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.
Quarterly results show sales growth and margin expansion
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%.
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.
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.
Business segment performance led by marine and land-based products
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.”
Backlog growth, working capital improvements, and defense momentum
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.
Cash flow, balance sheet, and tariff outlook
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.
Strategy and outlook centered on execution and capacity initiatives
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.
About Twin Disc NASDAQ: TWIN
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.
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