Kennametal's profit jumped. Operations used $201 million
A raw-material timing benefit lifted earnings, while inventory absorbed cash. The higher annual profit forecast leaves the sales outlook unchanged.
Kennametal raised its annual profit forecast after a quarter in which rising raw-material prices helped earnings and consumed cash. The cutting-tool maker estimated a $323 million benefit from the timing of raw-material price and cost changes. Operating income reached $379.3 million, but operations used $201.3 million of cash.
The gap matters because the profit benefit does not describe cash collected and retained. Rising tungsten prices can lift selling prices before the higher cost of inventory flows through the income statement. Meanwhile, buying and holding more expensive material requires funding. Inventory accounted for a $516.0 million operating cash outflow in the quarter.
A higher profit forecast, with sales held steady
For fiscal 2027, Kennametal now expects adjusted earnings of $5.00 to $6.00 a share, up from $4.15 to $5.15 in August. Its sales forecast remains $3.33 billion to $3.45 billion. The company also kept its forecast for free operating cash flow at approximately 20% of adjusted net income.
Research by Ticker Byline shows that the quarter ended September 30 exceeded August's earnings forecast while sales stayed within the earlier range. Adjusted earnings of $3.48 a share exceeded the $2.50 to $2.80 range issued in August. Sales of $768.2 million were within the earlier $745 million to $775 million range. The upgrade therefore reflects more than a broad increase in expected sales.
The inventory bill is already visible
Inventory on the balance sheet increased to $1.616 billion from $1.108 billion at the end of June. Company-defined free operating cash flow was negative $211.7 million. That measure starts with operating cash flow and deducts capital spending, while adding proceeds from property disposals.
Kennametal ended September with $272.8 million of cash and cash equivalents, up from $95.8 million in June. That increase came alongside financing: the cash-flow statement records $500 million of term-debt borrowings and $90.6 million of term-debt repayments.
Kennametal has paused its share-repurchase program and says it will reassess purchases as operating cash flow improves. It also had $850 million available on its undrawn revolving credit facility at September 30.
The next test is how much of the higher earnings outlook turns into cash as inventory is sold and replenished. The unchanged cash-conversion forecast gives investors a separate benchmark from the much stronger quarterly profit.
The Kennametal Inc. company profile tracks the business, its financial position and the outlook.