It has been about a month since the last earnings report for Kennametal Inc. (KMT Quick QuoteKMT - Free Report) . Shares have added about 2.6% in that time frame, underperforming the market.

Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Second-Quarter Fiscal 2017 Highlights

Kennametal Inc. reported better-than-expected bottom-line results for second-quarter fiscal 2017 (ended Dec 31, 2016). The company's adjusted earnings were $0.24 per share, above the Zacks Consensus Estimate of $0.22. Also, the bottom line surged 50% from the year-ago tally of $0.16 cents.

Kennametal generated revenues of $487.6 million in the quarter, below the Zacks Consensus Estimate of $489.8 million. On a year-over-year basis, the top line decreased 7%. The fall was triggered by 1% adverse impact from foreign currency translation, 2% negative impact of fewer business days and 6% divestiture-related losses, partially offset by 2% organic revenues growth.

On a geographical basis, Kennametal generated sales of $223.7 million from its North American operations, decreasing 4.3% year over year. Business in Western Europe remained weak, with revenues of $118.3 million declining 18.9% year over year. Revenues from Rest of the World inched up 0.7% year over year to $145.5 million.

Segmental Details: Kennametal Inc. (effective from the start of fiscal 2017) reports its revenue results under three segments viz. Industrial, WIDIA and Infrastructure. The company's segmental performance is briefly discussed below:

The Industrial segment's net sales in the quarter were $267.5 million, down roughly 0.4% year over year. Organic revenue growth of 4% was offset by 1% negative impact from foreign currency translation, a 2% fall due to fewer business days and 1% negative impact from divestitures.

Organic sales in aerospace & defense and general engineering end markets increased, while it decreased in energy and transportation end markets. On a geographical basis, revenues grew 7% in Asia and 4% in the Americas, offset by 2% decline in Europe.

The WIDIA segment's revenues totaled $42.9 million, up 1.3% year over year. The year-over-year growth was driven by 5% increase in organic revenues, partially offset by 3% fall due to fewer business days and 1% adverse impact from foreign currency translation. On a geographical basis, revenues grew 19% in Asia, offset by 4% decline in the Americas and 2% in Europe.

The Infrastructure segment's revenues totaled $177.2 million, declining 18.9% year over year. The decline was because of 2% fall due to fewer business days, 14% adverse impact from divestiture and 1% negative impact from foreign currency translation.

Organic revenues declined due to weak sales in earthworks and general engineering end markets, partially offset by growth in energy. Geographically, revenues were flat in the Americas while declining 8% in Europe and 7% in Asia.

Margins: In the quarter, Kennametal's adjusted cost of goods sold decreased 4.6% year over year, representing 69.2% of total revenue compared with 71.8% in the year-ago quarter. Adjusted gross margin improved 260 bps to 30.8%.

Adjusted operating expense, as a percentage of total revenue, was 22.6%, down 90 bps year over year. Adjusted operating margin grew 350 bps year over year to 7.3%.

Balance Sheet and Cash Flow: Exiting the fiscal second quarter, Kennametal had cash and cash equivalents of $102 million, down from $119.4 million recorded at the previous quarter-end. Long-term debt and capital leases were roughly flat at $694 million.

In the quarter, Kennametal generated net cash of $24.7 million from its operating activities down from $65.8 million in the year-ago quarter. Capital spending was $28.3 million compared with $24 million in second-quarter fiscal 2016. Free operating cash outflow in the quarter was $1.2 million versus $44.3 million generated in the year-ago quarter.
 
Outlook: For fiscal 2017, Kennametal reiterated its adjusted earnings guidance within $1.20-$1.50 per share range. Total revenue is expected to be flat compared with roughly $2 billion generated in fiscal 2016. Organic revenue is projected to decline 2% to grow roughly 2%. Effective tax rate will be within 20-25%. Free cash flow will likely come in a band of $90-$110 million.

The company anticipates its restructuring programs, including headcount reduction initiatives and others, to yield pre-tax of approximately $147-$162 million by Dec 2018. Charges related to these initiatives will likely be $155-$175 million.

Of these programs, the company predicts its headcount reduction initiatives to result in estimated annualized savings of $72 million by Jun 2017. Related charges will be roughly $50 million. In addition, the other programs are likely to generate savings of $75-$90 million by Dec 2018. Related charges will be $105-$125 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimate flatlined during the past month. There has been one upward revision for the current quarter compared to one downward.

Kennametal Inc. Price and Consensus

 

Kennametal Inc. Price and Consensus | Kennametal Inc. Quote

VGM Scores

At this time, Kennametal's stock has a nice Growth Score of 'B', however its Momentum is doing a bit better with an 'A'. However, the stock was allocated a grade of 'D' on the value side, putting it in the bottom 40% 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.

Our style scores indicate that the stock is more suitable for momentum investors than growth investors.

Outlook

The stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.