Twin Disc (NASDAQ:TWIN) reported record fiscal fourth-quarter revenue as demand strengthened across its marine propulsion and land-based transmission businesses, while defense-related activity continued to build as a larger component of the company’s backlog.
Fourth-quarter sales rose 18.3% year over year to $114.4 million, while full-year revenue reached $381.3 million. On an organic basis, excluding acquisitions and foreign-exchange effects, quarterly revenue increased 15.9% and full-year revenue increased 4.6%, CFO Jeff Knutson said.
Profitability and Cash Flow
Twin Disc reported fourth-quarter operating income of $7.8 million, up 19.5% from $6.5 million in the prior-year period. Net income attributable to Twin Disc was $9.4 million, or $0.64 per diluted share, compared with $2.6 million, or $0.19 per diluted share, a year earlier.
Knutson said fourth-quarter net income benefited from stronger operating income, lower other expense, and an income tax benefit. The company recorded a $2.5 million income tax benefit in the quarter and a $14 million benefit for the full year related to the reversal of a domestic valuation allowance. For that reason, Knutson said operating income provides a more normalized measure of underlying operating performance.
For the full fiscal year, operating income increased to $18 million from $11.1 million in fiscal 2025. Full-year net income totaled $27.1 million, or $1.86 per diluted share, compared with a net loss of $697,000, or $0.05 per share, in the prior year.
Fourth-quarter EBITDA increased 35.1% year over year to $11.1 million, with EBITDA margin rising 120 basis points to 9.7%. The company generated $17.2 million in free cash flow during the quarter and ended June 30 with $16.1 million in cash, total debt of $31.4 million, and net debt of $13.8 million. Net leverage was 0.5 times trailing 12-month EBITDA, compared with 0.8 times a year earlier.
The board approved a 25% increase in Twin Disc’s quarterly dividend to $0.05 per share, Batten said.
Margins Affected by Mix, Tariffs and Prior-Year Comparison
Gross profit declined 3.5% to $30.1 million in the fiscal fourth quarter, and gross margin contracted to about 26.3% from 32.3% a year earlier. Management attributed the decline primarily to product mix, tariff dilution, and a $3 million favorable inventory capitalization-cost adjustment recorded in the prior-year fourth quarter at Finnish subsidiary Katsa.
Excluding the prior-year adjustment, fourth-quarter fiscal 2025 gross margin would have been 28%, Knutson said. Tariffs reduced the latest quarter’s gross margin by approximately 60 basis points; excluding that effect, margin would have been about 27%.
The company is seeking to reduce tariff exposure by moving assembly of its ARF transmission product line to Lufkin, Texas. Batten said the relocation would also create additional manufacturing capacity in Racine, Wisconsin, for marine transmissions and other products.
Management reiterated its long-term objective of reaching 30% gross margins by 2030, supported by a focus on higher-margin opportunities including electric fracturing, or e-frac, applications.
Marine, Oil and Gas, and Defense Demand
Marine propulsion systems sales increased 20% from the prior-year quarter, driven primarily by demand for the Veth propulsion platform. Batten also cited Kobelt product-line performance, improving military demand for marine transmissions, commercial maritime demand in Asia, and broader market conditions.
Land-based transmission sales rose 26% year over year as shipment volumes increased. Oil-and-gas sales accounted for slightly more than 10% of quarterly revenue and were more than double the average level of the first three fiscal quarters, according to Knutson. Batten said the company delivered e-frac units during the year and sees further potential from customer investment in both rebuilt and new e-frac rigs.
Defense represented 17% of Twin Disc’s total backlog at year-end, up 56% year over year. During the question-and-answer session, Batten said defense backlog increased 53% during the quarter. The company supplies transmissions for unmanned U.S. Navy vessel programs and driveline components through Katsa for military vehicles, including vehicles produced by Patria for NATO.
Batten said the company has broken ground on a new Finnish facility intended to expand Katsa’s assembly and testing capacity. He expects the building to be enclosed and begin receiving equipment by the end of the calendar year, while the facility is not expected to be fully operational until fiscal 2028.
The company also cited defense opportunities involving fast patrol boats using Arneson surface drives and Rolla propellers, additional military vehicle programs in the Middle East and Asia, and continued work with BAE on the M88 HERCULES tank-retriever program.
Investment Plans and 2030 Targets
Twin Disc said industrial sales declined modestly in the quarter but showed signs of stabilization. Management cited demand from North American construction and recycling markets, stable industrial end markets, and initial Katsa orders related to data centers.
For fiscal 2027, Knutson said capital expenditures are expected to exceed $20 million, including spending on the new Finland facility, the ARF assembly relocation, and additional machine tools. The company said it intends to continue prioritizing debt reduction, dividends and share repurchases while funding organic growth investments and evaluating acquisitions.
Batten said the company believes its backlog, project pipeline, balance sheet and demand trends position it to pursue its 2030 targets of $500 million in revenue, 30% gross margins, and free-cash-flow conversion above 60%.
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.
