Kennametal Inc. Q2 FY2026 earnings call

• Global commercial teams advanced strategic growth initiatives, with Infrastructure securing mining orders, Metal Cutting winning Aerospace/Defense and Transportation projects, and General Engineering increasing share with a pump manufacturer.
• Implemented pricing actions in response to rising tungsten costs and realized $8 million in restructuring savings this quarter.
• End market updates: Transportation slightly improved, Aerospace and Defense showed growth, General Engineering had slight improvement in Americas. Focus on Power Generation with projected electricity demand growth and related product opportunities.
• Quarterly results exceeded sales and EPS outlook, with sales up 10% organically, adjusted EBITDA margin 17.1%, and adjusted EPS $0.47.

Metal Cutting: Reported sales up 11% year-over-year, with 9% organic growth and favorable foreign exchange of 2%. Regionally, excluding currency exchange, Americas increased 15%, Asia Pacific increased 9%, and EMEA increased 3%. Adjusted operating margin was 9.6%, increasing 360 basis points year-over-year. Infrastructure: Reported sales increased 8% year-over-year with 11% organic growth and favorable foreign currency exchange of 1%, partially offset by a divestiture impact of 4%. Regionally, on a constant currency basis, Americas sales increased 17%, Asia Pacific increased 8%, and EMEA sales decreased by 1%. Adjusted operating margin increased 370 basis points year-over-year to 12.3%.

• FY '26 sales expected between $2.19 billion and $2.25 billion, volume flat to positive 3%, net price and tariff surcharge ~11%, ~2% foreign exchange tailwind. Adjusted EPS range $2.05 to $2.45.
• Q3 sales expected between $545 million and $565 million, volumes negative 4% to flat (adjusted for buy ahead, midpoint positive 1%), adjusted EPS range $0.50 to $0.60.

• Risks related to tungsten price volatility and supply chain access. Uncertainties around market conditions and the impact of tungsten price changes on costs and pricing.

Q: Talked about tungsten price increase and pull forward of volume. How fast can you keep up with tungsten price increases?

A: Parts of business with spot buy get effective quickly, Metal Cutting on list price basis takes more time but order pattern and lead time work out. Customers monitor dynamics and there was buy ahead.

Q: Clarify volume trends through the year. Full year guidance has slight growth, Q3 guidance with volume adjustments.

A: Full year volume projection improved from prior outlooks. Q2 had buy ahead, adjusting for that Q2 is flat, Q3 adjusted for buy ahead is positive 1%.

Q: Perspective on General Engineering and Transportation markets. Volume demand picture.

A: Transportation EMEA improved slightly, Asia Pacific improved, Americas flat. General Engineering Americas showed difference, ISM PMI positive but need to translate to orders.

Q: Cadence of volumes, price, and margins. Incremental margins and tungsten price impact.

A: Second half driven by tungsten price rise in January. Early FY '27 may have bleed over of price/raw favorability. Restructuring to reach $125M run rate by end of FY '27.

Q: Competitive dynamics on wins. How broad is competitor set?

A: Facing competition but using core competencies like material science, application engineering, global footprint to win projects in various markets.

Q: India sourcing exposure and tariff impact. Benefit of tariff rate changes.

A: India sourcing impact on U.S. is minimal, relocating stock SKUs offset any impact. Tariff changes would be adjusted immediately if they come down.