Enerpac (EPAC) Q2 2026 Earnings Call Transcript

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DATE
Thursday, March 26, 2026 at 8:30 a.m. ET
CALL PARTICIPANTS
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President & Chief Executive Officer — Paul E. Sternlieb
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Chief Financial Officer — Darren M. Kozik
Full Conference Call Transcript
Paul E. Sternlieb: Thanks, Darren, and thank you, everyone, for joining us this morning. As we look back at our 2026 performance, there was a lot to be pleased about. Within our Industrial Tools & Services segment, or IT&S, product sales accelerated, growing 6% organically year over year. That represents the highest growth in products that we have enjoyed in ten quarters, since 2023. Through February, we saw some strengthening in the U.S. market, with the PMI reflecting two consecutive months of expansion in the manufacturing sector. Likewise, U.S. industrial distributor survey data through February suggests improving sentiment.
At Enerpac Tool Group Corp., we continue to see favorable trends, with overall product order rates growing mid-single digits and gains in each of our three geographic regions. Within our Services business, which represented approximately 20% of the IT&S segment in fiscal 2025, we took decisive action to address a market slowdown in the EMEA region that has weighed on overall growth and profitability. With the announced restructuring, we are rightsizing our Hydratight service operation in the region and reducing headcount to align with current market conditions. The restructuring will also support our strategic transition toward higher-margin service business and profitable growth objectives.
At the same time, we are very pleased to announce a five-year contract award with a major oil and gas company operating in the U.K. North Sea. Under that contract, which is worth several million dollars annually, we will provide maintenance and pipeline service work. I am particularly proud of the fact that we were able to secure this win against significant competition. Much like the premium Enerpac tool brand, our Hydratight brand on the service side is synonymous with superior technical know-how, value-added support, and world-class job performance. In fact, the customer indicated that Hydratight was selected for this critical work as they felt we are the only ones who could ensure reliably leak-free results.
With that, let me turn the call over to Darren, who will provide more detail on our second quarter performance as well as geographic and end-market trends. Then I will come back to talk about our progress on the innovation front and our successful presence at CONEXPO. Darren?
Darren M. Kozik: Thanks, Paul. As seen on slide four, Enerpac Tool Group Corp.'s second quarter revenue of $155 million expanded 2% on an organic basis. IT&S sales increased 1% organically, as a 6% gain in product sales was offset by a 17% decline in service revenue. While there is still softness in the industrial MRO end market, we continue to enjoy growth in power generation, infrastructure, and defense end markets on a global basis. At Cortland, shown in the Other segment, we continue to capture exceptional growth of 27% in the second quarter due to its ongoing success generating new projects.
Turning to slide five, which shows our performance by geography, we delivered solid 4% growth in the Americas—year-over-year growth of nearly 6% on the product side, with particular strength in standard products but somewhat offset by an 8% decline in service revenue. On the product side, we were particularly pleased with gains we made with national accounts. Turning to the EMEA region, let me first draw your attention to the pie chart on slide five, which shows the revenue breakdown between product and service for each region in fiscal 2025. Of note, it illustrates the greater relative importance of service in the EMEA region and how its performance significantly affects overall results.
As such, while product revenue expanded 7% in the EMEA region, with gains for both standard product and HLT, second quarter revenue in the region was down 1% due to a 21% decline in service revenue. Geographically, on the product side, while conditions were soft in Northern Europe, Southern Europe enjoyed good performance, including some project work on the power generation side. In Asia Pacific, we resumed modest growth, led by our products business. While we continue to experience weakness in China, there were several bright spots. In India, we had another strong quarter, growing double digits due to strength in steel, process industries, and heavy equipment manufacturing.
In Australia, we continue to benefit from recovery in the core mining sector, as well as healthy demand from oil and gas. Turning to slide six, gross margins declined 410 basis points year over year. While gross margins on the product side remain at healthy levels, overall gross margins were under pressure due to lower volume in our service business. On the other hand, SG&A expense continued to reflect disciplined cost management and benefit from moving resources to our low-cost shared service model. As such, adjusted SG&A declined to 26.4% of revenue, compared with 28.3% in the year-ago period. As a result, the adjusted EBITDA margin was 21.3%, compared with 23.2% in the year-ago period.
We enjoyed margin improvement in the products business. However, that benefit was offset by pressure in the service business and, to a smaller extent, an FX impact of roughly 50 basis points. On a per-share basis, we reported earnings of $0.31 in 2026, versus $0.38 in the year-ago period. On an adjusted basis, earnings were $0.39 in both periods. In the second quarter, we booked a restructuring charge, primarily related to the service business, totaling $3.3 million. We expect to see the initial benefit of the savings in the third quarter and anticipate a payback period of about one year. Turning to the balance sheet shown on slide seven, Enerpac Tool Group Corp.'s position remains extremely strong.
Net debt was $89 million at the end of the second quarter, resulting in a net debt to adjusted EBITDA ratio of 0.6 times. Total liquidity, including availability under our revolver and cash on hand, was $499 million. Cash flow was strong, with year-to-date cash flow from operations of $29 million compared with $16 million in the year-ago period. In addition, year-to-date free cash flow expanded by $18 million, from $5 million in 2025 to $23 million in 2026. During the quarter, we returned significant capital to shareholders, repurchasing $51 million worth of stock. Out of the $200 million authorized by our Board in October 2025, approximately $135 million remains, and we will continue to opportunistically repurchase stock.
Looking ahead, while our product business remains strong, the service side of our business continues to experience pressure in the near term. Additionally, we recognize that the evolving conflict in the Middle East could have a direct impact on our business in the region, as well as potential ramifications as it relates to global inflation and economic growth. As such, we have narrowed the guidance range for fiscal 2026. We are now guiding to a full-year net sales range of $635 million to $650 million. That represents organic sales growth of 1% to 3%.
But keep in mind that growth rate is composed of solid product growth in the mid-single-digit range, or even a bit better, which is offset by projected service contraction in the low- to mid-teens range. We are now guiding to adjusted EBITDA of $158 million to $163 million and adjusted EPS of $1.85 to $1.92. We held free cash flow guidance at $100 million to $110 million, given our strong cash flow generation year to date. As we look forward, restructuring and rightsizing of our EMEA service operations will establish a more competitive cost structure and a platform for growth.
In addition, through the execution of Powering Enerpac Performance, or PEP, we see further opportunities to improve operating efficiency with our continued focus on procurement and the productivity of our manufacturing footprint, which supports our healthy product business. With that, let me turn it back to Paul.
Paul E. Sternlieb: Thanks, Darren. As you may know, we recently exhibited at CONEXPO, North America's largest construction trade show. Attendance and engagement were extremely strong. At the event, we demonstrated our latest infrastructure lifting and smart transport solutions, including several newly launched innovations. The conversations with customers were very productive, resulting in some meaningful orders booked at the show itself. This was the first major U.S. trade show where we exhibited our DTA automated guided vehicles. Among featured solutions, included on slide nine, were a new line of Split-Flow Pumps. The diesel-powered Split-Flow Pump, which we added with the recent acquisition of the Hydropack assets, enables operation without an external power source.
As such, it provides greater mobility and application flexibility, which can be a significant advantage for customers across many end markets, including infrastructure and power generation. We also introduced our battery Split-Flow Pump. Not only does it allow for operation without a power source, but it also enables use in enclosed spaces by eliminating emissions and significantly reducing noise. We also showcased and launched our IntelliLift 2.0 wireless gantry controller. With this controller, Enerpac Tool Group Corp. has introduced the world's first software-defined, wireless, and scalable heavy-lift control platform capable of operating up to eight hydraulic gantry legs in synchronous fashion from a single control unit.
It also provides the foundation for recurring software updates, multi-application expansion, and long-term ecosystem value. In addition, we launched our new cribbing rooms, our updated skid track system, and a new lightweight tow jack. These products are just a sample of what has come from our increased and more focused investment in innovation—an effort that continues to respond to our customers' needs and build the strength of the Enerpac brand. Before we open the call to your questions, I would like to thank our team across the globe. I applaud their talent and dedication. I also appreciate each and everyone's role in building a culture of ownership, accountability, and teamwork here at Enerpac Tool Group Corp.
Particularly rewarding on a personal note is the way our employee engagement scores have improved every year since 2022 and now exceed industrial manufacturing industry benchmarks. It is our people and shared culture that make Enerpac a premier industrial solutions provider. With that, we would be happy to take your questions.
Operator: We will now open for questions. Your first question comes from the line of Will Gildea of CJS Securities. Your line is now open.
Will Gildea: Hi, Paul and Darren. Good morning. Can you talk about how much of your business comes from the Middle East and are you seeing an impact in the region due to the current conflict?
Paul E. Sternlieb: About 10% of our total revenue for the company. What I would say on impact—I mean, we do not obviously know how long this conflict will last and if it would materially impact our outlook for the year. But, certainly, it does create a greater level of uncertainty, no doubt. We have seen, since the conflict with Iran, some pause in service work in the Middle East, mainly due to inability to access facilities, customers shutting sites, deferring work. I would say, largely, we believe that is work that has been pushed to the right. Work will need to take place. In some cases, given some of the damage to facilities, there will be more work post the conflict.
Beyond the Middle East itself, of course, there are impacts more broadly from higher oil prices, inflation, and general economic headwinds that the conflict has created. What I would say—and what I have said to our team—is we are working on what we can control, which is obviously keeping our people safe in the region, which we are doing and have done, and certainly trying to proactively identify additional commercial opportunities on a global basis to mitigate any impact to our business.
Will Gildea: Thank you. That is super helpful. On the updated guidance, can you provide some more detail on your expectations and maybe talk about how you are thinking about the cadence from quarter to quarter?
Darren M. Kozik: Sure, Will. As we look at revenue, I would say in the first place, as we talked about, our product business is very strong. IT&S product in the first half is up 5%. We expect to see mid-single-digit growth for that business for the total year, so we have been very pleased with that performance. On service, we have continued pressure in the third quarter, but we expect to see a little bit of a rebound in that business in Q4. As you saw in our prepared remarks, we think that business for the total year will be down—a decline of the low- to mid-teens. That is the framework from a revenue perspective.
As we look at gross margin, we expect to see sequential improvement into Q3 and then into Q4. That is coming off of roughly 46%, just north of that, in Q2, so we expect to see that improvement in the second half. For SG&A, our goal is simple—maintain or improve SG&A as a percent of sales for the year. That is the framework we have on the lines of the P&L. From a free cash flow perspective, strong performance—$23 million, up $18 million year over year—so we held that guidance. As we step back, we still see opportunities to improve the margins.
We are looking at the service business, we have ongoing initiatives in procurement and at our manufacturing footprint, and, obviously, we have PEP running to improve those margins in the second half. That is how we think about the business.
Will Gildea: Thank you. Thanks.
Operator: Your next question comes from the line of Ross Sparenblek of William Blair. Your line is now open.
Sam Carlo: Good morning. This is Sam Carlo on for Ross. Thanks for taking my question. I guess starting on the HLT business, I am curious specifically, have you seen any project slowdowns as a result of the macro uncertainty over the past month or so?
Paul E. Sternlieb: No, nothing to date, Sam. In fact, our HLT business remains, I would say, quite strong and healthy. Good backlog. It is a product line where, I would say, we are extremely differentiated. We continue to see really robust engagement with customers, good order rate activity. We are also encouraged by activity we see particularly for HLT in the data center end market. Although still a relatively small portion of our overall revenue as a company today, we do see good upside opportunities. We did have good engagement with customers at the CONEXPO show in Las Vegas specifically around data centers, including some repeat orders.
Sam Carlo: Got it. That is good to hear. Switching gears a little bit, we noticed there is an incremental M&A co