ESCO Technologies Inc. Q4 FY2025 earnings call

Management Statement and Operational Highlights

• FY 2025 was strong with Q4 including strong maritime performance, 8% organic sales growth, and adjusted EBIT margin expanding 100 basis points.
• Acquisition of maritime and divestiture of VACCO were transformative, expanding presence in navy market. Aerospace and defense has positive outlook for aircraft and navy markets.
• Utility Solutions Group had record orders but muted sales growth due to renewables headwinds. Test business had 10% revenue growth and high teens EBIT margin.
• 2025 was a record year with over $1.5B in orders, 19% sales growth, and adjusted earnings per share up 30%.

Segment Performance

• Aerospace and Defense: Q4 orders grew 60% reported and 12% organic, with sales at over $170M (72% reported growth, 13% organic). Adjusted EBIT margin was 28.6%, slightly down from prior year due to Maritime acquisition. Full year orders exceeded $1.5B, sales up 19%, and adjusted EBIT margin improved.
• Utility Solutions Group: Orders grew 17%, but sales growth was muted at 2% (Doble up 7%, NRG down 20%). Adjusted EBIT margin was 29.1%, improved due to price increases, favorable mix, and cost containment.
• Test Business: Orders grew 6%, sales up 10%, with adjusted EBIT margin at 17.5%, down from prior year due to unfavorable mix and inflation.

Guidance

• Reported sales growth expected 16%-20% in 2026.
• A&D organic growth projected at 6%-8%, with maritime revenue $230M-$245M.
• Utility Group growth expected 4%-6% (Doble 6%-8%, NRG down), Test business growth 3%-5%.
• Adjusted EBIT and EBITDA margins expected to improve, with adjusted EPS ranging from $7.50 to $7.80.

Risks

• Renewables market challenges impacting utility solutions group's sales growth.
• Uncertainties in regulatory approvals and market conditions affecting segment growth and margin trends.

Q: Could you please give context on how we should think about growth rates and margin trends at the segment level going forward?

A: Core A&D business expected to grow 6%-8% on a core basis, with maritime addition. Doble expected to grow 6%-8%, Test business 3%-5%. Margins expected to improve across all segments.

Q: Can you please give an update on the integration of SMNP?

A: Integration is on plan, maybe a bit ahead of plan. Maritime business is ahead of originally communicated plan.

Q: What programs were the $200 million maritime orders associated with? And any headwinds from aerospace shutdowns?

A: $200 million+ orders were UK submarine-related. No significant impact from shutdowns on aircraft manufacturing/MRO. Aerospace growth assumptions are based on build rate increases for platforms like 787, 737, and military content.

Q: Any thoughts on capital allocation from here?

A: Active in M&A space, looking for businesses fitting aerospace, navy, or utility end markets. Focused on durable, long-term secular growth markets.