ESCO’s second quarter saw a positive market reaction despite missing Wall Street’s revenue and non-GAAP profit expectations. Management attributed quarterly growth to strong performance in the Aerospace & Defense segment, particularly with the integration of the Maritime acquisition and robust order intake for naval platforms. CEO Bryan Sayler highlighted nearly 20% aerospace revenue growth and record backlog, noting, “Orders showed a significant increase in the quarter…ending with record backlog.” The Utility Solutions Group faced flat sales but reported strong order growth, while the Test segment posted double-digit revenue gains. Segment mix, favorable pricing in aircraft components, and operational improvements were cited as key margin drivers.
Is now the time to buy ESE? Find out in our full research report (it’s free).
ESCO (ESE) Q2 CY2025 Highlights:
- Revenue: $296.3 million vs analyst estimates of $318.6 million (13.6% year-on-year growth, 7% miss)
- Adjusted EPS: $1.60 vs analyst expectations of $1.65 (2.8% miss)
- Adjusted EBITDA: $63.35 million vs analyst estimates of $72.28 million (21.4% margin, 12.4% miss)
- The company dropped its revenue guidance for the full year to $1.09 billion at the midpoint from $1.20 billion, a 8.8% decrease
- Management lowered its full-year Adjusted EPS guidance to $5.83 at the midpoint, a 2.9% decrease
- Operating Margin: 14.6%, in line with the same quarter last year
- Backlog: $1.17 billion at quarter end
- Market Capitalization: $5.02 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From ESCO’s Q2 Earnings Call
- Thomas Allen Moll (Stephens) questioned the sustainability of strong A&D orders, especially for Globe’s submarine content. CEO Bryan Sayler confirmed no major change in shipset content, with additional details pending future planning cycles.
- Thomas Allen Moll (Stephens) asked about organic margin progression in A&D. CFO Chris Tucker highlighted strong price realization and lower material inflation, stating, “Margins there in the core company were really phenomenal.”
- Jonathan E. Tanwanteng (CJS) inquired about the sources of increased EPS guidance despite modest revenue uplift. Tucker cited Test segment outperformance, incremental aerospace volume, and lower-than-expected tariff impacts as key contributors.
- Jonathan E. Tanwanteng (CJS) sought detail on the pace of Navy deliveries. Sayler projected an increase in delivery rates, especially with added Maritime content and U.K. market exposure, with more precise guidance expected in upcoming quarters.
- Thomas Allen Moll (Stephens) probed the drivers of USG (Doble) margin changes. Tucker attributed Q3 margin softness to shipment timing, but remained confident in long-term utility demand and improving backlog.
Catalysts in Upcoming Quarters
Looking ahead, our analyst team will monitor (1) the pace of integration and operational synergies from the Maritime acquisition, (2) the ability of the Aerospace & Defense segment to convert backlog into revenue as naval and aerospace programs ramp up, and (3) whether order momentum in the Utility Solutions Group translates to improved sales growth as grid modernization accelerates. Tariff and macroeconomic developments will also be key signposts for ESCO’s execution.
ESCO currently trades at $194.35, up from $190.30 just before the earnings. At this price, is it a buy or sell? Find out in our full research report (it’s free).
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