In the fourth quarter of fiscal 2026 (ended June 30, 2026), Kennametal capped a fourth consecutive quarter of organic growth with a 42% organic sales increase and record profitability, as adjusted EBITDA and operating margins reached 46.8% and 41.5% and adjusted EPS hit a record $2.96 versus $0.34 a year earlier. The quarter and full year were dominated by a massive $252 million favorable price-versus-raw-material timing benefit from the unprecedented rise in tungsten prices, concentrated in Infrastructure; for full-year fiscal 2026, organic sales rose 19%, adjusted EPS jumped to $4.57 from $1.34, and all end markets grew. Management strengthened the balance sheet by extending debt maturities and adding a $500 million term loan, but free operating cash flow was negative $79 million for the year as tungsten-driven working capital consumed cash. The initial fiscal 2027 outlook (sales of $3.33-$3.45 billion and adjusted EPS of $4.15-$5.15, midpoint $4.65) is roughly flat at the headline as the price-raw timing tailwind fades and interest and Bolivia FX headwinds build, even as the underlying earnings engine strengthens.
Thank you, operator. Welcome everyone, and thank you for joining us to review Kennametal's fourth quarter and 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 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. Reconciliations to GAAP financial measures that we believe are most directly comparable can be found on the back of the slide deck and on our Form 8-K on our website. 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 a brief review of the fiscal year, followed by an aerospace product spotlight and some end market commentary supporting our fiscal 2027 outlook. Pat will cover the quarterly financial results as well as the fiscal 2027 outlook. Finally, I'll make summary comments and then open the line for questions. Beginning on slide three for an overview of our strong fiscal year results. Throughout fiscal 2026, we continued to win new business and expand our share of wallet with key customers across diverse end markets like aerospace and defense, energy, transportation, and earthworks. Our success reflects the strength of our core competencies, which includes material science and process technology, application engineering, and a secure global supply chain. This combination of expertise, innovation, and global operations is a strong competitive advantage for us.
For the last several years, we have used a systematic approach to our growth initiatives, which includes identifying the most attractive opportunities and allocating the resources needed to capitalize on them. An important aspect of this approach is that it is repeatable and sustainable. I will cover an aerospace and defense example of this in a moment. We broadened our growth platforms this year through wins tied to AI-powered data centers, defense programs, mining projects, and next-generation vehicle powertrains. At the same time, we also advanced new digital machining solutions that enhance customer productivity. In addition to the growth we saw from our own strategic initiatives, we experienced improvements in several of our end markets. The key external market factors we track all have improved, including IPI, PMI, light vehicle production, and aircraft build rates. At the same time, rig counts stabilized during the year.
The final component of sales growth is price, driven by higher tungsten costs. Tungsten outside of China has now stabilized but remains at historically high levels. We implemented several pricing actions in response to this environment. As you have heard us say previously, we are committed to offsetting the impact that this additional cost is having on the business. Finally, we realized $27 million in restructuring savings this year and remain committed to $110 million of savings by the end of fiscal 2027. Let's move to our full year results. Full year organic sales increased 19% year-over-year, driven by additional price realization and modest volume. From an end market perspective for fiscal 2026, all end markets experienced growth on a constant currency basis. For the full year, adjusted EPS increased to $4.57 compared to $1.34 in the prior year.
Adjusted EBITDA margin was 26.9% compared to 15.2% in the prior year. As expected, free cash flow was adversely impacted by increased working capital requirements related to tungsten prices. Cash flow from operating activities was negative $4 million, and free operating cash flow was negative $79 million. Finally, we returned $71 million to shareholders, $61 million through dividends and $10 million through share repurchases. More details on our full year performance can be found on slide 18 in the appendix. Pat Watson will provide a detailed overview on the fourth quarter results in his prepared remarks. In summary, we are pleased with the way the team executed this year on growth, lean transformation, and cost out initiatives while also navigating this unique and unprecedented business environment. Before I provide an update on end market, I want to call your attention to slide four.
This highlights our metal cutting solution to address machining challenges aerospace customers have with carbon fiber reinforced plastics, or CFRP. This is one of the most exciting growth stories in our portfolio. CFRP is an extremely strong, rigid, and lightweight composite material that is difficult to machine. Due to its high strength to weight ratio, it is widely used in aerospace and automotive manufacturing, where fuel efficiency is a key focus. We are competing in a roughly $500 million market for cutting tools used on carbon fiber composites in aerospace. This market is expected to grow 9% a year through 2028, one of the fastest growing material groups we serve. Aerospace demand for lightweight composites remains strong. What makes this market especially attractive is the economics. Consumption for diamond coating cutting tools for CFRP is almost double that of cutting tools for aluminum. These can't be easily reconditioned.
Once they are consumed, customers come back for a replacement. That provides us a durable recurring revenue base. How we win here is again tied to our core competencies as we are leveraging our engineering and materials science expertise. We design innovative solutions using standard and custom tooling with proprietary geometry and material science. These deliver longer tool life and cleaner cuts. We pair that product advantage with deep channel relationships and a well-trained sales and application engineering team. This expands our reach and helps customers solve their manufacturing challenges. Let me give you an example. A customer recently faced a supply disruption from a competitor. Our team quickly stepped in, delivered a superior product and guaranteed supply, and we won that business outright. This is only one example of growth opportunities driving performance in aerospace.
Since composites are also used in applications across the transportation and general engineering end markets, we are excited about the prospects of leveraging our expertise to serve this growing application. We will apply the same disciplined, repeatable process I discussed earlier to this growth opportunity. This process helps us identify the most attractive opportunities, move resources quickly, and drive growth and share gains while leveraging our global supply chain to deliver innovative solutions on time and to specification. Turning to slide five. I want to frame the end market demand environment supporting our full year fiscal 2027 outlook. As a reminder, our full year outlook reflects forecast of specific market drivers and general market conditions. The top half of this slide reflects our sales outlook at the midpoint and includes price, volume, and market factors.
I will focus on the bottom half of the slide and the market conditions by end market. Aerospace and defense remains a structural growth engine. On the aerospace side, commercial OEM build rates continue to recover as supply chains normalize and production restrictions ease. In defense, we're seeing a proposed increase in the U.S. budget, coupled with NATO members planning to significantly raise spending. This provides a durable multi-year demand trajectory. Aerospace and defense also continues as a strategic growth initiatives for us. You might remember, at our last investor day, we talked about shifting resources from transportation to aerospace and defense in the Americas to grow our position in that market. That helped us drive share gains and new opportunities like the one I mentioned a few minutes ago.
Coupled with key wins on various defense opportunities, aerospace and defense is now projected to be our third largest end market. General engineering is stable. U.S. and European industrial production are both forecast up low single digits, and China has returned to modest expansion. Energy growth is anticipated to be strong. The U.S. land-based rig count has turned decisively. Prior estimates were a mid-single digit decline. Projections now forecast rig counts up high single digits. Customer sentiment has moved from cautious to improving, and combined with increased rig counts, supports a meaningful upward revision to this end market assumption. The trend in the market for AI data center power generation continues to experience rapid expansion, which provides further support for growth in this end market. There are some offsets we are monitoring. Transportation continues to be soft.
Global light vehicle production moved from up about a point in fiscal 2026 to down about a point in fiscal 2027, mainly in the Americas and Europe. In earthworks, mining share gains are partially offset by soft coal markets in the U.S. and China, though customers there are increasingly consolidating towards reliable suppliers like us. In road construction, we are assuming that normal seasonality and competitive pressures continue. Netting it out, our fiscal 2027 sales assumptions in constant currency and including price reflect broad-based growth across most end markets. We are confident that this market recovery is broad enough and the pricing environment firm enough to support our outlook and growth trajectory into fiscal 2027. Let me turn the call over to Pat, who will review the fourth quarter financial performance.
Thank you, Sanjay, and good morning, everyone. I will begin on slide six with a review of our fourth quarter operating results. Q4 was the fourth consecutive quarter of organic sales growth, with an organic sales increase of 42%. Our results for the quarter reflect strong price realization from our decisive pricing actions, driven by the unprecedented rise in tungsten costs and continued volume improvements in metal cutting. At the segment level, sales increased organically 22% in metal cutting and 74% in infrastructure. On a constant currency basis, Americas sales increased 60%, Asia Pacific increased 28%, and EMEA increased 24%. We experienced growth in all our end markets on a constant currency basis. Energy increased 101%, earthworks 76%, aerospace and defense 43%, general engineering 28%, and transportation 7%. I will provide more color when I review the segment results in a moment.
We achieved record-adjusted EBITDA and operating margins of 46.8% and 41.5%, respectively, versus 14.8% and 7.4% in the prior year quarter. The margin increase was driven by favorable timing of raw material pricing compared to costs of $252 million, non-raw material related pricing and tariff surcharges in metal cutting, higher sales and production volumes, and incremental year-over-year restructuring savings of approximately $5 million. These were partially offset by higher compensation costs, tariffs, and general inflation. Adjusted earnings per share was $2.96 in the quarter, a record high for the company, versus $0.34 in the prior year period. The main drivers of our EPS performance are highlighted on the bridge on Slide 7. The year-over-year effective operations this quarter was $2.55.
This reflects approximately $2.43 of favorable timing of raw material pricing compared to costs, non-raw material related pricing and tariff surcharges in metal cutting, higher sales and production volume, and incremental restructuring benefits $0.05 per share. These are partially offset by higher compensation costs, tariffs, and general inflation. A lower effective tax rate contributed a $0.09 benefit in the quarter, driven by geographic mix. The headwind of $0.07 in other is mainly driven by higher share count and slightly higher interest expense. You can also see $0.04 of transaction gains related to preferential Bolivia exchange rates. Currency and pension effects offset each other, and there is a $0.01 gain from the Inflation Reduction Act tax credit. Slides eight and nine detail the performance of our segments this quarter. Metal cutting sales grew 22% organically and 24% on a reported basis.
We outperformed the public peers again this quarter. That marks the fourth quarter in a row and extends a favorable trend that started four years ago. Regionally, on a constant currency basis, the Americas increased 29%, Asia Pacific increased 20%, and EMEA increased 16%. Looking at sales by end market on a constant currency basis, energy increased 36% this quarter. The growth was driven by price and continued AI data center project wins. Aerospace and defense grew 35% year-over-year as we capitalize on higher bill rates and accelerate share of wallet gains in tier suppliers in the Americas and EMEA. General engineering grew 25% year-over-year, driven by higher price realization and share gains in the indirect channel. For an example, in the Americas, we leveraged our strategic partnership with a large national distributor to expand our reach.
Lastly, transportation increased 7% year-over-year as higher price was partially offset by prior year project wins in Asia Pacific, including EV-related program activity. Metal cutting adjusted operating margin was 27.3% compared to 7.9% in the prior year, driven by favorable timing of raw material-related pricing compared to costs of $54 million, non-raw material pricing and tariff surcharges, higher sales and production volume, and restructuring savings of $4 million, partially offset by higher compensation costs and general inflation. Turn to slide nine for infrastructure. Organic sales grew by 74% year-over-year, with favorable foreign exchange of 1% and a favorable business day effect of 1%, partially offset by a divestiture effect of 3%. Regionally, on a constant currency basis, sales in the Americas increased 103%, EMEA grew 46%, and Asia Pacific grew 40%.
Looking at sales by end market on a constant currency basis, energy grew 135%, mainly driven by price in the Americas, partially offset by volume as we prioritized other end markets. Earthworks grew 76%, driven by price and higher volume in surface mining and construction from share gains due to availability of materials. Aerospace and defense grew 63%, driven by price and continued execution of our strategic initiatives in the Americas and EMEA. Lastly, general engineering grew 37% from price and volume growth in EMEA, partially offset by volume prioritization in the Americas. Adjusted operating margin increased to 58.4% compared to 6.8%, primarily due to favorable timing of raw material pricing compared to cost of $198 million, partially offset by lower sales and production volume, higher compensation costs and general inflation. Now, turning to slide 10 to review our free operating cash flow and balance sheet.
Free operating cash flow as a percent of adjusted net income was modestly better than we anticipated. Our full year free operating cash flow was negative $79 million compared to positive $121 million reported in the prior year. The change in free operating cash flow was primarily the result of increased working capital required by higher tungsten prices. Net capital expenditures was $75 million compared to $87 million in the prior year. In total, we returned $71 million to shareholders, $61 million through dividends, and $10 million from share repurchases. Our share repurchase program remained paused this quarter as a result of the higher tungsten pricing and corresponding working capital needs. During the quarter, we took actions to enhance liquidity, extend debt maturities to position the company to capture near-term growth opportunities.
These actions provide additional liquidity to support near-term tungsten-related working capital needs and preserve financial flexibility to respond to future market developments while maintaining balance sheet discipline. At quarter end, we had combined cash and revolver availability of approximately $926 million, which includes the additional $200 million available by exercising the accordion feature on our revolver. We were well within our financial covenants. Additionally, we had full availability of our new $500 million term loan. As is customary, this facility is a use-it-or-lose-it proposition. So we intend to fully draw the new term loan during the September quarter and pay down any revolver borrowings. Going forward, the term loan can be paid down within the three-year term, which gives us the flexibility to scale down the balance sheet if working capital needs decline.
With the refinancing of the 2028 notes, the remaining $91 million of outstanding notes were redeemed on July 1. We have meaningfully extended our debt maturity profile. Our nearest debt maturity is July 2029, and our public notes maturities are now extended to 2031 and 2036, respectively. The full balance sheet can be found on slide 22 in the appendix. Turning to slide 11 regarding our full year outlook. We are providing a range for both the full year and the first quarter, beginning with the full year. We expect FY 2027 sales to be between $3.33 billion and $3.45 billion, with volume ranging from 1%-4%, price and tariff surcharges ranging from approximately 40%-43%, and a neutral effect from foreign exchange. We have been successful and remain committed to achieving price. As Sanjay noted earlier in his remarks, most end market indicators maintain positive momentum into FY 2027.
At the midpoint of constant currency and including price, we expect all end markets to increase high double digits year-over-year. Our annual outlook also assumes that tungsten will remain stable at the current level. Additionally, we are assuming that there is no material effect on customer activity as a result of the conflict in the Middle East. Approximately $10 million of rollover savings from our previously announced restructuring initiative has been included. We expect interest expense of approximately $50 million due to the additional borrowings to fund working capital requirements and an effective tax rate of approximately 25%. We expect adjusted EPS in the range of $4.15-$5.15. On the cash side, the full year outlook for working capital expenditures is $85 million, and the outlook for primary working capital is 45% by fiscal year end.
Taken together, we expect free operating cash flow to be approximately 20% of adjusted net income, reflecting the working capital pressure from the rise in cost of tungsten. The bridge on slide 12 highlights the main drivers impacting EPS at the midpoint of our outlook. The bridge walks you from our FY 2026 adjusted EPS of $4.57 to the midpoint of our FY 2027 outlook of $4.65. Pretty flat on the surface. Underneath that roughly flat headline number, the core earnings engine of the business continues to strengthen. There's a lot going on underneath, so let me unpack it. Starting with the tailwinds. First, operations adds about $0.53. Favorability of raw material pricing compared to costs is positive $0.39 for the full year, with favorability occurring in the first half of the year, most significantly in the first quarter.
Higher sales and production volume as end markets continue to improve and we execute on the share gain initiatives, together with lower incentive compensation, approximately $0.18, and about $0.10 of restructuring savings, partially offset by higher raw material costs as tungsten remains at elevated levels and higher wages in general inflation. We also expect a $0.17 benefit from the IRA Advanced Manufacturing Credit. To the headwinds. Year-over-year, we will see a 23% Bolivia FX headwind as the Bolivian government has ended the preferential program. Higher interest expense is a $0.25 drag, reflecting our higher debt levels following the recent financing actions, and other items of about $0.08, primarily a higher share count of $0.07. Taxes and pension are $0.04 and $0.02 respectively. Net it all together, and we arrive at an FY 2027 midpoint of $4.65.
Thank you, Pat. Turning to slide 14. Let me take a moment to summarize. We delivered a solid fiscal 2026, driven by price and modest improvements in our 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 are well-positioned to continue to deliver on our commitments in fiscal 2027 and remain confident in our plan for long-term value creation for our shareholders. With that, operator, please open the line for questions.