Kennametal Inc. (KMT) | The Buildout — AI Infrastructure

The Verdict

Kennametal makes tungsten-carbide and ceramic cutting tools plus engineered wear components used to machine metal parts for aerospace, defense, energy, earthworks, and transportation. In the AI infrastructure buildout, the link is second-order: its Metal Cutting tools machine gas turbines, generators, and related components for data-center power generation. Kennametal is not a direct AI or data-center IT supplier, and the AI portion of its business is narrow, unquantified, and embedded within the Energy end market.

Earnings Beat

Q4 FY26 revenue was $737 million, up 43% reported and 42% organic. Adjusted EPS was $2.96, a record versus $0.34 a year earlier. Adjusted EBITDA margin reached 46.8%, driven by $252 million of favorable raw-material price-cost timing that management cautions is not the run rate.

Management tone: Management shifted from describing an unprecedented tungsten cost shock in Q3 to framing Q4 as a deliberate share-gain window. It repeatedly normalized its own record margins and directed analysts toward a mid-teens Q4 FY27 EBITDA exit, even as it highlighted record results and new growth platforms.

Management Guidance

FY27 guidance calls for sales of $3.33–$3.45 billion, adjusted EPS of $4.15–$5.15, volume up 1% to 4%, and price and tariff surcharges of roughly 40–43%, with FX neutral. Assumptions include about $50 million of interest expense, a roughly 25% effective tax rate, about $85 million of capex, free operating cash flow of about 20% of adjusted net income, and primary working capital of 45% of sales by fiscal year-end. The guide assumes tungsten stays stable at current levels and no material Middle East conflict effect on customer activity.

Trajectory

Revenue has accelerated from $592.6 million in Q3 FY26 to $737 million in Q4 FY26, with Q4 up 42% organically. But the acceleration is overwhelmingly price and tariff surcharge—total company volume remained low single digits in both recent quarters. Q4 adjusted EBITDA margin jumped to 46.8% from 20.8% in Q3, driven largely by $252 million of favorable raw-material price-cost timing rather than underlying cost improvement. That gap between price-led growth and flat-to-low volume is the central trajectory story.

The Model

The model's locked projection puts FY+1 revenue at $2,800M with EBITDA of $468M, a 16.7% margin, stepping down to $2,720M revenue and $400M EBITDA, a 14.7% margin, in FY+2. The near-term figure is anchored by management's FY27 price and tariff surcharge guidance and 1–4% volume growth, while FY+2 reflects the modeled unwind of tungsten price-raw benefits and a step toward management's mid-teens EBITDA exit-rate baseline.

Projections are the median of 5 independent model runs. The model’s revenue sits 0.4% below analyst consensus.

FY27 guidance calls for sales of $3.33–$3.45 billion, adjusted EPS of $4.15–$5.15, volume up 1% to 4%, and price and tariff surcharges of roughly 40–43%, with FX neutral. Assumptions include about $50 million of interest expense, a roughly 25% effective tax rate, about $85 million of capex, free operating cash flow of about 20% of adjusted net income, and primary working capital of 45% of sales by fiscal year-end. The guide assumes tungsten stays stable at current levels and no material Middle East conflict effect on customer activity.

What Could Go Right — and Wrong

Looking Ahead

The next twelve months are about whether the cash cycle catches up to the income statement. Q1 FY27 is expected to carry a ~$200 million cash draw and a ~$2.25 price-raw EPS benefit, with inventory peaking in Q2 FY27. Management expects free operating cash flow to turn positive in Q3 FY27 and H2 to be positive, exiting FY27 with a mid-teens EBITDA margin as the stated clean base for FY28 modeling.

Financials

Annual Summary

Key Ratios (Trailing)

The Company

Kennametal develops and makes tungsten carbides, ceramics, super-hard materials, and engineered wear solutions. Its Metal Cutting business produces high-performance tooling and machining systems used to cut metal across aerospace, defense, energy, transportation, and general engineering, including the machining of turbines and generators tied to AI data-center power generation. Its Infrastructure business produces extreme-wear components such as earth-cutting tools, compacts, nozzles, frac seats, and tungsten carbide powders for earthworks, energy, and defense.

The company operates as a vertically integrated tungsten processor, with more than 40 owned or leased plants across the Americas, Europe, Asia, and South Africa. It owns tungsten concentrate operations in La Paz, Bolivia, and management describes its processing capacity, not just ore availability, as a competitive advantage. It sources tungsten outside China from Bolivia, other East Asian sources, and recycled material.

Business Segments

Competitive Landscape

Kennametal's management says competitors are turning away orders or extending lead times during the tungsten supply shock, while its own vertical integration and secure tungsten supply create a window to capture share. The company says Metal Cutting has outperformed public peers for the fourth consecutive quarter, extending a trend that began four years ago. No direct competitor names are disclosed in the company's earnings transcripts.

Supply Chain

Kennametal sits between tungsten feedstock sources and the machining and wear applications that consume its cutting tools and components. No neighbor in the supplied transcript set mentioned KMT by name; the ecosystem read-through is inferential.