Kennametal Inc. KMT recently priced an offering of $300 million of its 4.625% senior notes due Jun 15, 2028. Subject to customary closing conditions, this offering is anticipated to close on Jun 7, 2018.
As noted, the senior notes are available to the public at 99.271% of the principal amount. The interest rate of 4.625% will be paid semi-annually on Jun 15 and Dec 15, starting from Dec 15, 2018.
This machinery company estimates net proceeds of $295.9 million — after the deduction of underwriting discounts — from the issuance. It will use the funds for redeeming 2.650% senior notes, due to expire in 2019. Also, the proceeds will be utilized for satisfying general corporate purposes. Ratings of the issuance are expected to be ‘Baa3 (Stable)’ by Moody's Investors Service, ‘BBB- (Stable)’ by Standard & Poor’s Ratings Services and ‘BBB (Stable)’ by Fitch Ratings Ltd.
Though such debt issuances satisfy general corporate purposes, we believe that it makes a company more levered. Exiting the third quarter of fiscal 2018 (ended Mar 31, 2018), Kennametal had long-term debt of approximately $696 million while its total debt/total capital ratio was 36.2%.
Since the release of third-quarter fiscal 2018 results on May 2, Kennametal’s shares have lost roughly 0.6%, underperforming 2.8% increase recorded by the industry. The bottom line for the fiscal third quarter was below our expectations, reflecting 17% increase over the year-ago tally. For fiscal 2018, the company’s growth, modernization and simplification initiatives will play a key role in driving results. Raw-material cost inflation will be an issue, which is likely to be offset by favorable price realization.
Other Stocks to Consider
With a market capitalization of $3 billion, Kennametal carries a Zacks Rank #2 (Buy). The stock’s earnings estimates for fiscal 2018 and fiscal 2019 have been positively revised in the last 60 days. Currently, the Zacks Consensus Estimate is pegged at $2.60 for fiscal 2018 and $3.06 for fiscal 2019, reflecting growth of 1.2% and 1.3%, respectively.
Other top-ranked stocks worth considering in the Zacks Industrial Products sector are Graco Inc. GGG, Twin Disc, Incorporated TWIN and Kadant Inc. KAI. While both Graco and Twin Disc sport a Zacks Rank #1 (Strong Buy), Kadant carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
In the last 60 days, earnings estimates for each of these stocks improved for the current year. Also, average positive earnings surprise for last four quarters was 12.81% for Graco, 250.43% for Twin Disc and 15.50% for Kadant.
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