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Kennametal (KMT) Displays Solid Prospects, Headwinds Remain

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Kennametal Inc. (KMT - Free Report) has been benefiting from its diversified business structure, solid product offerings, innovation capabilities and operational excellence. Strength across the company’s general engineering, energy, transportation, aerospace and earthworks end markets is likely to drive its performance in the quarters ahead. For second-quarter fiscal 2022 (ending December 2021), it anticipates sales of $480-$500 million, indicating growth of 9-14% on a year-over-year basis.

The company focuses on rewarding shareholders through dividend payments and share repurchases. In first-quarter fiscal 2022 (ended September 2021), Kennametal used $16.7 million for paying out dividends and repurchasing shares worth $12.9 million. Valid for three years, the company also announced a share buyback program worth $200 million in August.

A healthy balance sheet adds to the company’s strength. At the end of the fiscal first quarter, the company’s net debt was $486 million, down from $541 million in the year-ago quarter. In the quarter, it lowered its notes payable by $8 million. Also, interest expenses in the quarter decreased 40.6% year over year to $6.3 million.

However, escalating costs and expenses remain a major concern for the company. In the fiscal first quarter, its cost of sales recorded an increase of 9.3% year over year, and operating expenses expanded 10%. For the fiscal second quarter, inflation related to merit increase, price/raw materials and higher depreciation expenses is expected to have an adverse impact of $10 million.

High taxes pose a concern as well for fiscal 2022 (ending June 2022), with the company expecting a tax rate of 25-28% for the year, higher than 23.6% reported in fiscal 2021 (ended June 2021).

Zacks Investment ResearchImage Source: Zacks Investment Research

In the past six months, this Zacks Rank #3 (Hold) stock has lost 6.3% compared with the industry’s decline of 9.6%.

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