Kennametal (NYSE: KMT) reported Q2 EPS of $0.52, $0.03 worse than the analyst estimate of $0.55. Revenue for the quarter came in at $676 million versus the consensus estimate of $703.3 million.

Kennametal President and Chief Executive Officer Don Nolan said, "I'm encouraged by the talent, technologies and innovation inside our company. They reflect the inherent potential we possess to generate value over the long-term. While the current weakness in our end markets adversely affected our results, and the nature and magnitude of the impairment charge is disappointing, they also illustrate many opportunities for improving our operations and business portfolio."

"As attractive as our future may be, Kennametal also faces some serious challenges given that we have underperformed and missed investor expectations. It's clear we have some immediate work to do to deliver better performance by driving organic sales growth, getting our portfolio right and aligning our cost structure accordingly. We are taking additional actions to further reduce our manufacturing footprint and administrative overhead with a newly announced restructuring initiative, Phase 2. These key priorities—portfolio, cost structure and core growth with an accountable, customer-focused culture—are central to developing a path forward that will maximize profitability and generate improved shareholder returns."

Outlook

Due to current high levels of uncertainty in the global economy, visibility is very limited regarding demand in some of Kennametal's served end markets and ultimately will affect the company's sales, earnings and cash flow. For fiscal 2015, Kennametal revised its outlook to reflect a weaker economic environment for the remainder of the fiscal year.

The company expects fiscal 2015 total sales to decline in the range of 6 to 7 percent and organic sales to decline in the range of 4 to 5 percent. Previously, total sales growth was projected to be in the range of 2 to 4 percent, with organic sales growth of 1 to 3 percent. Based on the revised forecast, Kennametal expects adjusted EPS for fiscal 2015 to range from $1.90 to $2.10, compared with the previous range of $2.80 to $3.00. The primary driver for the change in earnings relates to a further reduction to Infrastructure segment sales, due to a rapid decline in the oil and gas markets, as well as continued weak demand from the mining industry. The industrial segment is also expected to be negatively impacted by further weakening in the Eurozone. In addition, foreign exchange is expected to be a notable headwind related to recent currency fluctuations, particularly the U.S. dollar to Euro exchange rate. While near-term conditions are challenging, the company is in the process of developing a path forward that will result in improved shareholder returns.

The company expects to generate cash flow from operations between $270 million and $295 million for fiscal 2015, compared with its previous outlook of $280 million to $310 million. Based on anticipated capital expenditures of approximately $110 million to $115 million, the company expects to generate between $160 million and $180 million of free operating cash flow for the fiscal year.

Kennametal is committed to maintaining investment-grade credit ratings. Cash from operations, as well as any working capital reductions, will be primarily for the purpose of debt reduction. The company's capital allocation process will include disciplined capital investments in the business, as well as returning cash to shareholders through dividends and share repurchases.

For earnings history and earnings-related data on Kennametal (KMT) click here.