KENNAMETAL INC Q3 FY2025 earnings call

• Restructuring: Completed operations in the Greenfield, Massachusetts plant in mid-April and achieved approximately $6 million of restructuring savings in the quarter, on pace to achieve the $15 million run rate savings committed to in January.
• End Markets: Sales declined across all end markets except Aerospace and Defense, which increased 7%. Continued to execute on share capture initiatives despite overall market weakness.
• Tariffs: Estimated annual impact of additional costs from tariffs as of April 30th is approximately $80 million. Mitigation actions include utilizing global footprint to optimize product flow, evaluating alternative supply options, rebalancing production capacity, and implementing tariff surcharges.
• Customer Wins: Secured initial order with an OEM in Aerospace and Defense, captured orders in General Engineering, Transportation, Energy, and Earthworks with customized and differentiated solutions.

Reported metal cutting sales were down 7% year-over-year compared to the prior year quarter, with a 4% organic decline and unfavorable foreign currency exchange of 3%. Metal Cutting adjusted operating margin was 9.6%, decreasing 120 basis points year-over-year. Reported Infrastructure sales declined 4% year-over-year, with a 2% organic decline and unfavorable foreign currency exchange of 2%. Infrastructure adjusted operating margin increased 770 basis points year-over-year to 11.5%.

• FY'25 sales expected between $1.97 billion and $1.99 billion, with volume ranging from negative 5% to negative 4% and net price realization of approximately 2%.
• Adjusted EPS expected in the range of $1.3 to $1.45, including approximately $0.05 negative effect from tariffs.
• Q4 anticipated to have a foreign exchange sales tailwind of approximately $13 million sequentially. FY'25 foreign exchange sales headwind expected to be approximately $20 million at midpoint.
• Expect to offset raw material, wage, and general cost increases on a dollar basis, with tungsten prices stable at current levels.

• Tariff landscape remains extremely fluid, posing potential impact on costs.
• Market weakness in EMEA and continued stagnation of industrial production in The U.S. are ongoing risks.
• Volatility in tungsten prices and foreign exchange rates could affect financial performance.

Q: Talk about the outlook for the fourth quarter, including demand trends across key end markets and industry-specific vs share gain-related.

A: Continued to see steady improvement with similar sentiment to three months ago. General Engineering, Transportation, and Energy have slight weakness, while Aerospace and Defense show slight improvement. Expect a steady path for overall market and to gain market share as outperforming competitors.

Q: Quantify tariff mitigation actions and their progress.

A: Utilizing global footprint, evaluating supply options, rebalancing production capacity, and implementing tariff surcharges. Action implementation is progressing well to fully mitigate tariff impact.

Q: Thoughts on pricing outlook, including third quarter price and cost breakdown.

A: Excluding tariff impact, net price realization expected to be ~2% for the year. In Q3, infrastructure was neither a headwind nor tailwind from price raw cycle.

Q: Questions on inventory position, tariff impact on China, and seasonality.

A: Inventories increased sequentially with modest absorption. Tariff impact based on April 30th rates, and normal seasonality is expected in Q1 with no out-of-the-ordinary demand seen yet.