Good morning. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to Kennametal's Third Quarter and Fiscal Year 2013 Earnings Call. [Operator Instructions] Thank you. I would now like to turn the call over to Quynh McGuire, Director of Investor Relations. Please go ahead.

Thank you, Regina. Welcome, everyone. Thank you for joining us today to review Kennametal's third quarter fiscal 2013 results. We issued our quarterly earnings press release earlier today. You may access this announcement via our website at www.kennametal.com. Consistent with our practice in prior quarterly conference calls, we've invited various members of the media to listen to this call. It is also being broadcast live on our website, and a recording will be available on our site for replay through May 24, 2013. I'm Quynh McGuire, Director of Investor Relations for Kennametal. Joining me for our call today are Chairman, President and Chief Executive Officer, Carlos Cardoso; Vice President and Chief Financial Officer, Frank Simpkins. Carlos and Frank will provide further explanation on the quarter's financial performance. After the remarks, we'll be happy to answer your questions. At this time, I would like to direct your attention to our forward-looking disclosure statement. The discussion that we'll have today contains comments that may constitute forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Such forward-looking statements 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 forward-looking statements. Additional information regarding these risk factors and uncertainties is detailed in Kennametal's filings with the Securities and Exchange Commission. In addition, Kennametal has provided the SEC with a Form 8-K, a copy of which is currently available on our website. This enables us to discuss non-GAAP financial measures during this call in accordance with SEC Regulation G. This 8-K presents GAAP financial measures that we believe are most directly comparable to those non-GAAP financial measures, and it provides a reconciliation of those measures as well. I will now turn the call over to Carlos.

Thank you, Quynh. Good morning, everyone. Thank you for joining us. Today we are hosting this call from our Kennametal Europe office in Neuhausen, Switzerland. Earlier this week, our Board of Directors and some members of the senior management team were in Milan, Italy, to visit 2 of our manufacturing operations, a facility that produces metal cutting tools and a satellite plant that makes investment casting components. In addition, the team who [indiscernible] Switzerland to see our facility that provides customer solutions and services, primarily for the energy markets. Kennametal has a strong brand recognition in Europe and this region represents a key market for our business. During the March quarter, economic conditions remain challenging globally. As persistent, fiscal concerns and uncertainty affected customer demand for our served end markets. U.S. has slow growth, the eurozone is still contracting somewhat and certain emerging markets underperformed. As a result, global industrial production was negatively impacted as customers delayed spending and held back from inventory restocking. As expected, the decline in customer demand reduced sales year-over-year. However, we realized the sequential increase in revenues with 3.5% sales growth in the March quarter over the December quarter. In addition and very important, our daily order rate reflects sequential growth in each month since December. Overall, we remain positive about Kennametal's long-term growth prospectus given our diverse served end markets. While infrastructure sectors, such as mining and energy, faced near-term challenges. We expect growth construction activity to ramp up with the arrival of warmer weather and continue into the summer and fall. Regarding commercial markets, the transportation sector is beginning to see some improvements and commercial aerospace continues to show strength. In addition, we expect that our general engineering business will experience a ripple-effect benefit when demand returns. Last week, Kennametal participated in bauma…

Thank you, Carlos. I'll start with a summary of the March quarter, followed by a review of the quarter details and I'll close with the current view on our outlook for the remainder of fiscal 2013. As Carlos said on balance, we delivered solid results with improved profitability from the December quarter despite a mixed macro environment for our served end markets. Looking at our market analysis for sales by region, we experienced the most negative impact in North America. This was mostly driven by infrastructure end markets, where there were softness in North America underground coal mining including additional mine closures, coupled with project delays in our energy business. General engineering is also down in North America as customers continue to operate at low inventory levels. However, it's important to note that throughout the March quarter, both our Industrial and Infrastructure segments saw sequential growth in each month since December. Also, a few other items to highlight as we again delivered double-digit EBIT margin of 11.2% and excluding the Stellite acquisition, our EBIT margin was 11.8%. We have strong free operating cash flow in the March quarter led by our inventory reduction initiative in which we reduced finished goods inventories by approximately $30 million. Although this initiative lowered our EBIT margin by 110 basis points, it was consistent with our long-term strategy to maximize cash flow. We further enhanced our liquidity and debt maturity profile by amending and extending our revolving credit facility at favorable pricing. We completed the sale of 13% of shares in our India subsidiary, resulting in net proceeds of approximately $27 million and I'll touch on this in a bit more detail later. And lastly, Stellite's acquisition was accretive to our results by $0.02 per share despite the headwinds in its served markets. Note that…

Thank you, Frank. As we move forward, we'll continue to execute the same strategies that have transformed Kennametal into a company that can deliver profitable growth throughout the economic cycle. During this fiscal year, we have consistently delivered double-digit operating margin performance despite the challenging market conditions that impact sales growth and lower cost absorption due to our inventory reduction efforts. The results validate our company-specific initiatives to grow sales, invest in operational efficiencies and maximize profitability. In addition, we'll continue to capitalize on our strong balance sheet to increase shareholder value. Kennametal has a track record of generating strong cash flows, we'll remain disciplined in our capital allocation process to include stock buyback, acquisitions, capital expenditures and dividends. In summary, we'll continue to serve customer demand by further balancing our served end markets, business mix and geographic presence. We'll remain focused on maintaining operational excellence throughout our company. Our goal is to drive profitability and returns while doubling revenues in 5 years and maximizing cash flows. Thank you for your interest in Kennametal, and we'll now take questions from you.

[Operator Instructions] Your first question comes from the line of Julian Mitchell with Credit Suisse. Julian Mitchell - Crédit Suisse AG, Research Division: I just wondered on the issue of production versus sell-through. The gross margin went up, I guess, 30 bps sequentially in Q3. Assuming it's sort of a flattish SG&A-to-sales ratio in Q4 sequentially, suggests your guidance maybe has it up about 100 bps or so in Q4. Is that roughly correct? And if you could just give a broader update on production versus sell-through and at what point do you think we should see the 2 match up again?

Yes, Julian. This is Frank. I think you're right, sequentially Q2 to Q3. We had originally anticipated taking out the remaining inventory reduction of about $47 million. So we did a little bit more in the March quarter, the $30 million, not that it was going to be equal last quarter of $20 million and $20 million give or take. But I think the fourth quarter gross margin will be a little bit better. We will have some additional benefits from the line [ph] from the additional work days, so less of a drag on the capacity utilization. We're also experiencing slightly lower raw material costs now that we flushed through some of the higher cost in the fourth quarter, and there'll be a slight bump-up as well, in my opinion, on the Stellite acquisition from some of the sales synergies and some of the integration activities that we started on previously. So I expect it to be up a little bit higher than what you anticipated in the fourth quarter. Julian Mitchell - Crédit Suisse AG, Research Division: And then just on a -- within the industrial business, the Americas seems to see a sort of an accelerated decline in Q3. I think they were down 12% organically year-on-year versus down 8% year-on-year in the December quarter. And yet, if you look sort of globally and so on the PMI, just slightly better in the Americas versus other regions. So maybe just give an update on industrial Americas. And do you think that we should see that minus 12% improve much in the June quarter?

Yes, I think we will see it. I think it's -- it was a little bit more pervasive with the destocking. I think that has somewhat subsided. And then even though it's in the industrial, the slowness in the energy also has a ripple effect on the general engineering side, and I think just some of the fiscal concerns and some of the cautious in the third quarter as people get a little bit more comfortable with the payroll cut and the debt sequester. I think we'll see a little bit more activity going forward. And it was basically the same between our direct and indirect, but we continue to see the daily rate in the industrial business gain a little bit of a steam, and we see a strong correlation as well as transportation starts to pick up a little bit. The general engineering portion of our business tends to lag a couple of quarters, so we're starting to see a little bit more activity start to come through on that side as well. So I expect it to be a little bit better in the fourth quarter, all being we do have a little bit easier comp in Q4. Julian Mitchell - Crédit Suisse AG, Research Division: And then just lastly, the cash balance, I mean, your cash balance has tripled in 6 months, just the gross cash. What -- I mean, are you anticipating a sort of accelerated buyback run rate from here. I guess, year to date, you've been running at about 700,000 shares per quarter on average year to date. Are you anticipating an acceleration in that run rate?

I'll answer it this way for you. We committed to the beginning of the fiscal year to repurchase 2.5 million shares back. We will do at minimum that amount.

And I'll remind everyone that we still have a 6.5 million authorization left, so we have flexibility.

Next question will come from the line of Eli Lustgarten with Longbow Securities.

Can you give us some idea of what's going on and versus end markets? One clarification, we have, what, $13 million more of inventory to take out in the fourth quarter if you're going to get to $60 million. You're at $47 million. I know I should [ph] but can you...

Yes, I'll start on the inventory question. So Eli, let me give you the numbers. Like we said last quarter, we would take out $60 million of which, we did $17 million in the quarter, and we did another $30 million. So the last 2 quarters, we did $47 million, but in the first quarter, inventory in those categories was up $7 million, so I -- in the script, I said year-to-date we're at $40 million, so this would imply $20-ish million in the fourth quarter. Now the caveats there is as we continue to see some of the faster moving items, particularly in the industrial side, the A items turn [ph], we'll monitor our fill rates. And if we think we need to increase for the second half any of the fast-moving items, we may not hit that, but the goal still remains to do the $60 million. Of which, $20 million will occur in Q4.

And Eli, what was your question relative to the markets?

Yes, I was just trying to get some characters, some color on what's going on in the underlying markets. I mean industrial markets are sort of in a status quo, but the inventory seemed relatively low at this point. So you're just prodding along with current activity. And that's what you'd expect to happen until the market change. I guess my concern is the infrastructure where energy remains quite weak or so and we have more inventory liquidation to be taken out in the end markets and that part of the business. And is that year-over-year comparison improvement delayed till sometime in the middle of fiscal '14?

Well, I mean, I think that we have seen sort of the destocking, and really this month, this past month, we've seen that activity sort of end as far as we can tell at this point. And one of the proofs is that we've seen sequential, in the daily rate, sequential growth. We, at this point, anticipate that the industrial will come back faster but maybe by a quarter or so and the infrastructure to follow that. And what's driving the infrastructure is going to be around the construction. So the construction was expected the activity to start really this quarter, but because of the harsh winter, the weather, again, we have the quotes. I think the municipalities are ready go. I think we'll see that activity right now in the next few weeks.

I mean I...

[indiscernible] yes, the one thing I would add on the energy side, I don't think there's a lot of inventory in the energy pipeline of any magnitude. And it's just very -- some are quick [ph] we see the -- with the gas prices, where they're at. we know storage levels are down. And what could really be an inflection point if we have a hot summer because we have a normal winter and if you get a normal summer, this thing can snap back a lot quicker as you know.

Okay. And can we just have some commentary what's going on in pricing in the industry? Of course, is there any material change in pricing, whatsoever, given the weakened industry conditions? And maybe an update on what's going on with Fastenal and the video line and versus seeing some inroad from Amazon in the marketplaces?

Yes, I mean, I would say there has been no change in the pricing, so we'll continue to get -- obviously, we have -- the pricing that we are getting is the tail end of the pricing that we had in place last year. So there was -- we have not given price in any areas. And I think our Fastenal business continues to grow at a significant pace. The base is small, and we are, both myself and Will, are very excited about the potential of this brand. And the Amazon is not really going to affect this brand because people need to help, need help in utilizing, applying sort of the principles of this brand. I mean, you're going to see Amazon more in the high-speed steel and some of the more standard type of products.

Your next question will come from the line of Ann Duignan with JPMorgan. Damien Fortune - JP Morgan Chase & Co, Research Division: This is Damien Fortune on for Ann. Could you guys expand on the sequential improvement in orders? Was most of it being driven by improvement from the OEMs? Or is it more distribution?

It's really both. I mean, we're seeing improvement all around in the daily orders sequentially. And at the last call, we said that we believe that the bottom had been in November, December time frame. We now have a basically 3 months to validate that, and I can tell you right now that the current month seems to be in the same -- going the same path. Damien Fortune - JP Morgan Chase & Co, Research Division: Okay. Great. And could you guys give us just a sense of what you're thinking over the cadence of orders over the next, call it, 6 months or so?

We're not going to get into fiscal '14 because we're going to be wrapping up our year. I think you guys can look at the normal seasonal patterns. But as we go forward, as you know, the sales comps as we get into fiscal '14 will be relatively easy to compare to. And some other items that we're contemplating going forward is we shouldn't have the inventory reduction issue next year. We should continue to have a tailwind from some raw materials. Stellite should pick up compared to this year from an integration contribution, and we expect to have a better mix as we get into the next fiscal year, as we continue to be challenged this year with the destocking and the inventory burn. All those items should not necessarily recur in fiscal '14, but as far as the outline, I think, you guys can look at all the global GDP and the industrial production numbers. It's, in theory, setting up for a decent year, but we'll be a little bit cautious and be able to update you when we get to the July call.

Your next question will come from the line of Adam Uhlman with Cleveland Research.

I'm wondering, as you've done a good job pulling back your SG&A expenses because demand's been pretty weak, I'm just wondering as we start to see some of the volumes recovering next year, what your confidence level of holding that expense growth down as volumes improve.

Well, I mean, I think traditionally, we have been able to do that. I mean, we have demonstrated that we did that in the last -- coming out of the last recession. So there was nothing that really would be abnormal and unusual. And by the way, in the last recovery, the recovery was higher and faster than I think it's going to be going forward. So I think we have a better chance to do it. It was more difficult to do it last time than it is going to be now.

Yes, Adam, the one thing that I'll add, as we continue to start going for, you probably will start seeing additions to the sales force. So we're willing to -- we're going to make some investments, particularly in Americas to help us take some additional share as we get into fiscal '14. And as we stated what our top line to grow faster, we're going to start making some investments to help accelerate the top line growth, particularly around the direct field sales organization and adding select distribution.

Okay. Got it. Actually, could you expand on that comment a little bit more, Frank? The strategy in the last couple of years has been to expand the presence and distribution. And I guess, that seems to be kind of a big change of what we had been thinking [ph] .

No, I think...

No, no, it's not a big change. I mean, I think that our distribution is growing at a much faster pace than our direct sales. It's going to continue to be that way, still our strategy. We didn't change anything. But sooner or later, as we get bigger and bigger, we got to add to the sales -- direct sales force, even though we're going to continue to grow indirect at a higher pace. Nothing's changed. It's just...

Okay. Got it. And then just quickly I think I heard $6 million gross margin from the inventory reduction. Could you clarify that. Is that -- that was just in the quarter? Is that year to date? And then, Frank, could you give us the impact of the inventory reduction by business perhaps?

Yes. The $6 million was basically the March quarter alone. That's in addition to the $5 million that I called out last quarter. I'm not going to break it down overall by business, but there's probably a little bit more inventory reduction on the industrial side than there was on the infrastructure because infrastructure has a little bit more raw material content products in there, and the focus was really more on the industrial side. So the $6 million is in addition to the $5 million. The first quarter, we had a benefit of about $1 million and change, so that would put us basically at about $11 million year-to-date impact on the gross margin with the bigger hits being in the December and March quarter.

Your next question will come from the line of Ross Gilardi with Bank of America.

Could you talk just a little bit about when you look at your different end markets and the weakness in coal, I think, is well understood. But if you think about sort of the year-to-date declines you've seen in demand, how much of that would you characterize as just cyclical versus structural? And then I guess when we think about you getting back to a 15% margin at some point in the next couple of years hopefully, is there a detrimental impact on mix from some of these changes in the demand patterns that might inhibit you from getting back to that level of margin?

No, I would say that the decline is due to the cyclicality of the business. I mean, I think that as the supply chain is a lot tighter now, so I think it is going to take -- as we see the IPI and we see the PMI getting better, then as the serious put [ph] inventory in their stock and so forth, we'll see that coming back. And I would say that even with the inventory reduction in place, we are harboring around 12%. So we have a lot of capacity. So as this thing comes back, we're going to experience a substantial incremental margin improvement. So we are -- we feel that we are very well positioned for the growth.

But what do you think is the risk though that some of the energy markets, some of the markets you're talking about in Europe in the transportation sector, what you're referring to a lot of destocking and restocking type dynamics, but what's the risk that these markets are just kind of dead for a while from here?

Well, I mean, I think that if you look at -- we're not anticipating that coal is going to come back soon. I mean -- and I think that, as we said, for example, the automotive in the U.S. on average, 11 years is the life of a car. I mean, sort of there's a lot of pent-up demand that is going to come back. And so I think the only risk that we have that we can see of taking a while to recover is in the coal. And the coal -- and is probably primarily in U.S., and I think that's a smaller percentage of our total sales. So I think we can experience good growth starting this quarter or next quarter I mean.

Yes. The general engineering should get better as Fastenal gets a little bit more engrained. Particularly in North America, we expand that. That's in the sweet spot with a good margin business. Aerospace continues to have a long cycle as you know. That's going to grow. If it was a little bit bigger, we continue to focus products in that area. And at your point, energy is a good market, and I think with our focus strategy, just not the focus on the drilling, and taken all related aspects, there's a much bigger sandbox that we can drive a lot more value to our customers with our full product portfolio, not just our industrial side. So I think the risks are somewhat limited there, but I think the industrial continue to go stronger. And as Carlo said, mining's going to be what it's going to be, but it's still a good market longer term.

Okay. And then on Stellite, you gave some detail there, some of the dynamics with sales and profits. But are the challenges that you've had with Stellite, would you say are they just purely demand and end market related? Is there anything going on operationally with the business or distribution of other products?

It's a 100% market driven. As a matter of fact, in the cost side of the integration, we are actually ahead of plan, and we're really a year into this integration. And as I said, the board visited one of their largest sites. And we are extremely excited about having Stellite as part of our family. We could use a couple more.

And then just lastly, your Infrastructure segment, your profits at least on a year-on-year basis were fairly stable, almost flat despite the decline in sales. I know some of that was related to Stellite, but do you think you can actually turn positive in the Infrastructure segment this quarter on a year-on-year basis from a profitability standpoint?

Yes. That's a good question. It's going to be close. It'll depend on how construction kicks in here sequentially and if we don't get -- every time, we say we think minings somewhat bottom, we see some additional mine closures. So it'll really depend if we have less closures or no additional closures going forward. Construction kicks in a little bit here. Depending what happens with the energy side, we could potentially, in a best case, yes, definitely get there.

Your next question will come from the line of Joel Tiss with Bank of Montréal.

It seems like a lot of people are dancing around this question. How big is mining? Can you give us a sense in terms of revenues or operating profits?

5% to 6%.

Of revenues, right?

Yes. That's the U.S.

Okay. And it's fair still to assume that, that's more profitable than the overall company, right?

No.

No, not at all. No.

Oh, okay. Well, good. And then can you -- just 2 like bigger picture things. Are you seeing anything changing on the competitive landscape front? And also, can you give us your sort of -- Frank gave us a little hint of capital allocation or reallocation. Can you give us more of a sense, do you think in the next 12 months we're more likely to see acquisitions or share repurchase and/or combination?

You make a good prosecutor, Joel. I think, I mean, the answer depends obviously. We can't forecast the acquisitions. I mean, we are constantly talking to people, and as I mentioned before, it -- we negotiated for Stellite for over a year, and we thought there we're going to be closer. And every time we were close enough, something happened because we are very disciplined about our acquisitions. And the other question was relative to the market?

Yes, yes, about the competitive landscape. Is it -- is anything changing there?

Nothing really changed. I mean, we really don't see, I mean, don't see anything that really is worthwhile noting to be honest with you. I mean, I think we continue to make inroads into the distribution and the indirect channel. We're happy with that, and our partners are happy with that. So I think that as the market comes, I think we can accelerate the indirect sales more so than we did before because we're better positioned with the -- in directional than we ever been before.

Next question will come from the line of Steven Fisher with UBS.

Now that you're starting to see some of these sequential increases in orders, just wondering how you're thinking about cost-reduction activities. And it sounded like your answer to Adam's question earlier was that you've now shifted to investment mode rather than cost-reduction mode. Is that the right way to think about it?

Yes.

Yes, and we're going to stay disciplined, obviously, until we see a better -- I mean, the incrementals are not exciting enough at this point for us to make some measured shifts. But in reality is that we're going to continue to exercise the discipline that we've had, and we are going to start to make investments in the marketplace.

Yes, and Steve, when we look at -- we're definitely going to make the investments where we need it to be in the sales force-related area. But as we've been saying along, the first thing we have to do internally is we talk about trying to fund this S in the SG&A with the G&A reduction. So we continue to maintain that discipline as your underlying theme where we're trying to trade off dollar for dollar. And we if feel that we have opportunities to launch some additional initiatives to drive the top line, we're going to make some of those investments.

Okay. And then it sounds like the U.S. highway constructions off to a slow start, even through early April. How long do think it's going to take to really pick up to the full seasonal run rate? And then what have you assumed for that for the June quarter?

Yes. We think it'll maybe kick in, in late May, June-ish, in the time frame there. And you got to remember too -- there's another factor there. The longer they delay to repair the roads and the tougher the winter is, the more repairs they're going to need to make. So we're going to continue to monitor this one. I think we've got through most of the snow for -- with the exceptions of like in Minnesota and a couple of those other areas, but we think it should start to pick up here in May.

This will conclude today's question-and-answer session.

Thank you. This concludes today's earnings call. Please contact me, Quynh McGuire, at (724) 539-6559 for any follow-up questions, and thank you for joining us.

Today's call will be available for replay beginning at 12:00 p.m. Eastern Time today and lasting through midnight Eastern Time on May 25, 2013. The conference ID number for the replay is 28030042. The number to dial for the replay is (855) 859-2056 or (404) 537-3406. This concludes today's discussion. Thank you for your participation. You may now disconnect.