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Kennametal (KMT) Down 2% Since Last Earnings Report: Can It Rebound?
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It has been about a month since the last earnings report for Kennametal (KMT - Free Report) . Shares have lost about 2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Kennametal due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Kennametal delivered impressive results for fourth-quarter fiscal 2021 (ended Jun 30, 2021). Its earnings surpassed estimates by 35.9% and sales beat the same by 0.4%.
The machinery company’s adjusted earnings in the reported quarter were 53 cents, surpassing the Zacks Consensus Estimate of 39 cents. Also, the bottom line increased 253.3% from the year-ago figure of 15 cents as an increase in sales offset higher costs and expenses. Lower taxes also aided.
For fiscal 2021, the company’s adjusted earnings were $1.04, surpassing the Zacks Consensus Estimate of 90 cents. Also, the bottom line increased 10.6% from the year-ago figure of 94 cents.
Revenue Details
Kennametal generated revenues of $516 million, increasing 36.1% year over year. Foreign currency translation had a positive impact of 6%, while organic sales growth added 29% and business days boosted sales by 1%. Businesses across end markets, excluding aerospace, contributed to year-over-year growth.
The company’s top line surpassed the Zacks Consensus Estimate of $514 million.
Its quarterly top line improved 6% on a sequential basis on the back of demand improvement in end markets served, especially aerospace, energy and general engineering.
On a geographical basis, its revenues from America operations increased 33.7% year over year to $239.8 million, whereas that from the EMEA region grew 46.5% to $161.6 million. Sales from the Asia Pacific increased 28.2% to $114.6 million.
The company reports results under two business segments — Metal Cutting and Infrastructure. Its segmental performance for the fiscal fourth quarter is briefly discussed below:
Metal Cutting revenues of $311.81 million were up 37.4% year over year. The results benefitted from foreign currency translation impacts of 6% and business days gain of 1%. Organic sales grew 30% from the year-ago quarter.
Infrastructure revenues totaled $204.2 million, increasing 34.2% year over year. The results gained from 28% growth in organic sales, 1% benefit from business days and 5% positive impact of foreign currencies movements.
For fiscal 2021, the company’s revenues were $1.84 billion, in line with the Zacks Consensus Estimate. On a year-over-year basis, the top line decreased 2.3%.
Margin Profile
Kennametal’s cost of goods sold in the reported quarter increased 22.6% year over year to $340.3 million. It represented 66% of revenues compared with 73.2% in the year-ago quarter. Gross profit grew 73.2% year over year to $175.7 million, wherein, margin increased 730 basis points (bps) to 34.1%. Operating expenses summed $108 million in the quarter under review, increasing 58.5% year over year. As a percentage of revenues, operating expenses were 20.9% compared with 18% a year ago.
Adjusted operating income in the reported quarter increased 97.8% year over year to $66.3 million. Adjusted operating margin expanded 400 bps year over year to 12.8%. Interest expenses in the reported quarter were $6.6 million versus $11.3 million in the year-ago quarter. Adjusted effective tax rate was 24.3% in the quarter under review, down from 51.2% in the prior-year quarter.
Balance Sheet and Cash Flow
Exiting the fiscal fourth quarter, Kennametal’s cash and cash equivalents were $154 million, up 34.8% from the previous quarter’s figure of $114.3 million. Long-term debt and capital leases were up 0.1% sequentially at $592.1 million.
In fiscal 2021, the company generated net cash of $235.7 million from operating activities, rising 5.3% from the previous year. Capital invested in purchasing property, plant and equipment (net of the amount received on disposals) was $122.9 million, below $241.5 million reported in fiscal 2020. Free cash flow was $112.8 million against an outflow of $17.8 million in the previous year.
Restructuring Actions
Inception to date, the company’s restructuring actions in fiscal 2021 generated savings of $68 million and related pre-tax costs were $82 million. Savings in the fourth quarter were $16 million, while charges were $5 million.
Outlook
For the first quarter of fiscal 2022 (ending September 2021), the company anticipates sales of $470-$490 million, suggesting a year-over-year increase of 17-22%. On a sequential basis, the mid-point of $480 million reflects a decline of 7% due to supply-chain restriction in the transportation market and summer shutdown in the EMEA region.
Cost controls in the prior-year quarters are predicted to create $15 million of cost headwinds in the first quarter of fiscal 2022. Adjusted operating income for the quarter is anticipated to be $45 million and adjusted tax rate is likely to be 25-28%. Free cash flow is expected to be slightly negative.
Kennametal anticipates gaining from solid operating leverage in fiscal 2022 (ending June 2022). Adjusted effective tax rate is expected to be 25-28%, higher than 23.6% in fiscal 2021. Cost headwinds, related to control measures taken in the previous year, are predicted to be $25 million in the first half of fiscal 2022.
Capital spending is expected to be $110-$130 million and free cash flow is likely to be 100% of net income.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 35.17% due to these changes.
VGM Scores
Currently, Kennametal has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Kennametal has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Kennametal (KMT) Down 2% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for Kennametal (KMT - Free Report) . Shares have lost about 2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Kennametal due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Kennametal Q4 Earnings Beat Estimates, Increase Y/Y
Kennametal delivered impressive results for fourth-quarter fiscal 2021 (ended Jun 30, 2021). Its earnings surpassed estimates by 35.9% and sales beat the same by 0.4%.
The machinery company’s adjusted earnings in the reported quarter were 53 cents, surpassing the Zacks Consensus Estimate of 39 cents. Also, the bottom line increased 253.3% from the year-ago figure of 15 cents as an increase in sales offset higher costs and expenses. Lower taxes also aided.
For fiscal 2021, the company’s adjusted earnings were $1.04, surpassing the Zacks Consensus Estimate of 90 cents. Also, the bottom line increased 10.6% from the year-ago figure of 94 cents.
Revenue Details
Kennametal generated revenues of $516 million, increasing 36.1% year over year. Foreign currency translation had a positive impact of 6%, while organic sales growth added 29% and business days boosted sales by 1%. Businesses across end markets, excluding aerospace, contributed to year-over-year growth.
The company’s top line surpassed the Zacks Consensus Estimate of $514 million.
Its quarterly top line improved 6% on a sequential basis on the back of demand improvement in end markets served, especially aerospace, energy and general engineering.
On a geographical basis, its revenues from America operations increased 33.7% year over year to $239.8 million, whereas that from the EMEA region grew 46.5% to $161.6 million. Sales from the Asia Pacific increased 28.2% to $114.6 million.
The company reports results under two business segments — Metal Cutting and Infrastructure. Its segmental performance for the fiscal fourth quarter is briefly discussed below:
Metal Cutting revenues of $311.81 million were up 37.4% year over year. The results benefitted from foreign currency translation impacts of 6% and business days gain of 1%. Organic sales grew 30% from the year-ago quarter.
Infrastructure revenues totaled $204.2 million, increasing 34.2% year over year. The results gained from 28% growth in organic sales, 1% benefit from business days and 5% positive impact of foreign currencies movements.
For fiscal 2021, the company’s revenues were $1.84 billion, in line with the Zacks Consensus Estimate. On a year-over-year basis, the top line decreased 2.3%.
Margin Profile
Kennametal’s cost of goods sold in the reported quarter increased 22.6% year over year to $340.3 million. It represented 66% of revenues compared with 73.2% in the year-ago quarter. Gross profit grew 73.2% year over year to $175.7 million, wherein, margin increased 730 basis points (bps) to 34.1%. Operating expenses summed $108 million in the quarter under review, increasing 58.5% year over year. As a percentage of revenues, operating expenses were 20.9% compared with 18% a year ago.
Adjusted operating income in the reported quarter increased 97.8% year over year to $66.3 million. Adjusted operating margin expanded 400 bps year over year to 12.8%. Interest expenses in the reported quarter were $6.6 million versus $11.3 million in the year-ago quarter. Adjusted effective tax rate was 24.3% in the quarter under review, down from 51.2% in the prior-year quarter.
Balance Sheet and Cash Flow
Exiting the fiscal fourth quarter, Kennametal’s cash and cash equivalents were $154 million, up 34.8% from the previous quarter’s figure of $114.3 million. Long-term debt and capital leases were up 0.1% sequentially at $592.1 million.
In fiscal 2021, the company generated net cash of $235.7 million from operating activities, rising 5.3% from the previous year. Capital invested in purchasing property, plant and equipment (net of the amount received on disposals) was $122.9 million, below $241.5 million reported in fiscal 2020. Free cash flow was $112.8 million against an outflow of $17.8 million in the previous year.
Restructuring Actions
Inception to date, the company’s restructuring actions in fiscal 2021 generated savings of $68 million and related pre-tax costs were $82 million. Savings in the fourth quarter were $16 million, while charges were $5 million.
Outlook
For the first quarter of fiscal 2022 (ending September 2021), the company anticipates sales of $470-$490 million, suggesting a year-over-year increase of 17-22%. On a sequential basis, the mid-point of $480 million reflects a decline of 7% due to supply-chain restriction in the transportation market and summer shutdown in the EMEA region.
Cost controls in the prior-year quarters are predicted to create $15 million of cost headwinds in the first quarter of fiscal 2022. Adjusted operating income for the quarter is anticipated to be $45 million and adjusted tax rate is likely to be 25-28%. Free cash flow is expected to be slightly negative.
Kennametal anticipates gaining from solid operating leverage in fiscal 2022 (ending June 2022). Adjusted effective tax rate is expected to be 25-28%, higher than 23.6% in fiscal 2021. Cost headwinds, related to control measures taken in the previous year, are predicted to be $25 million in the first half of fiscal 2022.
Capital spending is expected to be $110-$130 million and free cash flow is likely to be 100% of net income.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 35.17% due to these changes.
VGM Scores
Currently, Kennametal has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Kennametal has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.