Q4 2024 Kennametal Inc Earnings Call

Good morning. I would like to welcome everyone to Kennametal's fourth quarter and fiscal 2024 earnings conference call.

Operator: Fourth Quarter and Fiscal 2024 Earnings Conference Call. Today, all participants will be in a listen-only mode to prevent any background noise. After the speaker's remarks today, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, please press star then number two. Please note that today's event is being recorded. I would now like to turn the conference over to Michael Pici, Vice President of Investor Relations. Please go ahead, sir.

Speaker Change: Today, all participants will be in a listen-only mode to prevent any background noise.

After the speaker's remarks today, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad.

Speaker Change: If you would like to withdraw your question, please press star, then the number two. Please note that today's event is being recorded.

I would now like to turn the conference over to Michael Pici, Vice President of Investor Relations. Please go ahead, sir.

Michael Pici: Thank you, operator. Welcome, everyone.

Michael Pici: Thank you, Operator. Welcome, everyone, and thank you for joining us to review Kennametal's fourth quarter and fiscal 2024 results.

Michael Pici: And thank you for joining us to review Kennametal's fourth quarter and fiscal 2024 results. This morning, we issued our earnings press release and posted our presentation slides on our website. We will be referring to that slide deck throughout today's call. My name is Michael Pici, Vice President of Investor Relations. Joining me on the call today are Sanjay Chowbey, President and Chief Executive Officer, Pat Watson, Vice President and Chief Financial Officer, and Franklin Cardenas, Vice President and President of Infrastructure. After Sanjay and Pat's prepared remarks, we will open the line for questions.

Speaker Change: This morning, we issued our earnings press release and posted our presentation slides on our website. We will be referring to that slide deck throughout today's call. I'm Michael Pici, Vice President of Investor Relations.

Speaker Change: Joining me on the call today are Sanjay Chowbey, President and Chief Executive Officer, Pat Watson, Vice President and Chief Financial Officer, and Franklin Cardenas, Vice President and President of Infrastructure.

Speaker Change: After Sanjay and Pat's prepared remarks, we will open the line for questions.

Michael Pici: At this time, I would like to direct your attention to our forward-looking disclosure statement. Today's discussion contains comments that constitute forward-looking statements and, as such, involve a number of assumptions, risks, and uncertainties that could cause the company's actual results, performance, or achievements to differ materially from those expressed in or implied by such statements. These risk factors and uncertainties are detailed in Kennametal's SEC filing. In addition, we will be discussing non-GAAP financial measures on the call today.

Speaker Change: At this time, I would like to direct your attention to our forward-looking disclosure statement.

Speaker Change: Today's discussion contains comments that constitute forward-looking statements, and as such, involve a number of assumptions, risks, and uncertainties that could cause the company's actual results, performance, or achievements to differ materially from those expressed in, or implied by, such statements.

Speaker Change: These risk factors and uncertainties are detailed in Kennametal's SEC filings.

Michael Pici: Reconciliations to GAAP financial measures that we believe are most directly comparable can be found on the back of the deck and on our Form 8K on our website. And with that, I'll turn the call over to Sun.

Sanjay Chowbey: Thank you, Mike. Good morning, and thank you for joining us today.

Sanjay Chowbey: It is an honor and a privilege to lead this company and to work with our team members around the world. Before I get into the main portion of my remarks, Let me say that it has been a very busy two months since I took on the CEO role. During that time, I visited numerous facilities around the world, talking to our team members, investors, customers, and other stakeholders. So much of what I'm hearing from them aligns with and reinforces what we are focused on by way of our value creation pillar. And I'll be speaking more about that in a minute.

Speaker Change: It is an honor and privilege to lead this company and to work with our team members around the world.

Speaker Change: Before I get into the main portion of my remarks.

Speaker Change: Let me say that it has been a very busy two months since I took on the CEO role.

Speaker Change: During that time, I visited numerous facilities around the world, talking to our team members, investors, customers, and other stakeholders.

Speaker Change: And I'll be speaking more about those in a minute.

Sanjay Chowbey: Earlier this week, we announced the hiring of our metal cutting president, Dave Bersalini. He is a strong business leader with a growth mindset and results-oriented. I'm very pleased to have Dave on our team.

Speaker Change: He is a strong business leader with a growth mindset and results orientation.

Sanjay Chowbey: I've also established a team to implement value creation business systems and tools that will help us drive above market growth, such as Operating Margin Expansion and Free Operating Cash. In the spirit of True Lean, we are making this investment, primarily through existing resources and some new talent, almost all of it funded by reallocation of... During these first couple of months, we also dealt with the aftermath of a tornado in Rogers, Arkansas. The safe, speedy, and successful restart of that facility was made possible by our local riders team and experts from across our organization who came in to help. Those teams work non-stop to safely resume operations and meet customers' expectations, and I just want to take this opportunity to say thank you to them.

Speaker Change: I'm very pleased to have Dave on our team.

Speaker Change: I've also established a team to implement value creation business systems and tools that will help us drive above market growth, operating margin expansion, and free operating cash flow.

Speaker Change: In the spirit of True Lean, we are making this investment.

Speaker Change: The safe, speedy, and successful restart of that facility was made possible by our local Rogers team and experts from across our organization who came in to help.

Speaker Change: And I just want to take this opportunity to say thank you to them.

Sanjay Chowbey: Now, let's turn to some of the details on the quarter on slide 3. Overall, I'm very pleased with how we performed in the quarter, despite market softness and other challenges. They also are at the upper end of our expectations, with organic sales declining 1%. During the quarter, infrastructure's organic sales declined 2%, and metal cutting's organic sales were flat.

Speaker Change: Now let's turn to some of the details on the quarter on slide 3.

Speaker Change: Overall, I'm very pleased with how we performed in the quarter.

Speaker Change: Despite market softness and other challenges.

Speaker Change: During the quarter, Infrastructure's organic sales declined 2% and Metal Cutting's organic sales were flat.

Sanjay Chowbey: It is worth noting that metal cutting has consistently outperformed our public peers over the last two years because end market conditions were met. We continue to see strength in aerospace and defense, with sales increasing by 23% from the prior year. This was driven by market growth, the execution of our strategic initiatives, and project time. General engineering sales were flat, with favorable project and order timing in the Americas offset by lower economic activity in EMEA.

Sanjay Chowbey: Transportation sales were down 1% year over year, mainly due to project timing and lower volume in America. Energy was down 6% due to the continued year-over-year declines in U.S. land-based rig count and wind energy project delays in Asia.

Speaker Change: Transportation sales were down 1% year-over-year, mainly from project timing and lower volume in Americas.

Speaker Change: Energy was down 6% due to the continued year-over-year declines in U.S. land-based rig count and wind energy project delays in Asia.

Sanjay Chowbey: Comparative market pressures, especially in road construction, continue to impact our earthworks business, which declined 6%. However, we are moving beyond the end market now. Our adjusted EBITDA margin increased 100 basis points from last year, despite lower sales volume and approximately $4 million in charges from the tornado. Additionally, as we expected, margins normalized in the infrastructure business, improving 490 basis points from the third quarter on an adjusted basis. During the quarter, we bought back $22 million worth of stock, completing our original $200 million authorization.

Speaker Change: Despite lower self-volume and approximately $4 million charge from the tornado.

Sanjay Chowbey: Overall, let me say that I'm quite pleased with how the business performed in court. Now, let's turn to slide four to briefly talk about the full year performance. Fiscal 24 presented us with persistently soft market conditions, foreign exchange headwinds, and the impact of the tornado that I previously mentioned.

Speaker Change: Fiscal 24 presented us with persistently soft market conditions.

Sanjay Chowbey: But even in a year with lower sales volume, we were able to move the business forward. Adjusted EBITDA margin was essentially flat despite lower volumes, price raw material timing affects infrastructure, the Tornado, and the Foreign Exchange Headquarters. We also delivered the highest free operating cash flow since fiscal 15. And the cash flow from operations as a percent of sales was the highest in over 25 years.

Speaker Change: And the cash flow from operations as percent of sales was the highest in over 25 years.

Sanjay Chowbey: This performance enabled us to return $129 million worth of cash to our shareholders through our Dividend and Shared Repurchase Program. End market results for the year were similar to the fourth quarter, with a few differences in the transportation and general engineering end markets. Aerospace and defense grew 13% driven by strategic initiatives and the market. Transportation increased 1% for the year, driven by project orders in EMEA, which were offset by lower production in the Americas and lower Asia-Pacific volumes. General engineering declined 1% for the year due to lower production in EMEA and the Americas; market conditions that impacted earthworks, which declined 4%, and energy, which declined 9%, were consistent throughout the year.

Speaker Change: This performance enabled us to return $129 million worth of cash to our shareholders through our dividend and share repurchase programs.

Speaker Change: Market conditions that impacted earthworks.

Sanjay Chowbey: In summary, we feel good about delivering a solid year and quarter. We've managed through many challenges, driven performance improvement, and continue to advance our strategic. That said, there is more work to do to deliver sustained performance on growth and profitability, and we are committed to continuing their work in fiscal 2020. I'm pleased to share with you our three value-creating...

Speaker Change: In summary, we feel good about delivering a solid year and quarter. We've managed through many challenges, drove performance improvements, and continue to advance our strategic initiatives.

Speaker Change: Turning to slide 5 for the value creation pillars I mentioned a few minutes ago.

Sanjay Chowbey: These pillars are built on a strong foundation and will be guiding us in fiscal 25 and beyond. First, delivering growth. This is exactly as it sounds.

Speaker Change: I'm pleased to share with you our three value-cursing pillars.

Sanjay Chowbey: We are focused on growing above market, and we'll do that through innovative solutions and application support, best-in-class customer service, and commercial excellence. As a brief side note, many of you will remember that we talked about several strategic pillars last fall at our Investor Day in New York: Innovation Advantage, Commercial Excellence, and Operational Excellence.

Speaker Change: This is exactly as it sounds.

Speaker Change: As a brief side note, many of you will remember that we talked about several strategic pillars last fall at the Investor Day in New York, Innovation Advantage, Commercial Excellence, and Operational Excellence.

Sanjay Chowbey: Those concepts have also been embedded as part of these value-creation... You can see Innovation and Commercial Excellence in Pillar 1 and Operational Excellence in Pillar 2, in everything we do, increasing value at work and removing waste from our processes. This is not just for our manufacturing plants but also applies to all parts of our... The Value Crescent Systems team will build our capabilities and drive adoption of continuous improvement tools with the full engagement of the broader team.

Speaker Change: principles to everything we do, increasing value at work and removing waste from our processes.

Speaker Change: The Value Creation Systems team will build our capabilities and drive adoption of continuous improvement tools.

Sanjay Chowbey: Now moving to the third pillar, portfolio optimization. This pillar is how we will systematically review and optimize our product and business portfolio to generate value for all our stakeholders. This is a critical, ongoing process to ensure that we are generating attractive returns from our current mix of invested capital and resource allocation. In addition, we will work towards improving our sales mix, emphasizing markets and applications with higher growth and margin profiles, as well as businesses that are less cyclical than our traditional markets. While I'm on this topic, let me say this:

Speaker Change: Now moving to the third pillar, portfolio optimization.

Speaker Change: This pillar is how we will systematically review and optimize our product and business portfolio to generate value for all our stakeholders.

Speaker Change: In addition, we'll work towards improving our sales mix, emphasizing markets and applications with a higher growth and margin profile, as well as businesses that are less cyclical than our traditional mix.

Sanjay Chowbey: Buying a third leg of a stool is not a part of our strategy. Instead, our primary focus is driving above-market growth, margin expansion, and cash flow improvement through organic action. But we will consider bolt-on acquisitions to fill product or coverage gaps for attractive applications and markets aligned with our strategic focus, for example, medical, ceramics, and aerospace and defense, as we had mentioned during Investor Day also. Finally, these pillars are supported by a strong foundation of engaged employees, our core values, and a winning culture.

Speaker Change: While I'm on this topic, let me say this.

Speaker Change: Buying a third leg of a stool is not a part of our strategy.

Speaker Change: Our primary focus is driving above market growth, margin expansion, and cash flow improvement through organic actions.

Speaker Change: But we will consider bolt-on acquisitions to fill product or coverage gaps for attractive applications and markets aligned with our strategic focus, for example, medical, ceramics, and aerospace and defense, as we had mentioned during Investor Day also.

Speaker Change: Finally, these pillars are supported by a strong foundation of engaged employees, our core values, and a winning culture.

Sanjay Chowbey: There will be more to come on these value creation pillars in the future, but for now, let me say this: We are focused on serving our customers, providing a great place to work for our team, and delivering above-market growth, operating margin expansion, and improved return on invested capital. The growth and continuous improvement pillars will be our primary focus on this journey, especially in the near term, while making systematic progress on portfolio performance over time. Now, let's turn to slide 6.

Speaker Change: Now there is more to come on these value creation pillars in the future, but for now let me say this. We are focused on serving our customers, providing a great place to work for our team, and delivering above market growth, operating margin expansion, and improved return on invested capital.

Speaker Change: The growth and continuous improvement pillars will be our primary focus on this journey, especially in the near term.

Speaker Change: while making systematic progress on portfolio performance over time.

Sanjay Chowbey: Here I will provide a quick overview of Marketplace. The top section of this slide provides directional context on in-market sales performance reflected in our fiscal 25 assumptions at the mid-term. The lower section includes the key macroeconomic factors reflected in our outcomes. Given the short cycle nature of our business, backlog is not a meaningful component of our business and has minimal impact on our... As such, to set our outlook range, we rely on external market indicators, Customer Inputs, plus the expected impact of our strategic initiatives. You can see the data points on the slide, so let me provide you with a little bit more color beyond the numbers.

Speaker Change: Now let's turn to slide 6.

Speaker Change: Here I will provide a quick overview of Market Trends.

Speaker Change: The top section of this slide provides directional context on end-market sales performance reflected in our Fiscal 25 assumptions at the midpoint.

Speaker Change: The lower section includes the key macroeconomic factors reflected in our outlook.

Speaker Change: Given the short cycle nature of our business, backlog is not a meaningful component of our business model and has minimal impact on our outlook.

Speaker Change: As such, to set our outlook range, we rely on external market indicators and customer inputs plus the expected impact of our strategic initiatives.

Speaker Change: You can see the data points on the slide, so let me provide you with a little bit more color beyond the numbers.

Sanjay Chowbey: Overall, fiscal 25 is expected to be a continuation of mixed market conditions. Softer Markets in the Near Term and a Modest Improvement in the Second Half of Our Fiscal Year. In aerospace and defense, we expect continued growth, but at a slightly lower rate, as the major OEMs have revised their build rates for the rest of calendar year 24, then improve in calendar year 25. Aircraft bill rates are still 35% below pre-pandemic levels.

Speaker Change: Overall, Fiscal 25 is expected to be a continuation of mixed market conditions.

Speaker Change: Softer markets in the near term and a modest improvement in the second half of our fiscal year.

Speaker Change: In aerospace and defense, we expect continued growth, but at a slightly lower rate, as the major OEMs have revised their build rates for the rest of calendar year 24, and then improving in calendar year 25.

Speaker Change: Aircraft bill rates are still 35% below pre-pandemic levels.

Sanjay Chowbey: But with our strategic initiatives, we are well positioned to win market share and capitalize on market growth as quality and supply chain constraints ease over time. Defense-related orders are expected to stay strong for the year. This market tends to have significant quarterly fluctuations due to the lumpy nature of customer buying patterns. Transportation is expected to experience slight growth in production for the current IHS light vehicle forecast, but most of the improvements are projected for calendar year 25. In the near term, we see indications of a softer transportation market, especially in India. For example, in Festival 24.

Speaker Change: But with our strategic initiatives, we are well positioned to win market share and capitalize on market growth as quality and supply chain constraints ease over time.

Speaker Change: This market tends to have significant quarterly fluctuations due to the lumpy nature of customer buying patterns.

Speaker Change: Transportation is expected to experience slight growth in production for the current IHS light vehicle forecast, but most of the improvements are projected for calendar year 25.

Speaker Change: In the near term, we see indications of a softer transportation market, especially in India.

Sanjay Chowbey: We continue to be successful in winning projects on battery and hybrid programs, a strategic focus area for us, at a higher rate versus our traditional rate in transportation. As you may have seen, several manufacturers have commented about the pace of new battery platform investments in production, which are slowing. As a result, in the near term, this slowdown could provide for some tougher comparisons for us, especially in EMEA. But, in any case, we are very well positioned to grow with all Indian types for the long term.

Speaker Change: In Fiscal 24

Speaker Change: We continue to be successful in winning projects on battery and hybrid programs, a strategic focus area for us, at a higher rate versus our traditional rate in transportation.

Speaker Change: As you may have seen, several manufacturers have commented about the pace of new battery platform investments in production, which are slowing.

Speaker Change: As a result, in the near term, this slowdown could provide for some tougher comparisons for us, especially in EMEA.

Speaker Change: In any case, we are very well positioned to grow with all Indian types for the long term.

Sanjay Chowbey: General engineering is expected to be flat. IPI in the U.S. continues to remain flat near term, with a slight improvement in the first half of calendar year 25. Eurozone remains consistent with slight improvement in the first half of calendar year 25. We anticipate China to be flat as per market... In energy, Rick counts are projected to increase moderately, with growth anticipated to occur in the first half of calendar year 2021.

Speaker Change: General engineering is expected to be flat. IPI in the U.S. continues to remain flat near term, with a slight improvement in the first half of calendar year 25.

Speaker Change: Eurozone remains consistent with slight improvement in the first half of calendar year 25.

Speaker Change: We anticipate China to be flat as per market indicators.

Rick: In energy, Rick counts are projected to increase moderately, with a growth anticipated to occur in the first half of calendar year 25.

Sanjay Chowbey: Customer feedback also indicates a cautious outlook for the second half of calendar year 24, and RIC output productivity remains a key focus. Considering these factors, we anticipate this end market to remain down slightly, especially in the near term. Finally, earthworks, including mining and road construction, is expected to be soft in the near term and also experience competitive pricing. Now, I turn the call over to Pat, who will review the fourth quarter financial performance and Fiscal 25 outline.

Speaker Change: Customer feedback also indicates a cautious outlook for the second half of the calendar year 24, and rigged output productivity remains the key focus.

Speaker Change: Considering these factors, we anticipate this end market to remain down slightly, especially in the near term.

Speaker Change: Finally, earthworks, including mining and road construction, is expected to be soft in the near term and also experience comparative pricing pressure.

Speaker Change: Now, let me turn the call over to Pat, who will review the fourth quarter financial performance and Fiscal 25 outlook.

Patrick Watson: Thank you, Sanjay, and good morning, everyone. I will begin on slide 7 with a review of the fourth quarter operating results. The quarter's results show that we continue to execute our initiatives in the face of continued headwinds from inflation, foreign exchange, and some market software. Sales decreased by 1% year over year, with a 1% organic decline and headwinds from foreign exchange of 2%, partially offset by favorable work days of 2%. Operating expense as a percentage of sales decreased 50 basis points year-over-year to 19.5% on an adjusted basis.

Pat Watson: Thank you Sanjay and good morning everyone. I will begin on slide 7 with the review of the fourth quarter operating results.

Pat Watson: The quarter's results show that we continue to execute our initiatives in the face of continued headwinds from inflation, foreign exchange, and some market softness.

Pat Watson: Partially offset by favorable work days of 2%.

Pat Watson: Operating expense as a percentage of sales decreased 50 basis points year over year and 19.5% on an adjusted basis.

Patrick Watson: Adjusted EBITDA and operating margins were 17.7% and 11.5%, respectively, versus 16.7% and 11.4% in the prior year quarter. During the quarter, we realized approximately $7 million in savings from the previously announced restructuring program. Timing delays caused a slight shift with some actions moving into July, and we continue to expect to achieve $35 million of run rate savings. As a result, in FY25, we expect approximately $14 million in rollover savings. Lastly, forward exchange headwinds from the strong U.S. dollar were approximately 2% this quarter. The Adjusted Effective Tax Rate increased year-over-year to 29.3%, primarily driven by an unfavorable geographical mix and prior-year adjustments related to evaluation allowances against deferred tax assets that did not repeat in the current quarter.

Pat Watson: Adjusted EBITDA and operating margins were 17.7% and 11.5% respectively versus 16.7% and 11.4% in the prior year quarter.

Pat Watson: During the quarter, we realized approximately $7 million in savings from the previously announced restructuring program. Timing delays caused a slight shift with some actions moving into July , and we continue to expect to achieve $35 million of run rate savings.

Pat Watson: As a result, in FY25, we expect approximately $14 million in rollover savings.

Pat Watson: Lastly, foreign exchange headwinds from the strong U.S. dollar were approximately 2% this quarter.

Pat Watson: The adjusted effective tax rate increased year-over-year to 29.3%, primarily driven by unfavorable geographical mix and prior year adjustments related to evaluation allowances against deferred tax assets that did not repeat in the current quarter.

Patrick Watson: Adjusted earnings per share were $0.49 in the quarter versus $0.51 in the prior year period. As Sanjay mentioned, we also delivered the highest free operating cash flow since FY15, and cash flow from operations as a percent of sales was the highest in over 25 years. The main drivers of our EPS performance are highlighted on the bridge on slide 8.

Pat Watson: Adjusted earnings per share were $0.49 in the quarter versus $0.51 in the prior year period. As Sanjay mentioned, we also delivered the highest free operating cash flows since FY15 and cash flow from operations as the percent of sales was the highest in over 25 years.

Sanjay Chowbey: The main drivers of our EPS performance are highlighted on the bridge on slide 8.

Patrick Watson: The positive year-over-year effect of operations reflects restructuring savings, timing of raw material costs, price, and operational excellence initiatives partially offset by lower sales and production volumes and higher wage and general inflation. Our results this quarter also include an approximate 4 cent hit from the Rogers Tornado on our results. You can also see the effects of a tax rate and currency on EPS with taxes of negative seven cents and currency of negative two cents.

Sanjay Chowbey: The positive year-over-year effect of operation reflects restructuring savings, timing of raw material costs, price, and operational excellence initiatives partially offset by lower sales and production volumes and higher wage and general inflation.

Sanjay Chowbey: Our results this quarter also include an approximate 4 cent hit from the Rogers Tornado on our results.

Sanjay Chowbey: You can also see the effects of a tax rate and currency on EPS with taxes of negative seven cents and currency negative two cents.

Patrick Watson: Slides 9 and 10 detail the performance of our segments this quarter. Reported metal cutting sales were down 1% compared to the prior year quarter, with flat organic growth and a foreign currency headwind of 2%, partially offset by favorable business days of 1%. By region, on a constant currency basis, the Americas led at 7%, Asia Pacific was down 2%, and EMEA declined 3%.

Sanjay Chowbey: Other reflects lower share count and interest expense, which contributed three cents.

Sanjay Chowbey: Slides 9 and 10 detail the performance of our segments this quarter.

Sanjay Chowbey: Reported metal cutting sales were down 1% compared to the prior year quarter, with flat organic growth and a foreign currency headwind of 2%, partially offset by favorable business days of 1%.

Sanjay Chowbey: By region, on a constant currency basis, the Americas led at 7%, Asia Pacific was down 2%, and EMEA declined 3%.

Patrick Watson: America's year-over-year growth this quarter was driven by order timing in the indirect channel within general engineering and market, and continued market growth and the execution of our growth initiatives in aerospace and defense, partially offset by a decline in transportation. Globally, the indirect channel represents about 60% of metal cutting's annual FY24 sales.

Sanjay Chowbey: America's year-over-year growth this quarter was driven by order timing in the indirect channel within general engineering and market, and continued market growth in the execution of our growth initiatives in aerospace and defense, partially offset by a decline in transportation.

Sanjay Chowbey: Globally, the indirect channel represents about 60% of metal cuttings annual FY24 sales.

Patrick Watson: The decline in Asia-Pacific sales was primarily the result of weakness in general engineering and wind energy projects. And EMEA's year-over-year performance reflects soft market conditions within general engineering, partially offset by market strength and share gain initiatives driving growth in aerospace and defense. Now, looking at sales by end mark, aerospace and defense grew 11% year over year as our strategic initiatives continue to drive results in this end market. General engineering grew 1% year-over-year, with the timing noted earlier driving the growth in America, partially offset by declining sales in EMEA and softness in China. Transportation declined 1% year-over-year, mainly due to project timing and lower volume in the Americas.

Sanjay Chowbey: The decline in Asia-Pacific sales was primarily the result of weakness in general engineering and wind energy projects.

Sanjay Chowbey: And EMEA's year-over-year performance reflects soft market conditions within general engineering, partially offset by market strength, and share gain initiatives driving growth in aerospace and defense.

Sanjay Chowbey: Now, looking at sales by end market.

Sanjay Chowbey: Aerospace and Defense grew 11% year-over-year as our strategic initiatives continue to drive results in this end market.

Sanjay Chowbey: General engineering grew 1% year over year, with the timing noted earlier driving the growth in Americas, partially offset by declining sales in EMEA and softness in China.

Sanjay Chowbey: Transportation declined 1% year-over-year, mainly from project timing and lower volume than the Americas. And lastly, energy declined 1% this quarter.

Patrick Watson: And lastly, energy declined 1% this quarter. Metal cutting's adjusted operating margin of 13.4 percent, increased 80 basis points year-over-year, driven by price and restructuring benefits, partially offset by lower sales and production volume, higher wages and general inflation, and foreign exchange. Turn to slide 10 for infrastructure.

Sanjay Chowbey: Metal cutting adjusted operating margin of 13.4%, increased AB basis points year over year, driven by price and restructuring benefits, partially offset by lower sales and production volumes, higher wages and general inflation, and foreign exchange.

Patrick Watson: Organic sales decreased by 2% year-over-year, with foreign exchange headwinds of 1%, partially offset by favorable business days of 1%. Regionally, EMEA grew 3%, followed by Asia Pacific at 1%, and America's sales declined by 3%. Looking at the sales by end market, Aerospace and Defense grew 58% due to order timing when compared to the prior year, and General Engineering declined 2% with lower demand in the Americas, partially offset by modest growth in Asia-Pacific. Earthworks sales declined 6% due to competitive market conditions resulting in lower construction volumes and lower specialty product sales in the Americas.

Sanjay Chowbey: Turn to slide 10 for infrastructure.

Sanjay Chowbey: Organic sales decreased by 2% year-over-year, with foreign exchange headwinds of 1%, partially offset by favorable business days of 1%. Regionally, EMEA grew 3%, followed by Asia Pacific at 1%, and America's sales declined by 3%.

Sanjay Chowbey: Looking at the sales by end market.

Sanjay Chowbey: Aerospace and Defense grew 58% due to order timing when compared to the prior year, and General Engineering declined 2% with lower demand in the Americas, partially offset by modest growth in Asia Pacific.

Sanjay Chowbey: Earthworks sales declined 6% due to competitive market conditions resulting in lower construction volumes and lower specialty product sales in the Americas.

Patrick Watson: As we had expected, Adjusted Operating Margin increased sequentially from 3.8% in the 3rd quarter to 8.7% in the 4th quarter since the timing of price raw material effects that impact margin in the 2nd and 3rd quarter are now behind us. However, compared to the prior year, adjusted operating margin declined 90 basis points. Operating margin this quarter included an approximate $4 million charge from the tornado, representing approximately 190 basis points of margin. Additionally, we saw lower sales and production volumes, partially offset by favorable price raw material timing, restructuring savings, and an advanced manufacturing production credit for FY24 under the Inflation Reduction Act.

Patrick Watson: Now turning to slide 11 to review our free operating cash flow and balance sheet. That cash flow provided by operating activities in fiscal 24 was $277 million compared to $258 million in the prior year. This is the highest as a percentage of sales in over 25 years.

Sanjay Chowbey: Net cash flow provided by operating activities in fiscal 24 was $277 million compared to $258 million in the prior year.

Sanjay Chowbey: This is the highest as a percentage of sales in over 25 years.

Patrick Watson: Our free operating cash flow was $175 million compared to $169 million in the prior year. We are very pleased with the team's effort to drive improvements in our inventory efficiency, which was the primary driver of our improved working capital. On a dollar basis, year over year, primary working capital decreased to $626 million. On a percentage of sales basis, primary working capital decreased to 32%.

Sanjay Chowbey: Our free operating cash flow was $175 million compared to $169 million in the prior year.

Sanjay Chowbey: On a dollar basis, year-over-year, primary working capital decreased to $626 million. On a percentage of sales basis, primary working capital decreased to 32%.

Patrick Watson: Net capital expenditures were $102 million compared to $89 million in the prior year. In total, we returned approximately $129 million to shareholders through our share repurchase and dividend program. We purchased $22 million of shares in Q4 for a total of $200 million or 7.4 million shares since the inception of the program, representing approximately 9% of outstanding shares. We also paid a dividend to our shareholders, something we have done every quarter since becoming a public company over 50 years ago.

Patrick Watson: Our commitment to returning cash to shareholders reflects our confidence in our ability to execute our strategy to drive growth and margin improvement. We continue to maintain a healthy balance sheet and debt maturity profile with no near-term funding requirements. At quarter-end, we had combined cash and revolver availability of approximately $828 million and were well within our financial covenants. The full balance sheet can be found on slide 21 in the appendix.

Sanjay Chowbey: Our commitment to returning cash to shareholders reflects our confidence in our ability to execute our strategy to drive growth and margin improvement.

Sanjay Chowbey: We continue to maintain a healthy balance sheet and debt maturity profile with no near-term funding requirements.

Sanjay Chowbey: The full balance sheet can be found on slide 21 in the appendix.

Patrick Watson: Turning to slide 12, regarding our outlook. We are providing an outlook for both the full year and the first quarter, beginning with the full year. We expect FY25 sales to be between $2 billion and $2.1 billion, with volume ranging from negative three to positive two percent, price realization of approximately 2%, and a 1% negative effect from foreign exchange. From a seasonality perspective, we expect sales to be slightly more second half weighted than our recent trends.

Sanjay Chowbey: We are providing an outlook for both the full year and the first quarter, beginning with the full year.

Sanjay Chowbey: price realization of approximately 2% and a 1% negative effect from foreign exchange.

Sanjay Chowbey: From a seasonality perspective, we expect sales to be slightly more second half weighted than our recent trends.

Patrick Watson: Some year-over-year assumptions in our end market sales at the midpoint are as follows: moderate growth, general engineering and energy are flat, Transportation increasing slightly, and a slight decline in earthworks. The current inflationary environment persists into FY25 but is assumed to continue to moderate. We expect to offset raw material wage and general cost increases on a dollar basis. Foreign exchange and non-cash pension costs are expected to be headwinds of $4 million each on a pre-tax basis. As I mentioned earlier, approximately $14 million of rollover savings from our previously announced restructuring initiative have been included. We expect these savings to be realized more in the first half of the year.

Sanjay Chowbey: Some year-over-year assumptions in our end market sales at the midpoint are as follows.

Sanjay Chowbey: Aerospace and defense having moderate growth, general engineering and energy are flat, transportation increasing slightly, and a slight decline in earthworks.

Sanjay Chowbey: The current inflationary environment persists into FY25, but is assumed to continue to moderate.

Sanjay Chowbey: We expect to offset raw material, wage, and general cost increases on a dollar basis.

Sanjay Chowbey: Foreign exchange and non-cash pension costs are expected to be headwinds of $4 million each on a pre-tax basis.

Sanjay Chowbey: As I mentioned earlier, approximately $14 million of rollover savings from our previously announced restructuring initiative have been included. We expect these savings to be realized more in the first half of the year.

Patrick Watson: Depreciation and amortization is expected to be approximately $135 million, and we expect interest expense of approximately $27 million and an effective tax rate of approximately 27.5%. We expect adjusted EPS to be in the range of $1.30 to $1.70. On the cash side, the full-year outlook for capital expenditures is approximately $110 million, and the outlook for primary working capital is approximately 30 percent by fiscal year-end, which represents solid progress toward our goal set at Investor Day of driving primary working capital below 30 percent by FY27.

Sanjay Chowbey: Depreciation and amortization is expected to be approximately $135 million and we expect interest expense of approximately $27 million and an effective tax rate of approximately 27.5%.

Sanjay Chowbey: We expect adjusted EPS to be in the range of $1.30 to $1.70.

Sanjay Chowbey: On the cash side.

Sanjay Chowbey: The full-year outlook for capital expenditures is approximately $110 million, and the outlook for primary working capital is approximately 30% by fiscal year-end, which represents solid progress toward our goal set at Investor Day of driving primary working capital below 30% by FY27.

Patrick Watson: Taken together, we continue to expect free operating cash flow to be greater than 125% of adjusted net income. The bridge on slide 13 highlights the main drivers impacting EPS at the midpoint of our outlook. The year-over-year effect of operations is positive, but this reflects higher prices. No headwind from the timing of price raw material costs, restructuring savings, and productivity, partially offset by lower sales and higher wage and general inflation. Additionally, we expect to invest approximately $5 million in third-party expertise to help us execute on some initiatives related to the $100 million cost-out plan we outlined last fall.

Sanjay Chowbey: Taken together, we continue to expect free operating cash flow to be greater than 125% of adjusted net income.

Sanjay Chowbey: The bridge on slide 13 highlights the main drivers impacting EPS at the midpoint of our outlook.

Sanjay Chowbey: The year-over-year effect of operations is positive. This reflects higher price, no headwind from the timing of price raw material costs.

Sanjay Chowbey: Restructuring Savings, and Productivity, partially offset by lower sales and higher wage and general inflation.

Sanjay Chowbey: Additionally, we expect to invest approximately $5 million in third-party expertise to help us execute on some initiatives related to the $100 million cost out plan we outlined last fall.

Patrick Watson: Our results also include approximately 4 cents of tailwind from the impact of the Rogers Tornado that occurred in FY24. We are continuing to work with our insurance providers to finalize a claim for insurance recoveries related to the tornado.

Sanjay Chowbey: Our results also include approximately 4 cent tailwind from the impact of the Rogers Tornado that occurred in FY24.

Sanjay Chowbey: We are continuing to work with our insurance providers to finalize a claim for insurance recoveries related to the tornado.

Patrick Watson: You can also see the effects of the tax rate and currency on EPS, with taxes of negative 13 cents and currency negative 4 cents. The non-cash pension is also negative four cents. At the midpoint, this implies an EBITDA margin improvement of about 100 basis points. Turn to slide 14 regarding our first quarter outlook. We expect Q1 sales to be between $480 million and $500 million, with volume ranging from negative 4 to positive 1%, price realization of approximately 2%, and a 1% negative effect from foreign exchange.

Sanjay Chowbey: You can also see the effects of a tax rate and currency on EPS with taxes of negative 13 cents and currency negative 4 cents. Non-cash pension is also negative 4 cents.

Sanjay Chowbey: At the midpoint, this implies an EBITDA margin improvement of about 100 basis points.

Sanjay Chowbey: Turning to slide 14 regarding our first quarter outlook, we expect Q1 sales to be between $480 million and $500 million, with volume ranging from negative 4 to positive 1 percent.

Sanjay Chowbey: Price Realization Approximately 2%

Patrick Watson: Let me share some details on the sales assumptions and trends in the Q1 outlook. Overall, at the midpoint, this reflects a decline of approximately 10 percent, slightly outside our recent historical norms due to persistent market softness. We expect moderate growth to continue in aerospace and defense and transportation to have slight growth. However, general engineering is in a slight decline, and energy and earthworks are declining slightly. Foreign exchange and non-cash pension expense is expected to have a negative impact of approximately $1 million each on a pre-tax basis.

Sanjay Chowbey: and 1% negative effect from foreign exchange. Let me share some details on the sales assumptions and trends in the Q1 outlook.

Sanjay Chowbey: Overall, at the midpoint, this reflects a decline of approximately 10%, slightly outside our recent historical norms due to persistent market softness.

Sanjay Chowbey: We expect moderate growth to continue in aerospace and defense, and transportation to have slight growth. However, general engineering is a slight decline, and energy and earthworks declined slightly.

Sanjay Chowbey: Foreign exchange and non-cash pension expense is expected to have a negative impact of approximately $1 million each on a pre-tax basis.

Patrick Watson: Interest expense is assumed to be approximately $7 million, and the effective tax rate is approximately 27.5%. Lastly, we expect adjusted EPS in the range of $0.20 to $0.30. Let me provide some commentary about the EPS range. When compared to the prior year, at the midpoint, our adjusted EPS outlook reflects lower volume, plus the pension, tax, and currency items I previously discussed. We also expect some additional expense in the quarter from trade shows that did not occur last year, plus some expense timing. And with that, I'll turn it back over to Sanjay. Thank you, Pat.

Sanjay Chowbey: Interest expense is assumed to be approximately $7 million and the effective tax rate is approximately 27.5%.

Sanjay Chowbey: Lastly, we expect adjusted EPS in the range of $0.20 to $0.30. Let me provide some commentary about the EPS range.

Sanjay Chowbey: When compared to the prior year, at the midpoint, our adjusted EPS outlook reflects lower volume, plus the pension, tax, and currency items I previously discussed.

Sanjay Chowbey: We also expect some additional expense in the quarter from trade shows that did not occur last year, plus some expense timing.

Sanjay Chowbey: Thank you, Pat. Turning to slide 15, let me take a few minutes to summarize. Overall, we are pleased with our performance in Fiscal 24, and I look forward to Fiscal 25.

Sanjay Chowbey: And with that, I'll turn it back over to Sanjay.

Sanjay Chowbey: Thank you, Pat. Turning to slide 15, let me take a few minutes to summarize.

Sanjay Chowbey: Overall, we are pleased with our performance in Fiscal 24.

Sanjay Chowbey: Market conditions are expected to be mixed, as you heard earlier. We are focused on what we can control and will work to improve our operating performance while monitoring and managing external factors. We will build upon the momentum on the growth and continuous improvement pillars to drive above-market growth, margin expansion, and continued progress on cash flow. In parallel, we'll take a systematic approach to improve portfolio performance over time. In summary, with steady performance and cash generation capability, sustainable competitive advantages, and a focused approach to value creation. Kennametal offers a compelling investment opportunity. And with that, Operator, please open the line for questions.

Sanjay Chowbey: Looking forward to fiscal 25, market conditions are expected to be mixed, as you heard earlier.

Sanjay Chowbey: We are focused on what we can control and will work to improve our operating performance while monitoring and managing external factors.

Sanjay Chowbey: We will build upon the momentum on growth and continuous improvement pillars to drive above-market growth, margin expansion, and continued progress on cash flow.

Sanjay Chowbey: In parallel, we'll take a systematic approach to improve portfolio performance over time.

Sanjay Chowbey: In summary, with steady performance, cash generation capabilities, sustainable competitive advantages, and a focused approach to value creation.

Speaker Change: Kennametal offers a compelling investment opportunity.

Speaker Change: And with that, Operator, please open the line for questions.

Operator: We will now begin the question and answer session. As a reminder, if you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, please press star then the number two. As a further reminder, please limit yourself to one question plus one follow-up. At this time, we will pause momentarily to assemble our roster. And today's first question comes from Angel Castillo of Morgan Stanley. Please proceed.

Speaker Change: We will now begin the question and answer session.

Speaker Change: As a reminder, if you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, please press star then the number two. As a further reminder, please limit yourself to one question plus one follow up.

Speaker Change: At this time, we will pause momentarily to assemble our roster.

Speaker Change: And today's first question comes from Angel Castillo with Morgan Stanley . Please proceed.

Angel Castillo: Hi, this is Grace Song for Andrew. Thank you for the question. So you had a solid quarter in aerospace and defense and further indicated that you expect fiscal 25 to be up moderately. So can you elaborate on how much of that improvement you see in fiscal 25 is driven by market share gains or project wins versus underlying industry growth? And I know it can be lumpy, so any comment on that, you know, what you might expect from a quarterly cadence on that? Thank you.

Grace Song: Hi, this is Grace Song for Andrew. Thank you for the question. So you had a solid quarter in aerospace and defense and further indicated that you expect fiscal 25 to be up to moderately. So can you elaborate on how much of that improvement you see in fiscal 25 is driven by market share gains or project wins versus underlying industry growth? And I know it can be lumpy, so any comment on that, you know, what might expect from a quarterly cadence on that? Thank you.

Sanjay Chowbey: Good morning, guys. First of all, let me just comment on what we had in fiscal 24. We had continued strategic wins, and the market also helped us. Along with that, we saw that OEMs have been adjusting their bill rates. Most likely, you have noticed that Airbus took it down from 800 to 770.

Speaker Change: Good morning, guys. First of all, let me just comment on what we had in fiscal 24. We had continued strategic wins and also market helped us.

Speaker Change: Along with that, we saw that OEMs have been adjusting their bill rates. Most likely you have noticed that Airbus took it down from $800 to $770.

Sanjay Chowbey: And Boeing's bill rate has been a little bit uncertain. So we looked at that, and that's how we projected what we expect in fiscal 25. It will include all three components. It will have a market, which we expect to continue to grow, but slightly at a lower rate. It will have strategic wins, which we talked about yesterday, that we have gone beyond the engine, which used to be our main focus; we have gone into components and structures, and also new customers at the tiered level we have gotten. So, and finally, there will be, of course, a little bit of a price component to it. So, a combination of those three; that's how we are looking at aerospace.

Speaker Change: and Boeing's build rate has been a little bit uncertain. So we looked at that and that's how we projected what we expect in fiscal 25.

Speaker Change: It will include all three components. It will have market, which we expect to continue to grow, but slightly at a lower rate. It will have strategic wins, which we have talked about in the investor day, that we have gone beyond the engine, which used to be our main focus. We have gone in components and structures.

Speaker Change: and also new customers at the tier level we have gotten. And finally, there will be of course a little bit of price component to it. So a combination of those three, that's how we are looking at aerospace next year.

Sanjay Chowbey: Got it. That's very helpful. And can you also talk about the implied reacceleration in growth throughout the remainder of the year based on the lower 1Q base? What gives you confidence in 1Q marking the bottom? Thank you. Yeah, thanks, great. So if we just think about

Speaker Change: Got it. That's very helpful. And can you also talk about the implied re-acceleration in growth throughout the remainder of the year based on lower 1Q base? It will give you confidence in 1Q marking the bottom. Thank you.

Patrick Watson: Yeah, thanks, Gray. So if we just think about the sales cycle, I'll say throughout the year, we're actually anticipating a pretty normal year after we get through Q1. You know, if we think about the normal cadence, certainly Q1 is down, perhaps down a little bit harder this year as we just got some more seasonality coming out of that, anticipating flat to slightly up in Q2 and then the normal acceleration we would have in the back of the year. So overall, from a sales cadence perspective, a pretty normal year. I would describe it that way.

Speaker Change: Yeah, thanks, great. So, if we just think about the sales cadence, I'll say it throughout the year.

Speaker Change: We're actually anticipating a pretty normal year after we get through Q1.

Speaker Change: You know, if we think about the normal cadence, certainly Q1 is down, perhaps down a little bit harder this year as we've just got some more seasonality coming out of that. Anticipating flat to up.

Speaker Change: slightly in Q2 and then the normal acceleration we would have in the back of the year so overall from a sales cadence perspective a pretty normal year I would describe it as.

Speaker Change: Thank you.

Joe Ritchie: And the next question comes from Joe Ritchie with Goldman Sachs. Please proceed.

Speaker Change: And the next question comes from Joe Ritchie with Goldman Sachs. Please proceed.

Joe Ritchie: Hey, good morning, everyone. So Sanjay, pretty cool to see, like, fairly early in your tenure, you know, talking about the value creation pillars. And I want you to maybe double-click a little bit on this portfolio optimization piece. Maybe just give us a little bit more color on what you're thinking around that piece of it and the ability to potentially continue to right-size the portfolio.

Joe Ritchie: Hey, good morning, everyone.

Speaker Change: Thank you.

Sanjay Chowbey: Hey, this is Sanjay.

Speaker Change: Pretty cool to see, like...

Speaker Change: I know you started fairly early in your tenure, you know, talking about the value creation pillars. And I want you to maybe double click a little bit on this portfolio optimization piece. Maybe just give us a little bit more color what you're thinking around that piece of it and the ability to potentially continue to right-size the portfolio.

Sanjay Chowbey: Good morning, Joe, again. Yeah, so as I talked about the three value-addition pillars, these will work in unison. Of course, you know, we will do a lot of things to grow from an organic perspective. We have laid out some of the key work streams in that area. Continuous improvement, where we'll continue to apply lean principles across all parts of the business. That will help us with margin expansion and also continue our momentum on inventory and working capital.

Speaker Change: Good morning, Joe, again. Yeah, so as I talked about the three value-creation pillars,

Joe Ritchie: These will work in unison.

Speaker Change: Of course, you know, we will do a lot of things to grow from an organic perspective. We have laid out some of the key work streams in that area.

Speaker Change: Continuous improvement where we'll continue to apply lean principles across all parts of business. That will help us with margin expansion and also continue our momentum on inventory and working capital improvement.

Sanjay Chowbey: Now moving to the third pillar, portfolio. Like you said, this generally takes time, and... We are, as I mentioned earlier, this is going to be something that, you know, over time, we'll work on it, while the primary focus will be on organic growth and continuous improvement. Even the portfolio piece, the way I look at it, there are three steps.

Speaker Change: Now moving to third pillar, portfolio.

Speaker Change: Like you said, this generally takes time.

Speaker Change: We are, as I mentioned earlier, this is going to be something that, you know, over the time we'll work on it while primary focus will be on organic growth and continuous improvement. Even the portfolio piece, the way I look at it, there are three steps to it. First step is just putting a process in place so that we do proper assessment.

Sanjay Chowbey: The first step is just putting a process in place so that we do a proper assessment. The assessment will include, you know, how much money we're investing in a business, what is the resource allocation, what is the working capital allocation, and what kind of return we're getting on that. And even if, let's say, we find that there are businesses which are not performing at the desired level, the first step of that, the next step of that, is not immediately to talk about divestment or any kind of inorganic action.

Speaker Change: And the assessment will include, you know, how much money we're investing in a business, what is the resource allocation, what is the working capital allocation, what kind of return we're getting at that.

Speaker Change: And even if, let's say, we find that there are businesses which are not performing to desired level, the first step of that, the next step of that is not immediately talk about divestment or any kind of inorganic action. The first step will be still organic actions. We're going to go look at what we need to do to improve that business.

Sanjay Chowbey: The first step will still be organic actions. We're going to look at what we need to do to improve that business from all perspectives. Working Capital, New CapEx, and also Nigestion Capability Perspective. If we do get to a conclusion that there are parts of business that will be served better with a bigger scale with some other party than we would look at that, But that is not our number one priority.

Speaker Change: from all perspectives, growth.

Speaker Change: Working Capital, New CapEx.

Speaker Change: and also organizational capability perspective. If suppose we do get to a conclusion that there are parts of business

Speaker Change: that will be served better with a bigger scale with some other party, then we will look at that. But that is not our number one focus.

Sanjay Chowbey: In parallel, of course, you know, I've talked about inorganic growth helping us from a growth perspective. We will continue to look at ideas for bolt-on acquisitions to support our strategic areas like medical, ceramics, aerospace, and defense, where we believe that we can bring more growth energy and also generate a better return on investment.

Speaker Change: In parallel, of course, I talked about inorganic growth helping us from a growth perspective. We will continue to look at ideas for bolt-on acquisitions to support our strategic areas like medical, ceramics, aerospace, and defense, where we believe.

Speaker Change: that we can bring more growth energy and also generate better returns for investors.

Joe Ritchie: That's a great color. I appreciate that. And then I just have a couple of quick ones, Pat, just on this particular quarter, you know, what did you see from what was the impact? I know it was price cost was a positive impact. And it's embedded in that eight cents. I'm just curious, what was the impact specifically this quarter for those two items? And then, as you think about the first quarter guidance that you gave, what's embedded in that one queue number?

Speaker Change: That's great color. Appreciate that. And then just a couple quick ones. Pat, just on this particular quarter, what did you see from, what was the impact? I know it was price-cost with a positive impact and it's embedded in that 8 cents.

Patrick Watson: Yeah, in terms of price cost, the big driver, Joe, you're going to see for that is Q4, obviously, in infrastructure, which is the big driver of margin improvement as that, you know, price raw material timing event is now past us, which was incredible. As we think about, I'll say, Q1, I'll just set some framework in terms of a full year, and we'll place Q1 inside that framework.

Pat Watson: Yeah, in terms of price cost, the big driver, Joe, you're going to see for that is Q4, obviously, in infrastructure, which is the big driver of margin improvement.

Speaker Change: as that, you know, price raw material timing event is now past us, which was in Q2.

Patrick Watson: From a full-year perspective, overall, when we talk about EBITDA margins at the midpoint, we talk about that being up 100 basis points, and that's really a function of, you know, improved operations, the lack of the price headwinds we had last year, the restructuring benefits we've had, and the productivity we've got in place. Now, on top of that, we've got a couple items in terms of, you know, some unfavorable effects based on where rates sit today.

Patrick Watson: Obviously, it's a relatively minor amount, but it could move around on us throughout the year. You know, we've got some non-cash pension costs coming through about $0.04 there, and then the tax rate's a little bit higher than where we would have it on a long-run basis. So we're at 27.5% this year versus 25% in the long run. Now, taking that annual framework and then thinking about Q1, you know, Q1, you've got all the same things going on there, and then from a Q1 profitability perspective, a couple just discrete things going on.

Speaker Change: You know, we've got some non-cash pension costs coming through, about four cents there, and then the tax rate's a little bit higher than where we would have it on a long-run basis, so we're at 27.5% this year versus 25% in the long run.

Speaker Change: You know, Q1, you've got all the same things going on there, and then from a Q1 profitability perspective, a couple just discrete things going on.

Patrick Watson: Number one, we've got some trade shows. So, you know, we haven't been to, for example, IMTS, which is our principal metal-cutting show here since pre-COVID. That will be happening this quarter, so that's naturally an expense this quarter. You know, Sanjay talked about reallocating resources.

Speaker Change: That will be occurring this quarter, so that's naturally an expense this quarter. Sanjay talked about reallocation of resources. We'll see some of that move around, but we think that's an important opportunity for us to get in front of our customers.

Patrick Watson: We'll see some of that move around, but we think that's an important opportunity for us to get in front of our customers. I'd say the last component of that is we've really got, as well, just a little bit of compensation moving around throughout the year. You're going to see a little bit of that hit in Q2, excuse me, Q1. And then as we just think about the earnings cadence now throughout the year, I think you're going to see earnings step up in a pretty normal fashion.

Patrick Watson: So Q1 to Q2 come up along with the volume and then accelerate in the back half. If we look at the last couple of years, Joe, in terms of, I'll say the front half, back half split, you know, and last year was a little lumpy because of the tax benefits we received in the first half. But if you kind of levelize tax, you're going to get to around 38, you know, 40 percent of earnings in the front half of the year and about 60, you know, 62 in the back half. And so I think that's pretty normal for where the business is right now, and that's about what we would expect this year.

Speaker Change: You know, and last year was a little lumpy because of the tax.

Patrick Watson: Pat, I'll just add that we also...prepared remarks that we have third-party assistance in helping us with productivity and other improvements. Some of that expense will also hit Q1, but we'll see a bigger part of the benefits of that as the year progresses.

Joe Ritchie: Okay, thank you. I appreciate all the color.

Speaker Change: Okay, thank you. Appreciate all the color.

Julian Mitchell: Our next question comes from Julian Mitchell with Barclays. Please proceed.

Speaker Change: Our next question comes from Julian Mitchell with Barclays. Please proceed.

Julian Mitchell: Hi, good morning. Maybe I just wanted to start on the kind of demand cadence because, you know, what we've heard from some other companies in the industrial world even just this morning is, you know, de-stocking in a bunch of markets, particularly sort of general engineering, discrete automation, and so forth. You know, off-highway, that's continued in the last month or two, consistent with sort of six, twelve months ago, and then maybe what you're seeing is kind of more pressure on the capex or project side of things.

Julian Mitchell: Hi, good morning. Maybe I just wanted to start on the kind of demand cadence. So I suppose, you know, what we've heard from some other companies in the industrial world, even just this morning is, you know, de-stocking in a bunch of markets, particularly sort of general engineering, discrete automation, and so forth.

Speaker Change: You know, off highway. That's continued in the last month or two, consistent with sort of six, 12 months ago. And then maybe what you're seeing is kind of more pressure on the capex or project side of things.

Julian Mitchell: And so it sounded from the prepared remarks that the demand environment from your standpoint there has been very steady in recent months and kind of in line with what you'd thought. I just wondered if that was a fair characterization or maybe could help us understand, you know, have you seen the demand environment trending just the last kind of couple of months? What's it moving around?

Speaker Change: And so, it sounded from the prepared remarks that the demand environment from your standpoint there has been very steady in recent months and kind of in line with what you'd thought. I just wondered if that was a fair characterization or maybe help us understand, you know, how have you seen the demand environment trending just the last kind of couple of months, what's moving around? Thank you.

Sanjay Chowbey: Julian, first of all, we have seen the market being soft. And also, as we talked about the projections for the first half of fiscal 25, We see continued softness and then some recovery in the second half of our fiscal year, which will be calendar year 2015. If you look at the recent quarter, as we talked about, even in metal cutting, we did perform slightly better than the market, which we have been for the last several quarters. So I do believe that plays into the role.

Speaker Change: Julian, first of all, we have seen market being soft.

Speaker Change: And also, as we talked about the projection in the first half of fiscal 25, we see continued softness and then some recovery in the second half of our fiscal year, which will be calendar year 25.

Sanjay Chowbey: With respect to what we are seeing with our channel partners and customers, we're not seeing any major shift in stocking or distribution. I think, for all practical purposes, our energy customers were very cautious some time ago. They made their adjustments, you know, I think even more than a year ago. And from an industrial perspective, we are also not seeing any major stocking or destocking. Our overall delivery performance has improved, and lead time has improved in some areas. And as a result, we also think that our channel partners have adjusted inventories. We are not going to see any major destocking in the coming years.

Speaker Change: I think for all practical purposes, our energy customers, they were very cautious some time ago. They made the adjustments, you know, I think even more than a year ago.

Speaker Change: and from industrial perspective we are also not seeing any major stocking or destocking. Our overall delivery performance has improved, lead time has improved in some areas and as a result we also think that our channel partners have adjusted inventory. So we are not going to see any major destocking in the coming months.

Sanjay Chowbey: That's clear. Thanks, Sanjay.

Speaker Change: That's clear, thanks Sanjay. Maybe one for you more strategically, so say slide number five is a sort of a good starting point.

Julian Mitchell: And just maybe one for you more strategically, so say slide number five is sort of a good starting point. You know, I guess. A couple of things.

Julian Mitchell: One would be versus that Investor Day late last year, kind of, are there any points of increased emphasis, let's say from your viewpoint, or areas of nuance, perhaps for you personally as CEO versus that framework late last year. And then on the sort of outgrowth or trying to rejuvenate Kennametal's organic sales growth, you know, can you do that while increasing margins? Or do you think we need some period of sort of higher reinvestment? The margins suffer for a bit, but you get the fruits of that on sales and margins kind of down the line?

Speaker Change: You know, I guess...

Speaker Change: increased emphasis let's say from from your viewpoint or areas of nuance perhaps for you personally as CEO versus that framework late last year and then

Speaker Change: On the sort of outgrowth or trying to rejuvenate Kennametal's organic sales growth, can you do that while increasing margins or do you think we need some period of sort of higher reinvestment?

Sanjay Chowbey: On the Investor Day targets, Julian, we, as I said earlier, the things we control, we feel very confident about those things. For example, with the above market growth, we talked about one to two percent. We believe that we will be able to price for inflation and also price for value. The market obviously remains unknown, but at the same time, we believe in the fundamentals of the industries which have served us for the long term.

Speaker Change: Like the above market growth, we talked about 1-2%.

Speaker Change: Price, we believe that we'll be able to price for inflation and also price for value.

Speaker Change: Market obviously stays unknown, but at the same time, we believe in the fundamentals of the industries we serve for the long term. I think we have several megatrends that will continue to help us, but there could be some shift in the market assumptions, as we all know.

Sanjay Chowbey: I think we have several megatrends that will continue to help us, but there could be some shifts in the market assumptions, as we all know. Now, with respect to the $100 million cost out that we also talked about yesterday, we are on track, as you heard from Pat, that we are going to exit the year at the $33 million run rate from a fiscal 24-perspective. And then we'll exit fiscal 25 at $35 million from the restructuring type of benefits.

Sanjay Chowbey: And then on top of that, we have $15 million worth of improvement roughly on cost of sales. So by the end of fiscal 25, we'll be hitting the halfway mark of what we mentioned about the $100 million. And with the additional focus on continuous improvement, which we need to make sure that we deliver on the $100 million. So we do feel very comfortable with those targets overall. Now coming to your question, if we do have to do some bolt-on acquisitions and take any other inorganic investment, will that affect margin?

Speaker Change: We are on track, as you heard from Pat, that we are going to exit the year after $33 million runs it from a fiscal 24 perspective.

Pat Watson: So by the end of fiscal 25, we'll be hitting halfway mark of what we mentioned about the $100 million. And with the additional focus on continuous improvement, which we need to make sure that we deliver on $100 million. So we do feel very comfortable with overall those targets.

Sanjay Chowbey: At this time, our goal is that we will do things from an inorganic perspective only when we see attractive ROIC potential and where we see growth synergy and margin synergy. So I don't expect that to be a negative factor in our

Pat Watson: At this time, our goal is that we will do things from an inorganic perspective only when we see attractive ROIC potential and where we see growth synergies and margin synergies. So I don't expect that to be a negative factor in our decision.

Julian Mitchell: Great, thank you.

Tami Zakaria: The next question is from Tami Zakaria with J.P. Morgan. Please proceed.

Pat Watson: The next question is from Tami Zakaria with J.P. Morgan. Please proceed.

Tami Zakaria: Hey, good morning. Thank you so much. So could you comment on the down three to 3% to 2% up 2% volume expectation for the year by segment? Should we expect this range to hold for both the segments, or are there some differences there?

Tammy Zakaria: Hey, good morning. Thank you so much.

Tammy Zakaria: So, could you comment on the down 3% to up 2% volume expectation for the year by segment? Should we expect this range to hold for...

Sanjay Chowbey: I don't think there's a market difference in terms of the segments, in terms of the volume for the year.

Tammy Zakaria: Both the segments or there's some differences there?

Speaker Change: I don't, there's not a market difference in terms of the segments, in terms of the volume for the year.

Sanjay Chowbey: Got it. So as we think about the down three and plus two, can you sort of give us some color on what end markets we should be looking at or focused on to get to the down three or get to the up two for the year? I'm trying to ask which end markets you think will be the decider of whether it goes to the low end or the high end?

Speaker Change: What end markets we should be looking at or focused on to get to the down three or to get to the up two for the year? I'm trying to ask which end markets do you think will be the decider of whether it goes to the low end or the high end?

Sanjay Chowbey: So, Tami, to start with, I will say general engineering because again, about half of our revenue comes from that. So, what happens in general with industrial production, IPI, and, in general, when you look at even the PMI sentiment, besides India, all the other major markets are either flat types of sentiment or negative sentiment. So if that improves, we will definitely move to the higher side of our range. And then the other piece, I will say, in terms of likeemia.

Sanjay Chowbey: The transportation industry is quite slow, and I think we expect that even a couple of next quarters will be like that. And as the transition from hybrid and electric and all that continues to work through, where we did win, you know, more projects in the last couple years than our traditional rate that we had in the transportation. As that transition is happening, if that moves a little faster, that will also help us. And then, finally, on aerospace. One of the OEMs is having quality issues and other things.

Speaker Change: Transportation industry is quite bitter down and I think we expect that even couple next quarters will be like that.

Speaker Change: And as the transition from hybrid and electric and all that continues to work through, where we did win, you know, more projects in the last couple of years than our traditional rate that we had in the transportation.

Sanjay Chowbey: And if that production improves, that will also help us. But overall, in our outlook, we did consider where we could win market share, and that's how we have adjusted. So that initiative will continue. So at this point, that's how we're looking at it.

Speaker Change: One of the OEM which is having in a quality issues and other things and if that production improves that will also help us but Overall in our outlook, we did consider where we can win market share And that's how we have adjusted so that initiative will continue

Tami Zakaria: understood. Thank you.

Speaker Change: So at this point, that's how we are looking at the venture.

Speaker Change: Understood, thank you.

Stephen Fisher: And the next question is from Stephen Fisher with UBS. Please proceed.

Speaker Change: And the next question is from Stephen Fisher with UBS. Please proceed.

Stephen Fisher: Thanks, good morning. So thanks for all the color that you've provided on the Q1 comparison so far. But I guess depending on how big that conference spending is, it seems like it's still the handful of items you mentioned, maybe accounts for a handful of cents. So, but it seems like, you know, there's still, you know, maybe another 5, 10 cents that we need to account for. So, I'm just wondering if there's anything else you can help quantify in EPS terms in the bridge items for Q1 and, maybe, included in that, a little help on what you think about the margins for each of the segments in Q1.

Stephen Fisher: Thanks, good morning. So thanks for all the color that you've provided on on the Q1 comparison so far, but I guess depending on how big that conference spending is, it seems like it's still

Speaker Change: The handful of items you mentioned maybe accounts for a handful of cents.

Speaker Change: So, but it seems like, you know, there's still, you know, maybe another 5, 10 cents that we need to account for. So, I'm just wondering if there's anything else you can help quantify in EPS terms in the bridge items for...

Speaker Change: For Q1 to Q1 and maybe included in that a little help on what you're thinking about the margins for each of the segments in Q1.

Patrick Watson: Yeah, certainly. So from an overall EPS perspective, we just talked about some of the items that we go through. Obviously, tax is going to be a fairly large drag there because you're talking about moving from I think a 21% tax rate to 27 and a half. You've got it in the quarter, you know, at the midpoint, you're looking at four or five cents there. And then you can prorate the pension item FX as well, and you're going to get a couple of cents from that.

Speaker Change: Yeah, certainly. So, from an overall EPS perspective, we just talked about some of the items that we go through. Obviously, tax is going to be a fairly large drag there, because you're talking about moving from, I think, a 21 percent tax rate to the 27 and a half.

Speaker Change: We've got it in the quarter, you know, at the midpoint, you're looking at four or five cents there.

Patrick Watson: From an overall perspective as well, you're going to have a volume decrement in there that drives that down as well, and you're talking five, six cents from an overall volume perspective. Again, at the midpoint, on top of that, you're going to layer in some favorability in terms of a few cents from restructuring coming in year over year, and then, yeah, you're layering in some of these cost timing elements that we talked about as well. That's pretty much the full picture there in terms of what's driving the differential.

Speaker Change: You know, from an overall perspective as well, you're going to have a volume decrement in there that drives that down as well, and you're talking 5-6 cents from an overall volume perspective.

Speaker Change: You know, at the midpoint on top of that, you're going to layer in, you know, some favorability in terms of got a few cents from restructuring coming in.

Stephen Fisher: Okay, that's helpful. And then just to follow up on Julian's question about going back to the investor day kind of framework, just trying to think about the fiscal 25 guidance in that context, where you know, you have your 2% price that's consistent. And Sanjay, it sounds like the 1% to 2% market share gains you feel good about are that 1% to 2% market share gain embedded in your money for the year. Meaning, you know, basically, it's a couple percentage points lower than that because it's got a positive 1% to 2% share gain embedded in there.

Speaker Change: Okay, that's helpful.

Speaker Change: And then just to follow up on Julian's question about the going back to the investor day kind of framework, just trying to think about the fiscal 25 guidance in that context.

Speaker Change: where, you know, you have your 2% price that that's consistent. And Sanjay, it sounds like the one to 2% market share gains.

Speaker Change: Unknown Speaker You feel good about is that one to 2% market share gain embedded in your mining board?

Speaker Change: for the year, meaning, you know, basically it's a couple percentage points lower than that because it's got a positive one to two percent share gain embedded in there.

Sanjay Chowbey: Yes, first of all, let me just clarify that 1 to 2 percent. We're not implying that we gain 1 to 2 percent market share. What we're saying is 1 to 2 percent of growth will come through market share. That is embedded in the model.

Sanjay Chowbey: Yes, first of all, let me just clarify that one to two percent, we're not implying we gain one to two percent market share, what we're saying is one to two percent growth will come through market share.

Sanjay Chowbey: Of course, you know, the bigger factor, obviously, right now is the market. In terms of the percentage moves that we have seen, there are several markets that are down in mid-single digits or high single digits. So that's where, despite the fact that we are performing better than the market, net-net numbers are definitely affecting our fiscal trend. But like I said earlier, the things we are doing today and have been doing for the last couple of years in terms of driving growth initiatives, driving productivity, driving quality, inventory reduction, the things we are doing will continue to help us in the business, and one of these days, we will see the market also turn a little bit And if I may add to that...

Sanjay Chowbey: That is embedded in the model. Of course, you know, the bigger factor obviously right now is market.

Sanjay Chowbey: In terms of percentage moves that we have seen, there are several markets which are down in mid-single digit or high-single digit. So that's where, despite the fact that we are performing better than market, net-net numbers are definitely affecting our fiscal 25.

Sanjay Chowbey: But like I said earlier, the things we are doing today, and have been doing for the last couple of years.

Sanjay Chowbey: in terms of driving growth initiatives, driving productivity, driving quality, inventory reduction. The things we're doing will continue to help us in the business. And one of these days we'll see the market also turn a little bit positive. So we are very well positioned to capitalize on what we can do even now and also when the markets improve.

Stephen Fisher: Very helpful. Thanks a lot.

Patrick Watson: If I may add to that, Sanjay, you mentioned this earlier in terms of where we're going to be at on the $100 million cost takeout program as well, so expecting to be about $50 million when we exit this year, so halfway through the program, halfway through the cost takeout, as well as the progress we've made on working capital, and as we think about where we're at in FY25 here from an outlook perspective, driving that primary working capital as a percent of sales to 30%, and that is consistent with what our objective was in terms of 27 from a primary working capital perspective as well, so we're driving on all fronts here towards achieving our goals in terms of growing the business, what we can do, as well as improving the profitability.

Sanjay Chowbey: And if I may add to that, Sanjay, you mentioned this earlier in terms of where we're going to be at on the $100 million cost takeout program as well, so expecting to be about $50 million.

Sanjay Chowbey: When we exit this year, so halfway through the program, halfway through the cost takeout.

Sanjay Chowbey: as well as the progress we've made on working capital.

Speaker Change: And, you know, as we think about where we're at in FY25 here from an Outlook perspective, driving that primary working capital, that's a percent of sales.

Speaker Change: And that is consistent with what our objective was in terms of 27 from a primary working capital perspective as well. So we're driving on all fronts here towards achieving our goals in terms of growing the business, what we can do, as well as improving the profitability.

Speaker Change: Very helpful. Thanks a lot.

Steve Barger: And our next question is from Steve Barger with KeyBank Capital Markets. Please proceed.

Speaker Change: And our next question is from Steve Barger with KeyBank Capital Markets. Please proceed.

Steve Barger: Good morning. Good morning.

Steve Barger: So Jay, for portfolio optimization, I hear you about wanting to put a process in place to better understand what's happening, but you, Pat, and the team have been there quite a while, so there shouldn't be too many surprises. So first, can you tell us what percentage of revenue is generating margin that you consider unacceptable? And second, if there are parts of the business that have been a persistent drag on margin, why not exit?

Steve Barger: Thanks. Good morning.

Sanjay Chowbey: Sanjay, for the portfolio optimization, I hear you about wanting to put a process in place to better understand what's happening, but, you know, you, Pat, and the team have been there quite a while, so there shouldn't be too many surprises.

Steve Barger: So first, can you tell us what percentage of revenue is generating margin that you consider unacceptable? And second, if there are parts of the business that have been a persistent drag on margin, why not exit?

Sanjay Chowbey: Yeah, OK. Good morning again to Steve.

Sanjay Chowbey: First of all, yes, we do have experience of, you know, running the business for a few years, and we do have our ideas. But look, first, like I said, our focus is not to immediately jump to conclusions that divestment may be the answer. I think the first area that we are going to continue to work on is what we need to do in terms of growing and also continuous improvement and working capital allocation, and resource allocation. That's where we are.

Speaker Change: Yeah, okay. Mordegaugh-Gandis team.

Sanjay Chowbey: First of all, yes, we do have experience in running the business for a few years, and we do have our ideas, but look, first, like I said,

Speaker Change: Our focus is not to immediately jump to conclusions that divestment may be the answer. I think the first area that we are going to continue to work on...

Speaker Change: is what we need to do in terms of growing and also continuous improvement and working capital allocation, resource allocation. That's where we are, and I will share more information as time goes and we take some actions.

Sanjay Chowbey: And I will share more information as time goes by and we take some actions. But at this point, it's too early for me to give you a prognosis on this from an action perspective. And for different reasons; some of those will be shared only when that happens. But at this point, my main message here is that we are going to improve the overall performance of our portfolio, one way or the other, either through organic actions, or if we have to take inorganic actions; we are also ready to do that.

Speaker Change: But at this point, it's too early for me to give you a prognosis on this from an action perspective. And for all different reasons, some of those will be shared only when that happens.

Sanjay Chowbey: Can you tell us what percentage of revenue is generating a margin that you consider unacceptable?

Speaker Change: But at this point, my main message here is that we are going to improve overall performance of our portfolio, one way or the other, either through organic actions, or if we have to take inorganic actions, we are also ready to do that.

Speaker Change: Can you tell us what percentage of revenue is generating a margin that you consider unacceptable?

Sanjay Chowbey: Yeah, that detail, Steve, we are not going to be able to share.

Speaker Change: Yeah, that detail, Steve, we are not going to be able to share at this point.

Steve Barger: Okay, and then, Pat, on slide 13, the Outlook Walk, you show higher prices, favorable timing of price versus raw materials, and then restructuring. Are those listed in order of magnitude, or are they more equally weighted in terms of the benefit they'll drive?

Speaker Change: http://TheBusinessProfessor.com

Speaker Change: Okay and then Pat on slide 13 the outlook walk you show higher price favorable timing of price versus raw material and then restructuring. Are those listed in order of magnitude or are they more equally weighted in terms of the benefit they'll drive?

Patrick Watson: I would say they're a bit more equally weighted, Steve.

Speaker Change: I would say they're a bit more equally weighted, Steve.

Steve Barger: How much confidence do you have in what raw material prices will do in the back half of the fiscal year? Because it seems like that can, you know, that often kind of sneaks up and affects quarters.

Steve Barger: How much confidence do you have in what raw material prices will do in the back half of the fiscal year? Because it seems like that can, you know, that often kind of sneaks up and affects quarters.

Patrick Watson: Yeah, I mean, as we've said previously, you know, we generally have visibility about two quarters out at any point in time. So I'd say as we think about the first half, we have very good visibility. As time progresses here, we'll start moving into having visibility in Q3. You know, overall, if we think about where tungsten prices have been, they were flat for a period of time. We did see them ramp up, you know, spring into, I'll say early summer and then have trailed off here back to their prior level, more or less. So, you know, in general, I think we're in decent shape again at this point in time for the first half.

Speaker Change: Yeah, I mean, as we've said previously, you know, we generally have visibility about two-quarters out.

Speaker Change: At any point in time so I'd say as we think about the first half we have very good visibility as time progresses here We'll start moving into having

Speaker Change: Visibility in Q3. You know, overall, if we think about where tungsten prices have been, they were flat for a period of time. We did see them ramp up, you know, spring into, I'll say, early summer and then have trailed off here back to their prior level, more or less.

Speaker Change: So, you know, in general, I think we're in decent shape again at this point in time for the first half.

Steve Barger: Got it. So that would be the swing factor that you can't control in the back half of the three.

Speaker Change: Got it. So that would be the swing factor that you can't control in the back half of the three.

Steve Barger: Yes, as you get to the back half, that's something we'll have to take time to say. Got it.

Speaker Change: Yeah, as you get to the back half, that's something we'll have to take time to see.

Steve Barger: Got it. Thank you.

Speaker Change: Got it. Thank you.

Mike Feniger: The next question is from Mike Feniger with Bank of America. Please proceed.

Speaker Change: The next question is from Mike Feniger with Bank of America. Please proceed.

Mike Feniger: Hey, guys, thanks for taking my questions. Just on the pricing guidance, the plus two for Q1 and the plus two for the full year, you know, obviously, there's some signs now of price deflation kind of playing out even across industrials. I'm just curious, how was your thinking about that plus two and Q1? Clearly, you have visibility for that, and how you go out and keep that plus two kind of stable for the full year.

Mike Seneger: Hey guys, thanks for taking my questions. Just on the pricing guidance, the plus two for Q1 and the plus two for the full year, you know, obviously there's some signs now of price...

Mike Seneger: Deflation kind of playing out, even across industrials. I'm just curious, how was your thinking about that plus two and Q1? Clearly, you have visibility for that. And how you go out and keep that plus two kind of stable for the full year.

Patrick Watson: Yeah, I think, you know, if you think about the pricing action, so our pricing framework, we've taken some pricing actions here recently, so they're out there in the marketplace now. We'll always, we'll have some continued pricing that we'll achieve this year on a year-over-year basis for other actions we've implemented. And the last piece I would just say is that we continue to look at pricing across the portfolio based on value throughout the year and make adjustments where we can.

Speaker Change: Yeah, I think, you know, if you think about the pricing actions, so our pricing framework, you know, we've taken some pricing actions here recently, so they're out there in the marketplace now. We'll always, we'll have some continued, I'll say, pricing that we'll achieve this year on a year-over-year basis for other actions we've implemented.

Speaker Change: And the last piece I would just say is, you know, we continue to look at pricing across the portfolio based on value throughout the year.

Patrick Watson: And so, you know, we feel pretty good about where the prices are and what the plan is for pricing over the course of the year. Again, an underlying assumption in the conversation we just had with Steve was really around tungsten and the index pricing. Our assumption at this point in time is that tungsten is relatively flat, and therefore the index pricing is flat. But that's a fact that could swing us as we move through time.

Speaker Change: and make adjustments where we can.

Speaker Change: And so, you know, we feel pretty good about where the prices are and what the plan is for pricing over the coming months.

Speaker Change: in the course of the year. Again, an underlying assumption in the conversation we just had with Steve, really around tungsten and the index pricing. Our assumption at this point in time is tungsten is relatively flat and therefore the index pricing.

Sanjay Chowbey: Also, Mike, I'll just add, there are pockets where we are going to experience excess capacity, like in wind energy. We've talked about that. So there will be places where we will be very close to the market and be competitive. So if we have to take some... Price Reduction to Maintain Business or Win New Business will definitely be engaged.

Steve Barger: It's flat, but that's the fact that it could swing us as we move through time.

Steve Barger: Also, Mike, I'll just add, there are pockets where we are going to experience excess capacity, like in wind energy, we've talked about that. So there will be places where we will be very close to the market and be competitive. So if we have to take some...

Mike Seneger: Price Reduction to Maintain Business or Win New Business, we'll be definitely engaged in that.

Mike Feniger: helpful and you guys gave great color on on the end markets and kind of think about the top line for q1 and the full year first half second half just those ranges are really helpful just anything we should think about in terms of the operating marginal range in q1 and and for your full year grant you know for your guide any any differences I should be thinking about those decrementals um on the volume side in q1 versus how that maybe plays out through the second half

Speaker Change: helpful and you guys gave great color on on the end markets and kind of think about the top line for Q1 and the full year first half second half

Speaker Change: just those ranges are really helpful. Just anything we should think about in terms of the operating marginal range in Q1 and for your full year grant, you know, full year guide, any differences we should be thinking about those decrementals.

Speaker Change: On the volume side in Q1, how that maybe plays out through the second half?

Patrick Watson: Yeah, I mean, obviously, as you think about the EBITDA margin at the midpoint, we talked about being up 100 basis points for the full year. As we think about decrementals, particularly here, I'd say in Q1, you know, we would normally think about long-term incremental decrementals being in the mid-40s. I think, you know, where we're sitting from a volume perspective and capacity today, that's probably going to be a little bit higher from a decremental perspective.

Speaker Change: Yeah, obviously, as you think about the EBITDA margin at the midpoint, we talked about being up 100 basis points for the full year. As we think about decrementals, particularly here, I'd say in Q1.

Speaker Change: You know, we would normally think about long-term incremental decrementals being in the mid-40s. I think, you know, where we're sitting from a volume perspective and capacity today, that's going to probably be a little bit higher from a decremental perspective.

Patrick Watson: And but, you know, again, that mid-40s is a better long-term number than what we would experience from quarter to quarter. And again, I go back to just from an earnings cadence perspective, as we talked about a little earlier on the call, a pretty normal earnings cadence here as well.

Speaker Change: and but you know again that that mid-40s is a better long-term number than what we would experience from quarter to quarter and again I go back to you just from an earnings cadence perspective as we talked about a little earlier on the call a pretty normal earnings cadence here as well.

Mike Feniger: Really helpful. And just lastly, guys, the cash flow conversion, stepping up in 2025, that's greater than 125%. I'm just curious if you can kind of flesh that out, is that inventory reduction for, I know we talked about inventory to customers, just curious at the Kennetal level, is that the tailwind to cash flow conversion in 2025? Just hoping to kind of unpack that a little bit. Thanks, everyone.

Speaker Change: Really helpful. And just lastly, guys, the capsule conversion...

Speaker Change: Stepping up in 2025, that's greater than 125%, is that, I'm just curious if you can kind of flash that, is that inventory reduction for, I know we talked about inventory to customers, just curious about at the Kennetal level, is that the tailwind to cash flow conversion in 2025? Just hoping you can kind of unpack that a little bit. Thanks, everyone.

Sanjay Chowbey: Mike, first of all, as Pat said earlier, the majority of that was driven by inventory improvements. And I just want to give you a little bit more color than just the numbers.

Speaker Change: Mike, first of all, let me just, as Pat said earlier, the majority of that was driven by inventory improvements, and I just want to give you a little bit more color than beyond the numbers. We started to add some new processes, brought some new talent, and also made some internal appointments with respect to talent.

Sanjay Chowbey: We started to add some new processes, brought in some new talent, and also made some internal appointments with respect to talent. Through that, we have really made quite a bit of process improvement in how we do our sales production, and inventory management planning. We did an overall global network of where we produce, what we produce, how many times we ship through the week, and how much inventory we keep in the warehouses. We have been continuing to optimize that, and that's one of the things that's showing up in the numbers.

Speaker Change: Through that, we have really made quite a bit of process improvement in how we do our sales production inventory management planning.

Speaker Change: We did overall global network of where we produce, what we produce, how many times we ship through the week, and how much inventory we keep in the warehouses. We have been continuing to optimize that, and that's one of the things that's showing up in the numbers.

Sanjay Chowbey: And the good thing is that they are sustainable. And that's why what you see, that we're building on what we did in 23 and 24, and then on top of that now 25. So we feel pretty comfortable that we'll be able to deliver next-level improvement in fiscal 2020. Anything else to add? Yes, so that's the answer to your questions.

Speaker Change: And good thing is those are sustainable.

Speaker Change: So that's why what you see that we're building on what we did in 23 and 24 and then on top of that now 25. So we feel pretty comfortable that we'll be able to deliver next level improvement in fiscal 25.

Patrick Watson: Yeah, so that's, to be really pointed in the answer to your question, so that's one of the things that's driving that cash flow conversion.

Speaker Change: Anything else to add? Yes, that's to be really pointed on the answer your question. So that's one of the things that's driving that cash flow conversion in the air.

Operator: At this time, we are showing no further questioners in the queue, and this does conclude our question and answer session. I would now like to turn the conference back over to Sanjay Chowbey for any closing remarks. Thank you, operator.

Speaker Change: At this time, we are showing no further questioners in the queue, and this does conclude our question and answer session.

Speaker Change: I would now like to turn the conference back over to Sanjay Chowbey for any closing remarks.

Sanjay Chowbey: Thank you, operator, and thank you, everyone, for joining the call today. As always, we appreciate your interest and support. Please don't hesitate to reach out to us if you have any questions. Have a great day.

Sanjay Chowbey: Thank you, operator, and thank you, everyone, for joining the call today, and as always, we appreciate your interest and support. Please don't hesitate to reach out to us if you have any questions. Have a great day.

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