Kadant(KAI)2022-11-06 08:31Financial Data and Key Metrics Changes - Q3 2022 revenue increased by 12% year-over-year to $225 million, benefiting from record capital shipments [10] - Adjusted EBITDA reached a record $48 million, with an EBITDA margin of 21.3% [11][28] - GAAP diluted EPS rose by 34% to $2.35, while adjusted diluted EPS increased by 21% to a record $2.38 [27][31] - Operating cash flow decreased by 34% to $24.9 million, and free cash flow decreased by 46% to $18.5 million due to increased working capital [29] Business Line Data and Key Metrics Changes - Flow Control segment revenue reached a record $87 million, up 14% year-over-year, with bookings at $85 million, up 11% [13] - Industrial Processing segment revenue increased by 5% to $86 million, with adjusted EBITDA margin at 24% [16] - Material Handling segment revenue rose by 23% to $52 million, with parts revenue constituting 57% of total revenue [18] Market Data and Key Metrics Changes - Strong demand for aftermarket parts was noted, while new capital order activity moderated [9] - The company experienced a favorable foreign currency translation effect of $3.4 million in Q3 2022 [24] Company Strategy and Development Direction - The company is focused on completing a significant number of capital projects and maintaining a strong backlog [20][21] - There is an expectation of moderated spending in the coming months due to central bank actions aimed at reducing inflation [15] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges from inflation, supply chain constraints, and geopolitical tensions but expressed confidence in the company's operational strength [21] - The company anticipates a potential risk from China's Zero COVID policy affecting operations [38] Other Important Information - The company narrowed its revenue guidance for 2022 to $890 million to $896 million, citing delays in capital shipments [37] - SG&A expenses as a percentage of revenue decreased to 23.7% in Q3 2022 compared to 26.2% in the prior year [26] Q&A Session Summary Question: Capital bookings decline and customer sentiment - Management indicated that the decline in capital bookings is a mix of market reactions and a wait-and-see attitude due to economic conditions [41][47] Question: Impact of capital project shifts - Approximately $10 million in capital projects were shifted from Q4 2022 to the first half of 2023, primarily affecting the Industrial Processing segment [68] Question: Commodity prices and input costs - Management noted that while stainless steel prices had decreased, they have stabilized recently, and the company has not significantly benefited or been hurt by these changes [71][72] Question: Future of greenfield projects and market dynamics - Management expects continued growth in packaging paper business driven by e-retail and sustainable materials, with a forecasted growth rate of about 4.8% annually for the next decade [59][60]