Twin Disc (NASDAQ:TWIN) reported higher fiscal first-quarter 2027 sales, earnings and cash generation, supported by demand across its marine, industrial, energy and defense markets. Management said defense-related orders, particularly from European NATO customers and U.S. Navy unmanned-vessel programs, helped lift the company’s six-month backlog to a reported record.
First-quarter sales rose 10.9% year over year to $88.7 million, while organic sales growth, excluding acquisitions and foreign exchange effects, was 11.8%, Chief Financial Officer Jeff Knutson said. Growth was driven by the Veth product line, defense-sector demand, improved oil-and-gas activity and broader global market conditions.
Net income attributable to Twin Disc was $3.4 million, or $0.24 per diluted share, compared with a net loss of $518,000, or $0.04 per share, in the prior-year quarter. Operating income more than doubled to $4.6 million from $2.2 million, while EBITDA increased 62.6% to $7.7 million.
Backlog Reaches Record as Defense Orders Grow
CEO John Batten said the company ended the quarter with six-month backlog of approximately $190.6 million, up from $178.3 million at the end of fiscal 2026 and $163.3 million a year earlier. Defense accounted for roughly 24% of total backlog at quarter-end, compared with approximately 17% at fiscal year-end, and total defense backlog increased about 104% year over year.
Twin Disc supplies marine transmissions to shipbuilders serving the U.S. Navy’s unmanned and autonomous vessel programs. It also provides driveline components for military vehicles through its Finnish subsidiary, Katsa, to NATO customers in Europe.
During the question-and-answer session, Batten said orders related to the first 30 U.S. Navy boats had begun to enter the company’s order book and that additional orders were received in the fiscal second quarter. He said the company expects another increase from those orders during the quarter, followed by what could be a pause of several quarters before the next significant increase.
Katsa is also seeing orders connected to NATO military trucks, a Middle East customer program and a new Asian program, Batten said. He characterized NATO trucks as the largest opportunity among those programs. Knutson said the company’s aerospace and defense pipeline remained at $30 million to $50 million because new opportunities have continued to enter the pipeline as earlier opportunities became firm orders.
Segment Trends and Katsa Capacity Investment
Marine and Propulsion Systems sales increased 14% from a year earlier, led by demand for Veth, Kobelt and Twin Disc products. Batten cited military demand for marine transmissions, stronger commercial maritime demand in Asia and generally favorable market conditions.
Land-Based Transmissions sales declined 15% year over year, though management said the comparison was affected by a change in reporting classification. Beginning in fiscal 2027, all Katsa sales previously reported in Land-Based Transmissions are classified within the industrial segment.
Industrial sales increased approximately 35% from the prior-year quarter. The segment benefited from Katsa’s defense vehicle components and steady demand from North American construction and recycling customers, according to Batten.
Katsa is building a new 54,000-square-foot assembly plant in Finland that is expected to be fully operational in May 2027. By 2028, the subsidiary expects to double gearbox assembly capacity to address defense, industrial power generation and heavy-equipment demand.
Management also discussed an emerging data-center-related opportunity for Katsa, which supplies components to European original equipment manufacturers producing backup power generator systems. Batten said data-center sales were likely below $1 million in the quarter but described the opportunity as significant for Katsa, a business with sales of about $50 million and growing. He noted the components are machined parts and would not add pressure to the new assembly plant’s capacity.
Margins, Cash Flow and Capital Allocation
Gross profit rose 10.9% to $25.4 million, while gross margin remained unchanged at 28.7%. Marketing, engineering and administrative expense was essentially flat at $20.8 million, compared with $20.7 million a year earlier, producing stronger operating leverage on higher revenue.
Knutson said the company expects fiscal 2027 gross margins to be broadly in line with fiscal 2026. Katsa and Veth operate below Twin Disc’s companywide average gross-margin profile, though management said their margins continue to improve. The company reiterated its long-term goal of reaching a 30% gross margin by 2030.
Free cash flow was $5.6 million in the quarter, compared with negative $11 million in the prior-year period. Operating cash flow totaled $11.5 million, while capital expenditures were $5.8 million. Management credited disciplined inventory management for helping reduce net debt despite increased investment spending. Inventory as a percentage of backlog declined to 94%, from 117% a year earlier and 100% at fiscal year-end.
- Cash at quarter-end: approximately $26.7 million
- Total debt: $39.8 million
- Net debt: $13.1 million, compared with $29.5 million a year earlier
- Net leverage ratio: 0.4 times trailing 12-month EBITDA, compared with 1.3 times a year earlier
The company expects capital expenditures of around $25 million for fiscal 2027 as it expands capacity and capabilities. Knutson said free-cash-flow conversion for the year could fall in a 20% to 40% range, below Twin Disc’s longer-term target of more than 60%, because of the planned investment program.
Twin Disc also maintained its increased quarterly cash dividend of $0.05 per share. Batten said the company remains focused on executing operational initiatives, optimizing its global footprint and investing in long-term growth while maintaining financial discipline. Management reiterated its 2030 targets of $500 million in revenue, a 30% gross margin and free-cash-flow conversion above 60%.
About Twin Disc (NASDAQ:TWIN)
Twin Disc, Inc designs, manufactures and sells power transmission and propulsion systems for marine, industrial and specialty vehicle applications. The company’s products are used to transfer and control engine power in commercial and recreational boats, workboats, military vessels, construction equipment and other heavy-duty machinery.
Its product portfolio includes marine transmissions, propulsion systems, surface drives, electronic controls, boat-management systems, power take-offs, torque converters and industrial transmissions.
