TWIN

On August 20, Twin Disc (NASDAQ:TWIN) reported its fiscal fourth-quarter results, and the headline numbers looked like a breakout. Revenue hit $114.4 million, up 18.3% from a year earlier and the highest quarterly total in company history. Net income came in at $9.4 million, or $0.64 per diluted share, more than triple the $2.6 million and $0.19 per share posted in the same period last year. Free cash flow jumped to $17.2 million, and the board rewarded shareholders with a 25% dividend increase to $0.05 per share. But underneath the record top line sits a gross margin that moved the wrong way, and that tension is worth understanding before getting excited about the headline growth. Marine and propulsion systems sales rose 20% year over year to $63.6 million, and land-based transmission sales climbed 26.2% to $33.0 million, giving Twin Disc growth across both of its largest product lines. The more interesting shift is what is driving demand underneath those numbers. Defense now makes up 17% of total backlog, a 56% jump from a year ago, with a pipeline of $30 million to $50 million tied to US Navy autonomous vessel programs and NATO orders funneled through the company's Finnish subsidiary, Katsa. Management has broken ground on a new Finland facility to add testing and assembly capacity for that demand, and CEO John Batten said the expansion "really does increase the output of Katsa." Oil and gas also had its best quarter in a year, contributing more than 10% of quarterly revenue, double the average from the first three quarters of the fiscal year, as customers lean into higher-margin e-frac equipment. Meanwhile, the six-month backlog held steady at $178.3 million even as the company worked through past-due orders, a sign that demand is not just being pulled forward. Gross margin fell to 26.3% from 32.3% a year earlier, a 600-basis-point drop that management attributed to product mix, tariff dilution, and a $3 million favorable one-time adjustment in last year's comparable quarter. Strip that adjustment out and last year's margin would have been 28%, still meaningfully above where the company sits now. Tariffs alone shaved roughly 60 basis points off the current quarter, and the company is relocating aircraft rescue and firefighting assembly work to Lufkin, Texas, to reduce exposure to components sourced from India, a fix that takes time to show up in the numbers. Industrial sales slipped 1.6% to $12.9 million, and expanding capacity at the company's Racine plant means a temporary hit to throughput while product lines get relocated and shifts reconfigured. There is also a quality-of-earnings wrinkle: a chunk of the net income jump came from a $2.5 million income tax benefit tied to reversing a valuation allowance, worth $0.17 of the $0.64 in per-share earnings. And the company's stated goal of $500 million in revenue and 30% gross margins by 2030 requires closing a gap from $381.3 million in full-year sales and 26.9% full-year gross margin today, a jump that has not yet shown up in the trend line. Hedge fund ownership slipped from 15 funds to 13 in the most recent quarter, a modest pullback rather than a stampede. Short interest sits at 5.73% of float, enough to signal a real pocket of skepticism without suggesting the stock is heavily contested. At the same time, shares trade at a forward price-to-earnings ratio of 7.48, as of August 27, a level that prices in very little of the growth story management just laid out. That combination suggests that the market has not yet decided whether the defense and e-frac pipeline changes the earnings trajectory or whether the margin pressure is the more durable trend. The bull case rests on defense and e-frac work becoming permanent, higher-margin pillars rather than one good quarter, backed by a backlog that held up even as shipments increased. The bear case rests on a margin line that has moved in the wrong direction for two straight readings and a net income figure partly inflated by a tax reversal rather than operations. For the growth story to hold, the Finland expansion and the Lufkin relocation need to convert into margin gains rather than just revenue gains. While we acknowledge the potential of TWIN as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock. READ NEXT: 10 Best Future Stocks to Buy Under $10 and 12 Best Performing Semiconductor Stocks to Invest In. Disclosure: None. Follow Insider Monkey on Google News.

Image source: The Motley Fool. Thursday, Aug. 20, 2026 at 9 a.m. ET President and Chief Executive Officer-John Batten Vice President of Finance, Chief Financial Officer, Treasurer, and Secretary-Jeffrey Knutson Operator: Welcome to the Twin Disc, Inc. Fiscal Fourth Quarter 2026 Conference Call. We will begin with introductory remarks from Jeff Knutson, Twin Disc's CFO. Please go ahead. Jeffrey Knutson: Good morning, and thank you for joining us today to discuss our fiscal 2026 fourth quarter results. On the call with me today is John Batten, Twin Disc's CEO. I would like to remind everyone that certain statements made during this conference call, especially statements expressing hopes, beliefs, expectations or predictions for the future are forward-looking statements. It is important to remember that the company's actual results could differ materially from those projected in such forward-looking statements. Information concerning factors that could cause actual results to differ materially from those in the forward-looking statements are contained in the company's annual report on Form 10-K, copies of which may be obtained by contacting either the company or the SEC. Any forward-looking statements that are made during this call are based on assumptions as of today, and the company undertakes no obligation to publicly update or revise these statements to reflect subsequent events or new information. During today's call, management will also discuss certain non-GAAP financial measures. For a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see the earnings release issued earlier today. Now I'll turn the call over to John. John Batten: Good morning, everyone, and welcome to our fiscal 2026 fourth quarter conference call. We closed out the fiscal year with record revenue in the fourth quarter of 2026 as we continue to build on the strong demand and order momentum that we saw throughout the fiscal year. Our 18% top line growth for the quarter resulted in operating income of $7.8 million, net income of $9.4 million, $11.1 million in EBITDA and free cash flow of $17.2 million. Defense activity is strong and continues to be a key structural growth driver for us, supported by increasing demand from customers that include the U.S. Navy and NATO. More to come on this. Oil and gas also performed well in the quarter and is trending positively as we prioritize e-frac opportunities that drive a higher margin profile. While gross margins were down in the quarter, primarily related to product mix, tariff dilution and a prior year favorable adjustment, we continue to pursue higher-margin opportunities like e-frac that we expect to enhance our gross margins over the long term. Thanks to our strong order activity in the quarter, our 6-month backlog was level with the third quarter of 2026 at $178.3 million despite strong shipments and a concerted effort to reduce past due backlog. Both our 6-month and total backlog remains strong and are supported by a robust project pipeline and considerable sales momentum in the markets we serve. Our cash flow improved meaningfully in the quarter to $17.2 million. As a result of this strong performance and our confidence in the business going forward, our Board recently approved a 25% increase in our quarterly dividend to $0.05 per share. Overall, our fourth quarter performance capped off a strong year of operational execution for Twin Disc, and we believe that we are well positioned with strong demand, a healthy backlog and robust project pipeline to continue this trend into fiscal 2027. Before getting into our individual product groups, I'd like to provide an update on our defense-related business. As I mentioned before, defense is a key structural growth driver for our business and represents a significant long-term revenue opportunity. Our current defense customers include shipbuilders for the U.S. Navy for which we provide transmissions to be used in unmanned autonomous U.S. Navy vessel programs and NATO to whom we supply driveline components through our Finnish subsidiary, Katsa, for military vehicles across an expanding NATOwide order book. On that front, we've broken ground on our new facility in Finland to add test stand and assembly capacity and to further support expected growth in the European defense demand. With global defense becoming more of a priority given the current geopolitical environment, we believe that we're well positioned to benefit from increased spending as defense budgets grow. As of year-end, defense comprises 17% of our total backlog, representing a 56% increase year-over-year. Sales momentum is also strong with defense-related projects contributing $30 million to $50 million to our pipeline as of June 30. Results have been encouraging. And looking ahead, we view defense as a reliable and durable multiyear growth driver for our business. Now let's get into our product groups. Sales in our Marine and Propulsion Systems grew 20% in the quarter when compared to the prior year period, primarily driven by strong demand for our propulsion platform. Other factors contributing to revenue growth include performance of the Kobelt product line as well as improved military demand for marine transmissions, improved commercial maritime demand in Asia and overall strong market conditions driving increased demand across the product group. Land-based transmission sales grew 26% year-over-year, primarily due to improved shipment volumes in the quarter. Specifically, oil and gas performed well as we continue to prioritize higher-margin e-frac opportunities. We expect this segment to be a key driver of our improved margin profile. We also took meaningful steps to reduce our tariff impact in the quarter as we work to relocate our ARFF assembly to Lufkin, Texas, which would help reduce tariff exposure on components sourced in India. Similar to last quarter, land-based transmission also continues to benefit from strengthening demand trends across our core geographic markets in North America and Asia, increasing global demand for energy-related products and continued progress on next-generation electrified and hybrid solutions that support long-term demand. Additionally, improving sentiment from North American energy customers points to additional investment in frac rigs, both rebuilds and new units, positioning the company well for enhanced performance. While industrial sales decreased modestly compared with the prior year, we remain encouraged by the opportunities that we're seeing as this segment continues to stabilize. The Kobelt product line provides considerable market opportunity and our Finnish subsidiary, Katsa, is positioned to be a strong near-term growth driver thanks to increasing global military and trade demand for defense vehicle components. We're also seeing consistent demand from North American construction and recycling markets, as well as stable underlying demand from industrial end markets. Also, we were pleased to see that Katsa has received orders in the emerging data center vertical. This opportunity represents a large part of the total backlog and is encouraged to see initial demand for our products in this fast-growing market segment. Our six-month backlog at the end of the fourth quarter was approximately $178.3 million, which is consistent with the backlog at the end of the third quarter of $179.5 million. We are particularly pleased with this backlog, given that during the quarter, we made solid progress on shipment and continue to make a concerted effort to reduce past due backlog during the fourth quarter. In light of this, our backlog demonstrates the strength of our pipeline and demand across our product groups. Inventory as a percentage of backlog decreased to 100% in the quarter, and we expect inventory as a percentage of backlog to continue to improve as we focus on operational execution. Looking ahead, we remain confident in our long-term strategy and are focused on driving profitable growth for our shareholders. Twin Disc is well established as a leading hybrid and electric solution provider for niche marine and land-based applications, and through organic growth, continued strategic acquisitions that expand our addressable market and ongoing disciplined capital allocation across the enterprise, we believe that we are well positioned to expand our footprint and to meet our stated 2030 full year targets of $500 million in revenue, 30% gross margins and greater than 60% free cash flow conversion. With that, I'll turn the call over to Jeff to discuss our financial results in greater detail. Jeffrey Knutson: Thanks, John. Good morning, everyone. Sales in the fourth quarter of 2026 totaled $114.4 million, representing a record quarter and an 18.3% increase over the fourth quarter of fiscal 2025. Full year sales were $381.3 million. Revenue growth in both the fourth quarter and full year was primarily driven by increased demand in our land-based transmission markets in the fourth quarter, as well as strengthened marine and propulsion systems and stabilization in our industrial segment. On an organic basis, which adjusts for the impact of acquisitions and foreign currency exchange, revenue increased 15.9% in the quarter and 4.6% for the full year. Gross profit decreased slightly by 3.5% in the quarter to $30.1 million. Gross margin decreased approximately 600 basis points to 26.3% from the prior year period, primarily related to product mix, tariff dilution, and a favorable adjustment of $3 million in the prior year fourth quarter related to one-time capitalization cost adjustments of cost of inventory. Excluding this adjustment in Q4 of last year, the comparable gross margin would have been 28%. For the full year, gross profit was $102.6 million or 26.9% of sales. ME&A expenses decreased 9.8% to $22.2 million compared to $24.6 million in the prior year period. As a percentage of sales, ME&A expense was 19.4% compared with 25.5% in the prior year, which continues to demonstrate our enhanced operating leverage on strengthened revenue. Fiscal full year ME&A was $84.5 million or 22.2% of sales compared to $82.4 million or 24.2% of sales in full year 2025. Operating income in the fourth quarter of 2026 increased 19.5% to $7.8 million compared with $6.5 million in the prior year period. The full year operating income was $18 million compared with $11.1 million in full year 2025. We view operating income as an especially important metric for both the fourth quarter and full year, given that our bottom line has been impacted by an income tax benefit of $2.5 million in the fourth quarter and $14 million in the full year related to the reversal of the domestic valuation allowance. Therefore, we believe that operating income provides a more normalized snapshot of our business without the impact of income tax benefits that flow through to our net income and earnings per share. To that end, net income attributable to Twin Disc for the fourth quarter was $9.4 million, or $0.64 per diluted share, compared to $2.6 million, or $0.19 per diluted share in the prior year period. The increased earnings per share was related to stronger operating income as well as approximately $0.17 per diluted share related to the income tax benefit and lower other expense when compared to the fourth quarter of 2025. Full year net income totaled $27.1 million, or $1.86 per diluted share, compared with a net loss of $697,000, or a loss of $0.05 per diluted share for fiscal 2025. EBITDA was $11.1 million in the fourth quarter, up 35.1% year-over-year. EBITDA margin increased 120 basis points to 9.7%. Full year EBITDA was $29.9 million. Geographically, Europe accounted for 41% of sales in the fourth quarter of 2026, followed by North America at 29% of sales and Asia Pacific at 22% of sales. Increased sales in Europe were primarily driven by contributions from our acquisitions, including Katsa, while North American sales continued to increase related to our addition of Kobelt and improving demand for our Veth products. For the full year, Europe accounted for 42% of total sales, followed by North America at 30% and Asia Pacific at 19%. As John mentioned, gross margins decreased to 26.2% in the fourth quarter of 2026, compared with 32.3% in the prior year period. Gross margin contraction in the quarter was primarily related to product mix and tariff dilution, as well as the one-time $3 million favorable adjustment in Q4 of last year. Excluding the favorable adjustment, gross margin in the fourth quarter of 2025 would have been 28%. Our margin in the quarter was also impacted by tariff dilution, which further decreased gross margin by 60 basis points. Excluding this impact, our gross margins would have been approximately 27% in the fourth quarter. We are confident about our ability to drive gross margin improvement, and our long-term strategy continues to focus on enhancing our margin profile and driving long-term profitability across our business with a stated target of 30% gross margins by 2030. We continue to monitor the situation with tariffs and are proactively working to mitigate the impacts on our business, including moving ARFF assembly to Lufkin, Texas. We generated strong free cash flow of $17.2 million in the quarter. We ended the quarter with cash of approximately $16.1 million. Total debt decreased to $31.4 million and net debt decreased to $13.8 million. Our reduced net debt, coupled with enhanced trailing 12-month EBITDA of $29.9 million, provides us with a net leverage ratio of 0.5 as of June 30, 2026, compared with the ratio of 0.8 in the prior year. Before discussing our capital allocation framework, I wanted to provide an update on the change in our inventory accounting method that we implemented in Q4. We elected to change our method of accounting for certain inventories from the last-in-first-out method, or LIFO, to the first-in-first-out method, or FIFO. The change to the FIFO method of accounting for these inventories is preferable because it provides better matching of costs and revenues and conforms our inventory to a single method of accounting as we continue to scale the business. Additionally, the change allowed us to utilize expiring tax credits contributing to the reversal of the valuation allowance in the second fiscal quarter. The impact of the change in inventory accounting as reported under the FIFO method was a $30 million increase in inventory for the fiscal year ended June 30, 2026, which is reflected in our quarterly and year-end results. To provide historical information on a basis consistent with the change to FIFO, we have recast certain historical information to conform to the updated method of inventory accounting. Our capital allocation framework remains consistent with our stated goals and strategy. We continue to prioritize debt reduction alongside returning capital to shareholders through both our dividend and share repurchase program. At the same time, we're committed to funding organic growth investments, including R&D, geographic expansion, and marketing to support our long-term strategy. When it comes to M&A, we remain selective, evaluating both bolt-on and transformational acquisitions against clear criteria. Strategic fit, particularly opportunities that diversify our existing offerings and have the potential to serve as a platform for broader expansion. This balanced approach allows us to invest in the business while maintaining the financial flexibility to act on opportunities as they arise. I'll now turn the call back to John for his closing remarks. John Batten: Thanks, Jeff. In closing, our record fourth quarter capped off a year of meaningful progress for Twin Disc with continued gains in revenue, profitability, and cash flow. Demand across our core markets remained healthy throughout the year, and we ended fiscal 2026 with a strong backlog that reflects the sustained strength in marine and propulsion systems and land-based transmissions, along with a growing defense-related activity that we expect to be a durable driver of growth. Moving ahead to fiscal 2027, we remain focused on the same priorities that drove our progress this year, executing on our operational initiatives, optimizing our global footprint, and investing in the business to support long-term growth, all while maintaining a disciplined approach to capital allocation. With a strong balance sheet and robust backlog providing solid visibility, we believe Twin Disc is well positioned to build on this year's momentum as we work toward our 2030 targets. Operator, please open the call for questions. Operator: [Operator Instructions] Our first question comes from the line of Max Michaelis with Lake Street Capital Markets. Maxwell Michaelis: Congrats on the quarter. A bunch of questions from me. I kind of want to start out here, just sort of a facility update. It sounds like Finland has broken ground. Anything else you guys can really provide there in terms of detail around sort of the time lines at the Finland facility? And then secondly, can you kind of give us an update on sort of the capacity, how that's looking at the Racine facility? John Batten: Sure, Max. Thanks. It's John. I'm hoping that, you know, we will be enclosed and starting to move stuff in, you know, the end of the calendar year, but it's really, I would say that, you know, the impact of being fully operational is not going to be until, I would say, fiscal '28. A lot of work to do, but it's exciting. It really does increase the output of Katsa. The way we're situated right now, we don't have a facility in Finland that was built for assembly and test. We kind of have some make-do facilities that are in other plants or other facilities that really weren't meant for this. So it's going to be a big step function for them once we get in. But we'll keep you updated. You know, the walls are up, roof's going on. Obviously, we'd like to be enclosed by the Finnish winter, that's for sure. And I think that will definitely happen. And then in Racine, obviously, we have a finished building that we've been in for 70 years. We're staffing up, adding machinists. We had two significant capital purchases that have come in, a 1.2-meter hob and a 1.2-meter grinder. We've got more CapEx on the way, and we're trying to figure out how we can be more effective in our shift staffing, and honestly looking at expanding our second shift and adding a third shift. Because there's a lot of volume coming. And of course, there's a lot of pieces moving in the puzzle. To increase the capacity in Racine, we actually have to decrease it. And that's, you know, the tariffs gave us a good reason to relook at where we did the ARFF transmission. So it's fantastic that Lufkin's in a free trade zone, so we're scrambling like crazy to get that volume down to Texas so that we have more capacity for the marine transmissions for the Navy and just the commercial marine markets in general, and oil and gas in Racine. So a lot of moving pieces and a lot of progress has been made in the last few months, but there's a lot of work to do between now and Christmas. Maxwell Michaelis: Perfect. No, great. Moving on here, let's shift over to the defense side. Can you give any more details on the conversations you guys are having with some of these shipbuilders outside of Saronic and the speed that they're moving along at right now? John Batten: Yes, so I would say that Saronic has set the benchmark on speed to market and everything that they were doing and the announcement of Port Alpha and all of this, but there are other builders as well that are moving pretty quickly with existing yards and reconfiguring and developing relationships. That's kind of the big thing that we've seen. You know, a lot of these shipyards, we've had decades-long relationships with them, and they've been building a certain type of vessel. Now they're partnering with different types of technology companies, forming alliances, and they're pretty fast to market too. I can't say that, you know, Saronic certainly is getting all the headlines because they've had a lot of successes out in the field, but there are other players too. It's a pretty balanced, you know, I have to say that it doesn't look like the Department of Defense or the Navy is putting all their eggs in one basket. They are truly trying to bring back the shipbuilding industry in the U.S., and it's pretty exciting to see. Maxwell Michaelis: And then I know you talked about sort of that $50 million to $75 million pipeline. I mean, can you give us any sort of detail on where that's at now, if that's increased or anything that can help? John Batten: Yes, I think, Jeff, I believe it was 50% in the quarter. Jeffrey Knutson: Yes, the backlog itself is up about 50%... John Batten: In the quarter, and that is a mix of, I mean, the two main buckets continue to be marine transmissions built in Racine, Wisconsin, for the U.S. Navy. We have some marine transmissions that are built in Belgium that are for the U.S. Navy and other projects. Then we have obviously at Katsa, the number one is the trucks that Patria built for NATO. But they have been developing other customers in the Mid East and in Asia as well. Not sure the percentage, that's going to be a growing percentage. Then we have, it's been exciting to see our Arneson surface drive for fast patrol boats has been getting a lot of interest. So, you know, the backlog increased 53%. And I would say the main driver of that was the projects we've already been talking about. But what's in the pipeline is going to cast a much wider net that we'll see in the quarters coming on different products for different customers. Maxwell Michaelis: So the defense side of the backlog grew 53% in the quarter, correct? John Batten: Yes. Maxwell Michaelis: Okay, great. And then last one for me, and I'll hang up. Can you sort of give us an idea of the pipeline of new defense programs? I know we talked about kind of the shipbuilders and Katsa, is there anything else kind of that you guys are eyeing for fiscal year '27 that could make a big splash? John Batten: I would say the biggest ones, and we're under NDAs, but the biggest ones are going to be fast patrol boats with Arneson and Rolla propellers. It will be similar product that is going into the Patria trucks, but different for different truck builders and different militaries in the Mid East and Asia. And in the U.S., I think you'll see continuation on with BAE on the M88, the Hercules, the tank retriever. Those would be the big ones. And then there's some smaller ones, but I think the ones that are going to be exciting and meaningful are the ones that I just mentioned. Operator: [Operator Instructions] Our next question comes from the line of Simon Wong with Gabelli Funds. Tze-Kiang Wong: Just on the oil and gas part of your business, how big is that now? How much revenue did you do there this quarter and how did it compare to last year? Jeffrey Knutson: Yes, it's ramping up, Simon. So it was, in terms of percentage of revenue, it's the biggest since fiscal '24. And in terms of pure dollars, because obviously everything else grew as well, in terms of pure dollars, the biggest since Q4, fiscal '24. They doubled the average of what we did the first three quarters, so definitely ramped up at the end of the year. It was about 10%, a little over 10% of overall revenue in the quarter. Tze-Kiang Wong: Great. You've referenced in your presentation and your press release about higher opportunities, I'm going to say higher margin e-frac opportunities. Did you sell any units in the quarter for e-fracs? John Batten: Yes, the short answer is yes. I can't give you an exact number because some of them might have been in the third quarter, first calendar quarter. But there's probably, you know, two spreads that have been delivered and more coming. Tze-Kiang Wong: Okay, great. Looks like you're gaining traction there. That's good news. And then, I know you talked about the military pipeline, the $50 million, $60 million, $70 million pipeline of opportunity. How do you see that? I mean, how much of that do you think you can win in orders? John Batten: All of that, we're pretty conservative when we put it in the pipeline. We think that we have a better than 50-50 shot of winning those. Yes, Simon, so with the military, I would say we're very good at predicting our confidence of winning. It's just when the project starts. Typically, these projects take longer to materialize when they're going to order, but we're pretty confident on winning them. It's just, you know, I don't want to give you, like, it's going to happen next quarter in six months because I'll jinx it and then it will be nine months or 12 months. Tze-Kiang Wong: Okay, that's fair. And for my reference, how big was the military business in the fourth quarter or in fiscal '26? Jeffrey Knutson: Yes, we don't have a great number to give you there. I mean, it was definitely up. It's something that we'll do a better job of tracking and reporting. It's just so fragmented because it's across all of our products in all of our regions and a lot of it going through distribution. So we need to do a better job analytically of pulling that together as it becomes a bigger and bigger part of the business. Tze-Kiang Wong: Okay. One more from me. You talked about facility additions. What is your CapEx for '27? Jeffrey Knutson: So the number that we put out or will put out is going to be north of $20 million. It's obviously with a new facility going up in Finland, that's a big investment, movement of a significant product line down to Lufkin, and some of the machine tools that John just referenced, a lot more behind that. So there's a good level of investment going in to fund the growth that we see. And, you know, as we start this fiscal year, we're in great shape with a new credit agreement and plenty of financial horsepower to deliver that. So, yes, it's an exciting time for us. Operator: Thank you. And at this time, we have no further questions. I would like to turn the call back over to the management for closing remarks. John Batten: Thank you for your continued interest in Twin Disc, and we hope that we've answered all of your questions. If not, please feel free to reach out to either Jeff or myself, and we'll try to answer those questions for you as soon as possible. Have a great rest of your day, and we look forward to talking to you after our fiscal '27 first quarter results. Operator: This concludes today's conference call. You may now disconnect. Have a great day. Before you buy stock in Twin Disc, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Twin Disc wasn’t one of them. The 10 stocks that made the cut are built for long-term growth and could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $432,189!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,330,956!* That performance is why people listen. With a track record of beating the S&P 500 by nearly 5x, Stock Advisor offers a distinct advantage. Don't miss the latest top 10 list, available with Stock Advisor, and join an investing community built for the long haul. See the 10 stocks » *Stock Advisor returns as of August 21, 2026. This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability. The Motley Fool has positions in and recommends Twin Disc. The Motley Fool has a disclosure policy. Twin Disc (TWIN) Q4 2026 Earnings Call Transcript was originally published by The Motley Fool

Our analysts just identified a stock with the potential to be the next Nvidia. Tell us how you invest and we'll show you why it's our #1 pick. Tap here. Record fourth-quarter revenue was propelled by 18% top-line growth, primarily fueled by robust demand in defense and land-based transmission markets. Defense activity has emerged as a key structural growth driver, with the U.S. Navy and NATO increasing demand for unmanned vessel transmissions and military vehicle components. Management is intentionally prioritizing e-frac opportunities within the oil and gas segment to shift the portfolio toward a higher margin profile. Gross margin contraction of 600 basis points was attributed to unfavorable product mix, tariff dilution, and the absence of a prior-year one-time capitalization adjustment. Operational execution focused on reducing past-due backlog while maintaining a stable six-month backlog of $178.3 million despite high shipment volumes. The company is leveraging its Finnish subsidiary, Katsa, to capture expanding NATO-wide order books and emerging demand in the data center vertical. Strategic relocation of ARFF assembly to Lufkin, Texas, is underway to mitigate tariff exposure on Indian-sourced components and free up capacity in Racine. Fiscal 2027 capital expenditures are projected to exceed $20 million to fund the new Finland facility and machine tool upgrades in Racine. Management expects the new Finland assembly and test facility to be fully operational by fiscal 2028, providing a 'step function' increase in output capacity. The defense pipeline, currently estimated at $30 million to $50 million, is viewed as a durable multi-year growth driver with high win-probability confidence. Strategic initiatives in hybrid and electric solutions for niche marine and land applications remain central to achieving the $500 million revenue target by 2030. Long-term financial targets for 2030 include reaching 30% gross margins and achieving greater than 60% free cash flow conversion. The company transitioned its inventory accounting method from LIFO to FIFO to better match costs with revenues and utilize expiring tax credits. A $14 million full-year net income benefit was realized due to the reversal of a domestic valuation allowance related to the accounting change. Tariff dilution impacted fourth-quarter gross margins by approximately 60 basis points, prompting the manufacturing shift to a free trade zone in Texas. A 25% increase in the quarterly dividend to $0.05 per share reflects management's confidence in sustained cash flow generation. One stock. Nvidia-level potential. 30M+ investors trust Moby to find it first. Get the pick. Tap here. Management expects the facility to be enclosed by the end of the calendar year, with full operational impact anticipated in fiscal 2028. The new site will replace 'make-do' facilities, significantly increasing Katsa's assembly and testing efficiency for NATO orders. Backlog for the defense segment grew 53% in the quarter, driven by U.S. Navy unmanned programs and NATO vehicle components. Management noted that while Saronic is a high-profile partner, the Navy is diversifying its supplier base to revitalize the broader U.S. shipbuilding industry. Oil and gas revenue reached its highest level since fiscal 2024, accounting for over 10% of total quarterly revenue. Management confirmed the delivery of approximately two e-frac spreads, signaling successful traction in this high-margin target market. The company is adding machinists and new capital equipment, including large-scale grinders and hobs, to handle incoming volume. Management is actively looking to expand the second shift and potentially add a third shift to meet demand for Navy and commercial marine products.

MILWAUKEE, Aug. 20, 2026 (GLOBE NEWSWIRE) -- Twin Disc, Inc. (NASDAQ: TWIN) today reported results for the fourth quarter and full fiscal year ended June 30, 2026. Fiscal Full Year 2026 Highlights Sales increased 11.9% year-over-year to $381.3 million Net income attributable to Twin Disc was $27.1 million EBITDA* of $29.9 million, including a currency translation gain of $1.7 million Operating cash flow of $22.9 million and Free cash flow* of $9.2 million Six-month backlog of $178.3 million Fiscal Fourth Quarter 2026 Highlights Sales increased 18.3% year-over-year to $114.4 million Net income attributable to Twin Disc was $9.4 million EBITDA* of $11.1 million, including a currency translation gain of $0.8 million Operating cash flow of $20.6 million and Free cash flow* of $17.2 million CEO Perspective John H. Batten, President and Chief Executive Officer of Twin Disc, commented, “We closed fiscal 2026 with record fourth quarter revenue, solid profitability, and enhanced free cash flow generation, building on the strong demand and order momentum that we saw throughout the fiscal year. Fourth quarter 2026 sales grew 18%, reflecting the continued strength of our Marine and Propulsion products, accelerating Defense activity, and enhanced performance from Oil and Gas, which is trending positively as we prioritize higher margin e-frac opportunities. Defense in particular continues to be a key structural growth driver for us supported by increasing demand from customers including the US Navy and NATO. “Our six-month backlog remained level in the quarter despite strong shipments and a concerted effort to reduce past due backlog,” Mr. Batten continued. “Our near-term outlook remains strong and continues to be supported by a robust project pipeline and momentum in the markets that we serve. “As we move into fiscal 2027, we are well positioned with strong demand, a healthy backlog and growing pipeline, and free cash flow to continue investing in the long-term growth of our business. We remain focused on the disciplined execution of our strategy and are highly encouraged by the growth opportunities ahead of us,” Mr. Batten concluded. Change in Inventory Accounting Method During the fourth quarter of fiscal 2026, the Company elected to change its method of accounting for certain inventories from the last-in, first out (LIFO) method to the first-in, first out (FIFO) method. The change to the FIFO method of accounting for these inventories is preferable because it provides better matching of costs and revenues, conforms the Company's inventory to a single method of accounting and improves comparability with the Company's peers. The impact of the change in inventory accounting as reported under the FIFO method was a $32.1 million increase in inventory for the fiscal year ended June 30, 2025, and the amounts in this press release reflect the impact of this accounting change. To provide historical information on a basis consistent with the change to FIFO, the Company has recast certain historical information to conform to the updated method of inventory accounting in the financial tables of this press release. Fourth Quarter and Full-Year ResultsSales for the fiscal 2026 fourth quarter increased 18.3% year-over-year to $114.4 million and fiscal 2026 sales increased 11.9% to $381.3 million. Fourth quarter and full year sales growth were both driven by demand for the Company’s Land-Based Transmissions markets, with strength in Marine and Propulsion Systems supporting full year sales, in addition to a stabilization in the Industrial segment. On an organic basis, which excludes the impacts of acquisitions and foreign currency exchange, revenue increased 15.9% in the quarter and increased 4.6% for the full year. Sales by product group (certain amounts have been reclassified from Marine and Propulsion to Other): For fiscal 2026, Twin Disc delivered double-digit sales growth year-over-year in the European and North American regions including the impact of acquisitions. The distribution of sales across geographical regions remained consistent, with the majority of sales coming from Europe, followed by North America, Asia Pacific, and Latin America. Considering the impact of the change to the FIFO method of accounting for inventory (an increase to prior year gross profit of approximately $1.2 million), gross profit decreased 3.5% to $30.1 million compared to $31.2 million for the fourth quarter of fiscal 2025. Fourth quarter gross margin decreased approximately 600 basis points to 26.3% from the prior year period, primarily related to product mix and a favorable adjustment of $3.0 million in the prior year fourth quarter. For fiscal 2026, gross profit increased 9.2% to $102.6 million. For the fiscal 2026 full year, gross margin decreased approximately 70 basis points to 26.9%, primarily related to product mix and tariff dilution. Marketing, engineering and administrative (ME&A) expense decreased by $2.5 million, or 10.0%, to $22.2 million, compared to $24.6 million in the prior year quarter. The decreased ME&A expense was primarily driven by reduced global bonus expense, lower depreciation, and amortization, and the favorable impact of broad-based spending controls. For the fiscal 2026 full year, ME&A expense increased 2.5% to $84.5 million, as positive operational leverage and cost controls were partially offset by the addition of Kobelt, a currency impact, and inflationary impact on wages and benefits. Considering the impact of the change to the FIFO method of accounting for inventory, net income attributable to Twin Disc for the quarter was $9.4 million, or $0.64 per diluted share, compared to net income attributable to Twin Disc of $2.6 million, or $0.19 per diluted share, for the fourth fiscal quarter of 2025. The year-over-year increase was driven by increased operating income, an income tax benefit of $2.5 million, or approximately $0.17 per diluted share, related to the reversal of the domestic valuation allowance, and lower other expense in the fourth quarter of 2026 compared to the fourth quarter of 2025. For fiscal 2026, the Company generated net income attributable to Twin Disc of $27.1 million, or $1.86 per diluted share, compared with a net loss attributable to Twin Disc of $697,000, or a loss of $0.05 per diluted share for fiscal 2025. Included in net income attributable to Twin Disc in fiscal 2026 was an income tax benefit of $14.0 million related to the reversal of the domestic valuation allowance. Earnings before interest, taxes, depreciation, and amortization (EBITDA) were $11.1 million in the fourth quarter, up 35.1% compared to the fourth quarter of fiscal 2025. Full year fiscal 2026 EBITDA increased 48.0% to $29.9 million from $20.2 million in fiscal 2025.On a consolidated basis, the backlog of orders to be shipped over the next six months is approximately $178.3 million at the end of the fourth quarter of 2026, compared to $179.5 million at the end of the third quarter. Considering the impact of the change to the FIFO method of accounting for inventory, as a percentage of six-month backlog, inventory decreased from 107.2% at the end of the third quarter, to 99.9% at the end of the fourth quarter. Compared to the end of fiscal 2025, cash decreased 0.6% to $16.0 million, total debt decreased 5.2% to $29.8 million, and net debt* decreased $1.5 million to $13.8 million. The decrease in total debt was primarily attributable to positive free cash flow. CFO PerspectiveJeffrey S. Knutson, Vice President of Finance, Chief Financial Officer, Treasurer, and Secretary, stated, “Our fourth quarter results capped off a year of strong sales performance, profitability, and cash flow generation that were aligned with our long-term goals and targets. EBITDA grew 35% over the fourth quarter of last year, and we recognized strong free cash flow of $17.2 million in the quarter. While our fourth quarter operating margin was consistent with the fourth quarter of 2025, gross margins were lower primarily related to product mix, tariff dilution and a prior year favorable adjustment. We remain confident that gross margins will improve over the long-term as we continue to diversify our end markets and recognize enhanced operating leverage. Looking ahead, we believe that we are well positioned to drive backlog conversion, margin improvement, and strong free cash flow generation, and our new $90 million credit facility with BMO and JP Morgan provides us with the financial flexibility to capitalize on growth opportunities as we continue to expand into high margin verticals.” Discussion of Results Twin Disc will host a conference call to discuss these results and to answer questions at 9:00 a.m. Eastern time on August 20, 2026. The live audio webcast will be available on Twin Disc’s website at https://ir.twindisc.com. To participate in the conference call, please dial (646) 307-1963 approximately ten minutes before the call is scheduled to begin. A replay of the webcast will be available at https://ir.twindisc.com shortly after the call until August 21, 2027. About Twin Disc Twin Disc, Inc. designs, manufactures, and sells marine and heavy-duty off-highway power transmission equipment. Products offered include: marine transmissions, azimuth drives, surface drives, propellers, and boat management systems, as well as power-shift transmissions, hydraulic torque converters, power take-offs, industrial clutches, control systems, and braking systems. The Company sells its products to customers primarily in the pleasure craft, commercial and military marine markets, as well as in the energy and natural resources, government, military and industrial markets. The Company’s worldwide sales to both domestic and foreign customers are transacted through a direct sales force and a distributor network. For more information, please visit www.twindisc.com. Forward-Looking StatementsThis press release may contain statements that are forward looking as defined by the Securities and Exchange Commission in its rules, regulations, and releases. The words “anticipates,” “believes,” “intends,” “estimates,” and “expects,” or similar anticipatory expressions, usually identify forward-looking statements. The Company intends that such forward-looking statements qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. All forward-looking statements are based on current expectations and are subject to certain risks and uncertainties that could cause actual results or outcomes to differ materially from current expectations. Such risks and uncertainties include the impact of general economic conditions and the cyclical nature of many of the Company’s product markets; foreign currency risks and other risks associated with the Company’s international sales and operations; the ability of the Company to successfully implement price increases to offset increasing commodity costs; the ability of the Company to generate sufficient cash to pay its indebtedness as it becomes due; and the possibility of unforeseen tax consequences and the impact of tax reform in the U.S. or other jurisdictions. These and other risks are described under the caption “Risk Factors” in Item 1A of the Company’s most recent Form 10-K filed with the Securities and Exchange Commission, as supplemented in subsequent periodic reports filed with the Securities and Exchange Commission. Accordingly, the making of such statements should not be regarded as a representation by the Company or any other person that the results expressed therein will be achieved. The Company assumes no obligation, and disclaims any obligation, to publicly update or revise any forward-looking statements to reflect subsequent events, new information, or otherwise. *Non-GAAP Financial Information Financial information excluding the impact of asset impairments, restructuring charges, foreign currency exchange rate changes and the impact of acquisitions, if any, in this press release are not measures that are defined in U.S. Generally Accepted Accounting Principles (“GAAP”). These items are measures that management believes are important to adjust for in order to have a meaningful comparison to prior and future periods and to provide a basis for future projections and for estimating our earnings growth prospects. Non-GAAP measures are used by management as a performance measure to judge profitability of our business absent the impact of foreign currency exchange rate changes and acquisitions. Management analyzes the company’s business performance and trends excluding these amounts. These measures, as well as EBITDA, provide a more consistent view of performance than the closest GAAP equivalent for management and investors. Management compensates for this by using these measures in combination with the GAAP measures. The presentation of the non-GAAP measures in this press release are made alongside the most directly comparable GAAP measures. Definitions Organic net sales is defined as net sales excluding the recent acquisition of Kobelt while adjusting for the effects of foreign currency exchange. Earnings before interest, taxes, depreciation, and amortization (EBITDA) is calculated as net earnings or loss excluding interest expense, the provision or benefit for income taxes, depreciation, and amortization expenses. Net debt is calculated as total debt less cash. Free cash flow is calculated as net cash provided (used) by operating activities less acquisition of fixed assets. Investors: IMS Investor Relations [email protected] Source: Twin Disc, Incorporated

Interested in Twin Disc, Incorporated? Here are five stocks we like better. Record revenue and improved profitability: Fourth-quarter sales rose 18.3% year over year to $114.4 million, while operating income increased 19.5% to $7.8 million and EBITDA grew 35.1% to $11.1 million. Net income reached $9.4 million, helped partly by a $2.5 million tax benefit. Strong demand in marine, oil and gas, and defense: Marine propulsion sales increased 20%, land-based transmission sales rose 26%, and oil-and-gas revenue more than doubled versus the average of the first three quarters. Defense accounted for 17% of year-end backlog, which increased 56% year over year. Investment and long-term targets: Twin Disc plans more than $20 million in fiscal 2027 capital expenditures for facility expansion, assembly relocation and equipment. Management reaffirmed its 2030 goals of $500 million in revenue, 30% gross margins and free-cash-flow conversion above 60%, while raising the quarterly dividend 25% to $0.05 per share. Twin Disc (NASDAQ:TWIN) reported record fiscal fourth-quarter revenue as demand strengthened across its marine propulsion and land-based transmission businesses, while defense-related activity continued to build as a larger component of the company’s backlog. Fourth-quarter sales rose 18.3% year over year to $114.4 million, while full-year revenue reached $381.3 million. On an organic basis, excluding acquisitions and foreign-exchange effects, quarterly revenue increased 15.9% and full-year revenue increased 4.6%, CFO Jeff Knutson said. → Datavault AI Locks Down CyberCatch in $94M Security Rollup CEO John Batten said the company’s fourth-quarter performance reflected strong order momentum, particularly in defense, oil and gas, and marine propulsion. The company ended the quarter with a six-month backlog of $178.3 million, broadly level with the $179.5 million reported at the end of the fiscal third quarter despite strong shipments and efforts to reduce past-due orders. Twin Disc reported fourth-quarter operating income of $7.8 million, up 19.5% from $6.5 million in the prior-year period. Net income attributable to Twin Disc was $9.4 million, or $0.64 per diluted share, compared with $2.6 million, or $0.19 per diluted share, a year earlier. → Michael Burry Is Betting Against Palantir Again—Should Investors Care? Knutson said fourth-quarter net income benefited from stronger operating income, lower other expense, and an income tax benefit. The company recorded a $2.5 million income tax benefit in the quarter and a $14 million benefit for the full year related to the reversal of a domestic valuation allowance. For that reason, Knutson said operating income provides a more normalized measure of underlying operating performance. For the full fiscal year, operating income increased to $18 million from $11.1 million in fiscal 2025. Full-year net income totaled $27.1 million, or $1.86 per diluted share, compared with a net loss of $697,000, or $0.05 per share, in the prior year. → Home Depot Analysts See a Path to $375 and Beyond Fourth-quarter EBITDA increased 35.1% year over year to $11.1 million, with EBITDA margin rising 120 basis points to 9.7%. The company generated $17.2 million in free cash flow during the quarter and ended June 30 with $16.1 million in cash, total debt of $31.4 million, and net debt of $13.8 million. Net leverage was 0.5 times trailing 12-month EBITDA, compared with 0.8 times a year earlier. The board approved a 25% increase in Twin Disc’s quarterly dividend to $0.05 per share, Batten said. Gross profit declined 3.5% to $30.1 million in the fiscal fourth quarter, and gross margin contracted to about 26.3% from 32.3% a year earlier. Management attributed the decline primarily to product mix, tariff dilution, and a $3 million favorable inventory capitalization-cost adjustment recorded in the prior-year fourth quarter at Finnish subsidiary Katsa. Excluding the prior-year adjustment, fourth-quarter fiscal 2025 gross margin would have been 28%, Knutson said. Tariffs reduced the latest quarter’s gross margin by approximately 60 basis points; excluding that effect, margin would have been about 27%. The company is seeking to reduce tariff exposure by moving assembly of its ARF transmission product line to Lufkin, Texas. Batten said the relocation would also create additional manufacturing capacity in Racine, Wisconsin, for marine transmissions and other products. Management reiterated its long-term objective of reaching 30% gross margins by 2030, supported by a focus on higher-margin opportunities including electric fracturing, or e-frac, applications. Marine propulsion systems sales increased 20% from the prior-year quarter, driven primarily by demand for the Veth propulsion platform. Batten also cited Kobelt product-line performance, improving military demand for marine transmissions, commercial maritime demand in Asia, and broader market conditions. Land-based transmission sales rose 26% year over year as shipment volumes increased. Oil-and-gas sales accounted for slightly more than 10% of quarterly revenue and were more than double the average level of the first three fiscal quarters, according to Knutson. Batten said the company delivered e-frac units during the year and sees further potential from customer investment in both rebuilt and new e-frac rigs. Defense represented 17% of Twin Disc’s total backlog at year-end, up 56% year over year. During the question-and-answer session, Batten said defense backlog increased 53% during the quarter. The company supplies transmissions for unmanned U.S. Navy vessel programs and driveline components through Katsa for military vehicles, including vehicles produced by Patria for NATO. Batten said the company has broken ground on a new Finnish facility intended to expand Katsa’s assembly and testing capacity. He expects the building to be enclosed and begin receiving equipment by the end of the calendar year, while the facility is not expected to be fully operational until fiscal 2028. The company also cited defense opportunities involving fast patrol boats using Arneson surface drives and Rolla propellers, additional military vehicle programs in the Middle East and Asia, and continued work with BAE on the M88 HERCULES tank-retriever program. Twin Disc said industrial sales declined modestly in the quarter but showed signs of stabilization. Management cited demand from North American construction and recycling markets, stable industrial end markets, and initial Katsa orders related to data centers. For fiscal 2027, Knutson said capital expenditures are expected to exceed $20 million, including spending on the new Finland facility, the ARF assembly relocation, and additional machine tools. The company said it intends to continue prioritizing debt reduction, dividends and share repurchases while funding organic growth investments and evaluating acquisitions. Batten said the company believes its backlog, project pipeline, balance sheet and demand trends position it to pursue its 2030 targets of $500 million in revenue, 30% gross margins, and free-cash-flow conversion above 60%. Twin Disc, Inc (NASDAQ: TWIN) is a global designer and manufacturer of power transmission equipment for marine and industrial applications. Headquartered in Racine, Wisconsin, the company develops a range of mechanical and digital solutions that control power delivery in demanding environments. Its portfolio includes marine gears, power take-offs, clutches, brakes, transmissions and controllable pitch propeller systems engineered to withstand heavy loads and corrosive conditions. In addition to original equipment manufacturing, Twin Disc offers aftermarket parts and services, including maintenance, repair and overhaul support through a network of service centers worldwide. This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to [email protected]. The article "Twin Disc Q4 Earnings Call Highlights" was originally published by MarketBeat. View MarketBeat's top stocks for August 2026.

This article first appeared on GuruFocus. Release Date: August 20, 2026 For the complete transcript of the earnings call, please refer to the full earnings call transcript. Record Q4 revenue of $114.4 million, up 18.3% year-over-year, with strong demand across marine and land-based segments. Defense backlog grew 56% year-over-year, now 17% of total backlog, with a $30-50 million project pipeline, positioning Twin Disc Inc (NASDAQ:TWIN) for durable multi-year growth. Free cash flow improved significantly to $17.2 million in Q4, and net leverage ratio decreased to 0.5, strengthening the balance sheet. Board approved a 25% increase in quarterly dividend to $0.05 per share, reflecting confidence in future performance. Oil and gas segment ramped up, with revenue over 10% of total in Q4, driven by higher-margin EFRAC opportunities, and improving North American energy sentiment points to further investment. Proactive tariff mitigation, including relocating assembly to Lufkin, Texas, and new facility in Finland, supports long-term margin improvement and capacity expansion. Gross margin decreased approximately 600 basis points to 26.3% in Q4, impacted by product mix, tariff dilution, and a prior-year favorable adjustment. Tariff dilution alone reduced gross margin by 60 basis points in the quarter, and the company continues to face cost pressures. Industrial segment sales decreased modestly year-over-year, though stabilizing, indicating ongoing softness in that market. Defense business remains fragmented across products and regions, making it difficult to track and report, which could obscure performance visibility. New facility in Finland and other capacity expansions are not expected to be fully operational until fiscal 2028, delaying potential benefits. CapEx for fiscal 2027 is expected to be north of $20 million, a significant investment that could pressure near-term cash flows. Warning! GuruFocus has detected 8 Warning Sign with TWIN. Is TWIN fairly valued? Test your thesis with our free DCF calculator. Q: Can you provide an update on the defense business, specifically the conversations with shipbuilders outside of Saronic and the speed at which they are moving? Also, has the defense pipeline increased from the previously mentioned $50 to $75 million? A: John Batten (CEO): Saronic has set the benchmark for speed to market, but other shipbuilders are also moving quickly by forming alliances with technology companies. The Department of Defense and Navy are not putting all their eggs in one basket and are truly trying to bring back the US shipbuilding industry. The defense backlog grew 53% in the quarter, driven by marine transmissions for the US Navy built in Racine and Belgium, as well as NATO truck components from our Finnish subsidiary, Kotsa. The pipeline is casting a much wider net with different products and customers, including growing interest in our Arneson surface drive for fast patrol boats. Q: What is the timeline for the new Finland facility, and how is capacity looking at the Racine facility? A: John Batten (CEO): The Finland facility is expected to be enclosed by the Finnish winter, with full operational impact not until fiscal 2028. It will significantly increase the output of Kotsa, which currently uses makeshift facilities not designed for assembly and test. In Racine, we are staffing up and adding machinists, with significant capital purchases like a 1.2m hob and grinder already in place. We are looking to expand to second and third shifts due to high volume. We are also scrambling to move the ARC transmission assembly to Lufkin, Texas (a free trade zone) to reduce tariff exposure and free up Racine capacity for marine transmissions for the Navy and commercial marine markets. Q: How big is the oil and gas business now, and did you sell any EFRAC units in the quarter? A: John Batten (CEO): Oil and gas revenue was a little over 10% of overall revenue in the quarter, the biggest since fiscal '24 in terms of percentage and pure dollars. It was more than double the average of the first three quarters. Yes, we have delivered approximately two EFRAC spreads, with more coming, as we prioritize these higher-margin opportunities. Q: What is the CapEx plan for fiscal 2027? A: Jeff Kennison (CFO): CapEx will be north of $20 million, driven by the new facility in Finland, the movement of a significant product line to Lufkin, and additional machine tools. We are in great shape with a new credit agreement and plenty of financial horsepower to fund this growth. Q: Regarding the military pipeline of $50 to $70 million, how much of that do you think you can win? A: John Batten (CEO): We are conservative when putting projects in the pipeline and believe we have a better than 50/50 chance of winning all of them. We are very good at predicting our confidence of winning; the uncertainty is just the timing of when projects will materialize into orders, which can take longer than expected. Q: Can you provide more detail on the pipeline of new defense programs for fiscal 2027? A: John Batten (CEO): The biggest opportunities, though under NDAs, are fast patrol boats with Arneson surface drives and roller propellers, similar to products going into Patria trucks but for different truck builders and militaries in the Mideast and Asia. In the US, we expect continuation with BAE on the M88 Hercules tank retriever. These are the most exciting and meaningful programs on the horizon. Q: How big was the military business in the fourth quarter or fiscal 2026? A: Jeff Kennison (CFO): We don't have a great number to provide as it is fragmented across all products and regions, with a lot going through distribution. We need to do a better job analytically of pulling that together as it becomes a bigger part of the business, but it was definitely up. Q: Can you elaborate on the gross margin decline and the impact of tariffs? A: Jeff Kennison (CFO): Gross margin decreased to 26.3% in Q4, down 600 basis points year-over-year, primarily due to product mix, tariff dilution, and a $3 million favorable adjustment in the prior year. Excluding the prior year adjustment, gross margin would have been 28%. Tariff dilution alone decreased gross margin by 60 basis points; excluding this, margins would have been approximately 27%. We are confident in our ability to drive margin improvement toward our 2030 target of 30% gross margins. Q: What is the current backlog level and how does it compare to the previous quarter? A: John Batten (CEO): Our 6-month backlog at the end of Q4 was approximately $178.3 million, consistent with the $179.5 million at the end of Q3. This is particularly pleasing given strong shipments and a concerted effort to reduce past due backlog during the quarter. The backlog demonstrates the strength of our pipeline and demand across our product groups. Q: Can you provide an update on the change in inventory accounting method and its impact? A: Jeff Kennison (CFO): We elected to change our method of accounting for certain inventories from LIFO to FIFO, which provides better matching of costs and revenues and conforms our inventory to a single method. The change allowed us to utilize expiring tax credits, contributing to the reversal of the valuation allowance. The impact was a $30 million increase in inventory for the fiscal year ended June 30, 2026, and we have recast certain historical information to conform to the updated method. For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Twin Disc (NASDAQ:TWIN) reported fiscal third-quarter 2026 results that management said marked the start of a stronger second half, citing higher sales, expanding margins, and improved free cash flow generation. CEO John Batten said the company delivered “meaningful sales growth, margin expansion, and improved free cash flow generation through solid execution and healthy demand across our end markets.” Sales rose 19% year over year to $96.7 million, supported by strength in Marine and Propulsion Systems, continued demand for Veth products, contributions from acquisitions, and favorable foreign exchange. On an organic basis, Batten said sales grew 7%. → Berkshire Hathaway’s Record Cash Hoard: Why and What's Next? Profitability improved as gross margin expanded to 28.1%, which Batten attributed to higher volumes and operational improvements. CFO Jeff (Chief Financial Officer) reported gross profit increased 25% to $27.1 million. SG&A expenses were $21.3 million compared with $19.8 million in the prior-year period, though Jeff noted SG&A fell by about 230 basis points as a percentage of sales due to operating leverage on higher revenue. → A Prada Payday: Is AMC Back in Style? Net income attributable to Twin Disc was $3.3 million, or $0.23 per diluted share, compared with a net loss of $1.5 million, or $0.11 per diluted share, in the prior-year period. Jeff said the improvement was driven by higher operating income and lower expenses. EBITDA increased to $9.4 million, up about 135% year over year, with EBITDA margin improving by roughly 480 basis points. Management attributed the gain to higher volume and the implementation of margin improvement initiatives. → Insider Sales: Top AST SpaceMobile Insider Cuts Postion Over 30% Batten said Marine and Propulsion Systems remained a key driver, with sales up 20% from the prior-year period. He cited healthy demand across workboat, government, and specialty marine applications, along with “sustained interest in higher content propulsion solutions and integrated systems,” including continued demand for Veth products. He also pointed to improved aftermarket execution, saying the company’s performance was encouraging given “short-term softness we discussed last quarter that was largely timing related and not indicative of any change in underlying demand.” Land-based Transmissions posted year-over-year growth of 22.2%, driven primarily by improved shipment volumes and favorable mix, according to Batten. He said shipment trends improved from delays discussed on the prior quarter’s call, though some deliveries shifted into the fourth quarter based on customer timing preferences around complete system deliveries, including certain oil and gas transmission shipments to China. Batten said the remaining delays were timing related and not indicative of a broader demand change. In industrial, sales increased 15.2% year over year, which Batten attributed largely to the contribution from Kobelt and steady underlying demand. He said the company is focusing on higher content solutions and leveraging engineering and manufacturing capabilities “to help improve mix and support better margins over time.” Management highlighted improving demand visibility. Batten said the company’s six-month backlog increased sequentially to about $179.5 million, supported by “healthy order momentum across core markets,” including land-based transmission products and continued defense-related activity. He added that backlog growth, paired with improved execution, provided “solid visibility into near-term demand.” Batten and Jeff also discussed working capital improvements. Batten said inventory improved again as a percentage of backlog. He later noted inventory declined by roughly $3 million from the second quarter and that inventory as a percentage of backlog improved to approximately 89%. Defense was a major focus of management’s commentary. Batten said the company continues to see robust demand across programs and geographies, supported by elevated defense spending in the U.S. and across NATO markets. He said defense currently represents about 15% of backlog, and that defense backlog increased roughly 20% year over year. Batten also cited a defense pipeline of about $50 million to $75 million. From a product standpoint, Batten said Twin Disc is positioned across defense applications including marine transmissions, controls and steering systems, propulsion systems, transmissions, gearboxes, and transfer cases. He said growth opportunities are being driven by two areas the company discussed previously: activity tied to unmanned and autonomous U.S. Navy Veth programs, and growing demand in Europe through Katsa supporting NATO-related vehicle platforms. To support anticipated demand, Batten said the company has “a substantial portion of the acquired capacity in place today in North America,” and is advancing targeted facility expansion efforts in Finland to add test stand and assembly capacity for expected growth in European defense demand. Jeff reported free cash flow of approximately $1.8 million in the quarter, reflecting improved operating performance and continued signs of working capital normalization. The company ended the quarter with cash of about $16.1 million. Total debt increased to $45.1 million and net debt rose to approximately $29 million, which Jeff said primarily reflected higher long-term debt associated with the Kobelt acquisition. On tariffs, Jeff said the company is monitoring the evolving landscape and executing mitigation initiatives, including adjustments to manufacturing strategy where appropriate. Based on the current environment and regional mix, he said tariff-related impacts in the upcoming quarter are expected to be about 1% to 3% of cost of goods sold. Batten said the company’s long-term strategy remains focused on profitable growth through operational excellence, footprint optimization, and disciplined capital allocation. He highlighted ongoing initiatives across the manufacturing footprint, including the planned relocation of ARF assembly to the Lufkin facility and the Finland expansion tied to defense demand. Batten said these actions are intended to improve operational flexibility, mitigate tariff exposure, and align capacity with demand. Jeff said capital allocation priorities remain unchanged, with a focus on investing to support growth—such as capacity, operational efficiency, and product development—while maintaining a strong balance sheet and emphasizing liquidity, leverage management, and working capital efficiency. In closing remarks, Batten said the third quarter represented “a strong step forward,” and that improving profitability and working capital position the company for stronger cash generation in the fourth quarter. The company did not take questions on the call, as the operator said there were no questions in the queue. Twin Disc, Inc (NASDAQ: TWIN) is a global designer and manufacturer of power transmission equipment for marine and industrial applications. Headquartered in Racine, Wisconsin, the company develops a range of mechanical and digital solutions that control power delivery in demanding environments. Its portfolio includes marine gears, power take-offs, clutches, brakes, transmissions and controllable pitch propeller systems engineered to withstand heavy loads and corrosive conditions. In addition to original equipment manufacturing, Twin Disc offers aftermarket parts and services, including maintenance, repair and overhaul support through a network of service centers worldwide. The article "Twin Disc Q3 Earnings Call Highlights" was originally published by MarketBeat. View MarketBeat's top stocks for May 2026.

Third quarter results marked the start of an expected stronger second half, characterized by 19% year-over-year sales growth and meaningful margin expansion. Organic growth of 7% was supported by healthy demand in Marine and Propulsion, defense, and select industrial applications, while acquisitions and foreign exchange provided additional tailwinds. Gross margin expansion to 28.1% was driven by higher shipment volumes and the successful implementation of operational and margin improvement initiatives. Defense has become an increasingly durable component of the business, now representing approximately 15% of the total backlog due to elevated global spending and modernization needs. Land-based transmission growth of 22.2% reflected improved shipment volumes as the company began clearing previous delivery delays, despite continued cautious behavior in North American oil and gas. Regional sales mix shifted toward North America and Europe, which management noted is a trend that should help soften the impact of tariffs moving forward. Management expects continued progress through the balance of the fiscal year supported by backlog conversion, improving mix, and ongoing footprint optimization. The company is advancing targeted facility expansion in Finland to add test stand and assembly capacity specifically to support expected growth in European defense demand. Guidance for the upcoming quarter assumes a tariff-related impact of approximately 1% to 3% of cost of goods sold based on the current environment and regional mix. A pipeline of roughly $50 million to $75 million in defense opportunities supports management's confidence in the long-term durability of that segment. Operational strategy includes relocating ARF assembly to the Lufkin facility to improve flexibility and better align capacity with shifting market demand. Our analysts just identified a stock with the potential to be the next Nvidia. Tell us how you invest and we'll show you why it's our #1 pick. Tap here. Certain oil and gas transmission shipments to China shifted into the fourth quarter due to customer timing preferences for complete system deliveries. Inventory as a percentage of backlog improved to approximately 89%, reflecting a strategic focus on working capital normalization and cash conversion. Total debt increased to $45.1 million, primarily reflecting the financing required for the Cobalt acquisition. Backlog was negatively impacted by approximately $2.5 million due to foreign exchange fluctuations relative to the prior quarter. One stock. Nvidia-level potential. 30M+ investors trust Moby to find it first. Get the pick. Tap here.