Kadant NYSE: KAI reported record second-quarter revenue, adjusted earnings and EBITDA for 2026, supported by acquisitions, organic growth and continued demand for aftermarket parts and services even as customers delayed some large capital-equipment commitments.
Revenue rose 23% from a year earlier to a record $312.9 million, including 8% organic growth. Organic capital revenue increased 23%, while record aftermarket parts revenue totaled $214.2 million. Bookings increased 16% to $312 million, according to President and Chief Executive Officer Jeff Powell.
Adjusted EBITDA increased 30% to a record $68.1 million, or 21.8% of revenue, compared with $52.4 million, or 20.5% of revenue, in the prior-year period. GAAP diluted earnings per share increased 24% to $2.75, while adjusted diluted EPS rose 26% to a record $3.42. The adjusted result exceeded the high end of the company’s prior guidance by $0.44, which CFO Michael McKenney attributed largely to lower operating expenses and stronger-than-expected acquisition performance.
Aftermarket demand offsets delayed capital decisions
Powell said global capital-equipment markets remained soft amid geopolitical uncertainty, longer customer approval cycles and delayed project releases. However, he said quote activity and commercial engagement remained healthy, and the company believes deferred projects have largely been postponed rather than canceled.
“Our large installed base provides reoccurring profitable revenue through maintenance upgrades, aftermarket parts, and growing service demand,” Powell said. He added that customers are seeking to maximize productivity and reduce input costs.
During the question-and-answer session, Powell said the company’s aftermarket activity has remained at record or near-record levels even though its customers are not operating at record rates. He said this suggests equipment across the installed base has aged and requires more maintenance to remain operational.
Kadant reported equipment backlog of $182 million at quarter-end. McKenney said that as large capital orders are received, they are likely to convert into revenue during 2027. The company expects quarterly bookings to remain around the $300 million level during the second half, he said.
Segment performance
- Flow Control: Bookings increased 11% year over year, aided by strong aftermarket demand and stronger-than-expected North American capital-project bookings. Revenue increased 5% to $100 million. Aftermarket revenue reached a record $76 million, representing 76% of segment revenue, while adjusted EBITDA margin was 27.7%.
- Industrial Processing: Bookings rose 29% to $136 million, with recent acquisitions contributing to growth. Revenue reached a record $144 million, including 13% organic growth. Adjusted EBITDA was a record $38 million, equal to 26.1% of revenue.
- Material Handling: Bookings totaled $73 million, supported by demand for the company’s BELA product line. Adjusted EBITDA increased 7% to $15 million. Powell said the segment has several larger capital projects under discussion and sees opportunities tied to infrastructure, mining, food processing and recycling.
Powell said capital projects under discussion span packaging, aerospace, oriented strand board and baling markets. The company booked an $8 million aerospace project during the quarter and continued to receive orders in the OSB market. He said large packaging conversion projects, which can range from $10 million to $25 million, have faced particularly intensive customer review amid uncertainty around tariffs, wars and other macroeconomic conditions.
Margins, cash flow and acquisitions
Second-quarter gross margin declined 210 basis points to 43.8%, from 45.9% a year earlier. McKenney said the decline reflected a larger mix of capital revenue and product mix within both the capital and aftermarket categories. The higher-margin aftermarket mix was 68% of revenue, compared with 71% in the prior-year quarter.
The company received a benefit from tariff refunds during the quarter, though that was largely offset by amortization of acquired profit in inventory and deferred profit associated with the Kadant Profil acquisition. McKenney said the company expects to work through remaining acquisition-date inventory during the rest of 2026.
SG&A expenses increased 10% to $81.6 million, but declined as a percentage of revenue to 26.1% from 29%. Operating cash flow increased 32% to $53.5 million, while free cash flow increased 17% to $42.6 million. Capital expenditures rose to $10.9 million from $4 million, partly due to the purchase of a previously leased manufacturing facility.
Net debt was $373 million at the end of the quarter, up $129 million sequentially after the company borrowed $181.8 million to fund a recent acquisition and repaid $29.8 million. Its leverage ratio increased to 1.72 from 1.27 in the first quarter. Kadant had $249 million available under its revolving credit facility, plus $200 million of uncommitted borrowing capacity.
Powell said Clyde Industries, one of the company’s larger recent acquisitions, has performed well. He said Kadant Profil also had a good start, though its reported results are affected by the acquired-profit deferral issue. A smaller technology acquisition tied to fiber-processing and upcycling systems has faced softer near-term demand, he said.
Guidance raised
Kadant raised its full-year revenue outlook to $1.19 billion to $1.21 billion, from prior guidance of $1.178 billion to $1.203 billion. It now expects adjusted EPS of $12.43 to $12.68, compared with previous guidance of $12.33 to $12.68.
For the third quarter, the company forecast revenue of $297 million to $307 million and adjusted EPS of $2.90 to $3.00. The adjusted EPS outlook excludes $0.55 of intangible amortization expense and $0.07 of acquisition-related costs.
Management said it remains cautious about the remainder of 2026 due to uncertainty in the timing of capital projects and geopolitical conflicts affecting customer confidence and input costs. Still, Powell said Kadant expects demand to strengthen in the second half relative to the first half, with capital-spending conditions improving into 2027.
About Kadant (NYSE:KAI)
Kadant Inc, headquartered in Westford, Massachusetts, is a global supplier of high‐value, critical components and engineered systems for the pulp and paper industry and other process industries. The company's product portfolio spans stock preparation technologies, refiners and pulpers, fluid handling systems, and web‐handling equipment designed to optimize the efficiency and quality of paper production. In addition to capital equipment, Kadant offers aftermarket services, including spare parts, maintenance programs and process optimization consulting, which together support long‐term customer productivity and reliability.
Originally part of a larger industrial conglomerate, Kadant was established as an independent public company in 1991.
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