Kennametal Inc. (KMT Quick QuoteKMT - Free Report) reported lackluster results for fourth-quarter fiscal 2023 (ended Jun 30, 2023). KMT’s earnings miss the Zacks Consensus Estimate by 16.4% and quarterly sales missed estimates by 2.9%.

Adjusted earnings in the quarter under review were 51 cents per share, missing the consensus estimate of earnings of 61 cents per share. The bottom line decreased 3.8% from the year-ago figure.

Revenue Details

In the quarter under review, Kennametal’s revenues were $550 million, reflecting an increase of 3.8% from the year-ago quarter’s figure. Organic sales in the quarter grew 7%. Foreign currency headwind left an adverse impact of 2% and unfavorable business days lowered sales by 1%. Business in aerospace and defense, and energy end markets flourished in the quarter.

KMT’s revenues missed the Zacks Consensus Estimate of $566 million.

On a geographical basis, revenues from American operations increased 2.9% year over year to $271.5 million, whereas sales from Europe, the Middle East and Africa region were $168.4 million, up 10.7% from the year-ago quarter’s reading. Sales from the Asia Pacific belt decreased 3.2% to $110.3 million.

Kennametal reports results under two business segments, namely Metal Cutting and Infrastructure. Its segmental performance for the fiscal fourth quarter is briefly discussed below:

The Metal Cutting segment’s revenues of $336.9 million increased 6.5% year over year. Organic sales growth in the quarter was 10%. Forex woes had an adverse impact of 2% and unfavorable business days lowered sales by 2%. The Zacks Consensus Estimate for Metal Cutting’s revenues was pegged at $340 million.

The Infrastructure segment’s revenues totaled $213.4 million, decreasing 0.1% year over year. Foreign currency movements had an adverse impact of 2% and unfavorable business days lowered sales by 1%. However, the results gained from 3% growth in organic sales. The consensus estimate for Infrastructure’s revenues was pegged at $225 million.

Margin Profile

Kennametal’s cost of goods sold in the reported quarter increased 3.9% year over year to $374.6 million. The gross profit increased 3.5% year over year to $175.7 million wherein the margin contracted 10 basis points (bps) to 31.9%. Operating expenses summed $110 million in the quarter under review, up 7.1% year over year.

The operating income decreased 10.8% year over year to $55.9 million. Operating margin decreased 160 bps year over year to 10.2%. High raw material costs, wages, restructuring and related charges, general inflation, foreign currency exchange headwinds and lower sales volumes in the Infrastructure segment were spoilsports.

Interest expenses in the reported quarter were $7.1 million, up 6% from the year-ago quarter’s figure. The adjusted effective tax rate was 19.7% in the quarter under review, down from 27.6% in the prior-year quarter.

Balance Sheet and Cash Flow

While exiting the fourth quarter of fiscal 2023, Kennametal’s cash and cash equivalents were $106 million, compared with $85.6 million reported in fourth-quarter fiscal 2022. Long-term debt was $595.2 million, almost in line with the $594.4 million reported in the fiscal fourth quarter of 2022.

In fiscal 2023, Kennametal generated net cash of $257.9 million in operating activities, compared with $181.4 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 $94.4 million, down 2.6% from $96.9 million in the prior fiscal year. Free operating cash flow was $168.6 million, compared with $85.4 million in the previous fiscal year’s period.

In fiscal 2023, KMT’s dividend payments totaled $65 million and it repurchased shares worth $49 million.

Dividend Update

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 08, 2023. The disbursement will be made on Aug 22.

Q1 Fiscal 2024 Guidance

For the first quarter of fiscal 2024 (ending September 2023), Kennametal anticipates sales of $485-$510 million. The midpoint of the guided range — $497.5 million — lies below the Zacks Consensus Estimate of $509.8 million. Earnings per share is anticipated to be 30-40 cents.

Adjusted effective tax rate is anticipated to be approximately 5%. Interest expense is anticipated to be approximately $7 million for the fiscal quarter.

Fiscal 2024 Guidance

For fiscal 2024 (ending June 2024), the company anticipates sales of $2.10-$2.20 billion. The midpoint of the guided range — $2.15 billion — is in line with the Zacks Consensus Estimate. Adjusted earnings per share is anticipated to be $1.75-$2.15. The midpoint of the guided range — $1.95 — lies above the consensus estimate of earnings of $1.90 per share. The adjusted effective tax rate is anticipated to be approximately 24% in the full fiscal year. 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.

Zacks Rank & Stocks to Consider

KMT currently carries a Zacks Rank #3 (Hold). Some better-ranked companies from the Industrial Products sector are discussed below:

Greif, Inc. (GEF Quick QuoteGEF - Free Report) presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks.

GEF delivered a trailing four-quarter earnings surprise of 7.7%, on average. GEF’s earnings estimates have increased 13.4% for fiscal 2023 in the past 60 days. Its shares have risen 8% in the past year.

Caterpillar Inc. (CAT Quick QuoteCAT - Free Report) presently carries a Zacks Rank #2 (Buy). CAT’s earnings surprise in the last four quarters was 14.3%, on average.

In the past 60 days, estimates for Caterpillar’s earnings have increased 1.4% for 2023. The stock has gained 57.9% in the past year.