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KENNAMETAL INC (KMT)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 FY2025 sales were $486.4M, down 6% YoY, but adjusted EPS was $0.47 vs $0.30 YoY, aided by an approximate $10M advanced manufacturing production credit (IRA) flowing largely to the Infrastructure segment; reported EPS was $0.41 .
  • Management raised FY2025 adjusted EPS guidance to $1.30–$1.45 and tightened sales to $1.97–$1.99B; lowered adjusted ETR to ~25% and capex to ~$90M, citing restructuring savings and tax credits despite weak EMEA and Americas demand .
  • Versus S&P Global consensus, Q3 adjusted EPS materially beat ($0.47 vs $0.24*) while revenue was a slight miss ($486.4M vs $489.3M*); EBITDA and gross margin also exceeded consensus*, with mix/tax credits and price/raw balance the key drivers .
  • Near-term narrative catalysts: tariff mitigation plan (estimated $80M annual cost exposure) with surcharges and footprint optimization, and AI/CAM strategic investment (Toolpath Labs) that advances digital capabilities .

What Went Well and What Went Wrong

What Went Well

  • Adjusted operating margin expanded to 10.3% (vs 8.1% YoY) on ~$10M IRA production credit, lower raw materials, pricing, and ~$6M restructuring savings; adjusted EPS at $0.47 exceeded prior outlook upper end .
  • Infrastructure margin improved sharply (11.5% adj vs 3.8% YoY) on IRA credit and favorable price/raw timing; Aerospace & Defense projects grew within Infrastructure, demonstrating commercial execution .
  • Strong capital returns: $25M share repurchases (1.1M shares) and $15M dividend; YTD FOCF $62.7M, with primary working capital at 31.6% of sales .
  • “We intend to mitigate the direct effect of tariffs on our business and will pursue new opportunities to take share.” — Sanjay Chowbey, CEO .

What Went Wrong

  • Sales declined 6% YoY with organic -3% and FX -3%; EMEA and Americas remained weak, pressuring General Engineering, Transportation, and Earthworks .
  • Metal Cutting margins fell YoY (adj 9.6% vs 10.8%) on lower volumes, unfavorable FX (~$3M), and higher wages/inflation, only partially offset by pricing and ~$4M restructuring savings .
  • Region/end-market softness: lower underground mining in Americas and Asia Pacific; continued EMEA weakness; U.S. industrial production stagnation .

Financial Results

MetricQ3 2024Q1 2025Q2 2025Q3 2025Consensus (Q3 2025)
Sales ($USD Millions)$515.8 $481.9 $482.1 $486.4 $489.3*
Diluted EPS ($)$0.24 $0.28 $0.23 $0.41 $0.24*
Adjusted EPS ($)$0.30 $0.29 $0.25 $0.47 —
Operating Margin (%)6.8% 7.5% 6.6% 9.1% —
Adjusted Operating Margin (%)8.1% 7.6% 6.9% 10.3% —
SegmentQ3 2024 Sales ($M)Q3 2024 Adj OI ($M)Q3 2024 Adj Margin (%)Q3 2025 Sales ($M)Q3 2025 Adj OI ($M)Q3 2025 Adj Margin (%)
Metal Cutting$326.6 $35.3 10.8% $304.3 $29.2 9.6%
Infrastructure$189.2 $7.1 3.8% $182.1 $20.9 11.5%
KPIs (Quarter/YTD)Q3 2025
Reported ETR (%)23.6%
Adjusted ETR (%)22.8%
Operating Income ($M)$44.1
Adjusted Operating Income ($M)$49.9
YTD Cash from Ops ($M)$129.7
YTD FOCF ($M)$62.7
Primary Working Capital ($M; % of Sales)$654; 31.6%
Share Repurchases1.1M shares; $25M
Dividend (Declared)$0.20/share (payable May 27, 2025)

Notes: Consensus values marked with an asterisk are Values retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious Guidance (as of Q2 FY2025)Current Guidance (Q3 FY2025)Change
SalesFY2025$1.95–$2.00B $1.97–$1.99B Tightened upward midpoint
Adjusted EPSFY2025$1.05–$1.30 $1.30–$1.45 Raised
Adjusted ETRFY2025~27.5% ~25% Lowered
Interest ExpenseFY2025~$27M ~$27M Maintained
FOCFFY2025>125% of adjusted net income >125% of adjusted net income Maintained
Primary Working Capital (% of Sales)FY2025~30% ~32% Raised
Capital SpendingFY2025~$100M ~$90M Lowered
DividendQuarterly$0.20/share $0.20/share Maintained

Management indicated FY2026 tariff mitigation updates would come in August, with an approximate $0.05 negative effect embedded in Q4 FY2025 adjusted EPS assumptions .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 FY2025; Q2 FY2025)Current Period (Q3 FY2025)Trend
Demand/Macro (EMEA, U.S. IP)Softer EMEA; U.S. IP soft; lowered FY outlook; five consecutive quarters of negative organic growth Continued modest weakness in EMEA/Americas; sales slightly below midpoint; normal sequential progression into Q4 Stable-to-weak
Price/Raw Materials (Tungsten)Price/raw balance improved in Infrastructure; IRA credit ~$2M helped Tungsten average rose to ~$395; cost flows lag two quarters; pricing resets in Infrastructure expected to offset Cost inflation rising; mitigated via pricing
Tariffs & MitigationOutlook did not reflect evolving trade costs ~$80M estimated annual cost exposure; actions: optimize flow, alternative supply, capacity rebalancing, surcharges; intent to fully mitigate Elevated risk; proactive mitigation
Restructuring & Cost ProgramAnnounced $15M actions (Greenfield closure; Barcelona consolidation); targeting $100M by FY2027 ~$6M Q3 savings; on pace for $15M run-rate by FY2025; additional ~$8M benefit to annualize into H1 FY2026 Executing; savings ramping
End-Market MixA&D strong; Energy modest; Mining/earthworks soft; Transportation down A&D up within Infrastructure; Earthworks pressured (Americas/APAC); General Engineering and Transportation weak in EMEA/Americas Mixed; A&D bright spot
Digital/AI Initiatives—Strategic investment in AI CAM (Toolpath Labs) to enhance digital application engineering and customer efficiency Strategic expansion

Management Commentary

  • “Adjusted EPS exceeded the upper end of our outlook primarily due to an advanced manufacturing production credit.” — Sanjay Chowbey, CEO .
  • “Adjusted EPS increased to $0.47… fueled mainly from an advanced manufacturing tax credit… Inclusive of the effect on the tax rate, the advanced manufacturing production credit had an approximate $0.13 impact on adjusted EPS.” — Patrick Watson, CFO .
  • “It is our intention to fully mitigate the cost implications of tariffs… utilizing our global footprint… evaluating alternative supply options… rebalancing production capacity… implementing tariff surcharges.” — Sanjay Chowbey, CEO .
  • “We remain committed to returning cash to our shareholders… repurchased 1.1 million shares or $25 million and paid a dividend.” — Patrick Watson, CFO .

Q&A Highlights

  • Q4 sequential setup: ~$13M FX tailwind expected; tariff surcharge adds revenue; underlying progression “normal” sequentially from Q3 to Q4 .
  • Tariff plan: ~$80M annual cost exposure (as of Apr 30) with actions already underway; surcharges implemented in U.S. Metal Cutting; full mitigation intended though landscape is fluid .
  • Tungsten cost dynamics: average price moved to ~$395; costs lag ~two quarters; pricing resets in Infrastructure expected to provide favorability in Q4 depending on tungsten trajectory .
  • Inventory strategy: WIP/powder build given long supply chains and lower tungsten acquisition costs earlier; plan to constrain production to lower inventories through Q3–Q4 .
  • FY2026 framing: non-recurring benefits in FY2025 (e.g., ~$8M IRA catch-up; ~$6M insurance proceeds) will not repeat; restructuring run-rate to add ~$8M benefit in H1 FY2026 as actions annualize .

Estimates Context

  • Q3 FY2025 performance vs S&P Global consensus: adjusted EPS $0.47 vs $0.24* (beat); revenue $486.4M vs $489.3M* (slight miss); EBITDA $83.7M vs $68.7M* (beat); gross margin 32.19% vs 29.02%* (beat). # of estimates: EPS (9), revenue (7)* .
  • FY2025 consensus (pre-update): EPS $1.39*, revenue $1.98B* vs company guidance $1.30–$1.45 and $1.97–$1.99B .
  • Target price consensus mean: $25.25*; recommendation text not available*.

Notes: All values marked with an asterisk are Values retrieved from S&P Global.

Key Takeaways for Investors

  • Quality beat driven by tax credit and cost actions: Adjusted EPS surprised to the upside while revenue softness persisted; Infrastructure margins benefitted disproportionately, underscoring segment mix sensitivity to credits and price/raw timing .
  • Guidance strengthened despite macro headwinds: EPS raised and tax rate lowered; capex trimmed and working capital target increased, signaling disciplined cash deployment and inventory management into Q4 .
  • Tariff risk actively mitigated: $80M cost exposure addressed via flow optimization, rebalancing, and surcharges; expect near-term Q4 headwind (~$0.05) but full mitigation targeted by FY2026 update in August .
  • Pricing power and commodity reset: Rising tungsten costs likely to show in P&L with lag; Infrastructure pricing mechanisms and contract resets provide cushion; monitor trajectory into Q4/FY2026 .
  • End-market mosaic: A&D strength offsets weakness in Transportation/General Engineering; Earthworks remains cyclical/competitive—watch EMEA/U.S. industrial production and mining activity trends .
  • Structural cost program on track: ~$6M quarterly savings and $15M annual run-rate by FY2025; path to $100M by FY2027 supports operating leverage when volumes recover (management “mid-40s” incremental target) .
  • Emerging digital moat: Toolpath Labs AI CAM investment enhances application engineering leverage and could support share gains and customer stickiness in Metal Cutting .

Sources

  • Q3 FY2025 8-K and Exhibit 99.1 press release and financial tables .
  • Q3 FY2025 earnings call transcript (prepared remarks and Q&A) .
  • Q2 FY2025 8-K and transcript (for trend and prior guidance) .
  • Q1 FY2025 8-K (for trend) .
  • AI/CAM strategic press release (May 22, 2025) .

Notes: Consensus values marked with an asterisk are Values retrieved from S&P Global.