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Kennametal Inc. (KMT - Free Report) is gaining from solid product offerings, commercial and operational excellence and a wide geographical presence. Its Metal Cutting segment is benefiting from strength in the transportation, general engineering and aerospace and defense end markets. Also, its strategic initiatives, innovation and operational excellence bode well. Within the segment, general engineering end-market revenues benefited from increased industrial activity in the Americas region.
KMT is likely to benefit from its innovation capabilities in the near quarter. Also, mega-trends like hybrid and electric vehicles, digitalization and ESG align well with the company’s technical expertise and market exposure. The company also aims to drive improved profitability through operational excellence by enhancing manufacturing and business process productivity and optimizing investments in commercial excellence and technology to target the highest return growth initiatives.
The company remains committed to rewarding its shareholders through dividend payments and share buybacks. In the second quarter of 2024 (ended December 2023), Kennametal distributed dividends worth $16 million and repurchased shares worth $15 million. In fiscal 2023 (ended June 2023), the company distributed dividends totaling $65 million to its shareholders. It bought back shares for $49 million in fiscal 2023.
However, weakness in the Infrastructure segment is due 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.
The company has been witnessing the impacts of escalating costs over time. In the second quarter of fiscal 2024, the company’s operating expenses increased 1.5% year over year due to higher input costs. The cost of goods sold 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, continued pressures from the high costs of raw materials are expected to dent the company’s bottom line.
In the past year, this current Zacks Rank #3 (Hold) company’s shares have declined 6.1% against the industry’s 33.6% increase.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked companies from the Industrial Products sector are discussed below:
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Kennametal (KMT) Exhibits Strong Prospects Despite Headwinds
Kennametal Inc. (KMT - Free Report) is gaining from solid product offerings, commercial and operational excellence and a wide geographical presence. Its Metal Cutting segment is benefiting from strength in the transportation, general engineering and aerospace and defense end markets. Also, its strategic initiatives, innovation and operational excellence bode well. Within the segment, general engineering end-market revenues benefited from increased industrial activity in the Americas region.
KMT is likely to benefit from its innovation capabilities in the near quarter. Also, mega-trends like hybrid and electric vehicles, digitalization and ESG align well with the company’s technical expertise and market exposure. The company also aims to drive improved profitability through operational excellence by enhancing manufacturing and business process productivity and optimizing investments in commercial excellence and technology to target the highest return growth initiatives.
The company remains committed to rewarding its shareholders through dividend payments and share buybacks. In the second quarter of 2024 (ended December 2023), Kennametal distributed dividends worth $16 million and repurchased shares worth $15 million. In fiscal 2023 (ended June 2023), the company distributed dividends totaling $65 million to its shareholders. It bought back shares for $49 million in fiscal 2023.
However, weakness in the Infrastructure segment is due 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.
The company has been witnessing the impacts of escalating costs over time. In the second quarter of fiscal 2024, the company’s operating expenses increased 1.5% year over year due to higher input costs. The cost of goods sold 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, continued pressures from the high costs of raw materials are expected to dent the company’s bottom line.
In the past year, this current Zacks Rank #3 (Hold) company’s shares have declined 6.1% against the industry’s 33.6% increase.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked companies from the Industrial Products sector are discussed below:
Applied Industrial Technologies, Inc. (AIT - Free Report) presently sports a Zacks Rank #1 (Strong Buy). It has a trailing four-quarter average earnings surprise of 10.4%. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for AIT’s fiscal 2024 earnings has increased 2.5% in the past 60 days. The stock has gained 48.0% in the past year.
Caterpillar Inc. (CAT - Free Report) presently carries a Zacks Rank #2 (Buy) and a trailing four-quarter earnings surprise of 19.7%, on average.
CAT’s earnings estimates have increased 0.7% for 2024 in the past 60 days. Shares of Caterpillar have risen 72.6% in the past year.
A. O. Smith Corporation (AOS - Free Report) presently carries a Zacks Rank of 2. It has a trailing four-quarter average earnings surprise of 12%.
The Zacks Consensus Estimate for AOS’ 2024 earnings increased 0.5% in the past 60 days. Shares of A. O. Smith have soared 32.1% in the past year.