In This Article:
Kennametal Inc. KMT has failed to impress investors with its recent operational performance due to weakness across its businesses and high operational expenses.
Based in Pittsburgh, PA, Kennametal is a manufacturer, marketer and distributor of high-speed metal cutting tools, tooling systems and wear-resistant parts. Let’s discuss the factors that continue taking a toll on the firm.
Factors Affecting KMT
Business Weakness: Weakness in both segments remains a concern for Kennametal. The decrease in demand across the transportation end market, owing to lower volumes and project activity, is affecting the Metal Cutting segment’s performance. The segment’s revenues declined 4% year over year in the second quarter of fiscal 2025 (ended December 2024).
Also, the lackluster performance of the Infrastructure segment due to weakness in the general engineering end market arising from declines in industrial activity is a reason for concern. There was a particular softness in the earth works end market due to lower customer capital investment and decreasing mining activity. The segment’s organic revenues declined 4% year over year in the fiscal second quarter.
Owing to the prevailing softness across its businesses, KMT expects revenues to be in the range of $1.95-$2.0 billion for fiscal 2025 (ending June 2025), implying a year-over-year decrease of 3.5% at the midpoint.
KMT Stock’s Price Performance
Image Source: Zacks Investment Research
Over the past six months, the Zacks Rank #4 (Sell) company has lost 11.5% compared with the industry’s 5.3% decline.
High Costs Expenses: Kennametal has been witnessing the adverse impacts of high operating expenses. The company’s operating expenses increased 1.8% year over year in the second-quarter fiscal 2025. The impact of these costs is evident in the rise of operating expenses as a percentage of total revenues, which increased 100 basis points to reach 22.7%.
In the second quarter of fiscal 2025, the Metal Cutting segment’s operating margin decreased 10 basis points due to headwinds from higher wages, general inflation and certain manufacturing costs.
Forex Woes: With KMT’s operations spread globally, its business is exposed to risks arising from geopolitical issues, adverse movement in foreign currencies and governmental policies. In the first six months of fiscal 2025, forex woes negatively affected the Metal Cutting segment’s revenues by 1%.
Estimate Revisions: In the past 60 days, the Zacks Consensus Estimate for Kennametal’s fiscal 2025 earnings has trended down from $1.44 per share to $1.17 on four downward estimate revisions against none upward. The consensus estimate for fiscal 2026 earnings decreased from $1.60 per share to $1.37 on four downward estimate revisions against none upward.