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    ESE
    Earnings call· Jun 2026(Q3 FY26)

    ESCO TECHNOLOGIES Q3 FY26 earnings call ESE

    Aug 6, 2026 Source

    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

    8
    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

    4
    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

    Operational metrics

    16
    Organic orders growth
    19%
    YTD

    Significant order strength year-to-date.

    Organic sales growth
    11%
    YTD

    Strong sales performance year-to-date.

    Aerospace and Defense organic orders growth
    20%
    YTD

    Double-digit organic growth year-to-date.

    Aerospace and Defense organic sales growth
    12%
    YTD

    Strong sales performance year-to-date.

    Test organic orders growth
    26%
    YTD

    Double-digit organic growth year-to-date.

    Test organic sales growth
    18%
    YTD

    Strong sales performance year-to-date.

    Adjusted EBIT margins
    up 250 bps
    YTD

    Year-to-date improvement.

    Adjusted EPS
    increased by 55%
    YTD

    Year-to-date growth.

    EBITDA leverage
    0.2x
    Q3 FY26

    Low leverage, positioned well for Megger deal debt requirements.

    Free cash flow conversion to adjusted net earnings
    around 100%
    long-term target

    Structurally, the company targets 100% conversion, with current periods above due to timing of contract payments.

    Doble condition monitoring orders growth
    67%YoY
    Q3 FY26

    Led largely by large, high-voltage cable monitoring orders.

    Doble services orders growth
    13%YoY
    Q3 FY26

    Part of broad-based order strength.

    Doble protection orders growth
    23%YoY
    Q3 FY26

    Part of broad-based order strength.

    Doble off-line testing orders growth
    13%YoY
    Q3 FY26

    Part of broad-based order strength.

    Doble condition monitoring business share
    20%
    current

    Approximate share of the overall Doble business.

    NRG cost reduction
    —
    ongoing

    Management has taken some costs out of the business at NRG and will roll it into the larger Doble Megger platform as a business unit.

    Industry KPIs

    6
    MetricValueDetails
    Tariff cost impact—
    Parts aftermarket business30%%
    Data center prime power demand—
    Incremental margin operating leverage—
    Order backlog order intake by segment$1.54 billionUSD
    Industry production market size forecasts18,000 aircraftunits

    Orderbook & backlog

    4
    Consolidated Backlog$1.54 billionQ3 FY26

    record level

    Consolidated Book-to-bill ratio1.21Q3 FY26
    Aerospace and Defense Backlog$1.1 billionQ3 FY26

    Business continues to be situated well for future growth.

    Aerospace and Defense Book-to-bill ratio1.16Q3 FY26

    Deals & partnerships

    2
    MeggerAcquisition 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.

    MaritimeAcquisition that contributed to backlog.

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

    Risks & headwinds

    5
    Soft renewables marketQ3 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 DobleQ3 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 pressuresQ3 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 projectsOngoing

    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 pushoutsPrior 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

    5

    Megger acquisition closing

    Q1 FY27
    CurrentRegulatory process tracking to expectations
    TargetClosed

    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.

    Q&A highlights

    8

    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 read6 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    05

    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.

    06

    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.

    AI-generated summary of the company’s earnings call. Not investment advice.