Why Is Kennametal (KMT) Up 6.7% Since Last Earnings Report?
It has been about a month since the last earnings report for Kennametal (KMT). Shares have added about 6.7% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Kennametal due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Kennametal Q2 Earnings Top Estimates, Revenues Down Y/Y
Kennametal reported second-quarter fiscal 2024 (ended Dec 31, 2023). adjusted earnings of 30 cents per share, which beat the Zacks Consensus Estimate of 25 cents. The bottom line increased 20% from the year-ago figure.
Revenue Details
In the quarter under review, Kennametal’s revenues were $495.3 million, decreasing 0.4% from the year-ago quarter’s figure. Organic sales declined 3% year over year in the quarter. Business days had a positive impact of 2%. Currency exchange positively affected sales by 1%.
KMT’s revenues matched the Zacks Consensus Estimate of $495 million.
On a geographical basis, revenues from American operations decreased 4.5% year over year to $238.9 million, whereas sales from Europe, the Middle East and Africa region were $152.9 million, up 7.4% from the year-ago quarter’s reading. Sales from the Asia Pacific belt decreased 1.1% to $103.5 million.
Kennametal reports results under two business segments, namely Metal Cutting and Infrastructure. Its segmental performance for the fiscal second quarter is briefly discussed below:
The Metal Cutting segment’s revenues of $311.4 million increased 4% year over year. Organic sales growth in the quarter was flat. Forex woes had a favorable impact of 2%. The Zacks Consensus Estimate for Metal Cutting’s revenues was pegged at $302 million.
The Infrastructure segment’s revenues totaled $183.9 million, decreasing 7% year over year. Foreign currency movements had an adverse impact of 1% and unfavorable business days were flat year over year. Organic sales declined 8% year over year. The consensus estimate for Infrastructure’s revenues was pegged at $191 million.
Margin Profile
Kennametal’s cost of goods sold in the reported quarter decreased 0.4% year over year to $355.7 million. The gross profit decreased 2.3% year over year to $139.6 million wherein the margin decreased 50 basis points (bps) to 28.2%. Operating expenses summed $107.3 million in the quarter under review, up 1.5% year over year.
The operating income decreased 19.8% year over year to $28.5 million. Operating margin decreased 140 bps year over year to 5.7%. Higher wages and general inflation, lower sales volumes and higher raw material costs were spoilsports.
Interest expenses in the reported quarter were $6.8 million, down 2.4% from the year-ago quarter’s figure. The adjusted effective tax rate was 9.0% in the quarter under review, down from 17.8% in the year-ago quarter.
Balance Sheet and Cash Flow
While exiting the second quarter of fiscal 2024, Kennametal’s cash and cash equivalents were $90.7 million compared with $106 million reported in fourth-quarter fiscal 2023. Long-term debt was $595.6 million, almost in line with $595.2 million reported in the fiscal fourth quarter of 2023.
In the first six months of fiscal 2024, Kennametal generated net cash of $88.3 million in operating activities compared with $52.6 million net cash generated in the previous fiscal year’s quarter. Capital invested in purchasing property, plant and equipment (net of the amount received on disposals) was $57.4 million, up 13.6% from $50.6 million in the prior fiscal year. Free operating cash flow was $36 million compared with $4.4 million in the previous fiscal year’s period.
In the second quarter of fiscal 2024, KMT paid a dividend worth $16 million and repurchased shares worth $15 million.
Q3 Fiscal 2024 Guidance
For the third quarter of fiscal 2024 (ending March 2024), Kennametal anticipates sales to be $510-$530 million. Earnings per share are anticipated to be 25-35 cents. The Zacks Consensus Estimate for earnings is 49 cents per share.
Fiscal 2024 Guidance
For fiscal 2024 (ending June 2024), the company anticipates sales to be $2.02-$2.07 billion compared with $2.10-$2.20 billion stated before. The Zacks Consensus Estimate is $2.08 billion. Adjusted earnings per share are anticipated to be $1.35-$1.65 compared with $1.75-$2.15 expected before. The consensus estimate for earnings is $1.74 per share. Free operating cash flow is expected to be approximately 100% of net income (adjusted).
Capital spending is expected to be $100-$110 million in the current fiscal year.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
The consensus estimate has shifted -35.57% due to these changes.
VGM Scores
At this time, Kennametal has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Kennametal has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
Performance of an Industry Player
Kennametal belongs to the Zacks Manufacturing - Tools & Related Products industry. Another stock from the same industry, Stanley Black & Decker (SWK), has gained 2.1% over the past month. More than a month has passed since the company reported results for the quarter ended December 2023.
Stanley Black & Decker reported revenues of $3.74 billion in the last reported quarter, representing a year-over-year change of -6.3%. EPS of $0.92 for the same period compares with -$0.10 a year ago.
Stanley Black & Decker is expected to post earnings of $0.53 per share for the current quarter, representing a year-over-year change of +229.3%. Over the last 30 days, the Zacks Consensus Estimate has changed +1.4%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Stanley Black & Decker. Also, the stock has a VGM Score of A.
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
Kennametal Inc. (KMT) : Free Stock Analysis Report
Stanley Black & Decker, Inc. (SWK) : Free Stock Analysis Report
