Kennametal(KMT) - 2025 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Sales decreased by 3% year over year, with an organic decline of 6% partially offset by favorable workdays of 3% [34] - Adjusted EBITDA margin improved to 13.9% from 12.4% in the prior year [22] - Adjusted EPS decreased to $0.25 from$0.30 in the prior year [37] - Cash from operating activities year to date was $101 million compared to$88 million in the prior year [22] - Free operating cash flow year to date increased to $57 million from$36 million in the prior year [48] Business Line Data and Key Metrics Changes - Infrastructure sales decreased 4% organically while metal cutting was down 7% [18] - Aerospace and defense grew 14%, while energy grew 1% [20] - General engineering declined 4%, earthworks declined 7%, and transportation declined 9% [20] - Metal cutting adjusted operating margin decreased to 6% from 8.4% year over year [43] - Infrastructure adjusted operating margin increased by 670 basis points due to various factors [47] Market Data and Key Metrics Changes - Americas sales were flat at 0%, Asia Pacific sales decreased 3%, and EMEA declined 7% organically [18] - EMEA faced lower production volumes and realignment of investments among customers [21] - Mining capital investment in Asia decreased, impacting earthworks market [20] Company Strategy and Development Direction - Company announced actions to reduce structural costs and footprint, including plant closures and workforce reductions [8][10] - A commitment to achieve $100 million in cost savings by fiscal 2027 was reiterated [11][66] - Continuous improvement initiatives are a key focus area for enhancing profitability [65] Management's Comments on Operating Environment and Future Outlook - Management expressed disappointment with recent results but remains committed to above-market growth and margin improvement [63] - The outlook for the full year reflects weakened market conditions and a strengthening U.S. Dollar [26][57] - Management noted that while external factors are challenging, they are focusing on controllable aspects [17] Other Important Information - The company continued its share repurchase program, buying back$15 million worth of shares during the quarter [50] - The effective tax rate increased year over year to 26.9% due to various factors [37] - The company expects Q3 sales to be between $480 million and$500 million, with a negative volume impact [53] Q&A Session Summary Question: Current demand environment in general engineering - Management noted some improvement in order incoming rates and billing rates, particularly in the second half of January [71][73] Question: Thoughts on cost structure and operating margins - Management confirmed ongoing restructuring actions and non-headcount related measures to improve margins [78] Question: Improvement in orders in January - Orders improved across various industries, including general engineering, with notable improvements in EMEA [83] Question: Plans for segment heads and broader changes - New segment heads are expected to focus on growth, margin improvement, and portfolio optimization [92] Question: Competitive dynamics in Earthworks - Management acknowledged pressures from reduced capital investment in China and production slowdowns in the U.S. [116] Question: Inventory management and customer inventories - Company plans to reduce inventory levels and noted that customer inventories are well controlled despite changing market conditions [110][113]