Kennametal (NYSE:KMT) reported a sharp increase in earnings and sales for the first quarter of fiscal 2027, but the industrial tooling company said higher tungsten costs drove a substantial cash outflow and weighed on volumes in its Infrastructure business.
Sales rose 54% both organically and on a reported basis from a year earlier, while earnings per share increased to $3.48 from adjusted earnings of $0.34. Both sales and earnings exceeded the midpoint of the company’s outlook, helped by pricing and the timing of tungsten costs, President and CEO Sanjay Chowbey said.
Pricing boosts results as volumes diverge
First-quarter EBITDA margin rose to 51.9% from an adjusted 15.3% a year earlier. CFO Pat Watson said the improvement included a $323 million incremental benefit from the timing of raw material-related pricing relative to costs, primarily in Infrastructure. Other contributors included non-raw-material pricing, tariff income, higher Metal Cutting volumes and restructuring savings.
Watson said the quarterly price and raw material effect added $3.14 per share. After accounting for a $0.05 interest headwind associated with working capital investment, the net tungsten impact was $3.09 per share.
Despite the sales increase, companywide volume declined in the mid-single-digit range. Metal Cutting posted mid-single-digit volume growth, its fourth consecutive quarterly increase, while Infrastructure volume fell in the low double digits.
Metal Cutting’s organic sales increased 29%, and its operating margin rose to 29.7% from 6.9%. Watson attributed the improvement partly to favorable raw material price and cost timing, higher sales and production volumes, and restructuring savings.
Infrastructure’s organic sales rose 97%, and operating margin increased to 70.7% from 8.9%, largely reflecting favorable pricing and cost timing. Chowbey said the segment’s volume decline reflected price sensitivity in some applications, mining slowdowns in China following an accident, and limited product substitution.
The company has begun selectively adjusting prices to compete for targeted applications. It expects modest Infrastructure volume recovery in the second quarter, with most of the anticipated recovery weighted toward the second half of the fiscal year.
Cash outflow and tungsten outlook
Free operating cash flow was negative $212 million in the first quarter, compared with negative $5 million a year earlier. Watson said the decline primarily reflected working capital requirements, including higher inventory values and supplier advances needed to secure raw materials.
The company’s inventory balance has tripled in value over the past 18 months, mainly because of tungsten prices rather than a comparable increase in physical inventory, Watson said. Kennametal is working to improve inventory efficiency and payment terms and has engaged outside partners to support the effort.
The company returned $15 million to shareholders through dividends. Its share repurchase program remains paused because of working capital pressures, and management plans to revisit it once free operating cash flow turns positive. Kennametal ended the quarter with approximately $1.1 billion in combined cash and revolver availability.
For fiscal 2027, Kennametal expects adjusted earnings of $5 to $6 per share. That forecast includes an approximately $0.97 benefit from the timing of raw material pricing and costs, up from the $0.39 benefit in its prior outlook.
The forecast assumes tungsten prices remain at approximately the current $2,700 level. Watson said the company expects a $1 per-share timing benefit in the second quarter, followed by headwinds of $0.55 in the third quarter and $2.62 in the fourth.
With lower tungsten prices, Kennametal now expects price-cost headwinds to extend into the fourth quarter and to exit that period with a low-double-digit EBITDA margin. Previously, it expected to be price-cost neutral in the third quarter and finish the fourth quarter with a mid-teens margin.
For the second quarter, the company forecast sales of $785 million to $815 million and adjusted earnings of $1.20 to $1.50 per share, including approximately $1 of favorable raw material pricing and cost timing.
Longer-term margin and growth plans
Beyond fiscal 2027, Kennametal is targeting an EBITDA margin of 16% to 19%, assuming stable, elevated tungsten prices. Chowbey said the company plans to pursue that goal through volume growth, strategic pricing, lean transformation and portfolio management.
Watson told analysts that management’s long-term view assumes end-market growth of 1% to 2% annually, with commercial initiatives potentially adding another one to two percentage points. He said the company expects operating leverage on volume in the mid-30% range in the current elevated-tungsten environment.
Chowbey highlighted growth in defense, aerospace and power generation. U.S. defense revenue grew approximately 90% from fiscal 2023 to fiscal 2026, while power generation revenue doubled from fiscal 2025 to fiscal 2026, including a startup tooling purchase for a customer’s plant expansion. He noted that both businesses started from modest baselines.
The company’s lean initiative has generated more than $70 million in cumulative gross savings since it began in fiscal 2025, Chowbey said. Kennametal is also testing an inventory-flow project covering approximately $20 million in work-in-process inventory, with potential applications elsewhere in the business.
About Kennametal (NYSE:KMT)
Kennametal Inc (NYSE: KMT) is a global industrial technology company that develops and manufactures tooling, engineered components and wear-resistant solutions. Its products are designed to help customers improve productivity, durability and performance in demanding manufacturing and industrial applications.
The company’s offerings include metal-cutting tools and systems, tooling components, advanced materials, and products made with hard metals and other wear-resistant technologies. Kennametal also provides engineered solutions for applications such as machining, earthworks, energy production, transportation, aerospace, defense and general engineering.
Founded in 1938 by Philip M.
