Kadant Q3 Earnings Call Highlights

Key Points

• Kadant delivered record Q3 results: Revenue rose 15% to $313.2 million and adjusted EPS increased 21% to $3.64, driven by record aftermarket parts sales, acquisitions and stronger bookings.
• The company raised its 2026 outlook, forecasting adjusted EPS of $12.58–$12.73. Record free cash flow of $58.1 million helped Kadant repay $51 million of debt during the quarter.
• Aftermarket demand and a growing capital-project pipeline supported results, but economic and political uncertainty is delaying large equipment orders, with some projects potentially shifting into 2027.

Kadant NYSE: KAI reported record third-quarter revenue and adjusted earnings as aftermarket parts sales and acquisitions helped offset a slower market for large capital equipment projects. The company also raised its full-year adjusted earnings outlook.

Revenue increased 15% from a year earlier to $313.2 million, including record aftermarket parts revenue of $218.4 million. Organic revenue rose 4%, while bookings increased 23% across the company’s three operating segments.

Adjusted earnings per share rose 21% to a record $3.64, exceeding the high end of Kadant’s guidance by $0.64. GAAP earnings per share increased 26% to $2.96. Adjusted EBITDA climbed 24% to $71.7 million, with the margin expanding to 22.9% from 21.4% a year earlier.

Chief Financial Officer Michael McKenney said the earnings outperformance reflected higher-than-expected revenue, better-than-anticipated acquisition performance and lower operating expenses. The revenue upside included aftermarket parts sales in Industrial Processing and capital equipment revenue in Flow Control.

Aftermarket sales support results

Chief Executive Officer Jeff Powell said the company’s aftermarket parts business set a revenue record for the third consecutive quarter. He attributed the strength in part to customers operating older equipment after years of underinvestment, even as their operating rates remain relatively soft.

“They’re going to have to start to make some investments,” Powell said, adding that some customers are beginning to plan for reinvestment.

In Flow Control, third-quarter revenue rose 8% year over year, supported by record aftermarket parts revenue and capital equipment shipments. Adjusted EBITDA increased 22% to a record $31 million, with a record segment margin of 30.7%. Powell cited demand from energy, defense and packaging customers.

Industrial Processing generated $143 million in revenue and $123 million in bookings. Powell said acquisitions and 12% organic bookings growth contributed to new orders, while the segment’s adjusted EBITDA reached $37 million, or 26.1% of revenue.

Material Handling bookings rose 13% to $67 million, led by aftermarket demand for bulk material handling equipment. Revenue fell 4% from the prior-year quarter because of lower capital shipments, and the segment’s adjusted EBITDA margin declined to 22.1%.

Capital project timing remains uncertain

Powell said demand for capital equipment had strengthened and the project pipeline was growing, but political uncertainty and economic pressures continued to lengthen the time between customer inquiries and orders. He said some projects could move into 2027.

Investment activity has been stronger in newer markets, including defense, aerospace and factory automation, according to Powell. He said Kadant received an approximately $8 million aerospace order and had won several million dollars of new factory automation business this year.

By contrast, larger Industrial Processing projects, typically ranging from $5 million to $25 million, are taking longer than usual to become orders, Powell said. He added that some customers, particularly in fiber processing, have begun discussing investment in facilities retained after consolidation.

Kadant ended the quarter with $316 million in backlog, consisting of $167 million in capital equipment and $149 million in parts and consumables, McKenney said.

Outlook raised as debt declines

Kadant raised the lower end of its 2026 revenue guidance to $1.195 billion, while keeping the upper end at $1.210 billion. It raised its adjusted earnings forecast to $12.58 to $12.73 per share, from $12.43 to $12.68.

For the fourth quarter, the company forecast revenue of $287 million to $302 million and adjusted earnings of $2.67 to $2.82 per share.

Third-quarter operating cash flow reached a record $62.9 million, and free cash flow was a record $58.1 million. Kadant repaid $51 million of debt during the quarter, helping reduce net debt by 15% sequentially to $316.6 million.

Executives said integration of the Kadant Profil acquisition was progressing well. McKenney expects the inventory-related effects on standard components to be largely behind the company by the first quarter of 2027 and anticipates an improving margin profile in Industrial Processing’s wood sector.

Powell also addressed his planned transition to executive chairman, with Michael Colwell set to become CEO at the beginning of the year. Powell said he would remain engaged with the leadership team and continue as an employee through 2027.

About Kadant (NYSE:KAI)

Kadant Inc NYSE: KAI is a global supplier of technologies and equipment used in the pulp and paper, recycling, and industrial processing industries. The company designs and manufactures products that help customers process fiber, manage fluids, improve production efficiency, and handle industrial materials.

Its offerings include systems and equipment for stock preparation, paper-machine cleaning, doctoring, filtration, water management, and fluid-handling applications. Kadant also provides material-handling and conveying equipment, as well as products used in recycling and other industrial processes.

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