components. The business has two
divisions namely, ATI Firth Sterling and ATI Stellram. Annual
revenue generation capacity of the business is $340 million and
employs 1,175 people operating from 14 facilities worldwide.
The transaction value was fixed at $605 million, which Kennametal
paid using its available cash and borrowings under its existing
revolving credit facility. The company anticipates it will
realize $30-$45 million in annual savings (versus $30-$40 million
expected earlier) via consolidation of both the operations,
reduction in administrative overhead costs and leveraging supply
chain. Integration costs of $40-$50 million are anticipated to be
incurred through fiscal 2016.
Also, the management of Kennametal provided a near-term outlook
on the acquisition. Sales within $200-$220 million range with
neutral earnings impact is anticipated for the eight months of
fiscal 2014. Cash tax benefits of $60-$70 million are also
expected to be realized during the period.
This acquisition builds on Kennametal's Emura and Stellite
acquisitions, while also increasing the company's presence in key
growth sectors, including aerospace, energy and associated
process industries. Further, it has also accelerated Kennametal's
plan for an advanced tungsten carbide facility. The company has
lowered its capital spending plans in a big way, from $65 million
to $35 million.
Besides the acquisition details, Kennametal at its Analysts Day
also discussed its long-term targets/goals. The company
anticipates achieving organic growth rate of 6%-10% (CAGR), EBIT
% to be greater than equal to 15%, earnings per share to grow
within 15%-20% (CAGR), capital expenditures to be 3%-4% of sales,
and free cash flow to be greater than or equal to net income. By
fiscal 2017, the company anticipates to double its base business
to $5-$6 billion range.
The company also maintained its previously provided guidance for
fiscal 2014. These include sales within $2.7-$2.8 billion range,
organic growth within 4%-6% range, earnings per share within
$2.90-$3.05 range, cash flow from operations within $330-$380
million range, capital expenditure within $130-$150 million range
and free cash flow within $200-$230 million range.
Kennametal Inc. currently has a market capitalization of $3.6
billion. The stock carries a Zacks Rank #3 (Hold). Other stocks
to watch out for in the industry are
) with Zacks Rank #1 (Strong Buy) and
Lincoln Electric Holdings Inc.
) with a Zacks Rank #2 (Buy).