Kennametal (KMT -7.4%) remains sharply lower after FQ2 results revealed higher sales but lower profits compared to the previous year.
Revenues rose 9% to $690M, but just 2% was an organic increase and 7% came from the acquisition of Allegheny Technologies' tungsten materials business.
KMT also issued downside guidance for FY 2014, lowering EPS to $2.60-$2.75 from a prior forecast of $2.90-$3.05 and $2.97 analyst consensus; expects total sales growth of 12%-13% vs. prior 5%-7%, and organic sales growth of 2%-4% vs. prior 4%-6%.
Related to the acquisition, KMT plans restructuring actions and expects to incur $40M-$50M in pretax charges within the next three years.
By purchasing one of the biggest tungsten businesses in the world, KMT will be able to expand in the aerospace and energy sectors and reduce its raw material costs; tungsten, which is harder than steel and titanium, is very difficult to recycle but ATI has learned how to do it, KMT CEO Carlos Cardoso says.
"These are very specialized businesses, and there aren't huge numbers of competitors," Bradford Research says.
For ATI, the sale will allow it to focus more on high-performance metals and flat-rolled items; in the short term, the sale strengthens ATI's balance sheet, KeyBanc says.
Kennametal Inc is engaged in developing and manufacturing metalworking tools and wear-resistant engineered components and coatings. It supplies its products for transportation, general engineering, aerospace, defence, energy and earthworks sectors.