• Sales: Decreased 3% year over year; infrastructure decreased 4% organically, metal cutting down 7%.
• Adjusted EBITDA Margin: 13.9%, up from 12.4% in the prior year.
• Adjusted EPS: Decreased to $0.25 from $0.30 in the prior year quarter.
• Cash from Operating Activities: Year-to-date $101 million, up from $88 million in the prior year period.
• Free Operating Cash Flow: Year-to-date $57 million, up from $36 million in the prior year.
• Share Repurchase: $15 million of shares bought back during the quarter.
• Primary Working Capital: Decreased to $592 million; 31.3% of sales.
• Capital Expenditures: Decreased to $44 million from $52 million in the prior year quarter.
• End Market Performance: Aerospace and defense grew 14%, energy grew 1%, general engineering declined 4%, earthworks declined 7%, transportation declined 9%.
• Full Year Sales Outlook: Expected to be between $1.95 billion and $2 billion.
• Adjusted EPS Outlook: Expected to be in the range of $1.05 to $1.30.

• Warning! GuruFocus has detected 4 Warning Sign with KMT.

Release Date: February 05, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Kennametal Inc (NYSE:KMT) announced actions to reduce structural costs and consolidate facilities, expected to deliver annualized pre-tax savings of approximately $15 million.
• The company continued its share repurchase program, buying back $15 million worth of shares during the quarter.
• Aerospace and defense end markets showed strong growth, with a 14% increase, driven by strategic initiatives and easing supply chain challenges.
• Adjusted EBITDA margin improved to 13.9% from 12.4% in the prior year, indicating better operational efficiency.
• Kennametal Inc (NYSE:KMT) maintained a healthy balance sheet with combined cash and revolver availability of approximately $821 million.

Negative Points

• Sales decreased by 3% year over year, with significant declines in the metal cutting segment and challenging market conditions in EMEA.
• The company faced a disappointing quarter from both sales and profitability perspectives, particularly in the metal cutting segment.
• Adjusted EPS decreased to $0.25 from $0.30 in the prior year quarter, reflecting lower profitability.
• Market conditions in EMEA worsened, impacting several end markets, including transportation and general engineering.
• Kennametal Inc (NYSE:KMT) experienced a fifth consecutive quarter of negative organic growth, highlighting ongoing market challenges.

Q & A Highlights

Q: Can you provide an update on the current demand environment, particularly in general engineering? A: We are seeing some improvement, especially in the second half of January, with better order incoming rates and bill rates. However, the outlook was based on assumptions from August, which anticipated more improvement in the US and China. Europe has become more challenging, leading us to reduce our overall outlook for the second half, despite recent improvements.

Q: Given the current operating margins, is there a need for a broader restructuring plan to improve through-cycle margins? A: We have already laid out a $100 million cost structure improvement plan, with recent actions bringing us to $65 million of that target. We are also managing non-headcount related actions, such as short work weeks, to improve margins. We will continue to monitor market conditions and take necessary actions while focusing on continuous improvement.

Q: Can you elaborate on the improvement in orders seen in January? Was it specific to general engineering or broader? A: The improvement was seen across both general engineering and other industries we serve. We have also observed some improvement in EMEA in the last couple of weeks of January, indicating a broader trend.

Q: What are the plans of the new segment heads, and how will their management changes impact the company? A: The new segment heads will focus on delivering growth, improving margins, and optimizing the product portfolio. They bring strong experience in commercial operations and continuous improvement, which will help drive improvements in margin and working capital. We will also focus on targeted M&A to enhance shareholder value.

Q: How are you addressing the competitive dynamics in the earthworks segment? A: In China, reduced capital investment has increased pressure due to excess capacity. In the US, we face price pressure due to reduced production and construction. We are competing well and maintaining our value proposition, despite some business losses.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.