ESCO Technologies Inc.

ESCO reported Q3 sales of 14% growth, with 8% organic growth and $23 million of incremental sales from Maritime. Adjusted EBIT margin improved by 90 basis points to 22%, and adjusted EPS increased 37.5% to $2.20. Orders produced a 121% book-to-bill, and backlog hit a record $1.54 billion. By segment, A&D sales were $168 million, up 23%, with 30% adjusted EBIT margins; Utility Solutions sales rose 8% and Test sales rose 5%, with Test margins at 16.4%. For the first nine months, operating cash flow was over $193 million versus $88 million a year ago, and adjusted EPS was up 55%. Management raised full-year 2026 adjusted EPS guidance to $8.30-$8.40 and said this implies 38%-39% growth versus fiscal 2025. They also said underlying full-year segment revenue expectations are about 8%-10% for A&D excluding Maritime, 10%-12% for Test, and 4%-6% for Utility overall.

Bryan Sayler emphasized that demand is building across all segments, pointing to strong aerospace, utility, and test orders and record backlog as evidence of ESCO’s competitive position. He highlighted the company’s early progress on the ESCO operating system, saying it is already improving consistency and execution. He also sounded constructive on the end markets, especially aerospace defense and submarine programs, utility grid investment, and selected data center-related demand in Test.

Chris Tucker framed the quarter as another period of strong top-line growth that flowed through to higher earnings and operating cash flow. He cited 121% book-to-bill, record backlog of $1.54 billion, 14% reported sales growth, 22% adjusted EBIT margin, and $2.20 adjusted EPS, along with year-to-date operating cash flow above $193 million versus $88 million last year. He said cash conversion should trend around 100% over time, though this year is expected to run above that because of timing of large contract payments, and noted leverage is low at 0.2x ahead of the Megger acquisition. On capital structure, he said the expected cost of debt for Megger is around 6%, with some hedging already in place.

Analysts pressed on data center demand in Test, and management said the customer base is a few good customers in the broader data center space, with demand tied to critical infrastructure applications like government data and utility systems. Questions on Doble and Megger drew a response that utility orders were broad-based, including 67% growth in condition monitoring orders, and that Megger is also reportedly up nicely year over year. Analysts also asked about NRG weakness, and management said renewables remain soft due to developers focusing on safe-harboring projects and tax-credit timing, with a return to growth expected in FY27, first on solar and later on wind.