Kennametal (NYSE: KMT) reported fiscal Q4 2026 revenue of $736.6 million, up 43% from $516.4 million, while diluted EPS rose to $2.91 from $0.28. GAAP operating margin reached 41.1%, primarily reflecting favorable timing between raw-material pricing and costs. For the full fiscal year ended June 30, 2026, however, working-capital requirements pushed operating cash flow into negative territory.

Core earnings data

Organic sales increased 42% in the quarter. Foreign exchange and additional business days each contributed one percentage point to reported growth, while a divestiture reduced growth by one percentage point.

Profit increased much faster than revenue because Kennametal recorded an approximately $252 million favorable timing benefit from raw-material pricing relative to costs. Higher volumes, other pricing actions, tariff surcharges and restructuring savings also helped, partly offset by compensation costs, tariffs and general inflation.

Adjusted diluted EPS of $2.96 was identified by the company as a quarterly record.

Business and segment performance

Both operating segments reported higher sales, but Infrastructure produced the larger increase. Its organic growth reached 74%, compared with 22% for Metal Cutting.

Metal Cutting benefited from approximately $54 million of favorable raw-material pricing timing, other pricing and tariff surcharges, higher sales and production volumes, and roughly $4 million of incremental restructuring savings. Higher compensation and general inflation were partial offsets.

Infrastructure recorded approximately $198 million of the consolidated raw-material pricing timing benefit. Management’s operating-income bridge also identified lower sales and production volumes, compensation costs and inflation as offsets during the quarter.

Raw-material pricing timing drove most of the margin expansion

The $252 million favorable timing effect equaled roughly 93% of the $271.5 million year-over-year increase in GAAP operating income, although several other positive and negative factors contributed to the final result. Infrastructure accounted for $198 million of the timing benefit, with Metal Cutting contributing the remaining $54 million.

This distinction is important because the company described the benefit as a timing difference between raw-material pricing and costs. Investors therefore need to separate the quarter’s underlying volume growth and cost savings from the unusually large pricing-cost spread when assessing the durability of the 41.1% operating margin.

Tungsten working capital turned annual cash flow negative

Kennametal’s fiscal-year cash generation moved in the opposite direction from earnings. The company attributed the decline primarily to higher inventory values caused by unprecedented tungsten price increases and advance payments to suppliers intended to secure raw-material supply.

The figures below are full-year results or balances as of June 30, rather than quarterly cash-flow data.

Inventory used $593.4 million of cash during fiscal 2026, while accounts receivable and other current assets used another $219.0 million. A $226.1 million increase in accounts payable and accrued liabilities provided a partial offset. Free operating cash flow is Kennametal’s non-GAAP measure defined as operating cash flow minus capital expenditures plus proceeds from fixed-asset disposals.

Fiscal 2027 guidance

Kennametal issued quantitative guidance for fiscal Q1 2027 and the full year. The company expects foreign exchange to be neutral against the corresponding fiscal 2026 periods.

The full-year adjusted EPS range includes fiscal 2026’s actual adjusted EPS of $4.57. Kennametal did not provide GAAP reconciliations for its forward-looking non-GAAP guidance because the relevant adjustments cannot be estimated without unreasonable effort.

Management perspective

CEO Sanjay Chowbey attributed fiscal 2026 volume growth to improving market conditions and the company’s strategic initiatives. Management said volume trends had improved across several end markets and cited recent wins in Aerospace & Defense, Energy and Earthworks. It expects those trends and internal growth initiatives to support sales growth during fiscal 2027.

Recent insider transactions

The supplied six-month insider data classifies 257,408 shares across 11 transactions as purchases and 129,137 shares across seven transactions as sales, resulting in 128,271 net shares purchased. Total insider holdings were listed at approximately 823,070 shares. However, the eight most recent records were stock awards reported at a $0 transaction value, not open-market purchases, so the aggregate figures should not be treated automatically as evidence of insider sentiment.

Risks investors should monitor

• Raw-material pricing timing: Approximately $252 million of favorable timing between raw-material pricing and costs drove most of the quarterly operating-income increase. The future relationship between pricing and recognized input costs could materially affect margins.
• Tungsten prices and supply requirements: Higher tungsten prices increased inventory values, while supplier prepayments used additional cash. Continued pressure could delay cash conversion even if reported earnings remain profitable.
• Tariffs, compensation and inflation: These costs already offset part of the benefits from pricing, volume and restructuring during fiscal Q4.
• Infrastructure margin durability: Infrastructure’s 58.3% GAAP operating margin included a $198 million pricing-timing benefit, while management also cited lower sales and production volumes as offsets.
• Liquidity and leverage: Year-end cash declined while long-term debt increased, making improvement in fiscal 2027 free operating cash flow an important operating objective.

Summary

Kennametal’s fiscal Q4 2026 combined 42% organic sales growth with a sharp increase in EPS and operating margin, but favorable raw-material pricing timing accounted for most of the profit expansion. Infrastructure led segment growth, while tungsten-related inventory and supplier funding requirements caused full-year operating and free cash flow to turn negative. The main issues to follow in fiscal 2027 are the durability of pricing relative to input costs, working-capital normalization and execution against the company’s new sales, earnings and cash-flow guidance.

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