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Kennametal (KMT) Down 0% Since Last Earnings Report: Can It Rebound?
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A month has gone by since the last earnings report for Kennametal (KMT - Free Report) . Shares have lost about 0% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important drivers.
Kennametal Q2 Earnings Beat Estimates; Revenues Up Y/Y
Kennametal reported impressive results for second-quarter fiscal 2023 (ended Dec 31, 2022). KMT’s earnings beat the Zacks Consensus Estimate by 22.7% and quarterly sales beat estimates by 0.9%.
Adjusted earnings in the quarter under review were 27 cents per share, beating the Zacks Consensus Estimate of 22 cents. The bottom line decreased 22.9% from the year-ago figure.
Revenue Details
In the quarter under review, Kennametal’s revenues were $497 million, reflecting an increase of 2.1% from the year-ago quarter’s figure. Organic sales in the quarter grew 11%. Foreign currency headwind left an adverse impact of 8% and unfavorable business days hampered sales by 1%. Business in energy, general engineering, transportation and aerospace markets flourished in the quarter.
KMT’s revenues beat the Zacks Consensus Estimate of $487 million.
On a geographical basis, its revenues from American operations increased 10.8% year over year to $250.2 million, whereas sales from Europe, the Middle East and Africa region were $142.3 million, down 3.4% from the year-ago quarter’s reading. Sales from the Asia Pacific belt decreased 7.8% to $104.6 million.
Kennametal reports results under two business segments, namely Metal Cutting and Infrastructure. Its segmental performance for the fiscal second quarter is briefly discussed below:
Metal Cutting revenues of $299 million were flat year over year. Organic sales growth in the quarter was 11%. Forex woes had an adverse impact of 10% and unfavorable business days hampered sales by 1%.
Infrastructure revenues totaled $198 million, increasing 5% year over year. The results gained from 12% growth in organic sales, while foreign currency movements had an adverse impact of 6% and unfavorable business days hampered sales by 1%.
Margin Profile
Kennametal’s cost of goods sold in the reported quarter increased 6.1% year over year to $354.2 million. The same represented 71.3% of revenues compared with 68.6% in the year-ago quarter. The gross profit decreased 6.6% year over year to $142.9 million wherein the margin contracted 310 basis points (bps) to 28.7%. Operating expenses summed $106 million in the quarter under review, down 1% year over year. As a percentage of revenues, operating expenses were 21.3% compared with 21.9% a year ago.
Operating income was not adjusted in the reported quarter. The operating income decreased 21% year over year to $35 million. Operating margin decreased 210 bps year over year to 97.1%. High raw material costs, foreign currency exchange headwinds and temporary supply-chain disruptions were spoilsports.
Interest expenses in the reported quarter were $7 million, up 7.7% from the year-ago quarter’s figure. The adjusted effective tax rate was 17.8% in the quarter under review, down from 25.9% in the prior-year quarter.
Balance Sheet and Cash Flow
While exiting the fiscal second quarter, Kennametal’s cash and cash equivalents were $76.8 million, down 10.3% from the fourth quarter fiscal 2022’s figure of $85.6 million. Long-term debt was $594.8 million, almost in line with $594.4 million reported in the fiscal fourth quarter of 2022.
In the first six months of fiscal 2023, Kennametal generated net cash of $52.5 million in operating activities compared with $57.8 million net cash generated in the previous fiscal year’s quarter. Capital invested in purchasing property, plant and equipment (net of the amount received on disposals) was $50.6 million, up 34.2% from $37.7 million in the prior fiscal year. Free cash flow was $4.4 million compared with $20.7 million in the previous fiscal year’s period.
In the fiscal second quarter of 2023, KMT’s dividend payments totaled $16 million and it repurchased shares worth $11 million.
Outlook
For the third quarter of fiscal 2023 (ending March 2023), Kennametal anticipates sales of $520 - $540 million. Continued growth in energy, aerospace, earthworks and general engineering end markets will be beneficial. Business in the transportation market is expected to improve throughout the year.
The adjusted operating income for the quarter is anticipated to be $40 million (at least). Interest expense is anticipated to be approximately 8 million for the quarter.
For fiscal 2023 (ending June 2023), favorable pricing is anticipated to offset inflation related to wage, inflation and raw material costs. The company anticipates sales of $2.05- $2.10 billion which includes a currency headwind of approximately $100 million. Adjusted EPS is anticipated to be $1.30-$1.70 per share. The adjusted tax rate is anticipated to be 24-26% in the full fiscal compared with 27.2% in fiscal 2022. Free operating cash flow is expected to be approximately 100% of net income (adjusted).
Capital spending is expected to be $100-$120 million in the current fiscal year compared with $97 million reported in fiscal 2022.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
The consensus estimate has shifted -16.77% due to these changes.
VGM Scores
At this time, Kennametal has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. 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 0% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Kennametal (KMT - Free Report) . Shares have lost about 0% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important drivers.
Kennametal Q2 Earnings Beat Estimates; Revenues Up Y/Y
Kennametal reported impressive results for second-quarter fiscal 2023 (ended Dec 31, 2022). KMT’s earnings beat the Zacks Consensus Estimate by 22.7% and quarterly sales beat estimates by 0.9%.
Adjusted earnings in the quarter under review were 27 cents per share, beating the Zacks Consensus Estimate of 22 cents. The bottom line decreased 22.9% from the year-ago figure.
Revenue Details
In the quarter under review, Kennametal’s revenues were $497 million, reflecting an increase of 2.1% from the year-ago quarter’s figure. Organic sales in the quarter grew 11%. Foreign currency headwind left an adverse impact of 8% and unfavorable business days hampered sales by 1%. Business in energy, general engineering, transportation and aerospace markets flourished in the quarter.
KMT’s revenues beat the Zacks Consensus Estimate of $487 million.
On a geographical basis, its revenues from American operations increased 10.8% year over year to $250.2 million, whereas sales from Europe, the Middle East and Africa region were $142.3 million, down 3.4% from the year-ago quarter’s reading. Sales from the Asia Pacific belt decreased 7.8% to $104.6 million.
Kennametal reports results under two business segments, namely Metal Cutting and Infrastructure. Its segmental performance for the fiscal second quarter is briefly discussed below:
Metal Cutting revenues of $299 million were flat year over year. Organic sales growth in the quarter was 11%. Forex woes had an adverse impact of 10% and unfavorable business days hampered sales by 1%.
Infrastructure revenues totaled $198 million, increasing 5% year over year. The results gained from 12% growth in organic sales, while foreign currency movements had an adverse impact of 6% and unfavorable business days hampered sales by 1%.
Margin Profile
Kennametal’s cost of goods sold in the reported quarter increased 6.1% year over year to $354.2 million. The same represented 71.3% of revenues compared with 68.6% in the year-ago quarter. The gross profit decreased 6.6% year over year to $142.9 million wherein the margin contracted 310 basis points (bps) to 28.7%. Operating expenses summed $106 million in the quarter under review, down 1% year over year. As a percentage of revenues, operating expenses were 21.3% compared with 21.9% a year ago.
Operating income was not adjusted in the reported quarter. The operating income decreased 21% year over year to $35 million. Operating margin decreased 210 bps year over year to 97.1%. High raw material costs, foreign currency exchange headwinds and temporary supply-chain disruptions were spoilsports.
Interest expenses in the reported quarter were $7 million, up 7.7% from the year-ago quarter’s figure. The adjusted effective tax rate was 17.8% in the quarter under review, down from 25.9% in the prior-year quarter.
Balance Sheet and Cash Flow
While exiting the fiscal second quarter, Kennametal’s cash and cash equivalents were $76.8 million, down 10.3% from the fourth quarter fiscal 2022’s figure of $85.6 million. Long-term debt was $594.8 million, almost in line with $594.4 million reported in the fiscal fourth quarter of 2022.
In the first six months of fiscal 2023, Kennametal generated net cash of $52.5 million in operating activities compared with $57.8 million net cash generated in the previous fiscal year’s quarter. Capital invested in purchasing property, plant and equipment (net of the amount received on disposals) was $50.6 million, up 34.2% from $37.7 million in the prior fiscal year. Free cash flow was $4.4 million compared with $20.7 million in the previous fiscal year’s period.
In the fiscal second quarter of 2023, KMT’s dividend payments totaled $16 million and it repurchased shares worth $11 million.
Outlook
For the third quarter of fiscal 2023 (ending March 2023), Kennametal anticipates sales of $520 - $540 million. Continued growth in energy, aerospace, earthworks and general engineering end markets will be beneficial. Business in the transportation market is expected to improve throughout the year.
The adjusted operating income for the quarter is anticipated to be $40 million (at least). Interest expense is anticipated to be approximately 8 million for the quarter.
For fiscal 2023 (ending June 2023), favorable pricing is anticipated to offset inflation related to wage, inflation and raw material costs. The company anticipates sales of $2.05- $2.10 billion which includes a currency headwind of approximately $100 million. Adjusted EPS is anticipated to be $1.30-$1.70 per share. The adjusted tax rate is anticipated to be 24-26% in the full fiscal compared with 27.2% in fiscal 2022. Free operating cash flow is expected to be approximately 100% of net income (adjusted).
Capital spending is expected to be $100-$120 million in the current fiscal year compared with $97 million reported in fiscal 2022.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
The consensus estimate has shifted -16.77% due to these changes.
VGM Scores
At this time, Kennametal has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Kennametal has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.