Kennametal replaces CEO amid tough market conditions

Kennametal Inc. abruptly dismissed CEO Don Nolan on Thursday, a day after the toolmaker reported another dismal quarter, ending a 15-month tenure that was marked by a struggle to stem losses in a tough market made worse by a protracted slump in the energy industry.

While praising Nolan for leading the company at a difficult time, Chairman Lawrence Stranghoener said Kennametal would better navigate the severe downturn in business with a more experienced chief executive. Longtime board member Ronald DeFeo was tapped to replace Nolan.

“It's time for a highly experienced CEO with a proven track record to sharpen our focus and maximize our results,” Stranghoener said in a written statement to the Tribune-Review. “We are in the midst of a vital effort to think big and act boldly to ensure the future success of Kennametal.”

Nolan had never served as a CEO before taking the helm of the manufacturer of cutting tools used in mining and gas drilling in November 2014. He joined Kennametal from Avery Dennison Corp., a producer of labels and packaging, where he was a division president for six years.

DeFeo, who has served on Kennametal's board since 2001, was CEO of Terex Corp. for 20 years before retiring in 2015. Westport, Conn.-based Terex manufactures machinery used in construction, mining, oil refining and other industries. DeFeo was credited with building Terex from an ailing company with $300 million in sales to one with revenue of $7 billion.

Kennametal spokeswoman Diane Johnson declined to make DeFeo or Stranghoener available for an interview.

Nolan received $3.3 million in total compensation for the company's 2015 fiscal year that ended June 30. In the five quarters when he was CEO, Kennametal earned a profit once, and its shares lost more than half their value. The company had net income of $21.1 million in the quarter ended June 30. It recorded net losses in the other four quarters.

Nolan assumed the top role at a challenging time. Kennametal, which moved its headquarters to Downtown from Unity in Westmoreland County last year, has been hammered by weak demand caused by a steep drop in oil prices that affected many of its customers. Stranghoener called Nolan “a necessary change agent through a period of significant turmoil and uncertainty,”

In response to the downturn, Nolan implemented a restructuring program that cut the company's costs by selling business units, closing manufacturing plants and laying off about 1,000 workers. The downsizing resulted in a smaller loss in the October-December quarter, compared with a year earlier, and adjusted net income that beat analyst predictions. But revenue plummeted 22 percent.

Julian Mitchell, an analyst with Credit Suisse in New York, wrote in a note to clients Thursday that Nolan's turnaround plans received an “underwhelming reaction” from investors when he detailed his strategy in a presentation to analysts in December. The plan was not enough to overcome investor worries about a forecast the day before that full-year earnings would be up to 60 percent lower than the company's earlier expectations.

Kennametal's stock price declined 56 percent over Nolan's tenure. Wall Street appeared to approve of the leadership change as the company's shares closed up 8.5 percent to $19.03 Thursday.

Several analysts said the appointment of DeFeo suggests Kennametal could look to change directions through acquisitions or could put itself up for sale.

“We believe that a potential sale of (Kennametal) is more likely under the leadership of Mr. DeFeo, though we do not believe that is currently on the table,” Walter Liptak, an analyst at Seaport Global Securities in Chicago, wrote in a note to clients, adding that DeFeo's strength was in mergers and acquisitions.

Terex is in the process of merging with Finnish crane maker Konecranes.

Mitchell said acquisitions were possible, but Kennametal's amount of debt would make deals difficult. “Seeking acquirers for (Kennametal) assets may be a more likely approach, although clearly the decline in its share price means the realized value of any transaction in the short-term may look unappealing,” he wrote.

Nolan oversaw the company's move to temporary offices in the U.S. Steel Tower in November, as officials consider building a permanent headquarters campus in Pittsburgh or outside the state.

In response to a question about whether the leadership change would affect the company's plan for a new headquarters, Johnson said DeFeo would “carefully explore a wide range of possibilities for improving Kennametal's future.” She added that no decisions about the headquarters had been made.

Kevin Acklin, chief of staff for Pittsburgh Mayor Bill Peduto, said, “We remain committed to working with Kennametal to secure their permanent headquarters in the city of Pittsburgh.”

Bill Newlin, who retired as Kennametal's chairman in October but is leading the company's search for its headquarters site, declined to comment on Nolan's departure or whether the company was backing away from the project. He said the company is focusing its search on the former LTV Steel site in Hazelwood that's slated for redevelopment. But the company is considering sites outside the state.

“Everything is still at the point of important discussions,” Newlin said, “but we're mainly focusing on that site” in Hazelwood.

Alex Nixon is a Tribune-Review staff writer. Reach him at 412-320-7928 or anixon@tribweb.com.