Kadant Inc. Reports Financial Results for the Quarter Ended March 29, 2025

Industry and Business Overview

Kadant Inc. is a global supplier of equipment and services for the papermaking and other process industries. In the first quarter of 2025, the company’s consolidated bookings increased 3% to $256.2 million, driven by record demand for its parts and consumables products. Within its segments, both the Flow Control and Industrial Processing segments saw strong demand for aftermarket products as customers focused on critical maintenance requirements.

However, a lengthening in quote to order times for capital orders has resulted in a decline in capital bookings. This is largely due to the uncertain trade policy environment, with the Trump administration introducing new tariffs that were subsequently modified and expanded. The tariff changes have created significant uncertainty in the markets and impacted customers’ decision-making process related to capital projects. While investments in maintenance and mission-critical equipment continue, customers are deferring some capital expenditures until there is greater clarity on the tariff situation and the economy.

From a geographic perspective, the tariff situation has created uncertainty and potential inflationary pressures in North America. In China, supportive government policies have helped stimulate domestic demand, but the escalating trade tensions with the U.S. are generally expected to have a negative effect. In Europe, in addition to trade policy uncertainty, sluggish market conditions have also been impacted by high interest rates and energy costs.

Overall, Kadant expects stronger capital bookings in 2025 compared to 2024, especially in the Industrial Processing segment. However, the timing for securing capital orders remains uncertain and could shift into 2026 due to the outcome of tariff negotiations. The company expects steady demand for its aftermarket products to continue for the remainder of 2025.

Segment Performance

Flow Control Bookings in the Flow Control segment increased 6% in the first quarter of 2025, driven by record demand for parts and consumables products. Excluding acquisitions and the unfavorable effect of foreign currency translation, organic bookings decreased 1% due to constrained capital spending in North America and China. The company expects steady demand for the remainder of 2025 and long-term strength in its end markets.

Industrial Processing Bookings in the Industrial Processing segment increased 3%, while organic bookings increased 6%, due to record demand for aftermarket products, partially offset by weak demand for capital products at the fiber processing product line. The wood processing product line had record demand for aftermarket products as customers focused on critical parts. However, demand for capital equipment at the wood processing line was constrained by uncertain market conditions, and some customers in Europe have already delayed capital orders until early 2026. Bookings at the fiber processing product line decreased 7% due to constrained capital spending, especially in North America and Europe.

Material Handling Bookings in the Material Handling segment were flat compared to the first quarter of 2024, with strong performance at the baling business offset by weaker performance at the conveying and vibratory business. The baling business experienced record demand for aftermarket products, but relatively weak demand for capital equipment as customers were hesitant to commit to capital expenditures. The conveying and vibratory business had comparatively lower bookings due to several large projects in the prior year quarter.

Financial Performance

Revenue Consolidated revenue decreased 4% in the first quarter of 2025, including a 3% increase from acquisitions and a 2% decrease from the unfavorable effect of foreign currency translation. Organic revenue decreased 5% primarily due to weaker demand at the Industrial Processing segment, especially for capital equipment products.

Revenue at the Flow Control segment increased 7%, including a 9% increase from acquisitions and a 3% decrease from foreign currency translation. Organic revenue increased 1% driven by higher demand for parts and consumables.

Revenue at the Industrial Processing segment decreased 15%, with organic revenue down 13%, primarily driven by reduced demand for capital equipment products at both the wood processing and fiber processing businesses.

Revenue at the Material Handling segment increased 1%, led by higher demand for parts and consumables at the baling business, partially offset by a decrease in capital equipment revenue at the conveying and vibratory business.

Gross Profit Margin Consolidated gross profit margin increased to 46.1% in the first quarter of 2025 from 44.6% in the prior year period. This was due to an increase in the proportion of higher-margin parts and consumables revenue, as well as a decrease in amortization expense related to acquired profit in inventory.

Within the segments, gross profit margin:

• Decreased to 53.3% at Flow Control due to lower margins on capital equipment products, partially offset by higher parts and consumables revenue.
• Increased to 44.1% at Industrial Processing due to the decrease in amortization expense and higher parts and consumables revenue.
• Increased to 37.7% at Material Handling due to the decrease in amortization expense and higher margins on capital equipment.

Kadant anticipates its consolidated gross margins will be negatively impacted by $5-$6 million in incremental material costs associated with tariffs in 2025, primarily in the second and third quarters.

Selling, General & Administrative (SG&A) Expenses Consolidated SG&A expenses as a percentage of revenue increased to 29.8% in 2025 from 28.2% in 2024, primarily due to the decrease in revenue. SG&A expenses increased 1% overall, driven by the inclusion of expenses from recent acquisitions, partially offset by a favorable foreign currency impact and lower acquisition-related costs.

Net Income Net income decreased to $24.4 million in the first quarter of 2025 from $25.0 million in the prior year period, primarily due to a $1.3 million decrease in operating income, partially offset by a $0.8 million decrease in interest expense.

Non-GAAP Performance Measures

Kadant uses several non-GAAP financial measures to provide investors with additional information about its performance, including:

• Organic revenue: Excludes the effect of acquisitions and foreign currency translation. Organic revenue decreased 5% in Q1 2025.
• Adjusted operating income: Excludes amortization of acquired profit in inventory, acquisition costs, and other one-time items. Adjusted operating income was $36.3 million in Q1 2025.
• Adjusted EBITDA: Earnings before interest, taxes, depreciation and amortization, adjusted for the same items as adjusted operating income. Adjusted EBITDA was $47.9 million in Q1 2025, with an adjusted EBITDA margin of 20.0%.
• Free cash flow: Cash flow from operations less capital expenditures. Free cash flow was $19.0 million in Q1 2025.

The company believes these non-GAAP measures provide meaningful supplemental information about its performance that is consistent with how management measures and forecasts the business.

Liquidity and Capital Resources

Kadant had $91.7 million in cash and cash equivalents as of March 29, 2025, including $76.9 million held by foreign subsidiaries. The company generated $22.8 million in cash from operating activities in the first quarter of 2025, consistent with the prior year period.

Cash used in investing activities was $3.8 million, primarily for capital expenditures. Cash used in financing activities was $23.1 million, including $8.0 million in borrowings under the revolving credit facility, $22.6 million in repayments of short- and long-term obligations, and $3.8 million in dividend payments.

Kadant’s unsecured multi-currency revolving credit facility has a total borrowing capacity of $400 million and matures in November 2027. As of March 29, 2025, the company had $267.0 million outstanding under the facility and $133.1 million of available borrowing capacity.

The company plans capital expenditures of $20-$22 million for the remainder of 2025. Management believes existing cash, future cash from operations, and available borrowing capacity will be sufficient to meet the company’s capital requirements for the next 12 months and the foreseeable future.

Risks and Outlook

Kadant’s business continues to be impacted by the complex market conditions driven by tariff-related uncertainty, inflationary pressures, geopolitical tensions, and labor availability. The company expects its operating environment to remain challenging, creating continued uncertainty for the remainder of 2025.

However, the company believes the fundamentals of its business remain strong, given its solid market position, global operations, and the long-term strength of its end markets. Kadant is focused on mitigating the impact of tariffs through pricing and sourcing strategies, though it cannot be certain these will fully offset the incremental costs.

Overall, Kadant expects stronger capital bookings in 2025 compared to 2024, especially in the Industrial Processing segment. The company also anticipates steady demand for its aftermarket products to continue. While the timing of capital orders remains uncertain due to the tariff situation, Kadant believes its diverse product portfolio and global footprint position it well to navigate the current market environment and capitalize on long-term growth opportunities.