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KI

KADANT INC (KAI)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered revenue of $258.0M (+8% YoY), gross margin of 43.4% (+70 bps YoY), adjusted EBITDA of $52.4M (+8% YoY), and adjusted EPS of $2.25 (-7% YoY) as mix shifted further to aftermarket parts (67% of revenue) .
  • Adjusted EPS exceeded the high end of company guidance by $0.15, driven primarily by lower-than-anticipated SG&A, while GAAP EPS was $2.04 .
  • Segment performance was mixed: Industrial Processing strong (+17% revenue), Flow Control solid (+8%), and Material Handling down (-4%) versus a record Q4 2023 comp; bookings rose 10% to $240.6M .
  • 2025 outlook calls for flat-to-modest growth with FX headwinds (revenue -$23M; EPS -$0.32), a weaker Q1, and a materially stronger 2H on expected capital equipment recovery; new tariffs introduce uncertainty but are largely mitigatable in management’s plans .
  • Catalysts: 2H capital order acceleration (wood processing leading), improving backlog and parts mix supporting margins, debt paydown lowering interest expense (~30% reduction in 2025), and a dividend increase to $0.34 announced post-quarter .

What Went Well and What Went Wrong

What Went Well

  • Adjusted EPS beat company guidance by $0.15 due to disciplined cost control: “Fourth quarter ’24 adjusted EPS of $2.25 exceeded the high end of our guidance range by $0.15, principally due to lower-than-anticipated SG&A expenses.”
  • Aftermarket parts strength drove higher gross margins: parts rose to 67% of revenue in Q4; gross margin of 43.4% included a 40 bps acquisition amortization drag, implying 110 bps underlying expansion YoY .
  • Management emphasized execution and a record-setting year: “Excellent execution by our businesses led to solid margin performance and strong cash flows.”

What Went Wrong

  • EPS contracted YoY as higher interest expense and increased SG&A (acquisitions) offset margin gains; GAAP EPS fell to $2.04 (-12% YoY) and adjusted EPS to $2.25 (-7% YoY) .
  • Material Handling revenue (-4% YoY) and segment margin (-130 bps YoY) were pressured by lower capital shipments and operating leverage versus a prior-year large project comp .
  • Macro and tariffs added uncertainty, with FX expected to reduce FY2025 revenue by ~$23M and adjusted EPS by $0.32; new tariffs on China (+10%) estimated to add ~$1.6M in material cost with ~75% mitigatable; steel/aluminum tariffs still being assessed .

Financial Results

Quarterly Trend (oldest → newest)

MetricQ2 2024Q3 2024Q4 2024
Revenue ($USD Millions)$274.765 $271.614 $258.030
GAAP EPS ($)$2.66 $2.68 $2.04
Adjusted EPS ($)$2.81 $2.84 $2.25
Gross Margin (%)44.4% 44.7% 43.4%
Adjusted EBITDA ($USD Millions)$61.795 $63.261 $52.449
Adjusted EBITDA Margin (%)22.5% 23.3% 20.3%
Operating Cash Flow ($USD Millions)$28.066 $52.478 $51.890
Free Cash Flow ($USD Millions)$23.092 $48.293 $46.315

Q4 Year-over-Year vs Estimates

MetricQ4 2023Q4 2024YoY ChangeConsensus (SPGI)Beat/Miss
Revenue ($USD Millions)$238.679 $258.030 +8.1%N/AN/A
GAAP EPS ($)$2.33 $2.04 -12.4%N/AN/A
Adjusted EPS ($)$2.41 $2.25 -6.6%N/AN/A
Gross Margin (%)42.7% 43.4% +70 bpsN/AN/A
Adjusted EBITDA ($USD Millions)$48.498 $52.449 +8.1%N/AN/A
Bookings ($USD Millions)$218.019 $240.644 +10.4%N/AN/A

Note: SPGI Wall Street consensus was unavailable at time of analysis; comparisons to estimates could not be provided.

Segment Revenue and Margins (Q4 2024 vs Q4 2023)

SegmentQ4 2023 Revenue ($USD M)Q4 2024 Revenue ($USD M)YoY ChangeQ4 2023 GM (%)Q4 2024 GM (%)
Flow Control$87.403 $94.684 +8.3%50.4% 51.4%
Industrial Processing$86.974 $101.428 +16.6%41.2% 39.9%
Material Handling$64.302 $61.918 -3.7%34.4% 36.7%
Consolidated$238.679 $258.030 +8.1%42.7% 43.4%

KPIs

KPIQ4 2024Source
Parts & Consumables Mix (Revenue)67%
Bookings ($USD Millions)$240.644
Backlog (Total; Capital %)$257M; 57% capital
Net Debt ($USD Millions, YE)$192.6
Operating Cash Flow ($USD Millions)$51.890
Free Cash Flow ($USD Millions)$46.315

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($USD Billions)FY2025None$1.040–$1.065 New
GAAP EPS ($)FY2025None$9.63–$9.98 New
Adjusted EPS ($)FY2025None$9.70–$10.05 New
FX ImpactFY2025None-$23M revenue; -$0.32 adj EPS New
Revenue ($USD Millions)Q1 2025None$235–$242 New
GAAP EPS ($)Q1 2025None$1.81–$2.01 New
Adjusted EPS ($)Q1 2025None$1.85–$2.05 New
Gross Margin (%)FY2025None44.5%–45.0% New
SG&A (% of Revenue)FY2025None26.5%–27.0% New
R&D (% of Revenue)FY2025None~1.5% New
Net Interest Expense ($USD M)FY2025None$13–$13.5 (≈30% lower) New
Tax Rate (%)FY2025None~27% New
D&A ($USD M)FY2025None$49–$50 New
CapEx ($USD M)FY2025None$24–$26 New
Revenue ($USD Millions)Q4 2024$252–$260 Actual $258.030 Exceeded
GAAP EPS ($)Q4 2024$1.81–$2.01 Actual $2.04 Exceeded
Adjusted EPS ($)Q4 2024$1.90–$2.10 Actual $2.25 Exceeded

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024)Previous Mentions (Q3 2024)Current Period (Q4 2024)Trend
Capital equipment demand“Record aftermarket demand combined with strong capital business” Capital momentum expected into Q4; narrowed FY rev guidance and raised adj EPS Expect materially stronger 2H 2025; capital bookings projected +10–20% from low $70M quarterly run rate Improving in 2H 2025
Parts & consumables mix63% 65% 67%; driving margin expansion Increasing structurally
Regional trends—Robust Americas offset Europe/Asia softness North America strong; Europe/Asia weak; FX headwinds Persistent softness ex-US
Wood products/housing——OSB visibility; Dec starts ~1.5M; CBO 10-yr 1.6M; wood processing to lead capital rebound Improving outlook
Tariffs/macro—Headwinds in Europe/Asia China +10% tariff adds ~$1.6M cost (≈75% mitigatable); Canada/Mexico delayed 30 days; steel/aluminum assessment; guidance excludes tariff impacts Rising uncertainty
80/20 program——Contribution to margin trajectory; ongoing rollouts in NA/EU Ongoing execution

Management Commentary

  • “The fourth quarter was a solid finish to a record-setting year… solid margin performance and strong cash flows.” — Jeffrey L. Powell, President & CEO
  • “Fourth quarter ’24 adjusted EPS of $2.25 exceeded the high end of our guidance range by $0.15, principally due to lower-than-anticipated SG&A expenses.” — Michael McKenney, EVP & CFO
  • “We expect an increase in demand for our capital equipment products benefiting our revenue in the second half of 2025.” — Jeffrey L. Powell
  • “We anticipate gross margins for ’25 will be approximately 44.5% to 45%… and a 30% decrease in interest expense.” — Michael McKenney

Q&A Highlights

  • Capital acceleration: Management targets a 10–20% uplift in capital orders off a low-$70M quarterly base; total backlog $257M with 57% capital .
  • Mix and margins: Parts strength should support near-term gross margins; larger capital projects may carry more competitive pricing, adding margin variability .
  • Wood processing visibility: OSB and stock prep show improving activity; housing starts and interest rates are key drivers of wood/material handling demand .
  • Tariffs risk management: China 10% tariff estimated ~$1.6M incremental cost (~75% mitigatable); Canada/Mexico delayed; steel/aluminum under review; guidance excludes tariff effects .
  • M&A pipeline: Active pipeline with disciplined pricing; more busted deals in 2024 due to pricing/performance; activity expected strong in 2025 .

Estimates Context

  • SPGI Wall Street consensus for Q4 2024 revenue and EPS was unavailable at time of analysis due to data access limits; as a result, quantitative beat/miss vs consensus could not be assessed. Management indicated adjusted EPS beat vs company guidance by $0.15, which likely supports near-term estimate revisions .
  • Where estimates are unavailable, rely on company-issued guidance and actuals for directional context .

Key Takeaways for Investors

  • Aftermarket mix and internal initiatives are expanding margins despite higher interest expense and acquisition-related SG&A; expect consolidated gross margin ~44.5–45% in 2025 .
  • Capital equipment is poised to recover in 2H 2025, led by wood processing; backlog composition and improving bookings support second-half revenue/EPS inflection .
  • FX and tariffs are headwinds, but mitigation actions (supplier shifts, cost pass-through) and guidance conservatism reduce downside risks; monitor tariff developments for estimate revisions .
  • Debt paydown and cash generation remain strong; 2025 net interest expense expected down ~30% to $13–$13.5M, supporting EPS resilience even with flat revenue .
  • Segment strategy: Favor Flow Control and Industrial Processing near term given higher parts content; Material Handling should benefit as infrastructure/recycling projects ramp later in 2025 .
  • Q1 2025 is guided as the weakest quarter; positioning around expected 2H strength (capital project timing) is a key trading consideration .
  • Dividend increase to $0.34 demonstrates confidence in cash flows and capital returns post-year end .