netrashetty
Netra Shetty
The Kerr-McGee Corporation, founded in 1929, was an energy company involved in the exploration and production of oil and gas. On June 23, 2006, Houston-based Anadarko Petroleum Corporation agreed to acquire Kerr-McGee in an all-cash transaction totaling $16.5 billion plus the assumption of $2.6 billion in debt. Kerr-McGee shareholders voted to approve the offer on August 10, 2006 and Kerr-McGee ceased to exist as an independent entity. As a result of the takeover, all operations (with the exception of Tronox which was spun off as a separate company in 2005) moved out of Oklahoma.
Kennametal Inc. (NYSE:KMT) is an industrial equipment manufacturer, particularly metal-cutting tools, drill bits, and other pieces of equipment where resistance to wear is required. These products are used in many end markets, primarily industry and construction. KMT operates in an oligopoly, and produces niche industrial products with few competitors, giving it pricing power in the market. Being an industrial supplier, however, means that the company's success depends on the health of industrial end markets. Any economic shocks in an industry using machine tools directly affects KMT returns, so when oil prices rise, for example, the expansion of the oilfield services industry leads to increased demand for KMT's tungsten-carbide tools. The company earned $2 billion in sales but incurred a net loss of $120 million in 2009.[1]
End markets often reflect the state of the economy they operate in, so KMT has made several acquisitions and divestments to shift some of its dependence away from the U.S. economy and towards more international markets, in order to reduce its risk. Rising costs for materials like steel and tungsten affect the entire machine tools industry, and force Kennametal to raise prices or cut costs to avoid shrinking margins.
Company Overview
Kennametal operates two main segments:[2]
Contents
1 Company Overview
2 Business Growth
2.1 FY 2009 (ended June 30, 2009)[1]
3 Trends and Forces
3.1 End markets determine Kennametal production
3.2 Kennametal has Dumped Big Subsidiaries for Niche Acquisitions to Expand Internationally
3.3 Kennametal Adjusts to Changing Raw Material Costs
4 Competition
4.1 Machine Tools & Accessories
4.2 Metal Cutting Tools
5 References
Metalworking Solutions and Services Group (MSSG) (62% of sales) -- The MSSG segment produces metal-cutting tools and tooling systems and sells them to industrial manufacturing companies and distributors, including Updike Supply.
Advanced Materials Solutions Group (AMSG) (38% of sales) -- The AMSG segment manages the production and sale of cemented tungsten carbide products used in mining, highway construction and engineering applications requiring wear and corrosion resistance. AMSG's most renowned product, tungsten carbide tooling, is sold to engineering firms, construction firms, and industrial suppliers, including Greenfield Industries.
Business Growth
FY 2009 (ended June 30, 2009)[1]
Net sales decreased 22% to $2 billion. The company attributes fall to a decline in global demand levels which caused organic sales to decrease in all major metalworking markets.
The company incurred a net loss of $120 million compared to a gain of $168 million in the previous year.
Trends and Forces
End markets determine Kennametal production
Since Kennametal is primarily an industrial supplier, the health of the economy's end markets are crucial to Kennametal's success. Increased global industrial production will directly affect Kennametal's product manufacturing by causing demand for its industrial tools to rise. The general engineering end market is KMT's main buyer (43% of sales). This end market involves KMT selling its tungsten carbide tooling and advanced materials to various manufacturing businesses, from waste water treatment to animal food processing. The automotive industry affects Kennametal's second-largest end market, on-highway vehicles (28% of sales). KMT sells axles and bearings to the automotive industry. Every market trend affects the outcome of Kennametals' business strategies. High oil prices, for example, have caused increased exploration for new energy taps, which in turn increase demand for KMT's earth-drilling tools.
Kennametal has Dumped Big Subsidiaries for Niche Acquisitions to Expand Internationally
Since Kennametal products are sold to several end markets, the state of an economy drives Kennametal's success; the strength of an economy is an indicator of the strength of its end markets. KMT believes the U.S. is entering a recession, and hopes that international expansion will reduce revenue loss by causing the company to be less dependent on the U.S. economy. To this end:
Some of Kennametal's past acquisitions include
Camco
Sintec
International Specialty Alloys, Inc.
KENCI, S.A.
Federal Signal's cutting tools business
Some of the company's divestments include
Full Service Supply
J&L Industrials
Kennametal Adjusts to Changing Raw Material Costs
Steel, Cobalt, and Tungsten are the three main raw materials used in Kennametal product manufacturing. Tungsten APT prices have increased 160% in the last five years. Since 2004, Cobalt prices have decreased 22%. Both have seen price increases thanks to the economic growth of emerging markets and rising demand for industrial equipment. To offset these increases in cost, Kennametal has increased net product prices.[3]
Competition
Machine Tools & Accessories
Stanley Works (SWK)- SWK is manufactures consumer and industrial tools.
Timken Company (TKR)- TKR is the world's largest manufacturer of tapered roller bearings and a U.S. producer of steel alloy.
Kaydon (KDN)- KDN is a manufacturer of specialty bearings, and also manufactures machine parts and steel alloys.
CompX International (CIX)- CIX manufactures security products and precision ball bearing slides.
Hardinge (HDNG)- HDNG produces machine tools in Western Europe.
Thermadyne Holding (THMD)- THMD produces gas and electric arc cutting and welding products for the Americas.
RBC Bearings (ROLL)- ROLL manufactures bearings; 90% of its sales are from the U.S. and it has the second-highest return on equity in the past year.
Flow International (FLOW)- Flow produces high-pressure waterjet cutting tools and had the highest revenue growth of machine tools companies in the past quarter.
Metal Cutting Tools
Sandvik (STO:SAND)- This Sweden- based company is the highest global manufacturer of metal cutting tools.
Iscar Metalworking- Iscar is a Berkshire Hathaway-owned machine tools company located in Israel.
Kennametal Inc. (NYSE:KMT) is an industrial equipment manufacturer, particularly metal-cutting tools, drill bits, and other pieces of equipment where resistance to wear is required. These products are used in many end markets, primarily industry and construction. KMT operates in an oligopoly, and produces niche industrial products with few competitors, giving it pricing power in the market. Being an industrial supplier, however, means that the company's success depends on the health of industrial end markets. Any economic shocks in an industry using machine tools directly affects KMT returns, so when oil prices rise, for example, the expansion of the oilfield services industry leads to increased demand for KMT's tungsten-carbide tools. The company earned $2 billion in sales but incurred a net loss of $120 million in 2009.[1]
End markets often reflect the state of the economy they operate in, so KMT has made several acquisitions and divestments to shift some of its dependence away from the U.S. economy and towards more international markets, in order to reduce its risk. Rising costs for materials like steel and tungsten affect the entire machine tools industry, and force Kennametal to raise prices or cut costs to avoid shrinking margins.
Company Overview
Kennametal operates two main segments:[2]
Contents
1 Company Overview
2 Business Growth
2.1 FY 2009 (ended June 30, 2009)[1]
3 Trends and Forces
3.1 End markets determine Kennametal production
3.2 Kennametal has Dumped Big Subsidiaries for Niche Acquisitions to Expand Internationally
3.3 Kennametal Adjusts to Changing Raw Material Costs
4 Competition
4.1 Machine Tools & Accessories
4.2 Metal Cutting Tools
5 References
Metalworking Solutions and Services Group (MSSG) (62% of sales) -- The MSSG segment produces metal-cutting tools and tooling systems and sells them to industrial manufacturing companies and distributors, including Updike Supply.
Advanced Materials Solutions Group (AMSG) (38% of sales) -- The AMSG segment manages the production and sale of cemented tungsten carbide products used in mining, highway construction and engineering applications requiring wear and corrosion resistance. AMSG's most renowned product, tungsten carbide tooling, is sold to engineering firms, construction firms, and industrial suppliers, including Greenfield Industries.
Business Growth
FY 2009 (ended June 30, 2009)[1]
Net sales decreased 22% to $2 billion. The company attributes fall to a decline in global demand levels which caused organic sales to decrease in all major metalworking markets.
The company incurred a net loss of $120 million compared to a gain of $168 million in the previous year.
Trends and Forces
End markets determine Kennametal production
Since Kennametal is primarily an industrial supplier, the health of the economy's end markets are crucial to Kennametal's success. Increased global industrial production will directly affect Kennametal's product manufacturing by causing demand for its industrial tools to rise. The general engineering end market is KMT's main buyer (43% of sales). This end market involves KMT selling its tungsten carbide tooling and advanced materials to various manufacturing businesses, from waste water treatment to animal food processing. The automotive industry affects Kennametal's second-largest end market, on-highway vehicles (28% of sales). KMT sells axles and bearings to the automotive industry. Every market trend affects the outcome of Kennametals' business strategies. High oil prices, for example, have caused increased exploration for new energy taps, which in turn increase demand for KMT's earth-drilling tools.
Kennametal has Dumped Big Subsidiaries for Niche Acquisitions to Expand Internationally
Since Kennametal products are sold to several end markets, the state of an economy drives Kennametal's success; the strength of an economy is an indicator of the strength of its end markets. KMT believes the U.S. is entering a recession, and hopes that international expansion will reduce revenue loss by causing the company to be less dependent on the U.S. economy. To this end:
Some of Kennametal's past acquisitions include
Camco
Sintec
International Specialty Alloys, Inc.
KENCI, S.A.
Federal Signal's cutting tools business
Some of the company's divestments include
Full Service Supply
J&L Industrials
Kennametal Adjusts to Changing Raw Material Costs
Steel, Cobalt, and Tungsten are the three main raw materials used in Kennametal product manufacturing. Tungsten APT prices have increased 160% in the last five years. Since 2004, Cobalt prices have decreased 22%. Both have seen price increases thanks to the economic growth of emerging markets and rising demand for industrial equipment. To offset these increases in cost, Kennametal has increased net product prices.[3]
Competition
Machine Tools & Accessories
Stanley Works (SWK)- SWK is manufactures consumer and industrial tools.
Timken Company (TKR)- TKR is the world's largest manufacturer of tapered roller bearings and a U.S. producer of steel alloy.
Kaydon (KDN)- KDN is a manufacturer of specialty bearings, and also manufactures machine parts and steel alloys.
CompX International (CIX)- CIX manufactures security products and precision ball bearing slides.
Hardinge (HDNG)- HDNG produces machine tools in Western Europe.
Thermadyne Holding (THMD)- THMD produces gas and electric arc cutting and welding products for the Americas.
RBC Bearings (ROLL)- ROLL manufactures bearings; 90% of its sales are from the U.S. and it has the second-highest return on equity in the past year.
Flow International (FLOW)- Flow produces high-pressure waterjet cutting tools and had the highest revenue growth of machine tools companies in the past quarter.
Metal Cutting Tools
Sandvik (STO:SAND)- This Sweden- based company is the highest global manufacturer of metal cutting tools.
Iscar Metalworking- Iscar is a Berkshire Hathaway-owned machine tools company located in Israel.
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