Industrial materials and tools company Kennametal (NYSE: KMT) announced better-than-expected revenue in Q3 CY2025, with sales up 3.3% year on year to $498 million. On top of that, next quarter’s revenue guidance ($510 million at the midpoint) was surprisingly good and 4.7% above what analysts were expecting. Its non-GAAP profit of $0.34 per share was 44.6% above analysts’ consensus estimates.

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"Our first quarter started off strong with share gains and modest end market improvements compared to our previous expectations, resulting in sales and adjusted EPS that exceeded the upper end of our outlook," said Sanjay Chowbey, President and CEO.

Company Overview

Involved in manufacturing hard tips of anti-tank projectiles in World War II, Kennametal (NYSE: KMT) is a provider of industrial materials and tools for various sectors.

Revenue Growth

Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, Kennametal’s 2.3% annualized revenue growth over the last five years was sluggish. This was below our standards and is a poor baseline for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Kennametal’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 2.3% annually.

Kennametal also reports organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Kennametal’s organic revenue averaged 2.3% year-on-year declines. Because this number aligns with its two-year revenue growth, we can see the company’s core operations (not acquisitions and divestitures) drove most of its results.

This quarter, Kennametal reported modest year-on-year revenue growth of 3.3% but beat Wall Street’s estimates by 4.3%. Company management is currently guiding for a 5.8% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 2.2% over the next 12 months. Although this projection suggests its newer products and services will catalyze better top-line performance, it is still below average for the sector.

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Operating Margin

Kennametal has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 8.8%, higher than the broader industrials sector.

Analyzing the trend in its profitability, Kennametal’s operating margin decreased by 1.7 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q3, Kennametal generated an operating margin profit margin of 7.5%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Kennametal’s EPS grew at a solid 11.6% compounded annual growth rate over the last five years, higher than its 2.3% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Kennametal’s earnings quality to better understand the drivers of its performance. A five-year view shows that Kennametal has repurchased its stock, shrinking its share count by 7.8%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Kennametal, its two-year annual EPS declines of 4.7% mark a reversal from its (seemingly) healthy five-year trend. We hope Kennametal can return to earnings growth in the future.

In Q3, Kennametal reported adjusted EPS of $0.34, up from $0.29 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Kennametal’s full-year EPS of $1.40 to shrink by 21.4%.

Key Takeaways from Kennametal’s Q3 Results

We were impressed by how significantly Kennametal blew past analysts’ organic revenue expectations this quarter. We were also glad its EPS guidance for next quarter trumped Wall Street’s estimates. Zooming out, we think this was a solid print. The stock traded up 8.5% to $24 immediately after reporting.

Kennametal put up rock-solid earnings, but one quarter doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free for active Edge members.