Shares of Twin Disc, Incorporated TWIN have gained 1.3% since the company reported its earnings for the quarter ended Dec. 27, 2024. This compares with the S&P 500 index’s 0.1% growth over the same time frame. Over the past month, the stock has gained 2.5% compared with the S&P 500’s 5.4% growth.

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Twin Disc reported second-quarter fiscal 2025 net income per share of 7 cents, unchanged from the prior-year period. 

The company reported sales of $89.9 million, marking a 23.2% increase year over year. Organic sales, which exclude the impact of acquisitions and foreign exchange, rose 10.1%. 

Net income attributable to the company remained flat at $0.9 million. EBITDA increased 13.5% to $6.3 million, reflecting growth driven by the company's marine and industrial product segments. However, gross profit margins declined 420 basis points to 24.1% due to inventory write-downs associated with the Katsa Oy acquisition and an unfavorable product mix.

Segment Performance

Marine and Propulsion Systems

Sales in the Marine and Propulsion Systems segment increased 23.9% year over year to $56.7 million. The Veth product line contributed significantly to growth, benefiting from robust demand in North America, particularly in commercial and luxury yacht applications. Additionally, increased government defense spending supported continued demand for patrol boat projects.

Land-Based Transmissions

Revenues from land-based transmissions rose 19.8% year over year to $19 million. Growth in this segment was driven by strong demand for the company’s transmissions used in airport rescue and firefighting (ARFF) vehicles. The company attributed this strength to increased global airport development and aging fleet replacements.

Industrial

The industrial segment posted the strongest growth, with sales surging 44.8% year over year to $9.5 million. This expansion was partly attributed to the contribution of Katsa Oy and increased orders from the company’s Lufkin facility. Order momentum in this segment improved sequentially, reflecting growing demand for high-content industrial products used in agriculture, construction and other applications.

Other Products 

Revenues in this segment decreased 1.8% year over year to $4.8 million.

Management Commentary

CEO John Batten highlighted the company’s focus on integrating Katsa Oy and capitalizing on cross-selling opportunities, particularly in Europe and North America. He emphasized that demand for Twin Disc’s hybrid and electric propulsion systems remains strong, supporting the company’s long-term strategic objectives.

CFO Jeff Knutson acknowledged near-term margin pressures, largely due to the inventory rationalization tied to Katsa’s acquisition. However, he expressed confidence in the company’s ability to improve operational efficiencies and reduce costs over the coming quarters.

Backlog and Financial Position

Twin Disc reported a six-month backlog of $124 million, down from $144.3 million in the prior quarter. The company attributed the decline to strong shipments rather than weakening demand. Cash levels decreased 24.3% year over year to $15.9 million, while total debt increased 40.5% to $24.9 million, primarily due to the Katsa acquisition. Net debt stood at $9 million, up $12.3 million from the prior-year period.

Capital Allocation and Guidance

Management reiterated its commitment to maintaining a balanced approach to capital allocation. Twin Disc expects to spend approximately $12 million to $14 million on capital expenditures for fiscal 2025, with increased investment planned for the second half of the year. Free cash flow conversion remains a key focus. However, management acknowledged that reaching its target of converting 60% of EBITDA into free cash flow could be challenging given the weaker first-quarter performance.

Other Developments

Twin Disc continues to explore strategic acquisitions that align with its core expertise in industrial and marine technology. The integration of Katsa Oy remains a priority, with management emphasizing efforts to streamline inventory, align product lines, and enhance operational synergies. Additionally, the company remains focused on advancing its hybrid and electric propulsion initiatives, although no new commercialized products were announced during the quarter.

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