Kennametal Q1 FY2027 Earnings Surge on Raw-Material Pricing Timing

Kennametal Inc. (NYSE: KMT) reported a sharp increase in fiscal first-quarter sales and earnings, driven primarily by favorable timing between raw-material pricing and costs. The benefit lifted margins but also required additional tungsten-related working capital, contributing to negative free operating cash flow and higher debt.

For the quarter ended September 30, 2026, sales rose 54% year over year to $768 million, with organic growth also at 54%. Reported diluted earnings climbed to $3.48 per share from $0.30, while prior-year adjusted EPS was $0.34. EBITDA reached $398.9 million, representing a 51.9% margin, compared with adjusted EBITDA of $76 million and a 15.3% margin a year earlier.

The company attributed about $323 million of the year-over-year margin benefit to the timing of raw-material pricing relative to costs. Other contributors included non-raw-material pricing and tariff income, higher Metal Cutting sales and production volumes, a roughly $4 million Inflation Reduction Act manufacturing tax credit, and $3 million of restructuring savings.

Those gains were partly offset by tariffs and broader inflation, higher compensation costs, an approximately $5 million impairment of an equity investment and about $5 million of asset write-offs. Kennametal said the net tungsten impact accounted for $3.09 of first-quarter EPS.

Metal Cutting posts fourth straight quarter of volume growth

Metal Cutting sales increased 28% to $398 million, including 29% organic growth. The segment’s operating margin expanded to 29.7% from a reported 6.9% in the prior-year quarter, supported by approximately $65 million of favorable raw-material pricing and cost timing, pricing and tariff income, higher sales and production volumes, and about $2 million of restructuring savings.

Energy sales in the segment grew 40% in constant currency, aided by data-center power-generation wins in the Americas and pricing. General Engineering advanced 34% on pricing and share gains in the Americas indirect channel, while Aerospace & Defense rose 32% on pricing and share gains, particularly in Europe, the Middle East and Africa. Transportation increased 11%, as pricing was partly offset by weaker vehicle production, especially in EMEA.

Kennametal said Metal Cutting achieved its fourth consecutive quarter of volume growth. The company is also seeking to expand beyond aerospace engines into airframes and components, while building its position in U.S. defense and power-generation applications.

Infrastructure growth dominated by pricing

Infrastructure sales climbed 98% to $370 million, with organic growth of 97%. Operating margin reached 70.7%, compared with 8.9% a year earlier, as favorable raw-material pricing and cost timing contributed approximately $258 million.

Constant-currency Energy sales increased 180%, driven by pricing in the Americas, although certain price-sensitive applications shifted to tungsten substitutes. Aerospace & Defense rose 125% on pricing and strategic growth in the Americas and EMEA. Earthworks increased 80%, with pricing partly offset by volume pressure tied to customer price sensitivity and restrictions following a mining accident in China. General Engineering grew 50%, primarily because of pricing, despite lower Americas volume.

The company said it is balancing price, volume and long-term profitability in Infrastructure while actively addressing pricing conditions.

Tungsten inventory weighs on cash flow

Kennametal used $201.3 million of cash in operating activities during the quarter, compared with $17.5 million generated a year earlier. Free operating cash flow was negative $211.7 million, versus negative $5.5 million in the prior-year period.

Inventory increased to $1.62 billion at September 30 from $1.11 billion at June 30. Primary working capital rose to $1.66 billion and represented 37.9% of sales, compared with 32.0% a year earlier. The company said enhanced liquidity was being used to fund additional working capital associated with higher tungsten costs.

Total debt increased to $1.13 billion from $598.4 million a year earlier, while net debt rose to $861.3 million from $494.9 million. Kennametal returned $15 million to shareholders through dividends but paused share repurchases until cash flow turns positive. It has completed $70 million of purchases under its $200 million, three-year authorization.

Fiscal 2027 outlook

Kennametal expects full-year fiscal 2027 sales of $3.33 billion to $3.45 billion and adjusted EPS of $5.00 to $6.00. The outlook assumes volume growth of approximately 1% to 4%, price and tariff-surcharge realization of about 40% to 43%, and a neutral foreign-exchange effect compared with fiscal 2026.

Management projects free operating cash flow at approximately 20% of adjusted net income, capital spending of about $85 million and primary working capital near 45% of sales at fiscal year-end. The forecast also includes roughly $10 million of restructuring savings and assumes tungsten prices remain at current levels.

For the second quarter, the company expects sales of $785 million to $815 million and adjusted EPS of $1.20 to $1.50. Its assumptions include volume growth of about 1% to 4%, price and tariff-surcharge realization of approximately 47% to 50%, and neutral foreign exchange.

Kennametal said its fiscal 2027 volume outlook was unchanged and described end markets as supportive. However, its projections depend on stable tungsten prices and assume that conflict in the Middle East does not materially affect customer activity. The presentation also identified tariffs, inflation, raw-material availability and costs, currency movements, geopolitical instability, competition and execution of restructuring, commercial and operational initiatives as risks to expected results.