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ESCO TECHNOLOGIES INC (ESE) Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 delivered 27% revenue growth to $296.3M, driven by the ESCO Maritime Solutions addition and double-digit organic growth; adjusted EPS rose 25% to $1.60, while GAAP EPS fell 13% to $0.96 due to acquisition-related costs .
  • Wall Street consensus pointed to higher results; ESCO posted a miss versus estimates on both revenue ($296.3M vs $318.6M*) and adjusted EPS ($1.60 vs $1.65*), reflecting timing of orders and acquisition accounting impacts; sequentially, adjusted EPS improved from Q2’s $1.35 (Q3 estimates*).
  • Guidance raised again: FY25 revenue (continuing ops) to $1.075–$1.105B and adjusted EPS to $5.75–$5.90; Q4 adjusted EPS guided to $2.04–$2.19; dividend maintained at $0.08 per share .
  • Strategic portfolio repositioning completed: VACCO divestiture closed (approx. $275M net proceeds) and Maritime integrated, materially expanding Navy content and backlog; orders surged to $749M with record total backlog of ~$1.17B .

What Went Well and What Went Wrong

What Went Well

  • Record demand and backlog: Q3 orders of $749.0M (book-to-bill 2.53x) drove backlog to $1.165B; A&D orders benefitted from ~$364M acquired Maritime backlog plus strong Globe submarine content, with organic A&D orders up 142% .
  • Margin expansion and adjusted earnings: Adjusted EBIT margin increased 180 bps to 21.1% in the quarter; adjusted EPS rose 25% YoY to $1.60 .
  • Strategic repositioning and Navy momentum: “Transformational period” with Maritime addition and VACCO exit; CEO: “We now have a meaningfully larger Navy business…” and “record backlog” supporting above-market growth .

What Went Wrong

  • Estimate misses: Revenue came in below consensus ($296.3M vs $318.6M*) and adjusted EPS slightly below ($1.60 vs $1.65*), reflecting timing/mix and acquisition accounting costs (Q3 estimates*).
  • USG margin softness in Q3: Adjusted EBIT margin dipped to 23.6% vs 24.6% YoY, pressured by inflation and mix; some shipments slipped timing-wise at Doble, to be recovered in Q4 .
  • Tariff/mix headwinds in Test: Despite 21% sales growth, Test margin was 15.9% vs 16.6% YoY, with tariffs and mix offset partially by price and volume leverage .

Financial Results

Consolidated Results vs Prior Periods and Estimates

MetricQ1 2025Q2 2025Q3 2025
Revenue ($USD Millions)$247.0 $265.5 $296.3
GAAP Diluted EPS (Continuing Ops) ($)$0.91 $1.20 $0.96
Adjusted Diluted EPS (Continuing Ops) ($)$1.07 $1.35 $1.60
Revenue Consensus Mean ($USD Millions)$240.4*$266.4*$318.6*
Primary EPS Consensus Mean ($)$0.73*$1.25*$1.65*

Values with asterisks (*) retrieved from S&P Global.

Margins (S&P Global) and Adjusted Margin

MetricQ1 2025Q2 2025Q3 2025
EBIT Margin %12.80%*n/a*14.58%*
EBITDA Margin %18.38%*n/a*21.54%*
Adjusted EBIT Margin % (Company)——21.1%

Values with asterisks (*) retrieved from S&P Global.

Segment Breakdown (Q3 2025 vs Q3 2024)

SegmentQ3 2024 Net Sales ($M)Q3 2025 Net Sales ($M)YoY ChangeQ3 2025 Adjusted EBIT ($M)Q3 2024 Adjusted EBIT ($M)
Aerospace & Defense$87.2 $136.3 +56% $39.3 $20.2
Utility Solutions Group$90.3 $92.4 +2% $21.8 $22.2
RF Test & Measurement$56.1 $67.7 +21% $10.7 $9.3
Total$233.6 $296.3 +27% ——

KPIs: Orders, Book-to-Bill, Backlog

KPIQ1 2025Q2 2025Q3 2025
Total Orders ($M)$275.0 $290.8 $749.0
Book-to-Bill (x)1.11x 1.10x 2.53x
Ending Backlog ($M)$906.9 $932.3 $1,165.4
A&D Orders ($M)$120.6 $121.7 $582.4
USG Orders ($M)$89.6 $92.2 $105.5
Test Orders ($M)$64.8 $77.0 $61.2
A&D Backlog ($M)$606.7 $605.0 $831.5
USG Backlog ($M)$122.9 $124.3 $137.4
Test Backlog ($M)$177.4 $203.0 $196.5

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue (Continuing Ops)FY 2025$1.180–$1.210B (incl. Maritime, May) $1.075–$1.105B Lower absolute level from removing VACCO; underlying increased by $20M
Adjustment: Remove VACCOFY 2025—-$125M Adjusted base after divestiture
Incremental IncreaseFY 2025—+$20M to both ends Raised
Adjusted EPS (Continuing Ops)FY 2025$5.85–$6.15 (incl. Maritime, May) $5.75–$5.90 Tightened; raised bottom by $0.40 and top by $0.25 after removing VACCO (-$0.50)
Q4 Adjusted EPSQ4 2025—$2.04–$2.19 New Q4 guide
Q3 Adjusted EPS (incl. Maritime)Q3 2025$1.58–$1.72 Actual $1.60 In-range; near low end
DividendNext payment$0.08/share (July 17 payment previously) $0.08/share; Payable Oct 16, record Oct 2 Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1–Q2)Current Period (Q3)Trend
Portfolio strategy (Maritime + VACCO)Announced Maritime acquisition; raised FY25 EPS; strategic review of VACCO Maritime closed; VACCO divested; “transformational period” and meaningfully larger Navy presence Strengthening Navy focus; portfolio simplification
A&D demand and marginsStrong Navy and aerospace demand; adjusted EBIT margin expansion Double-digit organic growth; ~560 bps margin increase YoY; strong Globe orders for Virginia/Columbia Acceleration with backlog visibility
USG demand and grid investmentDoble strength; NRG moderation; raised guidance Flattish Q3 sales/margins; strong Doble orders; AI/data centers/electrification driving long-term demand Short-term mix/timing headwinds; long-term tailwinds intact
Test segment recoveryMargin improvement from cost actions; orders strength in Q2 21% sales growth; tariffs/mix pressure; sequential margin improvement of 350 bps Stabilizing with improving trajectory
Tariffs/macroHighlighted uncertainty; managing impacts Tariff headwinds at low end of 2–4% guided range; ~2% or slightly below Improving vs prior expectations
AUKUS/UK naval programsSM&P adds UK/AUKUS exposure AUKUS developments supportive of UK investments; potential earlier benefits; long-dated horizon Building optionality; medium-term positive bias

Management Commentary

  • “It has been a transformational period at ESCO… We now have a meaningfully larger Navy business and have exited the space business… Sales increased 27 percent, Adjusted EPS… increased 25 percent, and Adjusted EBIT margin increased 180 basis points to 21.1 percent in the quarter.” — Bryan Sayler, CEO .
  • “Adjusted EBIT margins increased from 19.3% last year to 21.1% in this year's third quarter… sizable add-backs… driven by the Maritime acquisition… inventory step-up charges, stamp duties… and increased acquisition-related amortization.” — Chris Tucker, CFO .
  • “We’re seeing very nice price flow-through… material inflation has probably been a little better than expected… good mix… and leverage on the sales.” — Chris Tucker, CFO on A&D margins .
  • “Accordingly, we are again raising our full year guidance, which reflects over 20% adjusted EPS growth compared to the prior year.” — Bryan Sayler, CEO .

Q&A Highlights

  • A&D orders content and delivery cadence: Management reiterated strong Globe content on Virginia/Columbia; pacing of deliveries expected to increase, with UK programs an added driver; detailed shipset content updates to come with FY26 plan .
  • Margin drivers: A&D margin gains led by price realization, moderating material inflation, favorable mix, and volume leverage; early traction from ESCO operating system noted .
  • USG margin timing: Q3 below internal expectations due to shipment timing; strong Doble orders point to improved margins in upcoming quarters .
  • Guidance mechanics: FY25 raised on stronger operations; tariff impact trending at low end (~2%); interest savings in Q4 aided by VACCO proceeds; Q4 operational outlook better than previously communicated .

Estimates Context

  • Q3 2025 vs consensus: Revenue $296.3M vs $318.6M*; adjusted EPS $1.60 vs $1.65* — both misses. Prior quarters: Q2 EPS beat (1.35 vs 1.25*) with revenue in line/slight miss (265.5M vs 266.4M*); Q1 beat on both EPS (1.07 vs 0.73*) and revenue (247.0M vs 240.4M*) (values from S&P Global).
  • Implications: Expect upward revisions to FY25 margin/EBITDA trajectories tied to price/mix in A&D and Test cost actions, but near-term revenue models may reflect timing effects and Maritime purchase accounting headwinds. Values retrieved from S&P Global.

Detailed Actuals vs Estimates

PeriodRevenue Actual ($M)Revenue Consensus ($M)EPS Actual ($)EPS Consensus ($)
Q1 2025247.0 240.4*1.07 0.73*
Q2 2025265.5 266.4*1.35 1.25*
Q3 2025296.3 318.6*1.60 1.65*

Values with asterisks (*) retrieved from S&P Global.

Key Takeaways for Investors

  • Near-term: Q3 print was a revenue and EPS miss vs consensus, but adjusted EPS rose sequentially and YoY; watch Q4 execution and tariff impacts trending better than guided .
  • Portfolio catalysts: Maritime integration and VACCO exit simplify the story and amplify Navy exposure with record backlog; expect improving visibility on UK and AUKUS program content into FY26 .
  • Margin trajectory: A&D margin drivers (price, mix, lower material inflation) and Test cost actions position consolidated adjusted margins favorably; USG likely rebounds on strong Doble orders .
  • Guidance risk-reward: FY25 adjusted EPS raised to $5.75–$5.90 with Q4 EPS $2.04–$2.19; any upside surprise likely from stronger A&D deliveries and interest savings; watch mix/timing in USG/Test .
  • Balance sheet: VACCO proceeds support leverage; CFO indicates leverage at 1.74x as of June 30, with balance sheet “in great shape” post-July closing .
  • Orders quality: Globe bookings (> $80M) and Maritime orders (~$50M) highlight durable submarine demand; Doble’s record quarterly orders ($87M) underpin USG outlook .
  • Trading lens: Focus on Q4 delivery cadence, backlog conversion, and FY26 naval program visibility; estimate revisions may tighten around adjusted margin progress despite Q3 revenue shortfall .

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