EnPro Industries, Inc. Q1 FY2026 earnings call

• Recognized 4,000 colleagues contributing to EnPro's success. - EnPro is off to a strong start in the second year of EnPro 3.0. - AST saw positive trends with order patterns accelerating, built inventory in Q1. - Ceiling technologies' segment revenue driven by acquisitions, etc., and integration of Alpha and Overlook going well. - Fueling technology segment expected to deliver best - in - class performance.

Advanced Surface Technology (AST): Sales up over 11% year - over - year in Q1. Adjusted segment EBITDA increased 18.5% versus prior year period, and adjusted segment EBITDA margin expanded 140 basis points to 23.3%. Ceiling Technologies: Segment revenue was 10.8% primarily driven by first full quarter contribution from acquisitions of Alpha and Overlook, recovery in nuclear solution sales and currency tailwinds. Sealing technologies marked segment profitability remained strong at 32.5%.

• Raised total 2026 sales growth outlook to 10 - 14% range from 8 - 12%. - Adjusted EBITDA expected in range of 315 million to 330 million, up from 305 million to 320 million previously. - Adjusted diluted earnings per share to range from $8.85 to $9.50, up from $8.50 to $9.20. - Ceiling technologies expected mid - single - digit revenue growth excluding Alpha and Overlook contribution. - AST expected mid - teens revenue growth with segment profitability improving to close to 25% run rate by end of 2026.

• Statements on call include forward - looking statements involving risks and uncertainties, including those described in SEC filings.

Q: Obviously, just really nice margin progression sequentially for AST markets. Could you help us just unpack a little bit how that inventory investment helped margins in AST? And then separately, just could you help us understand the margin trajectory kind of through the balance of the year? Is it kind of a linear progression to that 25% you talked about?

A: Yeah, thanks, Mitch. As you noted, we did see progression from the low 20s to 23 and change for the first quarter. The inventory build, which is really important as we head into significant demand in the second quarter and more specifically for the back half of the year, contributed about 150 basis points to the margin increase in the first quarter. We also saw precision cleaning continue to be very strong, tied to advanced node precision cleaning work, both in Taiwan and the U.S., which helped margins And we're also seeing a little bit of leverage on the revenue growth. We expect to continue to build inventory a little bit in the second quarter. It might be a little bit less than we had in the first quarter. And revenue increasing to offset any lower inventory build potentially in the second quarter. So margins relatively similar in the second quarter. And then seeing incrementally throughout the second half pointing towards that roughly 25% run rate that we expect to exit the year at.

Q: Maybe just to ceiling, I think orders were up double digits in the quarter. Could you just expand on the order activity you saw there, where you're seeing it, if it's concentrated or more broad - based? And then if you could just talk a little bit about Your confidence and ceiling kind of picking up through the remainder of the year with a little bit slower start here.

A: Very confident ceiling picking up throughout the year order rate is very strong I'm actually in the first quarter and building throughout the quarter. So very positive on the year Not many concerns. They're very strong in North America space aerospace in general and General industrial in the U.S. is still pretty strong. The only areas of weakness really is general industrial in a little bit in Europe and a little bit in Asia, but it still doesn't have any meaningful impact to our overall results.

Q: Morning, everyone. Appreciate the detail on the presentation. Eric, you know, I understand commercial vehicles still being weak. Obviously, we've seen three or four months of much stronger Class A truck orders, obviously coming off of a significant trough. When would you start seeing that? And is that built in at all? The CV comes back at all in the second half?

A: It's not built into our projections at all, as we said in the script. Although I am cautiously optimistic that it does start to pick up at the second half of the year. Keep in mind, the reason for the acceleration in truck orders is really to avoid the extra cost of pollution enhancements in the trucks. And so right now, people are prioritizing trucks versus trailers. But that demand will normalize over time to roughly, if you look over a 20 - year cycle, 70 or 180 now. So I expect, you know, next cycle, at the end of this year, beginning of next year, somewhere in that time frame, you'll start to see some momentum build. I mean, the ratio between trucks and trailers really doesn't change much. You'd expect to have about 1.1 trailers per truck. So you would expect that to come back. And aftermarket business remains very strong.

Q: How are you feeling about the two acquisitions now with a quarter under your belt? I know that with Overlook, they had made some pretty significant capacity additions prior to the acquisition. In terms of those two businesses, do they require significant investments to grow moving forward, or how do you feel about them?

A: Very, very strong. Very excited about them going forward. They don't require significant investments. Overlook had made a pretty significant investment and moved into a new building or did move into a new building in the first quarter. But that was already ongoing before we closed down the business. So really, it was just a move at this point. And so most of that was already done. And their backlog and their performance is really impressive. Alpha continues to go well. And so we're still excited about those businesses going forward. I'll just add, Eric, that the integrations are going well. I think the teams are joining our functional support. We're helping where we can there. We're already seeing some supply chain opportunities. In addition, we're making some smaller investments, but investments in their commercial organizations to help expand growth opportunities and enter a few new markets and new customers. We expect that's an area that we can add value and help them grow over time.

Q: I think you mentioned in the script that AMI, since the acquisition was 2024, I believe, continues to outperform. In general, how are you thinking about that compositional analysis market?

A: We love the space. We just would like to do more. And we continue to have a very active pipeline and continue to look for the right opportunities to meet all of our criteria. that are exciting and there's several opportunities on a pipeline exciting and more and more opportunities seem like they're coming to market now. So there's more momentum in that space. And overall, if you take into consideration the compositional analysis growth perspective, we're looking for a kind of minimum high single digit organic top line growth moving forward with incremental investments to expand and market positions and commercial expertise.

Q: Just if I get one more in, in terms of where you are with the various qualifying processes to meet advanced node production, is there a lot more to go there?

A: I don't think it ever stops. So, let me start by saying that. So, no, Arizona is getting fully qualified now. I don't know how much longer. It shouldn't be long at all. But at the same time, there's new investments in Taiwan that are just starting. There's new customers that are starting as well. So I don't think it ever ends, you know, where two nanometers is going to start to ramp at some point next little bit, and then you're already trying to qualify 1.4. So it stops. I think of that as continued investment.

Q: Hey, good morning. This is Isaac Salazan on for Ian. Thanks for taking the questions. Just on the updated guidance, if you could unpack a little bit more. on what has changed with regards to the outlook for the AST business. Maybe if you could parse out the demand drivers between cleaning, coating, and the semi - cap side, it sounds like visibility is a bit better in capital equipment.

A: Yeah, good morning, Isaac. Yeah, we're clearly seeing increased order momentum and longer lead times and demand is inflecting significantly sooner and higher than we expected coming into the year from an AST's perspective. And it's coming from both. It's coming from precision cleaning and semiconductor capital equipment in really all geographies. So our increased guidance is pretty much all driven by AST. Our teams are rallying around meeting the higher demand, working with our customers and the entire supply chain and all of our partners to kind of meet the overall industry demand. The outlook is really bright for the rest of the year. The second half is firming up where when we had the call in February, we talked about we saw orders for the second half and really starting in the end of the second quarter. Well, the second quarter is filling in nicely. We're seeing some of that demand increase. you know, come a little sooner into the second quarter. And the second half is clearly going to be significantly increased over the first half in the magnitude of, you know, double digits increase second half versus the first half. You know, and the industry is all talking about, you know, rallying to meet this higher demand and out through the end of 26 and really into 27. So there's tremendous optimism. and we expect to participate and even outperform what the market expects.

Q: And then just as a follow - up, you know, on the margin outlook for both businesses, obviously it sounds like you guys are managing any kind of inflationary pressures just fine, but is there anything to call out maybe on the cost side with regards to whether it's fuel or equipment? But, yeah, that would be helpful.

A: No, there really isn't anything that's going to be meaningful from the supply side or cost side. Life is good. We do a very good job in managing that in general.