08-05-2025
Kennametal Inc (KMT) Q3 2025 Earnings Call Highlights: Navigating Challenges with Strategic ...
Q : Can you talk about the demand trends for the fourth quarter, particularly across key end markets, and how they are progressing? A : Sanjay Chowbey, President and CEO, noted that they are seeing steady improvement with most market trends remaining stable. General Engineering in the US and APAC is flat, while EMEA is slightly weak. Transportation is also weak in EMEA but flat elsewhere. Energy sentiments are cautious, and Earthworks is experiencing softness in US coal exports. Aerospace and Defense show slight improvement. Overall, they expect a steady market path and aim to gain market share.
Sales decreased by 6% year over year, with declines in both the Metal Cutting and Infrastructure segments.
The company is confident in its ability to fully mitigate the impact of tariffs through strategic actions such as optimizing product flow and implementing tariff surcharges.
The company successfully implemented restructuring actions, achieving $6 million in savings this quarter and is on track for $15 million in annualized savings.
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
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Q: Can you provide more details on the tariff mitigation strategies and their progress? A: Sanjay Chowbey explained that they are confident in fully mitigating the direct impact of tariffs. They are utilizing their global footprint and supply chain network, with actions already in progress. More than half of the direct impact is related to US-China trade, and they have begun implementing product and tooling moves. Tariff surcharges have been implemented in the US for Metal Cutting, and similar actions are being taken for Infrastructure.
Q: What were the biggest surprises in the quarter relative to guidance, and how do you expect tungsten prices to affect costs? A: Patrick Watson, CFO, stated that the advanced manufacturing tax credit was a significant driver of outperformance, contributing $0.13 to EPS. Tungsten prices have risen recently, but cost structures typically lag by about two quarters. They expect some favorable pricing adjustments in the fourth quarter as contracts reset.
Q: Are there any competitive pressures in the Americas, particularly in Infrastructure and Earthworks? A: Sanjay Chowbey mentioned price pressure in Earthworks due to soft US coal exports and demand-capacity imbalance in China. However, they are maintaining competitiveness. Overall, Kennametal is performing well compared to peers, with strong commercial initiatives and a robust footprint in the US, Europe, and APAC.
Q: How are you managing inventory levels, and is there a strategic reason for the current inventory position? A: Patrick Watson explained that inventory levels, particularly in WIP and raw materials, have increased modestly due to long supply chains and recent demand changes. With rising tungsten prices, having more inventory acquired at lower costs is beneficial.
Q: How are you approaching M&A or portfolio optimization in light of the changing trade environment? A: Sanjay Chowbey indicated that strategic priorities are being aligned with inorganic portfolio actions. The tariff situation has introduced new considerations, and discussions are ongoing. More information will be shared as they reach certain points in these discussions.
Q: What is the expected operating leverage when sales start to grow again? A: Sanjay Chowbey stated that they expect mid-40s operating leverage as they continue to improve their cost structure. More details on portfolio analysis and cost structure improvements will be shared in the future.
Q: How are you planning to guide for the next fiscal year, and will there be any changes in the information provided? A: Patrick Watson mentioned that they will address this question in about 90 days, implying that guidance details will be shared in the next earnings call.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
