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TWIN DISC INC (TWIN)·Q1 2026 Earnings Summary
Executive Summary
- Sales rose 9.7% year over year to $80.0M; gross margin expanded 220 bps to 28.7%, while diluted EPS was ($0.04) vs ($0.20) a year ago, and EBITDA increased to $4.7M .
- Versus estimates, revenue was slightly below ($80.0M vs $80.6M*), EPS missed (actual ($0.04) vs $0.02*), and EBITDA modestly beat ($4.7M vs $4.7M*) as backlog rose to $163.3M .
- Defense momentum accelerated, with defense-related backlog up ~45% YoY and comprising ~15% of total backlog, alongside record new-unit bookings in Marine and Propulsion .
- Near-term watch: temporary tariff impact of ~1–3% of COGS in Q2, expected to normalize back to ~1% in 2H FY26; management targets ~11% FY26 EBITDA margin and reiterated operational discipline and inventory reduction focus .
What Went Well and What Went Wrong
What Went Well
- Gross margin improved to 28.7% (+220 bps YoY) driven by Veth margin improvement, operational efficiency, and mix; management cited ~40% incremental volume drop-through and Veth’s best margin quarter since acquisition .
- Marine & Propulsion delivered 14.6% YoY sales growth to $48.2M with record bookings and wins in autonomous vessel applications; aftermarket remained resilient .
- Backlog strengthened to $163.3M (+9% sequential, +13% YoY), providing visibility, with defense programs in the U.S. and Europe expanding; inventory/backlog ratio improved to 96.9% from 101.0% .
What Went Wrong
- EPS missed consensus and remained negative due to higher pension amortization and currency impacts; diluted EPS was ($0.04) vs $0.02* consensus and ($0.20) last year .
- Asia Pacific softness and reduced oilfield transmission shipments to China weighed on Land-based Transmissions growth; distribution segment sales fell, partly from shifting tariffs and project timing .
- Operating cash flow was negative in Q1 (seasonal and working capital), with net debt increasing to $29.5M primarily on acquisition-linked long-term debt; leverage ratio rose to 1.3x .
Financial Results
Segment/product group breakdown (Q1 FY26 vs Q1 FY25):
KPIs and Balance Sheet
Guidance Changes
Note: No formal revenue/EPS quantitative guidance ranges were provided; management emphasized backlog-driven visibility, operational discipline, inventory reduction and margin initiatives .
Earnings Call Themes & Trends
Management Commentary
- CEO: “We delivered a solid start to the year… Defense market orders continued to accelerate… Marine and Propulsion delivered record new-unit bookings… Land-based transmission activity remained steady…” .
- CFO: “EBITDA improved year-over-year… Moving forward, we remain focused on reducing inventory levels and maintaining balance sheet strength… invest in initiatives that strengthen our operations and position Twin Disc for long-term value creation.” .
- CEO on tariffs: “We expect a 1–3% tariff impact on second quarter cost of sales… temporary… and return to roughly 1%… in the second half” .
- CFO on margins: “Gross margin increased ~220 bps to 28.7%… benefits of cost reduction initiatives, improved execution, and higher volumes… target is to get double-digit EBITDA… say 11% EBITDA would be… a target for us this year” .
- CEO on Veth: “They delivered their best margin quarter since we have acquired them… developed different suppliers… starting to see those suppliers come online…” .
Q&A Highlights
- Defense ramp capacity: Management can support significant growth in NATO vehicle and U.S. Navy programs with targeted CapEx in test stands/assembly fixtures; flexibility to shift assembly across facilities to meet demand .
- Oil & Gas trajectory: Exposure reduced vs history; expects rebuild activity improvement and sees E-frac and natural gas engine opportunities, with O&G potentially returning toward ~15% of revenue over time .
- Gross margin sustainability: Mix-led and Veth margin improvements underpin gains; Q2 tariff headwind may cap sequential margin, but trend line sustainable thereafter .
- Free cash flow: Q1 seasonal/working capital drag; aiming to recover toward break-even in Q2 and focus on inventory optimization without hampering growth .
Estimates Context
Values retrieved from S&P Global.
Consensus counts were limited (Revenue # est: 1; EPS # est: 1 across quarters) indicating sparse coverage, which can amplify surprises.
Implications: The repeated EPS misses despite revenue resilience suggest FX/pension amortization and mix impacts need to be reflected in models; backlog strength and margin initiatives provide support, but Q2 tariffs warrant near-term estimate moderation .
Key Takeaways for Investors
- Mix-driven margin improvement is real, underpinned by Veth margin recovery and operational discipline; expect a temporary Q2 tariff headwind, then normalization in 2H FY26 .
- Backlog acceleration and defense pipeline expansion (~15% of backlog, +45% YoY) are core catalysts for sustained growth and may drive narrative re-rating toward defense/hybrid exposure .
- Watch working capital: inventory/backlog ratio improved to 96.9% with management intent to reduce inventory; FCF recovery targeted in Q2 but dependent on delivery schedules .
- CapEx raised to $15–$17M to support growth and efficiency; targeted investment in assembly/test capacity aligns with ramp in defense/marine programs .
- Geographic rebalancing toward North America (strong Veth demand) while Asia Pacific softens; monitor China O&G and tariff shifts for distribution impacts .
- EPS pressure from pension amortization and FX remains a modeling variable; EBITDA execution (target ~11%) is management’s focus metric in FY26 .
- Near-term trading: backlog/defense headlines and tariff normalization updates are potential stock catalysts; medium-term thesis centers on margin expansion, defense/hybrid mix, and disciplined capital allocation .
Appendices and Sources
- Q1 FY26 8-K press release and exhibits .
- Q1 FY26 standalone press release .
- Q1 FY26 earnings call transcript .
- Q1 FY26 10-Q for detailed financials and segment/geography notes .
- Prior-quarter materials: Q4 FY25 call and Q3 FY25 press release/8-K .
- Dividend press release (Oct 30, 2025) .