Release Date: October 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Kadant Inc (KAI, Financial) achieved record adjusted EBITDA, EBITDA margin, and adjusted EPS in the third quarter of 2024.
- Revenue increased by 11% compared to the third quarter of 2023, reaching $272 million, driven by strong aftermarket parts business and acquisitions.
- Cash flow from operations and free cash flow were robust, at $52 million and $48 million respectively, showcasing the strength of the business model.
- Bookings increased by 15% year-over-year, supported by acquisitions and strong activity in North America.
- The company is optimistic about future growth, with plans to present new five-year financial targets and growth initiatives at an upcoming Investor Day.
Negative Points
- Demand in Europe and Asia was sluggish due to persistent economic headwinds, impacting overall market performance.
- SG&A expenses as a percentage of revenue increased to 25.4% in Q3 2024 from 23.7% in the prior year, primarily due to acquisition-related costs.
- Adjusted EBITDA margin in the material handling segment declined by 210 basis points compared to Q3 of last year, largely due to product mix and lower revenue volume.
- The company anticipates lower gross margins in Q4 due to the mix of projects, which could lead to comparatively lower earnings.
- Foreign currency translation had a negative impact, with a 17% adverse effect on guidance compared to the beginning of the year.
Q & A Highlights
Q: Can you provide the percentage of aftermarket parts revenue for the flow control, industrial processing, and material handling segments compared to last year's Q3?
A: Michael Mckenney, CFO, stated that for flow control, aftermarket parts were 70% of revenue this year versus 68% last year. In industrial processing, it was 67% compared to 60% last year, and in material handling, it was 55% compared to 53% last year.
Q: What are the expectations for the fourth quarter across the three segments?
A: Michael Mckenney, CFO, mentioned that they are being conservative with expectations due to potential delays in capital shipments to 2025. The fourth quarter can be unpredictable, with variability in customer purchasing behavior based on their maintenance budgets.
Q: How does the pipeline look for future acquisitions?
A: Michael Mckenney, CFO, noted that the corporate development group is busy, with strong activity expected to continue. The challenge remains finding strategic fits at reasonable prices, but the market is robust with many opportunities.
Q: Can you discuss the expected pickup in capital equipment bookings in Q4 and any potential inflection going into next year?
A: Michael Mckenney, CFO, indicated that while they expect an increase in bookings, it will be incremental rather than a significant jump. Customers anticipate improvements in the second half of next year, with 2026 expected to be strong.
Q: What are the strongest markets in terms of capital opportunities for next year?
A: Michael Mckenney, CFO, highlighted the OSB (Oriented Strand Board) market as particularly strong globally. Packaging, especially in parts and consumables, has held up well, and there is growing exposure to the defense market.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
