KMT Q1 Earnings Call: Tariff Mitigation, Cost Controls, and Margin Expansion Shape Outlook

Industrial materials and tools company Kennametal (NYSE:KMT) met Wall Street’s revenue expectations in Q1 CY2025, but sales fell by 5.7% year on year to $486.4 million. The company’s full-year revenue guidance of $1.98 billion at the midpoint came in 0.5% above analysts’ estimates. Its non-GAAP profit of $0.47 per share was 97.2% above analysts’ consensus estimates.

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StockStory’s Take

Kennametal’s first quarter results reflected ongoing challenges in industrial markets, with management noting continued declines across most end markets except aerospace and defense. CEO Sanjay Chowbey highlighted the company’s progress on cost reduction initiatives, including the consolidation of manufacturing operations and the closure of the Greenfield, Massachusetts facility. Management attributed margin improvement to restructuring savings, the absence of prior-year pricing and raw material headwinds, and a one-time benefit from an advanced manufacturing tax credit. Chowbey pointed to commercial wins in both the Metal Cutting and Infrastructure segments, emphasizing the company’s ability to deliver tailored solutions across a range of applications despite broad-based market softness, particularly in Europe and the Americas.

Looking ahead, Kennametal’s updated guidance is grounded in a series of mitigation actions designed to address tariff impacts and ongoing market headwinds, especially in Europe and the Americas. Chowbey stated the company is “very confident” it will fully offset the estimated $80 million in annual tariff costs through global supply chain adjustments, alternative sourcing, and selective price surcharges. CFO Pat Watson noted that benefits from restructuring and the advanced manufacturing tax credit will help support higher adjusted EPS guidance, though he cautioned that some recent gains are non-repetitive. Management expects continued execution on growth initiatives in aerospace and defense, while remaining mindful of persistent volume pressures and the fluid macroeconomic environment.

Key Insights from Management’s Remarks

Management credited the first quarter’s performance to cost restructuring, targeted tariff mitigation, and end-market diversification, while acknowledging ongoing softness in industrial demand.

• Cost restructuring progress: Kennametal advanced its cost-reduction program by consolidating manufacturing operations, including the closure of the Greenfield, Massachusetts plant, and achieved approximately $6 million in quarterly savings, with an annualized target of $15 million in restructuring benefits.
• Tariff mitigation actions: The company outlined a multi-pronged approach to offset the estimated $80 million tariff cost impact, including optimizing its global manufacturing footprint, shifting supply chains, and implementing targeted price surcharges in the U.S. for metal cutting and infrastructure products.
• Segment performance divergence: Aerospace and defense was the only end market to grow, benefiting from project wins and easing supply chain constraints, while transportation, general engineering, and earthworks remained weak, especially in EMEA and the Americas.
• Advanced manufacturing tax credit: A significant portion of the adjusted EPS outperformance was attributed to a one-time benefit from an advanced manufacturing tax credit, which will provide a recurring but smaller ongoing benefit in future periods.
• Commercial execution and market share: Management highlighted new customer wins in both segments, including major orders in aerospace, industrial pumps, and railway components, positioning these as evidence of relative outperformance and successful share capture initiatives in a challenging environment.

Drivers of Future Performance

Kennametal’s outlook centers on mitigating tariff headwinds, controlling costs, and capturing growth in resilient end markets such as aerospace and defense.

• Tariff mitigation and pricing: Management expects to fully offset tariff-related expenses through a combination of supply chain shifts, production rebalancing, and selective price surcharges, though near-term headwinds are anticipated as mitigation actions phase in.
• Cost discipline and restructuring: Ongoing restructuring and operational efficiency programs are projected to deliver further savings, with management targeting a $100 million total run-rate savings, supporting margin resilience even if volumes remain pressured.
• Market-specific growth: Aerospace and defense are set for modest growth due to an improving order book and recovery in supply chains, while other industrial segments face ongoing demand softness, particularly in EMEA, and volatility in energy and earthworks remains a risk.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will watch (1) the pace and effectiveness of tariff mitigation actions and whether cost recapture offsets new trade expenses; (2) the sustainability of margin gains from restructuring, especially as one-time tax benefits roll off; and (3) continued growth in aerospace and defense, as well as any signs of stabilization in EMEA and Americas industrial demand. Updates on supply chain shifts and portfolio optimization will also be closely monitored.

Kennametal currently trades at a forward P/E ratio of 18.6×. At this valuation, is it a buy or sell post earnings? See for yourself in our full research report (it’s free).

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