Kennametal Inc. KMT seems to have lost its sheen to challenging end-market conditions and other company-specific headwinds. This manufacturer, marketer and distributor of high-speed metal cutting tools, tooling systems and wear-resistant parts currently carry a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The company belongs to the Zacks Manufacturing – Tools & Related Products industry, currently at the bottom 4% (with the rank of 246) of more than 250 Zacks industries. We believe that the industry is suffering from adverse impacts of global uncertainties, unfavorable movements in foreign currencies, softness in the housing market and weakness in industrial production in the United States. Cost escalation due to tariff-related woes as well as commodity inflation, and high labor costs and freight charges are other concerns.
It is worth mentioning here that the company reported weaker-than-expected results for fourth-quarter fiscal 2019 (ended Jun 30, 2019), with earnings lagging estimates by 2.3%. On a year-over-year basis, earnings declined 3.4% due to weak sales results.
Kennametal’s shares have lost nearly 4.4% in the past three months compared with the industry’s growth of 2.3% and against the S&P 500’s growth of 3%. Its earnings estimates were lowered, reflecting bearish sentiments.
Headwinds Creating Trouble for Kennametal
Top and Bottom-Line Weakness: Kennametal predicts that end-market conditions will be challenging in the first half of fiscal 2020 (that ends in December 2019). For this period, earnings are likely to be just one-third of $2.80-$3.20 per share predicted for the fiscal year.
Organic sales growth is predicted to be (2%)-2% in fiscal 2020, whereas it recorded 3% growth in fiscal 2019 (ended June 2019). Also, the company believes that fall in tungsten prices will create margin headwinds for the Industrial segment in the first half of fiscal 2020.
In the past 60 days, the Zacks Consensus Estimate for earnings has declined 9.8% to $2.94 for fiscal 2020 (ended June 2020) and 8.9% to $3.26 for fiscal 2021 (ended June 2021).
Kennametal Inc. Price and Consensus
Kennametal Inc. price-consensus-chart | Kennametal Inc. Quote
Also, the company has Earnings ESP of -4.62% for fiscal 2020 and -3.78% for fiscal 2021. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Cost-Related Woes: Kennametal’s simplification/modernization actions adversely impacted its operating results in the last reported quarter. Notably, pre-tax charges of $10 million or 11 cents per share were incurred from these restructuring moves.
For fiscal 2020, the company predicts incurring pre-tax charges of $55-$65 million from restructuring moves announced in July 2019.
Forex Woes: Geographical diversification exposed Kennametal to headwinds, arising from geopolitical issues, macroeconomic challenges and unfavorable movements in foreign currencies. Notably, forex woes lowered sales by 4% and earnings by 5 cents per share in fourth-quarter fiscal 2019. Persistence of these headwinds may continue to adversely impact the company’s revenues and earnings.
Kennametal’s Performance Versus Three Peers
The company has underperformed three industry peers in the past three months. Three such stocks are Lincoln Electric Holdings, Inc. LECO, Stanley Black & Decker, Inc. SWK and Actuant Corporation ATU, with respective three-month gains of 6.4%, 2.3% and 2.8%.
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