Shares of Twin Disc, Incorporated (TWIN Quick QuoteTWIN - Free Report) have gained 6.2% since the company reported its fiscal third quarter results, notably outperforming the broader market. Over the same time frame, the S&P 500 index rose by 0.6%. In the past month, TWIN has advanced 5.1%, modestly exceeding the S&P 500’s 4.3% growth, suggesting positive investor sentiment following the earnings release.

Twin Disc incurred a net loss of 11 cents per share in the fiscal third quarter against a net income of 27 cents per share. (See the Zacks Earnings Calendar to stay ahead of market-making news.)

The company posted a 9.5% year-over-year increase in net sales, reaching $81.2 million for the quarter ended March 28, 2025, compared to $74.2 million in the prior-year period. The uptick was driven by strength in the Marine and Propulsion Systems and Industrial segments, as well as contributions from recent acquisitions, Katsa Oy and Kobelt. However, organic sales — excluding acquisitions and currency effects — rose just 1.7%.

Despite revenue growth, profitability declined sharply. The company incurred a net loss of $1.5 million against a net income of $3.8 million a year ago. EBITDA also fell 42.7% to $4 million from $7 million. The downturn was attributed to a mix of lower operating income, foreign currency losses, and higher pension-related amortization.

Other Key Business Metrics

Twin Disc’s gross profit rose modestly to $21.7 million from $20.9 million. However, gross margin slipped by approximately 150 basis points to 26.7%, primarily due to an unfavorable product mix, specifically, reduced shipments of oil and gas transmissions to China. Operating income dropped to $2 million from $3.6 million in the year-ago quarter, pressured by increased marketing, engineering, and administrative (ME&A) expenses, which rose 13.2% year over year to $19.4 million.

Regional sales trends revealed that Europe captured a larger share of revenue, aided by the Katsa acquisition, while North America benefited from robust demand in the Marine and Propulsion segment. Industrial sales surged 56.2% to $9.7 million, while Land-Based Transmissions declined 6.9% to $17.8 million.

The six-month order backlog expanded to $133.7 million, up from $124 million at the end of the fiscal second quarter. This backlog, which management considers a key indicator of near-term revenue visibility, reflects stable demand across product categories, despite FX-related gains of $2.6 million.

Management Commentary

President and CEO John Batten emphasized the company’s sequential margin improvement and strength across core marine markets in North America and Europe. Veth Propulsion remained a bright spot, benefiting from demand in luxury yachts and riverboats. Batten reiterated Twin Disc’s focus on integrating recent acquisitions, enhancing operational efficiencies, and growing its position in hybrid and electric marine solutions.

CFO Jeffrey Knutson highlighted the generation of positive operating cash flow ($7.5 million) and disciplined cost control efforts. He acknowledged that foreign exchange volatility adversely impacted earnings but reaffirmed confidence in the company’s strategic roadmap, underpinned by a strong balance sheet and cash generation capabilities.

Factors Influencing the Headline Numbers

The decline in profitability despite higher sales was influenced by several key factors. The product mix shift, particularly lower sales of higher-margin oil and gas transmissions, pressured gross margin. Additionally, operating costs climbed due to acquisition-related overheads and inflation-driven wage and benefit increases. The $1.6 million in other expenses, mainly from currency losses and pension-related amortization, further eroded bottom-line performance.

Meanwhile, EBITDA margin contraction and increased net debt (to $24.5 million from negative $6.8 million a year ago) underscore the financial impact of recent acquisitions and reduced cash holdings.

Other Developments

During the quarter, Twin Disc completed the acquisition of Kobelt, a Canadian manufacturer of marine controls and steering systems. The deal, which complements the earlier Katsa Oy acquisition, aligns with Twin Disc’s strategic goals of strengthening its industrial and marine technology portfolio with an emphasis on hybrid solutions. The company’s capital allocation strategy continues to favor bolt-on acquisitions, debt reduction, and dividends, with $1.7 million returned to shareholders during the quarter.