We created the keytab file and imported that into the existing krb5.keytab file using ktutil. I can see that now, klist -k shows a "host" principle entry for this computer which was missing earlier.
Also initialized the new keytab file using "kinit -k -t /etc/krb5.keytab host/hostname.X.Y.local". I can see the service principal update after this step in klist.
But authentication using my AD account still fails with the following in logs:
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [sbus_dispatch] (0x4000): dbus conn: 0x1666a60
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [sbus_dispatch] (0x4000): Dispatching.
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [sbus_message_handler] (0x2000): Received SBUS method org.freedesktop.sssd.dataprovider.getAccountInfo on path /org/freedesktop/sssd/dataprovider
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [sbus_get_sender_id_send] (0x2000): Not a sysbus message, quit
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [be_get_account_info] (0x0200): Got request for [0x1001][FAST BE_REQ_USER][1][name=firstname.lastname]
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [be_req_set_domain] (0x0400): Changing request domain from [X.Y.local] to [X.Y.local]
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [sdap_id_op_connect_step] (0x4000): reusing cached connection
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [sdap_search_user_next_base] (0x0400): Searching for users with base [dc=X,dc=Y,dc=local]
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [sdap_print_server] (0x2000): Searching xxx.xxx.xxx.xxx
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [sdap_get_generic_ext_step] (0x0400): calling ldap_search_ext with [(&(sAMAccountName=firstname.lastname)(objectclass=user)(sAMAccountName=*)(&(uidNumber=*)(!(uidNumber=0))))][dc=X,dc=Y,dc=local].
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [sdap_get_generic_ext_step] (0x1000): Requesting attrs: [objectClass]
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [sdap_get_generic_ext_step] (0x1000): Requesting attrs: [sAMAccountName]
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [sdap_get_generic_ext_step] (0x1000): Requesting attrs: [unixUserPassword]
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [sdap_get_generic_ext_step] (0x1000): Requesting attrs: [uidNumber]
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [sdap_get_generic_ext_step] (0x1000): Requesting attrs: [gidNumber]
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [sdap_get_generic_ext_step] (0x1000): Requesting attrs: [gecos]
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [sdap_get_generic_ext_step] (0x1000): Requesting attrs: [unixHomeDirectory]
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [sdap_get_generic_ext_step] (0x1000): Requesting attrs: [loginShell]
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [sdap_get_generic_ext_step] (0x1000): Requesting attrs: [userPrincipalName]
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [sdap_get_generic_ext_step] (0x1000): Requesting attrs: [name]
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [sdap_get_generic_ext_step] (0x1000): Requesting attrs: [memberOf]
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [sdap_get_generic_ext_step] (0x1000): Requesting attrs: [objectGUID]
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [sdap_get_generic_ext_step] (0x1000): Requesting attrs: [objectSID]
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [sdap_get_generic_ext_step] (0x1000): Requesting attrs: [primaryGroupID]
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [sdap_get_generic_ext_step] (0x1000): Requesting attrs: [whenChanged]
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [sdap_get_generic_ext_step] (0x1000): Requesting attrs: [uSNChanged]
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [sdap_get_generic_ext_step] (0x1000): Requesting attrs: [accountExpires]
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [sdap_get_generic_ext_step] (0x1000): Requesting attrs: [userAccountControl]
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [sdap_get_generic_ext_step] (0x2000): ldap_search_ext called, msgid = 17
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [sdap_op_add] (0x2000): New operation 17 timeout 6
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [sdap_process_result] (0x2000): Trace: sh[0x166d2a0], connected[1], ops[0x1667a50], ldap[0x1637f20]
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [sdap_process_message] (0x4000): Message type: [LDAP_RES_SEARCH_REFERENCE]
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [sdap_process_result] (0x2000): Trace: sh[0x166d2a0], connected[1], ops[0x1667a50], ldap[0x1637f20]
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [sdap_process_message] (0x4000): Message type: [LDAP_RES_SEARCH_RESULT]
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [sdap_get_generic_op_finished] (0x0400): Search result: Success(0), no errmsg set
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [sdap_op_destructor] (0x2000): Operation 17 finished
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [generic_ext_search_handler] (0x4000): Request included referrals which were ignored.
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [sdap_search_user_process] (0x0400): Search for users, returned 0 results.(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [sdap_get_users_done] (0x0040): Failed to retrieve users(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [sdap_id_op_done] (0x4000): releasing operation connection
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [ldb] (0x4000): Added timed event "ltdb_callback": 0x1692df0
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [ldb] (0x4000): Added timed event "ltdb_timeout": 0x1692120
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [ldb] (0x4000): Running timer event 0x1692df0 "ltdb_callback"
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [ldb] (0x4000): Destroying timer event 0x1692120 "ltdb_timeout"
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [ldb] (0x4000): Ending timer event 0x1692df0 "ltdb_callback"
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [sysdb_search_by_name] (0x0400): No such entry
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [sysdb_search_groups] (0x2000): Search groups with filter: (&(objectclass=group)(ghost=firstname.lastname))
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [ldb] (0x4000): Added timed event "ltdb_callback": 0x1691210
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [ldb] (0x4000): Added timed event "ltdb_timeout": 0x167da00
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [ldb] (0x4000): Running timer event 0x1691210 "ltdb_callback"
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [ldb] (0x4000): Destroying timer event 0x167da00 "ltdb_timeout"
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [ldb] (0x4000): Ending timer event 0x1691210 "ltdb_callback"
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [sysdb_search_groups] (0x2000): No such entry
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [sysdb_delete_user] (0x0400): Error: 2 (No such file or directory)
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [acctinfo_callback] (0x0100): Request processed. Returned 0,0,Success
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [sdap_process_result] (0x2000): Trace: sh[0x166d2a0], connected[1], ops[(nil)], ldap[0x1637f20]
(Tue Feb 14 16:10:56 2017) [sssd[be[X.Y.local]]] [sdap_process_result] (0x2000): Trace: ldap_result found nothing!