Kennametal Inc Q3 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Angel Castillo - Morgan Stanley & Co. LLC - Analyst : Hi. Thanks for taking my question. And Chris, it's been a pleasure working with you and wish you all the best. And Sanjay, looking forward to working with you going forward. So maybe just to dive into a little bit more of the outlook and what you're seeing under the surface and the fundamentals. The quarter shook out as you expected, but it looks like the mix of it in terms of end markets might have been a little bit different. Can you just walk through the major end markets and maybe some of the pivots or changes that you've seen in terms of the underlying trends in the third quarter? And then maybe kind of bolster that with some of the underlying trends that you're seeing thus far in the fourth quarter across those end markets?

Question: Angel Castillo - Morgan Stanley & Co. LLC - Analyst : I appreciate it. No, that's very thorough and helpful. Thank you. Maybe switching over to the stronger free operating cash flow that you talked about. Can you just maybe give us a bit of a sense of what you're kind of expecting there in terms of maybe some of the absolute value and then REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 08, 2024 / 1:30PM, KMT.N - Q3 2024 Kennametal Inc Earnings Call the use of that cash in terms of the buyback, what kind of cadence should we anticipate in terms of potential buybacks in the following quarters and do you expect that to pick up from current levels given where the stock price is? Or how are you seeing that?

Question: Angel Castillo - Morgan Stanley & Co. LLC - Analyst : Very helpful. Thank you.

Question: Julian Mitchell - Barclays Bank PLC - Analyst : Hi, good morning. And I wish you all the best, Chris, and thanks for the help down the years. Maybe just to start off with the question perhaps on that price raw's dynamic, understand it was a headwind in the third quarter year on year. Should be a tailwind I think right now in the fourth quarter and into early next year. So, I just wondered, perhaps Pat if you could flesh that out a little bit, what tailwind particularly the Infrastructure segment should get in Q4 from tungsten and any way of sizing the effect into the first half of next year?

Question: Julian Mitchell - Barclays Bank PLC - Analyst : Thanks very much. And then just my second question, you've talked about demand a little bit already and I just want to follow-up on that. So I think China is an area where clearly you took down the outlook a little bit. I just wondered beyond China, have you seen any change in demand patterns particularly in areas like general engineering in the last couple of months or your business setting into say, off highway machinery OEMs. It seems like listening to other companies in the last two or three weeks, there has been some softness in orders or sales in those types of markets. Just wondered if you'd seen a similar pattern or else outside China, things have actually been very steady for you?

Question: Julian Mitchell - Barclays Bank PLC - Analyst : That's helpful. Thanks very much.

Question: Tami Zakaria - JPMorgan Chase & Co. - Analyst : Hi, good morning. Thank you so much. And Chris, thanks for all the help and wish you the best of luck and welcome aboard to Sanjay. So my first question is around modeling. Can you remind us, is the fourth quarter similar from a workday perspective year over year or we have a different compare?

Question: Tami Zakaria - JPMorgan Chase & Co. - Analyst : Got it, okay. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 08, 2024 / 1:30PM, KMT.N - Q3 2024 Kennametal Inc Earnings Call

Question: Tami Zakaria - JPMorgan Chase & Co. - Analyst : Got it. That's very helpful. And my second question is around aerospace and defense. I think one of the major OEMs just had a new investigation open on a different aircraft model. How are you -- this is more from a medium to long-term perspective. How are you thinking about build rates over the next few years? Do you expect aerospace and defense to grow nicely over the next few years? And also, can you comment on the mix between commercial aero versus defense within your portfolio?

Question: Tami Zakaria - JPMorgan Chase & Co. - Analyst : Got it. Thank you so much.

Question: Christian Zyla - KeyBanc Capital Markets Inc. - Analyst : Good morning. This is Christian Zyla on for Steve Barger. Thank you for taking questions and we just like to echo previous comments. It's been a pleasure working with you, Chris, and we look forward to working with you, Sanjay. First question, I know you guys continue to focus on your commercial excellence and product innovations. Can you just give us some idea of how the new product contributions relate to growth? And then in a production upcycle, how much do you think you would outgrow the market given your efforts on these fronts? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 08, 2024 / 1:30PM, KMT.N - Q3 2024 Kennametal Inc Earnings Call

Question: Christian Zyla - KeyBanc Capital Markets Inc. - Analyst : Great. Very helpful. Thanks for that color. If I could just follow-up on that, I guess which markets do your innovation wins allow you to take share in or I guess do they enable upside to the range that your margins seem like they've been in for the past few years?

Question: Christian Zyla - KeyBanc Capital Markets Inc. - Analyst : Just on the if the product innovation wins enable upside to the range that your margin seem like they've been in over the past few years? Thank you. Appreciate the time.

Question: Christian Zyla - KeyBanc Capital Markets Inc. - Analyst : Thanks, again.

Question: Michael Feniger - BofA Securities, Inc - Analyst : Hey, gentlemen. Thanks for taking my question. I'm just curious, I appreciate obviously, the guide for the fourth quarter. Just seasonally when you head into your next fiscal year, I think sales are typically down a certain range quarter-over-quarter. Just based on the current environment today, should we expect that normal seasonality heading into next year? Could we see better-than-normal seasonality or are there still kind of headwinds that would make us feel like that normal seasonality might have a little bit more pressure than we look at in prior years?

Question: Michael Feniger - BofA Securities, Inc - Analyst : Great. And just on metal cutting, the flow through in the quarter, the 230 bps of margin degradation, I believe there was a one-time gain though in the prior year. Just wanted to flush it out. Was the decremental margin on your -- I think it was flat organic growth there, was that in line with what you guys were thinking? Just trying to understand what you guys saw in that quarter. How you think about it in terms of your sensitivity to volumes? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 08, 2024 / 1:30PM, KMT.N - Q3 2024 Kennametal Inc Earnings Call

Question: Michael Feniger - BofA Securities, Inc - Analyst : Great. And I'll just if I could have one more, excuse me, in there just the stable -- the commentary in general engineering and the stable at softer levels, I'm just curious do you are you guys -- is your inventory levels with your customers, your customer inventory levels, are they reflective of that stable or softer levels? Do they have a little bit more progress to go? Any color on that would be helpful. Thanks, everyone.