Stock Story -
Industrial materials and tools company Kennametal (NYSE:KMT) beat analysts' expectations in Q2 CY2024, with revenue down 1.3% year on year to $543.3 million. The company expects next quarter's revenue to be around $490 million, in line with analysts' estimates. It made a non-GAAP profit of $0.01 per share, down from its profit of $0.51 per share in the same quarter last year.
Is now the time to buy Kennametal? Find out by reading the original article on StockStory, it's free.
Kennametal (KMT) Q2 CY2024 Highlights:
- Revenue: $543.3 million vs analyst estimates of $532.7 million (2% beat)
- EPS (non-GAAP): $0.01 vs analyst estimates of $0.44 (-$0.43 miss)
- Revenue Guidance for Q3 CY2024 is $490 million at the midpoint, roughly in line with what analysts were expecting
- Management's revenue guidance for the upcoming financial year 2025 is $2.05 billion at the midpoint, missing analyst estimates by 1.1% and implying 0.2% growth (vs -1.5% in FY2024)
- EPS (non-GAAP) guidance for Q3 CY2024 is $0.25 at the midpoint, below analyst estimates of $0.38
- EPS (non-GAAP) guidance for the upcoming financial year 2025 is $1.50 at the midpoint , missing analyst estimates by 3.8%
- Gross Margin (GAAP): 31.5%, in line with the same quarter last year
- Free Cash Flow of $90.33 million, up 86.4% from the previous quarter
- Organic Revenue fell 1% year on year (7.2% in the same quarter last year)
- Market Capitalization: $1.88 billion
Involved in manufacturing hard tips of anti-tank projectiles in World War II, Kennametal (NYSE:KMT) is a provider of industrial materials and tools for various sectors.
Professional Tools and EquipmentAutomation that increases efficiency and connected equipment that collects analyzable data have been trending, creating new demand. Some professional tools and equipment companies also provide software to accompany measurement or automated machinery, adding a stream of recurring revenues to their businesses. On the other hand, professional tools and equipment companies are at the whim of economic cycles. Consumer spending and interest rates, for example, can greatly impact the industrial production that drives demand for these companies’ offerings.
Sales GrowthReviewing a company's long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one tends to sustain growth for years. Kennametal's demand was weak over the last five years as its sales fell by 2.9% annually, a rough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Kennametal's revenue over the last two years was flat, sugggesting its demand was weak but stabilized after its initial drop in sales.
We can dig further into the company's sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations because they don't accurately reflect its fundamentals. Over the last two years, Kennametal's organic revenue averaged 3.7% year-on-year growth. Because this number is better than its normal revenue growth, we can see that some mixture of divestitures and foreign exchange rates dampened its headline performance.
This quarter, Kennametal's revenue fell 1.3% year on year to $543.3 million but beat Wall Street's estimates by 2%. For next quarter, the company is guiding for flat year on year revenue of $490 million, in line with the 0.5% year-on-year decrease it recorded in the same quarter last year. Looking ahead, Wall Street expects revenue to remain flat over the next 12 months.
Operating MarginOperating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. It's also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
Kennametal was profitable over the last five years but held back by its large expense base. It demonstrated mediocre profitability for an industrials business, producing an average operating margin of 7.1%.
On the bright side, Kennametal's annual operating margin rose by 7.1 percentage points over the last five years
In Q2, Kennametal generated an operating profit margin of 11.3%, up 1.1 percentage points year on year. This increase was encouraging, and since the company's operating margin rose more than its gross margin, we can infer it was recently more efficient with expenses such as sales, marketing, R&D, and administrative overhead.
EPSWe track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.
Sadly for Kennametal, its EPS declined more than its revenue over the last five years, dropping by 19.6% annually. However, its operating margin actually expanded during this timeframe, telling us non-fundamental factors affected its ultimate earnings.
Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. For Kennametal, its two-year annual EPS declines of 24.3% show it's continued to underperform. These results were bad no matter how you slice the data.
In Q2, Kennametal reported EPS at $0.01, down from $0.51 in the same quarter last year. This print missed analysts' estimates. Over the next 12 months, Wall Street expects Kennametal to grow its earnings. Analysts are projecting its EPS of $1.02 in the last year to climb by 50.9% to $1.54.
Key Takeaways from Kennametal's Q2 Results It was great to see Kennametal's strong EPS forecast for next quarter, which exceeded analysts' expectations. We were also glad its organic revenue topped Wall Street's estimates. On the other hand, its EPS missed and its EPS guidance for the full year fell short of Wall Street's estimates. Overall, this was a mixed quarter for Kennametal. The stock remained flat at $23.95 immediately following the results.
