KMT — Kennametal Inc.

Summary of Kennametal's Q3 Fiscal 2026 Earnings Call

1. Key Financial Results and Metrics:

• Sales Growth: Sales increased 22% year-over-year, with organic growth of 19%.
• Adjusted EPS: Rose to $0.77 from $0.47 in the prior year.
• Adjusted EBITDA Margin: Improved to 20.8% from 17.9% year-over-year.
• Cash Flow: Year-to-date cash from operating activities was $70 million, down from $130 million in the prior year, primarily due to increased working capital requirements related to rising tungsten prices.
• Free Operating Cash Flow: Decreased to $18 million from $63 million year-over-year.
• Dividends: $15 million returned to shareholders.

2. Strategic Updates and Business Highlights:

• End Market Performance: Strong growth in infrastructure, particularly in construction and defense, alongside increased market share in aerospace and energy sectors.
• Tungsten Supply Dynamics: Prices surged from $900 to $3,000 per metric ton, creating both challenges and opportunities. Kennametal's vertical integration provided a competitive edge in supply chain management.
• Growth Initiatives: Focus on above-market growth with strategic initiatives yielding positive results, including targeted promotional campaigns and enhancements to the digital customer experience.

3. Forward Guidance and Outlook:

• Fiscal 2026 Outlook: Sales expected between $2.33 billion and $2.35 billion, with an adjusted EPS forecast of $3.75 to $4.
• Price and Volume Expectations: Anticipated net price and tariff surcharges of approximately 16%, with volume growth projected at 2% to 3%.
• Fiscal 2027 Considerations: Tungsten prices expected to remain elevated, with a carryover pricing effect anticipated in the first half of FY '27.

4. Bad News, Challenges, or Points of Concern:

• Cash Flow Pressure: Increased working capital due to rising tungsten prices has negatively impacted free cash flow.
• Competitive Pressures: Some competitors are struggling with supply chain issues, leading to longer lead times and potential loss of orders, which could affect market dynamics.
• Restructuring Delays: Plans for facility closures have been postponed due to a focus on growth opportunities, potentially impacting long-term cost savings.

5. Notable Q&A Insights:

• Pricing Strategy: Management indicated that pricing adjustments are ongoing and will be closely monitored to offset tungsten cost implications.
• Market Demand: There is cautious optimism in the energy sector, with signs of stabilization, particularly in power generation.
• Share Gains: Market share gains are attributed to a mix of improved market conditions, strategic initiatives, and supply constraints affecting competitors.
• Tungsten Sourcing: Kennametal's diversified sourcing strategy and vertical integration are key advantages in a competitive market.

In summary, Kennametal reported strong financial results driven by strategic growth initiatives and favorable market conditions, particularly in infrastructure and aerospace. However, challenges related to cash flow and competitive pressures remain, with a cautious outlook for the upcoming fiscal year.