SPX Technologies Q1 Earnings Call Highlights

Key Points

• SPX reported a “strong start” to 2026 with adjusted EBITDA up 23%, adjusted EPS +22% to $1.69, total revenue +17.4%, and raised full‑year adjusted EPS guidance by $0.15 to a midpoint of $7.95, citing D&M strength and additional data‑center volume expected in H2.
• HVAC was a key growth driver—revenue +22% and backlog at $755 million (up 38% organically) driven by data‑center demand—while capacity expansions (new facilities and product ramps) incurred $8–9 million of startup costs that compressed margins in the near term.
• Management flagged a near‑term headwind from changes to Section 232 tariffs (about $10 million gross), expects to offset roughly half via pricing with 75–80% of the net impact concentrated in Q2 and minimal H2/2027 effects; the balance sheet (roughly 0.9x leverage and $158M cash) provides room for opportunistic M&A.

SPX Technologies NYSE: SPXC reported what management called a “strong start” to 2026, posting double-digit growth in revenue and profit metrics in the first quarter and raising its full-year outlook, while also addressing a near-term headwind tied to changes in Section 232 tariffs.

First-quarter results and raised guidance

President and CEO Eugene Lowe, III said the company delivered year-over-year growth in adjusted EBITDA of 23% and adjusted earnings per share growth of 22%. CFO Mark Carano added that adjusted EPS increased to $1.69 in the quarter.

On the top line, Carano said total company revenue rose 17.4% year-over-year, “primarily driven by the benefit of acquisitions and strong organic growth in HVAC.” Consolidated segment income increased $25 million, or 22%, to $135 million, and consolidated segment margin expanded by 100 basis points.

Based on first-quarter performance and its expectations for the rest of the year, SPX raised its 2026 adjusted EPS guidance by $0.15 to a midpoint of $7.95. Carano said the increase reflects “strong Q1 results, particularly in D&M,” and “additional data center-related volume anticipated to be delivered in the second half of this year.” The updated guidance also incorporates a $0.05 to $0.10 headwind tied to “recently announced changes to the Section 232 tariffs,” which Carano said is expected to “predominantly affect HVAC in the second quarter.” Lowe said the company does not expect the tariffs to impact 2027 earnings.

HVAC: data center demand drives growth and backlog

In HVAC, Carano said revenue increased 22% year-over-year, including 11.5% inorganic growth and a modest foreign exchange tailwind. Organic revenue grew 9.6% with “solid growth in both cooling and heating.” HVAC segment income rose $15 million, or 20%, driven “primarily” by higher volume, though segment margin declined 40 basis points due largely to “startup costs associated with the capacity expansions.”

Backlog in HVAC ended the quarter at $755 million, which Carano said was up 38% organically year-over-year and “primarily driven by data center demand.”

During the Q&A, Lowe said data center growth is the strongest within HVAC, noting the company increased its data center growth outlook “from the neighborhood of 50% to 70%.” Outside of data centers, Lowe described HVAC demand as “mid-single digits, maybe a hair above that,” with strength in healthcare and pharma, power (including aftermarket), heavy industrial activity, and a strong aftermarket overall. He cited continued softness in commercial real estate and hotels, and said the institutional market (universities and government) has been “relatively flattish” compared with the past couple of years. Lowe also reiterated that battery and semiconductor have been softer versus a few years ago, though he said SPX is seeing “some nice new opportunities coming” and early bidding activity in semiconductor.

Management also provided updates on capacity expansion initiatives tied to HVAC growth. Lowe said the company began producing “highly engineered aluminum dampers” in TAMCO’s new Tennessee facility in the first quarter, with production expected to “steadily increase throughout the year.” SPX also began producing the Marley OlympusMAX in its Olathe, Kansas facility in the quarter. Lowe said the Madison, Alabama facility build-out is “well underway,” with assembly capabilities for Marley OlympusMAX and custom air handling products expected in the second half of 2026 and initial production capabilities expected in the first half of 2027.

Carano quantified the startup costs associated with the HVAC capacity ramp, telling analysts the company previously indicated “$8 million–$9 million of startup costs,” largely in the first half, with “2/3 of it” impacting the first and second quarters. He said the margin performance in Q1 was “on track with where we expected it to be,” and added that excluding the startup costs and focusing on operating leverage and acquisition contribution, there would have been “roughly 40 basis points of margin lift” year-over-year.

Detection & Measurement: margin expansion aided by software mix

In the Detection & Measurement (D&M) segment, Carano said revenue grew 8.3% year-over-year. One month of inorganic revenue from KTS contributed 3.9%, with a modest FX tailwind. Organic revenue increased 3% “primarily driven by higher volumes in our transportation platform.” Segment income increased $10 million, or 28%, while segment margin expanded 410 basis points, which Carano attributed to higher volume, favorable mix, and “greater than typical high-margin software volume.” D&M backlog ended the quarter at $333 million, down modestly year-over-year.

Asked about the company’s improved margin outlook in D&M, Carano said the benefit was not due to a pull-forward, but instead reflected “expanded scope on an existing project” in the transportation business. He described it as one of the company’s larger multi-year projects where the customer expanded the software component, which was not originally in the forecast or backlog. Carano said the higher-margin software revenue “really leverages through,” and was a key driver behind the company raising its full-year D&M margin outlook.

Lowe also highlighted progress on new product initiatives within D&M, pointing to the launch of a new Locate Performance Management software offering within the company’s location and inspection platform. Lowe said the tool expands real-time analysis of customer data transferred from Radiodetection precision locators, and he said SPX believes it improves customer efficiency, safety, accuracy, and data management.

On Radiodetection performance, management said it is tracking well. Lowe called the business the company’s “canary in the coal mine” and said it is “performing very well to date,” citing momentum in end-market demand and innovation. Carano said order rates were healthy, particularly in the U.S., and that the company is forecasting “mid-single digit growth” for the year, with “low to mid-single digit growth” in the first quarter for that business.

Tariffs, inflation, and second-quarter expectations

On Section 232 tariffs, Carano said the company sees about $10 million in gross cost, and believes it can offset roughly 50% “primarily through price,” with other mitigation levers also available. He said 75% to 80% of the net impact is expected to fall in the second quarter, driven by backlog in two Canadian businesses—Ingenia and Sigma and Omega—“that’s already priced.” Carano said the impact should be “de minimis” in the back half of the year and reiterated management’s view that there will be no impact in 2027 due to actions the company expects to take.

In discussing the second quarter, Carano said the company’s markets “remain healthy” and that, excluding the tariff impact, first-half adjusted EPS “gating” should be similar to the prior year. He added that HVAC revenue is expected to be up sequentially, and clarified he also expects year-over-year growth in HVAC in Q2. Carano noted D&M quarterly results can vary based on project timing, though he said management is generally confident in delivery within the year.

On broader inflation, Carano said input costs such as steel and aluminum have moved up “a little bit,” but represent “mid-single digits” exposure as a percentage of cost of goods sold. He emphasized the company’s ability to pass through incremental costs in real time because much of the portfolio is “engineered to order or configured to order.” Lowe similarly noted SPX tends to price projects with real-time cost information, which he said makes significant purchase price variance uncommon.

Balance sheet, portfolio actions, and M&A approach

SPX ended the quarter with $158 million in cash and total debt of $674 million, with leverage of roughly 0.9x under its bank credit agreement, Carano said. He noted the company’s leverage is below its long-term target range of 1.5x to 2.5x, which he said provides “significant capacity to pursue accretive growth opportunities.” Adjusted free cash flow in Q1 was about $16 million.

During the quarter, SPX received about $60 million in cash proceeds following the completion of the sale of Crawford United’s Industrial and Transportation Products businesses. Carano said those operations were reported in discontinued operations and were not part of the company’s original 2026 guidance. He also said that, net of the proceeds, the implied EBITDA multiple for the acquisitions of Air Enterprises and Rahn Industries is “approximately in line” with the company’s average acquisition multiple.

Lowe said SPX is “very pleased” with the Air Enterprises and Rahn acquisitions, and called Thermolec “such a good team” with a strong market position in Canada that creates channel and product synergies with SPX’s electric duct heating business. Lowe said both deals were acquired at valuations around the company’s “normal acquisition” level of 10.5x to 11x EBITDA before synergies. He also said the company continues to see a “very robust” M&A pipeline, with ongoing focus in HVAC on engineered air movement and electric heat, and increasing opportunity set in D&M across transportation, CommTech, and AtoN. Lowe emphasized SPX’s discipline in valuations, saying the company is unlikely to pursue targets at high-teens or 20x EBITDA multiples, including certain D&M assets or data center-related businesses.

About SPX Technologies NYSE: SPXC

SPX Technologies NYSE: SPXC is a diversified global supplier of highly engineered products and solutions serving industrial, municipal, energy and utility markets. The company designs, manufactures and supports a broad range of equipment that helps customers monitor, control and manage critical processes in water distribution, power generation, HVAC, refrigeration and industrial applications.

The company's Detection & Measurement Technologies segment offers leak detection systems, pipe and asset assessment tools, fluid flow measurement devices, gas detection equipment and related services.

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