🔮 Better than the Oracle? Our Fair Value found this +42% bagger 5 months before Buffett bought itRead More

Kennametal (KMT) Declines 39% YTD: What's Hurting The Stock?

Published 03/10/2020, 09:20 PM
Updated 07/09/2023, 06:31 AM

Shares of Kennametal Inc. (NYSE:KMT) have declined sharply since the beginning of 2020. We believe that the price decline primarily reflects investors’ reactions to the company’s results for second-quarter fiscal 2020 (ended Dec 31, 2019) and dismal fiscal 2020 projections.

The Pittsburgh, PA-based company belongs to the Zacks Manufacturing – Tools & Related Products industry, which, in turn, comes under the ambit of the Zacks Industrial Products sector.

Year to date, the company’s shares have dipped 38.9% compared with the industry’s decline of 22.8% and the sector’s fall of 16.8%. Notably, the S&P 500 has declined 10.6% during the same period.

The company currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Factors Affecting the Stock

So far in 2020, Kennametal has reported results for second-quarter fiscal 2020. Results were weaker than expected, with earnings and sales lagging the Zacks Consensus Estimate by 10.5% and 3.7%, respectively. Organic sales in the quarter were down 12% due to weakness in India, the United States and Germany as well as concerns related to the supply chain of 737 MAX. Forex woes too played spoilsport in the quarter.

In addition to the dismal performance, Kennametal’s weak projections for fiscal 2020 (ending June 2020) have added to the bearish sentiments for the stock. The company believes that challenges in end-markets served, issues with 737 MAX and higher taxes (of 25-28% versus 22-24% mentioned earlier) will have adverse impacts in the second half of the year.

For fiscal 2020, Kennametal expects a 9-12% decline in organic sales, worse than a 5-9% fall mentioned earlier. Adjusted earnings are expected to be $1.20-$1.50, down from $1.70-$2.10 stated previously.

In addition, unfavorable movements in foreign currencies as well as pre-tax charges related to restructuring moves might be concerning for the company. For fiscal 2020, pre-tax restructuring charges (for initiatives announced in July 2019) are expected to be $55-$65 million.

Notably, the company has manufacturing facilities and assets in China. Sales derived from the country’s operations were 10.4% of total revenues in 2019. During the second-quarter earnings release, Kennametal did not talk about the impacts of the coronavirus (officially named as COVID-19) outbreak on its results.

Currently, the Zacks Consensus Estimate for the company’s earnings is pegged at $1.31 for fiscal 2020 and $2.04 for fiscal 2021 (ending June 2021), marking declines of 26.4% and 15.7% from the respective 60-day-ago figures. Notably, there were six downward revisions in estimates for both years. No upward revision in estimates has been recorded in the past 60 days.

Kennametal Inc. Price and Consensus

Kennametal Inc. Price and Consensus

Kennametal Inc. price-consensus-chart | Kennametal Inc. Quote

Such downward revisions in earnings estimates are reflective of bearish sentiments for the company.

Kennametal’s Performance Versus Three Peers

The company underperformed three peers in the year-to-date period. Three such stocks are Colfax Corporation (NYSE:CFX) , Stanley Black & Decker, Inc. (NYSE:SWK) and IDEX Corporation (NYSE:IEX) , with respective year-to-date declines of 21.8%, 21.2% and 16%.

The Hottest Tech Mega-Trend of All

Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>

Stanley Black & Decker, Inc. (SWK): Free Stock Analysis Report

Colfax Corporation (CFX): Free Stock Analysis Report

Kennametal Inc. (KMT): Free Stock Analysis Report

IDEX Corporation (IEX): Free Stock Analysis Report

Original post

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.