Kennametal Beats Q2 Forecasts on Pricing Power and Restructuring Gains, Raises Full-Year Outlook
Kennametal Inc. (NYSE: KMT) delivered a robust performance in its fiscal second quarter, surpassing analyst expectations and raising its full-year outlook. The industrial tooling and materials specialist cited effective pricing strategies in response to historically high tungsten costs, sustained project wins, and ongoing restructuring initiatives as key drivers behind the profit surge.
"Our team executed well in a dynamic cost environment," said President and CEO Sanjay Chowbey. "The outperformance was broad-based, supported by volume strength, including some customer buy-ahead activity, and modest improvements across our end markets."
On a year-over-year basis, Kennametal reported a 10% increase in organic sales, marking its second consecutive quarter of growth. More notably, profitability metrics improved sharply. Adjusted EBITDA margin expanded to 17.1% from 13.9% a year ago, while adjusted earnings per share nearly doubled to $0.47 from $0.25.
CFO Pat Watson detailed the margin drivers: "Favorable timing between our pricing actions and raw material costs—particularly in our Infrastructure segment—along with higher sales volumes in Metal Cutting and $8 million in restructuring savings provided significant lift." He acknowledged these gains were partially offset by inflation, higher compensation costs, and the absence of one-time benefits recorded in the prior year.
End-Market Strength & The Tungsten Challenge
Growth was led by the Infrastructure and Metal Cutting segments, which saw organic sales rise 11% and 9%, respectively. Geographically, the Americas led with a 16% constant-currency sales increase. By end market, Aerospace & Defense soared 23%, with Earthworks also posting an 18% gain.
A recurring theme was the impact of tungsten, a critical raw material whose price has surged approximately 33% year-to-date. Management acknowledged that customer "buy-ahead" activity, in anticipation of further price hikes, contributed meaningfully to the quarter's sales. The company has implemented surcharges and list-price increases in response, though there is a typical three-month lag in realizing the full benefit in its Metal Cutting business.
"We have a diversified sourcing strategy, including recycled materials and our facility in Bolivia, which reduces dependency on any single region," Watson stated, addressing supply chain concerns. Chowbey added that the company is actively pursuing material science and design innovations to use tungsten more efficiently in its products.
Raised Guidance & Strategic Positioning
Bolstered by the strong quarter, management raised its fiscal 2026 sales guidance to a range of $2.19 billion to $2.25 billion. Adjusted EPS is now projected to be between $2.05 and $2.45, which includes an estimated $0.95 benefit from the timing lag between price increases and raw material cost pass-through.
Chowbey also outlined a significant long-term opportunity tied to global electrification. "With electricity demand projected to grow about 3% annually through 2030—fueled by AI data centers, EVs, and grid expansion—our exposure across the energy value chain is a considerable strength," he said, noting that this "source to generation" market represented about 17% of fiscal 2025 sales.
Analyst & Investor Commentary
Sarah Chen, Portfolio Manager at Horizon Capital: "Kennametal's results demonstrate impressive pricing discipline and operational execution. Their ability to expand margins in the face of such raw material inflation is a testament to the strength of their brand and product portfolio. The raised guidance suggests management sees these tailwinds persisting."
Michael Rossi, Independent Manufacturing Analyst: "While the beat is commendable, investors should scrutinize the quality. A significant portion of earnings benefit is labeled as 'timing effects,' and working capital has ballooned due to inventory builds. The 'buy-ahead' sales also pull demand forward, potentially creating a headwind in subsequent quarters. This feels more like adept cost-pass-through than sustainable organic growth."
David Park, Engineering Firm Procurement Head: "As a customer, the constant price hikes are frustrating, even if we understand the tungsten situation. It forces us to re-evaluate sourcing and inventory strategies quarterly. Kennametal's product is essential, but the cost volatility is a major planning headache."
Lisa Wang, VP at a Mid-West Machine Shop: "The lag in their list-price adjustments hurts small shops like ours the most. We're absorbing higher tungsten costs for months before we can adjust our own customer quotes. It squeezes our margins unfairly. They talk about efficiency; maybe they should fix their pricing agility first."
The company ended the quarter with a strong liquidity position and amended its credit agreement, providing flexibility. For the upcoming fiscal third quarter, Kennametal expects sales between $545 million and $565 million, with adjusted EPS projected in the range of $0.50 to $0.60.