Kadant’s Earnings Call: Mixed Results Amid Tariff Challenges

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

Kadant’s recent earnings call painted a mixed picture, with strong performances in certain segments overshadowed by broader challenges. The company reported robust growth in its aftermarket parts business and flow control segment, yet faced significant hurdles such as revenue decline and the negative impact of tariffs. The revised guidance, primarily due to tariff pressures, further contributed to the overall negative sentiment expressed during the call.

Strong Aftermarket Parts Business

Kadant’s aftermarket parts business emerged as a standout performer, with bookings reaching a record $190 million, representing 74% of total bookings. This impressive demand is largely attributed to the company’s extensive installed base and its ability to deliver exceptional value to customers.

Flow Control Segment Growth

The Flow Control segment experienced solid demand, with bookings increasing by 6% compared to the first quarter of the previous year. Revenue for this segment rose by 7% to $92 million, and adjusted EBITDA saw an 8% increase, reflecting the segment’s strong performance.

High Gross Margin

Kadant reported a gross margin of 46.1% in the first quarter of 2025, marking the highest level since 2017. This represents an increase of 150 basis points compared to the first quarter of 2024, driven by a higher percentage of aftermarket parts revenue.

Healthy Free Cash Flow

The company achieved a 15% increase in free cash flow, reaching $19 million compared to the same period in 2024. This growth highlights Kadant’s strong cash generation capabilities despite broader market challenges.

New Order Activity

Despite uncertainties stemming from tariffs, new order activity in the first quarter was up, indicating resilience in demand for Kadant’s offerings.

Revenue Decline

Kadant faced a 4% decline in revenue during the first quarter compared to the previous year, primarily due to weaker capital shipments in the Industrial Processing segment.

Adjusted EBITDA Decrease

The company’s adjusted EBITDA decreased by 8% to $47.9 million, driven by lower capital revenue. This resulted in a decline in the adjusted EBITDA margin by 100 basis points.

Industrial Processing Segment Challenges

The Industrial Processing segment encountered a 15% revenue decline compared to the previous year’s record, mainly due to a reduction in capital shipments.

Impact of Tariffs

Tariffs have introduced significant uncertainty, affecting the timing of capital orders and leading to an estimated incremental material cost of $5 million to $6 million.

Revised Guidance Due to Tariffs

Kadant revised its full-year 2025 guidance downward due to the impacts of tariffs. The company now expects revenue between $1.020 billion and $1.040 billion, with adjusted EPS forecasted at $9.05 to $9.25. This revision reflects both tariff impacts and delays in capital orders.

Forward-Looking Guidance

In light of ongoing global tariff uncertainties, Kadant has adjusted its full-year revenue guidance to between $1.020 billion and $1.040 billion, down from previous estimates. The company anticipates adjusted EPS to be in the range of $9.05 to $9.25. For the second quarter, Kadant projects revenue between $243 million and $250 million, with adjusted EPS expected to range from $1.90 to $2.00. Despite these challenges, Kadant remains committed to maintaining operational resilience and leveraging its decentralized structure to navigate economic headwinds.

In summary, Kadant’s earnings call highlighted both strengths and challenges. While the aftermarket parts business and flow control segment showed robust growth, the overall sentiment was tempered by revenue declines and the adverse effects of tariffs. The company’s revised guidance underscores the impact of these challenges, yet Kadant’s focus on operational resilience offers a pathway to navigate the current economic landscape.