Christian Zylstra

Christian Zylstra asked about the expected incremental margins if both volume and price continue to increase for several quarters, and how Kennametal's list prices in Metal Cutting adjust to both rising and falling tungsten prices.

Answer

CEO Sanjay Chowbey stated that Metal Cutting typically has higher incremental leverage than Infrastructure, with a net-net average in the mid-forties for volume. He clarified that the primary intent of pricing actions is to offset costs. Regarding tungsten price adjustments, he noted a general three-month lag for Metal Cutting list price changes and affirmed that if tungsten prices fall, the company's goal is to remain competitive, which would involve assessing and adjusting prices accordingly.

Christian Zylstra asked about Kennametal's incremental margins, specifically how they should be viewed relative to historical levels if the company experiences sustained volume and price growth over several quarters, and if there's a target range. He also inquired about the speed at which Metal Cutting list prices adjust to rising tungsten costs and, conversely, how quickly surcharges and list prices would be reduced if tungsten prices were to fall.

Answer

CEO Sanjay Chowbey stated that the company has previously guided to mid-forties as the average incremental margin through the cycle, noting that Metal Cutting typically has higher incremental leverage than Infrastructure. He clarified that this mid-forties number applies to volume, with price adjustments primarily aimed at offsetting costs. Sanjay Chowbey explained that there is generally about a three-month lag for list price changes in Metal Cutting. Regarding falling tungsten prices, he said the goal is to remain competitive in the market, and the company would assess the situation and extent of the decline when it occurs.