KAI Q2 2024 sees EBITDA margin slipping below 22% in 2H
- Strong aftermarket performance: Executives noted that organic orders were up about 5% and parts revenue was consistently the stronger component versus capital projects, suggesting robust underlying demand in the aftermarket business.
- Stable market share in key geographies: Kadant maintains a high market share (approximately 70–75%) in China, with a consistent cycle of mill replacements that supports recurring revenue.
- Resilient North American operations: All segments in North America have performed well—driving record performance in parts and supporting overall revenue stability despite global headwinds.
- Weaker organic bookings and timing uncertainties: Q&A discussions indicated that with roughly $25 million in acquisition bookings each quarter, organic bookings are expected to be down about 4-5% for the full year, suggesting potential revenue weakness if capital orders continue to be delayed or shifted into next year.
- Margin compression in the back half: Executives noted that lower gross margins expected in the second half—coupled with higher interest expense and acquisition-related costs—could push the adjusted EBITDA margin below the record 22%, which would adversely impact profitability.
- Structural headwinds in China: Comments highlighted persistent structural issues in China, including weak personal consumption and overcapacity due to prolonged lockdowns, which may dampen future revenue growth and market dynamics in that key region.
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Organic Outlook
Q: What is Q3 organic performance?
A: Management expects modest organic declines, with full‑year organic down about 4% due mainly to FX and acquisition impacts. -
Margin Outlook
Q: Can EBITDA margin stay above 22%?
A: Management anticipates lower gross margins in the second half, which will likely pull EBITDA margins below 22% by year-end. -
Bookings Impact
Q: Are acquisition bookings affecting organic results?
A: With acquisition-related bookings of roughly $25 million per quarter, the guidance implies nearly a 5% organic decline if current activity remains flat. -
Capital vs. Parts
Q: How did capital performance compare to parts?
A: Management noted that robust aftermarket parts outpaced slower, timing-sensitive capital projects, shaping a mixed revenue mix. -
Geographic Trends
Q: Which region led performance this quarter?
A: North America was the clear leader, while China contended with structural issues that tempered its growth. -
China Market Share
Q: What is China’s market share level?
A: Management confirmed that in China the market share remains strong at about 70–75%, reflecting traditional cyclic buying patterns.
Research analysts covering KADANT.