Good morning. I would like to welcome everyone to Kennametal's Second Quarter of Fiscal Year 2017 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Please note, this event is being recorded. I would like to turn the conference over to Kelly Boyer, Vice President of Investor Relations. Please go ahead.

Thank you, Denise. Welcome everyone and thank you for joining us to review Kennametal's second quarter fiscal year 2017 results. We issued our quarterly earnings press release yesterday evening and it is posted on our website. I'm Kelly Boyer, Vice President of Investor Relations. Joining me on the call today are Ron DeFeo, President, Chief Executive Officer, Jan Kees van Gaalen, Vice President and Chief Financial Officer, Chuck Byrnes, President-Industrial Business Segment, Pete Dragich, President-Infrastructure Business Segment and Marty Fusco, Vice President of Finance and Corporate Controller. Ron and Jan Kees will discuss the December quarter operating and financial performance as well as our outlook for our fiscal year 2017, and we will be referring to the slide deck posted on our website. After their prepared remarks we will be happy to answer your questions. At this time please direct your attention to our forward-looking disclosure statement. Today's discussion contains comments that constitute forward-looking statements that involve a number of assumptions, risks and uncertainties that could cause the company's actual results to differ materially from those expressed in, or implied by those statements. These risk factors and uncertainties are detailed in Kennametal's SEC filings. Also we will be discussing non-GAAP financial measures on the call today. Reconciliations to GAAP financial measures that we believe are most directly comparable can be found at the back of the slide deck and on our Form 8-K on our website. With that, I would now like to turn the call over to Ron.

Thank you, Kelly and happy belated New Year celebration to everyone and Chinese New Year to some. Thank you for your interest in Kennametal today. Let me begin on page two of the slides that were posted on our website. Our second quarter of fiscal year 2017 shows improving results. Overall, we posted year-over-year total company organic sales growth of 2% for the quarter and an improving operating margins in all of our segments. That organic sales growth was the first quarterly consolidated organic growth in over two full years. We're on track with our various cost reduction and growth initiatives and it is those initiatives that are driving our performance. The reported GAAP EPS for the quarter was $0.09 a share versus a loss per share of $2.12 in Q2 last year. Included in the quarter is $12 million of pre-tax restructuring charges, mostly related to the ongoing reductions in force announced in mid-calendar 2016. Adjusted earnings per share for the quarter increased by 50% to $0.24 versus $0.16 in Q2 of fiscal year 2016. This quarter's results show improvement in a number of areas including organic sales. Let me turn to slide three to discuss that a little bit more. For those of you that attended or viewed the webcast of our Investor Day in November, this graph will look familiar. Here, however, we have added quarterly numbers as well as updating the monthly numbers. At the time of our Investor Day, we reported that on a monthly basis, organic sales growth in September had turned positive for the first time in 24 months. In Q2 of fiscal year 2017 monthly organic sales growth has continued on that positive trend and has in fact increased throughout the quarter as shown on the graph. Overall, the quarterly organic sales…

Thank you, Ron. Good morning, everyone. As Ron mentioned, our efforts to improve performance on both the sales and the cost side began to bear fruit in the December quarter results. I will be walking through the main components of the income statement beginning with the quarterly results on slide eight. Please remember that I will sometimes be referring to non-GAAP measures. Please see our Form 8-K and press release for the reconciliations to GAAP. Our December quarter sales were $488 million compared to $524 million in the same quarter last year, a 7% decrease. 6% of that decrease is due to the impact of divestiture, 2% due to the fewer business days and 1% unfavorable currency exchange impact, mainly due to the euro-U.S. dollar movement, which was offset by some organic growth of 2%. Sequentially, sales increased $10 million or 2% from the first quarter fiscal sales of $478 million. Energy, general engineering, earthworks and aerospace and defense, all posted sequential sales increases while transportation remained flat. From a regional perspective, sales increased in all regions led by the Americas, then Europe and Asia. Our adjusted gross profit margin improved in the current period to 30.8% versus 28.2% in the prior year due to the higher fixed cost absorption along with improved productivity, lower raw material costs, incremental restructuring benefits and sales volume growth offset partially by unfavorable impact from business mix and some targeted pricing actions. Adjusted operating expense decreased $6 million from $116 million in the prior year to $110 million in the current year primarily due to restructuring benefits. Adjusted operating expense as a percentage of sales was 22.6% for the current period and 23.5% in the prior year. On lower adjusted sales, our adjusted operating margins increased significantly year-over-year to 7.3% in the current quarter…

Thank you, Jan Kees. So to summarize, in two days it'll be one year since I came out of retirement to lead Kennametal. It's been a busy year and I think we've made some substantive progress. I want to thank the team for rallying to the needs of our customers, the needs of our shareholders and the needs of each other. During this time we've simplified the organization, establishing three integrated profit centers. We then focused the team on growing the core business by building commercial acumen, lowering costs with immediate cuts to structure and process, and building a plan to modernize the company over the next three to four years. We're at the beginning of this process, but solidly underway and aligned. This is a good business, but it has the bones of a great business. In addition to the $90 million in head count reduction costs identified and that are coming out, we have huge simplification initiatives. We will have over 40% fewer coatings, over 50% fewer powder formulations, nearly 20% fewer standard SKUs, a more balanced channel distribution of customer types, more automated production lines, and we expect more reliable delivery performance and quality standards to be realized. Every one of these changes are important and significant. Taken individually, these are material. When combined, these drive the kind of doubling of EBITDA that we are aspiring to reach. And the result will be a much better franchise. Market forces are more positive today than a year ago. This is positive, but adds complexity to our decisions regarding core and non-core processes. Let me assure you that the leadership team knows what to do, and is focused on doing it. For too many years, we talked about what needed to be done and did a little of it. Today, we're trying to let the numbers talk, and this is why this quarter means something. The numbers show progress. We're not foolish enough to think that we will not hit some bumps along the way, but we believe we are on the correct path toward a stronger and more profitable and agile company. So now let me open it up for your questions.

Thank you, Mr. DeFeo. And your first question will come from Julian Mitchell of Credit Suisse. Please go ahead. Julian Mitchell - Credit Suisse Securities (USA) LLC (Broker): Hi, good morning.

Morning.

Morning. Julian Mitchell - Credit Suisse Securities (USA) LLC (Broker): Morning. Just my first question would be around the organic sales growth guidance. You showed that slide three with a pretty good recovery trend. Your sales in the first half of the year organically are close to flat. So I just wondered why you didn't take up, at least maybe the bottom end of the sales guide for the year? And to what extent, I guess, when you look at the Q2 sales, do you think you had a boost from perhaps one-off factors like a year-end budget flush, early buying because of Chinese New Year? This kind of thing.

Frankly I don't think we have seen much – we have seen anything with the year-end buying flush as you might have said. We've had this fiscal year the same forever at Kennametal, and to end the calendar year we've never seen a lot of extra purchasing. I don't know the team here if you guys disagree with me. No, I see some heads shaking and they agree. With regard to the overall organic, I think that's an opportunity for us. But I think, as I would say, one month does not make a trend, one quarter does not make a trend. So we need to have a couple of quarters combined in order to build the level of confidence that organic growth is truly returning to the enterprise. But I think overall, as I said in my closing comments, we're more positive today than we were a year ago and I certainly believe this is an opportunity for us. But it probably is happening a little bit faster than I thought six months ago. So we're going to have to balance a number of things as a result of that. But overall it's a good problem to have. Julian Mitchell - Credit Suisse Securities (USA) LLC (Broker): Yes, agreed. And then my second question would just be around some of the moving parts in your EPS bridge. So for example, if I look at slide nine, you have $0.11 tailwind. How much of that $0.11 came from raw materials specifically and I guess, how do you think about the raw material tailwind over the balance of the fiscal year?

We will not split out each and every piece of that, but let me say the raw material reduction was meaningful, but I would also say it was probably largely offset by price reductions that are built into our Infrastructure tied to those raw material changes. So that's one of the difficult things of explaining Kennametal. In Pete's business, the Infrastructure business, a number of our contracts are with large customers that tie their pricing to raw material market pricing. So we get the benefit of the raw material reductions, but we also have to lower our prices. There's been a little bit of price erosion in Industrial, but that's been more than offset by productivity and absorption benefits. So the net-net of all of that is the $0.11 gain. But there's a lot of moving pieces, Julian, as you might expect within that. Julian Mitchell - Credit Suisse Securities (USA) LLC (Broker): Makes sense. Thank you.

Okay.

The next question will come from Ann Duignan of JPMorgan. Please go ahead.

Hi. Good morning, guys.

Good morning, Ann.

Good morning, Ann.

I was going to ask about the unfavorable pricing that you mentioned in the release, was it all price give-up on contracts with customers or was there any commercial price competition out there, particularly in WIDIA?

I would say for WIDIA, probably very little commercial price give-up. We're probably been a little bit more aggressive on pricing in our Industrial business, but that's for business that we haven't had, so it's not like we're reducing business on existing business. But that, of course, as I just said is more than offset by productivity and absorption benefits that the additional volume gets for us. Most of the net-net price reductions we had would have come from that Infrastructure contracts that are tied to raw materials. Chuck, do you want to add anything to that?

No, Ann, our pricing strategy has been very strategic, focusing on growth customers investing with growth customers to get us more competitive in the market. And I think you see with two straight quarters of organic growth we're very pleased with the results.

Okay. Thank you. Appreciate the clarity. And then Europe, you reported negative growth in all segments. Was that – should we be concerned that we're losing market share in Europe given the strength we've seen in PMIs, or could you just give us a little bit more clarity for each of the segments in Europe?

Yeah, Ann. As I look at our European business, I would say we're not really concerned we're losing market share in Europe. I'd say Europe is flat or slightly down for us. And even for our competition, we think it's probably in the same place and within our margin – I mean, a percentage point or two variation as best we can determine. So I think, we're following the market in Europe. I think our growth initiatives are taking perhaps a little bit longer to play out in Europe. But we've got them and we're moving forward and we're making progress. There's very little Infrastructure business in Europe right now, so we're not really seeing a lot of change there. Pete, do you have any comment on that?

Yeah. Just specific to Europe, I would say we've had the biggest impact in the Middle East, and it's primarily in construction and diversion of funding right now to war efforts. So we don't feel we've lost any market share. It's just a matter of timing when those sales start to continue.

And I'm assuming that could continue through the course of the next year or two in the Middle East?

Yes.

Yes, Ann.

Okay. I'll leave it there in the interest of everyone else. So I appreciate it.

Thank you, Ann.

Thanks, Ann.

The next question will be from Stephen Volkmann of Jefferies. Please go ahead.

Hi. Good morning, guys.

Hi, Stephen.

Hi, Stephen.

Just in the spirit, Ron, of kind of thinking about business trends, you were kind enough to put the monthly chart on your slide number three here in terms of organic sales growth. Is there a sense yet of what January would look like on that chart?

There's a sense within the management team, but there's not a sense for disclosure yet. Yeah. I think we, the general attitude is that January performance is as expected. Let's just say that.

All right. Well, moving on then, how about you had some language in your release that I thought was interesting about business seems to be a little better, I think, than you had thought a few months ago and that may impact your cadence or ability on some of the head count stuff which, I think, you described as a nice problem to have. But I'm trying to figure out how we should think about that financially, in the sense of if you have a little bit more revenue, I assume you'll have better absorption than leverage and all that. So net-net, how do we think about the balance between a little bit better activity and perhaps a little bit slower restructuring and head count reduction?

Well, here's the thing, Stephen. We've identified $90 million of cost reduction and we will drive to get that out. We're driving to get the last $10 million. Perhaps, we missed by a few million dollars, but by missing by a few million dollars, we're going to not pay to take people out that we're only going to have to add back later because the business is stronger or because we were unable to modernize faster. Okay. So it's within a few million dollars that's not forecastable at this stage, but that's the way I think you should think about it.

Okay. Great. And then maybe just one more quick one. You mentioned market outgrowth in your opening statements, Ron. Where would that be?

Well, you mean, comparatively where we may, in fact, be making progress ahead of the market? Is that what you're asking?

Yes, please.

Okay. I think if you look at our North American business, and our U.S. business in particular, we grew in Industrial quite nicely there and our sense is we outperformed the market.

Great. Thanks so much.

The next question will be from Adam Uhlman of Cleveland Research. Please go ahead.

Hi, guys. Good morning.

Hi, Adam.

Hi, Adam.

Congrats on getting back to growth, I know it's hard work. I guess, following up on Steve's question there, within the Infrastructure business, could you talk through the various business units and how you're thinking that you're performing relative to the market?

Pete, why don't you take that question, just overall?

Just overall, I think that sequentially we had good progress from Q1 to Q2 as we said earlier, $10 million of increased sales. We're seeing positive trends in oil and gas as we've talked about. I think that's been a good trend for us and even though it's still 20% down year-over-year, the indications are strong relative to our sales there. We continue to have challenges in mining. However, that's stabilized. And I think that we see a potential positive trend there, particularly during the quarter. Construction, with a few exceptions, we continue to have great success with our new product introductions. We had a very good promotion where we worked with customers in WINTER BLAST; that has helped us to develop order book in construction. So we see that trending positively and taking share there.

Our Infrastructure business is mainly a customs business where we build product commensurate with our customers' needs and requirements. And our big customers are the people like Baker Hughes, Schlumberger, Halliburton in the oil and gas area. And we have very uniquely designed products for many of those customers. And so it's difficult to give you a comparison relative to the other alternatives, but we clearly are sensing from those customers an uptick in our business.

And just to add to that, because it is a mix order business, we obviously have lead times and order book is very important to us. And the order book trend has been towards growth and an indicator that we'll continue on the positive trend we've had.

The good news for us is we also believe we have the technology to solve some of our customers' toughest problems. So we're going to work with other major customers to try and apply our technology to new products and new areas. So more to come as we energize the development side of the Infrastructure business now that we're getting our margins back to a level where we can reinvest in some of the future growth.

Yeah. Absolutely. We had the opportunity in the Analyst Day to share some of those new products and how we're partnering with customers. And that effort now is going to accelerate.

All right?

Okay. Great. Thank you. That's very helpful. And then just a clarification, Ron. Of the identified restructuring savings, I guess maybe I'm dense. But why would you not just include the $90 million figure that you've targeted as of January rather than the $72 million target?

Well, because there was a difference between the run rate that we had achieved at the end of the quarter from what we have further gone on to do in January. And also because at the time of our last quarterly report, we had identified 75% of the heads, but only 65% of the cost. So in reality within the last six weeks or so of the year, we went from 65% of the cost to 72% of the cost. And then we went further to 90% of the cost because many people on this call, perhaps politely, had suggested we may not be able to get to the number, frankly because the $100 million is a pretty damn big number when you think about it, relative to a company the size of Kennametal. So I think we wanted to provide more disclosure as opposed to less disclosure.

Okay. Great. Thank you very much.

The next question will come from Steven Fisher of UBS. Please go ahead.

Thanks. Good morning.

Good morning, Steve.

On WIDIA, when do you expect that business to achieve sustainable profitability? Is that a second half outcome? Or could it take longer than that?

We're hoping that it's not a second half outcome. I'm sorry, that it's not longer than that, that it is a second half outcome. And I think we're headed in that direction.

Okay. And then are you assuming organic growth in Infrastructure turns positive in the second half? And is that embedded at the midpoint of your guidance? Or if it does turn positive in the second half, would that bring you to the upper half of the guidance range, all else equal?

Well, yeah. That's the trick. All else being equal. And what I would say is we do expect organic growth in our Infrastructure business in the second half of the year. But that is not the principle driver of the improvement in profitability, okay. The principle driver of the improvement in profitability in our expectation or guidance is continuation of the cost reduction initiatives that are underway: factory closures, head count reductions, focusing on more profitable businesses. And, frankly, there's a lot of opportunity in recovering oil and gas business that is not in our forecast quite yet.

Okay. And then just maybe one last, maybe a little nitpicky, but as of the Investor Day, the head count initiatives was expected to be $100 million to $110 million of savings. Did I hear you correctly today in saying that it's basically going to be $90 million, give or take a few million? And is that reduction then from say $105 million at the midpoint down to closer to $90 million the fact that you're no longer cutting as many heads? Is that the way to think about it? Or has something more structurally changed there?

No. No. That's not the way to think about it. What we said was basically $100 million, so in a certain sense, one could say yes, that's a $5 million reduction, $100 million to $110 million, the mid-point was $105 million, but now we're farther along and it looks more like $100 million. We said $90 million is done, but I said to get from $90 million to $100 million we are going to have to balance taking people out while the market is recovering. So at the end of the day, any decision we make will be incremental to the profitability of the company, okay, whether that's getting to the $100 million or doing $95 million, but the sales and profit of the incremental revenue will offset that. So does that makes sense to you?

Yes, yes, it does. Appreciate the clarification. Thank you.

All righty.

The next question will be from Andy Casey of Wells Fargo. Please go ahead.

Thanks a lot. Good morning, everybody.

Hello, Andy.

Good morning, Andy.

I'd like to attack a couple questions earlier a little bit differently. If you see positive Industrial and Infrastructure revenue growth in the second half, and I know that your guidance for the full year is flat overall, but if you do, what sort of incremental margins would you expect if you ex- out the anticipated restructuring benefits? And then, if you're willing to go there, would there be any difference between the two?

Yeah. I don't see a whole hell of a lot difference between the two, Andy. Actually, my personal goal will be to do both, okay? But because I think the opportunity exists within Kennametal to both achieve the growth and achieve the additional cost from head count reduction, but at the same time I don't want to be stupid, okay. I don't want to cut off my nose to spite my face if we see some product availability declines from some of our key factories because of higher than expected order entry. So the net-net is we expect substantial incremental margins as has been the historical case from Kennametal with probably on the higher side, given the fact that we will have reduced employment costs so dramatically. I didn't give you a percentage, but you've been following the company a long time. You have a sense of what our incremental margins are.

Yeah, they're typically pretty large. And then on the tax rate guidance, it's unchanged despite the first half running above that range. I'm trying to understand that as it relates to the rest of the year. Are you expecting the tax rate to go sub-20% at the midpoint or could you help me understand that?

Now, we're expecting the ETR to reduce to the lower part of the guidance, but still be slightly above the lower part, lower guidance level that we've provided.

Okay. Thank you. And then a couple more quick ones. The first, could you help us in corporate expense in the second half, it kind of tailed off last year. Should we just expect the run rate so far this year to continue into the second half or is there reason that gets a little less?

Marty, do you have a...?

Corporate should be consistent, Andy, throughout the year, for the remainder of the year it should be pretty consistent where we came in.

And we had some restructuring charges in the prior year.

Okay. And then the last one, it's more semantic in scope, I guess, you discussed potentially accelerating the investment in modernization in the release. But if I look at the guidance for CapEx this year, it really didn't change and I may have misheard, but I think Jan Kees talked about CapEx being toward the lower end of the range.

I mentioned the free operating cash flow...

Got it, okay.

...at the lower end of the range, not the CapEx.

Okay. Thank you very much.

Yeah.

The next question will come from Ross Gilardi of Bank of America Merrill Lynch. Please go ahead.

Good morning, guys. Thank you.

Hi, Ross.

Good morning, Ross.

I just want to understand WIDIA a bit. Ron, you made the comment that the backlog was up 40% since July. I guess, I wouldn't normally think of WIDIA as a big backlog business, so could you flush that out a bit more? And I'm just curious as to if that's the case you certainly had very robust growth in Asia from WIDIA, but you're still down year-on-year in the U.S. and Europe. So when does that increase in backlog really translate into a noticeable step up in volume in the U.S. and Europe?

Okay. Ross. What I said was we see the backlog building and order rates have improved, growing 40% since July. So it isn't that the backlog is 40% higher. But this is a distribution business, and for a distribution business the confidence of the third party suppliers has built because of our commitment to WIDIA as a brand. And, in addition, because of our ability to grow it in Asia, the cycle times and order times are a little bit elevated in our supply to that region of the world. It's a good sign. But don't expect the business to grow 40%. That would be misrepresenting the situation. I think you're going to see us doing a number of things with WIDIA. We're going to be cutting a number of SKUs that historically had been profit drainers to WIDIA. We're going to be focusing on a more concentrated product choice mix which are going to be more profitable and the higher running part numbers for WIDIA. And then we're going to concentrate regionally in places where we think we can win. So there's a lot going on that will improve the WIDIA business over time. So I think this is more a story of how you bring a good brand back to life that had been undermanaged, underinvested in over a fairly long period of time. And we don't really know how the story ends, but we're seeing some good beginnings for commitments on the part of our third party resellers to the initiatives underway. Maybe I didn't answer your question precisely, Ross, but that's really the story here.

So, Ron. Just so I understand what the 40% means, is that a delta in the rate of change, or is that an absolute delta? So, in other words, is that like the equivalent of going from plus 1 to plus 1.4, or is that an absolute change in the orders?

That's an absolute change in the orders and the trajectory of the orders at the time when we started focusing on them.

I got you. Thank you. And then I think you answered bits and pieces of this throughout the call. But I'm still trying to understand your incrementals for Industrial. I mean, you've had a couple of quarters now of positive organic growth, and you've done a tremendous job in Infrastructure. But the profitability in Industrial is not really moving yet. You talked about some employment-related costs and mix. I apologize if I'm asking you to repeat something already, but can you explain that a little bit more? When do we see like a normal incremental margin that you had in the past in Industrial?

Sure. Yeah. This is important, Ross. And thank you for just giving us a chance to re-emphasize it. Industrial margins are going to grow. They were only up 20 basis points this past quarter. A significant negative to the margins this quarter was currency. And currency really didn't affect our Infrastructure business and had a small impact on WIDIA. But overall, as you can see from our report, it impacted the company $0.05 a share. And if you look at our competition, our competition has the opposite effect, the benefit of currency for the European-based competitors. So for this quarter in particular where currency moved meaningfully, it was a drain. I don't think that will be a drain going forward. In addition to that, I think there's some additional initiatives underway in the Industrial business that will pay some dividends in Q3 and Q4. So you'll see some, it's our expectation, let's put it that way, that you'll see some nice margin improvements in Q3 and Q4.

Got it. Thanks very much.

Okay.

The next question will be from Rudy Hokanson of Barrington Research. Please go ahead.

Thank you. I'd like to go back to the outlook on the oil and gas area and energy as a whole. And my question is, is that an area that you found yourself starting to downsize or make adjustments, given your strategic plan and found the demand coming back faster than expected? So this might be one area where you're having to keep people on that before you were thinking of maybe structuring it differently?

Okay. Some of that may be the case, but it's not the primary driver. We are very confident that the choices we've made in factory closures and product movements will be the right choices, and we'll be able to supply the demands of our customers, okay, without a doubt. There will be some areas where we'll have to keep some people on perhaps a little longer until we get to the implementation of our modernization. That's always been part of our plan. So it's just a matter of adjusting to the level of timing. But the structural change, I guess, is the main point I'd make, the structural changes we've made are fundamentally the right ones, and we will be able to meet demand with those structural changes. Pete, do you want to comment...?

Yeah. Just to add to what Ron said. We anticipated the recovery in oil and gas, this specifically relates to our Houston plant closure. As a result of that anticipation, we excluded the receiving locations of that volume from the separation packages that we did earlier this year. As we look at our order book that I talked about earlier, we are seeing it growing and we are selectively looking at putting resources in place to ensure that we're meeting our customer demands. We're also coupling that with the modernization and automation projects that Ron and Jan Kees have talked about, which ultimately would allow us to put temporary workers in place and then ultimately take them out, if and when that's warranted.

Okay. And then still on that theme, the company historically has had maybe high-single digit sales, percentage of sales, directly related to energy, but the ripple effect of energy can get well over 20% when things are going well in the energy market. And I realize energy includes the mining, et cetera, that we've talked about, but are you able to see that right now? Is that part of your, sort of, guarded optimism of potential this year, or going into 2018?

I would say in the most simplistic of answers, absolutely.

Okay. That was a short and simple answer. Thank you. Those were my questions.

All right. Thank you.

The next question will come from Eli Lustgarten of Longbow Securities. Please go ahead.

Good morning, everyone.

Good morning.

Good morning, Eli.

I can confirm by the way you – from the industry data, you have slightly outperformed the market, by the way, for the quarter.

Okay, thanks.

I understand that. A couple of questions. One, in the data, transportation is 36% of Industrial and you reported a 2% decline in the transportation sector. Can you sort of go through that? Is that mostly from the truck sector, or is it automotive in North America, and what are you seeing for the second half of the year based on what's going on? It's a very key market and one of the worst things you have to worry about a little bit, I guess.

Okay. Eli. I'm going to pass that over to Chuck.

Eli, our transportation unit does include commercial vehicle; that would be heavy truck as well as some vehicles that can go on highway, for instance some wider tractors for instance. It's a mix, it's not just pure automotive. Our second quarter, down a couple points; remember in the first quarter we grew by over a point. We see our growth in Q3 and Q4 will put us back in a slight growth for the full fiscal year. Our transportation unit is doing fine.

But it wasn't automotive that caused it, it was the other stuff? Question was is it automotive there was some of the downturn, or was it just the commercial side?

Again, a mix. Commercial vehicle in the U.S. was down slightly, automotive in the U.S. was reasonably flat. Asia automotive was nearly double-digit increase. Commercial vehicle in Asia was slightly down. It's a mix when you put those two big units.

What I would say, Eli, is whereas a year or two ago we may have had some negative trends with automotive, we're back to at least being flat to possibly even positive. We've got some good programs and initiatives underway with some key automotive customers.

Our PCD investments, Eli, also are bearing fruit. We talked about those at the Analyst Day in November. We will be adding additional capacity in those product lines that allow us to pursue applications Kennametal has never played in before.

Okay. And in the earnings bridge, you had that $0.06 impact from the higher performance-based comps in other. That continue for the second half of the year? That wasn't anything special, that was sort of the incentives (1:02:06) comp coming back, or is there something significant about that?

Nothing special, Eli, other than last year, of course, since we weren't making our numbers, we were reversing out compensation accruals, okay, whereas this year, I think we're doing a little bit better on that, which is – we got to get past this so that it's going to be in our base period every year going forward. So now we've got to cut more costs in order to get past this year.

Okay. And the second half, you kept guidance pretty much what it is. It's two quarters, you're expecting earnings to double. What's going on in the visibility of that, that you didn't want to lift the bottom part? And our surveys are continuing – had always indicated that you had great product, you just didn't have them in the right locations. Is this some of the stuff that we have to correct in the second half of the year to get the company balanced better?

What I'd say is we're on track with what we're doing. Some of those commentaries are accurate assessments of Kennametal, but it's more structural what we have to do, to be able to get our costs really down by investing in new plant machinery which will both help us deliver product faster at a higher quality level and at a lower cost. And that is going to take time and it is a complicated initiative when you also couple it with a substantive reduction in SKUs and the new customer classification system which focuses the sales people on the biggest customer prospects. So there's a lot underway at Kennametal, so my feeling is, better to stay the course, keep pressure on all fronts, and let's see how the numbers progress.

All right. Thank you very much.

Okay.

And, ladies and gentlemen, this will conclude our question-and-answer session. I would like to hand the conference over to Ron DeFeo for his closing remarks.

Well, I just thank everyone for their interest in Kennametal today. Please follow-up with us if you have any further questions or areas that you'd like to probe. We appreciate your interest.