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KI

KADANT INC (KAI)·Q2 2026 Earnings Summary

Executive Summary

  • Kadant delivered a resilient quarter driven by record aftermarket parts revenue and strong gross margin, while capital equipment shipments remained soft; Q2 revenue $255.27M (-7% YoY), adjusted EPS $2.31 (-18% YoY), adjusted EBITDA margin 20.5% .
  • Results materially beat Wall Street consensus: revenue beat by ~$9.3M and adjusted EPS beat by ~$0.37 in Q2; Q3 also beat estimates on both revenue and EPS, supported by aftermarket mix .
  • Guidance: Maintained FY25 adjusted EPS ($9.05–$9.25) at Q2 and raised FY25 revenue at Q3 to $1.036–$1.046B; GAAP EPS revised lower at Q3 due to acquisition costs .
  • Catalysts: Tariff clarity and timing of large fiber processing projects; management expects stronger bookings in 2H25, with many capital projects recognized into 2026; backlog ended Q2 at $299M (+16% vs end of 2024) .

Note: The company has not reported Q2 2026. This recap synthesizes the latest available primary sources (Q1–Q3 2025) and consensus estimates; all estimate comparisons use S&P Global consensus.

What Went Well and What Went Wrong

What Went Well

  • Strong aftermarket parts mix drove gross margin expansion to 45.9% in Q2 (up 150 bps YoY) and supported beats versus guidance; Q3 gross margin also improved to 45.2% .
  • New orders improved: Q2 bookings +7% to $269.4M with healthy capital project activity; management expects stronger bookings in the back half of 2025 .
  • Cash generation robust: Q2 operating cash flow $40.5M (+44% YoY), free cash flow $36.5M (+58% YoY); Q3 OCF $47.3M and FCF $44.1M .
  • Quote: “We had strong cash flow and a solid improvement in our capital equipment bookings in the second quarter.” — CEO Jeffrey L. Powell .

What Went Wrong

  • Capital shipments were weak, leading to Q2 revenue -7% YoY and adjusted EBITDA -15% YoY; Industrial Processing revenue down 16% YoY in Q2 .
  • SG&A as a % of revenue increased (Q2: 29.0%; Q3: 27.9%) amid FX and acquisition-related costs; management highlighted tariff-driven cost pressures .
  • Tariff uncertainty delayed capital project timing; many projects expected to book in 2H25 and revenue recognized across late 2025 and into 2026 .

Financial Results

Core Financials vs Prior Periods and Estimates

MetricQ1 2025Q2 2025Q3 2025
Revenue ($USD)$239.21M $255.27M $271.57M
Revenue vs S&P Global Consensus ($USD)$239.21M vs $239.41M* (in line) $255.27M vs $245.99M* (beat) $271.57M vs $260.17M* (beat)
Gross Margin (%)46.1% 45.9% 45.2%
Adjusted EBITDA ($USD)$47.92M $52.38M $58.02M
Adjusted EBITDA Margin (%)20.0% 20.5% 21.4%
GAAP Diluted EPS ($)$2.04 $2.22 $2.35
Adjusted EPS ($)$2.10 $2.31 $2.59
Adjusted EPS vs S&P Global Consensus ($)$2.10 vs $1.965* (beat) $2.31 vs $1.943* (beat) $2.59 vs $2.163* (beat)
Operating Cash Flow ($USD)$22.84M $40.48M $47.25M
Free Cash Flow ($USD)$18.99M $36.51M $44.06M

Values with * are retrieved from S&P Global.

Segment Revenue and Mix

SegmentQ2 2025 Revenue ($USD)Q2 2025 Parts %Q3 2025 Revenue ($USD)Q3 2025 Parts %
Flow Control$95.95M 75% $94.84M 74%
Industrial Processing$95.94M 76% $106.39M 76%
Material Handling$63.38M 58% $70.34M 52%
Consolidated$255.27M 71% $271.57M 69%

KPIs

KPIQ1 2025Q2 2025Q3 2025
Bookings ($USD)$256.22M $269.38M $238.36M
Ending Backlog ($USD)—$299M $273M
SG&A (% of Revenue)29.8% ($71.22M/$239.21M) 29.0% ($73.94M/$255.27M) 27.9% ($75.84M/$271.57M)
Net Debt ($USD)—$151.7M $131.1M

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY 2025$1.040–$1.065B (prior to Q1) $1.020–$1.040B (Q1 update) Lowered
GAAP EPSFY 2025$9.63–$9.98 (prior to Q1) $8.97–$9.17 (Q1 update) Lowered
Adjusted EPSFY 2025$9.70–$10.05 (prior to Q1) $9.05–$9.25 (Q1 update) Lowered
RevenueFY 2025$1.020–$1.040B (Q2 maintained) $1.036–$1.046B (Q3 update) Raised
GAAP EPSFY 2025$8.89–$9.09 (Q2 revised) $8.52–$8.72 (Q3 revised) Lowered
Adjusted EPSFY 2025$9.05–$9.25 (Q2 maintained) $9.05–$9.25 (Q3 maintained) Maintained
RevenueQ3 2025$256–$263M (Q2 guide) ——
GAAP EPSQ3 2025$2.12–$2.22 (Q2 guide) ——
Adjusted EPSQ3 2025$2.13–$2.23 (Q2 guide) ——
RevenueQ4 2025—$270–$280M (Q3 guide) New
GAAP EPSQ4 2025—$1.91–$2.11 (Q3 guide) New
Adjusted EPSQ4 2025—$2.05–$2.25 (Q3 guide) New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2: Q1 2025)Previous Mentions (Q-1: Q2 2025)Current Period (Q3 2025)Trend
Tariffs/MacroEstimated $5–$6M tariff cost ($0.32–$0.39) for 2025 Steel and China tariff impacts; mitigation via suppliers and cost-sharing Continued uncertainty; FX and acquisition costs raising SG&A; tariff impact baked into guidance Ongoing headwind; partial mitigation
Aftermarket Parts StrengthRecord demand; margin support Record aftermarket revenue drove beats vs guidance Record aftermarket revenue again; 69% mix Sustained strength
Capital Equipment TimingCustomers delaying large projects into later 2025/2026 Expect stronger bookings in 2H25; timing uncertain Sluggish demand, improving activity early Q4; fiber processing pipeline Improving momentum, still variable
Regional TrendsFX headwinds; organic down 5% (Q1) North America strong; Europe/China softer in Flow Control Europe stronger in Flow Control; North America strong for aggregates Mixed by segment
Gross Margin/Costs46.1% GM; strong execution 45.9% GM; segment mix supported margin; SG&A up on FX/acq 45.2% GM; SG&A 27.9% Stable high-40s; SG&A elevated
Acquisitions—Acquired Babini post-Q2; initially dilutive Closed Clyde Industries; FY revenue guide raised; EPS maintained due to costs Portfolio expansion; near-term EPS drag

Management Commentary

  • “Our strong bookings… demonstrate our customers' preference for Kadant equipment and technologies to help drive sustainable value” — CEO Jeffrey L. Powell (Q2 release) .
  • “Adjusted EPS exceeded the high end of our guidance range by $0.31 due to higher revenue and better gross margin than forecast” — CFO Michael McKenney (Q2 call) .
  • “We anticipate healthy demand for aftermarket parts and improving order activity… we now expect revenue of $1.036 to $1.046 billion in 2025… maintaining adjusted EPS” — CEO (Q3 release) .
  • “Capital bookings were below expectations… most pending orders moving into the fourth quarter or early 2026… negatively impacted 2025 guidance timing” — CFO (Q3 call) .
  • “Record aftermarket parts revenue… solid margin performance and healthy cash flow” — Q3 business review .

Q&A Highlights

  • Parts mix sustainability: Management attributes strength to aging installed base; expects modest seasonal moderation but no significant drop-off with new equipment; aftermarket remains elevated .
  • Tariff impact sizing: FY25 tariff headwind unchanged at $5–$6M ($0.32–$0.39); steel and China tariffs offset by mitigation actions .
  • Bookings/backlog: Q2 backlog $299M, capital ~60% of Q3 backlog ~$273M; many fiber processing projects in late stages with administrative timing constraints .
  • Acquisition contribution: Q4 combined Clyde+Babbini revenue ~$23–$25M; near-term adjusted EPS dilutive ~$0.06 in Q4 due to interest costs .
  • Margins outlook: Parts mix supports high-40s GM in 2025; back-half GM ~44–44.5% as capital mix increases .

Estimates Context

  • Q2 2025 beats: Revenue $255.27M vs $245.99M*; adjusted EPS $2.31 vs $1.94* — driven by aftermarket mix and higher gross margin .
  • Sequential improvement: Q3 revenue $271.57M vs $260.17M*; adjusted EPS $2.59 vs $2.16*; parts mix 69% .
  • Implication: Sell-side models likely adjust for sustained aftermarket strength, elevated SG&A, and acquisition-related costs; FY revenue raised while adjusted EPS maintained due to cost drag .

Values with * are retrieved from S&P Global.

Key Takeaways for Investors

  • Aftermarket parts strength is the core earnings driver; sustained high mix supports margins and beats against consensus .
  • Capital project timing is the swing factor; fiber processing pipeline is robust, but tariff and administrative timing push revenue/earnings into 2026 .
  • Guidance signals confidence: FY25 revenue raised post-acquisitions while adjusted EPS maintained, indicating cost discipline amid integration .
  • Cash generation and deleveraging remain strong; net debt fell to ~$131M by Q3 despite acquisition activity; leverage ~0.94 .
  • Near-term trading: Positive setup around bookings/releases for fiber processing; watch GM vs mix and SG&A cadence (acquisition costs and FX) .
  • Medium-term thesis: Expanded portfolio (Clyde, Babini) enhances aftermarket reach; backlog and parts mix provide resilience through macro/tariff uncertainty .
  • Risk monitors: Tariff policy shifts (steel/China), Europe/China demand, FX impacts on SG&A; model for 44–45% GM as capital mix rises .

Note on Q2 2026 availability: Kadant has not reported Q2 2026. This recap uses Q1–Q3 2025 primary source documents and S&P Global estimates for comparisons.