Kennametal (KMT) Stock Holds Promise Despite Cost Headwinds

·3 min read

Kennametal Inc. KMT is benefiting from innovation capabilities, solid product offerings, commercial and operational excellence and a wide geographical presence. In addition, the company’s diversified customer base in various end markets enables it to avoid customer concentration risks. It expects sales of $520-$530 million, driven by continued growth in energy, aerospace, general engineering and earthworks in third-quarter fiscal 2023 (ending March 2023). The midpoint of the guided range of $525 million implies a 2.5% jump from the fiscal third-quarter 2022 figure of $512 million.

Kennametal’s Metal Cutting segment is benefiting from strength in its general engineering, transportation, aerospace and energy end markets. Also, its strong pricing actions along with improvements in customer service and labor and material productivity bode well. Strength in energy, earthworks and general engineering end markets as well as continued focus on operational excellence initiatives is supporting the Infrastructure segment’s revenues.

The company’s efforts to reward its shareholders through dividend payments and share repurchases are noteworthy. In fiscal 2022 (ended June 2022) and in the first six months of fiscal 2023 (ended December 2023), dividend distribution to its shareholders totaled $67 million and $32.4 million, respectively. It bought back shares for $85 million in fiscal 2022 and $30.1 million in the first six months of fiscal 2023. Also, in July 2021, the company’s board of directors approved a share buyback worth $200 million.

However, Kennametal is facing challenges related to the supply chain and cost woes. In the first six months of fiscal 2023, the company’s cost of sales increased 5% year over year. In second-quarter fiscal 2023, operating income suffered a $12-million blow due to headwinds from higher raw material costs. Supply-chain restrictions, mainly related to chip availability, are expected to continue impacting the transportation market in the quarters ahead.

The company has operations in the EMEA region as well as across the Americas and the Asia Pacific, which exposes it to risks arising from unfavorable movement in foreign currencies and geopolitical issues. Forex woes had an adverse impact of 8% on Kennametal’s sales in the fiscal second quarter.

In the past six months, this currently Zacks Rank #3 (Hold) stock has surged 31% compared with the industry’s 11.2% increase.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Stocks to Consider

Some better-ranked companies from the Industrial Products sector are discussed below:

Deere & Company DE presently sports a Zacks Rank #1 (Strong Buy). DE’s earnings surprise in the last four quarters was 4.7%, on average. You can see the complete list of today’s Zacks #1 Rank stocks.

In the past 60 days, estimates for Deere & Company’s fiscal 2023 earnings estimates have increased 8.7%. The stock has rallied 12.1% in the past six months.

Ingersoll Rand Inc. IR presently carries a Zacks Rank #2 (Buy). IR’s earnings surprise in the last four quarters was 8.5%, on average.

In the past 60 days, estimates for Ingersoll Rand’s fiscal 2023 earnings have increased 1.7%. The stock has gained 13% in the past six months.

AGCO Corporation AGCO presently has a Zacks Rank of 2. AGCO’s earnings surprise in the last four quarters was 13.4%, on average.

In the past 60 days, estimates for AGCO’s fiscal 2023 earnings have increased 2.1%. The stock has rallied 19.7% in the past six months.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Deere & Company (DE) : Free Stock Analysis Report

AGCO Corporation (AGCO) : Free Stock Analysis Report

Ingersoll Rand Inc. (IR) : Free Stock Analysis Report

Kennametal Inc. (KMT) : Free Stock Analysis Report

To read this article on click here.

Zacks Investment Research