Fitch Cuts Kennametal Outlook, Citing Debt Load

CHICAGO (AP) — Fitch's Ratings cut its outlook Wednesday for Kennametal Inc., citing debt taken on by the manufacturer of advanced materials and engineered products to pay for share repurchases and an acquisition.

The Chicago-based Fitch's reduced its outlook to "Negative" from "Stable."

It affirmed the Latrobe, Pa., company's issuer default rating, senior unsecured bank facilities and senior unsecured debt, all at "BBB."

Kennametal had approximately $523 million of debt outstanding as of Dec. 31, 2008, Fitch's said.

Fitch's said it expects Kennametal's finances could weaken this year. Leverage increased during the last half of 2008 as it used debt to fund share repurchases and an acquisition, Fitch's said.

"Leverage is likely to increase further as a weak global economy pressures the company's sales, margins and free cash flows," it said.

An e-mail seeking comment was sent to Kennametal.

In January, Kennametal cut its fiscal 2009 earnings-per-share outlook, partly on a "rapid and significant global decline in industrial production." The company, which in October forecast fiscal 2009 earnings per share in a range of $2.70 to $2.90, lowered the range to $1.30 to $1.50.

Analysts surveyed by Thomson Reuters expect $1.28 per share.

Fitch's said the decline in financial results is due to a sharp downturn in end market demand. Orders dropped sharply in late 2008 and early this year "and it remains unclear when order trends could stabilize," it said.

Shares rose 19 cents, or 1 percent, to $16.08 in afternoon trading.