ESCO TECHNOLOGIES INC (ESE) Q4 2024 Earnings Summary

Executive Summary

Q4 2024 delivered solid growth and margin expansion: revenue rose 9.5% to $298.5M, Adjusted EPS increased 16.8% to $1.46, and consolidated Adjusted EBIT margin expanded 130 bps to 17.4% .
Orders declined 14.9% on tough A&D Navy comps, but year-end backlog reached a record $879.0M, positioning FY25 well; management highlighted broad momentum across Navy, commercial and defense aerospace, and utilities .
FY25 outlook: sales +6–8% to $1.09–$1.11B, Adjusted EPS $4.70–$4.90, Q1 Adjusted EPS $0.68–$0.75; guidance excludes the pending SM&P acquisition and any outcome from the VACCO Space strategic review .
Stock catalysts: (1) potential close of the $550M SM&P deal in Q2 FY25, adding scale/content to Navy programs; (2) decision on VACCO Space strategic alternatives (management indicated a potential sale of the entire VACCO business is under consideration); (3) sustained Navy and utility demand underpinning record backlog .

What Went Well and What Went Wrong

What Went Well

A&D strength and mix: Q4 A&D sales +16% YoY to $124M; Adjusted EBIT margin rose to 19.4% from 17.8% on leverage and pricing, despite VACCO Space program erosion. CEO: “PTI and Crissair in particular delivered excellent results” .
Utilities resilience and profitability: USG Q4 sales +6% YoY to $108M with Adjusted EBIT margin at 26.4% (up 70 bps), driven by services and condition monitoring at Doble and broad renewables strength at NRG .
Test margin recovery: despite softer wireless/China, Test posted record Q4 margin (18.3%) aided by higher-margin MPE content, cost actions, and pricing; sequential improvements continued through the year .

What Went Wrong

Order comp headwind: Q4 orders fell 14.9% (to $289M) on unusually large Navy orders in the prior-year quarter (Virginia Class Block V), especially impacting A&D .
VACCO Space profitability: Q4 included unfavorable profit erosion at the high end of the $0.15–$0.21 EPS risk range (−$0.21), reflecting higher-than-estimated production costs on fixed-price development programs .
China/wireless softness: Test orders −8.5% YoY and persistent weakness in China; management did not assume significant China improvement in FY25 Test outlook (3–5% growth) .

Financial Results

Consolidated results (YoY and sequential)

Metric	Q4 2023	Q3 2024	Q4 2024
Revenue ($M)	$272.6	$260.8	$298.5
GAAP Diluted EPS ($)	$1.24	$1.13	$1.32
Adjusted EPS ($)	$1.25	$1.16	$1.46

Notes: Q4 2024 Adjusted EPS excludes $0.14 of after-tax charges (debt financing/acquisition costs, restructuring) .

Segment performance (sales, profitability)

Segment	Metric	Q4 2023	Q3 2024	Q4 2024
Aerospace & Defense	Sales ($M)	$107.0	$114.5	$124.3
	Adjusted EBIT ($M)	$19.1	$21.4	$24.2
	Adjusted EBIT Margin (%)	17.8%	18.7%	19.4%
Utility Solutions Group	Sales ($M)	$102.1	$90.3	$108.5
	Adjusted EBIT ($M)	$26.2	$22.2	$28.6
	Adjusted EBIT Margin (%)	25.7%	24.6%	26.4%
RF Test & Measurement	Sales ($M)	$63.5	$56.1	$65.8
	Adjusted EBIT ($M)	$11.1	$9.3	$12.0
	Adjusted EBIT Margin (%)	17.5%	16.6%	18.3%

KPIs and balance sheet highlights

KPI	Q4 2023	Q3 2024	Q4 2024
Ending Backlog – Total ($M)	N/A	$888.7	$879.0
Ending Backlog – A&D ($M)	N/A	$594.7	$600.4
Book-to-Bill (Qtr)	N/A	1.20x (Q3)	0.97x (Q4)
Operating Cash Flow ($M)	N/A	$55 (YTD Q3)	$72 (Q4); $128 (FY)
Dividend (per share)	N/A	N/A	$0.08 payable Jan 17, 2025

Guidance Changes

Metric	Period	Previous Guidance	Current/Actual	Change
Adjusted EPS ($)	Q4 2024	$1.38–$1.48	$1.46	In-range (near high end)
Adjusted EPS ($)	FY 2024	$4.10–$4.20	$4.18	Delivered within range
Net Sales ($B)	FY 2025	N/A	$1.09–$1.11 (6–8% growth)	New
Adjusted EPS ($)	FY 2025	N/A	$4.70–$4.90	New
Q1 Adjusted EPS ($)	Q1 FY 2025	N/A	$0.68–$0.75	New
Adjusted EBIT Margin (%)	FY 2025	N/A	15.3–15.7	New
Adjusted EBITDA Margin (%)	FY 2025	N/A	20.5–21.0	New
Effective Tax Rate (%)	FY 2025	N/A	23.0–23.5	New
Segment Sales Growth (%)	FY 2025	N/A	A&D 7–9; USG 7–9; Test 3–5	New
Dividend	Next Payment	N/A	$0.08 per share on Jan 17, 2025	Confirmed

Note: FY25 guidance explicitly excludes the SM&P acquisition and any outcome from the VACCO Space strategic review .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q-2 and Q-1)	Current Period (Q4 2024)	Trend
Navy/A&D demand & backlog	Record backlog, large Navy awards; A&D high single-digit growth target; backlog converts ~18–24 months for Navy	A&D backlog >$600M (+24% YoY); strong Navy/commercial/defense aerospace; Q4 A&D margin 19.4%	Positive momentum sustained
Boeing impact	Managed conservatively; expected ramp in 2025; can reallocate capacity	Boeing strike had no Q4 impact; no FY25 financial impact expected (may shift timing intra-year)	Risk receding
VACCO Space strategic review	Alternatives under review; ~$55M sales; profitability below segment averages	Most troubled dev programs largely mitigated; considering sale of entire VACCO; update expected by Feb call	Toward resolution
Test – China/wireless	Weak orders; sequential improvement expected; permitting/labor delays on projects	Test margins improved; China outlook steady (no big rebound assumed); Q4 orders −8.5% YoY	Stabilizing ex-China
Utilities/IRA/policy	Doble services/pricing strong; renewables orders normalization post-IRA surge	Utilities capex rising; IRA incentive risk could modestly dent renewables, but electrification demand supports Doble/NRG	Structural demand intact
Pricing/Cost actions	Price +3–4% ahead of inflation; Test cost-out underway	Margin expansion across segments aided by price and cost actions	Beneficial tailwind
M&A – SM&P	Announced $550M SM&P; anticipated Q1 FY25 close	U.S. approvals met; U.K. review ongoing; hopeful to close Q2 FY25; EPS guidance to be updated post-close	Closing progress

Management Commentary

“We hit a significant milestone this year with orders and sales both eclipsing $1 billion… we feel like there's still a lot of momentum in our business” .
“We were also able to offset the impacts of profitability erosion on Space development programs at VACCO through outstanding performance across our other businesses. PTI and Crissair in particular delivered excellent results” .
On Boeing: “We did not see any impact in our fourth quarter… we do not anticipate any financial impact to 2025” .
On utilities/renewables: “Regardless of policy, the market is requiring more electrification… there is a little bit of a threat that the incentives… could be diminished. But we do think that renewables will have a role to play” .
FY25 guidance posture: sales +6–8%, Adjusted EPS +12–17% to $4.70–$4.90; Q1 EPS $0.68–$0.75; excludes SM&P and VACCO Space review impacts .

Q&A Highlights

Boeing exposure: Management expects no FY25 financial impact post-strike; potential intra-year timing shifts only .
SM&P: Guidance will be updated post-close and will break out amortization and sizable items; no notable seasonality flagged; awaiting U.K. NSIA review, hopeful response in ~30 business days though extensions are possible .
Test/China: No major improvement assumed in FY25; outlook embeds steady state, with growth weighted to medical/industrial shielding and U.S. T&M .
Policy/IRA: Utilities’ rising capex and asset optimization drive Doble; IRA incentives risk could moderate renewables tailwind, but core demand remains strong .
Non-GAAP adjustments: ~$3M of debt financing costs hit interest expense; restructuring hits operating income; these drove the $0.14 Q4 Adjusted EPS add-back .

Estimates Context

Wall Street consensus (S&P Global) for Q4 revenue/EPS was unavailable at the time of analysis due to data access limits; therefore, we cannot quantify a beat/miss versus consensus. We note the company’s Q4 Adjusted EPS of $1.46 came in within its guided $1.38–$1.48 range, and FY24 Adjusted EPS of $4.18 was within the $4.10–$4.20 range .

Key Takeaways for Investors

Record backlog ($879M) and broad-based demand across Navy, aerospace, and utilities support continued organic growth into FY25, even as Q4 orders faced a tough comp .
FY25 guide targets double-digit Adjusted EPS growth (to $4.70–$4.90) on 6–8% sales growth and expanding EBIT/EBITDA margins; Q1 EPS guide also implies sequential build through the year .
A&D momentum is intact (A&D backlog >$600M; Q4 margin 19.4%); management expects no FY25 impact from Boeing strike resolution, reducing a key near-term risk .
Utilities remain a steady compounder (USG margin 26.4% in Q4) as grid investment and asset optimization persist; potential IRA-related moderation in renewables is mitigated by strong Doble services/monitoring demand .
Test’s profitability has improved on mix (MPE) and cost actions; China/wireless remain soft, but medical/industrial and U.S. T&M provide a base for modest growth (3–5% guide) .
Strategic optionality: SM&P acquisition (target Q2 FY25 close) could be an accretive step-up in Navy content; VACCO Space review (potential sale of entire VACCO) could reshape the portfolio and unlock value .
Non-GAAP adjustments in Q4 tied mainly to acquisition financing and restructuring; underlying operating momentum was sufficient to offset VACCO Space program erosion and still deliver near the high end of guidance .