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Here's Why You Should Avoid Kennametal (KMT) Stock for Now
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Kennametal Inc. (KMT - Free Report) has failed to impress investors with its recent operational performance due to softness in the Infrastructure segment, rising costs and forex woes.
Let’s discuss the factors that might continue taking a toll on the Zacks Rank #5 (Strong Sell) player.
Factors Affecting Kennametal
Business Weakness: Softness in the Infrastructure segment can be attributed to lower volume in aerospace and defense, general engineering, energy and earthwork end markets. The aerospace and defense end markets are experiencing weakness due to defense order timing. Lower sales in Europe, the Middle East and Africa are worrisome for the general engineering end market. Lower construction volume in the Americas is worrisome for the earthworks end market. Also, lower-than-expected U.S. land rig counts and continued destocking of inventory are hurting the energy end market’s revenues.
Escalating Costs: Cost inflation poses a concern for KMT. In the second quarter of fiscal 2024 (ended December 2023), the company’s operating expenses increased 1.5% year over year due to higher input costs. The cost of goods sold also increased 0.4% year over year. In the same period, the company’s operating margin decreased 140 basis points due to headwinds from rising raw material costs, higher wages and general inflation. For fiscal 2024, we expect continued pressures from the high costs of raw materials to dent the bottom line.
Forex Woes: Kennametal’s international presence exposes it to the risk of adverse currency fluctuations. This is because a strengthening U.S. dollar may require the company to either raise prices or contract profit margins in locations outside the US. Thus, adverse currency movements are a worry for the company.
Southward Estimate Revision: The Zacks Consensus Estimate for KMT’s fiscal 2024 (ending June 2024) earnings has been revised 10.3% downward in the past 60 days.
Price Performance: Shares of Kennametal have declined 7.4% in the past year against the industry’s 28% increase.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked companies from the Industrial Products sector are discussed below:
ATMU’s earnings estimates have increased 2.9% for 2024 in the past 60 days. Shares of Atmus Filtration have risen 10.2% in the past year.
Tetra Tech, Inc. (TTEK - Free Report) currently carries a Zacks Rank #2 (Buy). It delivered a trailing four-quarter average earnings surprise of 14.4%.
In the past 60 days, the Zacks Consensus Estimate for TTEK’s fiscal 2024 earnings has increased 2.9%. The stock has soared 39.6% in the past year.
Applied Industrial Technologies, Inc. (AIT - Free Report) presently has a Zacks Rank of 2. It has a trailing four-quarter average earnings surprise of 10.4%.
The Zacks Consensus Estimate for AIT’s fiscal 2024 earnings has increased 1.7% in the past 60 days. The stock has gained 37.7% in the past year.
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Here's Why You Should Avoid Kennametal (KMT) Stock for Now
Kennametal Inc. (KMT - Free Report) has failed to impress investors with its recent operational performance due to softness in the Infrastructure segment, rising costs and forex woes.
Let’s discuss the factors that might continue taking a toll on the Zacks Rank #5 (Strong Sell) player.
Factors Affecting Kennametal
Business Weakness: Softness in the Infrastructure segment can be attributed to lower volume in aerospace and defense, general engineering, energy and earthwork end markets. The aerospace and defense end markets are experiencing weakness due to defense order timing. Lower sales in Europe, the Middle East and Africa are worrisome for the general engineering end market. Lower construction volume in the Americas is worrisome for the earthworks end market. Also, lower-than-expected U.S. land rig counts and continued destocking of inventory are hurting the energy end market’s revenues.
Escalating Costs: Cost inflation poses a concern for KMT. In the second quarter of fiscal 2024 (ended December 2023), the company’s operating expenses increased 1.5% year over year due to higher input costs. The cost of goods sold also increased 0.4% year over year. In the same period, the company’s operating margin decreased 140 basis points due to headwinds from rising raw material costs, higher wages and general inflation. For fiscal 2024, we expect continued pressures from the high costs of raw materials to dent the bottom line.
Forex Woes: Kennametal’s international presence exposes it to the risk of adverse currency fluctuations. This is because a strengthening U.S. dollar may require the company to either raise prices or contract profit margins in locations outside the US. Thus, adverse currency movements are a worry for the company.
Southward Estimate Revision: The Zacks Consensus Estimate for KMT’s fiscal 2024 (ending June 2024) earnings has been revised 10.3% downward in the past 60 days.
Price Performance: Shares of Kennametal have declined 7.4% in the past year against the industry’s 28% increase.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked companies from the Industrial Products sector are discussed below:
Atmus Filtration Technologies Inc. (ATMU - Free Report) presently sports a Zacks Rank #1 (Strong Buy) and a trailing four-quarter earnings surprise of 20.3%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
ATMU’s earnings estimates have increased 2.9% for 2024 in the past 60 days. Shares of Atmus Filtration have risen 10.2% in the past year.
Tetra Tech, Inc. (TTEK - Free Report) currently carries a Zacks Rank #2 (Buy). It delivered a trailing four-quarter average earnings surprise of 14.4%.
In the past 60 days, the Zacks Consensus Estimate for TTEK’s fiscal 2024 earnings has increased 2.9%. The stock has soared 39.6% in the past year.
Applied Industrial Technologies, Inc. (AIT - Free Report) presently has a Zacks Rank of 2. It has a trailing four-quarter average earnings surprise of 10.4%.
The Zacks Consensus Estimate for AIT’s fiscal 2024 earnings has increased 1.7% in the past 60 days. The stock has gained 37.7% in the past year.