Kennametal Inc Navigates Mixed Earnings Call with Optimism

Kennametal Inc ((KMT)) has held its Q3 earnings call. Read on for the main highlights of the call.

Kennametal Inc’s recent earnings call presented a mixed sentiment, balancing strong execution in restructuring and growth in Aerospace and Defense with challenges such as significant sales declines, market weakness in EMEA, and tariff-related issues. The overall tone was cautiously optimistic, with positive developments tempered by ongoing market difficulties.

Advanced Manufacturing Tax Credit Boost

Kennametal’s adjusted earnings per share (EPS) exceeded expectations, largely due to a $10 million benefit from an advanced manufacturing production credit under the Inflation Reduction Act. This credit played a crucial role in enhancing the company’s financial performance for the quarter.

Restructuring Savings Achieved

The company successfully realized approximately $6 million in restructuring savings during the quarter. This achievement keeps Kennametal on track to meet its $15 million run-rate savings target set in January, demonstrating effective cost management.

Aerospace and Defense Growth

Sales in the Aerospace and Defense sector grew by 7%, driven by successful defense project wins in infrastructure. This sector remains a bright spot for Kennametal, contributing positively to its overall performance.

Share Repurchase and Dividend Programs

Kennametal continued to return value to shareholders through its share repurchase and dividend programs. The company repurchased $25 million worth of shares and paid $15 million in dividends during the quarter, reflecting a commitment to shareholder returns.

Improved Profitability

The company’s adjusted EPS rose to $0.47 from $0.30 in the prior year quarter. This improvement was supported by restructuring efforts, the absence of price raw headwinds, and favorable tax credits, highlighting enhanced profitability.

Sales Decline

Kennametal faced a 6% year-over-year sales decline, with metal cutting sales decreasing 4% organically and infrastructure sales declining 2% organically. This decline underscores the challenges the company faces in maintaining its sales momentum.

Market Weakness in EMEA

The EMEA region experienced broad market weakness, with sales down 4% on a constant-currency basis. This region remains the slowest market for Kennametal, presenting ongoing challenges.

Tariff-Related Headwinds

Kennametal is dealing with significant tariff-related headwinds, with an estimated annual impact of $80 million. The company is implementing mitigation actions to address these challenges, but short-term pressures remain.

Decline in End Markets

Sales declined across all end markets except Aerospace and Defense, affected by reduced mining activity and difficulties in General Engineering, Transportation, and Earthworks. This broad decline highlights the varied challenges across different sectors.

Forward-Looking Guidance

Kennametal’s forward-looking guidance for fiscal 2025 reflects a cautious yet optimistic outlook. The company adjusted its sales range to $1.97 to $1.99 billion and increased its EPS range to $1.30 to $1.45, driven by favorable third-quarter performance. Despite short-term market pressures, Kennametal remains confident in long-term industrial production trends and is committed to executing strategies to drive growth and margin improvements.

In summary, Kennametal’s earnings call presented a balanced view of achievements and challenges. While the company demonstrated strong execution in restructuring and growth areas, it continues to face significant market and tariff-related challenges. The forward-looking guidance reflects a cautious optimism, with strategic initiatives aimed at overcoming short-term pressures and achieving long-term growth.