Core Insights - Kadant reported strong Q2 FY2025 earnings, with adjusted EPS of $2.31 exceeding estimates by 19.1% and GAAP revenue of $255.3 million surpassing forecasts by $9.26 million, despite year-over-year declines in both metrics [1][5][12] - The company experienced a shift in product mix, with parts and consumables now accounting for 71% of total revenue, up from 63% a year earlier, indicating a focus on higher-margin recurring revenue [6][10] Financial Performance - Adjusted EPS (non-GAAP) was $2.31, down 17.8% from $2.81 in Q2 2024, while GAAP EPS was $2.22, down 16.5% from $2.66 [2] - Revenue for Q2 FY2025 was $255.3 million, a 7.1% decrease from $274.8 million in Q2 2024 [2] - Gross margin improved to 45.9%, up 1.5 percentage points from 44.4% a year ago, driven by higher-margin aftermarket parts sales [2][5] - Free cash flow increased by 58% year-over-year to $36.5 million, aided by lower capital expenditures [2][8] Segment Dynamics - Flow Control segment revenue grew by 4.0% year-over-year, with a gross margin of 53.8% [11] - Industrial Processing segment saw a 16% revenue decline year-over-year due to delayed capital spending by customers [6][11] - Material Handling segment revenue fell 6.4% year-over-year [6] Market Trends and Challenges - The company faces headwinds from tariff-related material costs, which increased input expenses by $5 million to $6 million, impacting customer decision-making and capital orders [9] - Management indicated that achieving full-year FY2025 targets will require a ramp-up in capital equipment orders, with potential delays in revenue realization due to ongoing trade policy volatility [12][13] Strategic Focus - Kadant is prioritizing technological innovation, acquisitions, and sustainability to enhance efficiency and productivity while reducing environmental impact [4][10] - The company continues to execute its acquisition strategy, which has shifted the sales mix further toward high-margin recurring revenue [10]