Release Date: July 31, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Record sales and earnings in Q2 2026, with sales up 53% and adjusted EPS up 69% year-over-year, significantly exceeding guidance.
- Exceptional growth in the infrastructure vertical, with organic sales more than doubling, driven by strong data center demand and double-digit growth in power utilities.
- Strong order momentum with organic orders up low double-digits and a healthy backlog of $2.5 billion, providing visibility through 2026 and into 2027.
- Successful execution of capacity expansion strategy, with the new Blaine facility ramping ahead of expectations and a third facility (Blaine II) announced to meet future demand.
- Significantly raised full-year 2026 guidance for sales growth (37%-39% reported, 32%-34% organic) and adjusted EPS ($5.00-$5.10), reflecting strong momentum and confidence in the business.
- Strong cash flow generation, with free cash flow up 125% year-over-year, and a solid balance sheet with net leverage of 1.2x, providing ample flexibility for growth investments and M&A.
- Broad-based growth across all verticals and geographies, including a strong rebound in the short-cycle electrical connections business, which grew 18% organically.
- Continued product innovation with 14 new products launched in the quarter, contributing over 30 points to sales growth.
- The EPG acquisition continues to outperform expectations, growing sales strong double-digits year-over-year.
- Management's long-term visibility with key partners like Nvidia on roadmaps through 2030, positioning the company for sustained growth in liquid cooling and data center markets.
Negative Points
- Tariff impact is expected to be approximately $100 million for the full year, up from the previous estimate of $80 million, driven by higher volume growth.
- The electrical connections segment experienced a 140 basis point year-over-year decline in return on sales to 27.3%, impacted by inflation and mix, though margins improved sequentially.
- The company is facing capacity constraints and is investing heavily in new facilities, which could pressure margins in the near term as new plants ramp up.
- Data center orders remain lumpy, which can cause volatility in quarterly growth rates and make it difficult to predict short-term performance.
- The company is being prudent with its Q3 guidance, which implies a sequential slowdown in sales growth, partly due to lapping tougher comparisons and ongoing capacity ramp-up challenges.
- Supply chain and supplier capacity expansion remain a key execution risk as the company scales up to meet surging demand.
- The significant growth in data centers and infrastructure is creating potential trade-offs in serving other core customers, requiring careful planning and resource allocation.
- The company's growth is increasingly concentrated in the infrastructure vertical, which now represents nearly 60% of sales, potentially increasing exposure to a single market cycle.
- While the company is investing in service capabilities, the service opportunity from the growing installed base is still in early stages and may not yet be a significant revenue contributor.
- The company's aggressive capacity expansion, while necessary, carries execution risk and could lead to overcapacity if demand growth moderates unexpectedly.
Q & A Highlights
Q: Can you provide more detail on the strength in the industrial short-cycle businesses and electrical connections, which saw 18% organic growth? Was there any inflection or one-time items that skewed the growth rate higher?
A: Beth Wozniak (CEO) confirmed that the growth was broad-based across all verticals and geographies, with strong orders through distribution partners driving the short-cycle industrial growth. She noted there were no one-time items, and the performance reflects a genuine inflection point in demand.
Q: How did you decide on the new capacity expansion (Blaine II), and how will it impact margins as you ramp up new lines?
A: Beth Wozniak (CEO) explained that the expansion was driven by strong customer demand and visibility, with the new facility expected to support growth through 2027 and into 2028. Gary Corona (CFO) added that the associated investments are embedded in the guidance, which assumes mid-20s incremental margins in the second half.
Q: The guidance implies a sequential revenue decline in Q3 and Q4. Is this due to seasonality, supply chain issues, or production staging?
A: Gary Corona (CFO) clarified that the company expects strong organic growth in the second half, with Q3 guidance of 32% to 35% growth and a significant acceleration in two-year stack growth. Beth Wozniak (CEO) added that the company is being prudent in planning due to capacity ramps, equipment additions, and supplier response times.
Q: What is the service opportunity being created by the growing installed base of liquid cooling products?
A: Beth Wozniak (CEO) highlighted that the company designs products with modularity and hot-swappable parts, and is investing in service capabilities to support commissioning, installation, and maintenance. This is particularly important as the customer base expands beyond hyperscalers to less sophisticated customers.
Q: Are there any factors driving lumpiness in orders, such as product launches or capacity ramps?
A: Beth Wozniak (CEO) stated that lumpiness is normal for large data center orders, which come in at various times. She noted that Q3 year-to-date orders have been very strong, indicating continued momentum.
Q: Can you provide an update on the Blaine 1 production ramp and any supply chain bottlenecks?
A: Beth Wozniak (CEO) said Blaine 1 has come online faster than expected but is still ramping through 2026 and into 2027. She emphasized that the company is working closely with suppliers to ensure their capacity expands in tandem, which is a significant effort.
Q: Is the current backlog level of $2.5 billion the right level going forward, and do you expect it to increase?
A: Beth Wozniak (CEO) indicated that the backlog is around the right level, as the company aims to balance execution with maintaining good lead times for customers. Gary Corona (CFO) added that the company is off to a strong start on orders in Q3.
Q: How should we think about the trajectory of Electrical Connections margins, and will they expand going forward?
A: Gary Corona (CFO) noted that the segment delivered mid-teens profit growth and a significant sequential margin improvement. He expects margins to continue improving as pricing and productivity actions take hold, with the segment remaining in the high 20s.
Q: Is the strength in the distribution channel driven by inventory restocking or real underlying demand?
A: Beth Wozniak (CEO) confirmed that both sell-in and sell-out are well-balanced, with distributors seeing strong sell-through. This indicates the growth is driven by real demand rather than inventory restocking.
Q: How did power utilities perform in the quarter, and how do you balance demand between utilities and data centers?
A: Beth Wozniak (CEO) reported double-digit growth in power utilities. She explained that the company makes prudent decisions on trade-offs, with some product lines having separate facilities. The company plans carefully to serve all customer demand across both high-growth verticals.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This stock alert was generated using automated technology and GuruFocus financial data to provide readers with timely and accurate market reporting. This content was reviewed by GuruFocus editorial team prior to publication. Please send any questions or comments about this story to [email protected].
