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    KMT
    Earnings call· Jun 2026(Q4 FY26)

    KENNAMETAL Q4 FY26 earnings call KMT

    Aug 5, 2026 Source

    Executive summary

    Kennametal Q4 FY26 — Record Margins and EPS Driven by Pricing and Volume

    Kennametal delivered a strong Q4 FY26, achieving record adjusted EBITDA margins and EPS, primarily driven by decisive pricing actions and volume improvements across most end markets. The company successfully navigated a challenging tungsten cost environment, securing significant restructuring savings and enhancing liquidity. While the FY27 EPS outlook appears flat at the midpoint, management emphasizes underlying operational strength and growth initiatives are offsetting non-operational headwinds, with free cash flow expected to turn positive in the second half of FY27.

    Highlights

    5

    • Full year organic sales increased 19% year-over-year, driven by price and modest volume.

    • Q4 adjusted EBITDA margin reached a record 46.8%, up from 14.8% in the prior year quarter.

    • Q4 adjusted EPS was a record $2.96, compared to $0.34 in the prior year.

    • Secured $27 million in restructuring savings in FY26, on track for $110 million by end of FY27.

    • Enhanced liquidity with $926 million combined cash and revolver availability and extended debt maturities to 2029, 2031, and 2036.

    Concerns

    4

    • Full year free operating cash flow was negative $79 million, down from positive $121 million in the prior year, due to increased working capital from higher tungsten prices.

    • FY27 adjusted EPS outlook of $4.15 to $5.15 is flat at the midpoint ($4.65) year-over-year, impacted by non-operational headwinds like Bolivia FX ($0.23 drag) and higher interest expense ($0.25 drag).

    • Transportation end market is expected to be soft, with global light vehicle production forecast down about 1 point in FY27.

    • Soft coal markets in the U.S. and China partially offset earthworks mining share gains.

    Guidance & targets

    13
    CategoryTargetConfidence
    Full-year FY27 Sales
    $3.33 billion and $3.45 billion
    high materiality
    High
    Full-year FY27 Interest Expense
    approximately $50 million
    medium materiality
    High
    Full-year FY27 Effective Tax Rate
    approximately 25%
    medium materiality
    High
    Full-year FY27 Adjusted EPS
    $4.15 to $5.15
    high materiality
    High
    Full-year FY27 Working Capital Expenditures
    $85 million
    medium materiality
    High
    Full-year FY27 Primary Working Capital
    45%
    medium materiality
    High
    Full-year FY27 Free Operating Cash Flow
    approximately 20% of adjusted net income
    high materiality
    High
    Q1 FY27 Sales
    $745 million and $775 million
    high materiality
    High
    Q1 FY27 Interest Expense
    approximately $11 million
    medium materiality
    High
    Q1 FY27 Effective Tax Rate
    approximately 25%
    medium materiality
    High
    Q1 FY27 Adjusted EPS
    $2.50 to $2.80
    high materiality
    High
    Q4 FY27 EBITDA Margins
    mid-teens
    high materiality
    High
    Volume Leverage (high tungsten environment)
    mid-30s
    medium materiality
    Medium

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Metal Cutting
    Outperformed public peers for the fourth consecutive quarter. Margin driven by favorable raw material pricing timing ($54 million), non-raw material pricing, tariff surcharges, higher sales/production volume, and restructuring savings ($4 million).
    Americas sales growth (constant currency): 29%Asia Pacific sales growth (constant currency): 20%EMEA sales growth (constant currency): 16%Energy sales growth (constant currency): 36%Aerospace and Defense sales growth (constant currency): 35%General Engineering sales growth (constant currency): 25%Transportation sales growth (constant currency): 7%
    		—22% organically—27.3% adjusted operating margin
    Infrastructure
    Margin primarily due to favorable raw material pricing timing ($198 million), partially offset by lower sales/production volume, higher compensation, and general inflation. Volume was flat due to prioritization choices.
    Americas sales growth (constant currency): 103%EMEA sales growth (constant currency): 46%Asia Pacific sales growth (constant currency): 40%Energy sales growth (constant currency): 135%Earthworks sales growth (constant currency): 76%Aerospace and Defense sales growth (constant currency): 63%General Engineering sales growth (constant currency): 37%
    		—74% organically—58.4% adjusted operating margin

    Operational metrics

    44
    Organic sales growth
    19%YoY
    FY26

    Driven by additional price realization and modest volume.

    Adjusted EPS
    $4.57vs $1.34 prior year
    FY26

    Full year adjusted EPS.

    Adjusted EBITDA margin
    26.9%vs 15.2% prior year
    FY26

    Full year adjusted EBITDA margin.

    Restructuring savings
    $27 million
    FY26

    Realized restructuring savings.

    Capital returned to shareholders
    $71 million
    FY26

    Total capital returned.

    Net capital expenditures
    $75 millionvs $87 million prior year
    FY26

    Net capital expenditures for the full year.

    Organic sales growth
    42%
    Q4 FY26

    Fourth consecutive quarter of organic sales growth.

    Adjusted EBITDA margin
    46.8%vs 14.8% prior year
    Q4 FY26

    Record adjusted EBITDA margin.

    Adjusted operating margin
    41.5%vs 7.4% prior year
    Q4 FY26

    Record adjusted operating margin.

    Adjusted EPS
    $2.96vs $0.34 prior year
    Q4 FY26

    Record high adjusted EPS for the quarter.

    Effect of operations on EPS
    $2.55YoY
    Q4 FY26

    Year-over-year effect of operations on EPS.

    Effective tax rate impact on EPS
    $0.09 benefit
    Q4 FY26

    Contribution from lower effective tax rate.

    Other EPS impact
    headwind of $0.07
    Q4 FY26

    Headwind from other items.

    Transaction gains (Bolivia exchange rates)
    $0.04
    Q4 FY26

    Related to preferential Bolivia exchange rates.

    Inflation Reduction Act tax credit
    $0.01 gain
    Q4 FY26

    Gain from the Inflation Reduction Act tax credit.

    Americas sales growth (constant currency)
    60%
    Q4 FY26

    Company-wide sales growth in Americas on a constant currency basis.

    Asia Pacific sales growth (constant currency)
    28%
    Q4 FY26

    Company-wide sales growth in Asia Pacific on a constant currency basis.

    EMEA sales growth (constant currency)
    24%
    Q4 FY26

    Company-wide sales growth in EMEA on a constant currency basis.

    Energy end market sales growth (constant currency)
    101%
    Q4 FY26

    Company-wide sales growth in Energy end market on a constant currency basis.

    Earthworks end market sales growth (constant currency)
    76%
    Q4 FY26

    Company-wide sales growth in Earthworks end market on a constant currency basis.

    Aerospace and Defense end market sales growth (constant currency)
    43%
    Q4 FY26

    Company-wide sales growth in Aerospace and Defense end market on a constant currency basis.

    General Engineering end market sales growth (constant currency)
    28%
    Q4 FY26

    Company-wide sales growth in General Engineering end market on a constant currency basis.

    Transportation end market sales growth (constant currency)
    7%
    Q4 FY26

    Company-wide sales growth in Transportation end market on a constant currency basis.

    Combined cash and revolver availability
    $926 million
    Q4 FY26

    At quarter end, well within financial covenants.

    New term loan availability
    $500 million
    Q4 FY26

    Full availability of new term loan.

    Remaining 2028 notes redeemed
    $91 million
    Q4 FY26

    Remaining outstanding notes redeemed on July 1, meaningfully extending debt maturity profile.

    Restructuring savings (rollover)
    $10 million
    FY27

    Rollover savings from previously announced restructuring initiative included in FY27 outlook.

    FY27 EPS bridge (operations)
    $0.53
    FY27

    Tailwind from operations in the FY27 EPS bridge.

    FY27 EPS bridge (Bolivia FX headwind)
    $0.23
    FY27

    Year-over-year headwind from Bolivia FX.

    FY27 EPS bridge (higher interest expense)
    $0.25 drag
    FY27

    Drag from higher interest expense.

    FY27 EPS bridge (other items)
    $0.08
    FY27

    Impact from other items in the FY27 EPS bridge.

    FY27 EPS bridge (taxes)
    $0.04
    FY27

    Impact from taxes in the FY27 EPS bridge.

    FY27 EPS bridge (pension)
    $0.02
    FY27

    Impact from pension in the FY27 EPS bridge.

    FY27 EPS bridge (IRA advanced manufacturing credit)
    $0.17 benefit
    FY27

    Benefit from the Inflation Reduction Act advanced manufacturing credit.

    FY27 EPS bridge (price raw tungsten impact)
    $0.39vs $3.11 in prior year
    FY27

    Impact from price raw tungsten in the FY27 EPS bridge.

    FY26 Adjusted EPS (prior midpoint)
    $3.88
    FY26

    Prior midpoint for FY26 adjusted EPS, used in analyst's reconciliation.

    FY26 Price raw effect (prior guide)
    $2.45
    FY26

    Price raw effect in FY26 from prior guidance, used in analyst's reconciliation.

    FY27 Comp tailwind (prior guide)
    $0.20
    FY27

    Tailwind going into FY27 from a comp perspective, from prior guidance.

    Clean FY26 EPS (calculated)
    $1.63
    FY26

    Calculated clean FY26 EPS based on prior guidance figures.

    Clean FY26 EPS (updated)
    $1.64
    FY26

    Updated clean FY26 EPS based on actual Q4 results.

    Q1 FY27 EPS (favorable raw material timing)
    $2.25
    Q1 FY27

    Favorable timing of raw material pricing compared to costs included in Q1 FY27 EPS outlook.

    Q1 FY27 cash draw
    approximately $200 million
    Q1 FY27

    Sizable cash draw expected in Q1 FY27 due to inventory valuation.

    FY27 volume growth from share gain
    1% to 2%
    FY27

    Portion of overall volume growth attributed to share gains and strategic initiatives.

    FY27 volume growth from market
    1% to 3%
    FY27

    Portion of overall volume growth attributed to market conditions (total FY27 volume guidance 1% to 4%).

    Industry KPIs

    6
    MetricValueDetails
    Tariff cost impact—
    Parts aftermarket business—
    Data center prime power demandrapid expansion
    Incremental margin operating leveragemid-30s%
    Order backlog order intake by segment—
    Industry production market size forecastslow single digits%

    Risks & headwinds

    7
    Increased working capital requirementsFY26, expected to continue into H1 FY27

    Negative $79 million FCF in FY26

    Mitigation: Enhanced liquidity, extended debt maturities, expectation for FCF to turn positive in H2 FY27.

    Soft Transportation End MarketFY27

    Global light vehicle production forecast down about 1 point in FY27

    Mitigation: Focus on other growing end markets like Aerospace & Defense, Energy, General Engineering.

    Soft Coal MarketsOngoing

    Not quantified, but partially offsets earthworks mining share gains.

    Mitigation: Customers consolidating towards reliable suppliers like Kennametal.

    Bolivia FX HeadwindFY27

    $0.23 EPS drag in FY27

    Mitigation: Offset by operational momentum, price realization, volume, and cost discipline.

    Higher Interest ExpenseFY27

    $0.25 EPS drag in FY27

    Mitigation: Offset by operational momentum, price realization, volume, and cost discipline; debt maturity extended.

    Tungsten Price VolatilityFY27, with timing benefits in H1 and headwind in H2.

    $0.39 EPS price raw tungsten impact in FY27 (compared to $3.11 in prior year)

    Mitigation: Decisive pricing actions, supply chain optimization, processing capacity management, strategic allocation of tungsten.

    General Inflation and Higher Compensation CostsOngoing

    Partially offset margin improvements and EPS.

    Mitigation: Restructuring savings, lean transformation, price realization.

    What to watch in Q1 FY27

    5

    Free Operating Cash Flow

    Second half of FY27.
    CurrentNegative $79 million (FY26), expected sizable draw of ~$200 million in Q1 FY27.
    TargetTurn positive.

    Why it matters

    Indicates the company's ability to generate cash after significant working capital investment due to tungsten prices, crucial for financial health and shareholder returns.

    The working capital build will follow the same pattern, and we expect free operating cash flow to turn positive in the second half.

    Q&A highlights

    5

    Reconciling the FY27 EPS guide with prior normalized earnings expectations, specifically regarding the impact of tungsten pricing. Analyst noted a prior normalized EPS of ~$1.60 and an implied $1.15 from the current bridge.

    Pat Watson clarified that the 'clean FY26' normalized EPS was $1.63 (or $1.64 with Q4 actuals). He explained that the FY27 bridge includes a $0.39 raw material timing benefit, but this benefit will reverse in the second half of the year, making the first half positive and the second half a headwind year-over-year. He advised taking out the full tungsten impact from FY26 ($2.43) and FY27 ($0.39) to get a normalized view.

    “I would say if you think about those numbers in the context now of what actually happened in the fourth quarter, EPS came in a bit higher, $4.57, really driven by a little bit of pricing, a little bit of raw material. That's why that price raw number went from $2.45 to $3.11, right? And then that comp number came in a little bit tighter. And so that's an $0.18 tailwind going into FY '27, so $1.64.”

    asked by Angel Castillo Malpica · answered by Patrick Watson

    1 min read5 chapters

    Detailed Narrative

    01

    Fiscal Year 2026 Performance Highlights

    Kennametal achieved strong fiscal '26 results with 19% organic sales growth, driven by price realization and modest volume. Adjusted EPS increased to $4.57, and adjusted EBITDA margin reached 26.9%. The company realized $27 million in restructuring savings and returned $71 million to shareholders, despite negative free cash flow of $79 million due to increased working capital for tungsten.

    02

    Aerospace Composites Growth Opportunity

    The company highlighted its metal cutting solutions for carbon fiber reinforced plastics (CFRP) in aerospace, a $500 million market growing at 9% annually through 2028. These diamond-coated tools offer durable recurring revenue due to their high consumption rate and non-reconditionable nature, leveraging Kennametal's material science and engineering expertise.

    03

    End Market Demand Environment

    For FY27, aerospace and defense is expected to be a structural growth engine with recovering OEM build rates and increased defense budgets. Energy growth is anticipated to be strong with rig counts up high single digits and rapid expansion in AI data center power generation. General engineering is stable, while transportation is soft, and earthworks faces soft coal markets.

    04

    Liquidity and Debt Management

    Kennametal enhanced its liquidity, ending Q4 with $926 million in combined cash and revolver availability. The company secured a new $500 million term loan, which will be fully drawn in Q1 FY27 to pay down revolver borrowings, extending debt maturities to 2029, 2031, and 2036.

    05

    Tungsten Impact and Cash Flow Outlook

    The company expects the favorable timing of📎 raw material pricing to be materially behind by Q3 FY27, with tungsten pricing and costing aligning in the second half. Free operating cash flow is projected to turn positive in the second half of FY27, following a sizable cash draw of approximately $200 million in Q1 FY27 due to inventory valuation.

    AI-generated summary of the company’s earnings call. Not investment advice.