Kennametal — Fiscal 2027 Q1 Earnings Summary

Financial Performance:

• Sales reached $768 million, a 54% increase from $498 million in the prior year quarter, driven by 54% organic sales growth.
• Operating income was $379 million (49.4% margin) compared to $38 million (7.5% margin) in the prior year quarter.
• Net income attributable to Kennametal was $271.6 million, compared to $23.3 million in the prior year quarter.
• Diluted earnings per share (EPS) were $3.48, compared to $0.30 in the prior year quarter.
• Year-to-date net cash flow from operating activities was negative $201 million, compared to positive $17 million in the prior year period.
• Year-to-date free operating cash flow (FOCF) was negative $212 million, compared to negative $5 million in the prior year period.
• Cash and cash equivalents increased to $272.8 million as of September 30, 2026, from $95.8 million as of June 30, 2026.
• Long-term debt increased to $1.1 billion as of September 30, 2026, from $685 million as of June 30, 2026.
• Inventories increased to $1.62 billion as of September 30, 2026, from $1.11 billion as of June 30, 2026, driven by unprecedented tungsten price increases.
• The increase in operating income was driven by favorable timing of raw material-related pricing compared to costs (approx. $323 million), non-raw material-related pricing, higher sales volumes, an incremental $4 million benefit from an advanced manufacturing production credit, and $3 million in restructuring savings.
• Operating income was partially offset by tariffs, general inflation, higher compensation costs, a $5 million impairment of an equity investment, and a $5 million charge for the write-off of fixed assets.

Guidance and Future Outlook:

• Reiterated FY27 full year sales outlook of $3.33 billion to $3.45 billion.
• Raised FY27 full year adjusted EPS guidance to $5.00 to $6.00.
• Second quarter FY27 sales expected to be $785 million to $815 million; foreign exchange anticipated to be neutral compared to Q2 FY26.
• Second quarter FY27 adjusted EPS expected to be $1.20 to $1.50.
• Full year FY27 free operating cash flow expected to be approximately 20% of adjusted net income.
• Full year FY27 capital spending expected to be approximately $85 million.
• Confirmed commitment to a 16% to 19% adjusted EBITDA margin profile beyond FY27, assuming tungsten prices remain at current levels.
• Expects Return on Invested Capital (ROIC) and FOCF performance to be consistent with previously communicated targets in a steady-state tungsten environment.

Business Segments and Product Lines:

• Metal Cutting sales were $398 million, up 28% from $311 million in the prior year quarter, reflecting 29% organic sales growth.
• Metal Cutting operating income was $118 million (29.7% margin) compared to $22 million (6.9% margin) in the prior year quarter.
• Infrastructure sales were $370 million, up 98% from $187 million in the prior year quarter, reflecting 97% organic sales growth and a 1% favorable currency exchange effect.
• Infrastructure operating income was $262 million (70.7% margin) compared to $17 million (8.9% margin) in the prior year quarter.
• Infrastructure operating income growth was driven by favorable raw material pricing timing (approx. $258 million), non-raw material pricing, and a $4 million benefit from an advanced manufacturing production credit.
• Infrastructure operating income was partially offset by lower sales and production volumes, tariffs, inflation, higher compensation costs, and a $3 million charge for the write-off of fixed assets.
• Growth initiatives are targeting Aerospace & Defense, Hybrid/EV powertrains, and power generation sectors.

Market and Competitive Landscape:

• Tungsten prices have increased eightfold since the September 2023 Investor Day.
• Overall market conditions have been improving over the past year.
• The company continues to gain traction on strategic growth initiatives to sustainably capture market share.

Risks and Challenges:

• Working capital requirements have increased due to unprecedented tungsten price increases and advance payments made to secure raw material supply.
• Risks include macroeconomic conditions, inflation, tariffs, global conflicts (Russia-Ukraine, Middle East), currency exchange rates, regulatory changes, and raw material availability and cost.
• Forward-looking statements involve inherent risks and uncertainties that could cause actual results to vary materially from expectations.

Management Commentary and Tone:

• Sanjay Chowbey, President and CEO, stated the company delivered "excellent first quarter results" driven by favorable raw material pricing timing and stronger Metal Cutting volumes.
• Management expressed confidence in the fiscal 2027 sales outlook and higher full-year EPS expectations.
• Management indicated that improving markets and execution on strategic growth initiatives position the company well for continued growth beyond fiscal 2027.

Other Key Points:

• The Board of Directors declared a quarterly cash dividend of $0.20 per share, payable on November 23, 2026, to shareholders of record as of November 9, 2026.
• Cash dividends paid to shareholders in the quarter were $15.2 million.
• The company issued $500 million in term debt borrowings and repaid $90.6 million in term debt during the quarter.
• The company hosts a conference call on November 4, 2026, at 9:30 a.m. Eastern Time to discuss results.
• Kennametal employs approximately 8,100 people across nearly 100 countries.