Executive Summary

Q2 FY25 revenue was $0.482B and diluted EPS was $0.23 (adjusted EPS $0.25), with sales at the low end of expectations amid worsening EMEA demand; adjusted operating margin was 6.9% vs 6.0% a year ago, and adjusted EBITDA margin rose to 13.9% from 12.4% YoY .
Management cut FY25 guidance: sales to $1.95–$2.00B (from $2.0–$2.1B) and adjusted EPS to $1.05–$1.30 (from $1.30–$1.70), citing weaker EMEA and a stronger USD; capex trimmed to ~$100M (from ~$110M) .
Cash generation remained solid: YTD CFO $100.9M and FOCF $57.3M; $31M returned to shareholders in Q2 ($15M buybacks, $16M dividends) .
Structural cost-down remains a central catalyst: additional actions announced Jan 14 expected to yield ~$15M annualized savings by FY25 year-end; total program pacing to ~$65M of the $100M multi-year target by FY25 year-end .

What Went Well and What Went Wrong

What Went Well
- Adjusted EBITDA margin expanded YoY to 13.9% (vs 12.4%) on lower raw materials, pricing, restructuring savings (~$6M), and one-offs in Infrastructure (insurance recovery and production credit) .
- Aerospace & Defense strength: company-level A&D grew 14% YoY; segment commentary highlighted continued execution and easing supply chain challenges .
- Cash discipline: YTD CFO $101M (vs $88M), FOCF $57M (vs $36M), with inventory/work-capital actions underway; primary working capital was 31.3% and targeted to ~30% by FY-end .
- Quote: “This quarter we once again generated strong cash flow from operations” — CEO Sanjay Chowbey .
What Went Wrong
- Demand softness: Consolidated organic sales -6% with EMEA weakness driving declines in Transportation (-9%) and General Engineering (-4%); US IPI stagnation also pressured volumes .
- Metal Cutting underperformed: sales -4% (organic -7%); adjusted operating margin fell to 6.0% (from 8.4% YoY) on lower volume and inflation .
- Guidance cut: FY25 sales, EPS, and capex all lowered; FX headwinds ~ $40M at guidance midpoint; higher ETR also a drag .

Financial Results

Headline results by quarter

Metric	Q4 FY2024	Q1 FY2025	Q2 FY2025
Sales ($USD Millions)	$543.3	$481.9	$482.1
Diluted EPS ($)	$0.47	$0.28	$0.23
Adjusted EPS ($)	$0.49	$0.29	$0.25
Operating Income ($USD Millions)	$61.4	$36.0	$31.7
Operating Margin (%)	11.3%	7.5%	6.6%
Adjusted Operating Margin (%)	11.5%	7.6%	6.9%

YoY comparison for Q2

Metric	Q2 FY2024	Q2 FY2025
Sales ($USD Millions)	$495.3	$482.1
Diluted EPS ($)	$0.29	$0.23
Adjusted EPS ($)	$0.30	$0.25
Operating Income ($USD Millions)	$28.5	$31.7
Operating Margin (%)	5.7%	6.6%
Adjusted Operating Margin (%)	6.0%	6.9%
Adjusted EBITDA Margin (%)	12.4%	13.9%

Segment performance (Q2 YoY)

Segment	Sales Q2 FY2024 ($MM)	Sales Q2 FY2025 ($MM)	Op Inc Q2 FY2024 ($MM)	Op Inc Q2 FY2025 ($MM)	Op Margin Q2 FY2024	Op Margin Q2 FY2025	Adj Op Inc Q2 FY2024 ($MM)	Adj Op Inc Q2 FY2025 ($MM)	Adj Margin Q2 FY2024	Adj Margin Q2 FY2025
Metal Cutting	$311.4	$297.8	$25.5	$16.6	8.2%	5.6%	$26.2	$17.8	8.4%	6.0%
Infrastructure	$183.9	$184.3	$3.2	$15.6	1.8%	8.5%	$3.6	$15.8	1.9%	8.6%

KPI trends (YTD through Q2)

KPI	YTD FY2024	YTD FY2025
Cash from Operations ($USD Millions)	$88.3	$100.9
Free Operating Cash Flow ($USD Millions)	$36.0	$57.3
Purchases of PP&E ($USD Millions)	$57.5	$44.0
Primary Working Capital (% of sales)	—	31.3%
Dividend per share (declared)	—	$0.20
Share repurchases (Q2)	—	$15M; 525k shares
Interest expense (Q2)	—	$6.18M

Notes: Q2 sales declined 3% YoY with organic -6% offset by +3% business days; FX was flat in the quarter . Adjusted tax rate rose to 26.9% (from an 8.0% benefit last year) due largely to prior-year Swiss tax benefits not repeating and mix effects .

Guidance Changes

Metric	Period	Previous Guidance (Q1 FY25)	Current Guidance (Q2 FY25)	Change
Sales	FY2025	$2.0–$2.1B	$1.95–$2.00B	Lowered
Adjusted EPS	FY2025	$1.30–$1.70	$1.05–$1.30	Lowered
Adjusted ETR	FY2025	~27.5%	~27.5%	Maintained
Interest expense	FY2025	~$27M	~$27M	Maintained
FOCF vs adj net income	FY2025	>125%	>125%	Maintained
Primary working capital	FY2025	~30% of sales	~30% of sales	Maintained
Capital spending	FY2025	~$110M	~$100M	Lowered
Q3 Sales	Q3 FY2025	—	$480–$500M; ~3% YoY FX headwind	New
Q3 Adjusted EPS	Q3 FY2025	—	$0.20–$0.30	New

Management attributes the cut to EMEA weakness, US IPI stagnation, and stronger USD (FX sales headwind ~ $40M at the midpoint) .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q-2: Q4 FY24; Q-1: Q1 FY25)	Current Period (Q2 FY25)	Trend
EMEA macro/Transportation	FY24 Q4 noted FX headwinds and market softness; FY25 Q1 cited softer markets and lower volumes in Metal Cutting	EMEA weakened further; Transportation -9%, General Engineering -4% YoY; US IPI flat	Deteriorating
Cost actions/footprint	FY24 restructuring savings ~$7M in Q4; Investor Day $100M target reiterated; Q1 savings ~$5M	Jan 14 actions to close Greenfield (MA), consolidate Barcelona sites, and reduce professional workforce; ~$15M annualized savings; pacing ~$65M of $100M by FY25 YE	Accelerating
Aerospace & Defense	Solid performance; execution on initiatives (Q1)	Company A&D +14% YoY; segment A&D +7% in Metal Cutting; +35% in Infrastructure	Improving
Energy	Mixed rig counts but projects supportive (Q1)	Energy +1% YoY company-level; project-driven strength offset lower US land rigs	Stable/mixed
Earthworks/mining	Tornado impact in FY24; plant maintenance costs in Q1	Lower mining capex/investment (APAC, Americas); competitive pressure in US	Soft/competitive
FX headwinds	FY24 and FY25 outlooks flagged FX pressure	~2% FY25 sales headwind; USD strength intensifying; ~-$40M sales impact at midpoint	Worsening
Tariffs/trade	Not emphasized previously	Management monitoring evolving tariff regimes; ~10% China exposure; leveraging global footprint to mitigate	Watch item
Working capital/inventory	FY24 improved inventory; Q1 CFO up with WC actions	Primary working capital 31.3%; plans to constrain production to right-size inventory	Active management
Continuous improvement/technology	Value Creation Pillars and kaizen; plant process improvements (Q1)	Kaizen events and cultural emphasis on CI reiterated	Ongoing execution

Management Commentary

“However, conditions in a number of our end markets, primarily in EMEA, continued to weaken resulting in sales at the lower end of our expectations.” — CEO Sanjay Chowbey .
“By the end of this fiscal year, these actions, along with prior initiatives, will have us on pace to achieve approximately $65 million of the $100 million structural cost improvement program.” — CEO .
“Adjusted EBITDA margin was 13.9% compared to 12.4% in the prior year.” — CEO .
“We expect FY ’25 sales to be between $1.95 billion and $2 billion… the worsening market conditions in EMEA and… stagnation of industrial production in the U.S., coupled with the strengthening U.S. dollar, are the key factors behind the updated outlook.” — CFO .
Infrastructure leadership change (Jan 15): “Faisal Hamadi… will be a critical partner… strategic thinking, customer focus… to help us grow and improve our Infrastructure business.” — CEO .

Q&A Highlights

Order trends: Sequential improvement in late January across end markets and regions, including EMEA, but overall FY25 outlook reduced given softer macro vs earlier assumptions .
Margin path and footprint: Management progressing toward $65M run-rate savings by FY25 YE, balancing footprint consolidation pace with service levels; additional actions possible as markets evolve .
Q4 profitability step-up implied: Driven largely by incremental restructuring savings timing; seasonally strongest quarter, particularly for Infrastructure .
Tariff exposure: ~10% China revenue; ability to flex global footprint; evaluating exclusions and competitive dynamics as policies evolve .
Inventory: Production to be constrained to reduce inventories; customer/distributor inventories viewed as generally aligned with demand .

Estimates Context

S&P Global consensus for Q2 FY25 EPS and revenue was unavailable at the time of analysis due to a data access limit. As a result, we cannot confirm a beat/miss versus Wall Street consensus at this time (Values retrieved from S&P Global).*

Key Takeaways for Investors

FY25 guidance reset reflects real macro pressures (EMEA, USD strength) and higher tax rate headwinds; near-term estimate risk remains to volumes, particularly in Transportation and General Engineering .
Cost actions are a tangible offset: additional ~$15M annualized savings targeted by FY25 YE, with total structural savings pacing to ~$65M of the $100M program — the key lever for margin resilience into H2 .
Mix tailwinds in Aerospace & Defense (company +14% YoY; Infra +35%) provide relative support; watch for OEM production cadence and defense order timing .
Infrastructure margins inflected meaningfully YoY (adj 8.6% vs 1.9%) aided by price/raw timing, IRA credit (~~$2M), and insurance recoveries (~~$2M); sustainability into H2 depends on volumes and competitive dynamics in earthworks .
Working capital and cash generation remain focal points; management targeting ~30% primary WC and >125% FOCF/adjusted NI for FY25, supporting buybacks/dividends despite softer sales .
Q3 setup: sales $480–$500M and adjusted EPS $0.20–$0.30; FX a ~3% YoY headwind; improvement vs Q2 likely modest until restructuring benefits ramp into Q4 .
Monitoring items: evolving tariff regime, FX volatility, EMEA end-market stabilization, and execution on plant consolidation and portfolio optimization .

Appendix: Additional Details

Consolidated Q2 drivers: Organic sales -6% (business days +3%); adjusted ETR 26.9% vs 8.0% prior year; YTD CFO/FOCF improved on WC and capex .
Segment drivers (Q2):
- Metal Cutting: volume and inflation headwinds; pricing/raw material benefits and ~$4M restructuring savings partially offset; adj margin 6.0% .
- Infrastructure: price/raw timing, ~$2M IRA production credit, ~$2M insurance, ~$2M restructuring savings; adj margin 8.6% .
Dividend: $0.20/share declared, payable Feb 25, 2025; buybacks of 525k shares ($15M) in Q2 .

KENNAMETAL INC (KMT)·Q2 2025 Earnings Summary