POWELL INDUSTRIES INC Q2 FY2025 earnings call

• Second quarter marked solid performance with gross profit dollar growth of 33% on 9% revenue growth, resulting in record EPS of $3.81.
• Electric utility and commercial/industrial sectors are growing bright spots, with 48% and 16% growth respectively. New orders include large projects for an LNG facility and a mining project in Canada.
• Commercially launched new products: grounding switch for North American market, compact substation for battery energy storage projects, and low voltage switchgear for data centers.
• Completed capacity expansion at Houston electrical products facility, with manufacturing of new products starting in Q3 and revenue recognition to begin in remainder of 2025.
• End markets outlook positive: oil/gas, commercial/industrial (including data center), and electric utility sectors show continued strength.

In the second quarter, Powell Industries reported total revenue of $279 million, a 9% increase year-over-year. Gross profit grew by $21 million to $83 million, with a gross margin of 29.9%. The electric utility sector grew by 48% and the commercial and industrial sector by 16% compared to the prior year. The petrochemical and oil and gas sectors were lower by 13% and 3% respectively. These two sectors (electric utility and commercial/industrial) are becoming more meaningful contributors to total results, with new orders totaling $249 million, a 6% increase from the prior year.

• Anticipate margin rates for remainder of fiscal 2025 to align with first 6 months' levels, excluding project closeout impact.
• Capacity expansion at Houston facility will lead to small revenue contributions in 2025, with $20M-$40M accretive revenue expected in 2026.
• Positive outlook for end markets: LNG projects, commercial/industrial activity (including data center), and electric utility sector remain positive.

• Competition and competitive pressures.
• Sensitivity to general economic and industry conditions.
• International political and economic risks.
• Availability and price of raw materials.
• Potential project delays due to tariffs and steel costs.

Q: Jon Braatz from Kansas City Capital asked about LNG outlook and tariffs.

A: Brett Cope stated LNG activity is robust, though tariffs and steel costs are risks but generally positive outlook.

Q: John Franzreb from Sidoti & Company inquired about gross margins and capacity expansion.

A: Brett Cope discussed market demand and pricing, while Mike Metcalf explained margin benefits from closeouts and capacity expansion expected to have $20M-$40M accretive revenue in 2026.

Q: Chip Moore from ROTH Capital asked about cash, buyback, M&A, electric utility, data center, and tariffs.

A: Brett Cope talked about buyback discussions, M&A activity, positive utility growth, data center market progress, and efforts to mitigate tariff impacts.

Q: John Franzreb asked about data center run rate.

A: Mike Metcalf stated data center growth contributed to commercial and industrial sector, moving from 6% to mid-teens of total revenue with double-digit growth trajectory.