Industrial equipment manufacturer Kadant (NYSE: KAI) reported revenue ahead of Wall Street’s expectations in Q4 CY2025, with sales up 10.9% year on year to $286.2 million. Guidance for next quarter’s revenue was better than expected at $275 million at the midpoint, 1% above analysts’ estimates. Its non-GAAP profit of $2.27 per share was 3.5% above analysts’ consensus estimates.

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Management Commentary“The fourth quarter was a solid finish to the year,” said Jeffrey L. Powell, president and chief executive officer of Kadant Inc.

Company Overview

Headquartered in Massachusetts, Kadant (NYSE: KAI) is a global supplier of high-value, critical components and engineered systems used in process industries worldwide.

Revenue Growth

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Thankfully, Kadant’s 10.6% annualized revenue growth over the last five years was impressive. Its growth beat the average industrials company and shows its offerings resonate with customers.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Kadant’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 4.8% over the last two years was well below its five-year trend.

We can better understand the company’s revenue dynamics by analyzing its three most important segments: Fluid Handling, Industrial Processing, and Material Handling, which are 34.8%, 41.1%, and 24.1% of revenue. Over the last two years, Kadant’s Fluid Handling (piping, cleaning, and filtration) and Material Handling (wood production equipment) revenues averaged 4.3% and 11.1% year-on-year growth while its Industrial Processing revenue (paper and timber processing equipment) was flat.

This quarter, Kadant reported year-on-year revenue growth of 10.9%, and its $286.2 million of revenue exceeded Wall Street’s estimates by 4.3%. Company management is currently guiding for a 15% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 10.2% over the next 12 months, an improvement versus the last two years. This projection is noteworthy and implies its newer products and services will catalyze better top-line performance.

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Operating Margin

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Kadant’s operating margin might fluctuated slightly over the last 12 months but has generally stayed the same, averaging 16.5% over the last five years. This profitability was elite for an industrials business thanks to its efficient cost structure and economies of scale. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Kadant’s operating margin might fluctuated slightly but has generally stayed the same over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q4, Kadant generated an operating margin profit margin of 13.9%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Kadant’s EPS grew at a remarkable 13.1% compounded annual growth rate over the last five years, higher than its 10.6% annualized revenue growth. However, we take this with a grain of salt because its operating margin didn’t improve and it didn’t repurchase its shares, meaning the delta came from reduced interest expenses or taxes.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

Kadant’s two-year annual EPS declines of 3.9% were bad and lower than its 4.8% two-year revenue growth.

Diving into the nuances of Kadant’s earnings can give us a better understanding of its performance. While we mentioned earlier that Kadant’s operating margin was flat this quarter, a two-year view shows its margin has declined. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q4, Kadant reported adjusted EPS of $2.27, up from $2.25 in the same quarter last year. This print beat analysts’ estimates by 3.5%. Over the next 12 months, Wall Street expects Kadant’s full-year EPS of $9.27 to grow 10%.

Key Takeaways from Kadant’s Q4 Results

We were impressed by how significantly Kadant blew past analysts’ EBITDA expectations this quarter. We were also excited its revenue outperformed Wall Street’s estimates by a wide margin. On the other hand, its EPS guidance for next quarter missed. Zooming out, we think this was a good print with some key areas of upside. The stock remained flat at $320.03 immediately after reporting.

Is Kadant an attractive investment opportunity right now? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here (it’s free).