KADANT INC Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Tariff Assessment: Operating teams assessing supply chain vulnerability to tariffs, exploring alternate suppliers. Decentralized structure enables quick response to economic changes.
• First Quarter Performance: Despite tariffs and economic headwinds, most financial metrics in line. Aftermarket parts demand robust, strong margin and free cash flow. Revenue down 4% Y/Y due to weaker capital shipments in Industrial Processing.
• Segment Details: Flow Control had solid demand led by North America; Industrial Processing had weaker capital business but stable aftermarket parts; Material Handling had solid aftermarket parts demand offsetting softer capital environment.

Segment Performance

• Flow Control: Bookings of $100 million in Q1, up 6% Y/Y; Q1 revenue $92 million, up 7% Y/Y. Aftermarket parts revenue made up 76% of Q1 revenue. Adjusted EBITDA up 8% with a margin of 28.3%.
• Industrial Processing: Q1 revenue declined 15% to $92 million, primarily due to weaker capital shipments. Aftermarket parts revenue in Q1 was a record 80% of total revenue. Bookings up 3% Y/Y to $92 million. Adjusted EBITDA margin 24.2%.
• Material Handling: Revenue $57 million, slightly up Y/Y. Aftermarket parts made up 65% of Q1 revenue. Bookings flat. Adjusted EBITDA margin 20.2%, flat Y/Y.

Guidance

• Revised 2025 revenue to $1.020 billion to $1.040 billion (down from prior $1.040B-$1.065B). Adjusted EPS $9.05 to $9.25 (down from prior $9.70-$10.05), includes $0.32 to $0.39 tariff impact.
• Second half revenue expected stronger; Q2 2025 revenue $243M-$250M, adjusted EPS $1.90-$2. Gross margin 44.2%-44.7%, SG&A 27.2%-27.7%, net interest expense $12M-$12.4M, tax rate 26%-27%.

Risks

• Tariffs impacting material costs, with estimated incremental costs $5M-$6M ($0.32-$0.39 per share) in Q2-Q3.
• Uncertainty in market causing delays in capital equipment orders.
• Geopolitical and trade policy uncertainties affecting timing of capital projects.

Question and Answer

• Q: Ross Sparenblek on order book and deferrals A: Jeff Powell says some projects deferred, but activity still strong, expecting capital to pick up as economic conditions improve.
• Q: Gary Prestopino on consumables revenue by segment A: Michael McKenney states Flow Control 74%, Industrial Processing 69%, Material Handling 62% in first quarter 2024.
• Q: Gary Prestopino on tariffs impact A: Jeff Powell says projects paused due to tariff uncertainty, but customers expect resolution, and most projects not canceled.
• Q: Kurt Yinger on Q2 guidance and capital bookings A: Michael McKenney says need 15%-20% increase in capital orders for strong back half, projects delayed but still on board.
• Q: Walt Liptak on tariff impact estimate A: Michael McKenney says $5M-$6M material cost impact, mitigated by surcharges and alternate sourcing, goal to be tariff neutral.
• Q: Kurt Yinger on steel impact and China shipments A: Jeff Powell and Michael McKenney discuss steel as biggest cost, significant sales to China, and USMCA benefits for Canadian manufacturing.