Can Kennametal (KMT) Beat Earnings Estimates This Quarter?

Zacks Equity Research

Kennametal Inc. (KMT) is scheduled to report its fourth-quarter fiscal 2014 (ended Jun 2014) results on Jul 31 before the market opens. The Zacks Consensus Estimate for the quarter is pegged at 89 cents per share.

In the preceding quarter, Kennametal reported better-than-expected results with an earnings surprise of +2.78%. Let's see how things are shaping up for the fourth-quarter release.

Factors to Influence Q4 Results

Operating environment for companies like Kennametal was quite favorable in this quarter. Industrial activities measured in terms of production grew 5.5% year over year in the U.S. This included a 6.7% annual hike in manufacturing production and an 18.8% increase in mining production.

Also, the tungsten materials business of Allegheny Technologies acquired in Nov 2013 will enable Kennametal to expand its presence in key growth sectors, including aerospace, energy and associated process industries. The business added $340 million to the company’s annual revenue generation capacity and is expected to cut expenses by $35–$45 million through consolidation of operations, reduction in administrative overhead costs and leveraging supply chain.

Moreover, Kennametal’s commitment towards rewarding its shareholders through dividends and share buybacks will work in its favor. The company has an authorized 17 million share buyback program in place. Lower share count will eventually boost earnings per share.  

Earnings Whispers?

Our proven model conclusively shows that Kennametal is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. A brief discussion on this is provided below.

Zacks ESP: Kennametal has an ESP of +1.12% for fiscal fourth-quarter 2014, which indicates the difference between the Most Accurate estimate of 90 cents and the Zacks Consensus Estimate of 89 cents.

Zacks Rank: Kennametal carries a Zacks Rank #3 (Hold), which together with a positive ESP makes us more confident about an earnings beat this quarter.

However, we caution against stocks with Zacks Ranks #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revision momentum.

Other Stocks to Consider

Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:  

Bemis Company, Inc. (BMS), with Earnings ESP of +1.49% and a Zacks Rank #2 (Buy).

Lincoln Electric Holdings Inc. (LECO), with Earnings ESP of +1.10% and a Zacks Rank #3.

Eaton Corporation plc (ETN), with Earnings ESP of +0.90% and a Zacks Rank #3.

Read the Full Research Report on KMT
Read the Full Research Report on BMS
Read the Full Research Report on LECO
Read the Full Research Report on ETN


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