Dj Kennametal Inc, Inst Holders, 3Q 2024 (Kmt)

Kennametal Inc. KMT is benefiting from the strong performance of the Infrastructure segment, driven by strength in the aerospace & defense and energy end markets arising from favorable order timing. The segment’s revenues increased 0.4% year over year in the first quarter of fiscal 2025 (ended September 2024).

Despite the ongoing softness across the majority of end markets, the company is witnessing several positive trends in its key end markets that hold promise for its long-term growth. This includes an increase in U.S. and international defense spend volumes and digitalization. For fiscal 2025 (ending June 2025), the company expects revenues from aerospace & defense markets to increase moderately on a year-over-year basis.

Kennametal is poised to benefit from its well-diversified portfolio and investments in product development. Some notable products introduced by the company are TopSwiss Inserts, HARVI TE Duo-Lock, KSEM ST Line, Through Coolant ER Collets, FV Geometry Inserts and Chip Fan etc. Also, it remains focused on investing in manufacturing facilities to boost growth. For instance, in December 2022, KMT launched a metal cutting inserts manufacturing facility in Bengaluru, India, which bolstered its capability to cater to the increasing demand for existing and new product lines.

The company’s commitment to reward its shareholders through dividends and share buybacks is encouraging. In the first three months of fiscal 2025, the company distributed dividends totaling $15.6 million to its shareholders and bought back shares for $15 million. The company recently completed the initial share repurchase program, which was announced in July 2021. Also, in February 2024, its board of directors authorized another repurchase program worth $200 million, which is valid for three years. Since the inception of the first share repurchase program, the company has repurchased 7.3 million shares for $200 million.

In the past year, this Zacks Rank #3 (Hold) company’s shares have gained 25.1% compared with the industry’s 13.5% growth.

Headwinds Plaguing KMT

A decrease in demand across the transportation end market, owing to lower volumes and project activity, is affecting the Metal Cutting segment’s revenues. Lower economic activity and project timing in the general engineering end market are ailing the segment.

KMT has been dealing with the adverse impacts of the high cost of sales and operating expenses. Although the company’s operating expenses were relatively flat year over year in the first quarter of fiscal 2025, it incurred higher compensation expenses. The impact of these expenditures is evident in the rise of operating expenses as a percentage of total revenues, which increased 50 basis points to reach 23.2%. In the first quarter of fiscal 2025, the company’s operating margin decreased 130 basis points due to headwinds from higher wages, general inflation and certain manufacturing costs. For fiscal 2025, continued pressures from the high operating expenses and inflationary environment are expected to dent Kennametal’s bottom line.

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