Key Highlights

  • Kennametal (NYSE:KMT) reported record Q4 fiscal 2026 adjusted EPS of $2.96, beating the $2.31 estimate by 29 percent.
  • Full-year organic sales grew 19 percent, with adjusted EBITDA margin reaching 41.5 percent.
  • The company guided full-year fiscal 2027 sales of $3.33 billion to $3.45 billion, up 4.3 to 9.3 percent.
  • Kennametal has achieved $27 million in restructuring savings toward a $110 million target by end of fiscal 2027.

A Record Quarter Driven by Tungsten Price Realization

Kennametal (NYSE:KMT) reported record fourth quarter fiscal 2026 results with organic sales up 4.2 percent, adjusted EBITDA margin of 46.8 percent, operating margin of 41.5 percent, and adjusted EPS of $4.57, up 1.34 percent from prior year, driven largely by favorable timing of raw material tungsten pricing versus costs and strong pricing realization. Full-year organic sales grew 19 percent, free cash flow was $79 million, increased to increase working capital needs from higher tungsten prices, and the company returned $71 million to shareholders via $9.6 million in buybacks.

Adjusted EPS of $2.96 beat the $2.31 estimate by 29 percent, while revenue of $725.7 million topped the $736.6 million estimate. This substantial earnings beat reflects the favorable timing dynamic between rising tungsten input costs and the company's ability to pass those costs through to customers via pricing, a factor management flagged as contributing meaningfully to the quarter's outsized profitability.

Tariff Surcharges and Aerospace Demand Support Fiscal 2027 Guidance

For fiscal year 2027, the company guided sales of $3.33 billion to $3.45 billion, up 4.3 to 9.3 percent, normal FX, adjusted EPS of $4.15 to $5.15, interest expense of approximately $50 million, effective tax rate of approximately 25 percent, and operating cash flow of approximately 20 percent of adjusted net income due to continued increased working capital pressure.

First quarter fiscal 2027 guidance includes sales of $745 million to $775 million, volume up 1 to 4 percent, price and tariff surcharges of 50 to 53 percent, and adjusted EPS of $2.50 to $2.80, with all end markets expected up high single digits on a constant currency basis. Management highlighted broad-based end market improvement, with aerospace and defense and energy and general engineering as key growth drivers for fiscal year 2027, aerospace and defense becoming the third-largest end market, transportation remaining soft, down approximately 1 percent in fiscal 2027, and the company reiterated its $110 million restructuring savings target by end of fiscal 2027, having achieved $27 million in fiscal 2026 savings.

Balancing Tariff Pass-Through Benefits Against Transportation End Market Softness

Kennametal's ability to implement price and tariff surcharges of 50 to 53 percent in its first quarter fiscal 2027 guidance suggests the company has successfully passed through a substantial portion of tariff-related cost increases to customers, a dynamic that has supported both the recent earnings beat and forward guidance. Should this pricing power persist, it could continue supporting margins even amid ongoing input cost volatility.

However, transportation end market softness, expected to remain down approximately 1 percent in fiscal 2027, represents a continued headwind that the company will need to offset through strength in aerospace, defense, energy, and general engineering markets. The continued progress toward the $110 million restructuring savings target, with $27 million already achieved, provides an additional lever for margin support independent of end market demand trends.

Conclusion

Kennametal's record fourth quarter results, driven substantially by favorable tungsten price timing and strong pricing realization, set the stage for fiscal 2027 guidance that anticipates continued broad-based end market improvement led by aerospace and defense. Whether the company sustains its current pricing power amid tariff surcharges may determine how effectively it offsets continued transportation end market softness. Continued execution on the company's restructuring savings program provides an additional source of margin support as it works toward its fiscal 2027 targets.