You are given a text that consists of multiple sentences. Your task is to perform abstractive summarization on this text. Use your understanding of the content to express the main ideas and crucial details in a shorter, coherent, and natural sounding text. 
Text: We will be referring to that slide deck throughout today's call.
I'm Kelly Boyer, Vice President of Investor Relations.
Joining me on the call today are Chris Rossi, President and Chief Executive Officer and Damon Audia, Vice President and Chief Financial Officer.
These risk factors and uncertainties are detailed in Kennametal's SEC filings.
In addition, 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.
I'll start today's call with some general comments on the level of industrial activity we are currently seeing then briefly review the quarter, our strategic initiatives and expectations for Q2.
Damon will then go over the quarterly financial results in more detail.
Debt increasing sequentially by 6% of which 3% was due to FX.
General engineering and transportation end-markets are showing the highest levels of recovery.
As a reminder, those two end-markets total more than 60% of our sales.
On a year-over-year basis, organic sales declined by 21% on top of an 11% year-over-year decline in the prior year quarter.
However, through disciplined execution on several fronts, we were able to effectively maintain profitability.
Adjusted EBITDA margin improved by 40 basis points to 11.3% versus 10.9% in the prior year quarter.
And our operating leverage was strong as well, while[Phonetic] continued double-digit declines in volume and associated under-absorption.
Improved EBITDA margin was driven by lower raw material costs, increasing from simplification, modernization and effective cost control action.
Operating expense as a percentage of sales increased 23% due to lower sales.
However, in total dollar terms decreased 18% year-over-year.
Our target for operating expense remains at 20%.
Adjusted earnings per share was $0.03 compared to $0.17 in the prior year quarter, reflecting the factors I just named as well as a higher adjusted effective tax rate.
Looking ahead, of course, visibility in this environment is still limited due to COVID-19.
So it remains extremely difficult to forecast how our customers as well as our end-markets will be affected, especially with additional shutdowns being contemplated in some regions due to recent spikes and COVID-19 cases.
We will not be providing a full-year outlook for fiscal year '21, however, I would like to provide some color on what we might expect in the second quarter.
Based on the monthly sales results in Q1, early indications from our October sales, assuming that there is no additional second wave of COVID-19 lockdowns in the quarter, we expect Q2 to see low to mid-single digit growth sequentially, which would be above our normal sequential growth pattern of 1% to 2%.
While it feels like the economic recovery may be gaining momentum, as I said, it is still difficult to predict the pace and trajectory.
So we continue to focus on the things we can control such as executing our operational excellence and commercial excellence strategies, and share and improve operating results throughout the economic cycle.
On the operational excellence side, simplification, modernization initiatives are on track to deliver approximately $80 million in benefits this year, increase of 67% over last year.
That will bring the total cumulative savings from inception of the program to $180 million, which is within the original target we set in December 2017, despite much lower volumes than were envisioned at that time.
As a reminder, we expect to complete our original footprint rationalization activities with closure of the Johnson City, Tennessee plant, downsizing of the Essen, Germany plant by the end of this fiscal year.
Also, the capital spending associated with the simplification modernization program is substantially complete.
This will result in significantly lower capex levels going forward, including this fiscal year where total capex is expected to be reduced by approximately 50% to be $110 million and $130 million.
In addition to our focus on these transformational operational excellence initiatives, we are equally focused on driving commercial excellence.
Turning to Slide 3, as you recall, last quarter we announced the combination of our two metal cutting business segments, enabling us to direct our commercial resources, products and technical expertise more effectively toward capturing a larger share of wallet.
In addition, we discussed our new brand strategy to reposition the Widia brand and portfolio to the multi-billion dollar fit-for-purpose application space within metal cutting, which we previously have not focused on.
This strategy opens a 40% increase in served market opportunity while offering better service, and tooling options to our customers.
Progress on this initiative is tracking with our expectations and I'm pleased that we already have several wins with new customers and existing customers, including a recent win at a major machine tool builder to apply fit-for-purpose tooling as standard on new machines they sell.
Also, the reaction from our channel partners has been broadly positive, especially to be able to operate in the market with clear brand positioning, key to win share in the full-solution application space as well, with the share gain in a major machine tool builders manufacturing facility.
And we are successfully leveraging one of our proven tooling solutions, developed for a wind turbine manufacturer in China to capture share of similar projects in India.
And of course, we remain committed to product innovation to better serve customers and gain share.
For example, during the quarter, in the full-solution application space within general engineering, we introduced two best-in-class products, HPX Solid Carbide Drill which delivers 2 to 3 times more productivity than competing products, KCFM 45 face milling cutter, which offers greater flexibility and a cost-effective user friendly solution for a broad range of CNC machines.
Based on our continued ability to deliver products that are highly valued by customers and the positive reaction to our brand repositioning, we are even more confident in our ability to gain share and drive top line improvement.
In addition, as you know, we are also focused on improving the bottom line.
The last time, the company experienced a sales decline of this magnitude, it was during The Great Recession.
Trailing 12-month sales is shown on the left and corresponding adjusted operating margin is shown on the right.
The improvement in profitability compared to the earlier downturn, illustrating the benefits of simplification modernization, stronger cost control and remember of the present day numbers do not yet include the full run rate effect of the modernization activities we are currently undertaking.
By executing our commercial excellence and operational excellence strategies we are positioning the company for improved performance throughout the economic cycle.
We will begin on Slide 5 with the review of Q1 operating results, both on a reported and adjusted basis.
Chris mentioned, demand trends improved off low levels throughout the quarter and outpaced the 10% sequential seasonal decline we normally experienced in Q1.
For the quarter, sales declined 23% year-over-year.
On organic basis, sales were down 21% year-over-year.
Foreign currency in a business divestiture, each had a negative effect of 1% in the quarter.
However, sales did increase 6% on a sequential basis, with approximately 3% attributed to foreign currency.
Adjusted gross profit margin of 27% was down 50 basis points year-over-year.
Year-over-year performance was primarily due to the effect of lower volumes and associated under-absorption, partially offset by the positive effect of the raw materials, which contributed approximately 650 basis points, incremental simplification/modernization benefits and temporary cost control actions.
Adjusted operating expenses of $93 million were down $21 million or 18% year-over-year.
Adjusted EBITDA margin was 11.3%, up 40 basis points from the previous-year quarter.
Adjusted operating margin of 2.9% was down 180 basis points year-over-year.
Adjusted effective tax rate in the quarter of 33.4% was higher year-over-year due to the combined effects of geographical mix and the continued effect of GILTI on the low level of U.S. taxable income.
Although we expect our adjusted effective tax rate to remain elevated in the low to mid 30% range with these lower levels of earnings, we still expect our tax rate to be in the low to mid 20% range when we return to higher levels of profitability.
We reported a GAAP earnings per share loss of $0.26 versus earnings per share of $0.08 in the prior year period, reflecting the reduced volumes and higher tax rate, partially offset by raw materials, simplification/modernization benefits and temporary cost control actions.
On an adjusted basis, earnings per share was $0.03 per share versus $0.17 in the prior year.
The main drivers of our adjusted earnings per share performance are highlighted on the bridge on Slide 6.
Effective operations this quarter amounted to negative $0.28, this compares positively to both the negative $0.60 in the prior year period and the negative $0.68 in Q4 of fiscal year 2020.
The largest factors contributing to the $0.28 was the effect of significantly lower volumes and associated under-absorption, partially offset by positive raw materials of $0.30 in strong cost control actions.
Simplification/modernization benefits increased again this quarter totaling $0.20 on top of $0.07 in the prior year.
This brings the total benefit since inception from simplification modernization to a $123 million.
As Chris mentioned, our expectations continue to be that simplification/modernization benefits will be approximately $0.80 for fiscal year 2021, driven by actions already taken or announced and bringing the total expected cumulative savings to $180 million by the end of fiscal year 2021.
Incremental savings from our restructuring actions contributed to $17 million of the $22 million in simplification/modernization savings this quarter.
Remember, restructuring is a subset of our simplification/modernization program.
Slide 7 and 8 detailed the performance of our segments this quarter.
Metal cutting sales in the first quarter declined 23% organically on top of an 11% decline in the prior year period.
All regions posted year-over-year sales decreases, the largest decline in the Americas at negative 29% followed by EMEA at 24%, Asia Pacific posted the smallest year-over-year decline at 9%.
Performance in Asia Pacific reflects more positive economic activity in the region with approximately 10% growth in China year-over-year, partially offsetting weakness in other countries such as India.
From an end market perspective, although improving sequentially, we still experienced year-over-year declines in transportation of 21% and general engineering of 20%.
Sales and aerospace experienced more significant declines, year-over-year and was also down sequentially driven by the COVID-19 associative effects on demand and the supply chain.
Relatively speaking, energy was the best performing end market in metal cutting on a year-over-year basis with positive trends in wind and renewable energy.
However, it is worth noting that the oil and gas portion of the energy end markets continues to be significantly challenged.
Adjusted operating margin came in at 1% compared to 7.9% in the prior year quarter.
The decrease was primarily driven by a decline in volume and mix, partially offset by incremental simplification/modernization benefits, temporary cost control actions and raw materials that contributed 230 basis points.
Turning to Slide 8 for Infrastructure.
Organic sales declined 18% on top of a decline of 11% in the prior year period.
Other factors affecting infrastructure total sales were a divestiture of 4%, partially offset by a benefit from business days of 1%.
Regionally, again the largest decline was in the Americas at 27% then EMEA at 9%, but this time followed by a 1% growth in Asia Pacific.
By end market, the results were primarily driven by energy, which was down 31% year-over-year, reflecting the effect of the significant decline in the U.S. land only rig count.
General engineering was down 14%, earthworks was down 11%, reflecting a continued production decline in Appalachian coal.
Adjusted operating margin of 6.5% was up 700 basis points year-over-year.
This increase was mainly driven by favorable raw materials, which contributed 1,330 basis points, simplification/modernization benefits and temporary cost control actions partially offset by lower volumes and associated under-absorption.
Now turning to Slide 9 to review our balance sheet and free operating cash flow.
We need to remain conservative to ensure the company has ample liquidity to weather the current environment as well as continue to execute our strategy.
Our current debt maturity profile is made up of two $300 million notes maturing in February of 2022 and June of 2028 as well as a U.S. $700 million revolver that matures in June of 2023.
At quarter end, we had combined cash and revolver availability of approximately $760 million and largely repaid the $500 million revolver draw from last quarter.
During the quarter we also amended our credit agreement to improve our flexibility given the continued uncertainty in the economic recovery.
At quarter end we were well within these financial covenants.
Primary working capital decreased year-over-year to $623 million, but was up sequentially as the decrease in inventory was more than offset by an increase in accounts receivable and accounts payable.
On a percentage of sales basis primary working capital increased to 36.4%, a reflection of the continued decline in sales.
Capital expenditures were $39 million, a decrease of approximately $33 million from prior year as expected.
We continue to expect fiscal year '21 capital expenditures will be between $110 million to $130 million with the majority in the first half.
Our first quarter free operating cash flow was negative $29 million that represents a year-over-year improvement of $15 million, largely reflecting the decline in capital expenditures.
In addition, we paid the dividend of $17 million in the quarter.
The full balance sheet can be found on Slide 14 in the appendix.
As a reminder, this slide details how we expect key factors affecting earnings per share and free operating cash flow to play out during each half of fiscal year '21 on a year-over-year basis and our expectations have not significantly changed since last quarter.
I've already mentioned our expectations for increasing benefits from simplification/modernization this year, resulting in a year-over-year tailwind in both the first and second half of the year.
Temporary cost actions will continue to be a year-over-year tailwind in the second quarter, although less of a benefit than in the first quarter as we are increasing our customer visits and rolling back certain temporary cost control actions.
Sequentially, the increase in cost in the second quarter will be in the range of $5 million to $10 million.
This continuation of these actions will result in a second half year-over-year headwind as we discussed last quarter.
The tungsten prices remaining in the $210[Phonetic] to $230[Phonetic] range, raw materials are expected to continue to be a tailwind in the second quarter, although at a reduced rate in neutral, for the second half on a year-over-year basis.
Although, depreciation, amortization was flat year-over-year in the first quarter, we still expect it to be $10 million to $20 million higher for the full year, starting in the second quarter, as our new equipment comes online.
In terms of cash flow, as Chris and I already mentioned, capital spending will be significantly down this year, a tailwind in both the first and second half.
Year-over-year cash restructuring will be higher in both halves as we execute the restructuring programs.
In terms of working capital, we'll be dependent upon the timing of the market recovery with both accounts receivable and accounts payable likely use up cash in the year, offsetting planned inventory reductions.
As a reminder, our target for working capital remains 30%.
Finally, as it relates to Q2, as Chris mentioned, we expect sales to be up, low to mid-single digit sequentially, despite fewer working days in Q2[Phonetic] versus Q1.
Turning to Slide 11, let me take a few minutes to summarize.
I'm pleased that we have continued to make significant progress on our initiatives.
We are advancing commercial excellence, including a focus on fit-for-purpose customer applications, drive growth and market share gain.
We expect to be at target savings of $180 million for the program by the end of this fiscal year, despite much lower volumes.
Timing of the completion of our simplification/modernization program as well as the renewed focus on commercial excellence will serve us well in a recovery.
Strength[Phonetic] of our balance sheet and cash position will allow us to optimize capital allocation, while improving customer service and profitability even further, throughout the economic cycle.
So I'm fully confident we will achieve our adjusted EBITDA profitability target of 24% to 26%, when markets recover such that sales reach the target sales range of 2.5 to [Technical Issues].
With that, operator, please open the line for question.

user
q1 loss per share $0.26.
qtrly adjusted earnings per share $0.03.

assistant