NYSE:ESE ESCO Technologies Q2 2024 Earnings Report $150.44 -2.36 (-1.54%) As of 03:58 PM Eastern Earnings HistoryForecast ESCO Technologies EPS ResultsActual EPS$0.94Consensus EPS $0.88Beat/MissBeat by +$0.06One Year Ago EPS$0.76ESCO Technologies Revenue ResultsActual Revenue$249.10 millionExpected Revenue$241.15 millionBeat/MissBeat by +$7.95 millionYoY Revenue Growth+8.70%ESCO Technologies Announcement DetailsQuarterQ2 2024Date5/9/2024TimeAfter Market ClosesConference Call DateThursday, May 9, 2024Conference Call Time5:00PM ETUpcoming EarningsESCO Technologies' Q2 2025 earnings is scheduled for Thursday, May 8, 2025, with a conference call scheduled at 5:00 PM ET. Check back for transcripts, audio, and key financial metrics as they become available.Q2 2025 Earnings ReportConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by ESCO Technologies Q2 2024 Earnings Call TranscriptProvided by QuartrMay 9, 2024 ShareLink copied to clipboard.There are 6 speakers on the call. Operator00:00:00Good day, and thank you for standing by. Welcome to the Second Quarter 2024 ASCO Technologies Earnings Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. On the call today, we have Brian Saylor, President and CEO Chris Tucker, Senior Vice President and CFO. Operator00:00:48And now, I would like to hand the conference over to our first speaker today, Kate Lowrey, Vice President of Investor Relations. Kate, you now have the floor. Speaker 100:01:00Thank you. Statements made during this call, which are not strictly historical, are forward looking statements within the meaning of the Safe Harbor provisions of the federal securities laws. These statements are based on current expectations and assumptions, and actual results may differ materially from those projected in the forward looking statements. Due to risks and uncertainties that exist in the company's operations and business environment, including, but not limited to, the risk factors referenced in the company's press release issued today, which will be included as an exhibit to the company's Form 8 ks to be filed. Glenda take no duty to update or revise any forward looking statements except as may be required by applicable laws or regulations. Speaker 100:01:39In addition, during this call, the company may discuss some non GAAP financial measures in describing the company's operating results. A reconciliation of these measures to their most comparable GAAP measures can be found in the press release issued today and found on the company's website at www.escotechnologies.com under the link Investor Relations. Now I'll turn the call over to Brian. Speaker 200:02:00Thanks, Kate, and thanks, everyone, for joining today's call. We appreciate you taking time to get an update from ESCO this afternoon. We are pleased with the 2nd quarter results and are especially excited about the continued top line momentum across our business platforms. Sales were up by 9% over the prior year Q2 as our Aerospace, Navy and Utility businesses continue to see robust end market dynamics. It's been busy over the last month as we work through our annual strategic planning process with each of our subsidiaries. Speaker 200:02:39This is a chance for us to step back and examine what's happening in our end markets and to work on strategies to deliver above market organic growth. This year's sessions have been particularly energizing as we've seen several long term trends across the broader economy that support good growth profile as we move ESCO forward. Chris will run you through all of the financial details on the Q2. But before that, I want to pass along a few highlights from the strategy reviews and give you some sense for some of the longer term dynamics that we are seeing. Starting with Aerospace and Defense, we continue to feel very good about the outlook here. Speaker 200:03:20As you saw in the release, we still have high levels of backlog and the top line sales growth has been strong. The most exciting thing here is what remains in front of us. Our key markets are commercial and defense aerospace, navy and space. And while each of these have different drivers, fundamentally, they all provide a great foundation for future growth. Commercial and Defense Aerospace customers are working to execute on long term build plans to increase build rates, which underpin a strong forecast for ESCO. Speaker 200:03:55The Navy remains committed to ramping up submarine production in a manner that will drive significant growth for us. We are also involved in some early stage developmental projects with positive long term outlooks. We are driving for high single digit organic growth from these businesses through the planning cycle. Next is the Utility Group, where the outlook remains bullish. You don't have to look very deep into the headlines to find the growth drivers here: an aging electric grid increasing power demand from technology and industrial investments in the U. Speaker 200:04:29S. And decarbonization goals around the world are driving the need for even more electrification. At ESCO, we have a very well established diagnostic instrumentation business at Doble that is positioned to capitalize on these market factors and deliver continued excellent results. Additionally, our capabilities in the renewables market have already delivered tremendous results for ESCO, and there's more to come. These businesses are highly focused on new product and technology roadmaps to continue meeting customer needs while maintaining our lead in these growing markets. Speaker 200:05:06Finally, I'll touch on the test business. As we discussed last quarter and as you can see from the press release, Test got off to a tough start to the year at Q1. And although the revenue softness continued in Q2, the business was able to deliver sequential growth and return to double digit profitability. It's never fun to go through these kinds of business cycles, but the team is really doing a great job of managing through the current challenges. We've been quick to get cost out of the business, and we are well positioned as growth returns. Speaker 200:05:38We had a great strategy review with this team, and the long term outlook is bright. This business has broad test and measurement capabilities that apply to a number of end markets and we certainly expect growth to return in 2025 and beyond. While our primary focus is on organic growth and driving strategies to grow our existing business faster than the markets they serve, while improving operational effectiveness and expanding returns, we are seeing increased opportunities to add to the business through strategic acquisitions, which increase our exposure to our existing long term growth markets. Hopefully, that gives you a flavor of the things that we've been working on over the past month and a sense of the excitement that we have for the future. As we pivot back to the quarter, I'll turn it over to Chris now, and he will go through the specifics for the great quarter that we just announced. Speaker 300:06:31Thanks, Brian. Everyone can follow along on the chart presentation. We will start on Page 3, where we have the overall financial highlights of the 2nd quarter. Overall, as Brian mentioned, the quarter was strong. Starting with orders, you can see there was a 5% reduction in orders compared to last year's Q2, but the pace of business remains good and we finished the quarter with $838,000,000 of backlog, which is nearly $100,000,000 higher than March 31 last year. Speaker 300:07:01Sales in the quarter were up 9% with organic growth of 8% and 1% from the MPE acquisition. 2 of the 3 segments delivered double digit sales growth in the quarter. The sales performance translated to strong earnings growth with adjusted EBIT up 130 basis points to 13.5 percent and adjusted earnings per share up 24% to $0.94 Moving to Chart 4, we will start on the segment details, beginning with Aerospace and Defense. These businesses continue to deliver strong results. Beginning with orders we achieved a 4% order growth in the quarter and finished with $562,000,000 of backlog, which represents an increase of $78,000,000 since the beginning of the fiscal year. Speaker 300:07:49Moving on to sales. Overall growth was 16%, which was all organic. The sales growth was led by strength from the commercial and defense aerospace businesses, which were up 14% 20% respectively. The Navy businesses were also very strong in the quarter delivering 32% growth. Adjusted EBIT margins in the quarter increased by 80 basis points as we saw nice leverage on the sales growth and favorable impacts from price, which were partially offset by inflation and mix. Speaker 300:08:20On Chart 5, we have the Utility Solutions Group. We had another great quarter here with orders. Orders were down in the quarter, which was driven by modest reductions at Doble and a larger decline at NRG. The Renewables business saw exceptional order growth through June 30 last year, a strong industry dynamics and government incentive programs spurred customer orders. Since then, the order pace has moderated and the business has burned down backlog. Speaker 300:08:50We are starting to see increasing order pipeline activity in the renewables business and we expect to see order growth return as we move beyond the 3rd quarter. Sales for USG were up 10% in the 2nd quarter with double digit increases for Doble and NRG. For Doble, we saw strong growth on the services side of the business and for NRG, we continue to see nice growth from solar. Adjusted EBIT margins were up 2 30 basis points as the business experienced favorable mix, nice leverage on sales growth and price increases which more than offset inflationary impacts. Next is Chart 6 where we have the Test business. Speaker 300:09:33Orders here decreased 21% compared to last year's Q2. This was driven by lower orders from the U. S. Wireless market and delays on a few large projects, which are expected to be booked in the Q3. Despite the orders drop in the Q2, you can see the backlog has still grown since the beginning of the year. Speaker 300:09:52This business continues to see good levels of activity, but as we mentioned last quarter, the timing to execute on some projects has been pushed out by customers, which is also driving lower sales levels. On the sales line, the business was down 8% with organic sales dropping by 12% and the NPE acquisition adding 4 points of growth. The largest declines came in the U. S. Where we saw reductions in wireless filters and acoustic product lines. Speaker 300:10:20Adjusted EBIT margins declined to 12.2% in the quarter as cost reduction efforts were not able to offset deleverage on the sales drop. We have executed a plan to take cost out of this business and this helped drive a nice sequential increase in profitability during the Q2. We expect this sequential improvement to continue as we move through fiscal 2024. On Chart 7, we have the cash flow highlights. We continue to show favorability to last year with $19,000,000 of operating cash flow so far this year compared to a cash use of $5,500,000 last year. Speaker 300:10:56Favorability in accounts receivable was the main driver of the year to year improvement in operating cash flow. Capital spending in the 1st 6 months did increase driven investments from the Aerospace and Defense businesses where we are working to increase capacity and productivity to support the robust demand outlook. You can also see that we had acquisition spending in both years with MPE this year at just over $56,000,000 while last year we had the CMT acquisition for approximately $18,000,000 We have completed $7,000,000 of stock buybacks through March 31, 2024, which compares to $12,000,000 that was done through the 1st 6 months of last year. The last chart today is number 8, which is our 2024 guidance. The outlook for the full year remains unchanged and we remain on track to deliver adjusted earnings per share in the range of $4.15 to 4.30 dollars which represents a growth range of 12% to 16%. Speaker 300:11:54This remains predicated on sales growth in the range of 7% to 9%. 2024 shaping up to be another record year as we push to deliver revenue of more than $1,000,000,000 for the first time in ESCO history and we push for a 3rd year in a row of double digit growth in adjusted earnings per share. That concludes the financial update. Now I'll turn it back over to Brian. Speaker 200:12:16Thanks, Chris. Obviously, we delivered a very good Q2. The teams here at corporate and across our business segments did a great job in delivering exceptional top line and bottom line growth. There are always challenges when executing programs inside of business and I continue to be impressed by the commitment and dedication shown by our employees around the world. As always, I want to thank them for their hard work and dedication, which resulted in another solid quarter for ESCO. Speaker 200:12:47To close, we have entrenched market positions across growing end markets that we serve and remain on track to deliver our 2024 commitments for a 3rd record year in a row. That concludes the opening remarks, and we can open up the question and answer Operator00:13:31Our first question comes from Tommy Moll of Simmons Inc. Please go ahead. Speaker 400:13:37Good afternoon and thanks for taking my questions. Speaker 200:13:40Hi, Donnie. Speaker 400:13:42I wanted to start on Doble. I think orders were down slightly on a year over year basis. Revenues, if I'm doing my math correctly, were flattish on a quarter over quarter basis. And so the question would be if you could just give us an update on demand currently for that business. Thank you. Speaker 200:14:04Sure. Listen, we still feel good about overall demand at Doble. And we did have very good comps for orders in the prior year, but as you can see, we're moving the revenue up. Seeing good demand for our condition monitoring products and for services. We do have a pretty robust order pipeline and we've already begun to see some progress here in the Q3. Speaker 300:14:37And Tommy, this is Chris. I would also say we sequentially the Doble sales were up from Q1 to Q2. NRG was down slightly sequentially, but Doble was up inside Speaker 400:14:48of there. Thank you for clarifying there, Chris. And I just can't resist asking here, Brian, you threw out a bogey high single digits after your strategy review on the A and D side. Is there anything you want to use to frame the utility outlook after your review? Speaker 200:15:06Yes. I would say we're mid upper single digits over the planning horizon there. We listen, that's a those are markets that are growing very well. And I think we've got strategies, plans, product development in place that's going to allow us to grow faster than those markets. Speaker 400:15:27Thank you, Brian. And a quick one on test. Chris, I think I heard you say, you're looking for sequential improvement as you go through this year. I presume that applies to revenue and EBIT. It looks like revenues already bottomed and moved a little bit higher. Speaker 400:15:44But if you could just clarify what you meant there would be helpful. Thank you. Speaker 300:15:47Yes, that's right, Tommy. So we had a sequential sales and EBIT increase from Q1 to Q2. We would expect Q3 sales to be higher than Q2 and also margins to be higher than Q2 and then we would expect a similar dynamic as Q4. So we're kind still looking for that business to kind of ramp and get better as each quarter progresses. Speaker 400:16:10Thank you. I'll turn it back. Operator00:16:13Thank Just a moment for our next question please. Our next question comes from John Tawantin of CJS Securities. Please go ahead. Speaker 500:16:35Hi, this is Justin on for John. Can you quantify how much risk there is at Boeing and if they've communicated to you any changes in their needs? Speaker 200:16:46Sure. Listen, Boeing is clearly having a tough time of it, and we certainly look closely at the impact that Boeing might have both in the near term and over the longer term planning horizon during our strategic planning process. Our determination is that this is going to be a short term problem that will work itself out over several quarters. Boeing's build rates are expected to remain modest for 2024 and begin ramping up in 2025. We are the signals that we're receiving are to continue to produce at the rates that we've been contracted to do so. Speaker 200:17:31We have seen a little bit of a fall off in new orders at one of our 3 businesses that are serving the commercial aerospace side of Boeing. Nothing to be too concerned about, but definitely a noticeable change. The good news is that we are prepared to match their demand as needed, and we have the ability to kind of reallocate that the capacity that would have been devoted to Boeing to other programs and to meet our projected growth rates. Listen, I'd end by saying, listen, a healthy Boeing is good for our industry. And once they can get past this current crisis, we anticipate that, that will serve to raise our overall growth projections. Speaker 500:18:20All right. For that. That's really helpful. And then one more if I could. Should we read anything into the lower book to bill this quarter across the segments? Speaker 500:18:29And if you think there's any demand weakening or pushing out? Or is it more of the lumpy nature of orders? Speaker 200:18:37Well, I would say that on the test business, we've definitely seen lower orders in China and lower orders in wireless. So that would be I would not put that in the lumpy category, okay? But I would say that renewables, maybe the global business and certainly a lot of what's going on over in aerospace and defense, those are all pretty lumpy. We have as I said, we've got a strong pipeline in all of those categories and some of them are tracking some pretty large orders that would really make a big difference in terms of our book to bills. Speaker 300:19:18Yes. And I would just add on especially aerospace and defense, I mean it was still over 100% and that's after 2 quarters that were way over 100% as we had pretty big Navy orders over the last prior 6 months. So really still pretty strong there, I'd say. Speaker 500:19:37That's great. I appreciate the color. Thanks for taking the questions. Speaker 300:19:41Thank you. Operator00:19:44Thank you. Our next question comes from John Franzreb from Sidoti and Co. Please go ahead. Speaker 200:19:53Good afternoon, guys, and congratulations on the nice quarter. Speaker 400:19:58Hi, guys. Speaker 200:19:59If I heard you properly in your prepared remarks, it sounded like you were getting pricing in utility and tests. Can you talk a little bit about what kind of pricing you're pushing through? Speaker 300:20:12Yes. I mean, I think generally what we're getting in those places is still kind of in the 3% to 4 percent range, and we see that kind of ahead of inflationary numbers. So we kind of try to track what we're seeing on the commodity material side and as well and people inflation as well. And we're kind of we're still favorable on those measures as far as more price than cost. Speaker 200:20:38Got it. And coming back to the Test segment, you mentioned that there's been delays on a few large projects. I'm wondering, is there any common theme in those delays that you're seeing in your customers? Well, I think that there's been a as I said before, there's a general slowdown in the construction industry in terms of permitting, being able to get some key raw materials. And I think labor availability has been a big issue. Speaker 200:21:11So the buildings that we're waiting on are really large, big projects. And so we are seeing some improvement there and but nothing like a return to normal. At this point though, we believe that we have the access that we need to deliver significant sequential growth in the second half of the year. The projects that are moved out to next year, we've kind of set those into next year's plan now, and we anticipate that those will be executed on the revised schedule. I'm also hearing a lot permitting, but you expect everything to fall into fiscal 2024 still, but cannot be pushed to the right of that? Speaker 300:21:54Yes. I mean, we've already pushed a fair bit out to next year. That was kind of some of the reduction in the outlook for test that we kind of did after the Q1. And yes, we haven't seen that get worse necessarily, but we also haven't seen it get better. And I would also just say, John, that as far as some of the delays on orders and such as Brian mentioned, I mean, we do see a path to pretty big sequential improvement in orders as we go into Q3 versus Q4. Speaker 300:22:24And it looks like frankly some of that might even happen in April. So or has happened in April, I should say. So we expect that to get better, but again a lot of those bigger orders that would be coming in now would likely be more kind of 25 revenue type things. Speaker 200:22:41Great. Thanks for the color. And one last question, if I may. On the M and A front, can you kind of give us an update on targets and size and what kind of product lines you'd like to end? Maybe a little refresher, that'd be helpful. Speaker 200:22:54Sure. Well, first of all, I would say that in the past since our last call, we've seen a sharp increase in the investment opportunities that kind of meet our target profile, if you will. And we're actively engaged in those processes. We don't have anything to announce. We're not particularly close, but we are optimistic about our ability to get things done. Speaker 200:23:20When we talk about M and A, I think the first thing I want to remind you is that organic growth and operational execution are our primary focus. So we're not taking our eye off the ball there. Our organic growth profile over the planning horizon is really, really good. Having said that, several of those end markets that we talked about earlier have superior long term growth characteristics, And those are the ones that we would be the most focused on, and that would be commercial and military aerospace, navy and electrification. Great. Speaker 200:24:01Thank you guys and I'll get back into queue. Speaker 500:24:04Thank you. Operator00:24:07Thank you. I see no further questions at this time. I would now like to turn the conference back to Brian. Speaker 200:24:21Thanks. I apologize, I lost my place here. Speaker 300:24:26I think we're good. Good luck. All right. Speaker 200:24:28So thanks a lot, guys. We really appreciate you answering the questions or taking the quick questions with us. We look forward to another good quarter. Thank you. Operator00:24:43Thank you. This concludes today's conference call. Thank you all for participating. You may now disconnect. Have a great dayRead moreRemove AdsPowered by Conference Call Audio Live Call not available Earnings Conference CallESCO Technologies Q2 202400:00 / 00:00Speed:1x1.25x1.5x2xRemove Ads Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) ESCO Technologies Earnings HeadlinesEx-Dividend Reminder: Brixmor Property Group, AECOM and ESCO TechnologiesApril 2, 2025 | nasdaq.comESCO Technologies Inc. (NYSE:ESE) Shares Could Be 27% Above Their Intrinsic Value EstimateMarch 24, 2025 | finance.yahoo.comCrypto’s crashing…but we’re still profitingMost traders are panicking right now. Bitcoin’s dropping. Altcoins are bleeding. The stock market’s a mess. The news is screaming fear. But while most traders watch their portfolios tank…April 16, 2025 | Crypto Swap Profits (Ad)ESCO Technologies to Present at Sidoti Small Cap ConferenceMarch 10, 2025 | globenewswire.comEsco Technologies management to meet with StephensFebruary 24, 2025 | markets.businessinsider.comInvestors in ESCO Technologies (NYSE:ESE) have seen stellar returns of 136% over the past three yearsFebruary 24, 2025 | finance.yahoo.comSee More ESCO Technologies Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like ESCO Technologies? Sign up for Earnings360's daily newsletter to receive timely earnings updates on ESCO Technologies and other key companies, straight to your email. Email Address About ESCO TechnologiesESCO Technologies (NYSE:ESE) produces and supplies engineered products and systems for industrial and commercial markets worldwide. It operates through three segments: Aerospace & Defense, Utility Solutions Group, and RF Test & Measurement. The Aerospace & Defense segment designs and manufactures filtration products, including hydraulic filter elements and fluid control devices used in commercial aerospace applications; filter mechanisms used in micro-propulsion devices for satellites; and custom designed filters for manned aircraft and submarines. It also designs, develops, and manufactures elastomeric-based signature reduction solutions for U.S. naval vessels; and mission-critical bushings, pins, sleeves, and precision-tolerance machined components for landing gear, rotor heads, engine mounts, flight controls, and actuation systems for the aerospace and defense industries. The Utility Solutions Group segment provides diagnostic testing solutions that enable electric power grid operators to assess the integrity of high-voltage power delivery equipment; and decision support tools for the renewable energy industry, primarily wind and solar. The RF Test & Measurement segment designs and manufactures RF test and secure communication facilities, acoustic test enclosures, RF and magnetically shielded rooms, RF measurement systems, and broadcast and recording studios; and RF absorptive materials, filters, antennas, field probes, test cells, proprietary measurement software, and other test accessories to perform various tests. The company distributes its products through a network of distributors, sales representatives, direct sales teams, and in-house sales personnel. The company was incorporated in 1990 and is based in Saint Louis, Missouri.View ESCO Technologies ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Tesla Stock Eyes Breakout With Earnings on DeckJohnson & Johnson Earnings Were More Good Than Bad—Time to Buy? 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There are 6 speakers on the call. Operator00:00:00Good day, and thank you for standing by. Welcome to the Second Quarter 2024 ASCO Technologies Earnings Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. On the call today, we have Brian Saylor, President and CEO Chris Tucker, Senior Vice President and CFO. Operator00:00:48And now, I would like to hand the conference over to our first speaker today, Kate Lowrey, Vice President of Investor Relations. Kate, you now have the floor. Speaker 100:01:00Thank you. Statements made during this call, which are not strictly historical, are forward looking statements within the meaning of the Safe Harbor provisions of the federal securities laws. These statements are based on current expectations and assumptions, and actual results may differ materially from those projected in the forward looking statements. Due to risks and uncertainties that exist in the company's operations and business environment, including, but not limited to, the risk factors referenced in the company's press release issued today, which will be included as an exhibit to the company's Form 8 ks to be filed. Glenda take no duty to update or revise any forward looking statements except as may be required by applicable laws or regulations. Speaker 100:01:39In addition, during this call, the company may discuss some non GAAP financial measures in describing the company's operating results. A reconciliation of these measures to their most comparable GAAP measures can be found in the press release issued today and found on the company's website at www.escotechnologies.com under the link Investor Relations. Now I'll turn the call over to Brian. Speaker 200:02:00Thanks, Kate, and thanks, everyone, for joining today's call. We appreciate you taking time to get an update from ESCO this afternoon. We are pleased with the 2nd quarter results and are especially excited about the continued top line momentum across our business platforms. Sales were up by 9% over the prior year Q2 as our Aerospace, Navy and Utility businesses continue to see robust end market dynamics. It's been busy over the last month as we work through our annual strategic planning process with each of our subsidiaries. Speaker 200:02:39This is a chance for us to step back and examine what's happening in our end markets and to work on strategies to deliver above market organic growth. This year's sessions have been particularly energizing as we've seen several long term trends across the broader economy that support good growth profile as we move ESCO forward. Chris will run you through all of the financial details on the Q2. But before that, I want to pass along a few highlights from the strategy reviews and give you some sense for some of the longer term dynamics that we are seeing. Starting with Aerospace and Defense, we continue to feel very good about the outlook here. Speaker 200:03:20As you saw in the release, we still have high levels of backlog and the top line sales growth has been strong. The most exciting thing here is what remains in front of us. Our key markets are commercial and defense aerospace, navy and space. And while each of these have different drivers, fundamentally, they all provide a great foundation for future growth. Commercial and Defense Aerospace customers are working to execute on long term build plans to increase build rates, which underpin a strong forecast for ESCO. Speaker 200:03:55The Navy remains committed to ramping up submarine production in a manner that will drive significant growth for us. We are also involved in some early stage developmental projects with positive long term outlooks. We are driving for high single digit organic growth from these businesses through the planning cycle. Next is the Utility Group, where the outlook remains bullish. You don't have to look very deep into the headlines to find the growth drivers here: an aging electric grid increasing power demand from technology and industrial investments in the U. Speaker 200:04:29S. And decarbonization goals around the world are driving the need for even more electrification. At ESCO, we have a very well established diagnostic instrumentation business at Doble that is positioned to capitalize on these market factors and deliver continued excellent results. Additionally, our capabilities in the renewables market have already delivered tremendous results for ESCO, and there's more to come. These businesses are highly focused on new product and technology roadmaps to continue meeting customer needs while maintaining our lead in these growing markets. Speaker 200:05:06Finally, I'll touch on the test business. As we discussed last quarter and as you can see from the press release, Test got off to a tough start to the year at Q1. And although the revenue softness continued in Q2, the business was able to deliver sequential growth and return to double digit profitability. It's never fun to go through these kinds of business cycles, but the team is really doing a great job of managing through the current challenges. We've been quick to get cost out of the business, and we are well positioned as growth returns. Speaker 200:05:38We had a great strategy review with this team, and the long term outlook is bright. This business has broad test and measurement capabilities that apply to a number of end markets and we certainly expect growth to return in 2025 and beyond. While our primary focus is on organic growth and driving strategies to grow our existing business faster than the markets they serve, while improving operational effectiveness and expanding returns, we are seeing increased opportunities to add to the business through strategic acquisitions, which increase our exposure to our existing long term growth markets. Hopefully, that gives you a flavor of the things that we've been working on over the past month and a sense of the excitement that we have for the future. As we pivot back to the quarter, I'll turn it over to Chris now, and he will go through the specifics for the great quarter that we just announced. Speaker 300:06:31Thanks, Brian. Everyone can follow along on the chart presentation. We will start on Page 3, where we have the overall financial highlights of the 2nd quarter. Overall, as Brian mentioned, the quarter was strong. Starting with orders, you can see there was a 5% reduction in orders compared to last year's Q2, but the pace of business remains good and we finished the quarter with $838,000,000 of backlog, which is nearly $100,000,000 higher than March 31 last year. Speaker 300:07:01Sales in the quarter were up 9% with organic growth of 8% and 1% from the MPE acquisition. 2 of the 3 segments delivered double digit sales growth in the quarter. The sales performance translated to strong earnings growth with adjusted EBIT up 130 basis points to 13.5 percent and adjusted earnings per share up 24% to $0.94 Moving to Chart 4, we will start on the segment details, beginning with Aerospace and Defense. These businesses continue to deliver strong results. Beginning with orders we achieved a 4% order growth in the quarter and finished with $562,000,000 of backlog, which represents an increase of $78,000,000 since the beginning of the fiscal year. Speaker 300:07:49Moving on to sales. Overall growth was 16%, which was all organic. The sales growth was led by strength from the commercial and defense aerospace businesses, which were up 14% 20% respectively. The Navy businesses were also very strong in the quarter delivering 32% growth. Adjusted EBIT margins in the quarter increased by 80 basis points as we saw nice leverage on the sales growth and favorable impacts from price, which were partially offset by inflation and mix. Speaker 300:08:20On Chart 5, we have the Utility Solutions Group. We had another great quarter here with orders. Orders were down in the quarter, which was driven by modest reductions at Doble and a larger decline at NRG. The Renewables business saw exceptional order growth through June 30 last year, a strong industry dynamics and government incentive programs spurred customer orders. Since then, the order pace has moderated and the business has burned down backlog. Speaker 300:08:50We are starting to see increasing order pipeline activity in the renewables business and we expect to see order growth return as we move beyond the 3rd quarter. Sales for USG were up 10% in the 2nd quarter with double digit increases for Doble and NRG. For Doble, we saw strong growth on the services side of the business and for NRG, we continue to see nice growth from solar. Adjusted EBIT margins were up 2 30 basis points as the business experienced favorable mix, nice leverage on sales growth and price increases which more than offset inflationary impacts. Next is Chart 6 where we have the Test business. Speaker 300:09:33Orders here decreased 21% compared to last year's Q2. This was driven by lower orders from the U. S. Wireless market and delays on a few large projects, which are expected to be booked in the Q3. Despite the orders drop in the Q2, you can see the backlog has still grown since the beginning of the year. Speaker 300:09:52This business continues to see good levels of activity, but as we mentioned last quarter, the timing to execute on some projects has been pushed out by customers, which is also driving lower sales levels. On the sales line, the business was down 8% with organic sales dropping by 12% and the NPE acquisition adding 4 points of growth. The largest declines came in the U. S. Where we saw reductions in wireless filters and acoustic product lines. Speaker 300:10:20Adjusted EBIT margins declined to 12.2% in the quarter as cost reduction efforts were not able to offset deleverage on the sales drop. We have executed a plan to take cost out of this business and this helped drive a nice sequential increase in profitability during the Q2. We expect this sequential improvement to continue as we move through fiscal 2024. On Chart 7, we have the cash flow highlights. We continue to show favorability to last year with $19,000,000 of operating cash flow so far this year compared to a cash use of $5,500,000 last year. Speaker 300:10:56Favorability in accounts receivable was the main driver of the year to year improvement in operating cash flow. Capital spending in the 1st 6 months did increase driven investments from the Aerospace and Defense businesses where we are working to increase capacity and productivity to support the robust demand outlook. You can also see that we had acquisition spending in both years with MPE this year at just over $56,000,000 while last year we had the CMT acquisition for approximately $18,000,000 We have completed $7,000,000 of stock buybacks through March 31, 2024, which compares to $12,000,000 that was done through the 1st 6 months of last year. The last chart today is number 8, which is our 2024 guidance. The outlook for the full year remains unchanged and we remain on track to deliver adjusted earnings per share in the range of $4.15 to 4.30 dollars which represents a growth range of 12% to 16%. Speaker 300:11:54This remains predicated on sales growth in the range of 7% to 9%. 2024 shaping up to be another record year as we push to deliver revenue of more than $1,000,000,000 for the first time in ESCO history and we push for a 3rd year in a row of double digit growth in adjusted earnings per share. That concludes the financial update. Now I'll turn it back over to Brian. Speaker 200:12:16Thanks, Chris. Obviously, we delivered a very good Q2. The teams here at corporate and across our business segments did a great job in delivering exceptional top line and bottom line growth. There are always challenges when executing programs inside of business and I continue to be impressed by the commitment and dedication shown by our employees around the world. As always, I want to thank them for their hard work and dedication, which resulted in another solid quarter for ESCO. Speaker 200:12:47To close, we have entrenched market positions across growing end markets that we serve and remain on track to deliver our 2024 commitments for a 3rd record year in a row. That concludes the opening remarks, and we can open up the question and answer Operator00:13:31Our first question comes from Tommy Moll of Simmons Inc. Please go ahead. Speaker 400:13:37Good afternoon and thanks for taking my questions. Speaker 200:13:40Hi, Donnie. Speaker 400:13:42I wanted to start on Doble. I think orders were down slightly on a year over year basis. Revenues, if I'm doing my math correctly, were flattish on a quarter over quarter basis. And so the question would be if you could just give us an update on demand currently for that business. Thank you. Speaker 200:14:04Sure. Listen, we still feel good about overall demand at Doble. And we did have very good comps for orders in the prior year, but as you can see, we're moving the revenue up. Seeing good demand for our condition monitoring products and for services. We do have a pretty robust order pipeline and we've already begun to see some progress here in the Q3. Speaker 300:14:37And Tommy, this is Chris. I would also say we sequentially the Doble sales were up from Q1 to Q2. NRG was down slightly sequentially, but Doble was up inside Speaker 400:14:48of there. Thank you for clarifying there, Chris. And I just can't resist asking here, Brian, you threw out a bogey high single digits after your strategy review on the A and D side. Is there anything you want to use to frame the utility outlook after your review? Speaker 200:15:06Yes. I would say we're mid upper single digits over the planning horizon there. We listen, that's a those are markets that are growing very well. And I think we've got strategies, plans, product development in place that's going to allow us to grow faster than those markets. Speaker 400:15:27Thank you, Brian. And a quick one on test. Chris, I think I heard you say, you're looking for sequential improvement as you go through this year. I presume that applies to revenue and EBIT. It looks like revenues already bottomed and moved a little bit higher. Speaker 400:15:44But if you could just clarify what you meant there would be helpful. Thank you. Speaker 300:15:47Yes, that's right, Tommy. So we had a sequential sales and EBIT increase from Q1 to Q2. We would expect Q3 sales to be higher than Q2 and also margins to be higher than Q2 and then we would expect a similar dynamic as Q4. So we're kind still looking for that business to kind of ramp and get better as each quarter progresses. Speaker 400:16:10Thank you. I'll turn it back. Operator00:16:13Thank Just a moment for our next question please. Our next question comes from John Tawantin of CJS Securities. Please go ahead. Speaker 500:16:35Hi, this is Justin on for John. Can you quantify how much risk there is at Boeing and if they've communicated to you any changes in their needs? Speaker 200:16:46Sure. Listen, Boeing is clearly having a tough time of it, and we certainly look closely at the impact that Boeing might have both in the near term and over the longer term planning horizon during our strategic planning process. Our determination is that this is going to be a short term problem that will work itself out over several quarters. Boeing's build rates are expected to remain modest for 2024 and begin ramping up in 2025. We are the signals that we're receiving are to continue to produce at the rates that we've been contracted to do so. Speaker 200:17:31We have seen a little bit of a fall off in new orders at one of our 3 businesses that are serving the commercial aerospace side of Boeing. Nothing to be too concerned about, but definitely a noticeable change. The good news is that we are prepared to match their demand as needed, and we have the ability to kind of reallocate that the capacity that would have been devoted to Boeing to other programs and to meet our projected growth rates. Listen, I'd end by saying, listen, a healthy Boeing is good for our industry. And once they can get past this current crisis, we anticipate that, that will serve to raise our overall growth projections. Speaker 500:18:20All right. For that. That's really helpful. And then one more if I could. Should we read anything into the lower book to bill this quarter across the segments? Speaker 500:18:29And if you think there's any demand weakening or pushing out? Or is it more of the lumpy nature of orders? Speaker 200:18:37Well, I would say that on the test business, we've definitely seen lower orders in China and lower orders in wireless. So that would be I would not put that in the lumpy category, okay? But I would say that renewables, maybe the global business and certainly a lot of what's going on over in aerospace and defense, those are all pretty lumpy. We have as I said, we've got a strong pipeline in all of those categories and some of them are tracking some pretty large orders that would really make a big difference in terms of our book to bills. Speaker 300:19:18Yes. And I would just add on especially aerospace and defense, I mean it was still over 100% and that's after 2 quarters that were way over 100% as we had pretty big Navy orders over the last prior 6 months. So really still pretty strong there, I'd say. Speaker 500:19:37That's great. I appreciate the color. Thanks for taking the questions. Speaker 300:19:41Thank you. Operator00:19:44Thank you. Our next question comes from John Franzreb from Sidoti and Co. Please go ahead. Speaker 200:19:53Good afternoon, guys, and congratulations on the nice quarter. Speaker 400:19:58Hi, guys. Speaker 200:19:59If I heard you properly in your prepared remarks, it sounded like you were getting pricing in utility and tests. Can you talk a little bit about what kind of pricing you're pushing through? Speaker 300:20:12Yes. I mean, I think generally what we're getting in those places is still kind of in the 3% to 4 percent range, and we see that kind of ahead of inflationary numbers. So we kind of try to track what we're seeing on the commodity material side and as well and people inflation as well. And we're kind of we're still favorable on those measures as far as more price than cost. Speaker 200:20:38Got it. And coming back to the Test segment, you mentioned that there's been delays on a few large projects. I'm wondering, is there any common theme in those delays that you're seeing in your customers? Well, I think that there's been a as I said before, there's a general slowdown in the construction industry in terms of permitting, being able to get some key raw materials. And I think labor availability has been a big issue. Speaker 200:21:11So the buildings that we're waiting on are really large, big projects. And so we are seeing some improvement there and but nothing like a return to normal. At this point though, we believe that we have the access that we need to deliver significant sequential growth in the second half of the year. The projects that are moved out to next year, we've kind of set those into next year's plan now, and we anticipate that those will be executed on the revised schedule. I'm also hearing a lot permitting, but you expect everything to fall into fiscal 2024 still, but cannot be pushed to the right of that? Speaker 300:21:54Yes. I mean, we've already pushed a fair bit out to next year. That was kind of some of the reduction in the outlook for test that we kind of did after the Q1. And yes, we haven't seen that get worse necessarily, but we also haven't seen it get better. And I would also just say, John, that as far as some of the delays on orders and such as Brian mentioned, I mean, we do see a path to pretty big sequential improvement in orders as we go into Q3 versus Q4. Speaker 300:22:24And it looks like frankly some of that might even happen in April. So or has happened in April, I should say. So we expect that to get better, but again a lot of those bigger orders that would be coming in now would likely be more kind of 25 revenue type things. Speaker 200:22:41Great. Thanks for the color. And one last question, if I may. On the M and A front, can you kind of give us an update on targets and size and what kind of product lines you'd like to end? Maybe a little refresher, that'd be helpful. Speaker 200:22:54Sure. Well, first of all, I would say that in the past since our last call, we've seen a sharp increase in the investment opportunities that kind of meet our target profile, if you will. And we're actively engaged in those processes. We don't have anything to announce. We're not particularly close, but we are optimistic about our ability to get things done. Speaker 200:23:20When we talk about M and A, I think the first thing I want to remind you is that organic growth and operational execution are our primary focus. So we're not taking our eye off the ball there. Our organic growth profile over the planning horizon is really, really good. Having said that, several of those end markets that we talked about earlier have superior long term growth characteristics, And those are the ones that we would be the most focused on, and that would be commercial and military aerospace, navy and electrification. Great. Speaker 200:24:01Thank you guys and I'll get back into queue. Speaker 500:24:04Thank you. Operator00:24:07Thank you. I see no further questions at this time. I would now like to turn the conference back to Brian. Speaker 200:24:21Thanks. I apologize, I lost my place here. Speaker 300:24:26I think we're good. Good luck. All right. Speaker 200:24:28So thanks a lot, guys. We really appreciate you answering the questions or taking the quick questions with us. We look forward to another good quarter. Thank you. Operator00:24:43Thank you. This concludes today's conference call. Thank you all for participating. You may now disconnect. Have a great dayRead moreRemove AdsPowered by