Kadant’s Earnings Call Highlights Growth, Record Bookings

Kadant ((KAI)) has held its Q1 earnings call. Read on for the main highlights of the call.

Kadant’s latest earnings call struck an upbeat tone as management highlighted record bookings, robust aftermarket demand and an earnings beat that outpaced guidance. Executives acknowledged near-term pressure from acquisition-related costs, mix-driven margin compression and higher leverage, but emphasized that accelerating orders and recurring parts revenue underpin confidence in the company’s long-term growth trajectory.

Record Bookings and Strong Order Growth

Kadant reported a 25% year-over-year surge in total bookings in the first quarter, reflecting both double-digit organic growth and contributions from recent acquisitions. The book-to-bill ratio climbed to 1.14, its highest level in three years, pushing the company’s ending backlog up 13% sequentially to $326 million and signaling solid demand visibility.

Revenue Growth

Consolidated revenue rose 18% from the prior-year period to $281.5 million, underscoring strong execution across Kadant’s portfolio. Management pointed to broad-based growth across segments and geographies, with higher volumes and recent deals collectively driving the top-line acceleration in the opening quarter of 2026.

Record Aftermarket Parts Revenue

Aftermarket parts and consumables revenue reached a record $209 million, representing 74% of total first-quarter sales. This high mix of recurring parts business provides a steady revenue base and supports margin resilience, as customers prioritize maintenance and consumables spending even when large capital projects are delayed.

Profitability Improvement and Beat

Adjusted EBITDA increased 19% year-over-year to $56.8 million, representing 20.2% of revenue and reflecting improved operating leverage. Adjusted earnings per share climbed 14% to $2.84, topping the high end of management’s guidance by $0.43 and underscoring stronger-than-expected profitability despite some margin headwinds.

Segment-Level Strength — Industrial Processing

The Industrial Processing segment delivered standout results, posting record bookings of $145 million with organic bookings up 23% year-over-year. Segment revenue jumped 37% to $123 million, and adjusted EBITDA margin remained robust at 24%, highlighting strong demand and efficient execution in this core business.

Flow Control Performance

Flow Control also turned in a strong quarter, with bookings up 12% to a record $112 million and revenue up 7% to $99 million. Aftermarket parts accounted for 77% of segment revenue, helping support an impressive adjusted EBITDA margin of 27.8% and reinforcing the segment’s high-recurring, high-margin profile.

Material Handling Stability

Material Handling delivered steady, if more modest, growth as revenue increased 5% to $60 million and bookings edged higher to $65 million. Management highlighted a healthy backlog and solid fundamentals in end markets such as aggregate mining, waste management and recycling, which together provide a stable demand outlook for this segment.

Strategic M&A and Integration Progress

Kadant continued to build its portfolio through acquisitions, closing the purchase of voestalpine BOHLER Profil, now operating as Kadant Profil. Integration of the 2025 acquisitions Clyde Industries and Babbini is progressing well, and management reiterated that the new profile business is expected to enhance long-term earnings growth despite initial dilution.

Balance Sheet and Liquidity

The company ended the quarter with net debt of $244 million, down $8 million sequentially, and a leverage ratio of 1.27, reflecting disciplined balance sheet management. Kadant also emphasized its ample liquidity, with roughly $210 million of undrawn revolver capacity and about $200 million of additional uncommitted availability to support growth initiatives.

Gross Margin Compression

Despite the strong top line, consolidated gross margin slipped 110 basis points year-over-year to 45.0%, down from 46.1%. Management attributed roughly half of the decline to acquired profit and inventory amortization, with the remainder driven by less favorable product mix, particularly in certain equipment and project orders.

SG&A and Acquisition-Driven Cost Increases

Selling, general and administrative expenses rose 16% year-over-year to $82.5 million, an $11.3 million increase that weighed on operating leverage. About $7.9 million of the increase came from newly acquired businesses and $2.8 million from unfavorable foreign currency translation, partially offsetting the underlying margin expansion from higher volumes.

Higher Effective Tax Rate

Kadant’s effective tax rate climbed to 28.2% in the first quarter of 2026, up from 24.3% a year earlier. This roughly 3.9 percentage point increase reduced net earnings and muted the EPS benefit from operating improvements, adding another layer of pressure on bottom-line growth relative to prior periods.

Working Capital and Cash Conversion Drag

Working capital needs increased as the company filled its growing order book, pushing cash conversion days to 147 from 130 and lifting working capital to 20% of revenue. Operating cash flow slipped modestly to $21.9 million and free cash flow to $18.7 million, with management linking the drag mainly to higher inventory levels tied to strong backlog fulfillment.

Short-Term EPS Dilution from Acquisition

The newly acquired Kadant Profil business is expected to weigh on 2026 adjusted EPS by about $0.20, reflecting conservative accounting for intercompany sales. Roughly 45% of Profil’s revenue is internal to Kadant, and profit on that portion will not be recognized until inventory is sold to third-party customers, a process management expects will extend through year-end.

Increased Leverage Next Quarter

To fund the Kadant Profil deal, the company borrowed EUR 155 million and signaled that its leverage ratio will rise to just below 2 in the next quarter. Management framed the higher near-term leverage as a deliberate move to support strategic growth, while stressing the underlying cash generation and liquidity they believe will enable a gradual de-leveraging over time.

Geopolitical and Macro Uncertainty Impacting Capital Timing

Executives cautioned that global trade frictions and ongoing conflict in the Middle East are complicating the timing of capital projects, especially in Europe. Some customer investments have been pushed out, with a few projects now expected in 2027, making near-term capital spending patterns harder to forecast even as underlying demand remains intact.

Product-Mix Pressure in Material Handling

Within the Material Handling segment, management pointed to unfavorable product mix as a key factor behind lower EBITDA margins despite revenue growth. A higher proportion of lower-margin offerings, combined with project timing, exerted downward pressure on gross margins, although the company sees room to improve mix and profitability as the backlog converts.

Guidance and Outlook

Kadant raised its 2026 revenue outlook to a range of $1.178 billion to $1.203 billion and set adjusted EPS guidance between $12.33 and $12.68, while reiterating that the first quarter should be the weakest of the year. Second-quarter revenue is projected at $296 million to $306 million with adjusted EPS of $2.88 to $2.98, based on gross margin of 44.5% to 45.0%, SG&A around 28% of sales, net interest expense of $20 million to $21 million and a tax rate near 28%.

The call painted a picture of a company leaning into growth, with record bookings, a strong aftermarket base and disciplined capital deployment offsetting near-term bumps from acquisitions and macro uncertainty. For investors, the key takeaway is that Kadant appears willing to accept short-term margin and EPS dilution to expand its portfolio and backlog, betting that its recurring parts franchise and robust order book will drive sustained value creation over the longer term.