ESE Q3 Deep Dive: Maritime Acquisition, Renewables Headwinds, and Backlog Shape Outlook

Engineered products manufacturer ESCO (NYSE:ESE) reported Q3 CY2025 results beating Wall Street’s revenue expectations, with sales up 18.1% year on year to $352.7 million. The company’s full-year revenue guidance of $1.29 billion at the midpoint came in 0.8% above analysts’ estimates. Its non-GAAP profit of $2.32 per share was 8.7% above analysts’ consensus estimates.

Is now the time to buy ESE? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

ESCO’s third quarter results came in above Wall Street expectations for both revenue and non-GAAP earnings, yet the market response was negative. Management attributed the strong growth to the first full-quarter contribution from the recently acquired maritime business and robust organic sales increases, particularly in naval and aerospace end markets. CEO Bryan Sayler highlighted the 53% organic sales growth in the navy segment and the successful integration of the maritime acquisition as major contributors. Despite record backlog and growth across most segments, headwinds in the domestic renewables market and margin pressures in certain business lines influenced the quarter’s narrative.

Looking ahead, ESCO’s guidance is shaped by expectations for continued strength in aerospace and defense, an ongoing rebound in the test business, and a cautious outlook for renewables. Management emphasized the durability of demand in both the U.S. and UK navy markets and forecasted margin improvement across all segments. CFO Christopher Tucker stated the company is projecting segment growth rates in line with recent performance trends, supported by strong customer orders and a healthy backlog. However, the company remains mindful of potential short-term softness in renewables as policy and tax credit changes take effect.

Key Insights from Management’s Remarks

Management pointed to portfolio transformation, segment-specific trends, and the successful integration of the maritime acquisition as key drivers of the quarter’s results and outlook.

• Maritime acquisition impact: The full-quarter inclusion of the maritime business meaningfully increased revenue and backlog, especially in the UK submarine market, and contributed to margin expansion. Management reported that maritime orders exceeded initial expectations in the first quarter post-acquisition.

• Organic navy and aerospace growth: Organic sales in the navy segment rose 53% year over year, with strong order activity from both U.S. and UK customers. Aerospace also saw over 10% revenue growth, benefiting from increased aircraft production rates, particularly in Boeing’s commercial programs and new military platforms.

• Utility segment divergence: The utility solutions group delivered record order growth driven by grid infrastructure spending and Doble’s strong performance, but overall sales were muted due to policy headwinds in renewables. Management noted that renewables growth slowed as tax credits near expiration, causing developers to focus on completing current projects.

• Test business rebound: The test segment returned to growth with a 10% year-over-year sales increase and a 25% rebound in annual orders, indicating stabilization after previous softness. Management cited the diversity of end markets and improved order activity, except for wireless.

• Portfolio realignment and capital deployment: The divestiture of the space-focused VACCO unit sharpened the company’s focus on core aerospace, navy, and utility markets. Management also emphasized active exploration of M&A opportunities, prioritizing assets that align with these end markets and offer long-term secular growth potential.

Drivers of Future Performance

ESCO’s outlook hinges on continued momentum in aerospace and defense, margin recovery, and a measured approach to renewables amid evolving policy conditions.

• Aerospace and navy strength: Management expects sustained growth in aerospace and navy, supported by increased aircraft production rates, ongoing submarine programs, and a robust backlog. The maritime business is anticipated to provide steady revenue, with multi-year contracts in place.

• Renewables uncertainty: The utility segment’s outlook is mixed; while grid modernization and infrastructure investment should drive long-term demand, domestic renewables face a temporary downturn due to expiring tax credits and project delays. Management believes this will lead to a near-term dip before a return to high single-digit growth as market conditions normalize.

• Margin improvement focus: The company is targeting margin expansion across all segments, driven by favorable mix, cost containment, and operational discipline. Management also highlighted ongoing efforts to improve working capital and cash flow, which could enable further strategic acquisitions.

Catalysts in Upcoming Quarters

In coming quarters, the StockStory team will be monitoring (1) order momentum and revenue conversion from the maritime and navy businesses, (2) stabilization and recovery in the renewables segment as policy headwinds evolve, and (3) margin trends in the utility and test businesses as cost controls and operational improvements are implemented. Additional attention will be paid to the pace and impact of any new acquisitions or divestitures.

ESCO currently trades at $210.31, in line with $210.17 just before the earnings. Is there an opportunity in the stock?Find out in our full research report (it’s free for active Edge members).

Our Favorite Stocks Right Now

If your portfolio success hinges on just 4 stocks, your wealth is built on fragile ground. You have a small window to secure high-quality assets before the market widens and these prices disappear.

Don’t wait for the next volatility shock. Check out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).

Stocks that have made our list include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today.