Kennametal sales up 54% for first fiscal quarter 2027
Kennametal Inc. reported Q1 2027 sales of $768 million increased 54% on both a reported and organic basis.
Operating income was $379 million, or 49.4% margin, compared to $38 million, or 7.5% margin, in the prior year quarter. The increase in operating income was driven by the favorable timing of raw material-related pricing compared to costs of approximately $323 million, non-raw material-related pricing and tariff income, higher sales and production volumes in Metal Cutting, an incremental benefit of approximately $4 million from an advanced manufacturing production credit under the Inflation Reduction Act within the Infrastructure segment, and incremental year-over-year restructuring savings of approximately $3 million. These factors were partially offset by tariffs and general inflation, higher compensation costs, an impairment of an equity investment of approximately $5 million and a charge of approximately $5 million related to the write-off of certain fixed assets in the current quarter. Operating income was not adjusted in the current quarter, whereas adjusted operating income was $41 million, or 8.2% margin, in the prior year quarter.
Year-to-date net cash flow from operating activities was negative $201 million compared to positive $17 million in the prior year period. The decline was driven primarily by working capital requirements, including increased inventory values resulting from unprecedented tungsten price increases, as well as advance payments made to certain suppliers to secure raw material supply. These working capital requirements were partially offset by higher net income during the year. Year-to-date free operating cash flow (FOCF) was negative $212 million compared to negative $5 million in the prior year period. The decrease in FOCF was driven primarily by the aforementioned working capital requirements, partially offset by higher net income and lower capital expenditures compared to the prior year period.
"We delivered excellent first quarter results, with sales up 54% and record first quarter diluted EPS of $3.48, driven primarily by the favorable timing of raw material-related pricing compared to costs and stronger Metal Cutting volumes," said President and Chief Executive Officer Sanjay Chowbey, "This performance reinforces our confidence in the fiscal 2027 sales Outlook and higher full year EPS expectations. Looking beyond fiscal 2027, improving markets and execution on our strategic growth initiatives position us well for continued growth. In a steady-state tungsten environment, we expect to deliver a 16 to 19% adjusted EBITDA margin profile while generating strong free operating cash flow and attractive returns on invested capital."
Segment Results
Metal Cutting sales of $398 million increased 28% from $311 million in the prior year quarter, reflecting organic sales growth of 29%, partially offset by an unfavorable business days effect of 1%. Operating income was $118 million, or 29.7% margin, compared to $22 million, or 6.9% margin, in the prior year quarter. The increase in operating income was driven by the favorable timing of raw material-related pricing compared to costs of approximately $65 million, non-raw material-related pricing and tariff income, higher sales and production volumes and incremental year-over-year restructuring savings of approximately $2 million. These factors were partially offset by an impairment of an equity investment of approximately $5 million, higher compensation costs, and tariffs and general inflation in the current quarter. Operating income was not adjusted in the current quarter, whereas adjusted operating income was $25 million, or 8.0%, in the prior year quarter.
%rom $187 million in the prior year quarter, reflecting organic sales growth of 97% and a favorable currency exchange effect of 1%. Operating income was $262 million, or 70.7% margin, compared to $17 million, or 8.9% margin, in the prior year quarter. The increase in operating income was driven by the favorable timing of raw material-related pricing compared to costs of approximately $258 million, non-raw material-related pricing, and an incremental benefit of approximately $4 million from an advanced manufacturing production credit under the Inflation Reduction Act. These factors were partially offset by lower sales and production volumes, tariffs and general inflation, higher compensation costs, and a charge of approximately $3 million related to the write-off of certain fixed assets in the current quarter. Operating income was not adjusted in the current quarter, whereas adjusted operating income was $17 million, or 8.8% margin, in the prior year quarter.
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