Kadant ((KAI)) has held its Q2 earnings call. Read on for the main highlights of the call.
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Kadant’s recent earnings call painted a mixed picture of the company’s financial health and future prospects. The sentiment was generally positive, with notable achievements in aftermarket revenue and gross margins, as well as an increase in bookings and successful acquisitions. However, challenges such as a decrease in overall revenue and earnings, coupled with uncertainties in trade policies, were also highlighted.
Increase in Bookings
Bookings in the second quarter rose by 7% to $269 million, driven by strong capital performance and consistent demand for aftermarket parts. This increase underscores Kadant’s ability to capture market opportunities despite broader economic challenges.
Strong Aftermarket Revenue
Kadant reported record aftermarket parts revenue of $181.8 million, with this segment comprising 75% of the total revenue in the Flow Control segment. This performance highlights the company’s strategic focus on aftermarket services as a key revenue driver.
Improved Gross Margin
The company achieved a gross margin of 45.9% in Q2 2025, marking an increase of 150 basis points from the same period in 2024. This improvement is primarily attributed to a higher percentage of sales from aftermarket parts.
Acquisition and Integration Success
Kadant successfully integrated Dynamic Sealing Technologies and acquired Babbini, a manufacturer of dewatering equipment. These strategic moves are expected to expand the company’s market opportunities and enhance its product offerings.
Strong Cash Flow
Operating cash flow increased by 44% to $40.5 million, and free cash flow surged by 58% to $36.5 million in Q2 2025 compared to the prior year. This robust cash flow performance provides Kadant with the financial flexibility to pursue growth initiatives.
Revenue Decline
Despite strong performance in certain areas, Kadant experienced a 7% decline in revenue compared to the record levels achieved in Q2 2024. This decline was primarily due to softer capital orders in the latter half of 2024.
Earnings Decrease
Adjusted EBITDA fell by 15% to $52 million, and adjusted EPS decreased by 18% to $2.31 compared to the same quarter in 2024. These declines reflect the challenges faced by the company in maintaining profitability amidst changing market conditions.
Challenges with Tariffs and Trade Policies
Ongoing uncertainties surrounding U.S. trade policies and tariffs, particularly those affecting steel and China, continue to impact Kadant’s capital investment activity. The company is actively working to mitigate these challenges.
SG&A Expense Increase
SG&A expenses rose to 29% of revenue in Q2 2025 from 25.5% in the previous year, partly due to currency exchange rate impacts. This increase highlights the need for cost management in the face of fluctuating economic conditions.
Weaker Industrial Processing Segment
The Industrial Processing segment saw a 16% revenue decline due to weaker capital shipments. This segment’s performance underscores the broader challenges faced by Kadant in certain market areas.
Forward-Looking Guidance
Kadant maintained its full-year guidance for 2025, projecting revenue between $1.20 billion and $1.40 billion and adjusted EPS between $9.05 and $9.25. The company anticipates a stronger second half of the year, supported by a robust backlog of $299 million and expected improvements in industrial demand. Kadant remains focused on mitigating tariff impacts and managing costs effectively.
In summary, Kadant’s earnings call reflected a balanced view of the company’s current standing and future prospects. While strong aftermarket performance and strategic acquisitions provide a solid foundation for growth, challenges such as revenue and earnings declines, as well as trade policy uncertainties, present hurdles that the company must navigate. Investors will be keenly watching Kadant’s ability to leverage its strengths and address its challenges in the coming quarters.