Enpro Inc. (NPO) Q4 2025 Earnings Call Transcript
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Overview
The earnings call presents strong financial performance with significant year-over-year growth in revenue, EBITDA, and EPS. The company has raised its guidance for revenue and EBITDA, indicating optimism. The Q&A section reveals positive momentum in AST and Sealing Technologies, despite some uncertainty in nuclear choppiness. The market cap suggests moderate volatility, but overall, the positive financial metrics and improved guidance outweigh any concerns, leading to a positive outlook.
Key Financial Performance
Sales Sales increased 9% year-over-year to $1.14 billion in 2025. The growth was driven by strength in aerospace, food and biopharma, firm domestic general industrial performance, and improving performance in semiconductor markets. Organic sales grew by 7.6%.
Adjusted Segment EBITDA Margin (Sealing Technologies) Adjusted segment EBITDA margin exceeded 32% for the second year in a row. This was achieved through disciplined execution and efficient operations.
Revenue (Advanced Surface Technologies) Revenue increased nearly 14% year-over-year, driven by strength in solutions serving leading-edge applications and pockets of recovery in semiconductor capital equipment demand.
Free Cash Flow Free cash flow exceeded $150 million in 2025, up 18% from $130 million in 2024. This was achieved despite $48 million in property, plant, and equipment and capitalized software expenditures.
Fourth Quarter Sales Sales increased 14.3% year-over-year to $295.4 million in Q4 2025. Organic sales grew approximately 10%, driven by strong performance in aerospace, food and biopharma, and improvements in AST sales.
Adjusted EBITDA (Fourth Quarter) Adjusted EBITDA increased 19.2% year-over-year to $69.4 million in Q4 2025. Adjusted EBITDA margin rose by 100 basis points to 23.5%, supported by robust performance in Sealing Technologies and contributions from acquisitions.
Adjusted Diluted Earnings Per Share (Fourth Quarter) Adjusted diluted EPS increased nearly 27% year-over-year to $1.99 in Q4 2025, driven by higher adjusted EBITDA and lower interest expenses.
Sealing Technologies Sales (Fourth Quarter) Sales increased almost 15% year-over-year to $187.1 million in Q4 2025. Organic sales grew nearly 8%, supported by demand in aerospace, food and biopharma, and strategic pricing actions.
Adjusted Segment EBITDA Margin (Sealing Technologies, Fourth Quarter) Adjusted segment EBITDA margin expanded 180 basis points year-over-year to 32.8% in Q4 2025, driven by strategic pricing, improved volume, and contributions from acquisitions.
Advanced Surface Technologies Sales (Fourth Quarter) Sales increased 13.4% year-over-year to $108.4 million in Q4 2025, driven by strength in precision cleaning solutions and growth in optical coatings.
Adjusted Segment EBITDA Margin (Advanced Surface Technologies) Adjusted segment EBITDA margin remained above 20% in Q4 2025, supported by investments in growth programs and optimization plans.
Net Leverage Ratio Net leverage ratio was 2x at the end of 2025, inclusive of $280 million spent on acquisitions of AlpHa and Overlook.
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Operating Highlights
Organic Growth: Achieved 7.6% organic growth in 2025, driven by aerospace, food, biopharma, and semiconductor markets.
Acquisitions: Acquired AlpHa and Overlook for $280 million, contributing to growth.
Sealing Technologies: Achieved over 32% adjusted segment EBITDA margin for the second consecutive year.
Advanced Surface Technologies (AST): Revenue increased nearly 14%, with strength in semiconductor capital equipment and optical coatings.
Market Expansion: Strength in aerospace, food, biopharma, and semiconductor markets. Improved order flow in AST expected in 2026.
Geographic Performance: Firm domestic industrial performance; international industrial sales slower.
Operational Efficiency: Maintained premium profitability and free cash flow despite semiconductor and commercial vehicle OEM demand weakness.
Safety Performance: Achieved best safety statistics in 2025 with a total recordable incident rate of 0.64.
Strategic Goals: Focused on Enpro 3.0 strategy to achieve mid- to high single-digit organic growth and 30% adjusted segment EBITDA margins by 2030.
Financial Flexibility: Maintained a strong balance sheet with a net leverage ratio of 2x, enabling growth investments and acquisitions.
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Risk or Challenges
Semiconductor and Commercial Vehicle OEM Demand Weakness: Persistent weakness in semiconductor and commercial vehicle OEM demand through 2025 has impacted profitability and required continued investment to support growth programs.
Choppiness in Semiconductor Capital Equipment Spending: The semiconductor market has experienced volatility, which has affected AST's performance and required proactive investments in anticipation of recovery.
International Industrial Market Slowdown: Slow industrial sales internationally, including temporary choppiness in nuclear sales in Europe, have posed challenges to growth.
Increased Operating Expenses: Operating expenses have risen due to growth initiatives, particularly in AST, which has impacted profitability.
Supply Chain Transitions: The shipment of $12 million in safety stock inventory in 2025 to support customer supply chain transitions is not expected to recur in 2026, potentially impacting revenue.
Commercial Vehicle OEM Demand: Continued weakness in commercial vehicle OEM demand is expected to persist, limiting growth in this segment.
Medical Costs: Increased corporate expenses due to higher medical costs have added to overall operational costs.
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Guidance & Outlook
2026 Total Sales Growth: Expected to be in the range of 8% to 12%, including approximately $60 million from the acquisitions of AlpHa and Overlook.
Adjusted EBITDA for 2026: Projected to be between $305 million and $320 million, including $16 million to $17 million from recent acquisitions.
Adjusted Diluted Earnings Per Share (EPS) for 2026: Expected to range from $8.50 to $9.20.
Capital Expenditures for 2026: Anticipated to be approximately $50 million, around 4% of sales, focusing on growth opportunities.
Sealing Technologies Segment Revenue Growth: Expected to approach 15% in 2026, with mid-single-digit organic growth. Strength anticipated in aerospace, food, and biopharma markets.
Sealing Technologies Adjusted Segment EBITDA Margin: Projected to exceed 30% in 2026.
Advanced Surface Technologies (AST) Segment Revenue Growth: Expected to grow high single digits in 2026, with stronger performance in the second half of the year.
AST Adjusted Segment EBITDA Margin: Anticipated to expand in 2026, with significant improvement in the second half.
Semiconductor Capital Equipment Spending: Clear signs of robust recovery expected, with capacity for leading-edge applications gaining momentum in 2026.
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Shareholder Return Plan
Quarterly Dividend: During 2025, Enpro paid a $0.31 per share quarterly dividend, totaling $26.2 million for the year. On February 13, the Board of Directors approved an increase to the quarterly dividend to $0.32 per share, marking the 11th consecutive annual increase since the dividend's initiation in 2015.
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Key Q&A
Q:Can you provide more details on AST's first half and second half margins and order activity?
A:The second half is expected to be considerably stronger than the first half, with moderate growth in the first half (low to mid-single digits, approximately $100 million in sales for Q1). Margins are expected to improve significantly in the second half due to recovery starting in Q2 and material contributions from key growth programs. Order patterns are accelerating, with customers placing more orders and two new platforms coming online in the late second half.
Q:What are the trends in the Sealing segment, and how long will nuclear choppiness last?
A:Nuclear choppiness is expected to persist into the second half, though there has been a slight improvement in order rates. The industrial business remains strong with no reduction in orders, and the book-to-bill ratio is above 100%. Strength is observed in space, aerospace, food, and biopharma, while commercial vehicle OEM is expected to be flat to slightly down. Sealing Technologies is expected to grow at least mid-single digits this year.
Q:How did revenue and margins perform in the last months of the year compared to the November guide?
A:Revenue ended slightly ahead of the guide, particularly in Sealing on organic growth, while margins were in line with expectations. Higher corporate expenses were noted due to increased medical costs and short-term incentive costs driven by strong performance metrics like working capital management and free cash flow.
Q:What is the cash conversion expectation for 2026, and how will the cash be used?
A:Cash conversion is expected to remain around 100% of adjusted EPS despite higher CapEx and interest expenses due to revolver drawdowns. The company plans to allocate $250-$300 million or more for strategic M&A, focusing on assets that align with financial and strategic criteria. Growth investments will continue in AST and Sealing.
Q:Has the M&A focus shifted, and what are the current priorities?
A:The M&A focus remains unchanged, with a disciplined approach to strategic and value-appropriate assets. The pipeline is strong, with multiple targets in areas like compositional analysis, food, and biopharma. Recent acquisitions like Overlook and AlpHa align with these priorities.
Q:What are the margin expectations and ramp for AST through the year?
A:Operating expenses for AST are at a run rate of about $2 million per quarter, with no expected incremental spending in the near term. Revenue from growth programs is expected to leverage these costs throughout 2026, leading to margin expansion, particularly in the second half.
Q:How are AlpHa and Overlook expected to perform within the Sealing segment?
A:Both businesses have strong backlogs and order rates, exceeding expectations. They are expected to grow at least high single digits combined and be accretive to the Sealing Technologies segment's growth rate.
Q:Review of Unclear Management Responses
A:Management avoided providing a direct answer on the exact duration of nuclear choppiness, only stating it would persist into the second half. Additionally, while they mentioned strong M&A pipelines and growth investments, specific details on timing and asset availability were vague.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AST profitability
AST sale
OEM demand
acquisition AlpHa
acquisition capability
addition
application pocket
area segment
balance quality
biopharma market
capacity edge
characteristic
class Sealing
communication
contribution acquisition
digit line
edge application
food biopharma
increase dividend
line profitability
loss
net
period
plan
premium
priority
program AST
progress
quality portfolio
recovery semiconductor
resource
sale contribution
segment contribution
semiconductor market
settlement
shareholder return
sheet leverage
solution edge
strength precision
technology process
NPO Transcript
Enpro Inc. (NPO) Q4 2025 Earnings Call Transcript
Positive2-18
The earnings call presents strong financial performance with significant year-over-year growth in revenue, EBITDA, and EPS. The company has raised its guidance for revenue and EBITDA, indicating optimism. The Q&A section reveals positive momentum in AST and Sealing Technologies, despite some uncertainty in nuclear choppiness. The market cap suggests moderate volatility, but overall, the positive financial metrics and improved guidance outweigh any concerns, leading to a positive outlook.
Enpro Inc. (NPO) Q3 2025 Earnings Call Transcript
Positive11-4
The company reported strong organic sales growth and solid profitability in key segments, despite some market challenges. They have increased their guidance for the full year and maintained healthy margins. The Q&A section revealed management's focus on growth and strategic investments, with positive sentiment from analysts. The share repurchase plan and dividend payments indicate a commitment to shareholder returns. Considering the market cap, these factors suggest a positive stock price movement of 2% to 8% over the next two weeks.
Enpro Inc. (NPO) Q2 2025 Earnings Call Transcript
Unknown8-5
The earnings call summary presents mixed signals: strong organic sales growth and positive developments in the AST segment contrast with declining EBITDA margins and increased expenses. The Q&A section highlights potential growth, but uncertainties remain, particularly regarding FX headwinds and the Arizona facility's revenue timeline. The shareholder return plan is neutral, given the existing dividend and share repurchase authorization. Overall, the market cap suggests a moderate reaction, resulting in a neutral sentiment.
EnPro Industries, Inc. (NYSE:NPO) Q1 2025 Earnings Call Transcript
Positive5-7
The company reported strong financial performance, with significant year-over-year growth in EPS, sales, and EBITDA. Despite some market weaknesses, management remains optimistic about growth in key segments. The proactive supply chain management and limited tariff exposure are positive factors. The ongoing share repurchase program and dividend payments further support shareholder value. Although there are some uncertainties, the overall sentiment is positive, suggesting a potential stock price increase of 2% to 8% over the next two weeks, especially given the company's small-cap status.
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