ESCO Technologies Q3 Earnings Call Highlights

Sales rose 14% year over year, adjusted EPS increased 37.5% to $2.20, and adjusted EBIT margin expanded to 22%. Record backlog reached $1.54 billion, supported by a 1.21 book-to-bill ratio. Aerospace, defense and test demand remained robust: Aerospace & Defense sales grew 23%, while test orders surged 42% on industrial shielding and EMI-filter demand. Utility Solutions orders also rose 20%, led by a 30% increase at Doble, though weaker renewable markets pressured NRG. ESCO raised fiscal 2026 adjusted EPS guidance to $8.30–$8.40, representing 38%–39% growth. The company still expects to close its Megger acquisition in the first quarter of fiscal 2027, pending regulatory approvals.

ESCO Technologies NYSE: ESE reported third-quarter fiscal 2026 results marked by organic sales growth, higher profitability and record backlog, as demand remained strong across its aerospace and defense, utility solutions and test businesses. The company posted a consolidated book-to-bill ratio of 1.21 during the quarter, with each operating segment exceeding 1.0. Backlog reached a record $1.54 billion, including a $1.1 billion backlog in Aerospace & Defense. Reported sales increased 14% from a year earlier, including 8% organic growth and $23 million of incremental sales from the Maritime acquisition. Adjusted EBIT margin rose 90 basis points to 22%, while adjusted earnings per share increased 37.5% to $2.20. Operating cash flow for the first nine months of the fiscal year totaled more than $193 million, up from $88 million in the prior-year period, aided by increased advance payments on large Navy contracts.

Aerospace & Defense sales rose 23% to $168 million, including 9% organic growth. Chris Tucker, ESCO’s senior vice president and CFO, said organic growth reflected 10% increases in both commercial aerospace and defense activity and the Navy business. The segment’s adjusted EBIT margin increased 120 basis points to 30%, supported by sales leverage and pricing. Its book-to-bill ratio was 1.16, with particular strength in aircraft components. President and CEO Bryan Sayler said the commercial aerospace outlook remains supported by a global aircraft backlog of approximately 18,000 aircraft, alongside estimated unmet demand for another 5,000 aircraft. He also cited increased emphasis on defense spending, security and supply-chain resilience among aerospace customers. On naval markets, Sayler pointed to a recent Navy award to prime contractors for the remaining nine Block VI Virginia-class submarines and the next five Columbia-class submarines. ESCO is already under contract with prime contractors for its related content, he said, adding that the action increased management’s confidence in the long-term outlook for submarine programs. During the question-and-answer session, Sayler said defense growth was being driven principally by programs of record, particularly submarine programs. The company’s aftermarket business continues to expand at roughly the same rate as the broader business and represents about 30% of that business, he said.

Utility Solutions Group orders increased 20% in the third quarter, driven by a 30% increase at Doble. Sales for the segment rose 8%, as Doble sales climbed 17% on demand across product lines serving regulated utility customers. Sayler said utilities are investing in maintenance, diagnostics, reliability and commissioning tools as power demand rises and grids expand to support data centers, electric vehicles, industrial electrification, heat pumps and other sources of load gr...