What Hammond Power Solutions (HPS.A) Said on Its Q3 Earnings Call

Key Points

• Record third-quarter performance: Sales more than doubled year over year to C$446.3 million, while adjusted EBITDA rose to C$84 million and adjusted EPS increased to C$3.13, supported by higher transformer shipments, improved utilization and AEG’s first full quarter of contributions.
• Power Magnetics led growth: The segment’s sales rose 66.1% to C$355.5 million, driven by data-center demand, pricing and operating leverage. Data centers now represent about 40% of revenue, while HPS expects its Fort Worth facility to add C$250 million of capacity beginning in late 2027 or early 2028.
• Strong cash flow supports deleveraging: Operating cash flow reached C$75 million, enabling HPS to fund working capital, capital expenditures, debt repayments and AEG integration. Backlog remained about 61% above the prior-year level despite declining modestly from the second quarter.

Hammond Power Solutions TSE: HPS.A reported record third-quarter results as higher transformer shipments, improved factory utilization and the first full quarter of contributions from acquired AEG lifted sales, margins and cash generation.

Consolidated sales rose 104.4% year over year to C$446.3 million, compared with C$218.3 million in the third quarter of 2025. Adjusted EBITDA increased to C$84 million, or 18.8% of sales, from C$30.3 million, or 13.9% of sales, a year earlier. Adjusted earnings per share rose to C$3.13 from C$1.56.

For the first nine months of 2026, sales reached C$1.04 billion, up 60.8% from C$644.2 million in the comparable 2025 period. Year-to-date adjusted EBITDA was C$178.3 million, an 88.5% increase, while adjusted EPS was C$7.68, compared with C$4.88 a year earlier.

Power Magnetics drives growth

The company introduced new segment reporting during the quarter, grouping its historical transformer and related magnetic operations under Power Magnetics and its electrical solutions businesses under Integrated Electrical Solutions, or IES. IES is primarily composed of AEG, along with Mesta’s power-electronics products.

Power Magnetics generated C$355.5 million in third-quarter sales, up 66.1% from the prior year. Chief Executive Officer Adrian Thomas said volumes, pricing and stronger utilization of added production capacity were the primary drivers.

Sales in the U.S. and Mexico rose 87.9% to C$288.7 million, or 85.8% when measured in U.S. dollars. Chief Financial Officer Richard Vollering said the increase reflected higher data-center shipments, modest industrial-market improvement and the full realization of earlier price increases. Canadian sales rose 12.1% to C$57.6 million as certain large custom-project orders were completed, while India sales of C$9.2 million were comparable with the prior year.

Thomas said data centers currently account for about 40% of company revenue, while demand also remains healthy in industrial infrastructure, energy and technology-related markets. He characterized the broader market opportunity as an electrification story rather than solely a data-center trend.

Canada remained more difficult, according to Thomas, with slower market activity and greater pricing competition. The company said it is emphasizing commercial discipline, customer relationships, product mix and margins in that market.

Margins improve with volume and mix

Consolidated gross margin was C$153.4 million, or 34.4% of sales, up from 30.1% a year earlier and 32.3% in the second quarter. Power Magnetics gross margin reached 34.3%, improving 420 basis points from the prior-year quarter.

Vollering attributed the improvement to pricing actions, higher throughput and overhead absorption, a higher proportion of custom products, and factory-efficiency gains from the company’s process-improvement program. Copper and aluminum prices have risen and tariffs remain a consideration, he said, though pricing and operational actions have helped offset those pressures.

During the question-and-answer session, Vollering said favorable project and customer mix contributed to the quarter and could change over time. However, he said operating leverage should be a more durable support for margins if volume levels are maintained. Management said it views near-term Power Magnetics annualized capacity at roughly C$1.4 billion to C$1.45 billion, while noting that output depends on product mix and individual factory utilization.

Monterrey IV is now fully ramped and contributed to record shipment levels, Thomas said. A process-improvement project at the company’s Guelph facility also achieved its targeted production increase. HPS has additionally announced a new manufacturing site in Fort Worth, Texas, which is expected to add C$250 million of capacity. The company expects to manage growth with existing capacity until the Texas facility begins production, which management indicated is expected around late 2027 and early 2028.

AEG adds sales as service business remains resilient

IES contributed C$90.8 million in sales in its first full quarter within HPS’s consolidated results. IES gross margin before purchase-accounting amortization was 37.7%.

Thomas said AEG’s service business was the most resilient part of the portfolio, with service revenue and orders rising from the prior year and margins remaining attractive. Product activity was softer amid a more difficult project environment, particularly due to the Middle East conflict, which has affected order intake, customer travel, project timing, shipping and freight costs.

Management also cited slower activity in hydrogen and offshore wind, longer sales cycles, deferred projects and pricing pressure. Still, Thomas said the company remains positive on AEG’s long-term potential, pointing to its engineering capabilities in power conversion, critical power and industrial systems.

HPS is seeing more North American customer interest in AEG technologies than it initially expected, including applications tied to emerging data-center power architectures, Thomas said. He cautioned that product-development and project cycles are lengthy, with an increase in bookings potentially becoming more apparent during 2027 and related revenue following later in 2027, 2028 and 2029.

Cash generation supports debt reduction

Reported net earnings were C$27.7 million, or C$2.33 per share, compared with C$17.4 million, or C$1.46 per share, in the prior-year quarter. Reported results included C$10.3 million in acquisition-related costs, C$8.2 million in foreign-exchange losses primarily tied to acquisition hedge settlements, and C$9 million in interest expense related to acquisition debt. AEG contributed C$1.7 million of net earnings during the quarter.

Operating cash flow was C$75 million, compared with cash used of C$2.1 million a year earlier, aided by C$22.5 million generated from changes in non-cash working capital. The company ended the quarter with a net operating cash position of C$51.6 million, while net debt excluding leases totaled C$352.9 million, including debt used to finance the AEG acquisition.

HPS said it remains compliant with its bank covenants and plans to use operating cash generation to fund working capital, capital expenditures, scheduled debt repayments and AEG integration while continuing to invest in growth opportunities.

Backlog declined modestly from the second quarter as shipments exceeded bookings, but remained approximately 61% above the prior-year level. Management said backlog generally provides visibility for about two to three quarters, while quotation activity, including large projects, remains robust.

About Hammond Power Solutions (TSE:HPS.A)

Hammond Power Solutions Inc ('HPS' or the 'Company') enables electrification through its broad range of dry-type transformers, power quality products and related magnetic and power conversion systems. HPS' standard and custom-designed products are essential and ubiquitous in electrical distribution networks through an extensive range of end-user applications. The Company has manufacturing plants in North America, Europe and Asia and sells its products around the globe.

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