ESCO Technologies Reports Q3 2026 Results, Raises 2026 Earnings Outlook

ESCO Technologies (NYSE: ESE ) reported third-quarter financial results on Thursday. The transcript from the company's third-quarter earnings call has been provided below. This transcript is brought to you APIs. For real-time access to our entire catalog, please visit for a consultation.

54 billion. The company saw 14% sales growth, comprised of 8% organic growth and additional sales from the Maritime acquisition, while adjusted EBIT margins improved by 90 basis points to 22%. Aerospace & Defense segment showed a 23% sales increase, driven by strong demand in commercial and defense aerospace, while the Utility Solutions Group experienced double-digit revenue growth due to increased power demand and grid modernization. The Test business reported a 42% increase in orders, fueled by industrial shielding projects and EMI filters, indicating robust end-market activity.

The company is progressing with the Megger acquisition, expecting to close in fiscal Q1 2027, which will enhance scale in Utility Solutions and support further growth. Updated guidance for 2026 anticipates a 38% to 39% increase in full-year adjusted earnings per share, indicating continued strong revenue and earnings growth. Management noted ongoing successful implementation of the ESCO Operating System, aimed at improving operational efficiency and long-term value creation. Full Transcript OPERATOR Good day and thank you for standing by.

Welcome to the third quarter 2026 ESCO Technologies earnings call. At this time all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone.

You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. On the call today we have Bryan Sayler, President and CEO, and Chris Tucker, Senior Vice President and CFO.

And now I'd like to turn the conference over to our first speaker today, Kate Lowry, Vice President of Investor Relations. Kate, you now have the floor. Kate Lowry, Vice President of Investor Relations Thank you. Statements made during this call, which are not strictly historical, are forward-looking statements within the meaning of the safe harbor provisions of the federal securities law.

These statements are based on current expectations and assumptions, and actual results may differ materially from those projected in the forward-looking statements due to risks and uncertainties that exist in the Company's operations and business environment, including but not limited to the risk factors referenced in the Company's press release issued today, which will be included as an exhibit to the Company's Form 8-K to be filed. We undertake no duty to update or revise any forward-looking statements except as may be required by applicable laws or regulations.

In addition, during the call the Company may discuss some non-GAAP financial measures in describing the Company's operating results. Reconciliation of these measures to the most comparable GAAP measures can be found in the press release issued today and found on the Company's website at under the link Investor Relations. Now I'll turn the call over to Brian. Bryan Sayler, President & CEO Thanks, Kate.

And thanks everyone for joining today's call. We're pleased to meet with you this afternoon to discuss ESCO's third quarter results. In Q3, we continue to see positive momentum in each of our business segments as demand across our served end markets continues to build. 21.

This continuing strength lifted backlog to record levels across A&D Test, Doble, and at the consolidated level. This is all clear evidence of growing end market demand and the strength of our competitive position. Operationally, Q3 was another strong quarter of revenue and earnings performance. Continued order strength is flowing through to drive high single-digit organic revenue growth and operating leverage.

Over the past year or so, we have been working on development and implementation of an enterprise-wide continuous improvement process, which we will call the ESCO Operating System. Although we are still in the early stages of the operating system implementation, we are already beginning to see impacts across our businesses through greater consistency and execution and are building a stronger foundation for sustainable value creation over time. Chris will run you through all of the financial details for the third quarter, but before that I wanted to give you a few comments on each segment, starting with Aerospace & Defense.

I recently had the opportunity to attend the Farnborough Air Show. It was really a great event, and it made clear that investments will continue to be made by our customers to support a continued robust demand outlook. On the commercial side, the industry continues to be supported by a global aircraft backlog of approximately 18,000 aircraft, with an estimated unmet demand of an additional 5,000 aircraft. This demand backdrop underpins a long-duration production ramp and creates a compelling growth runway for OEMs, suppliers, and subcontractors across the aerospace value chain.

At the same time, the show made clear that defense, security, and strategic resilience are becoming increasingly central to the industry narratives. Defense companies represented roughly half of the record exhibitor base at Farnborough, reflecting elevated military spending and a more complex geopolitical backdrop. Taken together, Farnborough reinforced the aerospace growth trajectory, supporting a durable, multi-year production cycle. Strong commercial OEM and services outlooks remain intact, while defense demand appears positioned to accelerate as governments prioritize readiness, modernization, and resilient supply chains.

On the Navy side, we continue to see evidence of a strong commitment to submarine programs. Last week, the Navy awarded the largest shipbuilding contract in history to the prime contractors for the remaining nine Block 6 Virginia-class and the next five Columbia-class submarines. ESCO is already under contract with the primes for this content, and the Navy's actions last week increase our confidence in the long-term outlook for submarine programs.

Turning to the Utility Solutions Group, Doble's continued order strength has translated into double-digit revenue growth year to date as rising power demand, electrification, and grid modernization are all increasing the need for reliable, well-maintained electrical infrastructure. As utilities expand their generation, transmission, and distribution capacity to support data centers, EVs, industrial electrification, heat pumps, and other sources of load growth, they must invest in tools that help maintain aging assets, diagnose and prevent failures, reduce downtime, and ensure grid reliability, safety, and compliance.

In addition, as they progress on the longer-term infrastructure buildout, they need support in commissioning new assets and maintaining a larger, more complex grid. These are durable demand drivers for utility test instrumentation providers like Doble and Megger. Related to the Megger acquisition, we continue to work through the regulatory filing process in the required countries. This is all going smoothly, and the timing is tracking to our expectations.

We continue to believe that this process should be completed in a timeframe that results in closing the deal in the first quarter of our fiscal 2027. Teams from both ESCO and Megger are actively collaborating on important integration planning activities. We believe this advanced work will help establish a clear path for efficient, well-coordinated integration of Doble and Megger while keeping us focused on achieving the anticipated synergies. Bringing Megger into the ESCO portfolio will build greater scale in Utility Solutions and reinforce our role as a trusted partner to utility customers around the world.

The acquisition is an important milestone in the continued advancement of our portfolio, and we remain optimistic about the long-term prospects for the utility markets that we serve. Finally, I'll touch on the Test business, which had another strong orders quarter with 42% growth over the prior year. Test order strength in Q3 was driven by industrial shielding projects and electromagnetic interference filters. S.

and Europe. The EMI filters are for use in commercial and government data centers. The continued demand strength at Test is encouraging, and the team there is doing a really nice job of improving execution and expanding margins as their end market momentum continues. With that, I'll turn it over to Chris to run you through the financial details of the quarter.

Chris Tucker, Senior VP & Chief Financial Officer Thanks, Brian. Everyone can follow along on the chart presentation. We will start on page three, which shows the financial highlights for the third quarter. ESCO Technologies had another strong quarter of top-line growth translating to even better growth in adjusted earnings and operating cash flow.

Getting to the numbers, we start with orders, where the book-to-bill ratio in the quarter was 121%. 54 billion. Order growth in the quarter was negative, but that resulted mostly from the $364 million of acquired backlog from the Maritime acquisition that took place in last year's third quarter. Turning to sales, reported growth was 14%, which was comprised of 8% organic growth and $23 million of incremental sales from Maritime.

Just to remind everyone, we had a two-month impact from Maritime in last year's third quarter, while this year was a full three-month impact. 20 per share. Next we will go through segment highlights, starting with Aerospace and Defense on page four. Another great quarter here as the A and D business continues to deliver for ESCO Technologies.

Starting with orders, A and D had a book-to-bill ratio of 116%, with particular strength from our aircraft components business. You can see from the bar chart on the left we showed a large percentage decline in orders compared to last year. There were two main factors driving the percentage drop. First, and as mentioned previously, there was $364 million of acquired backlog from Maritime last year.

Second, the Navy business at Globe received $82 million of Virginia and Columbia class orders in last year's third quarter, which did not fully repeat this year. 1 billion, the business continues to be situated well for future growth. Sales in the quarter were $168 million, which represents an increase of 23%. Organic growth was 9%.

The organic growth was driven by 10% increases from Commercial and Defense Aerospace, as well as 10% from the Navy business. So really nice performance from all parts of the core Aerospace and Defense platform. On the profitability side, we had good improvement to 30% adjusted EBIT margins, an increase of 120 basis points. Margin increases were due to positive impacts from leveraging sales growth and increased prices.

Next we will go to chart five and the Utility Solutions Group. Orders here were up 20% in the third quarter, and that was driven by exceptional performance at Doble, where orders grew by 30%. We did see weak orders performance at NRG, where the renewables markets continue to be very soft. Sales in the quarter were up 8%.

Again, the growth was driven by Doble, where sales increased by 17%. Doble continues to see strong end market activity across a number of product lines serving their regulated utility customer base. Adjusted EBIT margins in the quarter declined by 130 basis points. Doble margins increased modestly but were more than offset by margin declines at NRG.

Next we have the Test business on page six. This business had another good quarter, starting with orders which increased by 42%. The order growth was driven by industrial shielding products projects and EMI filters. S.

and European EMC test and measurement, as well as power filter demand. 4%. The margin improvement was driven by volume leverage, somewhat offset by inflationary pressures. Next is chart seven, where we have year-to-date highlights.

The first nine months saw ESCO deliver great results as we work towards another record year. Order strength has been significant with 19% organic growth year to date. All three businesses have delivered double-digit organic growth, with Aerospace and Defense and Test at 20% and 26% respectively. Sales have also been strong, with 11% year-to-date organic growth led by Test at 18% and Aerospace and Defense at 12%.

Adjusted EBIT margins are up 250 basis points year to date, and adjusted earnings per share have increased by 55%. Going to chart eight, we have cash flow highlights for the first nine months. Operating cash flow is up significantly at over $193 million compared to $88 million in the prior year. A key driver to the increase has been increased advance payments on large Navy contracts.

Capital spending is up slightly compared to last year, and acquisition spending is down significantly this year, given the large Maritime deal. 2 times, and we continue to be positioned well for the debt requirements that will come with the Megger deal, which is expected to close in the first quarter of fiscal 2027. Our last chart is number nine, where we have updated 2026 guidance. With another strong quarter, we are increasing the full-year 2026 guidance.

40 per share. This represents an increase of 38% to 39% compared to fiscal 2025. This is a substantial increase from our original November guide, and you can see from the bar graphs at the bottom of the page. We expect 2026 to be another record year and a nice continuation of the growth trend ESCO has delivered since fiscal 2021.

That completes the financial summary, and now I'll turn it back over to Brian. Bryan Sayler, President & CEO Thanks, Chris. As you've heard from our commentary, Q3 was another solid quarter, and we're looking at another year of strong revenue and earnings growth, and with record backlog, we continue to feel great about the long-term prospects for ESCO Technologies. That concludes our opening remarks, and we'll now turn it over to Q&A.

OPERATOR Thank you. At this time we will conduct the question-and-answer session. As a reminder, to ask a question, you will need to press star-1-1 on your telephone and wait for your name to be announced. To withdraw your question, you'll press star-1-1 again.

Please stand by while we compile the Q&A. Thank you. Our first question comes from the line of Tommy Moll from Stephens. Please go ahead.

Your line is now open. Tommy Moll, Analyst at Stephens Good afternoon, and thanks for taking my questions. Bryan Sayler, President & CEO Hi, Tommy. Tommy Moll, Analyst at Stephens Brian, it wasn't the first time that you mentioned data center orders for the Test business, but you did give us a little more detail this time.

So I'm curious to ask, what more can you tell us about the complexion of that customer base? And is this one that has broadened over the last couple quarters for you, where you've had success with new and additional customers? Thank you. Bryan Sayler, President & CEO Yeah, I would say that we have seen a little bit of improvement in the outlook there.

We have a couple of good customers there. I don't want to get into the details of who they are, but they're in that, broadly speaking, data center space. It's important to remember that not every data center has a requirement for this kind of EMP protection. But any commercial data center that's going to house government data, utility systems, that sort of thing—those critical infrastructure—they tend to have this requirement, and we see it being embraced increasingly, and I think we're doing pretty well in terms of our market attainment.

Tommy Moll, Analyst at Stephens And then, shifting gears to Doble—Brian, very strong acceleration there, both in terms of sales and orders, particularly on the order side. What additional detail can you give us there? And, relatedly, have you been able to discern how Megger's book has shaped up since you announced the deal? I mean, this is a big move higher for your order book.

I'd be curious if they've seen the same thing. Bryan Sayler, President & CEO Yeah, I would say that the 30% year-over-year increase in orders was very broad-based. We had a—honestly, we had a 67% increase in our condition monitoring business that was led largely by some pretty good-sized large high-voltage cable monitoring orders. We had a 13% increase in our services business and a 23% increase in our protection business, 13% in offline testing, and we had a large renewal of one of our cybersecurity clients.

So, really broad-based, across-the-board improvements there.