KENNAMETAL INC (KMT)

Item 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)

OVERVIEW

Kennametal Inc. was founded based on a tungsten carbide technology breakthrough in 1938. The Company was incorporated in Pennsylvania in 1943 as a manufacturer of tungsten carbide metal cutting tooling and was listed on the New York Stock Exchange (NYSE) in 1967. With more than 85 years of materials expertise, the Company is a global industrial technology leader, helping customers across the Aerospace & Defense, Earthworks, Energy, General Engineering and Transportation industries manufacture with precision and efficiency. This expertise includes the development and application of tungsten carbides, ceramics, super-hard materials and solutions used in metal cutting and extreme wear applications to keep customers up and running longer against conditions such as corrosion and high temperatures.

Our standard and custom product offering spans metal cutting and wear applications including turning, milling, hole making, tooling systems and services, as well as specialized wear components and metallurgical powders. End users of the Company's metal cutting products include manufacturers engaged in a diverse array of industries including: the manufacturers of transportation vehicles and components, machine tools and light and heavy machinery; airframe and aerospace components; and energy-related components for the oil and gas industry, as well as power generation. The Company’s wear and metallurgical powders are used by producers and suppliers in equipment-intensive operations such as road construction, mining, quarrying, oil and gas exploration, refining, production and supply, and for aerospace and defense.

Throughout MD&A, we refer to measures used by management to evaluate performance. We also refer to a number of financial measures that are not defined under accounting principles generally accepted in the United States of America (U.S. GAAP), including organic sales growth (decline), constant currency regional sales growth (decline) and constant currency end market sales growth (decline). We provide the definitions of these non-GAAP financial measures at the end of the MD&A section as well as details on the use and derivation of these financial measures.

Our sales of $592.6 million for the three months ended March 31, 2026 increased 22 percent from $486.4 million in the prior year quarter, reflecting organic sales growth of 19 percent and a favorable currency exchange effect of 5 percent, partially offset by a divestiture effect of 2 percent.

Operating income for the three months ended March 31, 2026 was $79.4 million compared to $44.1 million in the prior year quarter. The year-over-year increase of $35.4 million was driven by the favorable timing of pricing compared to raw material costs of approximately $39 million within the Infrastructure segment, pricing and tariff surcharges within the Metal Cutting segment, higher sales and production volumes, incremental year-over-year restructuring savings of approximately $7 million, favorable foreign currency exchange of approximately $4 million and a decrease in restructuring and related charges of approximately $3 million. These factors were partially offset by higher compensation costs, tariffs and general inflation, the net effect of approximately $8 million from a normalized advanced manufacturing production credit under the Inflation Reduction Act in the current quarter within the Infrastructure segment, and higher raw material costs in the Metal Cutting segment.

Operating margin for the three months ended March 31, 2026 was 13.4 percent compared to 9.1 percent in the prior year quarter. The Metal Cutting and Infrastructure segments had operating margins of 10.7 percent and 18.1 percent, respectively, for the three months ended March 31, 2026.

In February 2026, the U.S. Supreme Court issued a ruling invalidating certain tariffs previously imposed under the International Emergency Economic Powers Act (IEEPA). As a result of this ruling, companies may be eligible for a refund of tariffs previously paid on imported goods. We are continuing to monitor these developments and their potential impact on our results of operations, financial position and cash flows.

Additionally, our business has been affected by foreign currency exchange, inflationary headwinds and rising tungsten prices. These pressures, driven by tightening global supply, geopolitical factors and evolving trade policies have increased raw material costs and caused other business disruptions. We have been able to mitigate these impacts through price increases on our products, supplier diversification and inventory management initiatives. However, we cannot predict the ultimate effect of these issues on our business, operating results, cash flows or financial condition. Continued volatility in commodity pricing, foreign exchange rates and supply availability could adversely affect our margins, operations and liquidity and may increase the risk of future impairment charges, including goodwill and other intangible assets. We are continuing to monitor macroeconomic conditions and will take actions to mitigate these effects to the extent possible.

For the three months ended March 31, 2026, earnings per diluted share (EPS) was $0.75 compared to EPS of $0.41 in the prior year quarter.

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Item 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Net cash flow provided by operating activities was $69.7 million during the nine months ended March 31, 2026 compared to $129.7 million during the prior year period. Capital expenditures were $53.7 million and $67.5 million during the nine months ended March 31, 2026 and 2025, respectively. During the nine months ended March 31, 2026, the Company returned $55.7 million to shareholders through $10.1 million in share repurchases and $45.6 million in dividends. The Company has a long history of consistently paying dividends to shareholders since its listing on the New York Stock Exchange in 1967.

RESULTS OF CONTINUING OPERATIONS

SALES Sales for the three months ended March 31, 2026 were $592.6 million, an increase of $106.2 million, or 22 percent, from $486.4 million in the prior year quarter, reflecting organic sales growth of 19 percent and a favorable currency exchange effect of 5 percent, partially offset by a divestiture effect of 2 percent.

Sales for the nine months ended March 31, 2026 were $1,620.1 million, an increase of $169.7 million, or 12 percent, from $1,450.4 million in the prior year period, reflecting organic sales growth of 11 percent and a favorable currency exchange effect of 2 percent, partially offset by a divestiture effect of 1 percent.

Our sales growth by end market and region are as follows:

(1) Constant currency excludes the effect of divestiture and currency exchange.

GROSS PROFIT Gross profit for the three months ended March 31, 2026 was $208.0 million, an increase of $51.6 million from $156.4 million in the prior year quarter. The increase was driven by the favorable timing of pricing compared to raw material costs of approximately $39 million within the Infrastructure segment, pricing and tariff surcharges within the Metal Cutting segment, higher sales and production volumes, favorable foreign currency exchange and incremental year-over-year restructuring savings. These factors were partially offset by higher compensation costs, tariffs and general inflation, the net effect of approximately $8 million from a normalized advanced manufacturing production credit under the Inflation Reduction Act in the current quarter within the Infrastructure segment, and higher raw material costs in the Metal Cutting segment. Gross profit margin for the three months ended March 31, 2026 was 35.1 percent, as compared to 32.1 percent in the prior year quarter.

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Item 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Gross profit for the nine months ended March 31, 2026 was $536.4 million, an increase of $84.0 million from $452.4 million in the prior year period. The increase was driven by the favorable timing of pricing compared to raw material costs within the Infrastructure segment of approximately $64 million, pricing and tariff surcharges within the Metal Cutting segment, favorable foreign currency exchange, incremental year-over-year restructuring savings and higher sales and production volumes. These factors were partially offset by tariffs and general inflation and higher compensation costs. Gross profit margin for the nine months ended March 31, 2026 was 33.1 percent, as compared to 31.2 percent in the prior year period.

OPERATING EXPENSE Operating expense for the three months ended March 31, 2026 was $124.0 million compared to $104.0 million for the three months ended March 31, 2025. Operating expense for the nine months ended March 31, 2026 was $353.4 million compared to $325.0 million for the nine months ended March 31, 2025. The increase in operating expense was primarily due to higher compensation costs, partially offset by year-over-year restructuring savings.

Research and development expenses included in operating expense totaled $11.0 million and $11.1 million for the three months ended March 31, 2026 and 2025, respectively, and $31.9 million and $33.2 million for the nine months ended March 31, 2026 and 2025, respectively.

RESTRUCTURING AND OTHER CHARGES, NET In January 2025, we announced several actions to support the long-term competitiveness of the Company and to mitigate softer market conditions. Total restructuring and related charges for this program of $22.0 million, compared to a target of approximately $20 million, were recorded through March 31, 2026, consisting of $16.6 million in Metal Cutting and $5.5 million in Infrastructure. The Company substantially completed the closure of a facility in Greenfield, MA and the consolidation of facilities in Barcelona, Spain during 2025 as a part of these actions.

We recorded restructuring and related charges of $2.4 million for the three months ended March 31, 2026, which consisted of $1.9 million in Metal Cutting and $0.4 million in Infrastructure. Included in this amount were restructuring related charges of $0.3 million included in cost of goods sold. We recorded restructuring and related charges of $8.6 million for the nine months ended March 31, 2026, which consisted of $7.4 million in Metal Cutting and $1.3 million in Infrastructure. Included in this amount were restructuring related charges of $2.4 million included in cost of goods sold.

We recorded restructuring and related charges of $5.8 million for the three months ended March 31, 2025, which consisted of $4.3 million in Metal Cutting and $1.5 million in Infrastructure. Of this amount, restructuring-related charges of $0.2 million were included in cost of goods sold. We recorded restructuring and related charges of $7.9 million for the nine months ended March 31, 2025, which consisted of $6.2 million in Metal Cutting and $1.7 million in Infrastructure. Of this amount, restructuring-related charges of $0.4 million were included in cost of goods sold.

INTEREST EXPENSE Interest expense for the three months ended March 31, 2026 incr

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ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in connection with the consolidated financial statements of Kennametal Inc. and the related financial statement notes included in Item 8 of this Annual Report. Unless otherwise specified, any reference to a “year” is to our fiscal year ended June 30. Additionally, when used in this Annual Report, unless the context requires otherwise, the terms “we,” “our” and “us” refer to Kennametal Inc. and its subsidiaries.

OVERVIEW Kennametal Inc. was founded based on a tungsten carbide technology breakthrough in 1938. The Company was incorporated in Pennsylvania in 1943 as a manufacturer of tungsten carbide metal cutting tooling and was listed on the New York Stock Exchange (NYSE) in 1967. With more than 85 years of materials expertise, the Company is a global industrial technology leader, helping customers across the General Engineering, Transportation, Earthworks, Energy and Aerospace & Defense end markets manufacture with precision and efficiency. This expertise includes the development and application of tungsten carbides, ceramics, super-hard materials and solutions used in metal cutting and extreme wear applications to keep customers up and running longer against conditions such as corrosion and high temperatures.

Our standard and custom product offering spans metal cutting and wear applications including turning, milling, hole making, tooling systems and services, as well as specialized wear components and metallurgical powders. End users of the Company's metal cutting products include manufacturers engaged in a diverse array of industries including: the manufacturers of transportation vehicles and components, machine tools and light and heavy machinery; airframe and aerospace components; and energy-related components for the oil and gas industry, as well as power generation. The Company’s wear and metallurgical powders are used by producers and suppliers in equipment-intensive operations such as road construction, mining, quarrying, oil and gas exploration, refining, production and supply, and for aerospace and defense.

Throughout Management's Discussion and Analysis of Financial Condition and Results of Operations (the MD&A), we refer to measures used by management to evaluate performance. We also refer to a number of financial measures that are not defined under accounting principles generally accepted in the United States of America (U.S. GAAP), including organic sales growth, constant currency regional sales growth and constant currency end market sales growth. The explanation at the end of the MD&A provides the definition of these non-GAAP financial measures as well as details on their use and a reconciliation to the most directly comparable GAAP financial measures.

Sales of $2,356.7 million in 2026 increased 20 percent from $1,966.8 million in 2025, reflecting organic sales growth of 19 percent and a favorable foreign currency exchange effect of 2 percent, partially offset by a divestiture effect of 1 percent.

Operating income was $472.5 million, or 20.1 percent margin, in 2026 compared with $143.1 million, or 7.3 percent margin, in the prior year. The increase in operating income was driven by the favorable timing of raw material-related pricing compared to costs of approximately $316 million, non-raw material-related pricing and tariff surcharges in Metal Cutting, higher sales and production volumes and incremental year-over-year restructuring savings of approximately $27 million. These factors were partially offset by higher compensation costs, tariffs and general inflation, and fewer insurance proceeds received within Infrastructure during 2026. In 2026, the Metal Cutting and Infrastructure segments had operating margins of 14.0 percent and 29.2 percent, respectively.

In February 2026, the U.S. Supreme Court issued a ruling invalidating certain tariffs previously imposed under the International Emergency Economic Powers Act (IEEPA). As a result of this ruling, companies may be eligible for a refund of tariffs previously paid on imported goods. We are pursuing potential recovery opportunities arising from this ruling. Any related benefit recognized through June 30, 2026 was immaterial. The Company has not recorded any liabilities associated with potential tariff recoveries, as any refunds received are expected to be reinvested in the business and no obligation to reimburse customers existed as of June 30, 2026.

Additionally, our business has been affected by foreign currency exchange, inflationary headwinds and rising tungsten prices. These pressures, driven by tightening global supply, geopolitical factors and evolving trade policies have increased raw material costs and caused other business disruptions. We have been able to mitigate these impacts through price increases on our products, supplier diversification and inventory management initiatives. However, we cannot predict the ultimate effect of these issues on our business, operating results, cash flows or financial condition. Continued volatility in commodity pricing, foreign exchange rates and supply availability could adversely affect our margins, operations and liquidity and may increase the risk of future impairment charges, including goodwill and other intangible assets. In addition, significant declines in raw material costs could reduce the net realizable value of our inventory, potentially requiring write-downs. We are continuing to monitor macroeconomic conditions and will take actions to mitigate these effects to the extent possible.

In February 2024, the Board of Directors of the Company authorized a $200 million, three-year share repurchase program outside of the Company's dividend reinvestment program. During 2026, the Company repurchased 475 thousand shares of common stock for $10 million. Subsequent to these repurchases, the Company paused activity under the share repurchase program. The Company expects to reassess repurchase activity as cash flow generation improves.

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We reported earnings per diluted share (EPS) of $4.42 for 2026 compared to $1.20 in the prior year.

In 2026, net cash flow used for operating activities was $4.0 million compared to net cash flow provided by operating activities of $208.3 million during the prior year. Capital expenditures were $76.9 million and $89.0 million during 2026 and 2025, respectively. During 2026, the Company returned a total of $71 million to the shareholders through $10 million in share repurchases under the $200 million, three-year program and $61 million in dividends.

For a discussion related to the results of operations, changes in financial condition and liquidity and capital resources for fiscal 2025 refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our fiscal 2025 Annual Report on Form 10-K, which was filed with the United States Securities and Exchange Commission on August 12, 2025.

RESULTS OF CONTINUING OPERATIONS

SALES Sales of $2,356.7 million in 2026 increased 20 percent from $1,966.8 million in 2025, reflecting organic sales growth of 19 percent and a favorable foreign currency exchange effect of 2 percent, partially offset by a divestiture effect of 1 percent.

Our sales growth by end market and region are as follows:

(1) Constant currency excludes the effect of divestiture and currency exchange.

GROSS PROFIT Gross profit increased $371.9 million to $970.0 million in 2026 from $598.1 million in 2025. The increase in gross profit was driven by the favorable timing of raw material-related pricing compared to costs of approximately $316 million, non-raw material-related pricing and tariff surcharges in Metal Cutting, higher sales and production volumes and incremental year-over-year restructuring savings. These factors were partially offset by higher compensation costs, tariffs and general inflation, and fewer insurance proceeds received within Infrastructure during 2026. The gross profit margin for 2026 was 41.2 percent compared to 30.4 percent in 2025.

OPERATING EXPENSE Operating expense in 2026 was $479.0 million, an increase of $48.2 million, or 11 percent, from $430.8 million in 2025.

We invested further in technology and innovation to continue delivering high quality products to our customers. Research and development expenses included in operating expense totaled $43.2 million and $44.4 million for 2026 and 2025, respectively.

RESTRUCTURING AND OTHER CHARGES, NET In January 2025, we announced several actions to support the long-term competitiveness of the Company and to mitigate softer market conditions. Total restructuring and related charges for this program of $23.9 million were recorded through June 30, 2026, consisting of $19.4 million in Metal Cutting and $4.5 million in Infrastructure. The Company substantially completed the closure of a facility in Greenfield, MA and the consolidation of facilities in Barcelona, Spain during 2025 as a part of these actions.

During 2026, we recorded restructuring and related charges of $11.4 million, which consisted of $9.7 million in Metal Cutting and $1.7 million in Infrastructure. Of this amount, restructuring-related charges of $2.4 million were included in cost of goods sold and $0.1 million were included in operating expense. These amounts are inclusive of a reversal of restructuring and related charges of $1.0 million related to prior actions.

AMORTIZATION OF INTANGIBLES Amortization expense was $9.5 million and $10.8 million in 2026 and 2025, respectively.

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INTEREST EXPENSE Interest expense in 2026 was $28.6 million, an increase of $3.6 million, compared to $24.9 million in 2025. The increase includes a loss of $2.2 million from the early extinguishment of the 2028 Notes in May 2026. The portion of our debt subject to variable rates of interest was approximately 4 percent and less than 1 percent at June 30, 2026 and 2025. As of June 30, 2026, we had $20 million of borrowings outstanding under the Credit Agreement and no borrowings outstanding as of June 30, 2025.

OTHER INCOME, NET In 2026, other income, net was $17.4 million compared to $13.8 million in 2025. The increase of $3.5 million is primarily due to foreign currency transactions including preferential exchange rates in Bolivia, partially offset by higher net periodic pension expense.

INCOME TAXES The effective tax rate for 2026 was 24.0 percent compared to 25.2 percent for 2025. The year-over-year change in the effective tax rate is primarily due to favorable geographical mix partially offset by prior year adjustments that include a benefit for the advanced manufacturing production credit under the Inflation Reduction Act of 2022 and $1.4 million for interest received to resolve an income tax dispute in India.

U.S. Income tax reform. On July 4, 2025, the One Big Beautiful Bill Act (OBBBA), which includes a broad range of tax reform provisions, was signed into law in the United States. We do not expect the OBBBA to have a material impact on our consolidated financial statements.

NET INCOME ATTRIBUTABLE TO KENNAMETAL Net income attributable to Kennametal was $342.4 million, or $4.42 of earnings per diluted share (EPS) in 2026, compared to $93.1 million, or EPS of $1.20 in 2025. The increase is a result of the factors previously discussed.

BUSINESS SEGMENT REVIEW We operate in two reportable operating segments consisting of Metal Cutting and Infrastructu

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