Twin Disc(US:TWIN)2026-02-04 13:31Financial Performance - Net sales for the second quarter of fiscal 2026 increased by 0.3%, or $0.3 million, to $90.2 million compared to $89.9 million in the same quarter last year [105]. - For the first half of fiscal 2026, net sales increased by 4.5%, or $7.4 million, to $170.2 million from $162.8 million in the same period last year [112]. - The European region saw a revenue increase of $5.1 million (7.7%) in the first half, driven by demand for Veth and Katsa products [112]. - The distribution segment experienced a decrease in sales of $18.2 million (27.8%) in the first half of fiscal 2026 compared to the prior year [114]. Profitability - Gross profit as a percentage of sales improved to 24.8% in the second quarter of fiscal 2026, up from 24.1% in the same period last year [108]. - Total equity increased by $20.8 million, or 12.6%, to $185.2 million, driven by net earnings of $21.9 million in the first half [126]. Expenses - Marketing, engineering, and administrative expenses increased by $1.7 million (9.2%) in the second quarter, representing 22.9% of sales compared to 21.0% in the prior year [109]. - Interest expense increased by $0.4 million to $1.6 million in the first half of fiscal 2026 due to a higher average outstanding revolver balance following acquisitions [117]. Working Capital and Assets - As of December 26, 2025, net working capital was $133.3 million, an increase of $12.2 million (10.1%) from $121.1 million as of June 30, 2025 [119]. - Trade receivables decreased by $5.3 million (9.0%) to $53.6 million compared to the last fiscal year-end, with trade receivables as a percentage of sales at 59.5% [121]. - Inventories increased by $11.2 million, or 7.4%, to $163.2 million as of December 26, 2025, with a backlog of orders growing to $175.3 million from $150.5 million at June 30, 2025 [122]. - Net property, plant, and equipment rose by $1.8 million (2.6%) to $71.4 million, with capital spending of $6.8 million in the first half of fiscal 2026 [123]. Debt and Financing - Total borrowings and long-term debt increased by $13.1 million to $44.5 million, with negative free cash flow reported at $9.6 million due to inventory and capital spending increases [125]. - The Company entered into a Credit Agreement with Bank of Montreal, securing a Term Loan of $15.0 million, with a maturity date of April 1, 2027 [128]. - The Credit Agreement allows for Revolving Loans up to $50.0 million, with specific conditions on Eligible Receivables and Inventory [130]. - The Company remains compliant with its financial covenants, including a Total Funded Debt to EBITDA ratio not exceeding 3.50 to 1.00 [133]. - The Company utilized increased borrowing capacity to finance the acquisition of Kobelt, which may borrow directly under the Credit Agreement [131]. Future Investments - The Company expects to invest between $12 million and $15 million in capital assets in fiscal 2026, focusing on modernizing manufacturing and improving efficiencies [123]. - The Company plans to contribute $0.5 million to postretirement benefits and $0.7 million to defined benefit pension plans in fiscal 2026 [137]. Acquisition Impact - The acquisition of Kobelt contributed $3.2 million in additional revenue during the second quarter, while commercial marine demand faced temporary weakness, resulting in a $2.9 million decrease [105].