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Why Is Kennametal (KMT) Down 8.5% Since Last Earnings Report?
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It has been about a month since the last earnings report for Kennametal (KMT - Free Report) . Shares have lost about 8.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Kennametal due for a breakout? 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 Inc. reported better-than-expected results for fourth-quarter fiscal 2022 (ended Jun 30, 2022). KMT’s earnings beat the Zacks Consensus Estimate by 12.8%. Also, quarterly sales beat estimates by 1.5%.
Adjusted earnings in the quarter under review were 53 cents per share, beating the Zacks Consensus Estimate of 47 cents. The bottom line is in line with the year-ago figure.
For fiscal 2022, KMT’s adjusted earnings were $1.78, surpassing the Zacks Consensus Estimate of $1.73. Also, the bottom line improved 71.2% from the year-ago figure of $1.04.
Revenue Details
In the quarter under review, Kennametal’s revenues were $530 million, reflecting an increase of 3% from the year-ago quarter’s figure. Organic sales in the quarter grew 7%. Foreign currency headwind left an adverse impact of 4%. Business in energy, general engineering, transportation, aerospace and earthworks markets flourished in the quarter.
KMT’s revenues beat the Zacks Consensus Estimate of $522 million.
On a geographical basis, its revenues from America operations increased 10% year over year to $263.9 million, whereas sales from Europe, the Middle East and Africa region were $152.2 million, up 6% from the year-ago quarter’s reading. Sales from the Asia Pacific belt increased 3% to $113.9 million.
Kennametal reports results under two business segments, namely Metal Cutting and Infrastructure. Its segmental performance for the fiscal third quarter is briefly discussed below:
Metal Cutting revenues of $316 million were up 1% year over year. Organic sales growth in the quarter was 7%. Forex woes had an adverse impact of 6%.
Infrastructure revenues totaled $214 million, increasing 5% year over year. The results gained from 7% growth in organic sales, while foreign currency movements had an adverse impact of 2%.
For fiscal 2022, Kennametal’s revenues were $2 billion, in line with the Zacks Consensus Estimate. On a year-over-year basis, the top line increased 9%.
Margin Profile
Kennametal’s cost of goods sold in the reported quarter increased 5.9% year over year to $360.4 million. The same represented 68% of revenues compared with 65.9% in the year-ago quarter. The gross profit decreased 3.4% year over year to $169.7 million wherein the margin contracted 210 basis points (bps) to 32%. Operating expenses summed $103 million in the quarter under review, down 4.6% year over year. As a percentage of revenues, operating expenses were 19.4% compared with 20.9% a year ago.
Adjusted operating income in the reported quarter inched up 1.5% year over year to $65 million. Adjusted operating margin decreased 30 bps year over year to 11.4%. Manufacturing inefficiencies and high depreciation rate were spoilsports.
Interest expenses in the reported quarter were $6.7 million, up 1.5% from the year-ago quarter’s figure. The adjusted effective tax rate was 27.6% in the quarter under review, up from 13.6% in the prior-year quarter.
Balance Sheet and Cash Flow
At the time of exiting the fiscal fourth quarter, Kennametal’s cash and cash equivalents were $86 million, down 44.2% from the year-ago quarter’s figure of $154 million. Long-term debt was $594 million, up from $592 million in the previous quarter.
In the full fiscal, Kennametal generated net cash of $181.4 million from operating activities, decreasing 23% from the previous fiscal year’s figure. Capital invested in purchasing property, plant and equipment (net of the amount received on disposals) was $96.9 million, down 23.9% from $127.3 million in the prior fiscal year. Free cash flow was $85.4 million compared with $112.8 million in the previous fiscal year.
In fiscal 2022, KMT’s dividend payments totaled $67 million and it repurchased shares worth $85 million.
Kennametal announced that its board of directors approved a quarterly cash dividend of 20 cents per share to its shareholders of record as of Aug 9, 2022. The disbursement will be made on Aug 23.
Outlook
For the first quarter of fiscal 2023 (ending September 2022), Kennametal anticipates sales of $480-$500 million, suggesting the figure to decrease 6-9%, sequentially. On a sequential basis, continued growth in energy, aerospace, earthworks and general engineering end markets will be beneficial. Business in the transportation market is expected to be flat.
Adjusted operating income for the quarter is anticipated to be $45 million (at least). Adjusted tax rate is anticipated to be 26-28% for the quarter.
For fiscal 2023 (ending June 2023), favorable pricing is anticipated to offset inflation related to wage and raw material costs. The adjusted tax rate is anticipated to be 26-28% in full fiscal compared with 27.2% in fiscal 2022. Free operating cash flow is expected to be approximately 100% of net income (adjusted).
Capital spending is expected to be $100-$120 million in the current fiscal year compared with $97 million reported in fiscal 2022.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
The consensus estimate has shifted -10% due to these changes.
VGM Scores
Currently, Kennametal has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. 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 #4 (Sell). We expect a below average return from the stock in the next few months.
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Why Is Kennametal (KMT) Down 8.5% Since Last Earnings Report?
It has been about a month since the last earnings report for Kennametal (KMT - Free Report) . Shares have lost about 8.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Kennametal due for a breakout? 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 Q4 Earnings & Revenues Surpass Estimates
Kennametal Inc. reported better-than-expected results for fourth-quarter fiscal 2022 (ended Jun 30, 2022). KMT’s earnings beat the Zacks Consensus Estimate by 12.8%. Also, quarterly sales beat estimates by 1.5%.
Adjusted earnings in the quarter under review were 53 cents per share, beating the Zacks Consensus Estimate of 47 cents. The bottom line is in line with the year-ago figure.
For fiscal 2022, KMT’s adjusted earnings were $1.78, surpassing the Zacks Consensus Estimate of $1.73. Also, the bottom line improved 71.2% from the year-ago figure of $1.04.
Revenue Details
In the quarter under review, Kennametal’s revenues were $530 million, reflecting an increase of 3% from the year-ago quarter’s figure. Organic sales in the quarter grew 7%. Foreign currency headwind left an adverse impact of 4%. Business in energy, general engineering, transportation, aerospace and earthworks markets flourished in the quarter.
KMT’s revenues beat the Zacks Consensus Estimate of $522 million.
On a geographical basis, its revenues from America operations increased 10% year over year to $263.9 million, whereas sales from Europe, the Middle East and Africa region were $152.2 million, up 6% from the year-ago quarter’s reading. Sales from the Asia Pacific belt increased 3% to $113.9 million.
Kennametal reports results under two business segments, namely Metal Cutting and Infrastructure. Its segmental performance for the fiscal third quarter is briefly discussed below:
Metal Cutting revenues of $316 million were up 1% year over year. Organic sales growth in the quarter was 7%. Forex woes had an adverse impact of 6%.
Infrastructure revenues totaled $214 million, increasing 5% year over year. The results gained from 7% growth in organic sales, while foreign currency movements had an adverse impact of 2%.
For fiscal 2022, Kennametal’s revenues were $2 billion, in line with the Zacks Consensus Estimate. On a year-over-year basis, the top line increased 9%.
Margin Profile
Kennametal’s cost of goods sold in the reported quarter increased 5.9% year over year to $360.4 million. The same represented 68% of revenues compared with 65.9% in the year-ago quarter. The gross profit decreased 3.4% year over year to $169.7 million wherein the margin contracted 210 basis points (bps) to 32%. Operating expenses summed $103 million in the quarter under review, down 4.6% year over year. As a percentage of revenues, operating expenses were 19.4% compared with 20.9% a year ago.
Adjusted operating income in the reported quarter inched up 1.5% year over year to $65 million. Adjusted operating margin decreased 30 bps year over year to 11.4%. Manufacturing inefficiencies and high depreciation rate were spoilsports.
Interest expenses in the reported quarter were $6.7 million, up 1.5% from the year-ago quarter’s figure. The adjusted effective tax rate was 27.6% in the quarter under review, up from 13.6% in the prior-year quarter.
Balance Sheet and Cash Flow
At the time of exiting the fiscal fourth quarter, Kennametal’s cash and cash equivalents were $86 million, down 44.2% from the year-ago quarter’s figure of $154 million. Long-term debt was $594 million, up from $592 million in the previous quarter.
In the full fiscal, Kennametal generated net cash of $181.4 million from operating activities, decreasing 23% from the previous fiscal year’s figure. Capital invested in purchasing property, plant and equipment (net of the amount received on disposals) was $96.9 million, down 23.9% from $127.3 million in the prior fiscal year. Free cash flow was $85.4 million compared with $112.8 million in the previous fiscal year.
In fiscal 2022, KMT’s dividend payments totaled $67 million and it repurchased shares worth $85 million.
Kennametal announced that its board of directors approved a quarterly cash dividend of 20 cents per share to its shareholders of record as of Aug 9, 2022. The disbursement will be made on Aug 23.
Outlook
For the first quarter of fiscal 2023 (ending September 2022), Kennametal anticipates sales of $480-$500 million, suggesting the figure to decrease 6-9%, sequentially. On a sequential basis, continued growth in energy, aerospace, earthworks and general engineering end markets will be beneficial. Business in the transportation market is expected to be flat.
Adjusted operating income for the quarter is anticipated to be $45 million (at least). Adjusted tax rate is anticipated to be 26-28% for the quarter.
For fiscal 2023 (ending June 2023), favorable pricing is anticipated to offset inflation related to wage and raw material costs. The adjusted tax rate is anticipated to be 26-28% in full fiscal compared with 27.2% in fiscal 2022. Free operating cash flow is expected to be approximately 100% of net income (adjusted).
Capital spending is expected to be $100-$120 million in the current fiscal year compared with $97 million reported in fiscal 2022.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
The consensus estimate has shifted -10% due to these changes.
VGM Scores
Currently, Kennametal has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. 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 #4 (Sell). We expect a below average return from the stock in the next few months.