Kadant Posts Record Q3 as Aftermarket Strength Lifts Outlook

Kadant (NYSE: KAI) grew third-quarter revenue 15% year over year to $313.2 million and raised its full-year adjusted earnings guidance, as record aftermarket parts sales offset a sluggish market for large capital equipment projects. Adjusted earnings per share climbed 21% to a record $3.64, exceeding the high end of the company's own guidance by $0.64. GAAP earnings per share rose 26% to $2.96.

For finance teams tracking industrial suppliers, the shape of this quarter matters as much as its size. Organic revenue advanced 4%, meaning acquisitions supplied most of the headline growth, while bookings (new orders received) jumped 23% across the company's three operating segments. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) increased 24% to $71.7 million, with margin expanding to 22.9% from 21.4% a year earlier.

What drove the earnings beat?

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

Aftermarket parts (replacement components for installed machines) generated a record $218.4 million of revenue. Chief Executive Officer Jeff Powell said the parts business set a revenue record for the third consecutive quarter, driven partly by customers running older equipment after years of underinvestment, even with operating rates remaining relatively soft.

"They're going to have to start to make some investments," Powell said, noting that some customers are beginning to plan for reinvestment. That comment signals a potential future capital spending cycle — the revenue pool Kadant currently cannot fully access.

How did each segment perform?

• Flow Control: Revenue rose 8% year over year on 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: Revenue reached $143 million with $123 million in bookings. Acquisitions and 12% organic bookings growth supported new orders; adjusted EBITDA came in at $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% on lower capital shipments, and the adjusted EBITDA margin declined to 22.1%.

Why is capital project timing still uncertain?

Powell said capital equipment demand had strengthened and the project pipeline was growing, but political uncertainty and economic pressures continue to lengthen the gap between customer inquiries and actual orders. Some projects could slip into 2027. Larger Industrial Processing projects, typically $5 million to $25 million each, are taking longer than usual to convert into orders — though some customers, particularly in fiber processing, have begun discussing investment in facilities retained after consolidation.

Investment activity runs stronger in newer markets. Powell said Kadant booked an approximately $8 million aerospace order and won several million dollars of new factory automation business this year across defense, aerospace and automation verticals.

McKenney reported a backlog (ordered but not yet delivered work) of $316 million at quarter end, split between $167 million in capital equipment and $149 million in parts and consumables. That mix tells practitioners revenue visibility on parts remains steady, while capital timing stays the swing factor.

What changed in guidance and the balance sheet?

Kadant raised the lower end of its 2026 revenue guidance to $1.195 billion, keeping the upper end at $1.210 billion. It lifted the adjusted earnings forecast to $12.58 to $12.73 per share, from $12.43 to $12.68 previously. For the fourth quarter, management guided to revenue of $287 million to $302 million and adjusted earnings of $2.67 to $2.82 per share.

Cash generation set records. Operating cash flow reached $62.9 million and free cash flow $58.1 million, both all-time highs. Kadant repaid $51 million of debt during the quarter, cutting net debt by 15% sequentially to $316.6 million — roughly one year of adjusted EBITDA at the current run rate.

Executives said integration of the Kadant Profil acquisition is progressing well. McKenney expects 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 confirmed his planned transition to executive chairman, with Michael Colwell becoming CEO at the beginning of the year. Powell said he will remain engaged with the leadership team and continue as an employee through 2027.

Kadant supplies technologies and equipment for the pulp and paper, recycling, and industrial processing industries, including stock preparation, paper-machine cleaning, filtration, water management, fluid-handling and material-handling systems.