KENNAMETAL INC Q2 FY2025 earnings call

• Announcements in mid-January: Closure of Greenfield, MA facility and consolidation of Barcelona, Spain facilities; global reduction in professional workforce. These actions expected to deliver annualized run rate pretax savings of ~$15M by end of fiscal 2025 with pre-tax charges ~$25M. • Organizational change: Faisal Hamadi named President of Infrastructure Segment. • End market commentary: Aerospace and defense grew 14%, energy grew 1%, general engineering declined 4%, earthworks declined 7%, transportation declined 9%. • Quarterly results: Sales down 3% YOY, adjusted EBITDA margin 13.9% vs 12.4% prior year, adjusted EPS $0.25 vs $0.30 prior year. • Strategic priorities: Focus on above-market growth, continuous improvement for margin and working capital, and portfolio optimization.

Sales decreased 3% year over year. Infrastructure decreased 4% organically while metal cutting was down 7%. On a constant currency basis, Americas sales were flat at 0%, Asia Pacific sales decreased 3% and EMEA declined 7% organically. Metal cutting reported sales down 4% with a 7% organic decline partially offset by favorable workdays. Infrastructure reported sales flat year over year with favorable business days and foreign currency exchange offsetting an organic decline of 4%.

• Q3 sales expected between $480M and $500M, volume ranging from negative 6% to negative 2%, price realization ~2%, 3% negative impact from foreign exchange; adjusted EPS range $0.20 to $0.30. • FY 2025 sales expected between $1.95B and $2B, volume negative 5% to negative 2%, net price realization ~2%, ~2% year over year headwind from foreign exchange; adjusted EPS range $1.05 to $1.30. • Capital expenditures outlook ~$100M, primary working capital outlook ~30% by fiscal year end.

• Market conditions: EMEA market worsened impacting several end markets, industrial production in US remains soft. • Foreign exchange: Strengthening U.S. Dollar impacting results. • Trade situation: Developing trade landscape may introduce additional costs or market developments not considered in current outlook.

Q: Just the current demand environment, particularly in general engineering, and how demand has trended in the last couple of months.

A: Sanjay mentioned there's been sequential improvement in order incoming and billing rates, especially in the second half of January, but Europe has become more challenging.

Q: About the cost structure and operating margins, and if another broader plan is needed.

A: Sanjay stated they've taken actions to reach $65M of the $100M cost structure plan, continue managing non-headcount related actions, and will monitor market conditions and take necessary actions while focusing on continuous improvement for margin and working capital.

Q: About improvement in orders in the second half of January, was it specific to general engineering and regionally.

A: Sanjay said the improvement was across the board, including general engineering and other industries, and EMEA also saw improvement in the last couple weeks of January.

Q: About the EPS pickup in Q4 and if it's from savings or end market rebound.

A: Pat said a lot of the EPS pickup in Q4 is from savings from the additional restructuring program, with Q4 normally being a strong profitability quarter.

Q: About replacing segment heads and their plans.

A: Sanjay said the new segment heads bring strong commercial and continuous improvement experience, focusing on margin, working capital, portfolio optimization, and talent strengthening.

Q: About product lines that are breakeven or loss-producing.

A: Sanjay said they are looking at pruning the portfolio and targeted M&A, but didn't disclose specific product lines.

Q: About accelerating footprint consolidation.

A: Sanjay said they are working diligently on it, balancing customer service and volume reduction.

Q: About tariff side and China, Mexico, Canada footprint.

A: Pat said Kennametal's China exposure is ~10% of total portfolio, Canada ~5%, Mexico ~$40M; they leverage global footprint to offset costs and monitor trade landscape.

Q: About competitive dynamics in Earthworks.

A: Sanjay said there's pressure in China due to lower capital investment and excess capacity, and in the US due to reduced production and construction, but they compete well using their value proposition.

Q: About contribution from new products and market penetration in guidance.

A: Sanjay said they still feel confident about ~2% on price and ~2% on organic growth, with market being a bigger headwind.