GuruFocus -
- Orders: Decline of 15% in the fourth quarter; record backlog of $879 million.
- Sales: Up 9.5% in the quarter, with 8.5% organic growth and 1% from the MPE acquisition.
- Adjusted EBIT Margins: Increased by 130 basis points to 17.4%.
- Adjusted EPS: $1.46 per share, a 17% increase.
- Aerospace and Defense Backlog: Over $600 million, a 24% increase.
- Aerospace and Defense Sales: Up 16% in the quarter.
- Utility Solutions Group Sales: Up 6% in the quarter; renewables sales growth of 9%.
- Test Business Sales: Up 4% in the quarter; margins increased by 80 basis points to 18.3%.
- Full Year Orders: Up 10%; sales up over 7%.
- Full Year Adjusted EBIT: Up 14%; adjusted EPS up 13%.
- Operating Cash Flow: Over $127 million for the full year.
- Capital Spending: Just over $36 million for the year.
- Share Repurchases: $8 million in 2024.
- 2025 Sales Growth Guidance: 6% to 8%.
- 2025 Adjusted EPS Growth Guidance: 12% to 17%.
- First Quarter 2025 Adjusted EPS Guidance: $0.68 to $0.75.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- ESCO Technologies Inc (NYSE:ESE) achieved a significant milestone with orders and sales both surpassing $1 billion for the first time.
- The company ended the year with a record backlog of $879 million, indicating strong future demand.
- Sales in the fourth quarter increased by 9.5%, with 8.5% organic growth and additional growth from the MPE acquisition.
- Adjusted EBIT margins improved by 130 basis points to 17.4%, with margin increases across all three segments.
- The Utility Solutions Group experienced strong sales growth of 6% and margin improvement, driven by increased demand for electricity and renewable energy solutions.
- Fourth quarter orders declined by 15%, primarily due to a tough comparison with high navy orders in the previous year's fourth quarter.
- The aerospace and defense segment faced project profitability issues in the VACCO Space business, impacting financial performance.
- The test business saw an 8.5% decline in orders, although sales and adjusted EBIT improved.
- There is uncertainty regarding the impact of potential policy changes on renewable energy incentives, which could affect future growth.
- The strategic review of the VACCO Space business is ongoing, with potential risks to long-term prospects if administration changes affect NASA or private contractors.
A: We have been conservative in our forecasts, assuming a slightly lower build rate than Boeing's published rates due to historical underperformance. While there could be some impact on Boeing-specific contracts, we are confident in offsetting this with other customer work. With the Boeing strike resolved, we expect good growth this year and significant growth in the following years. - Bryan Sayler, President and CEO
Q: Regarding the fiscal '25 guidance, how will the SM&P acquisition impact the guidance once it closes?
A: When we update the guidance to include the SM&P acquisition, we will break down the components, including acquisition amortization. Currently, there is no significant seasonality to highlight, but we will provide details if any unusual dynamics arise. - Christopher Tucker, CFO
Q: What are your expectations for the Test business growth, particularly in China?
A: We have not embedded significant improvement in China due to ongoing uncertainties. We expect steady performance without a major turnaround in the forecast. Long-term, there could be improvement opportunities, but they are not included in the current forecast. - Bryan Sayler, President and CEO
Q: How might a change in administration affect the Utility Solutions Group, especially regarding renewable energy policies?
A: Regardless of policy changes, the underlying market demand for electrification and infrastructure build-out remains strong. While there is a potential threat to renewable incentives, the focus on maximizing existing assets aligns well with our Utility Solutions Group's offerings, supporting continued growth. - Bryan Sayler, President and CEO
Q: Can you elaborate on the challenges and future prospects for the VACCO Space business?
A: We have made progress on fixed-price development contracts, with some behind us and others ongoing. We are now delivering products, allowing for better cost estimation. While risks remain, they are largely mitigated. We are considering strategic options, including a potential sale of the entire VACCO business, with a decision expected by February. - Bryan Sayler, President and CEO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.