Sign in
KI

KENNAMETAL INC (KMT)·Q1 2026 Earnings Summary

Executive Summary

  • KMT delivered Q1 FY26 revenue of $498M and adjusted EPS of $0.34, both above the company’s outlook and above S&P Global consensus (revenue beat by ~$20M; EPS beat by ~$0.10)* .
  • Management raised FY26 guidance: sales to $2.10–$2.17B (from $1.95–$2.05B) and adjusted EPS to $1.35–$1.65 (from $0.90–$1.30); FOCF target reduced to ~100% of adjusted net income (from ~120%) .
  • Profitability improved YoY on pricing/tariff surcharges and ~$8M restructuring savings; adjusted operating margin rose to 8.2% (vs. 7.6% LY) despite inflation and lapping a prior-year insurance benefit .
  • Key call highlight: tungsten prices at historical highs should create a favorable price-raw tailwind peaking in Q3 if prices stay elevated; Q2 guidance: sales $500–$520M and adjusted EPS $0.30–$0.40 .
  • Potential catalysts: FY26 guidance raise, tariff surcharge/pricing execution, and expanding power generation opportunity tied to AI data centers (new $250M TAM focus area) .

What Went Well and What Went Wrong

What Went Well

  • Organic growth returned for the first time in two years; Q1 organic sales +3% with volume above outlook across end markets, notably aerospace & defense and earthworks share gains .
  • Pricing and tariff surcharges plus ~$8M restructuring savings lifted adjusted margins; adjusted operating margin 8.2% vs. 7.6% YoY .
  • Strategic wins in power generation linked to AI data centers and utility-scale gas turbines; management sees a ~$250M TAM growing ~10% CAGR, with recent wins supporting metal cutting energy +12% .

What Went Wrong

  • Cash conversion was weak: CFO fell to $17M from $46M YoY and FOCF was -$5M (vs. +$21M LY) due to higher inventory from rising tungsten values and less-than-normal seasonal volume decline .
  • Metal Cutting margin contracted YoY (6.9% vs. 8.0%) on higher comp, tariffs, inflation and ~$3M restructuring charges, partially offset by pricing and ~$6M restructuring savings .
  • Transportation and Asia-Pac remained soft; transportation -1% and APAC -1% (constant FX) as EMEA weakness persisted .

Financial Results

Quarterly Performance (GAAP and Non-GAAP)

MetricQ1 FY25 (Sep 2024)Q4 FY25 (Jun 2025)Q1 FY26 (Sep 2025)
Revenue ($M)$481.9 $516.4 $498.0
Diluted EPS (GAAP)$0.28 $0.28 $0.30
Adjusted EPS$0.29 $0.34 $0.34
Operating Margin (GAAP)7.5% 6.1% 7.5%
Adjusted Operating Margin7.6% 7.4% 8.2%

Q1 FY26 vs S&P Global Consensus

MetricConsensusActualSurprise
Revenue ($M)$477.7*$498.0 +$20.3*
Adjusted EPS$0.235*$0.34 +$0.105*

*Values retrieved from S&P Global.

Segment Results (Q1 FY26 vs Q1 FY25)

SegmentSales Q1 FY25 ($M)Sales Q1 FY26 ($M)Op Inc Q1 FY25 ($M)Op Inc Q1 FY26 ($M)Op Margin Q1 FY25Op Margin Q1 FY26
Metal Cutting$296.9 $310.6 $23.8 $21.6 8.0% 6.9%
Infrastructure$185.0 $187.3 $12.7 $16.6 6.9% 8.9%
Adjusted MC Op Inc ($M)$24.5 $24.9 8.2% 8.0%
Adjusted INF Op Inc ($M)$12.7 $16.5 6.9% 8.8%

Selected KPIs

KPIQ1 FY25Q1 FY26
Cash from Operations ($M)$45.7 $17.5
Free Operating Cash Flow ($M)$21.1 -$5.5
Net Capex ($M)$24.7 $23.0
Dividends Paid ($M)$15.6 $15.1
Share Repurchases ($M)$15.0 $10.0
Primary Working Capital (% sales)—32%

Guidance Changes

MetricPeriodPrevious Guidance (8/6/25)Current Guidance (11/5/25)Change
SalesFY26$1.95–$2.05B $2.10–$2.17B Raised
Adjusted EPSFY26$0.90–$1.30 $1.35–$1.65 Raised
FOCF (% of adj NI)FY26~120% ~100% Lowered
Capital SpendingFY26~$90M ~$90M Maintained
SalesQ2 FY26—$500–$520M New
Adjusted EPSQ2 FY26—$0.30–$0.40 New
Dividend per ShareQuarterly$0.20 (Q4 FY25) $0.20 (declared for Nov 24) Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 FY25 and Q4 FY25)Current Period (Q1 FY26)Trend
Tariffs & SurchargesIntent to mitigate tariff uncertainty; noted ~$4M tariff headwind in Q4 and net IRA credit/tornado benefits Surcharges/pricing offset tariffs; FX +2% tailwind; tax rate benefit; updated FY26 outlook embeds tariff surcharges Improving pricing power; policy dynamic persists
Tungsten/raw materialsLower raw material costs aided Q3; Q4 noted higher raw material costs Tungsten at historical highs; pricing actions taken; strongest EPS expected Q3 if prices hold; neutrality by Q4 Favorable price-cost near term
Restructuring savings~$6M incremental in Q3; program enlarged; ~$35M annualized targeted ~$8M savings in Q1; on track for $35M FY26 Executing to plan
Power generation/AI data centersStrategy and growth initiatives emphasized; wind position strong Emerging opportunity; $250M TAM focus; wins in backup generators/utility-scale turbines Expanding focus
End-market demandQ3: EMEA/Amers weak; Q4 sales -5% A&D +20% cc; earthworks +5%; general engineering flat; transportation -1%; Americas +7% cc Tentative stabilization
Cash flow/working capitalFY25 FOCF $121M; PWK ~32% target by year-end CFO $17M; FOCF -$5M; PWK 32% on higher tungsten/inventory Near-term pressure

Management Commentary

  • “Our first quarter started off strong with share gains and modest end market improvements… resulting in sales and adjusted EPS that exceeded the upper end of our outlook.” – Sanjay Chowbey, CEO .
  • “Adjusted EBITDA and operating margins were 15.3% and 8.2%… driven by price and tariff surcharges and incremental year-over-year restructuring savings of $8 million.” – Patrick Watson, CFO .
  • “We remain confident in our ability to price to offset the rising tungsten costs.” – CEO .
  • “If tungsten prices were to stick around where they are currently, we probably have our strongest EPS quarter in Q3… Q4 basically price raw neutrality.” – CFO .
  • “We secured a key win in metal cutting connected to the backup generators that are providing energy security to [AI] data centers.” – CEO .

Q&A Highlights

  • End-market uplift and regional mix: Management cited A&D build rates, transportation improvement in the Americas, and earthworks share gains; energy outlook benefited from APT-related price increases and surcharges while oil & gas stable .
  • Tungsten pass-through and elasticity: Teams confident customers will accept pricing given performance; limited substitution risk despite higher tungsten costs .
  • Price/cost timing: Modest tailwind in Q1, ramping in Q2, strongest in Q3; neutrality by Q4 assuming stable tungsten prices .
  • Restructuring cadence: ~$35M FY26 savings on track; benefits ratable through the year with slight Q4 lap .
  • Power-gen TAM linked to AI data centers: ~$250M TAM focus area carved out from prior energy/transportation; market growing ~10% with recent wins contributing to Metal Cutting energy +12% .

Estimates Context

  • Q1 FY26 results vs. S&P Global consensus: Revenue $498.0M vs. $477.7M*; adjusted EPS $0.34 vs. $0.235*; both above consensus. Forward Q2 FY26 guidance brackets consensus (sales $500–$520M vs. $513.4M*; EPS $0.30–$0.40 vs. $0.347*). Values retrieved from S&P Global.
  • Estimate revisions likely: Upward adjustments to FY26 revenue/EPS models are likely given the guidance raise and anticipated Q3 price/cost tailwind; some FOCF expectations may be trimmed given inventory build and tungsten dynamics .

Key Takeaways for Investors

  • Clear beat and raise: Q1 revenue and adjusted EPS exceeded consensus and company outlook; FY26 sales and EPS guidance raised materially .
  • Pricing power intact amid tariffs/tungsten: Tariff surcharges and pricing offset costs; tungsten dynamics should favor margins, peaking in Q3 if prices hold .
  • Segment divergence: Infrastructure margins improved markedly (8.9% vs. 6.9% YoY) while Metal Cutting margin compressed on inflation and restructuring charges .
  • Cash flow watch item: Inventory build and tungsten values pressured Q1 FOCF to -$5M; management still targets FOC tethered FOCF to adj net income for FY26 .
  • Strategic optionality: Portfolio shaping and restructuring on track; emerging AI-data-center power generation demand offers incremental growth avenue .
  • Near-term trading setup: Q2 guide is in line with consensus, but management’s comments point to a stronger Q3 on price/cost; watch tungsten price trajectory and tariff policy for surprise risk .
  • Medium-term thesis: Cost actions (+$35M FY26) and pricing discipline support margin recovery; above-market share gains in A&D and earthworks underpin top-line resilience .
Notes:
* S&P Global consensus and actuals: Revenue and EPS consensus figures shown with an asterisk are sourced from S&P Global (GetEstimates). Values retrieved from S&P Global.

Citations:

  • Q1 FY26 8-K and press release details:
  • Q4 FY25 prior quarter:
  • Q3 FY25 prior trend:
  • Earnings call transcript (pricing/tariffs/tungsten/guidance themes and quotes):