Good morning. I would like to welcome, everyone to Kennametal's First Quarter Fiscal Year 2015 Earnings Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Quynh McGuire, Director of Investor Relations.

Thank you, Denise. Welcome, everyone. Thank you for joining us to review Kennametal's First Quarter Fiscal 2015 results. We issued a 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's also being broadcast live on our website and a recording of this call will be available on our site for replay through November 30, 2014. I'm Quynh McGuire, Director of Investor Relations for Kennametal. Joining me for our call today are Chairman, President and CEO, Carlos Cardoso; Vice President and CFO, Frank Simpkins; Vice President, Finance and Corporate Controller, Marty Fusco. Carlos and Frank will provide further explanation on the quarter's financial performance. After their remarks, we'll be happy to answer your questions. At this time, I'd like to direct your attention to our forward-looking disclosure statement. The discussion we'll have today convinced comments that may constitute forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Such for 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'll now turn the call over to Carlos.

Thank you, Quynh. Hello, everyone. Thanks for joining us today. During the September quarter, global industry production indicated ongoing strength in certain areas. In general, the U.S. economy has performed better than expected, although business conditions in the Eurozone weakened to some extent. In other regions, China's government recently announced a new round of stimulus to support growth and India's economy is beginning to experience a rebound in manufacturing and construction activities. For Kennametal, September quarter results reflect somewhat mixed trends related to customer demand. Those growth was largely driven by the demands in industrial markets such as transportation and general engineering. However, sales related to the infrastructure markets were lower than the prior year. This was due to weakness in underground mining and road construction, partially offset by increased drilling in the oil and gas sector. Due to a more modest growth environment, we are taking some cost reduction actions for the current fiscal year. For example, those measures include hiring freezes, as well as limiting certain expenses. We continue to be committed to delivering double-digit operating margin and free operating cash flow that represents 80% to 90% conversion from net income for fiscal year 2015. Our Industrial segment, which typically has a strong correlation with the rate of industrial production, reported 5% organic sales growth in the September quarter, driven by an increase of 8% in our distribution channels. For the period, IHS estimated global IPI was 2.4%. Our Industrial segment again outperformed that index by more than 2x, and the ratio is expected to increase as demand further improves. When IHS adjusts its estimate to heightened average -- to the weighted average that specifically reflects Kennametal market and geographic mix, it indicated 2.2% growth from prior year. However, this projection is likely to be revised downward due…

All right. Thank you, Carlos. As with prior discussions, some of my comments are related to non-GAAP metrics. So, in general, the first quarter was in line with our expectations, despite a lower-than-forecasted top line. We continue to see strong organic growth in our Industrial business, led again by increased demand in the general engineering and transportation markets. However, we experienced slower-than-expected growth in the energy market, and the mining sector continues to struggle globally. Despite mixed market conditions, we delivered adjusted earnings per share of $0.56, which was on target. By comparison, last year's adjusted earnings per share was $0.49. As Carlos noted, another positive was the Tungsten Materials Business acquisition. It is running ahead of schedule for our integration plans and related restructuring actions. TMB contributed $0.07 per share in the quarter and we have accelerated our restructuring actions where possible. We also are implementing further restructuring actions to reduce costs and improve efficiencies. Total expected restructuring benefits now range from $50 million to $55 million and total charges are expected to range from $55 million to $60 million. Now I'll walk through the key items in the income statement. Sales for the quarter were $695 million and this compares with $620 million in the same quarter last year. Sales increased 12%, reflecting a 10% increase from TMB, 1% from organic growth and a 1% favorable impact from exchange. The Industrial segment sales of $378 million increased by 12% from the prior-year quarter, due to increases of 6% related to TMB, 5% organic growth and 1% increase due to favorable currency exchange. Sales increased by 9% in general engineering and 7% in transportation, but decreased slightly 1% in the aerospace and defense business. General engineering increased due to improvements in production and overall demand from machinery, while this…

Thank you, Frank. Going forward, our team will continue execute strategies that will strengthen our business and create value. We will maintain our focus on profitable growth. Also, we will fully integrate the Tungsten Materials Business, streamline our cost structure and achieve planned savings. I truly believe that today, Kennametal is well-positioned to emerge as an even stronger company. Our team continues to be committed to serving our customers, and our business is increasingly capable of doing so in a way that makes Kennametal the supplier of choice. On a personal note, I would like to close by saying that it has been an honor to serve Kennametal for the last 12 years. Please note that I sincerely appreciate your continued support of Kennametal. Thank you. We will now take questions.

[Operator Instructions] We'll move on to the next question from Eli Lustgarten of Longbow Securities.

Can we talk a little bit about the revised guidance? I mean, you took the organic growth down. And can you give us some color of how you -- the reduction, how it splits out between Industrial and Infrastructure? And obviously the quarterly pattern that might -- is affected by these changes. Give us some idea of how you're looking at it now.

Eli, I'll start and then I'll let Frank address some of it. I want to point out that the decrease is mainly driven by the weakening of the European area, especially Germany. So I would say that we see some strength in the U.S., but we see a very relatively weakness to continue in Europe, and primarily in Germany.

Yes, and I think that's right, I mean, to plan. I think when you look at the industrial side, Eli, it's clearly it's Europe. We're seeing some signs of weakening demand, as Carlos pointed out, primarily Germany. Then as far as the Infrastructure, given some of the softness we're seeing with some of the commodity prices and feedback we're getting from our sales force as well as customers, we expect that to be a little bit softer than we had anticipated. So I would say -- of the downturn, I would probably say it's a little over half for Infrastructure and the remaining on the Industrial side and then coupled with a little bit of headwind on foreign exchange, with the currency moving the other way.

Yes. So, I mean, is it fair to say that at this point you expect almost negative infrastructure growth on an organic basis we saw in the first quarter, and then just somewhat lower on the industrial side?

Yes.

That's fair. Can we talk a little bit about profitability levels? I mean, industrial profitability levels. I mean, in my position -- I mean, you've cleaned up that business. It generates good profitability. You can't predict the volume, but profitability is strong. But obviously the profitability of Infrastructure remains somewhat disappointing. Can you give us some idea of what to expect as we look out for the rest of the year in both segments?

Well, let me start, Eli, by saying that one of the drivers for profitability is capacity. So the earthworks is in the 60-plus percent capacity, where Industrial is a higher level. So the whole company is about 70%. So that's one of the drivers for the difference in the business.

Yes. So, when we look at it, Eli, I think the additional restructuring we talked about, as well as we're going to continue to identify additional opportunities and also assess the portfolio. And from the Infrastructure standpoint, obviously, we're not pleased with the performance but this is no different than what we had to deal with, if you go back in time, with the Industrial business, where we had to take out a number of facilities. We had to integrate it. So if you go back to the early 2000s through the mid-2000s, it's exactly the situation we did there. So we're going to be looking at the cause very hard to get that business back to where it needs to be.

Yes, I guess that we're looking at low-teens profitability, low to mid-teens in the Industrial sector, depending on where volume comes out. Are we going to be lingering in the mid- to high-single digits all year for Infrastructure is probably the best way to ask the question at this point.

That's probably most likely.

And can you talk about -- you're spending $55 million to $60 million of restructuring. How is that going to be? How much this year? How much into next year or is it all this year? And how does it break out by quarter?

Yes, I think, Eli, we did $4.8 million, call it $5 million in the first quarter. It'll be maybe a little bit better in the second quarter and then you can do the 40/60 split. From a cost perspective, it'll probably 35 this year, 25 in benefits and the remaining piece in fiscal '16. So we feel fairly good about that. And as a rough approximation, the way it looks like it's coming in now, subject to any other future modifications, is about 75% to 80% of it is being driven by the TMB acquisition. So we're pleased at the performance of that acquisition.

And just one final question. You talk a little bit about pricing across the business and the distribution business is holding up well. So about pricing and distribution, at the same time.

We're not really seeing much. I think there's maybe a slight amount in Industrial, and Infrastructure's actually doing a decent job of holding the ground there. So I'd call it kind of -- when you put it all together, it's about neutral.

The next question will come from Samuel Eisner of Goldman Sachs.

So just looking at your inventories, inventory's up about 1% sequentially. I think it's up usually around 5%, 6%, 7%, something in that range. So can you talk a bit in relation to the comments that you just made about utilization rates? Can you talk a bit about how you were able to manage inventory this quarter? I believe last quarter you were cutting production, at least on infrastructure side. So how do you think about that in the quarter and then the expectations going forward?

Yes. I think we've been at this. It really started last year, I mean, after the December quarter saw development. I think we got the fill rates in pretty decent shape from an Industrial standpoint. So we're managing that, obviously, much tighter. I think we've done the necessary investments in the business from a capital perspective. And to your point earlier the indirect channels have been holding up pretty well. That's -- as Carlos pointed out, it's been 8% for the quarter. And that's consistent with the last 2 quarters. So we're doing a much better job on the fill rates. We put the AAA product out. So I think we have a much better cadence as it relates to the industrial side, as well as the procurement. The challenge continues to be a little bit more on the Infrastructure side, but I think we've got a better handle on the forecasting than we had in the past. So it's much better, some of the tools that we're looking at, as well as some of the inputs.

Just a follow-up on that. Are you producing at current demand levels in both Industrial and Infrastructure? Or are you still underproducing de-stocking, if you will, within the Infrastructure segment?

We're definitely underproducing in the Infrastructure.

Great. And then just thinking about incremental margins, obviously, you guys have talked about, I think, 35%, 40% over a cycle. It seems like this is going to be much weaker now. So just curious how you think about incrementals, either broken out by segment or for the total company in 2015?

Yes, I think the incremental margins will improve as we go out. I think we'll continue to see the related benefits from the restructuring programs. They'll continue to kick in. From an overall corporate perspective, we have a fairly good lockdown on additional OpEx, all the temporary stuff you would imagine. Which we've started, really, towards the end of the fourth quarter. And as we as both, as Carlos and I said, we're going to continue to identify further opportunities to drive even more bottom-line profits.

The next question will come from Andy Casey of Wells Fargo.

On TMB, I know it's integrated. Is it possible to quantify whether revenue grew, relative to last year, in the quarter?

Again, relative to last year, we did divest in the fourth quarter the Garryson business, which was like about a $20 million-type business. So if I had to put it back altogether, if you take that out, it was maybe down 1% or 2%, mainly, probably, on the energy side.

Okay. And then if you covered this, I apologize. What drove the other income improvement relative to last year?

FX.

Okay. And then a couple of questions within the updated guidance. You've mentioned weaker oil and gas drilling activity. Are you seeing that in your orders or is that more perspective at this point?

No, we started to see a little bit here in the current quarter, and that's -- and we feel it's a little bit more pervasive in the second half. But given all the inputs we have, we think it was the right thing to do to make sure that we're aligned with customer inputs.

What we have heard, Andy, is that they're going to continue to produce oil and gas, but they're going to take it from the current wells versus doing more drilling. And what drives it the most is the drilling portion of it.

Okay. Okay, so just basically utilize the existing framework capacity?

Yes.

On Europe, did you see the deceleration in Q1? And if so, was that pretty close to the end of September and did that continue through October now that we're close to the end?

No, I think we saw it towards the end of Q4, a little bit, primarily in Germany. And that continued through the quarter, so nothing significant month-to-month, but trending in the wrong direction. So for us, as you know, Germany's a very big component of our European sales. And given the transportation and a couple of other end markets we serve there very well, we felt it was prudent to factor that in.

We actually have been doing better than average on Europe because, again, we kept on calling out that it was because our presence was in Germany. So as Germany economic environment got more challenged, obviously, they're going to affect us more now.

Okay. And then if I could touch on your upcoming transition, Carlos. Is there any timing update from the board that you can give us? And then post-December, is there a transition period where you would assist whoever the incoming person would be after December?

So the board is diligently working and everything is on schedule and per our press release. And all I can tell you about the transition is that the board will do what makes sense and what's in the best interest for the company and its stakeholders.

The next question will come from Julian Mitchell of Credit Suisse. Jonathan Shaffer - Crédit Suisse AG, Research Division: It's Jon Shaffer on for Julian. I was wondering if you could just maybe give a little additional color around what's going on in Asia in the Infrastructure segment.

Yes. For us, from Asia, the big issue there is China and Australia, from a mining perspective. While we're doing okay on some of the energy side over there, given everything that's going on with the underground coal mining, particularly in China, it's causing a lot of pressure and that's been consistent over the past couple of quarters. Now they did but some tariffs in there. So longer -- medium term that could be a positive. It may hurt what's going on in Australia, but it may also increase some coal production within China. Given our position there, that would be a little bit of a positive. From an industrial perspective, on that side, just to add a comment on there. I would say, overall, that's doing a little bit better, particularly if I go through October. They're continued to maintain some pretty decent numbers, both from a China perspective, as well as India. So we've got kind of 2 different stories going on, where a little bit better story on the Industrial in China, as well as India. And then when you come into Infrastructure, a little bit softer, given some of the energy and related stuff for coal in China and, to a lesser extent, Australia. Jonathan Shaffer - Crédit Suisse AG, Research Division: And then just on visibility in those businesses. I mean, is there a chance that they can kind of turn around rapidly or do you see this kind of being a prolonged and unforeseeable circumstance?

Well, I mean, we -- generally speaking, especially in Industrial, we ship 80% of the orders within the same month that we get them. So can it turn around quickly? Yes.

Infrastructure will be longer.

Infrastructure will be longer, but in the Industrial, yes.

The next question will come from Ross Gillardi of Bank of America.

Yes, I just had a few questions. So road construction was cited as a area of weakness again. Given the overall broader recovery we're seeing in nonresidential construction, do you see that turning around this year or is that sort of tied to the uncertainty around the highway bill and some of those things?

Yes, Ross, I think there's obviously a time with that. And as we go out, we're going into the slower quarter. Hopefully the snow holds off for a little bit. So any Northern Hemisphere states before they shut down. But for us, it was little bit soft. We assumed it was going to have a little bit of growth, not much. It was probably down 1.5% to 2% in the quarter. And this is a reminder, this is all the road resurfacing primarily. So ripping up the asphalt with the tools. So then it gets back from a funding perspective, from the states. And then now they're trading off or they're buying more rock salt for the winter. So it was a little bit more of a challenge than we had anticipated.

Yes, our construction doesn't get affected by housing, the housing market, directly. It's more about road rehabilitation.

Okay. And then just the weakness in underground mining in general. I mean, obviously the end market's very weak. But are you also some seeing some in-sourcing from customers at all?

No. No, I mean the stuff that we do, I mean, is our product. So it's our own product. So it's directly related to the market.

Okay. And then with respect to oil and gas, I mean, you talked about you're seeing a little bit of softness in drilling activity. Can you also comment on Stellite a bit and what the trends are there?

Well, the industrial gas turbine is still -- business is still weak. So we haven't seen, really, a recovery in that area. It's following the same, not that much of a change.

And our final question will come from Walter Liptak of Global Hunter.

I wanted to ask -- and maybe I missed this, but -- and you don't break it out, but what was Europe's organic volumes during the quarter?

We don't break out the -- we have it by -- in total, by segments, which is in the press release. But it was a little bit stronger on the industrial side. And I think, in the script, they were down, I think, 10% in Infrastructure. So the product works. Now Infrastructure's not a big player for us over there, but we have positive volumes but at a much lower rate than we had anticipated.

Okay. So it sounds like Europe is the problem, Europe is slowing, but the trajectory doesn't sound like it's accelerating at this point.

That's correct. Yes, that's correct.

Yes.

Okay. When you think about the second quarter, though, is second quarter -- because of just the deceleration, is this going to be a lower organic quarter than the first and would that also mean that EPS would be lower sequentially?

Well, I mean, again, the quarters 1 and 2, typically they're very similar. I wouldn't expect much more difference from an organic growth in the second quarter. We're taking more cost out. I think the quarter last year we had some challenges with the gross margin that we have since fixed, we have additional restructuring that we've implemented. Those plans continue to run well. So I think they're the headwinds -- or the tailwinds for us going forward and just a little bit softer in the second quarter. When we look at, right now, how October's trending and it's pretty much right in line with our forecast.

Okay, great. And you mentioned FX, I think, is neutral during the quarter. Is that right?

In the first quarter, it was plus 1. But as you -- last year I think we averaged -- maybe just take the euro, and that's the biggest component for us. This year, we average $1.34. Last year, I think it was $1.32. But as you go forward, if you look at the spot rate now, I don't know if it's $1.25 and change this morning, the $1.26 versus the $1.34 and depending, which direction, the stronger dollar will have a little bit of an impact on our European results and potentially our tax rate.

Okay. So you're using the current euro as your FX rate for the full year?

Yes, and we obviously try to -- we've hedged some of that but some of the translation is going to be impacted.

And ladies and gentlemen, this will conclude our question-and-answer session. I would like to turn the call back over to Quynh McGuire for closing comments.

Thank you. This concludes our discussion today. Please contact me, Quynh McGuire, at (724) 539-6559 if you have any follow-up questions, and thank you for joining us.

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