Kennametal sales drop 6% YoY in fiscal Q3
Kennametal Inc. reported sales of $486 million for its fiscal third quarter ended March 31, a 6% decrease from its $516 million in the prior year quarter.
"During the quarter we demonstrated continued progress on our growth and cost initiatives despite weak market conditions, primarily in EMEA and the Americas," said President and CEO Sanjay Chowbey. "The market headwinds resulted in sales slightly below our midpoint while adjusted EPS exceeded the upper end of our outlook primarily due to an advanced manufacturing production credit.
"Like many companies, the recent uncertainty regarding tariff policies has affected Kennametal, however we intend to mitigate the direct effect of tariffs on our business and will pursue new opportunities to take share."
During the quarter, the company achieved incremental year-over-year restructuring savings of approximately $6 million. In January 2025, it announced actions to support the long-term competitiveness of the company and to mitigate softer market conditions. These actions are currently expected to deliver annualized run rate pre-tax savings of approximately $15 million by the end of fiscal 2025. The company expects to incur pre-tax charges of approximately $25 million in connection with the execution of these actions, of which $6 million was recognized during the quarter.
Operating income was $44 million, or 9.1% margin, compared to $35 million, or 6.8% margin, in the prior year quarter. The increase in operating income was primarily due to an advanced manufacturing production credit under the Inflation Reduction Act of approximately $10 million within the Infrastructure segment, lower raw material costs, pricing, and incremental year-over-year restructuring savings of approximately $6 million. These factors were partially offset by lower sales and production volumes, higher wages and general inflation and an unfavorable currency exchange effect of approximately $3 million. Adjusted operating income was $50 million, or 10.3% margin, in the current quarter, compared to $42 million, or 8.1% margin, in the prior year quarter.
Outlook
The company's expectations for the full fiscal year 2025 are as follows:
- Sales now expected to be $1.970 - $1.990 billion
- Adjusted EPS is now expected to be $1.30 - $1.45
- Pricing actions expected to cover raw material costs, wages and general inflation
- Interest expense is expected to be approximately $27 million
- Adjusted ETR is now expected to be approximately 25%
- Free operating cash flow of greater than 125 percent of adjusted net income
- Primary working capital as a percent of sales is now expected to be approximately 32% by fiscal year-end
- Capital spending now expected to be approximately $90 million
The company said it will provide more details regarding its Outlook, including assumptions on tariffs, during its quarterly earnings conference call.
Segment Results
Metal cutting sales of $304 million decreased 7% from $327 million in the prior year quarter, reflecting an organic sales decline of 4% and an unfavorable currency exchange effect of 3%. Operating income was $25 million, or 8.2% margin, compared to $31 million, or 9.4% margin, in the prior year quarter. The decrease in operating income was primarily due to lower sales and production volumes, an unfavorable currency exchange effect of approximately $3 million and higher wages and general inflation. These factors were partially offset by pricing, incremental year-over-year restructuring savings of approximately $4 million and lower raw material costs. Adjusted operating income was $29 million, or 9.6% margin, in the current quarter, compared to $35 million, or 10.8% margin, in the prior year quarter.
Infrastructure sales of $182 million decreased 4% from $189 million in the prior year quarter, reflecting an organic sales decline of 2% and an unfavorable currency exchange effect of 2 percent. Operating income was $19 million, or 10.7% margin, compared to $5 million, or 2.7% margin, in the prior year quarter. The increase in operating income was primarily due to an advanced manufacturing production credit under the Inflation Reduction Act of approximately $10 million, the favorable timing of pricing compared to raw material costs and incremental year-over-year restructuring savings of approximately $2 million. These factors were partially offset by lower sales and production volumes. Adjusted operating income was $21 million, or 11.5 percent margin, in the current quarter, compared to $7 million, or 3.8% margin, in the prior year quarter.
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