ESCO Technologies (NYSE:ESE) reported a strong start to fiscal 2026, driven by a sharp increase in orders, solid organic growth across its businesses, and added scale from the ESCO Maritime acquisition. Management highlighted broad-based demand across aerospace and defense, improving momentum in the Test segment, and continued strength in utility-related offerings at Doble, partially offset by near-term weakness tied to renewable project timing in its NRG business.
Record first-quarter results and order momentum
President and CEO Bryan Sayler said the company booked more than $550 million in orders in the first quarter, an increase of 143% versus the prior-year period. He noted that all three segments posted double-digit order growth, led by aerospace demand and “large Navy orders” tied to the Maritime and Globe businesses.
Segment performance: Aerospace & Defense leads growth
In Aerospace & Defense, ESCO posted a standout quarter. CFO Chris Tucker said segment orders exceeded $380 million, compared with $75 million in the prior-year quarter. He attributed the increase to strong commercial and military aircraft order activity, along with robust Navy demand.
Management described Navy order activity as “lumpy,” with Sayler noting the company previously referenced a large U.K. order and that U.S. activity in the quarter included roughly $30 million tied to Virginia-class Block VI. While Sayler said ESCO expects continued activity, he cautioned that timing can vary significantly by quarter.
Sales for the Aerospace & Defense segment were $144 million, up sharply, with Tucker citing 14% organic growth driven by strength in commercial aerospace, defense aerospace, and Navy programs. Adjusted EBIT margin in the segment rose to 26.5%, improving by more than 500 basis points. Tucker said margin expansion reflected leverage on higher sales volumes, pricing, and a favorable aftermarket mix.
On the commercial aerospace side, Sayler said ESCO saw a “robust return to orders” from OEM customers following what he described as a softer order environment in 2025 amid supply chain inventory management. He added that ESCO follows OEM production targets closely but builds a “little bit of discount” into its own outlook due to skepticism around the pace at which OEMs can reach stated build-rate goals.
In military aircraft outside of Navy programs, Sayler said strength was “pretty broad-based,” highlighting content on the F-15EX platform and activity related to the F-47, along with continued contributions from “traditional” programs including the F-35 and missile programs.
Utility Solutions: Doble strength offsets renewables weakness
Utility Solutions posted mixed results. Tucker said segment orders rose 10% in the quarter, with 15% order growth at Doble driving the increase. Backlog ended at nearly $155 million, up 8% since September 30. Segment sales grew just 1%, as Doble’s 6% revenue growth was “mostly offset” by declines at NRG.
Sayler described strong order flow at Doble in services, condition monitoring, and offline test equipment, while noting that renewables demand has been pressured as U.S. developers focus on completing existing projects to satisfy safe-harbor provisions tied to tax credits expiring in July. He said this has slowed new domestic renewables investments in the near term, though the company remains optimistic about renewables as a long-term, cost-competitive source of generation.
On profitability, Tucker said Utility Solutions adjusted EBIT dollars declined just over 4%, as price increases and volume leverage at Doble did not fully offset margin declines at NRG.
Asked whether the renewables-related weakness is near a trough, Sayler said ESCO expects activity to “revert” in the second half of fiscal 2026, potentially in the company’s fourth quarter or the first quarter of the next fiscal year. He characterized the post-Inflation Reduction Act period as having “turbocharged” the market for several years, with the current period representing a recalibration.
Test segment accelerates; company raises full-year guidance
The Test business delivered a strong start to the year, with Tucker reporting orders up more than 17% and sales up nearly 27%. He said demand was robust across U.S. test and measurement, industrial shielding, medical shielding, and power filters. Adjusted EBIT margin improved to 13.8%, up 320 basis points, supported by volume leverage, pricing, and cost containment.
Sayler attributed the quick improvement to a broad rebound in core markets such as electromagnetic compatibility and medical shielding, including a couple of “good-sized” orders that arrived early enough to impact revenue within the fiscal year. He also cited a return to more regular orders in the company’s EMP filter product line used in government data center applications. He said wireless remains a weaker area, though it showed some growth off a low base, and added that Europe and the U.S. were the strongest geographies for Test in the quarter.
Given the first-quarter performance and record backlog, ESCO raised its full-year outlook. Tucker said the company increased its fiscal 2026 sales guidance by $20 million at the midpoint to a range of $1.29 billion to $1.33 billion, driven primarily by the Test segment. The Test revenue growth outlook was raised to 9% to 11%, from an original expectation of 3% to 5%, and the company also nudged Aerospace & Defense sales expectations higher.
ESCO also updated its expected full-year tax rate to 23% to 23.5%, down from the prior outlook of 23.7% to 24.1%, reflecting what Tucker described as a favorable first-quarter tax rate. Adjusted EPS guidance was raised to $7.90 to $8.15, which Tucker said represents an increase of $0.38 at the midpoint versus prior guidance and implies 31% to 35% growth compared to fiscal 2025 adjusted EPS.
Cash flow and capital allocation priorities
ESCO generated strong cash flow in the quarter. Tucker said operating cash flow from continuing operations more than doubled to $68.9 million, led by an increase in contract liability tied to the company’s Navy businesses. He also noted slightly higher capital spending and a payment of just over $5 million for the final working capital settlement related to the ESCO Maritime acquisition.
On capital allocation, Sayler said that following the sale of the VACCO business and progress integrating the Maritime acquisition, ESCO’s cash flow has been “outstanding” and leverage is “pretty low.” He said the company is actively rebuilding its M&A pipeline, sees a healthy market with multiple prospects, and suggested it could complete a deal within the year, though he did not provide specifics.
Sayler said ESCO’s acquisition focus remains targeted, emphasizing:
- Utility-related businesses
- Aircraft components
- Navy-related markets
He said those areas align with markets where ESCO has experience and sees favorable long-term secular growth characteristics.
Regarding the large Maritime orders, Sayler said they were in line with expectations since the acquisition closed at the end of April. He added that the revenue impact would be limited in fiscal 2026—potentially beginning in the fourth quarter—while contributing more meaningfully in 2027 and 2028 as long-term contract work ramps.
About ESCO Technologies (NYSE:ESE)
ESCO Technologies Inc is a diversified manufacturer of engineered products and systems designed to meet customers’ critical performance requirements in the test, measurement, control, and filtration of data, fluids, and gases. The company serves a wide range of end markets, including commercial aerospace, defense, industrial, medical, and communication network sectors. ESCO’s solutions are tailored to environments where reliability, precision and regulatory compliance are paramount.
Operating through multiple business segments, ESCO Technologies delivers test and measurement instruments such as RF and microwave components, signal distribution systems, and integrated test enclosures that support defense and aerospace programs.
