Kennametal Inc (KMT) 2026 Q2 法說會逐字稿

Good morning. I would like to welcome everyone to Kennametal second quarter in fiscal 2026 earnings conference call. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Michael Pici, Vice President of Investor Relations.

Thank you, operator. Welcome, everyone, and thank you for joining us to review Kennametal's second quarter fiscal 2026 results. This morning we issued our earnings press release and posted our presentation slides on our website. We will be referring to that slide deck throughout today's call. I'm Michael Pici, Vice President of Investor Relations. Joining me on the call today are Sanjay Chowbey, President and Chief Executive Officer; and Pat Watson, Vice President and Chief Financial Officer.

After Sanjay and Pat's prepared remarks, we will open the line for questions. At this time, I'd like to direct your attention to our forward-looking disclosure statement. Today's discussion contains comments that constitute forward-looking statements, and as such involve a number of assumptions, risks, and uncertainties that could cause the company's actual results, performance, or achievements to differ materially from those expressed in or implied by such statements. These risk factors and uncertainties are detailed in Kennametal's SEC filings.

In addition, we will be discussing non-GAAP financial measures on the call today. Reconciliation to GAAP financial measures that we believe are most directly comparable can be found at the back of a slide deck and on our Form 8-K on our website. And with that, I'll turn the call over to Sanjay.

Thank you, Mike. Good morning and thank you for joining us. I will begin the call today with an overview of the quarter, including in‑market commentary, followed by a spotlight on one of our growth focus areas, Power Generation. From there, that will cover the quarterly financial results as well as the fiscal year 2026 outlook. Finally, I'll make some summary comments and open the line for questions, turning to slide 3, let me begin by addressing some of the highlights from our strong second quarter.

Our global commercial teams continue to advance our strategic growth initiatives. In the quarter, the infrastructure team secured significant mining orders in earthworks from key distributors in Asia Pacific and EMEA. Both wins were a direct result of our team's efforts with those customers to deliver high-quality technical support and superior product performance. In metal cutting, we won projects that continue to advance our growth focus on aerospace and defense, and we also secured engine and transmission wins in transportation.

In general engineering, we increased our share with the pump manufacturer by providing them an innovative solution for machining valve seats. As we have and will continue to prioritize above‑market growth, in the quarter, we implemented pricing actions in response to rising tungsten costs, which are at historically high levels. We remain confident in our ability to price for the rising tungsten costs and in our ability to offset the impact. On the cost improvement front, we realized $8 million in restructuring savings this quarter and continue to execute our plan to lower structural costs and consolidate manufacturing operations, with some of these plans extending beyond this fiscal year into fiscal '27.

And as a result, we have updated the impact in fiscal '26, which Pat will address when he provides our updated outlook. Now let's move to our quarterly results, which again exceeded the sales and EPS outlook we provided last quarter. Compared to the outlook, sales were better than expected on higher sales volume, which included the stronger‑than‑anticipated effect of customers buying ahead of price increases and improvement in certain end markets. EPS benefited from the volume and the lower‑than‑anticipated tax rate.

Year over year, sales increased 10% organically, and that's our second consecutive quarter of organic growth, reflecting price realization, buy‑ahead, and continued modest relief from the broad market weakness. Excluding the effects of the buy‑ahead, sales volumes were modestly positive in the quarter, reflecting a continuation of gradual volume improvement we have seen since the 4th quarter of fiscal '25. In terms of profitability, adjusted EBITDA margin was 17.1%, compared to 13.9% in the prior‑year quarter. Adjusted EPS increased to $0.47, compared to $0.25 in the prior‑year quarter, with the improvement reflecting benefits from our strategic growth and restructuring initiatives and price/raw timing effects from the unprecedented increase in tungsten prices.

As a result, today we are raising our sales and EPS outlook for fiscal '26 to reflect the additional price/raw timing benefit, and Pat will provide more details on our updated outlook shortly. In summary, we are pleased with this quarter's results and continue to focus on delivering our commitments through fiscal '26. Turning to slide 4 in our in‑market update, the top half of this slide shows our outlook at the midpoint and includes impacts of price growth initiatives and market factors. I will focus on the bottom half of the slide and address the three markets that have changed since our last call: transportation, aerospace and defense, and general engineering.

First, our estimates for transportation slightly improved from the previous estimate of down low single digits to flat, with production volumes in Asia Pacific improved. In India, the current forecast is a bit better but still down, while in the Americas production declined slightly. US industry continues to show growth, and OEM build rates continue to improve. Finally, in general engineering, the IPI forecast in the Americas improved slightly, while other regions remain essentially unchanged, and the most recent GBI and ISM PMI surveys indicate expansion in the US.

For the first time in almost a year, conditions for our other end markets remain mostly unchanged from our previous forecast. Turning now to slide 5, I want to take some time to expand upon an opportunity we introduced last quarter: the rising global demand for electricity and what it means for Kennametal. Across the growing energy value chain, Kennametal has a broad range of products that help our customers run faster and longer from resource extraction through energy transmission and use. Electricity demand is projected to grow at about 3% annually through 2030, fueled by the rapid expansion of AI data centers, electric‑vehicle adoption, and continued grid buildout.

Data centers alone could represent 17% of US power demand by 2030, along with EVs and hybrids growing at strong double‑digit CAGRs in the Americas from 2023 to 2027. And as demand rises, the energy mix is diversifying, with incremental energy supply by 2030 expected to come from 45% natural gas, 35% solar, and 20% wind, plus coal remaining a meaningful source as overall electricity demand persists. The grid is also scaling quickly, with US high‑power transmission lines forecasted to grow at a 20% CAGR through 2030. This source‑to‑generation opportunity represented approximately 17% of our fiscal '25 sales.

We anticipate this market to grow low single digits through 2030, while some areas like gas and combustion turbines are expected to experience relatively high growth over this timeframe. In our infrastructure segment, our wear‑resistant solutions are used in oil and gas extraction, as well as trenching and foundation digging for wind turbines and transmission lines. In metal cutting, we supply products and solutions used in gas turbines and combustion engines, supporting both utility and AI data‑center‑related power generation. Gas turbines are projected to grow at 15%, and combustion engines for backup generators at 10% CAGR.

We are well positioned to capitalize on these trends with the right products already in our portfolio and access to the right customers. Among those customers, we are well known for quality, reliability, and innovation, and we offer a global footprint that supports them wherever energy demand is rising. Kennametal is not just participating in the energy transition; we are powering it. Now, let me turn the call over to Pat, who will review the second‑quarter financial performance and the outlook.

Thank you, Sanjay, and good morning everyone. I will begin on slide 6 with a review of the second‑quarter operating results. Sales were up 10% year over year, with an organic increase of 10% and favorable foreign currency exchange of 1%. The divestiture we concluded last year also had a 1% effect, and at the segment level, Infrastructure increased 11% organically and Metal Cutting increased 9%.

On a constant currency basis, Americas sales increased 16%, Asia Pacific sales increased 9%, and EMEA was up 2%. As Sanjay mentioned, our sales performance this quarter exceeded our expectations, and relative to those expectations, higher sales volumes including the effect of customers buying ahead of tungsten‑related price increases were the catalyst for the outperformance. By end market on a constant currency basis, aerospace and defense grew 23%, earthworks grew 18%, general engineering grew 8%, energy increased 4%, and transportation increased 3%. I'll provide more color when reviewing the segment performance in a moment.

Adjusted EBITDA and operating margins were 17.1% and 10.5% respectively, versus 13.9% and 6.9% in the prior‑year quarter. Margin increases were driven by a favorable price/raw effect of $17 million within the Infrastructure segment, higher pricing and tariff surcharges in Metal Cutting, increased sales and production volumes in Metal Cutting, and year‑over‑year restructuring savings of $8 million. These were partially offset by higher compensation costs, tariffs, general inflation, and a prior‑year benefit from insurance proceeds of approximately $3 million that did not repeat in the current year.

Adjusted earnings per share were $0.47 in the quarter versus $0.25 in the prior‑year period. The main drivers of our EPS performance are highlighted on the bridge on slide 7, with the year‑over‑year effect from operations this quarter being $0.22. This reflects approximately $0.15 of favorability from price/raw material cost timing, price and tariff surcharges, higher sales and production volume in Metal Cutting, and incremental restructuring benefits. These were partially offset by higher compensation costs, tariffs, and general inflation.

There was a headwind of $0.02 related to the net insurance proceeds received in the prior year due to the tornado that damaged our Rogers facility. You can also see $0.02 of transaction gains related to preferential Bolivia exchange rates, and currency and pension impacts offset each other. Slides 8 and 9 detail the performance of our segments this quarter, with reported Metal Cutting sales up 11% compared to the prior‑year quarter. With 9% organic growth and favorable foreign exchange of 2%, regionally excluding currency exchange, the Americas increased 15%, Asia Pacific increased 9%, and EMEA increased 3%.

Looking at sales by end market, aerospace and defense increased 19% year over year due to the absence of the Boeing strike that occurred in the prior year, improved build rates in the Americas, and easing supply‑chain pressures in EMEA combined with our global strategic focus.

Energy grew 11% this quarter due to data center power‑generation wins. General engineering increased 9% year over year due to indirect channel buy‑ahead and price. And lastly, transportation increased 3% year over year due to internal combustion engine and transmission wins in the Americas and price. Across all end markets, there was approximately $10 million of sales in the quarter as a result of customers buying ahead of price increases regionally.

Approximately 5% of the buy‑ahead was in the Americas, with 3% in Asia Pacific and the balance in EMEA. Metal Cutting adjusted operating margin of 9.6% increased 360 basis points year over year, primarily due to price and tariff surcharges, higher sales and production volumes, and incremental year‑over‑year restructuring savings of approximately $6 million. These factors were partly offset by higher compensation, tariffs, and general inflation. Turning to slide 9 for Infrastructure.

Reported Infrastructure sales increased 8% year over year with organic growth of 11% and favorable foreign currency, offset by a divestiture impact of 4%. Regionally, on a constant‑currency basis, Americas sales increased 17%, Asia Pacific increased 8%, and EMEA sales decreased by 1%. By end market on a constant‑currency basis, aerospace and defense increased 33% due to defense orders driven by continued focus on growth initiatives in the Americas. Earthworks increased 18% due to minor share gain and higher global construction volumes due to buy‑ahead and share gain.

General engineering increased 5% due to price and higher powder demand in the Americas and Asia Pacific, partially offset by lower demand in EMEA. Lastly, energy was flat as higher prices offset weaker market conditions. Within Infrastructure, we saw approximately $3 million of sales as a result of customers buying ahead of higher prices. Adjusted operating margin increased 370 basis points year over year to 12.3%, primarily due to a few factors.

The increase in operating income was primarily due to the $17 million effect from favorable timing of pricing compared to raw‑material costs and year‑over‑year restructuring savings of $2 million, partially offset by higher compensation costs, prior‑year net‑insurance proceeds of $3 million, and general inflation. Turning to slide 10 to review our free operating cash flow and balance sheet, our second‑quarter year‑to‑date net cash flow from operating activities was $73 million compared to $101 million in the prior‑year period. Our second‑quarter year‑to‑date free operating cash flow decreased to $38 million from $57 million in the prior year due primarily to working‑capital changes, including the increase in inventory from higher tungsten prices, partially offset by lower capital expenditures.

On a dollar basis year over year, primary working capital increased $97 million from an $85 million increase in inventory to $690 million. On a percentage‑of‑sales basis, primary working capital increased to 31.9%. Net capital expenditures decreased to $34 million compared to $44 million in the prior year, and we returned $15 million to our shareholders through dividends. Due to the unprecedented increase in the level of tungsten prices and the corresponding increase in our working capital, we did not repurchase shares in the second quarter.

Inception‑to‑date, we have repurchased $70 million or 3 million shares under our $200 million authorization. And as we have every quarter since becoming a public company over 50 years ago, we paid a dividend to our shareholders. We remain committed to returning cash to shareholders while executing our strategy to drive growth and margin improvement. We continue to maintain a healthy balance sheet and debt‑maturity profile with no near‑term refunding requirements.

During the quarter, we amended and extended our revolving‑credit agreement, which has a capacity of $650 million and matures in November 2030. At quarter‑end, we had combined cash and revolver availability of approximately $779 million and were well within our financial covenants. The full balance sheet can be found on slide 17 in the appendix. Now on slide 11 regarding the full‑year outlook, we now expect FY26 sales to be between $2.19 billion and $2.25 billion.

With volume ranging from flat to positive 3%, and price and tariff surcharges combined of approximately 11%. We anticipate an approximate 2% tailwind from foreign exchange, and the increased outlook reflects additional pricing actions related to the increasing cost of tungsten since we provided our prior outlook. Despite the record level of tungsten, we remain confident in our ability to achieve the price. From a cost perspective, as Sanjay noted earlier, some of our EMEA restructuring actions will take a bit longer to execute, and as a result, our updated range includes $30 million of savings.

Depreciation and amortization, foreign exchange, and pension assumptions are unchanged and noted on the slide. We now expect adjusted EPS in the range of $2.05 to $2.45, and this outlook includes approximately a 9.5% year‑over‑year benefit related to the timing of price and raw‑material costs. On the cash side, the full‑year outlook for capital expenditures is unchanged, and free operating cash flow is expected to be approximately 60% of adjusted net income, reflecting the additional working capital required by rising tungsten costs.

Turning to slide 12 regarding our third‑quarter outlook, we expect third‑quarter sales to be between $545 million and $565 million, which reflects the effects of the buy‑ahead that occurred in the second quarter. We expect volumes to range from –4% to flat, and if you adjust for the buy‑ahead that occurred in the second quarter, volume at the midpoint would be 1% and would be the third consecutive quarter of improving volume trends. The outlook also includes price and tariff‑surcharge realization of approximately 13% and a 2–5% positive impact from foreign exchange.

We expect adjusted EPS in the range of $0.50 to $0.60, which includes approximately $0.30 year‑over‑year benefit related to price/raw timing. It is worth noting that the prior year's third‑quarter results included a $0.13 benefit from the advanced manufacturing tax credit. The other key assumptions for the quarter are noted on the slide, and with that, I'll turn it back over to Sanjay.

Thank you, Pat. Turning to slide 13, let me take a few minutes to summarize. We delivered a solid first half of fiscal '26, driven by price, modest improvements in a couple end markets, project wins on the commercial side, and cost‑improvement actions. We continue to make steady progress on our strategic growth initiatives, lean transformation, and structural cost improvement, while also exploring ways to strengthen our portfolio over time. We remain confident in our plan for long‑term value creation for our shareholders, and with that, operator, please open the line for questions.

(Operator Instructions)

Stephen Volkman with Jeffreys.

Good morning, guys. Thank you for taking the question. I guess, no surprise, maybe I'll talk about tungsten a little bit here. So, a couple of things. You talked about some pull‑forward here into the last quarter, is there some big price increase that's about to hit that people wanted to get in front of?

Yeah, we had a modest price increase in January 1, relative to, what we have done in the past, I think it's a mid-single-digits.

I'd add to that, Steve. I think even in places where we're not, on a list price business and we've got a lot more material content. We've got customers who are informed about the direction of what the tungsten price is.

Okay, and since the price of tungsten is up, slight joke. It is up 33% year-to-date, right? So how do you, like how fast can you kind of keep up with this?

Yeah, so Steve, there are parts of our business where the prices get affected very quickly; they are like the spot buy, and also we have parts of the business which are indexed to the prices. And of course, in Metal Cutting pretty much everything is on the list‑price basis, so that takes a little bit more time, but based on the order pattern and the lead time, that also works out just fine for us.

As you asked the first question, I made the comment modest because prices of tungsten have gone up a lot more than almost two to three times. But by the time you look at how it affects overall in the price of our products, and I mentioned yes, mid‑single‑digit is relatively higher price, but our customers also see this dynamic and they have been monitoring it very closely, and there was some buy‑ahead as Pat mentioned in his prepared remarks.

If you even adjust for that, we still think that overall market improved sequentially, and we're still expecting slight improvement in market from that point‑of‑view perspective.

Okay. All right, great. And then just the final piece here, how should we think about the supply side? I'm curious, like, are you worried about access to Tungsten? Is there any chance that the market gets tight and you can't get what you need, and maybe as you answer that, Sanjay, just remind us about your kind of internal versus external sourcing of tungsten, and I'll pass it on.

Thanks. Yeah, sure. I will also have Pat chime in here, but let me start by saying that we have multiple different sources, and we have things in the pipeline in terms of how we work with our vendors and suppliers. We have, in many cases, long‑term agreements, so we feel confident in our ability to get what we need for the outlook that we're giving you at this point. Pat?

Yeah, I'd say obviously in terms of sources, we use a diversified mix of recycled materials. We've got our facility in Bolivia that pulls out material from that market, and in terms of what we're using, I'll say outside of China, we do not have a dependence on Chinese material to satisfy those operations. Obviously, with the ramp‑up of tungsten, and as we've commented before, this is really a supply‑driven price increase at the moment.

Across the industry, we are seeing additional activity in terms of what's happening at mines and projects, and also in terms of government involvement in some of those things to facilitate that. And so I think if we took a longer‑term view of this as well, there's ample supply that's out there that should come online.

Yeah, Steve, I'll add one more thing. Along with the supply side of the equation, we as a company based on material science and technology also look for ways in how we use tungsten in the most efficient way in our product. There are places where over the years we have taken parts of our product mixed with steel and then having the parts of the tool made by tungsten. So we are also looking for, as there are some pricing concerns and also supply‑side concerns, how we make our product more efficient in that regard.

Julian Mitchell, Barclays.

Hi, good morning. I just wanted to start off with clarifying the volume trends through the year. So I guess you have the third‑quarter guidance of slight volumes down year on year at the midpoint, and the full year is slight growth. So maybe help us understand or remind us kind of Q1, Q2, how volumes were moving then, and trying to understand the interplay of some pull‑forward of volume versus what you're seeing in the end‑market final‑demand volume‑wise.

Julian, first, let me back up a little bit from your question of the full year and then I'll come to Q2 and Q3 in a second. If you go back to the August outlook, at midpoint we had said volume was going to be 2.5%. Last quarter, we said at midpoint volume was going to be, you know, for the full year again at 1%. This time we're saying volume is 1.5%.

So it gives you at least confidence that volume is moving in the right direction as the year has progressed. Of course, we have like that's a 400‑basis‑point change in six months in our volume projections for the full year. In parallel, of course, we have a 700‑basis‑point change in the price, which is a bigger driver of top‑line, but coming back to Q2 and Q3 dynamics. In Q2, we had a buy‑ahead as Pat alluded to earlier, about $130 million by the time you add both segments.

Now if you adjust for that, Q2 will be flat. And then if you adjust for that also, Q3, rather than showing as negative, will be +1. So we are showing you also know Q1 was one, Q2 was plus in a flat, and then Q3 getting you a +1. So volume overall is moving forward in the right direction for us.

That's really helpful, thanks, Patrick. And maybe just my follow‑up if we focus on, I suppose, two markets in particular that are very relevant to you: general engineering and then transportation. So transportation, I suppose, has been pretty soggy, and updates on auto production ex‑China; general engineering, I think understandably people are getting excited because of the manufacturing PMI move a couple of days ago. Just give your perspectives on those two markets and again the volume‑demand picture please, and I know you've guided the sales assumptions on slide 11.

Yes, sure. Let me start with transportation first, then I'll come to general engineering. In transportation, as we had in our prepared remarks, EMEA improved slightly, still in negative territory in low single‑digit territory. Asia Pacific improved this is the data that is coming out of the IHS which has shown quite a bit of improvement, almost 200 basis points. The Americas are essentially flat, slightly negative, but essentially flat in terms of transportation.

So overall, what we said was that transportation was minus one last time and now it's about flat. For us, again, this is just the market; of course, we are winning projects, and we have also seen some comp issues with projects we had in EV a couple of years ago. In the last 24 months, we got good stocking orders and all that, but that has some other dynamics going on as some of the programs have not taken off as much. So overall, we expect transportation to help us with this slight improvement in the trend.

Now coming to general engineering, as said in the prepared remarks, the Americas are where we have seen tangible difference. Other areas like EMEA and also APAC are essentially where we had them in the recent outlook. I think the ISM PMI report that came out earlier this week was above 50 for the first time in 12 months, which is a good sign. But that's just one; we have to see that sentiment translate into real orders, and hopefully that happens so that it can give us a little bit of upside, but in our view right now, we have assumed slight improvement in the Americas and essentially flattish for the other two regions.

That's very helpful. Thanks so much.

Steven Fisher, UBS.

Thanks very much. Good morning. So just to talk about the cadence a little bit more. Thanks for giving that, adjusted progression on the volume, adjusted for the pull forward. I guess just looking at what's implied in Q4, seems like, a lot of the year upside is really falling into Q4.

Can you just talk a little bit about what is driving such a big uplift in Q4. And then I guess related to that, how should we think about carryover into the second half of this calendar year, both from a kind of a price and volume and price/cost perspective.

Yeah, a couple things, just to kind of walk you through there, Steve. The way I look at the progression here in terms of the second half, if I strip away a couple elements here we obviously had some ramp between Q2 and Q3 on some buy‑ahead, and then if we think about the incremental price that's going into the business here in the back half you pull that out, at the midpoint it looks pretty normal from a sequential‑volume perspective. As you think about that change, which is pretty significant Q3 to Q4, what's driving that pretty significant step‑up in terms of our pricing is the timing of when we've seen tungsten prices rise. In the month of January alone, tungsten was up nearly $340, right?

And so much of that will hit us then in fourth quarter. And then as you think about, in your question, what the first half of our fiscal '27 kind of looks like where we're sitting now, you would anticipate some bleed‑over into the early part of FY27 in terms of favorability of price/raw. Obviously as we talked about in the scripted remarks, there's a headwind out there as well at some point in time; once tungsten stabilizes, we will have the absence of some of this benefit, but when that happens is obviously uncertain at the moment. The other two things I would think about in terms of that early part of '27 and beyond, that price/raw dynamic coming into play.

Just keep in mind that there's additional restructuring that will be coming in place that ultimately will get us to a run‑rate of about $125 million at the end of next fiscal year. That's a 30‑million‑dollar lift, and then additionally here as we think about FY26, there's a little bit more than your average performance‑based compensation in play. And when we think about '27, that's probably a $0.10 to $0.15 tailwind at this point in time going into '27.

I think that's really helpful. And then I guess nice to see that you continue to have some of these wins from your customers. Can you just talk about the competitive dynamics on that how actively or how broad is the competitor set on these, or is the pie just getting bigger and these are areas where you're not facing a lot of competition?

Yes, of course, we are facing competition in all areas, but I will just tell you that we are now using our core competencies as we have spoken before material science, our products, and our solutions. We are also adding application‑engineering support, which includes a lot of talent we have in the field on the front line and within our engineering team. Along with that, our global footprint helps us meet customer demands anywhere in the world. I think we're using our core competencies in a very structured approach on our growth initiatives to drive very close intimacy with customers, solving their problems and winning projects.

I can tell you in a few things that we have spoken about in the past if you look through the end markets we play in, in aerospace and defense we have definitely been winning a bigger share of wallet with our major customers, and we have expanded our new‑customer list in the last few years. Similarly, in earthworks, we talked about project wins and new products coming out, along with supporting our customers with good operational performance, quality, and delivery. I have to say that in earthworks, some of the wins have been price‑sensitive as we noted before, so we know that pressure will continue even going forward.

With respect to energy, we have talked about oil and gas; customers are valuing our products as they go more distance horizontally, not necessarily increasing rig counts. We have very good product strength there. Along with that, in energy, we have had very good success supporting our customers in power generation for AI data centers; we highlighted that last quarter. Today, we talked about the broader electricity and energy play and how we are well positioned to capture that, or at least outperform the market.

In transportation, we are very well prepared regardless of the direction our end customers go with respect to drivetrain. We have proven products in combustion engines, and we have launched a lot of very good products for battery and hybrid as well. Of course, there is quite a bit of mix dynamics right now, but we are well positioned to support our customers in that. Finally, coming to general engineering, we have very strong channel partners, and we work closely with them. Along with that, in parallel, we have launched many initiatives to help our small‑to‑medium‑sized customers, and we have also introduced new initiatives in digital machining solutions. We have publicly announced our partnerships with key technology players, so we are taking a very comprehensive approach as it applies to our overall market.

Thank you very much.

Steve Barger, Keybanc.

Good morning, Sanjay. It's actually Christian Zyla for Steve Barger. First question.if you guys get both volume and price for several quarters, how should we think about incremental margins relative to history? Is there a range that you guys are targeting?

Yeah, on the volume, as we have said before, metal cutting is going to have a little bit higher lev incremental leverage then infrastructure, but net net we have said mid-40s as the average. Pat, you want to add something to that?

No, I just don't want to say that's a through the cycle type number as well, and so, individual quarters depending on where a variety of factors sit, that could move around a little bit. Yeah, and with respect to price and obviously we have said it our, first intent there is to make sure that we're Offsetting the cost. So the mid-40s number is on volume.

Got it understood. And then I guess second instant price remained stable from the current level. How fast your list prices adjust in metal cutting if Tungsten keeps rising, and then I guess conversely, if Tungsten prices fall at some point, would you have to give back the surcharges and reduce your list price and how fast does that happen? Thank you guys.

Yeah, so we generally have about, three months or so lag in metal cutting in terms of, list price change, with respect to if the prices come down, our goal is to stay competitive in the market, so we'll, see when that happens and, what the extent of that is.

Angel Castillo, Morgan Stanley.

Hi, good morning. Thanks for taking my question. Just maybe a near term first, wanted to clarify I don't know if apologies if I missed this, but, did you say I guess how much orders are kind of rising in January just what you're seeing kind of, thus far and in the last month and whether that kind of aligns with what you're what you're talking about in terms of the the organic growth or maybe even that or you know just kind of how it compares to that.

Yes, sorry, we have not talked about Jane what is specifically in the prepared remarks, and, I can just tell you that we have good start and we are confident, about the outlook we gave you.

Understood. And then Sanjay, just a little bit of a bigger‑picture question back in, I think, fiscal '24 you had talked about some additional self‑help initiatives, plant closures, and other kinds of changes you were making given how challenging the macro backdrop was and the overall demand picture. But ever since that, I feel like things have been steadily improving with more tailwinds in power generation and general market‑share wins.

Can you talk at a higher level do these changes impact how you're thinking about repositioning the business, the plant closures, and what you need to target or what the business needs to focus on versus perhaps even areas of investing so you can take more advantage of those higher fast‑growth power‑gen type markets? Just bigger‑picture, how it impacts your strategy.

Yes, absolutely, Angel, first of all, let me recap what we have done and then you know I'll talk about where, we're going next. So in last, 12 months, we have closed two manufacturing plants successfully. We divested one business, now looking forward, we are working on projects, as we've spoken, after the Q4 of last year, we are going to, of course, keep an eye on where the market is, and specifically to, different product line that demands, and if we have to adjust our plan, we will.

Our overall goal here is to do what is best for our shareholders, our customers, and our team, but at this point, the plans that we have put together still makes sense and we are making good progress on that.

Understood. Thank you.

Tami Zakaria, JP Morgan.

Hey, good morning. Very nice results. Question on India. Could you remind us whether you have sourcing exposure from there and how that might benefit should rates on India come down in the coming months.

Yes, Tami, about six months ago or so when this question came up, when the tariff had gone up, we had said that we don't really bring a lot of products from India to the US, so for all practical purposes the impact was minimal. And then whatever we had over the last few quarters, globally not just the India impact but overall we have taken appropriate actions, including relocating several 1,000 SKUs to different places of the world to offset that.

So for all practical purposes, this change in tariff coming down will not have that impact. But I do believe that it should help the India market where we are a good, big player, and so domestically it should help us, but from a tariff perspective it's not material for us.

Understood. Very helpful. And along the same lines, should some more trade deals come through, how should we think about pricing would tariff surcharges get automatically rolled back, or you took permanent price increases which might stick even if tariffs go down in the coming months? How should we think about that?

We kept the tariffs as is right now, we have not converted that to a permanent price change, but we're keeping that option open, if there are some parts of the, trade agreements that feel like more permanent. We'll do that. That is good for everybody, including our customers, but as of right now we're keeping tariffs as tariffs, and if the tariffs do come down, we will immediately adjust it down.

Understood. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back to Sanjay Chowbey for closing remarks.

Thank you, operator, and thank you everyone for joining the call today. As always, we appreciate your interest and support. Please don't hesitate to reach out to Mike if you have any questions. Have a great day.

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