ESCO TECHNOLOGIES INC (ESE) Q2 2025 Earnings Summary

Executive Summary

Q2 FY25 delivered solid execution: sales +6.6% to $265.5M, Adjusted EPS +23.9% to $1.35, record backlog $932M, and orders +21.6% to $290.8M (book-to-bill 1.10x) .
EPS beat S&P Global consensus ($1.35 vs $1.25*) on stronger segment margins; revenue was essentially in line ($265.5M vs $266.4M*) .
Guidance raised again: FY25 Adjusted EPS (ex-Maritime) to $5.65–$5.85 (from $5.55–$5.75); with Maritime, $5.85–$6.15; FY25 sales unchanged ex-Maritime at $1.09–$1.11B and $1.18–$1.21B including Maritime; Q3 EPS (incl. Maritime) guided to $1.58–$1.72 .
Catalysts: integration of ESCO Maritime Solutions (SM&P closed Apr 25) and definitive agreement to divest VACCO to RBC Bearings for $310M gross cash proceeds to delever; both actions sharpen portfolio and support margin/FCF trajectory .

What Went Well and What Went Wrong

What Went Well
- Broad-based growth and margin expansion: all segments grew revenue; consolidated Adjusted EBIT margin expanded 250 bps YoY; USG margin +290 bps to 23.0% on Doble mix; A&D margin +400 bps to 24.6% on price/mix .
- Strong demand signal: orders +22% YoY to $290.8M; Test orders +75% (book-to-bill 1.50x) with strength in U.S. T&M, filters and China; backlog hit a record $932M .
- Management raised FY25 EPS and quantified Maritime contribution; CEO: “Q2 was another strong quarter… 250 basis points of Adjusted EBITDA margin expansion” .
What Went Wrong
- Test mix headwind: margins improved modestly to 12.4% but were partially offset by lower high-margin wireless; recovery continues but mix remains a watch item .
- Renewables moderation: NRG sales flat YoY; renewables “recalibrating” despite improving orders; sequentially better vs Q1 but still muted vs last year .
- Tariff risk: FY25 guide embeds $2–$4M pretax headwind; mgmt working price/opex mitigations but broader demand retaliation is an uncertainty .

Financial Results

Consolidated P&L vs Prior Quarters

Metric	Q4 2024	Q1 2025	Q2 2025
Revenue ($USD Millions)	$298.5	$247.0	$265.5
GAAP EPS ($)	$1.32	$0.91	$1.20
Adjusted EPS ($)	$1.46	$1.07	$1.35
Adjusted EBIT ($USD Millions)	$51.8	$37.7	$47.9

Notes: Q2’25 Adjusted EPS excludes $0.15 acquisition-related amortization; Q1’25 Adjusted EPS excludes $0.16; Q4’24 Adjusted EPS excludes $0.14 (debt financing/acq costs/restructuring) .

Q2 Actual vs S&P Global Consensus

Metric	Q2 2025 Actual	S&P Global Consensus*
Revenue ($USD Millions)	$265.5	$266.4*
Adjusted EPS ($)	$1.35	$1.25*

Values with asterisk retrieved from S&P Global.

Segment Performance (Q2 YoY)

Segment	Sales Q2 2024 ($M)	Sales Q2 2025 ($M)	Adj. EBIT Q2 2024 ($M)	Adj. EBIT Q2 2025 ($M)	Adj. EBIT Margin Q2 2024	Adj. EBIT Margin Q2 2025
Aerospace & Defense	114.7	123.4	23.6	30.3	20.6%	24.6%
Utility Solutions Group	87.3	90.8	17.6	20.9	20.1%	23.0%
RF Test & Measurement	47.1	51.4	5.7	6.4	12.2%	12.4%

Drivers: A&D margin expansion from price increases and mix; USG margin leverage on Doble mix; Test margins aided by volume/price/cost actions but limited by unfavorable mix .

KPIs and Demand

KPI	Q4 2024	Q1 2025	Q2 2025
Orders ($USD Millions)	$288.8 (book-to-bill 0.97x)	$275.0 (book-to-bill 1.11x)	$290.8 (book-to-bill 1.10x)
Ending Backlog ($USD Millions)	$879.0	$906.9	$932.3

Segment orders Q2: A&D $122M (incl. $6M CAD/PAD); USG $92M (+17% with Doble +$11M); Test $77M (+75%, U.S. +$26M incl. $12M multi‑year filters; China +$9M) .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Sales (ex-Maritime)	FY 2025	$1.09–$1.11B	$1.09–$1.11B	Maintained
Maritime Sales Add	FY 2025	—	$90–$100M	New (close 4/25)
Sales (incl. Maritime)	FY 2025	—	$1.18–$1.21B	New
Adjusted EPS (ex-Maritime)	FY 2025	$5.55–$5.75	$5.65–$5.85	Raised $0.10
Maritime EPS Add	FY 2025	—	$0.20–$0.30	New
Adjusted EPS (incl. Maritime)	FY 2025	—	$5.85–$6.15	New
Adjusted EPS (ex-Maritime)	Q3 2025	—	$1.50–$1.60	New
Maritime EPS Add	Q3 2025	—	$0.08–$0.12	New
Adjusted EPS (incl. Maritime)	Q3 2025	—	$1.58–$1.72	New
Dividend	Next Payment	—	$0.08/sh on Jul 17, 2025 (record Jul 2)	Announced

Assumptions and notes: FY25 guide includes $2–$4M unfavorable pretax impact from tariffs; excludes acquisition-related amortization and certain deal/integration costs for Maritime .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4’24 and Q1’25)	Current Period (Q2’25)	Trend
Portfolio actions (SM&P/Maritime; VACCO)	SM&P announced pending; VACCO space business strategic review under way .	SM&P closed 4/25; rebranded ESCO Maritime Solutions; VACCO sale process progressing, decision expected by end of May (subsequently announced sale 5/20) .	Acceleration; clear portfolio sharpening.
Tariffs/macro	Not quantified previously.	FY25 embeds $2–$4M pretax tariff headwind; mitigation via pricing/ops; potential wider demand effects monitored .	New quantified headwind; manageable with levers.
Test demand/China	2024 softness in Test, China delays; early signs of recovery (Q1 orders +43%) .	Test orders +75% YoY; China orders +$9M; drivers include EMC, medical “magnet swaps,” EMP filters for data centers/utilities .	Improving; broad-based recovery.
Utilities/Renewables	Utilities strong; NRG grew FY24; Q1 NRG -22% on moderation .	Doble strong; NRG flat YoY; renewables “recalibrating,” orders improving vs last year .	Utilities resilient; renewables stabilizing.
A&D (Navy/commercial aero)	Strong Q4; VACCO space hurt margins but offset elsewhere .	Navy robust; commercial aero moderating orders but long-term demand intact; A&D margins up on price/mix; VACCO performance stabilizing YTD .	Healthy; mix favorable; execution improving.

Management Commentary

“Q2 was another strong quarter as we delivered 7 percent top line growth, 250 basis points of Adjusted EBITDA margin expansion, and a 24 percent increase in Adjusted EPS… strength across our Navy, commercial aerospace, utility, and Test end-markets.” — Bryan Sayler, CEO .
“Orders were up nearly 22%… record backlog of $932 million… adjusted earnings per share… $1.35, a 24% increase… incremental margins on the sales growth coming in at 56%.” — Chris Tucker, CFO .
On Maritime: “We successfully closed the deal on April 25… rebranding… ESCO Maritime… tracking at or above the projections… enhances our margin and growth profile.” — Bryan Sayler .
On Test recovery: “Strong activity in EMC testing, health care… ‘magnet swaps’… large orders for EMP filters at data centers and utility control centers.” — Bryan Sayler .

Q&A Highlights

VACCO process: active interest; outcome expected by end of May; performance stabilized vs 2024; margins still below segment average but recovering; later announced sale to RBC Bearings for $310M gross cash .
Tariffs: $2–$4M is a net headwind after price/ops mitigation; assumptions reflect current measures; ESCO is more net exporter—larger risk could be demand retaliation .
Maritime outlook: FY25 EPS add $0.20–$0.30; early performance on/above plan; framework for 2026: annualize FY25 run-rate and apply low double-digit growth as a reasonable baseline .
Capital structure: leverage ~2.2x at close; expected to fall below 2x by year-end on EBITDA growth and debt paydown; borrowing rates ~6%–6.5% with room to improve .
RF Test order flow: broad-based; recovery in China and EMC; health care “magnet swaps”; EMP filters demand in data centers/utilities .

Estimates Context

Q2 FY25 results vs S&P Global: Adjusted EPS beat ($1.35 vs $1.25*); revenue essentially in line ($265.5M vs $266.4M*) .
Q3 FY25 context: Company guides $1.58–$1.72 including Maritime; S&P Global consensus ahead of the close was $1.65* EPS — aligned with the midpoint of inclusive guidance .