Kennametal(KMT) - 2025 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial statements, management's discussion and analysis, and disclosures on market risk and internal controls for the period ended March 31, 2025 Financial Statements This section presents the unaudited condensed consolidated financial statements for the three and nine months ended March 31, 2025, and 2024, including Statements of Income, Comprehensive Income, Balance Sheets, and Cash Flows, along with detailed notes Condensed Consolidated Statements of Income (Unaudited) For the third quarter of fiscal 2025, sales decreased to $486.4 million from $515.8 million year-over-year, while net income attributable to Kennametal increased significantly to $31.5 million from $19.0 million, resulting in diluted EPS rising to $0.41 from $0.24 Q3 & Nine Months FY2025 vs FY2024 Income Statement Highlights | Metric (in thousands, except per share) | Q3 2025 | Q3 2024 | Change | 9 Months 2025 | 9 Months 2024 | Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Sales | $486,399 | $515,794 | -5.7% | $1,450,398 | $1,503,591 | -3.5% | | Gross Profit | $156,365 | $153,262 | +2.0% | $452,405 | $455,757 | -0.7% | | Operating Income | $44,060 | $35,227 | +25.1% | $111,753 | $108,824 | +2.7% | | Net Income Attributable to Kennametal | $31,482 | $18,976 | +65.9% | $71,533 | $72,141 | -0.8% | | Diluted EPS | $0.41 | $0.24 | +70.8% | $0.91 | $0.90 | +1.1% | Condensed Consolidated Balance Sheets (Unaudited) As of March 31, 2025, total assets were $2.49 billion, a slight decrease from $2.50 billion at June 30, 2024, with total liabilities also seeing a minor decrease to $1.21 billion and Kennametal Shareholders' Equity decreasing to $1.24 billion Balance Sheet Highlights | Metric (in thousands) | March 31, 2025 | June 30, 2024 | Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $97,467 | $127,971 | -23.8% | | Inventories | $555,989 | $514,632 | +8.0% | | Total current assets | $1,013,360 | $1,002,592 | +1.1% | | Total assets | $2,490,503 | $2,503,758 | -0.5% | | Total liabilities | $1,211,587 | $1,215,159 | -0.3% | | Total Kennametal Shareholders' Equity | $1,236,868 | $1,249,875 | -1.0% | Condensed Consolidated Statements of Cash Flow (Unaudited) For the nine months ended March 31, 2025, net cash from operating activities was $129.7 million, a decrease from $163.5 million in the prior year, mainly due to a significant increase in inventories, while investing and financing activities used $60.1 million and $98.0 million respectively Nine Months Ended Cash Flow Summary | Cash Flow Activity (in thousands) | Nine Months Ended Mar 31, 2025 | Nine Months Ended Mar 31, 2024 | | :--- | :--- | :--- | | Net cash flow provided by operating activities | $129,730 | $163,460 | | Net cash flow used in investing activities | ($60,055) | ($86,111) | | Net cash flow used in financing activities | ($98,026) | ($88,659) | | Net decrease in cash and cash equivalents | ($30,504) | ($13,902) | Notes to Condensed Consolidated Financial Statements (Unaudited) The notes provide detailed explanations for the financial statements, including information on restructuring charges, segment data, and a new legal proceeding initiated against the company seeking over $330 million in damages - In January 2025, the company announced new restructuring actions expected to incur pre-tax charges of approximately $25 million[32] - A lawsuit was filed against the company in February 2025 by MachiningCloud, Inc. for breach of contract, seeking more than $330 million in damages, which the company intends to vigorously defend[60] Segment Operating Income (Q3 2025 vs Q3 2024) | Segment (in thousands) | Q3 2025 | Q3 2024 | | :--- | :--- | :--- | | Metal Cutting | $24,900 | $30,809 | | Infrastructure | $19,423 | $5,140 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses a 6% year-over-year sales decrease for Q3 2025 to $486.4 million, driven by organic decline and unfavorable currency effects, while operating income increased due to an advanced manufacturing production credit, lower raw material costs, and restructuring savings - Q3 2025 sales decreased 6% from the prior year quarter to $486.4 million, reflecting a 3% organic sales decline and a 3% unfavorable currency exchange effect[69] - Q3 2025 operating income increased by $8.8 million year-over-year, primarily due to a ~$10 million advanced manufacturing production credit (Inflation Reduction Act), lower raw material costs, and ~$6 million in restructuring savings[70] - The company estimates a potential annual exposure of approximately $80 million related to additional tariffs and is working to mitigate negative impacts[72] Results of Operations For Q3 2025, sales decreased 6% year-over-year, with an organic decline of 3%, while gross profit margin improved to 32.1% from 29.7% due to an advanced manufacturing production credit and lower raw material costs, also impacting the effective tax rate End Market Sales Growth (Decline) - Q3 2025 vs Q3 2024 | End Market | As Reported | Constant Currency | | :--- | :--- | :--- | | Aerospace & Defense | 4% | 7% | | Energy | (3)% | (1)% | | General Engineering | (8)% | (5)% | | Transportation | (6)% | (2)% | | Earthworks | (8)% | (7)% | - Gross profit margin for Q3 2025 was 32.1%, compared to 29.7% in the prior year quarter, boosted by a ~$10 million advanced manufacturing production credit[77] - The effective tax rate for Q3 2025 was 23.6%, down from 27.4% in Q3 2024, primarily due to the benefit from the advanced manufacturing production credit[85] Business Segment Review In Q3 2025, the Metal Cutting segment's sales fell 7% to $304.3 million, with operating income decreasing to $24.9 million, while the Infrastructure segment's sales decreased 4% to $182.1 million but its operating income surged to $19.4 million from $5.1 million year-over-year, primarily due to an advanced manufacturing production credit Segment Performance - Q3 2025 vs Q3 2024 | Segment (in thousands) | Sales Q3 2025 | Sales Q3 2024 | Operating Income Q3 2025 | Operating Income Q3 2024 | | :--- | :--- | :--- | :--- | :--- | | Metal Cutting | $304,349 | $326,561 | $24,900 | $30,809 | | Infrastructure | $182,050 | $189,233 | $19,423 | $5,140 | - Metal Cutting Q3 operating income decreased due to lower sales volumes, unfavorable currency effects, and inflation, partially offset by pricing and restructuring savings[92] - Infrastructure Q3 operating income surged primarily due to a ~$10 million advanced manufacturing production credit, favorable pricing-to-raw material cost timing, and restructuring savings[99] Liquidity and Capital Resources As of March 31, 2025, the company maintained a solid liquidity position with $97.5 million in cash and $689.8 million available under its $700 million credit facility, with operating cash flow for the first nine months of fiscal 2025 decreasing to $129.7 million primarily due to higher inventory levels - As of March 31, 2025, the company was in compliance with all credit agreement covenants and had $689.8 million of additional availability under its revolving credit facility[107] - During the nine months ended March 31, 2025, the company repurchased $55 million of its common stock under a $200 million three-year program authorized in February 2024[110] - Cash flow from operating activities decreased to $129.7 million for the nine months ended March 31, 2025, from $163.5 million in the prior year period, largely due to a $41.3 million increase in inventories[112] Quantitative and Qualitative Disclosures About Market Risk The company states that there have been no material changes to its market risk exposures since the end of the previous fiscal year, June 30, 2024 - There have been no material changes to our market risk exposures since June 30, 2024[129] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective at a reasonable assurance level as of March 31, 2025, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation, the CEO and CFO concluded that the Company's disclosure controls and procedures are effective to provide reasonable assurance as of March 31, 2025[130] - There were no changes in the Company's internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal controls[131] Other Information The company reports that none of its directors or officers adopted, modified, or terminated a Rule 10b5-1 trading plan or a non-Rule 10b5-1 trading arrangement for the purchase or sale of company securities during the quarter ended March 31, 2025 - In the quarter ended March 31, 2025, none of the company's directors or officers adopted, modified or terminated a Rule 10b5-1 trading arrangement[132] PART II - OTHER INFORMATION This section details legal proceedings, equity security transactions, and a list of exhibits filed with the report Legal Proceedings The company is party to various legal claims that arise in the ordinary course of business, and while the ultimate outcome is uncertain, management does not currently believe these proceedings will materially affect its financial position, with a significant new lawsuit from MachiningCloud, Inc. seeking over $330 million disclosed in the Notes to Condensed Consolidated Financial Statements - The company is party to legal claims and proceedings that arise in the ordinary course of business[134] - This section refers to the Notes to Condensed Consolidated Financial Statements for further information, which includes details on a lawsuit from MachiningCloud, Inc. seeking over $330 million in damages[134][60] Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities During the quarter ended March 31, 2025, the company repurchased a total of 1,146,780 shares at an average price of $22.01 per share, with approximately $145 million remaining available for repurchase under the current program authorized in February 2024 Issuer Purchases of Equity Securities (Q3 2025) | Period | Total Shares Purchased | Average Price Paid per Share | Shares Purchased as Part of Publicly Announced Program | | :--- | :--- | :--- | :--- | | January 2025 | 6,445 | $24.01 | — | | February 2025 | 582,895 | $22.33 | 580,000 | | March 2025 | 557,440 | $21.66 | 555,364 | | Total | 1,146,780 | $22.01 | 1,135,364 | - As of March 31, 2025, approximately $145 million remained available for repurchase under the $200 million, three-year share repurchase program[135] Exhibits This section lists the exhibits filed with the 10-Q report, including CEO and CFO certifications and XBRL interactive data files - Lists filed exhibits, including CEO/CFO certifications (31.1, 31.2, 32.1) and XBRL data files (101 series)[138]