Cuộc họp công bố kết quả kinh doanh Quý 3/2026 của Kadant (KAI): Doanh thu, EPS và dòng tiền kỷ lục

Điểm tin chính

• Kadant đã báo cáo doanh thu kỷ lục trong quý 3 năm tài chính 2026 đạt 313,2 triệu USD, tăng 15% so với cùng kỳ năm ngoái, bao gồm doanh thu từ linh kiện phụ tùng đạt mức kỷ lục 218,4 triệu USD. Doanh thu hữu cơ tăng 4%.
• EPS điều chỉnh tăng 21% lên mức kỷ lục 3,64 USD, trong khi EPS theo GAAP tăng 26% lên 2,96 USD. EPS điều chỉnh cao hơn 0,64 USD so với mức trần trong khoảng dự báo quý của công ty.
• EBITDA điều chỉnh tăng 24% lên mức kỷ lục 71,7 triệu USD, với biên lợi nhuận mở rộng lên 22,9% từ mức 21,4%, nhờ sự hỗ trợ từ các thương vụ thâu tóm, kiểm soát chi phí và hiệu quả hoạt động.
• Dòng tiền từ hoạt động kinh doanh và dòng tiền tự do đạt kỷ lục theo quý, lần lượt là 62,9 triệu USD và 58,1 triệu USD. Kadant đã trả 51 triệu USD nợ trong quý.
• Giá trị đơn hàng nhận được (bookings) trong quý 3 tăng 23% so với cùng kỳ năm ngoái ở cả ba phân khúc hoạt động. Lượng đơn hàng tồn đọng (backlog) vào cuối quý đạt 316 triệu USD, bao gồm 167 triệu USD thiết bị vốn và 149 triệu USD linh kiện phụ tùng cùng vật tư tiêu hao.
• Ban lãnh đạo đã nâng dự báo EPS điều chỉnh cho cả năm lên 12,58–12,73 USD và thu hẹp khoảng dự báo doanh thu xuống 1,195 tỷ–1,210 tỷ USD.

Dữ liệu tài chính chính

Biên lợi nhuận gộp giảm do cơ cấu các dự án thiết bị vốn. Hoàn thuế quan mang lại lợi ích nhưng bị triệt tiêu bởi chi phí phân bổ hàng tồn kho liên quan đến thâu tóm và lợi nhuận hoãn lại gắn liền với doanh số bán hàng nội bộ tại Kadant Profil.

Kết quả kinh doanh và hoạt động

Kiểm soát dòng chảy: Doanh thu tăng 8% so với cùng kỳ năm ngoái, nhờ doanh số linh kiện phụ tùng đạt kỷ lục và lượng giao hàng thiết bị vốn khả quan. Phân khúc Xử lý chất lưu hưởng lợi từ nhu cầu trong các ngành năng lượng, quốc phòng và đóng gói. Đơn đặt hàng tăng hơn 7%, EBITDA điều chỉnh tăng 22% lên mức kỷ lục 31 triệu USD và biên lợi nhuận đạt mức kỷ lục 30,7%. Ban lãnh đạo kỳ vọng nhu cầu sẽ ổn định, trong đó sự tăng trưởng ở các mảng tự động hóa nhà máy, quốc phòng và năng lượng sẽ bù đắp một phần cho sự sụt giảm tại châu Âu.

Chế biến công nghiệp: Các đơn đặt hàng mới đạt 123 triệu USD, nhờ tăng trưởng nhận đơn hàng hữu cơ 12%, các thương vụ thâu tóm và nhu cầu linh kiện phụ tùng. Doanh thu đạt 143 triệu USD, trong khi EBITDA điều chỉnh đạt tổng cộng 37 triệu USD, tương ứng với biên lợi nhuận 26,1%. Ban lãnh đạo kỳ vọng nhu cầu linh kiện phụ tùng sẽ ổn định và đơn đặt hàng thiết bị vốn có thể tăng khi niềm tin kinh tế cải thiện.

Xử lý vật liệu: Đơn đặt hàng nhận được tăng 13% lên 67 triệu USD, dẫn đầu bởi nhu cầu linh kiện phụ tùng cho thiết bị xử lý vật liệu rời. Doanh thu giảm 4% do lượng giao hàng thiết bị vốn thấp hơn so với quý kỷ lục của năm trước. Biên EBITDA điều chỉnh giảm xuống 22,1%. Ban lãnh đạo ghi nhận hoạt động dự án khả quan liên quan đến chi tiêu cơ sở hạ tầng và xây dựng trung tâm dữ liệu.

Các thị trường ứng dụng cuối mới hơn, bao gồm quốc phòng, hàng không vũ trụ và tự động hóa nhà máy, đang tăng trưởng nhanh hơn các thị trường truyền thống của Kadant. Trong năm, công ty đã nhận được một đơn hàng hàng không vũ trụ trị giá khoảng 8 triệu USD và vài triệu USD đơn hàng mới trong mảng tự động hóa nhà máy.

Kadant cũng thông báo rằng Michael Colwell sẽ đảm nhận vị trí CEO vào đầu năm 2027. Jeffrey Powell sẽ chuyển sang làm Chủ tịch Điều hành và tiếp tục tham gia tích cực vào việc hỗ trợ đội ngũ lãnh đạo cũng như các sáng kiến tăng trưởng.

Dự báo của Ban lãnh đạo

Kadant đã nâng mức sàn trong triển vọng doanh thu cả năm 2026 và tăng dự báo EPS điều chỉnh:

Dự báo EPS điều chỉnh cả năm không bao gồm 2,19 USD mỗi cổ phiếu chi phí phân bổ tài sản vô hình và 0,51 USD mỗi cổ phiếu chi phí liên quan đến thâu tóm. Dự báo EPS điều chỉnh quý 4 không bao gồm 0,55 USD mỗi cổ phiếu chi phí phân bổ tài sản vô hình và 0,11 USD mỗi cổ phiếu chi phí liên quan đến thâu tóm.

Triển vọng cả năm giả định biên lợi nhuận gộp đạt 44,0%–44,3%, chi phí bán hàng, quản lý và dịch vụ (SG&A) bằng 27,0%–27,5% doanh thu, chi phí lãi vay ròng đạt 19,0 triệu–19,5 triệu USD, thuế suất 27,0%–27,5% và chi phí khấu hao đạt 27,5 triệu–28,0 triệu USD.

Rủi ro và các lĩnh vực cần theo dõi

• Sự không chắc chắn về chính trị và những khó khăn kinh tế tiếp tục kéo dài chu kỳ từ báo giá đến khi nhận đơn hàng đối với các dự án thiết bị vốn lớn.
• Hoạt động công nghiệp ở châu Âu và châu Á vẫn chịu ảnh hưởng bởi áp lực kinh tế, mặc dù ban lãnh đạo lưu ý rằng tâm lý đầu tư đang cải thiện ở Bắc Mỹ và châu Á.
• Các dự án thiết bị vốn vẫn tích cực, nhưng thời điểm đặt hàng chưa chắc chắn và một số dự án có thể chuyển sang năm 2027.
• Biên lợi nhuận gộp quý 3 chịu ảnh hưởng bởi cơ cấu các dự án thiết bị vốn và các khoản mục kế toán liên quan đến thâu tóm.
• Ban lãnh đạo cho biết khách hàng hiện ít chấp nhận việc tăng giá, khiến việc kiểm soát chi phí nội bộ và hiệu quả hoạt động trở thành các đòn bẩy chính cho biên lợi nhuận.
• Dòng thương vụ M&A chững lại khi năm 2026 trôi qua, mặc dù ban lãnh đạo cho rằng danh mục đầu tư tư nhân chứa đựng số lượng lớn các doanh nghiệp có thể cuối cùng sẽ tham gia thị trường.

Điểm nổi bật trong phần Hỏi & Đáp với nhà phân tích

Ban lãnh đạo cho biết danh mục dự án thiết bị vốn tiềm năng đang mở rộng, nhưng các dự án Chế biến công nghiệp truyền thống có quy mô từ 5 triệu đến 25 triệu USD đang mất nhiều thời gian hơn để chuyển đổi thành đơn đặt hàng. Ngược lại, hoạt động đầu tư vào hàng không vũ trụ, quốc phòng và tự động hóa dường như đang tăng tốc.

Quá trình tích hợp Kadant Profil đang diễn ra thuận lợi. Ban lãnh đạo dự kiến các tác động hàng tồn kho còn lại liên quan đến thương vụ thâu tóm đối với các linh kiện tiêu chuẩn sẽ phần lớn chấm dứt vào quý 1/2027. Mức sụt giảm khoảng 0,20 USD mỗi cổ phiếu dự kiến trong năm 2026 cũng sẽ bắt đầu đảo ngược vào năm 2027, giúp cải thiện biên lợi nhuận của phân khúc Chế biến công nghiệp trong ngành gỗ.

Ban lãnh đạo cho biết một số khách hàng đang chuẩn bị tái đầu tư sau khi hợp nhất các cơ sở sản xuất, đặc biệt là trong lĩnh vực chế biến sợi. Thiết bị lão hóa và nhiều năm thiếu đầu tư đã hỗ trợ nhu cầu linh kiện phụ tùng đạt mức kỷ lục ngay cả khi công suất hoạt động của khách hàng vẫn duy trì ở mức thấp hơn kỷ lục.

Toàn văn Biên bản Cuộc họp Báo cáo Kết quả Kinh doanh

Toàn văn cuộc gọi công bố kết quả kinh doanh

Phần trình bày của ban lãnh đạo

Operator

Good day, and thank you for standing by. Welcome to the Q3 2026 Kadant Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Michael McKenney, Executive Vice President and Chief Financial Officer. Please go ahead.

Michael McKenney

Thank you, Stephen. Good morning, everyone, and welcome to Kadant's Third Quarter 2026 Earnings Call. With me on the call today is Jeff Powell, our Chief Executive Officer.

Before we begin, let me read our safe harbor statement. Various remarks that we may make today about Kadant's future plans and expectations, financial and operating results and prospects are forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to known and unknown risks and uncertainties that may cause our actual results to differ materially from these forward-looking statements as a result of various important factors, including those outlined at the beginning of our slide presentation and those discussed under the heading Risk Factors in our annual report on Form 10-K for the fiscal year ended January 3, 2026, and subsequent filings with the Securities and Exchange Commission.

In addition, any forward-looking statements we make during this webcast represent our views and estimates only as of today. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so. even if our views or estimates change.

During this webcast, we will refer to some non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is contained in our third quarter earnings press release and the slides presented on the webcast and discussed in the conference call, which are available in the Investors section of our website at kadant.com. Finally, I wanted to note that when we refer to GAAP earnings per share or EPS and adjusted EPS on this call, we are referring to each of these measures as calculated on a diluted basis. With that, I'll turn the call over to Jeff Powell, who will give you an update on Kadant's business and future prospects.

Following Jeff's remarks, I'll give an overview of our financial results for the quarter, and we will then have a Q&A session. Jeff?

Jeffrey Powell

Thanks, Mike. Hello, everyone. Thank you for joining us this morning to review our third quarter results and discuss our outlook for the remainder of the year. We had an excellent financial performance in the third quarter across a broad range of key metrics. We achieved record revenue, and we're particularly pleased with aftermarket parts revenue in Q3, continuing the record-setting pace from both Q1 and Q2 of this year. As you know, our aftermarket business is a core strategic growth area, and it's encouraging to see this continue to thrive.

Market demand for capital equipment strengthened so political uncertainty and economic headwinds continue to impact the timing of large projects. We are winning new capital projects, but the quote-to-order cycle continues to be extended.

As has been the case throughout 2026, our operation teams around the world delivered exceptional value for our customers and shareholders. I want to thank them for their outstanding efforts and the results they produced in the third quarter as well as our commitment to our operational excellence demonstrated throughout the year.

Turning next to Slide 6. I would like to review our Q3 financial performance. Our Q3 revenue and earnings performance continue to improve sequentially, and I am pleased to report record adjusted EPS performance. Bookings in the third quarter increased 23% and the same period last year with growth across all 3 of our operating segments. Revenue was up 15% to a record $313 million and benefited from outstanding aftermarket parts business and record first half bookings.

Our focus on internal cost control and solid execution contributed to increased operating leverage with record adjusted EBITDA of $72 million and an adjusted EBITDA margin of nearly 23%. We are thrilled to achieve these results in less than ideal market conditions. Adjusted EPS was also a record at $3.64 in the third quarter. And finally, cash flow from operations and free cash flow in the third quarter were records at $63 million and $58 million, respectively, demonstrating the continued strength of our business model.

Next, I'd like to review the performance of our operating segments, beginning with our Flow Control segment. Record aftermarket parts revenue and solid capital equipment shipments drove an 8% year-over-year increase in Q3 revenue. Growth was led by our Fluid Handling product line supported by healthy demand from the energy, defense and packaging markets. Encouragingly, our new order activity was up more than 7%, largely due to the growth in our aftermarket business. Adjusted EBITDA of $31 million was a record and up 22% compared to same period last year, leading to a record EBITDA margin of 30.7%.

Factory automation, defense and energy markets -- end markets continue to show strength, particularly in the Americas, while industrial activity in Europe and Asia reflects the persistent economic headwinds in those regions. As we look ahead to the remainder of 2026, we expect stable demand in our Flow Control segment. The segment continues to benefit from diversified market exposure with improving investment sentiment in North America and Asia, helping to offset some of the softness in Europe.

Our Industrial Processing segment again delivered excellent quarterly results despite challenges in the global capital equipment market. Strong competitive positioning, recent acquisitions and 12% organic bookings growth drove new orders to $123 million. Revenue increased to $143 million, with strong contribution from both aftermarket parts and capital equipment shipments. Operational leverage in our recent acquisitions contributed to our improved margin performance in this segment. Adjusted EBITDA was $37 million and represented 26.1% of revenue in the third quarter. Looking ahead, we believe our aftermarket demand will remain stable and that our capital business will see an uptick in order activity. Our capital project pipeline remains healthy, and we expect orders will move forward as economic confidence strengthens.

In our Material Handling segment, we benefited from strong commercial execution in the third quarter. Our bookings were up 13% to $67 million, led by exceptional aftermarket demand for our bulk Material Handling equipment. Revenue was down 4% compared to the record third quarter performance of last year. This decline was due entirely to lower capital shipments compared to the same period last year. While the lower revenue volume -- with the lower revenue volume, adjusted EBITDA margin decreased to 22.1% compared to the record performance of Q3 and last year. We expect demand to be stable in the near term and project activity to remain healthy, particularly in infrastructure spending and the build-out and data centers.

For the remainder of 2026, we expect demand to remain stable with potential upside from capital projects. There remains a lot of activity around new capital projects, and this could become a meaningful contributor though the timing of these projects can be uncertain and could shift to 2027.

Before I turn the call over to Mike for a closer look at our third quarter performance, I'd like to briefly address my upcoming transition to Executive Chairman and Michael Colwell's appointment as CEO. I've had the privilege of leading what I believe is an exceptional company, not just one with great products and innovative technologies by a company whose people come to work every day determined to make a real difference for our customers, communities and all Kadant stakeholders. Over the past 48 years, I've been a part of some great businesses, None, however, compared to Kadant. It comes down to the special qualities that make Kadant unique. I believe our culture of integrity, commitment, accountability and entrepreneurism allows us to serve our customers better, creating lasting value for the shareholders.

Michael takes over at the beginning of the year. I will remain actively engaged in supporting the leadership team and its growth initiatives. I want to thank the employees and shareholders for the opportunity to be part of Kadant legacy, and I'm confident that [indiscernible].

I'll now pass the call over to Mike for his review of our Q3 financial performance. Mike?

Michael McKenney

Thank you, Jeff. I'll start with our third quarter performance. Our third quarter record revenue of $313.2 million [indiscernible] included record aftermarket parts revenue of $218.4 million. Organic revenue increased 4% compared to the third quarter of '25 including a 5% increase in organic capital revenue. Gross margin was 44.7% in the third quarter of 26%, down 50 basis points compared to 45.2% in the third quarter of '25, largely due to a lower gross margin profile associated with the mix of capital projects in the period. We had a benefit in the third quarter from tariff refunds but this was offset by the negative impact from the amortization of acquired profit and inventory and deferred profit associated with intercompany sales at our Kadant Profil acquisition.

SG&A expenses as a percentage of revenue decreased to 26.4% in the third quarter of 2016 compared to 27.9% in the prior year period. SG&A expenses were $82.7 million in the third quarter, 26, increasing $6.9 million compared to $75.8 million in the third quarter '25. This increase includes $6.1 million of operating expenses and $2.3 million in noncash intangible amortization expense from our recent acquisitions. These increases in SG&A expense were partially offset by a $2 million decrease in acquisition-related costs.

Our GAAP EPS increased 26% to $2.96 in the third quarter and our adjusted EPS increased 21% to a record $3.64 in the third quarter of '26. The third quarter '26 adjusted EPS exceeded the high end of our guidance range by $0.64 in part due to higher-than-expected revenue. This included higher-than-expected aftermarket parts revenue at our Industrial Processing segment as well as higher capital revenue at our Flow Control segment.

In addition, our acquisitions performed better than anticipated, and our operating expenses were lower than forecast. This strong performance contributed to a record adjusted EBITDA and record cash flow performance in the quarter, which I'll discuss further in further detail on the next slide. Adjusted EBITDA increased 24% to a record $71.7 million compared to $58 million in the third quarter '25 due to strong performance at our Industrial Processing segment driven by our recent acquisitions and record performance at our Flow Control segment. Adjusted EBITDA margin exceeded the last 4 quarters and rose to 22.9% compared to 21.4% in the third quarter '25. I should note that our businesses have done an excellent job in controlling expenses while optimizing business processes to help drive our record results.

Turning to our cash flows. We had both record operating and free cash flow in the third quarter of '26 at $62.9 million and $58.1 million, respectively. On a year-to-date basis, both metrics are ahead of last year, with free cash flow up 20% over last year. Nonoperating uses of cash in the third quarter of '26 included $51 million of repayments on our debt, $4.8 million for capital expenditures and $4.3 million for a dividend on our common stock.

Let me turn next to our EPS results for the quarter. Our adjusted EPS increased $0.63 from $3.01 in the third quarter of '25 to $3.64 in the third quarter '26. This included increases of $0.50 from the operating results of our recent acquisitions excluding associating borrowing costs, $0.29 due to higher revenue and $0.04 due to lower tax rates. These increases were partially offset by $0.15 in higher interest expense, $0.02 due to lower gross margin percentage, $0.02 due to higher non controlling interest and $0.01 due to higher weighted shares outstanding. Our effective tax rate of 26.4% in the third quarter was lower than anticipated, primarily due to discrete tax benefits. Collectively, included in all the categories I just mentioned, was a favorable foreign currency translation effect of $0.02 in the third quarter of '26 compared to the third quarter of last year.

Looking at our liquidity metrics on Slide 15. Our cash conversion days were 133 at both the end of the third and second quarters of 26 compared to 131 at the end of the third quarter '25. Working capital as a percentage of revenue decreased to 17.8% in the third quarter '26 compared to 19.3% in the second quarter of '26. Our net debt, that is debt less cash, decreased $56.4 million or 15% sequentially to $316.6 million. As noted earlier, we paid down $51 million of our debt this quarter, demonstrating our ability to generate strong cash flow globally and efficiently pay down our acquisition borrowings.

Our leverage ratio, calculated in accordance with our credit agreement decreased to 1.49% compared to 1.72% at the end of the second quarter '26. At the end of the third quarter '26, we had $300 million of borrowing capacity available under our revolving credit facility.

Now I'll review our guidance for '26. Despite many challenging market conditions, we delivered strong financial performance in the third quarter and expect to end the year with records in a number of financial metrics, including revenue, adjusted EBITDA and adjusted EPS. We also had record operating and free cash flow in the third quarter as well as the first 9 months of '26. We are raising the lower end of our full year '26 revenue guidance to $1.195 billion to $1.210 billion, revised from our previous guidance of $1.19 billion to $1.21 billion. We are raising our adjusted EPS guidance and now expect $12.58 to $12.73 in '26, revised from our previous guidance of $12.43 to $12.68. Our adjusted EPS guidance excludes $2.19 of intangible amortization expense and $0.51 of acquisition-related costs. Our revenue guidance for the fourth quarter of '26 is $287 million to $302 million and our adjusted EPS guidance for the fourth quarter is $2.67 to $2.82, which excludes $0.55 of intangible amortization expense and $0.11 of acquisition-related costs.

Our full year '26 guidance includes the following assumptions: gross margins of 44% to 44.3%, SG&A as a percentage of revenue of 27% to 27.5%, net interest expense of $19 million to $19.5 million, a tax rate of 27% to 27.5% and depreciation expense of $27.5 million to $28 million.

That concludes my review of the financials, and I'll now turn the call back over to the operator, Stephen, for our Q&A session. Stephen?

Operator

[Operator Instructions] Our first question comes from Ross Sparenblek of William Blair.

Phần hỏi đáp

Unknown Analyst

This is Sam Karlov on for Ross. So organic orders are relatively strong across the board. I'm curious how your capital equipment project funnel has evolved in the past few months in each segment? And then are there any major macro or customer trends that have gotten better or worse for your business over the past few months?

Jeffrey Powell

I think the activity level, the discussion level has improved. And I would say the pipeline is growing, although I can't say there's any particular area where things have really changed. What we're finding is more activity in some of the newer markets that we've gotten into the defense side, aerospace, automation, those areas are growing faster, and they seem to be right now willing to make more investments in those areas. So that's the area that we've seen some nice bookings and a nice growth area. The larger capital projects tend to be associated with our Industrial Processing segment. I'm talking about projects that can be anywhere from $5 million to $25 million. Those, I would say, are still in discussions, but they are taking longer to turn into orders than they have traditionally. So there's still some caution in some of those larger capital projects in some of our older core markets. But the newer markets we've entered into, the investment cycle seems to be accelerating.

Unknown Analyst

Got it. No, that's super helpful. I guess switching gears for a second. Can you give us an update on the integration of fill and kind of update us on where you are working through that inventory on hand from that business?

Jeffrey Powell

Yes, I'll let Mike discuss where we are. But I would say from an operational standpoint, the integration has gone quite well. As you're aware, we've worked with them for 30 years. Half their business was to us already. So it's been a very smooth, I would say, integration, and we're very pleased with the way things are going there. They're out chasing some new markets and having some success. We announced, I think, last quarter, they've gotten a very large order in the aerospace area. So we're so far quite pleased with the operational integration.

Michael McKenney

Yes. And Sam, on the inventory front, I think as we had forecast, we're going to start to turn the corner here in the fourth quarter. So by the first quarter of '27, that should be relatively behind us for the standard components.

Unknown Analyst

Got it. That's super helpful. And then just before I forget, can you give the split on the backlog for capital equipment versus parts and consumables?

Michael McKenney

Yes. It's -- so the -- we ended with the backlog of $316 million, and the split is $167 million capital, parts and consumables, $149 million.

Operator

Our next question comes from the line of Gary Prestopino of Barrington.

Gary Prestopino

Mike, just going through some of my notes on -- when you made this acquisition of was it Profile KAI, you said it was going to be dilutive this year because of the intercompany transfers, right, about $0.20 per share. Yes. Okay. So as we get into '27, how does that start factoring out? I mean that whole $0.20 drag is going to go away and it should start maybe kind of mimicking the margins that your overall company has or generates or within the segment division that it's in?

Michael McKenney

Yes. That's a good way to think of it, Gary. We're tracking to that $0.20 drag. And right now, as we get right off the bat when we get into '27, we'll, I believe, turn the corner on that, and you'll start to see improvement in the margin profile for the Industrial Processing for specific to the wood sector.

Gary Prestopino

Okay. That's good. And then the previous question asked about the backlog for capital and aftermarket parts. What was the corresponding backlog last year at this time for capital and aftermarket parts?

Michael McKenney

Last year, it was $273 million. And I don't have in with me. I will guess that, that was probably about 60-40, 60% capital, 40% parts. That would be my estimate on that.

Gary Prestopino

Okay. And just any thoughts on that now that this election is over and the uncertainties are gone, at least domestically, what do you think -- what kind of impact do you think that could possibly have on your capital project activity?

Jeffrey Powell

Well, I got to be honest with you. Gary, I have no clue. I mean it's Things have been -- I would say, generally speaking, things have been -- and we said this now for -- actually for quite some time, things have been much softer than we would have expected when you look at the overall state of the economy. And so short of us going into a macro recession, it's kind of -- it would be surprising if things get substantially worse. Could they get better? Absolutely. We think that many of our customers have underinvested now for the last several years. And that's why our parts continue to set new record levels, even though operating rates are actually quite soft. They're nowhere near record operating rates, and yet we just continue to have quarter after quarter of record parts because they're running such old equipment. So they're going to have to start to make some investments. And we're talking to some customers that are now saying, okay, we're starting to put our plans together to start to reinvest in the business. So -- but I wouldn't venture a guess on these election results and how they might impact things. I don't see -- I mean, there's nothing quite obvious that would be highly negative that I can see, but I'm not smart enough to figure out what these guys are going to do.

Gary Prestopino

Okay. That's helpful. You just add a thought there. And then just a comment on the M&A pipeline.

Jeffrey Powell

Yes. It's -- I would say that it's softened a little bit as the year has progressed here. At the beginning of the year, there was some decent deal flow. But recently, the bankers are telling us that we've experienced ourselves a little bit of a slowdown in new deals coming to market. And there's a huge pent-up book of businesses that need to be moved, certainly on the sponsor side. On the private equity side, they've got big portfolios of businesses that they've not brought to market, and they're going to have to do that. But things have -- I would say, have softened a little bit here as the year has progressed.

Gary Prestopino

And best of luck to you in your retirement.

Jeffrey Powell

I'm not going away completely. I'm not going away completely. It's a little less work.

Gary Prestopino

A part-time gig as an adviser, right?

Jeffrey Powell

Well, I'm actually still to be an employee through all '27. So I don't come off the payroll to '28.

Operator

Our next question comes from the line of Walter Liptak of Seaport Research.

Walter Liptak

Congratulations, Jeff, on a really good run. I wanted to ask a question about the comment that you made on the first question about some of the pivot into defense, aerospace, automation growing faster. I wonder if you could give us a little bit more color about sort of what that funnel looks like and maybe the magnitude, like if you are seeing more capital orders there, like what percentage of revenue do those sectors make up?

Jeffrey Powell

Yes, I don't have that exact number. Of course, it's a new market for us. So it's a smaller percentage. It's just that a lot of it is new business that we didn't have before. So it is impactful from that standpoint. It is growing. Probably I think this year, I think our biggest order in a new market was on the aerospace side. I think it was about an $8 million order.

Mike, is that right?

Michael McKenney

Correct. Yes, about $8 million order. We mentioned that on the factory automation side that we picked up several million dollars worth of business this year that was new business to us, and that continues even recently, I think we've continued to book some nice factory automation projects with some big well-known names. So it's all kind of incrementally new business for us, and it's markets that we're putting a lot of focus. strategically, we're focusing on those because we do know they're new business for us and also growing faster than some of the older markets. So it's encouraging to see that we're having some good success there.

Walter Liptak

Okay. And the $25 million order that you referenced, is that in the papermaking sector?

Michael McKenney

Well, I just talked about project sizes in the industrial processing side range anywhere from $5 million to as much as $25 million. We have booked $25 million order in the fiber processing side in the past. That tends to be -- our single largest projects tend to be on the fiber processing side.

Walter Liptak

Okay. Okay. And then, yes, I guess as we're thinking about 2027, it seems like some of the sectors have been consolidating here for a little while. Based on your experience, is there like a point at which the recapitalization starts as they invest in the remaining facilities, updating them and things even before sort of the sectors start changing? Or is there something that we're -- we should be thinking about for when some of the more traditional capital orders start picking up?

Michael McKenney

Yes. I think that some of our customers have started to talk and announce that they're going to start to reinvest in the assets that they kept online. As you know, there was a fair amount of consolidation, particularly in the fiber processing side. And when that happens, of course, they spend their time focused on which assets are going to shutter and which ones they're going to invest in because overall demand for the product globally, at least has not gone down. It continues to go up. So you've got to replace that -- if they shut down a plant somewhere, somewhere else, it's got to be picked up. And so some of our customers have announced and are talking about an investment cycle starting up as they now have rationalized their combined operation and are ready to start trying to improve efficiencies and get ready for, I think, the economies as they start to reaccelerate. So we do expect to see some of that and have had some discussions along those lines.

Walter Liptak

Okay. Great. And then just last one for me. The margins look pretty good kind of across the board with the exception of some of the noise from acquisitions. But the -- how are you feeling about price cost and just selling price increases and being able to deal with the inflationary pressures?

Yes. I mean what we primarily focused on is internal cost control and internal initiatives. I mean the market isn't very excited about price increases right now with the economies in some areas still being somewhat soft. But where we can make an impact and where we have focused and got benefit from is really operational efficiencies and cost controls internally within our organization. So we have some some fairly global, I would say, global-wide initiatives we're working on right now to bring our -- to continue to bring our costs down and become more efficient. And so that's really where we're seeing the benefits from less so on pricing and more on our internal efficiencies and cost control.

Operator

Okay. I am showing no further questions at this time. I would now like to turn it back to Jeff Powell, CEO, for closing remarks.

Jeffrey Powell

Thanks, Stephen. So before wrapping up the call today, I just want to leave you with a few takeaways. 2026 is expected to be a record-setting year for Kadant despite the economic pressures and geopitical challenges around the world. Strong performance in the first 3 quarters of 2026 along with the numerous operational improvements we've achieved through our 80/20 performance system and other initiatives that position us well for the remainder of the year. We look forward to sharing our successes with you on future calls, and we want to thank you for joining us today.

Operator

Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.