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Kennametal Inc. KMT is poised to benefit from solid momentum in aerospace, defense and transportation end markets in the quarters ahead. Growth in production for light vehicle and hybrid project wins bode well for the company. It is witnessing several positive trends in its key end markets that hold promise for long-term growth.
The trends include an increase in U.S. and international defense spending volumes, digitalization and recovery in the transportation end market. For fiscal 2025 (ending June 2025), the company expects revenues from aerospace and defense and transportation markets to increase on a year-over-year basis.
Kennametal’s well-diversified portfolio and investments in product development offer it a competitive edge over its peers. Some of its notable products are TopSwiss Inserts, HARVI TE Duo-Lock, KSEM ST Line, Through Coolant ER Collets, FV Geometry Inserts and Chip Fan.
The company also remains committed to rewarding its shareholders through dividend payments and share buybacks. In fiscal 2024 (ended June 2024), Kennametal distributed dividends worth $63.4 million and repurchased shares worth $65.4 million. Also, in fiscal 2023 (ended June 2023), it distributed dividends totaling $65 million to its shareholders and bought back shares worth $49 million.
It’s worth noting that in February 2024, Kennametal’s board of directors authorized a share repurchase program worth $200 million, which will remain valid for three years. Since the inception of its first share repurchase program, the company has repurchased 7.3 million shares for $200 million.
KMT Stock’s Price Performance
In the past six months, this Zacks Rank #3 (Hold) company has gained 9.5% against the industry’s 2.7% decline.
However, lower volume in general engineering, energy and earthwork end markets, owing to declines in industrial activity and decreased underground mining and road construction activities in the United States, is affecting the Infrastructure segment.
The Infrastructure segment’s revenues declined 2% year over year in the fourth quarter of fiscal 2024. The company expects revenues to be in the range of $2.0-$2.1 billion for the fiscal year, implying a year-over-year decrease of 1.4% at the midpoint.
KMT has been witnessing the adverse impacts of high operating expenses. In fiscal 2024, the company’s operating margin decreased 100 basis points due to headwinds from higher wages and general inflation.
Stocks to Consider
Some better-ranked companies from the same space are discussed below.
Flowserve Corporation FLS currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
FLS delivered a trailing four-quarter average earnings surprise of 18.2%. In the past 60 days, the Zacks Consensus Estimate for Flowserve’s 2024 earnings has increased 3.8%.
Crane Company CR presently carries a Zacks Rank of 2. The company delivered a trailing four-quarter average earnings surprise of 11.2%.
In the past 60 days, the Zacks Consensus Estimate for CR’s 2024 earnings has increased 2%.
Parker-Hannifin Corporation PH currently carries a Zacks Rank of 2. PH delivered a trailing four-quarter average earnings surprise of 11.2%.
In the past 60 days, the consensus estimate for Parker-Hannifin’s fiscal 2025 earnings has increased 1.2%.
Zacks Investment Research
Honeywell International Inc. HON recently announced its partnership with SAMSUNG E&A to mutually market a solution designed for minimizing carbon emissions in the power plant sector throughout the world. The collaboration is in line with Honeywell’s commitment to expanding its portfolio to keep up with the energy transition megatrend.
HON’s share price inched down 0.2% yesterday, eventually closing the session at $204.24.
More on HON’s Partnership
The collaboration will involve SAMSUNG E&A leveraging Honeywell's advanced solvent carbon capture technology to enable power plants to meet environmental regulatory compliances. The deployment of HON’s carbon capture technologies will enable SAMSUNG E&A to offer a viable and sustainable solution for reducing greenhouse gas emissions.
Honeywell’s carbon capture, utilization and storage (CCUS) technologies help users to minimize carbon dioxide emissions during the transition from fossil fuels to lower-carbon energy sources. Between 2023 and 2030, HON expects its CCUS technologies to mitigate 320 million metric tons of carbon dioxide on a global basis.
HON’s Zacks Rank & Price Performance
Honeywell, with approximately $131.5 billion market capitalization, currently carries a Zacks Rank #3 (Hold). The company is set to gain from strength in its commercial aviation aftermarket and original equipment. However, softness in its Industrial Automation segment remains a concern.
In the past six months, the company’s shares have gained 2.6% against the industry’s 4.5% decline.
The Zacks Consensus Estimate for earnings is pegged at $10.14 per share for 2024, indicating a decrease of a penny from the 30-day-ago figure.
Stocks to Consider
Some better-ranked companies from the same space are discussed below.
Federal Signal Corporation FSS currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Federal Signal delivered a trailing four-quarter average earnings surprise of 12.3%. In the past 60 days, the Zacks Consensus Estimate for FSS’ 2024 earnings has increased 5.2%.
Vector Group Ltd. VGR presently carries a Zacks Rank of 2. The company delivered a trailing four-quarter average earnings surprise of 15.4%.
In the past 60 days, the Zacks Consensus Estimate for VGR’s 2024 earnings has increased 5.2%.
Parker-Hannifin Corporation PH currently carries a Zacks Rank of 2. PH delivered a trailing four-quarter average earnings surprise of 11.2%.
In the past 60 days, the consensus estimate for Parker-Hannifin’s fiscal 2025 earnings has increased 1.3%.
Zacks Investment Research
Xylem Inc. XYL is well-poised for growth in the coming quarters, courtesy of its businesses and accretive acquisitions. The company's efforts to reward its shareholders add to its appeal.
Headquartered in Rye Brook, NY, Xylem is one of the leading providers of water solutions worldwide. It is involved in the full water-process cycle, including the collection, distribution and return of water to the environment. XYL has a significant presence in the United States, the Asia Pacific, Europe and various other nations. Over the past year, this Zacks Rank #3 (Hold) company has gained 40.4% compared with the industry’s 26.8% growth.
Let’s discuss the factors that might influence investors to retain this stock in their portfolio for the time being.
Business Strength: Xylem is seeing growth across most of its businesses. The Measurement & Control Solutions ("M&CS") segment is benefiting from robust demand for advanced technology solutions like smart metering and other applications, primarily in the United States. The segment’s organic sales were up 26% year over year, driven by smart metering demand and execution.
Growth in the transport application business, driven by a strong pipeline of capital projects in Western Europe and increased infrastructure projects in the United States, is boosting the Water Infrastructure segment’s performance. Strong momentum in the treatment applications business, supported by increasing capital projects in emerging markets, also bodes well. The segment’s organic sales increased 7% year over year in the second quarter, buoyed by price realization and growth across all regions and applications.
Strength in dewatering business across major markets (particularly in the United States and emerging regions), driven by increased sales volume and favorable pricing, is a key catalyst to the Water Solutions and Services segment’s growth. The segment’s organic sales grew 12% year over year in the second quarter, supported by higher capital project revenues and gains in integrated solutions and services in the United States.
Expansion Efforts: The company solidifies its product portfolio and leverages business opportunities through asset additions. Acquisitions contributed $265 million to Xylem’s total revenues in the second quarter. The company acquired mission-critical water treatment solutions and services provider Evoqua in May 2023.
Evoqua’s advanced water and wastewater treatment capabilities and position in key industrial markets complement Xylem’s portfolio of solutions across the water cycle. The acquisition boosted its position in water technologies, solutions and services. The transaction is expected to deliver run-rate cost synergies of $140 million within three years upon closing. It is also expected to strengthen the company’s balance sheet.
Rewards to Shareholders: Xylem’s commitment to rewarding shareholders through dividends and share buybacks is encouraging. In the first six months of 2024, it paid dividends of $175 million, up 25.9% year over year. The company also bought back shares worth $18 million in the same period. In February 2024, it hiked its dividend by 9%. Also, in 2023, Xylem paid out dividends worth $299 million and bought back shares worth $25 million.
Downsides of Xylem
Segmental Weakness: Xylem has been experiencing weakness in the Applied Water segment owing to the slowdown in the broader economy. In July 2024, the Institute for Supply Management’s manufacturing index registered 48.5%, indicating a contraction in U.S. manufacturing activity for the third consecutive month. The impact of this slowdown is reflected in the decrease in demand for industrial and building solutions applications, including pumps, valves, heat exchangers, controls and dispensing equipment.
Amid these challenges, the segment’s second-quarter revenues declined 5% on a year-over-year basis in the second quarter. A reduced number of project wins is likely to impact its performance in the near term.
Rising Costs: Xylem has been grappling with the adverse impacts of cost inflation. In the second quarter, its cost of revenues increased 26.1% year over year due to high raw material, labor, freight and overhead costs. Selling, general and administrative expenses rose 8.7% due to additional operational expenditure from the acquisition of Evoqua. Escalating costs pose a threat to the bottom line.
Stocks to Consider
Some better-ranked companies from the same space are discussed below.
Flowserve Corporation FLS currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
FLS delivered a trailing four-quarter average earnings surprise of 18.2%. In the past 60 days, the Zacks Consensus Estimate for Flowserve’s 2024 earnings has increased 3.8%.
Crane Company CR presently carries a Zacks Rank of 2. The company delivered a trailing four-quarter average earnings surprise of 11.2%.
In the past 60 days, the Zacks Consensus Estimate for CR’s 2024 earnings has increased 2%.
Parker-Hannifin Corporation PH currently carries a Zacks Rank of 2. PH delivered a trailing four-quarter average earnings surprise of 2.6%.
In the past 60 days, the consensus estimate for Parker-Hannifin’s fiscal 2025 earnings has increased 1.3%.
Zacks Investment Research
Siemens Aktiengesellschaft SIEGY announced that Siemens Smart Infrastructure and E.ON Drive Infrastructure signed a global framework agreement to improve Europe's electric vehicle charging infrastructure. The partnership will provide Siemens access to the web-based backend service Sifinity Control and DC charging stations.
Plans of the Siemens-E.ON Partnership
The agreement boosts Europe's charging infrastructure, with a focus on areas like Germany, Italy, Sweden and the U.K. This collaboration is expected to make a substantial contribution to Europe's e-mobility growth by offering a seamless and efficient charging experience for millions of electric vehicle users.
Over the following two years, the companies will develop the latest technologies. Under the partnership, they will work on developing innovations like truck charging and Megawatt charging to meet the growing demand for electric road transport.
SIEGY Advances eMobility at IAA Transportation 2024
In other developments, Siemens eMobility highlighted its recent advancements at the IAA Transportation 2024 in Hannover, which is one of the world's largest mobility trade fairs.
Siemens eMobility's acquisition of Heliox expands its IoT capabilities, strengthening its position in electric vehicle charging for fleets and depots. Siemens and Heliox are supporting Hamburg's transition to an emission-free bus fleet by 2030. They have installed 553 charging points, with Siemens providing 324 (50 MW capacity) and Heliox adding 229.
Siemens’ Q3 Top Line Declines Y/Y
The company came out with third-quarter fiscal 2024 earnings of $1.35 per share. SIEGY posted earnings per share of $2.37 in the second quarter of fiscal 2023.
Siemens posted revenues of $20.3 billion for the quarter ended June 2024, missing the Zacks Consensus Estimate of $21.5 billion. This compares to year-ago revenues of $21.1 billion million.
SIEGY Share Price Outperforms Industry’s Growth
Siemens’ shares have gained 26.7% in the past year compared with the industry’s 5.5% growth.
SIEGY’s Zacks Rank & Stocks to Consider
Siemens currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks from the Industrial Products sector are Crane Company CR, Flowserve Corporation FLS and Cintas Corporation CTAS. These three companies have a Zacks Rank #2 (Buy) at present. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Crane’s 2024 earnings is pegged at $5.07 per share. The consensus estimate for 2024 earnings has moved north by 6% in the past 60 days. The company has a trailing four-quarter average earnings surprise of 11.2%. CR shares have gained 75.2% in a year.
Flowserve has an average trailing four-quarter earnings surprise of 18.2%. The Zacks Consensus Estimate for FLS’ 2024 earnings is pinned at $2.76 per share, which indicates year-over-year growth of 31.6%. The consensus estimate for 2024 earnings has moved north by 4% in the past 60 days. The company’s shares have gained 27.5% in a year.
The Zacks Consensus Estimate for Cintas’ 2024 earnings is pegged at $16.64 per share. The consensus estimate for 2024 earnings has moved north by 1% in the past 60 days. The company has a trailing four-quarter average earnings surprise of 4%. CTAS shares have gained 60.4% in a year.
Zacks Investment Research
ITT Inc. ITT recently completed the acquisition of kSARIA Parent, Inc. (kSARIA). The transaction, valued at approximately $460 million, will be paid using a new term loan and the company’s current cash. This deal was announced in August 2024.
Based in Hudson, NH, kSARIA is engaged in designing and manufacturing high-quality cable management and protection solutions. The company also provides comprehensive turnkey installation services for fiber optic and electrical cable systems, specifically tailored for military and aerospace applications.
Acquisition Rationale of ITT
This acquisition is in sync with ITT’s policy of acquiring businesses to strengthen its business and expand its product portfolio and market share. The inclusion of kSARIA’s highly engineered cable assemblies for avionics, sensors, communications and networking applications will bolster its existing connector portfolio. By incorporating K-SARIA’s well-established client base, ITT will be able to penetrate and diversify its offerings in key markets.
kSARIA will be incorporated into the Connect & Control Technologies (CCT) segment.
Other Notable Acquisitions of ITT
The company acquired privately held Svanehøj Group A/S (Svanehøj) in January 2024 for approximately $395 million. The acquisition expanded its offerings, particularly in the marine pumps market. The acquisition of Micro-Mode Products, Inc. in May 2023 expanded ITT's product portfolio and customer base, specifically for long-term defense programs. It also grew its North America connectors platform, thus enhancing the CCT segment.
ITT acquired Clippard Instrument Laboratories’ product lines in August 2022. The latter’s stainless steel, brass and aluminum cylinders and volume tanks expanded its compact automation product range targeting the robotics, packaging and automation end markets. The acquisitions of Svanehøj and Micro-Mode contributed 4% to the company’s sales growth in second-quarter 2024.
ITT’s Zacks Rank and Price Performance
ITT currently carries a Zacks Rank #3 (Hold). In the past year, the company’s shares gained 37% compared with the industry’s 0.4% growth.
ITT is benefiting from strength across its segments and strong operational execution. Growth in pump projects in the energy market is aiding the Industrial Process segment. Increasing component and connector sales within the aerospace and defense markets are supporting the CCT segment. The company’s investments in innovation are likely to support continued growth.
Continued increases in raw material and labor costs are likely to hurt its profitability if demand weakens in any quarter. Increasing general and administrative expenses are worrisome as well. Also, given its international presence, foreign currency headwinds and exposure to troubled geographies are concerns.
Stocks to Consider
Some better-ranked companies are discussed below.
Federal Signal Corporation FSS currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Federal Signal delivered a trailing four-quarter average earnings surprise of 12.3%. In the past 60 days, the Zacks Consensus Estimate for FSS’ 2024 earnings has increased 5.2%.
Vector Group Ltd. VGR presently carries a Zacks Rank #2 (Buy). The company delivered a trailing four-quarter average earnings surprise of 15.4%.
In the past 60 days, the Zacks Consensus Estimate for VGR’s 2024 earnings has increased 5.2%.
Parker-Hannifin Corporation PH currently carries a Zacks Rank of 2. PH delivered a trailing four-quarter average earnings surprise of 2.6%.
In the past 60 days, the consensus estimate for Parker-Hannifin’s fiscal 2025 earnings has increased 1.2%.
Zacks Investment Research
Stanley Black & Decker, Inc.’s SWK cost-reduction program is expected to aid its bottom line and drive margin performance in the quarters ahead. The program comprises a series of initiatives to resize the organization, reduce inventory and optimize the supply chain with the goal of repositioning it to pursue sustainable long-term growth.
In the first six months of 2024 and since the inception of the program, SWK realized pre-tax run rate savings of $295 million and $1.3 billion, respectively. The savings were driven by lower headcount, reductions of indirect spending and supply-chain transformation.
Stanley Black has been divesting non-core operations to drive growth. In April 2024, the company divested its STANLEY Infrastructure (Infrastructure) business to Epiroc AB for a cash consideration of $760 million. The divestment will help the company to focus on its core businesses, reduce debt and support capital-allocation priorities.
It remains focused on rewarding its shareholders through dividend payments and share buybacks. In the first six months of 2024, the firm paid dividends of $243.6 million, up 1.7% year over year. It also bought back shares worth $7.7 million. In July 2024, SWK hiked its quarterly dividend by a penny to 82 cents per share.
SWK’s Price Performance
In the past three months, the Zacks Rank #3 (Hold) company has gained 20.2% compared with the industry’s 9.4% growth.
Despite the positives, lower consumer outdoor and do-it-yourself market demand is a concern for the Tools & Outdoor segment. Within the segment, the power tools business has been experiencing weaknesses due to reduced demand for consumer tools. Weakening automotive end markets, owing to headwinds in the global automotive OEM light vehicle production, are another setback.
Further, the low liquidity level remains a concern. Exiting the second quarter, the company’s cash and cash equivalents were $318.5 million, lower than the short-term borrowings of $492.4 million. Its current maturities of long-term debt totaled $500.1 million. This implies that SWK does not have sufficient cash to meet its current debt obligations. Also, the stock looks more leveraged than the industry. Its long-term debt/capital ratio is currently 0.39, higher than 0.36 of the industry.
Stocks to Consider
Some better-ranked companies from the same space are discussed below.
Flowserve Corporation FLS currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
FLS delivered a trailing four-quarter average earnings surprise of 18.2%. In the past 60 days, the Zacks Consensus Estimate for Flowserve’s 2024 earnings has increased 3.8%.
Crane Company CR presently carries a Zacks Rank of 2. The company delivered a trailing four-quarter average earnings surprise of 11.2%.
In the past 60 days, the Zacks Consensus Estimate for CR’s 2024 earnings has increased 2%.
Parker-Hannifin Corporation PH currently carries a Zacks Rank of 2. PH delivered a trailing four-quarter average earnings surprise of 11.2%.
In the past 60 days, the consensus estimate for Parker-Hannifin’s fiscal 2025 earnings has increased 1.2%.
Zacks Investment Research
Applied Industrial Technologies, Inc. AIT is benefiting from strength across its served markets of food and beverage, lumber and wood, mining, pulp and paper, energy, utilities and refining. The strong position in these markets, sales initiatives and focus on national customer accounts are driving the Service Center Based Distribution segment. The increase in demand for fluid power MRO services across the U.S. manufacturing sector, driven by growing digitization and higher investment in maintenance operations is supporting the segment’s revenues. The Service Center Based Distribution segment’s revenues increased 1.2% year over year in the fourth quarter of fiscal 2024.
Applied Industrial has added multiple assets to its portfolio over time. In the fourth quarter of fiscal 2024 (ended June 2024), buyouts had a positive impact of 1.5% on the company's sales. Acquisitions boosted sales by 1.2% and 2.0% for the Service Center-Based Distribution and Engineered Solutions segments in the fiscal fourth quarter, respectively. In May 2024, Applied Industrial acquired Grupo Kopar, enhancing its automation position in North America.
The acquisitions of Bearing Distributors and Cangro (September 2023) enhanced the company’s footprint and strategic growth initiatives across the U.S. Southeast and upper Northeast regions. The Advanced Motion Systems Inc. (April 2023) buyout expanded the company’s footprint in the upper Northeast region of the United States while helping to bolster relationships with leading suppliers. The acquisition of Automation, Inc. (November 2022) expanded Applied Industrial’s footprint across key verticals and geographies while supplementing its value-added services and cross-selling efforts. We expect acquisitions to contribute 3.1% to the total revenue growth in fiscal 2025.
Applied Industrial has a strong balance sheet that has enabled it to reward its shareholders handsomely through dividend payments and share buybacks. In fiscal 2024, the company rewarded shareholders with dividends of $55.9 million, up 4.6% year over year. It hiked its quarterly dividend rate by 5.7% in January 2024. In fiscal 2023, it paid out dividends worth $53.4 million, up 3.2% on a year-over-year basis.
In August 2022, the company’s board of directors authorized a new share buyback program to repurchase up to 1.5 million shares of its common stock. Its cash and cash equivalents at the end of the fiscal fourth quarter were $460.6 million, much higher than the current portion of long-term debt of $25.1 million. Further, the company’s times interest earned ratio stands at a very comfortable 25.2. Therefore, any interruption in the flow of these returns seems extremely unlikely at this point.
In the past year, this Zacks Rank #3 (Hold) company’s shares have gained 28.2% compared with the industry’s 21.1% growth.
Headwinds Plaguing AIT
Weakness in the OEM channel, due to lower sales in the fluid power components, is adversely impacting the performance of the Engineered Solutions segment. In the fourth quarter of fiscal 2024, the segment’s revenues declined 1.8% on a year-over-year basis. Automation product sales declined as technology sector orders slowed. Ongoing supply-chain constraints, particularly related to electronic components, remain a concern for the company.
Applied Industrial has been experiencing rising costs and expenses for a while. During the fourth quarter of fiscal 2024, the company witnessed a 2.4% year-over-year increase in SG&A expenses (including depreciation). The SG&A expenses, as a percentage of total revenues, climbed 40 basis points to reach 18.7%. This upward trajectory follows a pattern of expense growth in the preceding three quarters, with increases of 5.3, 3.5% and 2.1%, respectively. We expect SG&A to increase 0.7% year over year in fiscal 2025. Also, the cost of sales increased 1.8% in the fiscal fourth quarter of 2024 due to an increase in raw material and labor costs.
Stocks to Consider
Some better-ranked companies from the same space are discussed below.
Flowserve Corporation FLS currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
FLS delivered a trailing four-quarter average earnings surprise of 18.2%. In the past 60 days, the Zacks Consensus Estimate for Flowserve’s 2024 earnings has increased 3.8%.
Crane Company CR presently carries a Zacks Rank of 2. The company delivered a trailing four-quarter average earnings surprise of 11.2%.
In the past 60 days, the Zacks Consensus Estimate for CR’s 2024 earnings has increased 2%.
Parker-Hannifin Corporation PH currently carries a Zacks Rank of 2. PH delivered a trailing four-quarter average earnings surprise of 2.6%.
In the past 60 days, the consensus estimate for Parker-Hannifin’s fiscal 2025 earnings has increased 1.1%.
Zacks Investment Research
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