Kennametal (KMT) to Gain From End-Market Strength Amid Risks
Kennametal (KMT) is likely to benefit from strength across its businesses, healthy balance sheet and shareholder-friendly policies. Rising costs and expenses, and high tax rate are concerns.
Kennametal Inc. KMT stands to benefit from its presence in diverse end markets that enables it to neutralize risks associated with a single market with strength across others. The company has been witnessing solid momentum across its businesses in end markets like general engineering, energy, transportation, aerospace and earthworks. For second-quarter fiscal 2022 (ended December 2021, results are awaited), its sales are anticipated to be $480-$500 million, indicating year-over-year growth of 9-14%.
The company’s healthy balance sheet might prove beneficial. Exiting first-quarter fiscal 2022 (ended September 2021), it reduced its net debt to $486 million from $541 million in the year-ago quarter. It lowered its notes payable by $8 million in the quarter. Also, its interest expenses declined 40.6% to $6.3 million in the quarter on a year-over-year basis.
Kennametal’s policy of rewarding shareholders handsomely through dividend payments and share buybacks will work in its favor. In the fiscal first quarter, it paid out dividends worth $16.7 million and repurchased shares worth $12.9 million. Also, in August 2021, it announced a share buyback program worth $200 million.
However, Kennametal has been witnessing adverse impacts of cost inflation. In the fiscal first quarter, the company’s cost of sales and operating expenses increased 9.3% and 10%, respectively, on a year-over-year basis. Inflation related to merit increase, price/raw materials and higher depreciation expenses is expected to have an adverse impact of $10 million in the fiscal second quarter.
High taxes might also be concerning in fiscal 2022 (ending June 2022). The company expects a tax rate of 25-28% for the year compared with 23.6% reported in fiscal 2021 (ended June 2021).
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The Zacks Rank #3 (Hold) stock has gained 4.3% in the past three months compared with the industry’s growth of 6.3%.
Stocks to Consider
Some better-ranked companies from the Zacks Industrial Products sector are discussed below.
Helios Technologies, Inc. HLIO presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. Its earnings surprise in the last four quarters was 37.54%, on average.
In the past 60 days, Helios’ earnings estimates have increased 9.6% for 2022. Its shares have gained 12.5% in the past three months.
EnPro Industries, Inc.NPO presently carries a Zacks Rank #2 (Buy). Its earnings surprise in the last four quarters was 54.81%, on average.
In the past 60 days, EnPro’s earnings estimates have increased 12.8% for 2022. Its shares have gained 24.1% in the past three months.
Kadant Inc. KAI presently carries a Zacks Rank #2. Its earnings surprise in the last four quarters was 19.21%, on average.
Kadant’s earnings estimates have increased 1% for 2022 in the past 60 days. Its shares have gained8.9% in the past three months.
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