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KMT Q1 Earnings Call Highlights Tungsten Risks and Higher Outlook

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Key Takeaways

  • KMT raises fiscal 2027 adjusted EPS guidance to $5-$6, assuming tungsten prices remain near $2,700.
  • Infrastructure volumes decline at a low-double-digit rate despite 98% sales growth, pressuring recovery.
  • Metal Cutting posts its fourth straight quarter of volume growth, while free operating cash flow falls.

Kennametal Inc. (KMT - Free Report) raised its fiscal 2027 earnings outlook following strong first-quarter results, but management emphasized that unusually favorable tungsten pricing dynamics contributed substantially to profitability.

During the first-quarter fiscal 2027 earnings call, executives addressed declining Infrastructure volumes, working capital pressures and the impact of raw material costs on future margins. Management also outlined plans to improve cash conversion, expand market share and strengthen operating efficiency through its lean transformation program.

Kennametal's earnings per share of $3.48 beat the Zacks Consensus Estimate of $2.66 in the quarter. Revenues of $768.2 million missed the consensus mark of $780.6 million.

Kennametal Inc. Price, Consensus and EPS Surprise

Kennametal Inc. Price, Consensus and EPS Surprise

Kennametal Inc. price-consensus-eps-surprise-chart | Kennametal Inc. Quote

KMT Raises Earnings Outlook Amid Tungsten Volatility

Kennametal raised its fiscal 2027 adjusted earnings guidance to $5-$6 per share while maintaining the sales outlook of $3.33-$3.45 billion.

Vice president of finance and chief financial officer Patrick Watson explained that the revised outlook assumes tungsten prices remain near $2,700, with pricing and raw material cost timing creating substantial quarterly earnings fluctuations.

Management expects a $1 per-share pricing benefit in the second quarter, followed by headwinds of 55 cents and $2.62 in the third and fourth quarters, respectively. Consequently, Kennametal now anticipates exiting fiscal 2027 with a low-double-digit EBITDA margin.

Kennametal Addresses Infrastructure Volume Weakness

President and chief executive officer Sanjay Chowbey identified Infrastructure volume recovery as a major operational priority.

Despite reported Infrastructure sales growth of 98%, volumes declined at a low-double-digit rate. Management attributed the weakness to price-sensitive applications, mining disruptions in China and limited product substitution.

Responding to a Morgan Stanley analyst, Chowbey outlined selective pricing adjustments and opportunities to recover lost business. The company expects modest improvement during the second quarter, with most anticipated volume recovery occurring in the second half of fiscal 2027.

KMT Builds on Metal Cutting Growth Momentum

Metal Cutting delivered its fourth consecutive quarter of volume improvement, with mid-single-digit growth supported by aerospace, defense and energy applications.

Chowbey emphasized targeted commercial initiatives designed to capture market share in applications requiring specialized materials and engineering expertise.

Management highlighted expanding opportunities in U.S. defense manufacturing and power generation supporting data centers. These initiatives remain central to its strategy of generating above-market growth while improving the mix of higher-value applications.

Kennametal Targets Sustainable Margin Expansion

Management reaffirmed its longer-term adjusted EBITDA margin target of 16-19% beyond fiscal 2027, assuming tungsten prices stabilize at elevated levels.

Chowbey identified volume growth, strategic pricing, lean transformation and portfolio management as the four principal drivers supporting the target.

Responding to a JPMorgan analyst, Watson explained that Kennametal expects long-term end-market growth of 1-2%, supplemented by approximately 1-2 percentage points from market share gains. Management also emphasized productivity improvements and selective portfolio actions as additional profitability drivers.

KMT Prioritizes Cash Conversion and Inventory Efficiency

Despite strong reported earnings, Kennametal generated negative free operating cash flow of $212 million during the quarter, compared with negative $5 million a year earlier.

Watson attributed the deterioration primarily to higher tungsten-driven inventory valuations and advance supplier payments. Inventory value increased approximately threefold over the preceding 18 months, creating substantial working capital requirements.

Management outlined initiatives targeting inventory efficiency, supplier payment terms and material movement throughout manufacturing operations. Share repurchases remain paused until free operating cash flow returns to positive territory, while the company continues its dividend payments.

Kennametal Advances Lean Transformation Initiatives

Chowbey highlighted continued progress in embedding lean manufacturing practices across the organization.

Since fiscal 2025, Kennametal has conducted over 300 improvement events involving 3,000-plus employees, generating more than $70 million in cumulative gross savings.

Executives emphasized that these initiatives support productivity, inventory efficiency and long-term margins. Management remains focused on converting operational improvements into sustainable earnings and cash generation rather than relying on temporary raw material pricing benefits.

What KMT's Zacks Rank and Style Scores Indicate

KMT currently carries a Zacks Rank #3 (Hold), reflecting a neutral near-term earnings estimate revision outlook. Its Value Score and Momentum Score of A indicate favorable valuation characteristics and comparatively strong price momentum. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

However, the Growth Score of F reflects weak growth-style characteristics under the Zacks methodology. Its VGM Score of B indicates favorable combined Value, Growth and Momentum characteristics. This presents a mixed overall profile despite favorable valuation and momentum indicators. The Zacks Rank can change as analysts revise earnings estimates following the latest quarterly results.

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