Twin Disc Q1 Sales Rise 10.9% as Backlog Reaches Record

Twin Disc reported higher first-quarter fiscal 2027 sales and returned to profitability as defense demand, marine products and acquired businesses supported growth. The power-transmission equipment maker also posted record six-month backlog of $190.6 million, providing a stronger base of committed business despite an unchanged gross margin.

Net sales rose 10.9% year over year to $88.7 million from $80.0 million. Organic net sales, which exclude a $708,000 foreign-currency impact, were $89.5 million. Twin Disc recorded net income attributable to the company of $3.4 million, or $0.24 per share, compared with a net loss of $518,000, or $0.04 per share, in the prior-year quarter.

EBITDA increased 63% to $7.7 million from $4.7 million. The company attributed the earnings-per-share improvement to higher operating income and lower interest and other expenses.

Marine and industrial businesses lead growth

Marine & Propulsion Systems sales increased 14% to $55.2 million. Twin Disc said the business benefited from continued demand for Veth and Kobelt products, stronger military demand for marine transmissions and improved commercial maritime activity in Asia.

Industrial sales advanced 35% to $14.0 million. Beginning in fiscal 2027, Twin Disc moved all Katsa sales previously included in Land-Based Transmissions into the Industrial segment. The reclassification accounted for $4.7 million of first-quarter revenue.

Katsa benefited from demand for defense-vehicle components in Europe and from data-center construction through its supply of components to manufacturers of backup-power systems. The company is also developing a 54,000-square-foot Katsa assembly plant in Finland, which is expected to be fully operational in May 2027. Kobelt products and demand from North American construction and recycling customers also contributed to Industrial growth.

Land-Based Transmissions sales declined 15% to $15.0 million, with the Katsa reclassification affecting the year-over-year comparison. Within the segment, oil and gas increased as a share of backlog, while higher sales of alternative-fuel units provided a more favorable margin mix. Twin Disc also cited increased global demand and orders for energy-related products across North America, Latin America and China.

Geographically, Europe’s double-digit sales growth was primarily driven by defense demand for Katsa products. Asia-Pacific also recorded double-digit growth, supported mainly by improved commercial maritime demand.

Backlog reaches reported record

Six-month backlog increased to approximately $190.6 million from $178.3 million at the end of fiscal 2026 and $163.3 million a year earlier. Twin Disc described the latest figure as a record on a reported basis and said it continued to make progress on shipments and reducing past-due orders.

Inventory declined to 94% of six-month backlog from 100% at the end of fiscal 2026 and 117% a year earlier, which the company attributed to improving operational execution.

Defense represented an estimated 24% of total backlog measured over a period longer than six months, with defense backlog up 104% year over year. Management identified a defense project pipeline of $30 million to $50 million across North America, Europe and Asia-Pacific, supported by U.S. Navy and NATO demand.

Cash flow and leverage improve

Gross margin remained at 28.7%. The company said growth at Katsa and Veth, which operate at below-company-average gross margins but continue to improve, offset benefits from a more favorable Land-Based Transmissions product mix.

Operating activities generated $11.3 million of cash, compared with a $7.5 million outflow a year earlier. Free cash flow was $5.6 million after $5.8 million of capital expenditures, versus negative free cash flow of $11.0 million in the prior-year period.

Total debt declined to $39.8 million from $43.7 million, while cash increased to $26.7 million from $14.2 million. As a result, net debt fell to $13.1 million from $29.5 million, and the net leverage ratio decreased to 0.4 times last-12-month EBITDA from 1.3 times. Twin Disc also increased its quarterly cash dividend by 25% to $0.05 per share.

Long-term targets remain focused on scale and margins

Twin Disc’s fiscal 2030 targets include $500 million of revenue, a 30% gross margin and free-cash-flow conversion above 60%. Its strategy calls for rationalizing the global footprint, expanding controls and system-integration capabilities, and pursuing acquisitions in industrial and marine technology, with a focus on hybrid applications.

Management expects gross margins to improve over time through end-market diversification and greater operating leverage. The company is investing in its European presence and manufacturing capabilities in Racine while seeking to maintain balance-sheet and liquidity discipline.

Those expectations remain subject to execution and demand risks. The presentation noted that Katsa and Veth currently carry below-average gross margins, while forward-looking objectives depend on assumptions that may differ from actual operating performance.