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ESCO Technologies (ESE) Q3 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q3 FY26)· Information Technology· Aug 6, 2026

Source: earnings call transcript

Executive summary

ESCO Technologies Q3 FY26 — Record Backlog and Strong EPS Growth

ESCO Technologies delivered a strong Q3 FY26, marked by record backlog and robust earnings growth, driven by broad-based demand in Aerospace & Defense, Utility, and Test segments. The company is progressing with the Megger acquisition, expected to close in Q1 FY27, which will significantly expand its Utility Solutions offering. While the renewables market remains a headwind for the NRG business, management is optimistic about a return to growth in FY27 and is implementing an enterprise-wide continuous improvement process to enhance execution.

Highlights

5

  • Consolidated book-to-bill ratio of 1.21, indicating strong demand across segments.

  • Record backlog reached $1.54 billion, providing a solid foundation for future growth.

  • Adjusted earnings per share increased by 37.5% to $2.20.

  • Adjusted EBIT margins improved by 90 basis points to 22%.

  • Year-to-date operating cash flow significantly increased to over $193 million.

Concerns

3

  • Utility Solutions Group (USG) adjusted EBIT margins declined by 130 basis points.

  • Weak orders performance at NRG, with renewables markets remaining very soft.

  • NRG margins are 'scuffling along the bottom,' operating at low double-digit levels.

Guidance & targets

CategoryTargetConfidence
Full-year adjusted earnings per share
$8.30 to $8.40
high materiality
High
Megger acquisition closing
Q1 FY27
high materiality
High
Aerospace and Defense organic revenue growth
8% to 10%
medium materiality
Medium
Test organic revenue growth
10% to 12%
medium materiality
Medium
Utility overall organic revenue growth
4% to 6%
medium materiality
Medium
Doble organic revenue growth
low double digit
medium materiality
Medium
Cost of debt for Megger acquisition
around 6%
medium materiality
High
FY27 guidance inclusion of Megger
Included in November announcement
high materiality
High

Segment performance

SegmentRevenueYoYQoQMargin
Consolidated
Strong top-line growth translating to better growth in adjusted earnings and operating cash flow. All three segments delivered book-to-bill ratios over 100%.
Book-to-bill ratio: 121%Backlog: $1.54 billion (record)Organic sales growth: 8%Incremental sales from Maritime: $23 millionAdjusted EPS: $2.20Adjusted EPS growth: 37.5%
—14% reported—22% adjusted EBIT margin
Aerospace and Defense
Another strong quarter with all parts of the core platform performing well. Margin increases were due to leveraging sales growth and increased prices. Orders were down year-over-year due to prior year's Maritime acquisition and large Navy orders not fully repeating.
Book-to-bill ratio: 116%Backlog: $1.1 billionOrganic sales growth: 9%Commercial aerospace organic growth: 10%Defense aerospace organic growth: 10%Navy business organic growth: 10%Adjusted EBIT margin increase: 120 bps
$168 million23% reported—30% adjusted EBIT margin
Utility Solutions Group
Orders and sales growth driven by exceptional performance at Doble, which continues to see strong end market activity. Weak orders performance at NRG due to soft renewables markets offset Doble's margin increases.
Orders growth: 20%Doble orders growth: 30%Doble sales growth: 17%NRG orders performance: weak
—8%—Adjusted EBIT margins declined 130 bps
Test
Another good quarter with order growth driven by industrial shielding products, projects, and EMI filters in the U.S. Margin improvement was driven by volume leverage, somewhat offset by inflationary pressures.
Orders growth: 42%Adjusted EBIT margin increase: 50 bps
—5%—16.4% adjusted EBIT margin

Orderbook & backlog

Consolidated Backlog $1.54 billion Q3 FY26

record level

Consolidated Book-to-bill ratio 1.21 Q3 FY26
Aerospace and Defense Backlog $1.1 billion Q3 FY26

Business continues to be situated well for future growth.

Aerospace and Defense Book-to-bill ratio 1.16 Q3 FY26

Deals & partnerships

Megger Acquisition to build greater scale in utility solutions and reinforce role as a trusted partner to utility customers.

Regulatory filing process is tracking to expectations. Teams are actively collaborating on integration planning for efficient, well-coordinated integration.

Maritime Acquisition that contributed to backlog.

The acquisition took place in last year's third quarter, impacting year-over-year order comparisons.

Risks & headwinds

Soft renewables market Q3 FY26, expected through Q4 FY26

NRG orders weak; NRG margins low double-digit, 'scuffling along the bottom'.

Mitigation:Taken some costs out of NRG business; expecting sequential growth and return to high single-digit growth in FY27.

Unfavorable mix in Doble Q3 FY26

Modest margin increase at Doble, offset by unfavorable mix from high voltage lines.

Mitigation:Not explicitly stated, but Doble margins were up vs last year despite the mix.

Inflationary pressures Q3 FY26

Somewhat offset Test segment margin improvement.

Mitigation:Anticipating and trying to get ahead of it, but not material in Q3 numbers.

Permitting issues and tariffs for wind projects Ongoing

Structural cost incurred on the wind side from tariffs; permitting issues due to current administration's animosity.

Mitigation:Belief that wind and solar remain attractive and affordable on a levelized cost of energy basis, expecting return to growth over time.

Surface ship revenue pushouts Prior quarters, stabilized in Q3 FY26

Prior pushouts due to challenges at yards.

Mitigation:Recovery plan put in place has unfolded as expected; programs continue to be watched closely.

What to watch in Q4 FY26

Megger acquisition closing

Q1 FY27
Current Regulatory process tracking to expectations
Target Closed

Why it matters

This acquisition is a significant milestone to build greater scale in utility solutions and reinforce ESCO's global market position.

We continue to believe that this process should be completed in a time frame that results in closing the deal in the first quarter of our fiscal 2027.

Find out whether ESE delivers this. Inve re-checks your case every morning.

Q&A highlights

Can you provide more detail on the customer base for data center orders in the Test business, and has it broadened?

Management stated that while not every data center requires EMP protection, commercial data centers housing government data or critical infrastructure increasingly do. They have a couple of good customers in this space and are doing well in market attainment, seeing some improvement in the outlook.

“It's important to remember that not every data center has a requirement for this kind of EMP protection. But any commercial data center that's going to house government data, utility systems, that sort of thing, those critical infrastructure, they tend to have this requirement.”

asked by Thomas Moll · answered by Bryan Sayler

2 min read 6 chapters

Detailed narrative

Strong Demand and Record Backlog

ESCO Technologies experienced positive momentum across all business segments in Q3 FY26, driven by strong demand in aerospace, utility, and test markets. The consolidated book-to-bill ratio reached 1.21, leading to a record-high backlog of $1.54 billion. This robust order intake and backlog position the company for continued revenue and earnings growth.

Aerospace & Defense Market Outlook

The Farnborough Airshow reinforced a durable, multiyear production cycle for the aerospace industry, with a global aircraft backlog of approximately 18,000 and an estimated unmet demand of an additional 5,000 aircraft. Defense spending is also accelerating due to a complex geopolitical backdrop. The Navy's commitment to submarine programs, including the recent award for 9 Block VI Virginia class and 5 Columbia class submarines, further strengthens ESCO's long-term outlook in this segment.

Utility Solutions Driven by Electrification Trends

Doble, within the Utility Solutions group, achieved double-digit revenue growth year-to-date, fueled by rising power demand, electrification, and grid modernization. Utilities are investing in tools to maintain aging assets, diagnose failures, and ensure reliability as they expand capacity for data centers, EVs, and industrial electrification. This creates durable demand for utility test instrumentation providers.

Megger Acquisition Progress and Integration

The regulatory filing process for the Megger acquisition is proceeding smoothly and is expected to close in Q1 FY27. ESCO and Megger teams are actively collaborating on integration planning to ensure an efficient transition and achieve anticipated synergies. This acquisition is a significant milestone to build greater scale in utility solutions and reinforce ESCO's global market position.

Test Business Momentum and Data Center Demand

The Test business recorded strong order growth of 42% in Q3, primarily driven by industrial shielding projects and electromagnetic interference (EMI) filters. These orders are related to secure shielded rooms in the U.S. and Europe, and EMI filters for commercial and government data centers, indicating robust market activity in EMC test and measurement and power filter demand.

NRG Segment Challenges and Future Outlook

The NRG business continues to face challenges due to a soft renewables market, resulting in weak orders and margin declines. Management expects tough year-over-year comparisons through Q4 FY26, but sequential growth is encouraging. The long-term outlook for renewables remains positive due to affordability, with a return to growth anticipated in FY27, particularly for solar.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.