Kennametal Inc. plans to close its manufacturing facility in Irwin, Pennsylvania, as well as two manufacturing facilities and a distribution center in Germany. The restructuring actions should facilitate a simplified and leaner structure, while further positioning the company for long-term profitable growth.
Under the proposed measures, the Latrobe-headquartered company would consolidate its Essen and Lichtenau operations, including both Kennametal and WIDIA branded products, into other lower-cost Kennametal industrial facilities. The Irwin operations would be consolidated primarily into the newly modernized infrastructure plant in Rogers, Arkansas.
Kennametal also proposed plans to outsource the distribution operations in its Neunkirchen and Essen facilities to a third-party logistics specialist.
The restructurings are expected to be executed over the next two years. Facility closures in fiscal 2020 are part of the current restructuring action, which are expected to deliver estimated annualized savings of $35 million to $40 million, and $55 million to $65 million in pre-tax charges.
“The proposed measures are difficult but necessary to achieve structural improvements, further improve operational efficiency and continue to drive value for shareholders,” Kennametal President and CEO Christopher Rossi said, in a statement. “We recognize the effect on our employees and will work closely with their representatives to support them throughout this transition.”
These restructuring actions advance the company toward the fiscal 2021 financial targets announced at its most recent Investor Day. They are also part of the previously announced goal of reducing plants through simplification/modernization, with additional plants currently under evaluation.
Fiscal 2021 closures would result in further structural cost reductions with estimated annualized savings of $25 million to $30 million. Most of these savings will be achieved in fiscal 2021 with full run rate savings being realized in fiscal 2022. Kennametal expects to incur pre-tax charges of $60 million to $75 million through fiscal 2020 and 2021 for this restructuring. These charges are primarily cash with the majority being spent in fiscal 2021.
The closure plans are contingent on the negotiations with the relevant employee representatives.
The company will continue to maintain a strong presence in Germany, including planned modernization investments in other Kennametal locations in the country.
