ESCO Technologies' Q4 2025 Earnings Call: Contradictions in ESCO Maritime Orders, A&D Growth, Doble Segment, Energy Sector Outlook, and A&D Guidance

Date of Call: November 20, 2025

Financials Results

• Revenue: $353M, up 29% YOY; organic sales up 8%
• EPS: $2.32 per diluted share from continuing operations, up 30% YOY
• Operating Margin: Adjusted EBIT margin 23.9%, improved 100 basis points YOY

Guidance:

• Reported sales growth for FY2026 expected to be 16%–20%.
• A&D core organic growth 6%–8%; ESCO Maritime revenue expected $230M–$245M.
• Utility group growth 4%–6% (Doble 6%–8%, partially offset by NRG).
• Test segment revenue growth expected 3%–5%.
• Adjusted EPS guidance $7.50–$7.80 (implying ~24%–29% EPS growth); margin improvements anticipated across segments.

Business Commentary:

* Strong Financial Performance: - ESCO Technologies reported adjusted earnings per share of $2.32 for Q4 2025, representing a 30% year-over-year increase, on top of 8% organic sales growth and a 100 basis points adjusted EBIT margin expansion. - The growth was driven by the successful acquisition of Maritime and the divestiture of VACCO, leading to an expanded presence in the Navy market and a sharper focus on aerospace and Navy end markets.

• Maritime Acquisition Impact:
• The Maritime acquisition contributed significantly to the overall results, with over $200 million in orders booked in the first month of 2026 and expected revenue in the range of $230 million to $245 million for fiscal 2026.
• The strong performance was attributed to the business's ability to secure long-term programs and exceed initial financial expectations.

• Aerospace and Defense Growth:
• Aerospace and Defense segment achieved 72% reported sales growth and 13% organic growth in Q4 2025, with an ending backlog of over $800 million.

• Growth was fueled by increased production rates, positive momentum on the Navy side, and strong demand for commercial aerospace products from customers such as Boeing.

• Utility Solutions Performance:

• Despite policy headwinds, the Utility Solutions group saw 29% adjusted EBIT margin, with Doble's revenue up over 7% despite a 20% decline in NRG's revenue.

• The continued demand for maintaining and expanding the grid, combined with favorable mix and cost containment efforts, maintained strong profitability.

• Test Business Recovery:

• The test business reported 10% revenue growth and a high teens EBIT margin, with a 25% year-over-year increase in orders.
• The rebound was driven by strong activity across various test and measurement markets, excluding wireless.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • "finished the year strong and closed out another great year"; record adjusted EPS of "$2.32 per share"; "record backlog"; "we are excited about the future" and confidence that "2026 will continue these great trends."

Q&A:

• Question from Zachary Marriott (Stephens Inc., Research Division): Could you please give context on how we should think about growth rates and margin trends at the segment level going forward?
  Response: Guidance: A&D core growth ~6%–8% (plus Maritime on top), Doble 6%–8%, Test 3%–5%; margin improvement expected across all three segments in 2026.

• Question from Zachary Marriott (Stephens Inc., Research Division): Can you please give an update on the integration of SM&P? Since the close, are you tracking ahead or behind what you had planned?
  Response: Integration is on or slightly ahead of plan; Maritime is performing at or above original expectations with strong new order activity.

• Question from Jonathan Tanwanteng (CJS Securities, Inc.): You mentioned more than $200M in ESCO Maritime orders — what programs were associated with those orders and how should we think about growth for that business?
  Response: Orders relate to U.K. submarine programs; management declined to disclose program-level details for security reasons.

• Question from Jonathan Tanwanteng (CJS Securities, Inc.): What time frame will those Maritime orders be recognized as revenue over?
  Response: Revenues will be recognized over more than two years, starting modestly in mid‑fiscal year (Q2–Q3), ramping in Q4 and into FY2027 and beyond.

• Question from Jonathan Tanwanteng (CJS Securities, Inc.): Are you expecting any headwinds in aerospace from recent shutdowns, and what assumptions underlie the ~6%–8% growth outlook given OEM build‑rate increases?
  Response: No material impact from shutdowns observed; expecting growth driven by higher OEM build rates across 787 and 737 plus military content, supporting the 6%–8% aircraft growth assumption.

• Question from Jonathan Tanwanteng (CJS Securities, Inc.): On the energy business, do you see an inflection point or further downside as companies digest new policy changes?
  Response: Short‑term downcycle due to tax‑credit timing (developers qualifying current projects) with expectation of normalization to high single‑digit growth by 2027; ESCO believes it is maintaining margins and taking share.

• Question from Jonathan Tanwanteng (CJS Securities, Inc.): Any thoughts on capital allocation given strong cash flow and expected debt payoff timeline?
  Response: Priority is disciplined, opportunistic M&A focused on aerospace, navy and utility adjacencies; balance sheet is strong and management is actively building a pipeline, with no announced deals today.

Contradiction Point 1

ESCO Maritime Orders and Growth Expectations

It involves differing perspectives on the size of orders and growth expectations for the recently acquired ESCO Maritime, which could impact financial performance and strategic direction.

Could you provide more details on the $200 million in ESCO Maritime orders? - Jonathan Tanwanteng(CJS Securities, Inc.)

2025Q4: The $200 million in orders pertains to UK-based submarine-related programs. - Bryan Sayler(CEO)

How did margins progress on an organic basis, and what drove the strong performance? - Thomas Allen Moll(Stephens)

2025Q3: Orders in the quarter were $195.2 million, including $92.3 million from Maritime, bringing our backlog at year-end to $816.8 million. - Bryan H. Sayler(CEO)

Contradiction Point 2

A&D Growth Rates and Margin Trends

It involves differing expectations for growth rates and margin trends in the A&D segment, which could impact investor expectations and strategic planning.

Can you clarify how to assess growth rates and margin trends at the segment level moving forward? - Zachary Marriott(Stephens Inc., Research Division)

2025Q4: ESCO's guidance foresees A&D growing at 6% to 8% from core operations, with Maritime's addition on top. - Christopher Tucker(CFO)

Can you elaborate on the outlook increase and the contributing businesses? - Jonathan E. Tanwanteng(CJS Securities, Inc.)

2025Q3: The revenue increase is mainly due to Test and A&D, offsetting the weak NRG performance in utility. - Christopher L. Tucker(CFO)

Contradiction Point 3

Doble Segment Growth

It involves changes in growth expectations and performance for the Doble segment, which is a significant part of the company's revenue and investor focus.

How should we view segment-level growth and margin trends moving forward? - Zachary Marriott(Stephens Inc., Research Division)

2025Q4: Doble is expected to see growth of 6% to 8%. - Christopher Tucker(CFO)

What's driving the margin improvement from the guidance increase? Are there any headwinds in the utility segment, particularly in the renewable segment? - Tommy Moll(Stephens, Inc.)

2025Q1: Strong bookings in the quarter and early year will drive full year revenue growth of 8% to 10%. - Chris Tucker(CFO)

Contradiction Point 4

Energy Sector Growth Expectations

It involves changes in growth expectations for the energy sector, which is a crucial market for the company's operations and investor focus.

Can you elaborate on the energy business? Do you see an inflection point? Might there be further downside as companies digest the new policy? - Jonathan Tanwanteng(CJS Securities, Inc.)

2025Q4: The energy sector is expected to experience a downstroke due to policy changes, but fundamentals remain positive. - Bryan Sayler(CEO)

Can you explain the drivers behind Doble's double-digit revenue growth? Was it due to a calendar year-end tailwind or more sustainable factors? - Tommy Moll(Stephens, Inc.)

2025Q1: The demand environment in the energy sector has improved compared to the second and third quarters of last year. - Bryan Sayler(CEO)

Contradiction Point 5

A&D Growth Expectations

It involves changes in growth expectations for the A&D segment, which is a key area for the company's revenue and investor focus.

How should we assess growth rates and margin trends at the segment level moving forward? - Zachary Marriott(Stephens Inc., Research Division)

2025Q4: ESCO's guidance foresees A&D growing at 6% to 8% from core operations, with Maritime's addition on top. - Christopher Tucker(CFO)

What is driving the guidance increase? Are there headwinds in the utility segment, particularly renewables? - Tommy Moll(Stephens, Inc.)

2025Q1: We increased our 2025 full year guidance to 4% to 6% growth, largely due to a better-than-expected Q1 performance. - Chris Tucker(CFO)