Kennametal Inc.

Good morning. I would like to welcome everyone to Kenna Mennel's second quarter fiscal 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, 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 the number two. Please note that this event is being recorded. I would now like to turn the conference over to Michael Pisi, Vice President of Investor Relations.

Thank you, Operator. Welcome, everyone, and thank you for joining us to review CannaMetal's second quarter 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 deck throughout today's call. I'm Michael Pisi, Vice President of Investor Relations. Joining me on the call today are Christopher Rossi, President and Chief Executive Officer, Pat Watson, Vice President and Chief Financial Officer, Sanjay Chaubey, Vice President and President of Metal Cutting, and Franklin Cardenas, Vice President and President of Infrastructure. After Chris and Pat's prepared remarks, we will open the line for questions. 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 Canon Metal's SEC filings. In addition, we will be discussing non-GAAP financial measures on the call today. reconciliations to GAAP financial measures that we believe are most directly comparable can be found at the back of the deck and on our form 8K on our website. And with that, I'll turn the call over to you, Chris.

Thanks, Mike. Good morning, everyone, and thank you for joining us. I'll start the call today with a review of the quarter as well as some end market commentary, and then we'll share an example of the industry-leading innovations we're bringing to market. From there, Pat will cover the quarterly financial results as well as the fiscal year 24 outlook. Finally, I'll make some summary comments and then open the call for questions. Beginning on slide three, for the quarter, sales were flat year over year with organic decline of 3%, offset by favorable business days of 2% and favorable currency exchange of 1%. At the segment level, metal cutting was flat organically and infrastructure declined 8%. On a constant currency basis, EMEA posted 3% growth, driven primarily by the transportation and energy end markets. The Americas declined 5%, mainly due to softening demand in general engineering, earthworks, and energy, and the effect of the UAW strike on transportation. Asia-Pacific sales were flat, driven by growth in general engineering and transportation, offset by declines in energy and earthworks. The results also reflect the year-over-year declines in China. Moving to our end markets. Transportation grew 4%, aerospace and defense was flat, general engineering declined 2%, energy declined 3%, and earthworks declined 5%. Looking now at each end market, the earthworks decline was driven by increased price sensitivity in America's construction and softening mining in China. For energy, as expected, oil and gas was down primarily due to lower U.S. land-based rig counts and continuing customer destocking within infrastructure and wind energy project delays in metal cutting. General engineering declined versus prior year, with modest growth in metal cutting in the Americas offset by declines in infrastructure. In aerospace and defense, sales were flat year over year at the enterprise level, Metal cutting grew 6% from the continued execution of our growth initiatives and overall market strength in aerospace, while infrastructure declined due to timing of large defense orders. Transportation grew 4% this quarter from continued strength in EMEA, driven by metal cuttings, electric vehicle, and hybrid project winds, and a slight increase in Asia Pacific, partially offset by a decline in the Americas due to customer production timing effects related to the UAW strike. Turning now to profitability in the quarter. Adjusted operating margin declined 110 basis points, primarily due to lower volumes, higher wages and general inflation, and unfavorable price raw material cost timing in the infrastructure segment. These were partially offset by higher price realization and metal cutting and restructuring savings of approximately $5 million in total. Metal cuttings adjusted operating margin this quarter decreased 40 basis points year over year from higher price realization and restructuring savings of approximately $4 million, offset by lower volumes and higher wages and general inflation. The infrastructure segments adjusted operating margins decreased 320 basis points year over year, primarily due to lower volumes and, as expected, unfavorable price raw material cost timings. These factors were partially offset by restructuring savings of approximately $1 million. Adjusted EPS increased to 30 cents compared to 27 cents in the prior year quarter. Free operating cash flow year to date was 36 million, which is the highest level since 2016. We continued the share repurchase program this quarter with $15 million of shares bought back, bringing the total amount repurchased under the existing program to $163 million. The Board of Directors authorized another $200 million in share repurchases over a three-year period. Our share repurchase program reflects the confidence we have in executing our strategic initiatives for long-term value creation, despite quarterly macroeconomic headwinds and uncertainties. Turning to slide four, I want to provide commentary on our end markets for the full year and how things have evolved through Q2. As we discussed on our last call, Our outlook for the full year is informed by forecasts of specific market drivers. And despite developing macroeconomic uncertainty at the time, those drivers have remained unchanged and we're still indicating market conditions improving in the second half. Remember, for us, backlog is not a meaningful indicator of expected quarterly sales and beyond. So we rely on forecasts of these specific market drivers and customer input. Fast forwarding to today, the forecast of these market drivers have evolved, as summarized on the slide. Additionally, in December, we saw an unexpected slowdown in orders, primarily in general engineering and energy, which has continued in January, particularly in the U.S. Based on these changes, we still expect second half fiscal year 24 sales to outpace the first half. However, year-over-year growth is expected to be down slightly. More specifically, the changes year over year by end market are summarized here. In general engineering, we now expect a slight decline driven by lower forecasted industrial production, primarily in the U.S., Eurozone, and China. And in energy, we're no longer expecting the second half uptick that our customers were indicating last quarter. U.S. land-based rig counts at the end of our fiscal year are now expected to decrease 5% compared to last quarter's forecasts. Our order deliveries have shifted to the second half of calendar year 24, aligned with customer sentiment that North American activity continues to lag with no meaningful recovery during the first half of this calendar year. Earthworks is anticipated to decline. Although we anticipate normal seasonality of demand, we are seeing greater price sensitivity than expected as we enter the second half of fiscal year 24. In addition, we're also seeing some slowdown in China mining. In transportation, we continue to expect slight year-over-year growth as project winds offset a decline in global light vehicle production per IHS. Our outlook for the full year now includes the effects of the UAW strike. We anticipate aerospace and defense will continue to experience growth in both segments in the second half, albeit at a slightly lower level. The number of aircraft produced is expected to decline about 13% from last quarter's forecast, with potentially some additional near-term production disruptions due to recent OEM quality issues. Major OEM aircraft build rates are still forecasted to increase in the mid-teens over the first half, and they are still below pre-pandemic levels. And we're confident in our ability to continue winning new projects and gaining share in this end market. Finally, from a regional perspective, we're no longer expecting a second half recovery in China, as the latest official PMI metric remains flat at 50. On last quarter's call, I mentioned that given the macroeconomic uncertainties, we would be prepared to take proactive measures if the end markets didn't improve as expected in the second half. To that end, we are taking additional restructuring actions to increase our current restructuring program from the previously announced $20 million run rate savings by the end of fiscal year 24 to $35 million. This accelerates our progress towards achieving the $100 million of cost out targets that we first discussed at Investor Day. Pat will provide additional details in his prepared remarks. Now on slide five, I'd like to highlight an example of how our innovation advantage continues to deliver enhanced product offerings to our customers. The slide highlights our new and proprietary metal cutting insert. This new geometry enables higher productivity for our customers and eliminates the need to change tools for finishing operations, making it ideal for transportation, medical equipment, and general engineering applications. Notably, this is another innovation enabled by modernization. Simply put, we could not produce this proprietary geometry on our legacy equipment. Furthermore, the new insert is available with our new Ken Gold coating technology, which expands the differentiated performance across a wider range of applications. And as you may recall, the new Ken Gold coding technology was also enabled by modernization. Now let me turn the call over to Pat, who will review the second quarter financial performance and the outlook.