Source Documents
| Current Q (FQ3 2026) | Prior Sequential Q (FQ2 2026) | Year-Ago Q (FQ3 2025) | |
|---|---|---|---|
| Period End | March 31, 2026 | December 31, 2025 | March 31, 2025 |
| 8-K Filed | May 6, 2026 | February 4, 2026 | May 7, 2025 |
| Press Release | Link | Link | Link |
| SIC Code | 3541 — Machine Tools, Metal Cutting Types | ||
🚩 Flags — Material Changes This Quarter
MATERIAL BEAT [Both] Sales of $593M (+22% YoY) and Adj EPS of $0.77 (+64% YoY) both exceeded the high end of company guidance ($545-565M / $0.50-$0.60) — driven by unprecedented tungsten price surge.
GUIDANCE CHANGE [Both] FY2026 sales outlook raised to $2.33-2.35B (from $2.19-2.25B) and Adj EPS to $3.75-$4.00 (from $2.05-$2.45). The EPS midpoint of $3.88 implies ~$1.50 improvement vs prior guide — a massive upward revision.
MATERIAL BEAT [QoQ] Operating margin expanded from 9.9% → 13.4% sequentially, driven by ~$39M favorable pricing vs raw material timing in Infrastructure segment — tungsten pass-through mechanics.
WATCH ITEM [YoY] Inventories ballooned to $747M (up 39% YoY and 20% QoQ) — management cited tungsten price inflation driving inventory dollar value up. Free cash flow YTD fell to $18M vs $63M prior year as working capital consumed cash.
NEW RISK [YoY] “Availability and cost of raw materials including tungsten” explicitly called out as a key risk. The unprecedented tungsten price spike is the dominant earnings driver — both benefit and risk.
MATERIAL BEAT [YoY] Infrastructure segment operating income more than doubled to $42.5M (from $19.4M), margin expanding from 10.7% to 18.1% — the tungsten tailwind is most pronounced here.
Income Statement (GAAP)
| Metric ($000s except per share) | FQ3 2026 (Mar) | FQ2 2026 (Dec) | FQ3 2025 (Mar) | Δ QoQ | Δ% QoQ | Δ YoY | Δ% YoY | Note |
|---|---|---|---|---|---|---|---|---|
| Sales | $592,585 | $529,525 | $486,399 | +$63,060 | +11.9% | +$106,186 | +21.8% | Record organic +19% |
| Cost of Goods Sold | $384,607 | $355,656 | $330,034 | +$28,951 | +8.1% | +$54,573 | +16.5% | Raw material costs |
| Gross Profit | $207,978 | $173,869 | $156,365 | +$34,109 | +19.6% | +$51,613 | +33.0% | |
| Gross Margin % | 35.1% | 32.8% | 32.1% | +230bp | +300bp | Expanding nicely | ||
| Operating Expense | $124,046 | $116,302 | $104,013 | +$7,744 | +6.7% | +$20,033 | +19.3% | Comp costs + inflation |
| Restructuring Charges | $2,115 | $2,528 | $5,589 | ($413) | −16.3% | ($3,474) | −62.2% | Restructuring winding down |
| Amortization of Intangibles | $2,387 | $2,378 | $2,703 | $9 | +0.4% | ($316) | −11.7% | |
| Operating Income | $79,430 | $52,661 | $44,060 | +$26,769 | +50.8% | +$35,370 | +80.3% | ✅ Massive beats |
| Operating Margin % | 13.4% | 9.9% | 9.1% | +350bp | +430bp | Best in 8+ quarters | ||
| Interest Expense | $6,264 | $6,089 | $6,213 | +$175 | +2.9% | +$51 | +0.8% | Stable |
| Other Income, Net | ($6,546) | ($2,097) | ($5,454) | ($4,449) | nm | ($1,092) | +20.0% | |
| Income Before Tax | $79,712 | $48,669 | $43,301 | +$31,043 | +63.8% | +$36,411 | +84.1% | |
| Provision for Income Tax | $18,589 | $13,472 | $10,219 | +$5,117 | +38.0% | +$8,370 | +81.9% | Effective rate ~23.3% |
| Net Income (GAAP) | $61,123 | $35,197 | $33,082 | +$25,926 | +73.6% | +$28,041 | +84.8% | |
| Less: Noncontrolling Interests | $2,894 | $1,312 | $1,600 | +$1,582 | nm | +$1,294 | +80.9% | |
| Net Income attr. KMT | $58,229 | $33,885 | $31,482 | +$24,344 | +71.8% | +$26,747 | +85.0% | ✅ |
| Diluted EPS (GAAP) | $0.75 | $0.44 | $0.41 | +$0.31 | +70.5% | +$0.34 | +82.9% | ✅ |
| Adjusted Diluted EPS (NG) | $0.77 | $0.47 | $0.47 | +$0.30 | +63.8% | +$0.30 | +63.8% | Consensus comparison |
| Diluted Shares (000s) | 77,758 | 77,083 | 77,651 | +675 | +0.9% | +107 | +0.1% | Stock count stable |
Segment Performance
| Metric | FQ3 2026 | FQ2 2026 | FQ3 2025 | Δ QoQ | Δ% QoQ | Δ YoY | Δ% YoY |
|---|---|---|---|---|---|---|---|
| Metal Cutting Segment | |||||||
| Sales | $357,907 | $331,059 | $304,349 | +$26,848 | +8.1% | +$53,558 | +17.6% |
| Operating Income | $38,125 | $29,758 | $24,900 | +$8,367 | +28.1% | +$13,225 | +53.1% |
| Op Margin | 10.7% | 9.0% | 8.2% | +170bp | +250bp | ||
| Adj Op Income | $40,073 | $31,880 | $29,220 | +$8,193 | +25.7% | +$10,853 | +37.1% |
| Adj Op Margin | 11.2% | 9.6% | 9.6% | +160bp | +160bp | ||
| Infrastructure Segment | |||||||
| Sales | $234,678 | $198,466 | $182,050 | +$36,212 | +18.2% | +$52,628 | +28.9% |
| Operating Income | $42,471 | $23,402 | $19,423 | +$19,069 | +81.5% | +$23,048 | +118.7% |
| Op Margin | 18.1% | 11.8% | 10.7% | +630bp | +740bp | ||
| Adj Op Income | $42,914 | $24,336 | $20,943 | +$18,578 | +76.3% | +$21,971 | +104.9% |
| Adj Op Margin | 18.3% | 12.3% | 11.5% | +600bp | +680bp | ||
Segment Observations:
- Infrastructure is the primary beneficiary of the tungsten surge — pricing timing vs raw material costs contributed ~$39M in favorable delta in just the Infrastructure segment. Margin expansion from 10.7% to 18.1% is extraordinary.
- Metal Cutting saw strong but less dramatic improvement — pricing and tariff surcharges drove margin from 8.2% to 10.7%.
- The ~$8M IRA advanced manufacturing production credit normalization was a headwind in Infrastructure ($8M was in the year-ago quarter, partially reversing this year — implying underlying operational improvement is even stronger than reported).
Balance Sheet
| Metric ($000s) | Mar 31, 2026 | Dec 31, 2025 | Jun 30, 2025 | Δ QoQ | Δ% QoQ | Δ YTD | Δ% YTD |
|---|---|---|---|---|---|---|---|
| Cash & Equivalents | $106,850 | $129,318 | $140,540 | ($22,468) | −17.4% | ($33,690) | −24.0% |
| Accounts Receivable, Net | $334,429 | $288,205 | $295,401 | +$46,224 | +16.0% | +$39,028 | +13.2% |
| Inventories | $747,346 | $621,920 | $538,237 | +$125,426 | +20.2% | +$209,109 | +38.8% |
| Total Current Assets | $1,278,077 | $1,121,278 | $1,039,270 | +$156,799 | +14.0% | +$238,807 | +23.0% |
| PP&E, Net | $857,911 | $881,308 | $919,914 | ($23,397) | −2.7% | ($62,003) | −6.7% |
| Total Assets | $2,730,747 | $2,595,556 | $2,545,412 | +$135,191 | +5.2% | +$185,335 | +7.3% |
| Revolving Lines / Notes Payable | $16,750 | $1,430 | $977 | +$15,320 | nm | +$15,773 | nm |
| Accounts Payable | $263,068 | $220,410 | $195,929 | +$42,658 | +19.4% | +$67,139 | +34.3% |
| Total Current Liabilities | $536,069 | $439,350 | $422,329 | +$96,719 | +22.0% | +$113,740 | +26.9% |
| Long-Term Debt | $597,394 | $597,192 | $596,788 | $202 | 0.0% | $606 | 0.1% |
| Total Liabilities | $1,332,375 | $1,237,899 | $1,220,764 | +$94,476 | +7.6% | +$111,611 | +9.1% |
| KMT Shareholders’ Equity | $1,354,734 | $1,315,037 | $1,283,979 | +$39,697 | +3.0% | +$70,755 | +5.5% |
| Total Debt | $614,144 | $598,622 | $597,765 | +$15,522 | +2.6% | +$16,379 | +2.7% |
| Net Debt | $507,294 | $469,304 | $457,225 | +$37,990 | +8.1% | +$50,069 | +11.0% |
| Debt / Equity | 45.3% | 45.5% | 46.6% | −0.2pp | −1.3pp |
Watch Item: Inventory balance surged to $747M (+39% YTD) entirely driven by the unprecedented rise in tungsten prices. This is the single largest use of cash and the primary reason FOCF fell. Management is actively managing the tungsten supply chain, and this is expected to normalize as tungsten prices stabilize.
Cash Flow & Free Operating Cash Flow
| Metric ($000s) | YTD Mar 31, 2026 | YTD Mar 31, 2025 | Δ YoY | Δ% YoY |
|---|---|---|---|---|
| Net Cash from Operations | $69,681 | $129,730 | ($60,049) | −46.3% |
| Capex | ($53,680) | ($67,506) | +$13,826 | −20.5% |
| Asset Disposals | $1,662 | $460 | +$1,202 | nm |
| Free Operating Cash Flow | $17,663 | $62,684 | ($45,021) | −71.8% |
| FOCF Conversion (vs Adj Net Income) | ~29% | ~173% | −144pp | |
| Dividends Paid | $45,605 | $46,604 | ($999) | −2.1% |
| Stock Buybacks | $10,068 | $55,081 | ($45,013) | −81.7% |
Key: FOCF collapsed due to tungsten-driven inventory build of $216M YTD (vs $41M in prior year). Management’s revised FY guidance calls for FOCF of ~60% of adjusted net income. With adj NI annualizing around ~$290M at midpoint, that implies ~$174M FOCF — a sharp H2 recovery as inventory build normalizes. Buybacks were curtailed to preserve cash.
Guidance & Outlook — The Story of the Quarter
| Item | FQ3 2026 Release (Current — May 6) |
FQ2 2026 Release (Prior — Feb 4) |
FQ3 2025 Release (Year Ago) |
Change vs Prior Q |
|---|---|---|---|---|
| Annual (FY2026 Ending June 30) | ||||
| FY2026 Sales | $2.33 – $2.35B | $2.190 – $2.250B | — | ✅ Raised ~$120M at midpoint |
| FY2026 Adj EPS | $3.75 – $4.00 | $2.05 – $2.45 | — | ✅ Raised ~$1.50 at midpoint |
| FOCF | Not explicitly re-issued | ~60% of adjusted net income | — | Assumed unchanged |
| Capex | Not explicitly re-issued | ~$90M | — | Assumed unchanged |
| Quarterly Look-Ahead | ||||
| Next Q Sales Guide | — | $545 – $565M | — | Actual Q3 of $593M blew past this guide |
| Next Q Adj EPS Guide | — | $0.50 – $0.60 | — | Actual Q3 of $0.77 blew past this guide |
| Dividend | ||||
| Quarterly Dividend | $0.20/share | $0.20/share | $0.20/share | Unchanged |
Guidance Commentary: The magnitude of the upward revision is remarkable — Adj EPS midpoint went from $2.25 to $3.875, a 72% increase. This is almost entirely driven by the unprecedented tungsten price surge, which creates a favorable pricing vs. raw material cost timing dynamic. The question investors face: is this structural (management can hold pricing) or transitory (tungsten prices normalize and profits compress)?
Consensus Comparison
| Metric | Period | Actual / Guidance | Consensus | Beat/Miss | vs High | vs Low | # Analysts |
|---|---|---|---|---|---|---|---|
| Revenue | FQ3 2026 (Act.) | $592.6M | ~$555M (est.) | ✅ ~+$38M | — | — | — |
| Adj EPS | FQ3 2026 (Act.) | $0.77 | ~$0.55 (mid guide) | ✅ Massively beat | — | — | — |
| Revenue | FY2026 (Guide) | $2.33-2.35B | $2.23B* | ✅ Raised above street | — | — | 5 |
| Adj EPS | FY2026 (Guide) | $3.75-$4.00 | $2.44* | ✅ Massive upgrade | — | — | 5 |
| Adj EPS | FY2027 (Est.) | — | $2.56 | — | — | — | 5 |
* Consensus estimates were last updated pre-guidance raise. The $2.44 FY2026 consensus is clearly stale given the new $3.75-$4.00 company guidance. FY2027 consensus of $2.56 is expected to be revised upward.
Stock / Valuation Context
| Metric | Value |
|---|---|
| Regular Session Close (May 6) | $37.51 |
| Pre-Market (May 8) | $43.40 (+15.7% vs close) |
| 52-Week Range | $17.62 – $42.03 |
| Market Capitalization | ~$2.86B (at $37.51) / ~$3.3B (at $43.40) |
| Forward P/E (FY2026 guide mid $3.875 at $43.40) | 11.2x |
| Forward P/E (FY2026 guide mid $3.875 at $37.51) | 9.7x |
| Trailing P/E (TTM: ~$1.87 est.) | ~23x |
| Price / Book Value (at $43.40) | ~2.5x |
| Quarterly Dividend | $0.20/share |
| Annual Dividend Yield | 1.84% (at $43.40) |
| EV / Sales (FY2026 guide ~$2.34B) | ~1.5x |
| EV / EBITDA (est.) | ~7-8x |
Management Tone & Qualitative Changes
| Theme | FQ3 2026 | FQ2 2026 | Change? |
|---|---|---|---|
| Overall Tone | 🟢 Bullish — “exceeded the high end,” actively managing tungsten supply chain | 🟢 Bullish — “pleased with results, exceeding high end” | Elevated confidence |
| Key Growth Driver | “Unprecedented rise in tungsten pricing” + volume momentum | “Buy-ahead in response to tungsten pricing” | Tungsten theme intensifying |
| Strategic Focus | “Actively managing tungsten supply chain” + shareholder value | “Above market growth, cost structure, smarter portfolio” | More tungsten-centric |
| New Risks | Tungsten availability & cost explicitly named | Raw materials broadly referenced | ⚠️ More specific about tungsten risk |
| Restructuring | Winding down — only $2.1M in charges | $2.5M charges | Nearly complete |
| Share Count | Diluted shares 77.8M (stable) | 77.1M (stable) | Buybacks paused |
Organic Sales Growth Bridge
| Component | Metal Cutting | Infrastructure | Total KMT |
|---|---|---|---|
| Organic Sales Growth | 12% | 30% | 19% |
| FX Effect | 6% | 4% | 5% |
| Divestiture Effect | — | (5)% | (2)% |
| Reported Sales Growth | 18% | 29% | 22% |
Infrastructure organic growth of 30% is exceptional. Even excluding the divestiture drag (5%), the segment is firing on all cylinders. The tungsten pricing tailwind is the primary driver but underlying volume is also improving with end markets.
Key Takeaways
- Tungsten price surge is the dominant story — unprecedented raw material pricing has created a massive favorable timing tailwind for pricing vs costs. Q3 results and FY guidance both well above expectations.
- Inventory / FCF risk is real — $747M in inventory (+39% YTD) consuming cash. FOCF fell 72% YTD to $18M. If tungsten prices stabilize or fall, inventory de-stocking could create headwinds.
- Guidance was massively upgraded — FY2026 Adj EPS midpoint raised from $2.25 to $3.88 (+72%). The company clearly has visibility into H2 that supports this.
- Is this structural or transitory? — The tungsten dynamics are the $39M question. If KMT holds pricing after tungsten normalizes, margin expansion is structural. If not, FY2027 consensus of $2.56 looks about right. This is the key debate for investors.
- Balance sheet is manageable — Debt/Equity at 45%, no near-term maturities. The working capital spike is self-liquidating in theory.
- Restructuring tailwinds continue — ~$7M in incremental YoY savings in Q3. Program largely complete.
- Dividend stable at $0.20/qtr — 1.84% yield at current price. Not the primary reason to own the stock but provides a floor.
Bottom Line: Kennametal is in the midst of a tungsten-driven earnings super-cycle. The Q3 beat and guidance raise were extraordinary in magnitude. At 11x forward earnings, the stock doesn’t look expensive — if the earnings are sustainable. The critical question is what happens to margins and working capital when tungsten pricing normalizes. Management’s confidence in the “long-term strategy” suggests they believe some of these gains are structural. This is a show-me story over the next 2-3 quarters.
Disclosure: This report is for informational and educational purposes only and does not constitute investment advice, a recommendation, or a solicitation to buy or sell any securities. The information contained herein is based on publicly available sources believed to be reliable, but no representation or warranty is made as to its accuracy or completeness. Readers should conduct their own independent research and consult with a qualified financial advisor before making any investment decisions. Past performance is not indicative of future results. Homestead Financial Partners assumes no obligation to update this report.