KAI Q1 2025 Aftermarket Parts Drive 69% of Revenue as Orders Defer
- Strong Order Funnel Despite Deferred Capital Projects: Management noted that although some capital equipment orders are being deferred due to tariff uncertainty, the overall project pipeline remains robust, indicating that healthy bookings may materialize in the back half of the year or early next year ( , ).
- Consistent Demand for Aftermarket Parts: The Q&A highlighted record levels in aftermarket parts bookings and consumable sales, driven by an aging installed base that increases maintenance requirements, supporting recurring revenue even in challenging capital markets ( ).
- Effective Tariff Mitigation and Supply Chain Adaptability: Executives discussed plans to offset tariff impacts through passing some costs to customers via surcharges and by quickly adjusting their supply chain, showcasing management’s ability to navigate geopolitical disruptions without sacrificing competitiveness ( , ).
- Deferred Capital Orders: Several questions highlighted that many projects are being delayed, with orders potentially shifting into 2026, which could depress current revenue recognition and signal weakening near‐term capital spending.
- Increased Material Costs from Tariffs: Executives detailed significant tariff impacts—especially on steel—leading to increased costs that are only partially mitigated, potentially pressuring margins and profitability.
- Macroeconomic and Trade Uncertainty: The Q&A repeatedly noted ongoing global trade uncertainty and economic slowdown, resulting in hesitancy among customers and uncertain project timing, which could further impede capital expenditures and revenue growth.
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Tariff Impact
Q: What is per-share tariff impact?
A: Management expects a $0.32–$0.39 per share increase in material costs due to tariffs—mainly driven by steel price hikes, with a direct cost estimated at $5–$6 million before mitigations. -
Order Deferrals
Q: Are orders shifting to next year?
A: Management observed that while order activity remains strong, some projects are being delayed—not canceled—with revenue potentially shifting into 2026 due to tariff uncertainties. -
Capital Mix
Q: What’s the parts versus capital mix?
A: They expect parts and consumables to represent about 69% of revenue for the year, even as capital project timing shifts, which is key for long-term maintenance business. -
Tariff Clarity
Q: Will clear tariffs revive projects?
A: Management noted that once tariff issues are clarified, deferred discretionary projects should resume since cancellations are rare, ensuring a recovery in capital activity. -
Consumables Mix
Q: What was last year’s consumables mix?
A: In the previous first quarter, the consumables portion was 74% in Flow Control, 69% in Industrial Processing, and 62% in Material Handling—averaging 69% overall. -
USMCA Protection
Q: Are Canada-made machines tariff-free?
A: Equipment manufactured in Canada qualifies under the USMCA, so there are currently no tariffs on those shipments to the U.S.. -
Steel Dynamics
Q: Is steel the major tariff issue?
A: Yes, steel is the largest input cost affected by tariffs, impacting costs both from imports and domestic sourcing, and remains the primary challenge despite some mitigation measures. -
Capital Orders Growth
Q: What growth in capital orders is needed?
A: Management indicated that a 15–20% increase in capital order flow is required in upcoming quarters to offset Q1 delays, though some revenue may shift to later periods. -
Tariff Neutrality
Q: Can tariffs become cost neutral?
A: Their goal is to mitigate tariff impacts through surcharges and supplier adjustments, aiming to achieve tariff neutrality by year-end even if it’s not immediate.
Research analysts covering KADANT.