ESCO Technologies Inc. (ESE) Earnings & Analysis

Latest quarter

ESCO reported Q3 FY2026 revenue of $339.0 million, above the consensus estimate of $338.5 million. Adjusted earnings per share were $2.20, compared with the consensus estimate of $2.12.

Revenue rose 14.4% from $296.3 million a year earlier. ESCO’s filing attributed the increase chiefly to aerospace and defense, where sales rose $31.9 million, including increases in Navy and aerospace revenue. Utility Solutions Group sales rose $7.6 million: higher Doble sales more than offset lower NRG shipments of solar and wind products. Test sales rose $3.2 million, as growth in the U.S. and Europe exceeded a decline in Asia.

ESCO reported diluted earnings per share of $1.26. Gross margin was 41.7%, compared with 41.2% a year earlier, while operating margin was 14.8%, compared with 14.6%. Free cash flow fell to $44.3 million from $56.8 million.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Bryan Sayler said demand was building across ESCO’s markets and that aerospace, utility and test orders brought the quarter’s book-to-bill ratio to 1.21. He said ESCO was under contract with prime contractors for submarine content and that recent Navy actions “increase our confidence in the long-term outlook for submarine programs.”

CFO Chris Tucker said aerospace and defense benefited from organic growth in commercial and defense aerospace and the Navy business. He attributed its adjusted EBIT margin improvement to higher sales and prices. Tucker said utility orders grew at Doble, while NRG’s orders suffered from soft renewables markets; Doble’s margin improvement was more than offset by declines at NRG.

Sayler said test orders grew 42% year over year, driven by industrial shielding projects and electromagnetic interference filters. He said shielding orders were primarily for secure rooms in the U.S. and Europe, while the filters were for commercial and government data centers. Discussing demand for protection at data centers, he declined to identify customers and said not every center needs that protection.

Asked about margins, Tucker said the company’s 30% target referred to ESCO as a whole and that parts of aerospace and defense would need to exceed it to keep lifting margins. He also said advance payments on large Navy contracts were the main driver of higher operating cash flow in the first nine months.

On NRG, Sayler expected another year-over-year decline in the fourth quarter, followed by a return to growth in fiscal 2027. He said “we have taken some costs out of business at NRG.” On Megger, he said regulatory work was tracking to expectations and integration teams were planning for the combination. Tucker said ESCO expected acquisition debt to cost around 6% and had executed a deal-contingent hedge for a portion of it.

Guidance

ESCO raised the lower end of its FY2026 sales guidance and now expects $1.30 to $1.33 billion. It also raised its full-year adjusted EPS outlook to $8.30 to $8.40 per share, from its May range of $8.00 - $8.25.