Compaction of sintered metal powders by free upsetting at room temperature dangerously reduces their plastic properties, particularly the fracture toughness. The reason for the occurrence of two unfavorable phenomena accompanying this deformation route is sought. The first phenomenon depends on the initial porosity of the preform and the amount of cold work resulting in the destruction of bonds and violation of continuity between sintered powder particles. The second phenomenon is the deformation of the metal matrix, which reduces the plasticity of the sintered product. To correctly assess the effect of changes occurring in the matrix as a result of deformation, it is necessary to use the properly defined sintered matrix hardening parameter discussed in this study. The adverse effects of cold forming can be eliminated by annealing the deformed sinters at a temperature below the sintering point and above the recrystallization temperature. The annealing temperature causes favorable changes in the structure and increases the impact resistance of the deformed sinters depending on the degree of deformation of the sintered matrix and the initial porosity of the preform. Annealing at a properly selected temperature restores the ductility of the metal matrix and improves the integrity of the sintered material impaired by the effect of deformation. Annealing also causes favorable changes in the porosity morphology, removing defects in the form of gaps and resulting in the spheroidization of voids. With an appropriately selected initial porosity and degree of deformation, subsequent annealing of sinters compacted by free cold upsetting provides products with strength properties comparable to sinters with the same density and subjected to single compaction and sintering but with considerably higher fracture toughness.