Earnings Recap — Q4 FY2026
CY Q3 2026 · Reported August 5, 2026 · Beat 5 of last 7 quarters
The Buildout is a website built on agentic AI tools, currently in beta, and could have factual errors.
Kennametal's strong results are directly tied to the AI infrastructure buildout, with energy end market growth of 101% in Q4, driven by AI data center power generation project wins. The company's ability to secure tungsten supply and pass through pricing positions it as a key supplier to the energy and aerospace/defense supply chains supporting AI infrastructure. The elevated tungsten cost environment creates both a tailwind for pricing and a working capital drag, but management's actions to secure liquidity and prioritize high-return applications suggest they are positioning to capitalize on this demand cycle.
Kennametal reported record Q4 results with organic sales up 42% year-over-year, driven by strong price realization from tungsten cost increases and continued volume improvements. Adjusted EPS of $2.96 and adjusted EBITDA margin of 46.8% were both record highs, benefiting from $252 million of favorable raw material pricing timing. Full-year organic sales grew 19%, adjusted EPS was $4.57, and adjusted EBITDA margin was 26.9%. Free operating cash flow was negative $79 million due to working capital tied to higher tungsten prices, and the company took actions to enhance liquidity, including plans to draw on a new $500 million term loan. Management also highlighted aerospace/defense as now the third largest end market, with strong growth in CFRP cutting tools.
Management provided FY2027 sales guidance of $3.33B to $3.45B, with volume growth of 1% to 4% and price/tariff surcharges of 40% to 43%. Adjusted EPS is expected in the range of $4.15 to $5.15, with the midpoint of $4.65 reflecting $0.39 of favorable raw material pricing timing, offset by a $0.25 interest expense headwind, a $0.23 Bolivia FX headwind, and higher taxes. The company expects Q1 FY2027 sales of $745M to $775M and adjusted EPS of $2.50 to $2.80, with the price-raw benefit largely behind them by the start of Q3. Management highlighted a broad-based market recovery, with aerospace/defense and energy as key growth drivers, while transportation remains soft. They expect free operating cash flow to turn positive in the second half of FY2027 and provided a clean Q4 EBITDA margin in the mid-teens as a jump-off point for FY2028 modeling.
“We are confident that this market recovery is broad enough and the pricing environment firm enough to support our outlook and growth trajectory into fiscal '27.”
on Market recovery and outlook
“The key takeaway is that our operational momentum, price realization, volume and cost discipline is essentially offsetting a set of largely nonoperational headwinds related to FX, interest and a higher tax rate.”
on FY27 EPS bridge
“We are not short. What we're saying is that if as we see the growth in overall volume, including in aerospace and defense and the areas, where we do consume a lot more tungsten, we did prioritize what will drive the best return for our shareholders and how we get the best return on tungsten that we have.”
on Tungsten allocation
Can you help reconcile the normalized earnings bridge? It seems like the underlying normalized run rate is lower than previously thought.
Pat Watson explained that the FY26 clean EPS was $1.64, and for FY27, you need to back out the full tungsten impact ($3.11 from FY26 plus $0.39 in FY27). The price-raw benefit is heavily front-loaded in the first half, with a headwind in the second half.
In Infrastructure, you took share in earthworks due to availability of materials, but you also prioritized volume in energy and general engineering. Were you short material and lost potential sales?
Sanjay Chowbey clarified there was no shortage, but they allocated tungsten and processing capacity to the highest-return opportunities. They could take more business if they sourced more material, but they manage supply chain and processing capacity as competitive advantages.
Can you clarify the Q4 exit rate EBITDA margin and the annualized run rate? And how should we think about free cash flow recovery?
Pat Watson confirmed Q4 FY27 EBITDA margin is expected to be mid-teens, a clean price-raw quarter, which can be used to model FY28. He also noted Q1 FY27 will see a sizable cash draw of ~$200 million, with cash flow turning positive in Q3 and normalizing in FY28.