Kadant Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Solid earnings performance in Q3 with record aftermarket parts revenue. Market demand for capital equipment was sluggish but saw increasing activity early in the fourth quarter.
• Operations teams globally delivered exceptional value for customers. The acquisition of Clyde Industries was completed after Q3 and will be included in Q4 results.

Segment Performance

• Flow Control: Q3 revenue decreased 3% to $94 million, with new order activity up 5%. Adjusted EBITDA was $26 million, down 10% compared to the third quarter of last year. Aftermarket parts contributed, but reduced capital shipments impacted the segment.
• Industrial Processing: Revenue fell 4% to $106 million. Aftermarket parts revenue reached a record $81 million, accounting for 76% of Q3 revenue. Adjusted EBITDA margin was 25.4%, down 330 basis points from the prior year.
• Material Handling: Revenue increased 11% to $70 million, driven by a 18% rise in capital shipments. Adjusted EBITDA margin improved 290 basis points to 23.3% compared to the prior year.

Guidance

• Revised full-year revenue guidance to $1.36 billion to $1.46 billion from $1.02 billion to $1.04 billion, including incremental revenue from acquisitions and lower organic revenue in certain segments.
• Maintained adjusted EPS guidance at $9.05 to $9.25 for 2025.
• Q4 revenue guidance is $270 million to $280 million, with adjusted EPS guidance of $2.05 to $2.25.
• Anticipate gross margins for 2025 to be 45.1% to 45.4%, with Q4 gross margin expected to be approximately 44% to 44.5%.

Risks

• Uncertainty from global trade tensions and tariffs affecting the timing of capital projects.
• Macro-economic uncertainty could shift the timing of capital projects.
• Impact of foreign currency translation and acquisition-related costs on financial results.

Question and Answer

Q: Segment basis of aftermarket parts revenue percentage.

A: For Flow Control, it was 74% in the current quarter vs 70% in the prior year quarter; for Industrial Processing, 76% this quarter vs 67% in the prior year quarter; for Material Handling, 52% this quarter vs 55% in the prior year quarter. Overall, it was 69% this quarter compared to 65% last year.

Q: Orders pushed back to 2026.

A: Some large orders need administrative work like down payments or letters of credit, but there is encouraging activity level, and several large orders are in late stages with hope to book them this year or early next.

Q: Factory utilization rates.

A: Varies by region; U.S. operating rates are higher, China is in the 60s percent, Europe in the 70s. Parts are overperforming due to old equipment.

Q: Capital equipment bookings.

A: Flow Control and Material Handling expected up ~3%-5%, Industrial Processing's fiber processing could be significantly up, with several large projects in late stages.

Q: Parts and consumables price vs volume.

A: More driven by volume rather than price.

Q: Backlog.

A: End Q3 backlog was $273 million, with capital making up about 60% of that.

Q: Clyde acquisition backlog contribution.

A: ~$30 million, fitting in the Industrial Processing segment.