Kennametal Feeling Balanced, Now Plans to Go Global

Wed February 25, 2004 - Northeast Edition
CEG



PITTSBURGH (AP) Measuring the growth of companies in the tooling industry dominated by a small circle of major players is a bit like counting rings on an oak tree.

Despite a harsh manufacturing environment brought on during the most recent recession, the world’s second largest cutting tool maker, Kennametal, has been quick-stepping in the traditionally glacial $8.5-billion market.

The Latrobe, PA-based company has boosted its market share from 11 percent to approximately 18 percent following a management shake up in 1999.

Approximately 18 months after Kennametal acquired the Widia Group, which has operations in Europe and India, the company recently said it would acquire component-maker Conforma Clad Inc., of Indiana.

The acquisition of Widia is part Kennametal’s strategy to expand in the major automotive and construction sectors of developing regions. At the same time, Kennametal is increasing its presence in niche markets served by companies such as Conforma Clad, which makes coatings for parts used to drill for gas and oil.

“For us, it’s come after spending the first three years of my tenure getting our house in order and earning the right to grow,” said Markos Tambakeras, Kennametal’s chairman, president and chief executive officer.

Kennametal remains No. 2 behind Sandvik, a Swedish company that controls about 25 percent of the market. The remainder of the industry is highly fractured, though Iscar in Israel could control as much as 6 percent of the market.

Kennametal and Sandvik have been picking up pieces of other companies as part of an extended market consolidation, sometimes in rapid succession and from the same source.

In June 2002, Sandvik said it would acquire a subsidiary of Milacron for $175 million one month after Kennametal said it would buy Widia, also owned by Milacron, for $150 million.

With both companies growing through acquisitions, research and development is key to winning over clients who sometimes stick by the same supplier for decades.

Approximately 40 percent of Kennametal’s sales are from new products, compared with only 14 percent four years ago, Tambakeras said.

With growth outside of the United States combined with a burst of new technology, industry experts said Kennametal may be able to reach markets worldwide as it has not been able to in the past.

“They’ve got a good management team that’s applying a strategy of lean manufacturing and new product development,” said Walter Liptak, an analyst of McDonald Investments Inc. “They are in a great position to apply more leverage.”

The company reached a major milestone in June, Tambakeras said, when Kennametal’s sales outside of the United States reached 50 percent of all revenue. Kennametal has annual sales of $1.8 billion.

“For a global company to become competitive, you have to grow faster in developing areas like Asia than in North America,” he said.

Tambakeras said in January the goal is to double revenues from Asia to around 20 percent in three to five years.

While Tambakeras said more acquisitions are consistent with the company’s strategy, he would not say if more acquisitions should be expected in the near future.

Analysts said much of Kennametal’s ability to grow will depend greatly on a rebound in the manufacturing sector in 2004 and beyond.