Argan's Q2 2026: Contradictions Emerge on Trumbull Timeline, Power Sector Backlog, and Gross Margins

The above is the analysis of the conflicting points in this earnings call

Date of Call: None provided

Financials Results

• Revenue: $237.7M, up 5% YOY and up 23% sequentially
• EPS: $2.50 per diluted share, versus $1.31 in the prior-year quarter
• Gross Margin: 18.6%, compared to 13.7% in the prior-year quarter

Guidance:

• Backlog expected to be significantly over $2B by fiscal year-end; plan to add a few more power projects this year.
• Trumbull plant targeted for completion in 1H next year.
• Industrial segment to see significantly higher revenues in 2H FY26 as record $189M backlog converts.
• Telecom segment expects continued growth on record backlog.
• Expect to exceed last year’s gross margin % with continued execution; no revenue/EPS guidance provided.
• Capacity to handle 10–12 power projects; headcount added to support demand.

Business Commentary:

* Strong Financial Performance: - Argan Inc. reported record revenue of $238 million for Q2 of fiscal 2026, reflecting 5% growth compared to last year's second quarter, and a sequential increase of 23%. - The growth was driven by excellent execution, solid revenue growth, enhanced gross margins, and record net income.

• Power Industry Services Segment Growth:
• Power industry services revenue increased by 13% to $197 million in Q2, contributing 83% of second quarter revenues.

• This growth was due to the addition of new projects like the Platin Power Station and a significant new industrial services contract.

• Increased Backlog and Project Pipeline:

• Argan achieved a record backlog of $2 billion, with expectations to add more projects before the end of the fiscal year.

• The increased backlog is attributed to the strong market demand for energy infrastructure, driven by the electrification of everything and AI data center development.

• Improved Gross Margins:

• Argan realized improved gross margins of 18.6%, up from 13.7% in the second quarter of fiscal 2025.

• This improvement was primarily due to the enhanced gross profit margins in the power industry services segment.

• Strategic Capital Allocation:

• Argan's disciplined capital allocation strategy includes investments in people, a quarterly dividend of $0.375, and a share buyback program authorization of $150 million.
• These strategies reflect the company's commitment to maintaining strong financial flexibility and long-term value creation for shareholders.

Sentiment Analysis:

• Management reported record net income of $35.3M ($2.50 EPS), revenue up 5% YOY and 23% sequentially, gross margin up to 18.6% from 13.7%, and a record ~$2B backlog. They expect to add more projects this year, see stronger 2H in industrial, and maintain a strong balance sheet with $572M cash and no debt, underscoring confidence in demand and execution.

Q&A:

• Question from Chris Moore (CJS Securities): What remains at Trumbull and what’s the completion timeline?
  Response: Project is on track to finish on time and on budget, with completion targeted in the first half of next year.

• Question from Chris Moore (CJS Securities): Are Q2 gross margins sustainable, or were there one-time gains?
  Response: Margins reflect strong execution; while no specific guidance is given, management expects to exceed last year’s gross margin percentage.

• Question from Chris Moore (CJS Securities): What types and sizes of projects could be added this fiscal year?
  Response: Expect to add a few more power jobs this year, pushing backlog well above $2B; project sizes will vary from sub-200MW to gigawatt-scale, with capability for very large plants.

• Question from Rob Brown (Lake Street Capital Markets): Has the power project pipeline accelerated further in recent months?
  Response: Demand remains elevated with OEM gas turbines sold out and supportive PJM pricing; pipeline strength persists, though not a new acceleration beyond already high levels.

• Question from Rob Brown (Lake Street Capital Markets): What’s the outlook for the industrial segment backlog and revenues?
  Response: Record $189M backlog supports significantly higher second-half revenues, with momentum in water treatment and data center work.

• Question from Drew Chamberlain (J.P. Morgan): Any change in the outlook for ending backlog significantly over $2B?
  Response: Milestones continue to advance with no customer hesitation; confidence increased that projects will kick off this year, supporting >$2B year-end backlog.

• Question from Drew Chamberlain (J.P. Morgan): How are pricing dynamics on new awards versus historical levels?
  Response: Pricing strategy remains disciplined and relationship-focused; tight EPC supply vs. demand creates opportunities, but approach is unchanged.

• Question from Drew Chamberlain (J.P. Morgan): Do you need to add capacity, and will it be organic or via M&A?
  Response: Capacity supports 10–12 power projects after recent headcount additions; growth emphasis is organic.