Machinery company Kennametal Inc. KMT announced the completion of its divestiture of certain non-core assets to Madison Industries. The transaction value has been fixed at $70 million in cash.
As disclosed previously, Kennametal’s divested assets included 18 facilities comprising 11 manufacturing and 7 small facilities from castings, steel-plate fabrication and deburring operations.
Kennametal expects that sale of non-core assets will help it better align its business operations with current market demands as well as optimally use its resources for the existing core manufacturing and technology operations. In addition, the divestment will serve as a step toward the company’s goal of reducing its manufacturing footprints by 20–25%.
Also, Kennametal anticipates incurring after-tax loss of $100−$120 million from the asset sale, while predicting adverse sales impact of $125 million in fiscal 2016. However, the transaction will likely be immediately accretive to the company’s operating margin, while remaining neutral to earnings in fiscal 2016. The company intends to use the proceeds from the transaction to repay debt.
Kennametal specializes in manufacturing high-speed metal cutting tools, tooling systems and wear-resistant parts for use in industrial and infrastructure end markets. Lately, the company has been working toward developing a sound cost structure by rationalization of certain manufacturing facilities and reduction of costs through various cost-cutting programs. These restructuring initiatives are projected to yield annualized savings of $115−$135 million upon completion.
With a market capitalization of $2.3 billion, Kennametal currently carries a Zacks Rank #3 (Hold). Better-ranked companies in the same sector include Encore Wire Corp. WIRE, iRobot Corporation IRBT and John Bean Technologies Corporation JBT. While Encore Wire sports a Zacks Rank #1 (Strong Buy), both iRobot Corporation and John Bean Technologies carry a Zacks Rank #2 (Buy).
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