Kennametal Inc.

What they do

Kennametal develops and manufactures tungsten carbides, ceramics, super-hard materials and related tooling used in metal cutting and extreme wear applications. It operates two reporting segments: Metal Cutting, which sells standard and custom milling, hole making, turning, threading and toolmaking systems under the Kennametal, WIDIA, WIDIA Hanita and WIDIA GTD brands, and Infrastructure, which produces engineered tungsten carbide and ceramic components, earth cutting tools and metallurgical powders. Products reach customers through a direct sales force, independent and national distributors, integrated supplier channels and digital channels.

Revenue drivers

• Metal Cutting — Develops and sells high-performance tooling and metal cutting products and services to the General Engineering, Transportation, Aerospace & Defense and Energy end markets, marketed under the Kennametal and WIDIA brands; the company reported a 14.0 percent operating margin for this segment in fiscal 2026.
• Infrastructure — Produces engineered tungsten carbide and ceramic components, earth cutting tools and advanced metallurgical powders for Earthworks, General Engineering, Energy and Aerospace & Defense, including compacts, nozzles, frac seats, rod blanks, mining and road milling tools and armor solutions; reported fiscal 2026 operating margin of 29.2 percent.
• Pricing and raw material pass-through — Fiscal 2026 results were driven by the favorable timing of raw material-related pricing compared to costs of approximately $316 million, plus non-raw material-related pricing and tariff surcharges in Metal Cutting.
• Regional and end-market demand — For the nine months ended March 31, 2026, Infrastructure sales rose 13 percent on organic growth of 15 percent and a 2 percent favorable currency effect, partially offset by a 4 percent divestiture effect.

Recent performance

Fiscal 2026 sales were $2,356.7 million, up 20 percent from $1,966.8 million in fiscal 2025, reflecting 19 percent organic growth and a 2 percent favorable currency effect, partly offset by a 1 percent divestiture effect. Operating income was $472.5 million, or 20.1 percent margin, versus $143.1 million, or 7.3 percent margin, a year earlier. Fourth quarter sales of $737 million rose 43 percent year over year, with operating income of $303 million at a 41.1 percent margin and diluted EPS of $2.91. Fiscal 2026 net cash flow from operating activities was negative $4 million, compared with positive $208 million in the prior year, and free operating cash flow was negative $79 million.

Strategy

Management cited decisive pricing actions in an unprecedented tungsten environment, volume growth and cost improvement efforts as drivers of record adjusted EPS. The company is pursuing potential recovery opportunities from the February 2026 U.S. Supreme Court ruling invalidating certain IEEPA tariffs, with any refunds expected to be reinvested in the business. Prior restructuring actions delivered approximately $27 million of incremental year-over-year savings in fiscal 2026. A $200 million three-year share repurchase program authorized in February 2024 was used to repurchase 475 thousand shares for $10 million in fiscal 2026 before activity was paused.

Risks

• Tungsten and raw material cost inflation — Rising tungsten prices driven by tightening global supply, geopolitical factors and evolving trade policies have increased raw material costs and working capital, and the company cannot predict the ultimate effect on results.
• Working capital and negative operating cash flow — Fiscal 2026 operating cash flow turned negative $4 million and free operating cash flow was negative $79 million, driven by higher inventory values and advance payments to secure raw material supply.
• Tariff and trade policy uncertainty — Tariffs and general inflation partly offset fiscal 2026 operating income gains, and the timing and amount of any IEEPA tariff refunds remain uncertain, with no related benefit material through June 30, 2026.
• End-market and FX volatility — Sales and margins are exposed to softer conditions in end markets such as Energy in EMEA and Asia Pacific and to foreign currency exchange movements that the company does not control.

Outlook

Management expects first quarter fiscal 2027 sales of $745 million to $775 million and adjusted EPS of $2.50 to $2.80, with foreign exchange anticipated to be neutral versus the first quarter of fiscal 2026. For the full fiscal year, the company guides sales of $3.33 billion to $3.45 billion. Management said it is encouraged by volume trends across several end markets and expects improving conditions and strategic initiatives to drive sales growth through fiscal 2027.