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TWIN
Earnings call · Jun 2026 (Q4 FY26)

TWIN DISC Q4 FY26 earnings call TWIN

Aug 20, 2026 Source

Executive summary

Twin Disc Q4 FY26 — Record Revenue and Strong Backlog Drive Growth

Twin Disc closed fiscal 2026 with record fourth-quarter revenue, driven by robust demand in marine and land-based transmissions, particularly from defense and e-frac opportunities. Despite gross margin pressure from product mix and tariffs, strong operating leverage and free cash flow generation supported a dividend increase. The company maintains a healthy backlog and project pipeline, positioning it for continued growth towards its 2030 financial targets.

Highlights

7

  • Record Q4 FY26 revenue of $114.4 million, an 18.3% increase year-over-year.

  • Operating income increased 19.5% to $7.8 million in Q4 FY26.

  • Net income attributable to Twin Disc was $9.4 million, or $0.64 per diluted share, in Q4 FY26, up from $2.6 million or $0.19 per diluted share in prior year.

  • EBITDA grew 35.1% year-over-year to $11.1 million in Q4 FY26, with margin expanding 120 basis points to 9.7%.

  • Strong free cash flow of $17.2 million generated in Q4 FY26.

  • Quarterly dividend increased by 25% to $0.05 per share.

  • Defense backlog increased 56% year-over-year and 53% quarter-over-quarter, comprising 17% of total backlog.

Concerns

3

  • Gross margin decreased 600 basis points to 26.3% in Q4 FY26, primarily due to product mix, tariff dilution, and a prior year favorable adjustment.

  • Tariff dilution specifically decreased gross margin by 60 basis points in Q4 FY26.

  • Industrial sales decreased modestly compared with the prior year.

Guidance & targets

CategoryTargetConfidence
Full-year revenue
$500 million
high materiality
High
Gross margins
30%
high materiality
High
Free cash flow conversion
greater than 60%
high materiality
High
Capital expenditures
north of $20 million
medium materiality
High

Segment performance

SegmentRevenueYoYQoQMargin
Marine and Propulsion Systems
Growth driven by strong demand for propulsion platform, performance of the Kobelt product line, improved military demand for marine transmissions, improved commercial maritime demand in Asia, and overall strong market conditions.
—20%——
Land-based Transmission
Growth primarily due to improved shipment volumes, strong performance in oil and gas (e-frac opportunities), strengthening demand in North America and Asia, increasing global demand for energy-related products, and progress on next-generation electrified and hybrid solutions.
—26%——
Industrial
Sales decreased modestly year-over-year but the company remains encouraged by stabilization and opportunities from the Kobelt product line and Katsa, which is positioned as a strong near-term growth driver due to military and trade demand, and initial orders in the data center vertical.
—decreased modestly——
Europe
Accounted for 41% of Q4 FY26 sales, primarily driven by contributions from acquisitions including Katsa. Full year sales contribution was 42%.
41% of sales———
North America
Accounted for 29% of Q4 FY26 sales, continuing to increase related to the addition of Kobelt and improving demand for Veth products. Full year sales contribution was 30%.
29% of sales———
Asia Pacific
Accounted for 22% of Q4 FY26 sales. Full year sales contribution was 19%.
22% of sales———

Orderbook & backlog

6-month Backlog $178.3 million June 30, 2026

consistent with Q3 FY26 ($179.5 million)

Maintained despite strong shipments and efforts to reduce past due backlog.

Defense Backlog 17% of total backlog June 30, 2026

up 56% YoY; up 53% QoQ

Key structural growth driver, supported by increasing demand from U.S. Navy and NATO. The 53% QoQ increase was confirmed by management in Q&A.

Defense Sales Pipeline $30 million to $50 million June 30, 2026

Management is conservative and believes they have a better than 50-50 shot of winning all of these projects.

Capital programs

Finland Facility Expansion underway
Start: Q4 FY26

Benefit:add test stand and assembly capacity

Broken ground on new facility for Katsa to support expected growth in European defense demand. Walls are up, roof going on, aiming to be enclosed by end of calendar year, but full operational impact not until FY28.

ARFF Assembly Relocation underway
Start: Q4 FY26

Benefit:reduce tariff exposure; increase Racine capacity for marine and oil & gas transmissions

Relocating ARFF assembly to Lufkin, Texas, which is in a free trade zone, to reduce tariff exposure on components sourced in India. This also frees up capacity in Racine.

Racine Capital Equipment Investment underway
Start: Q4 FY26

Benefit:increase output

Two significant capital purchases have come in: a 1.2-meter hob and a 1.2-meter grinder. More CapEx is on the way to increase capacity.

Risks & headwinds

Gross Margin Contraction Q4 FY26

decreased 600 bps to 26.3% in Q4 FY26

Mitigation:Prioritizing higher-margin opportunities like e-frac; relocating ARFF assembly to Lufkin, Texas to reduce tariff exposure.

Tariff Dilution Q4 FY26

decreased gross margin by 60 bps in Q4 FY26

Mitigation:Proactively working to mitigate impacts, including moving ARFF assembly to Lufkin, Texas.

Industrial Sales Decline Q4 FY26

decreased modestly compared with prior year

Mitigation:Encouraged by stabilization and opportunities from Kobelt product line and Katsa.

What to watch in Q1 FY27

Finland Facility Progress

next quarter
Current Walls up, roof going on
Target Enclosed by end of calendar year

Why it matters

Completion of the Finland facility is crucial for expanding Katsa's test and assembly capacity, supporting growth in European defense demand.

I'm hoping that, you know, we will be enclosed and starting to move stuff in, you know, the end of the calendar year, but it's really, I would say that, you know, the impact of being fully operational is not going to be until, I would say, fiscal '28.

Q&A highlights

Request for timeline on the Finland facility and an update on capacity at the Racine facility.

The Finland facility is expected to be enclosed by the end of the calendar year, with full operational impact by fiscal 2028. Racine is increasing capacity by staffing up, adding capital equipment (1.2-meter hob and grinder), exploring second/third shift expansion, and relocating ARFF assembly to Lufkin, Texas, to free up space for marine and oil & gas transmissions.

“I'm hoping that, you know, we will be enclosed and starting to move stuff in, you know, the end of the calendar year, but it's really, I would say that, you know, the impact of being fully operational is not going to be until, I would say, fiscal '28.”

asked by Max Michaelis · answered by John Batten

2 min read 5 chapters

Detailed narrative

Defense Business as a Structural Growth Driver

Defense activity is a key structural growth driver, supported by increasing demand from customers including the U.S. Navy for unmanned autonomous vessel programs and NATO for driveline components via the Finnish subsidiary, Katsa. Defense comprises 17% of the total backlog, representing a 56% increase year-over-year. The defense-related sales pipeline contributed $30 million to $50 million as of June 30, with management confident in winning these projects. The company views defense as a reliable and durable multiyear growth driver, with new programs eyed for FY27 including fast patrol boats with Arneson and Rolla propellers, and continuation on the M88 Hercules tank retriever.

Oil & Gas Segment Performance and Strategy

The oil and gas segment performed well in the quarter, trending positively by prioritizing higher-margin e-frac opportunities. This segment is expected to be a key driver of improved margin profile. Oil and gas revenue accounted for over 10% of overall revenue in Q4 FY26, doubling the average of the first three quarters of the fiscal year. Improving sentiment from North American energy customers points to additional investment in frac rigs, positioning the company for enhanced performance.

Capacity Expansion and Tariff Mitigation Efforts

Twin Disc is expanding capacity and mitigating tariff impacts. A new facility in Finland for Katsa has broken ground to add test stand and assembly capacity, expected to be fully operational by fiscal 2028. The company is also relocating ARFF assembly to Lufkin, Texas, to reduce tariff exposure on components sourced from India and free up capacity in Racine for marine and oil and gas transmissions. Racine is adding significant capital equipment, including a 1.2-meter hob and a 1.2-meter grinder, and exploring expansion of second and third shifts to meet volume demands.

Strong Backlog and Project Pipeline

The 6-month backlog at the end of Q4 FY26 was approximately $178.3 million, consistent with the prior quarter's $179.5 million, despite strong shipments and efforts to reduce past-due backlog. This demonstrates the strength of the company's pipeline and demand across product groups. The total backlog remains strong and is supported by a robust project pipeline and considerable sales momentum in the markets served.

Inventory Accounting Method Change

In Q4 FY26, Twin Disc changed its accounting method for certain inventories from LIFO to FIFO. This change is preferable as it provides better matching of costs and revenues, and conforms inventory to a single accounting method. The impact of this change resulted in a $30 million increase in inventory for the fiscal year ended June 30, 2026, and also allowed the company to utilize expiring tax credits, contributing to a valuation allowance reversal.

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