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Can CECO Sustain EBITDA Margin Momentum Amid Backlog Growth?
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Key Takeaways
CECO's second-quarter adjusted EBITDA jumped 73% to $40.2 million, with margin expanding 154 bps to 14.1%.
CECO's $1.8 billion backlog includes higher-margin awards expected to contribute through 2027.
CECO raised 2026 adjusted EBITDA guidance to $200-$225 million and expects mid-teens margins.
CECO Environmental Corp. (CECO - Free Report) generated an adjusted EBITDA of $40.2 million in the second quarter of 2026, reflecting an increase of 73% year over year. The company's adjusted EBITDA margin reached 14.1%, reflecting an increase of 154 basis points (bps). The margin expansion was driven by volume leverage, lower selling and administrative expenses (SG&A) as a percentage of revenues, cost management actions, 80/20 operating programs and strong project execution.
CECO’s adjusted gross margin in the second quarter grew more than 250 bps sequentially to 33.7%, driven by benefits from higher volume/mix and Thermon accretion. CECO’s margin outlook is strengthening, supported by a higher-margin backlog and the Thermon acquisition.
Backlog climbed to $1.8 billion in second-quarter 2026 from $793 million at fiscal 2025-end and $541 million at fiscal 2024-end. About half of these was linked to power generation and 25% to industrial air and water projects. Most of these higher-margin awards are expected to contribute in the second half of 2026 and into 2027. Management also projects $17-$20 million of annualized net savings by the first year of the Thermon Group buyout, which will likely boost its EBITDA margins.
For 2026, CECO raised its adjusted EBITDA guidance range from $195-$225 million to $200-$225 million. The company expects adjusted EBITDA margin to be in the mid-teens and free cash flow conversion of at least 55% of adjusted EBITDA.
Peer’s Margin Performance
Tetra Tech Inc.’s (TTEK - Free Report) subcontractor costs and other costs of revenues totaled about $3.06 billion in the first nine months of fiscal 2026, down from about $3.43 billion a year earlier. Selling, general and administrative expenses were $254.7 million, roughly flat year over year. In the same period, Tetra Tech’s adjusted operating margin increased 70 bps to 13.2%.
Donaldson Company, Inc.’s (DCI - Free Report) cost of sales increased 5.6% year over year to $2.54 billion in fiscal 2026 (ended July 31, 2026). Donaldson’s gross margin declined 20 basis points to 34.6%, reflecting inefficiencies from relocating Power Generation equipment production and expenses tied to footprint optimization.
The Zacks Rundown for CECO
Image Source: Zacks Investment Research
Shares of CECO have gained 26.7% in the past six months compared with the industry’s 4.4% growth.
Image Source: Zacks Investment Research
From a valuation standpoint, CECO is trading at a forward price-to-earnings ratio of 23.26X, above the industry’s average of 20.03X. CECO carries a Value Score of D.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for CECO’s 2026 earnings has surged 30% over the past 60 days.
View the Zacks #1 Rank List
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Can CECO Sustain EBITDA Margin Momentum Amid Backlog Growth?
Key Takeaways
CECO Environmental Corp. (CECO - Free Report) generated an adjusted EBITDA of $40.2 million in the second quarter of 2026, reflecting an increase of 73% year over year. The company's adjusted EBITDA margin reached 14.1%, reflecting an increase of 154 basis points (bps). The margin expansion was driven by volume leverage, lower selling and administrative expenses (SG&A) as a percentage of revenues, cost management actions, 80/20 operating programs and strong project execution.
CECO’s adjusted gross margin in the second quarter grew more than 250 bps sequentially to 33.7%, driven by benefits from higher volume/mix and Thermon accretion. CECO’s margin outlook is strengthening, supported by a higher-margin backlog and the Thermon acquisition.
Backlog climbed to $1.8 billion in second-quarter 2026 from $793 million at fiscal 2025-end and $541 million at fiscal 2024-end. About half of these was linked to power generation and 25% to industrial air and water projects. Most of these higher-margin awards are expected to contribute in the second half of 2026 and into 2027. Management also projects $17-$20 million of annualized net savings by the first year of the Thermon Group buyout, which will likely boost its EBITDA margins.
For 2026, CECO raised its adjusted EBITDA guidance range from $195-$225 million to $200-$225 million. The company expects adjusted EBITDA margin to be in the mid-teens and free cash flow conversion of at least 55% of adjusted EBITDA.
Peer’s Margin Performance
Tetra Tech Inc.’s (TTEK - Free Report) subcontractor costs and other costs of revenues totaled about $3.06 billion in the first nine months of fiscal 2026, down from about $3.43 billion a year earlier. Selling, general and administrative expenses were $254.7 million, roughly flat year over year. In the same period, Tetra Tech’s adjusted operating margin increased 70 bps to 13.2%.
Donaldson Company, Inc.’s (DCI - Free Report) cost of sales increased 5.6% year over year to $2.54 billion in fiscal 2026 (ended July 31, 2026). Donaldson’s gross margin declined 20 basis points to 34.6%, reflecting inefficiencies from relocating Power Generation equipment production and expenses tied to footprint optimization.
The Zacks Rundown for CECO
Image Source: Zacks Investment Research
Shares of CECO have gained 26.7% in the past six months compared with the industry’s 4.4% growth.
Image Source: Zacks Investment Research
From a valuation standpoint, CECO is trading at a forward price-to-earnings ratio of 23.26X, above the industry’s average of 20.03X. CECO carries a Value Score of D.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for CECO’s 2026 earnings has surged 30% over the past 60 days.
The company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.