Powell Industries, Inc. POWL missed earnings and revenue estimates in the first quarter of 2026 and remains mired in headwinds from high operating costs and expenses.
In fiscal 2025 (ended September 2025), Powell’s cost of sales increased 5.5% year over year to $779.9 million. The cost of sales, as a percentage of revenues, was 70.6% for the period. Selling, general and administrative expenses also rose 12.4% in the same period. The rise was attributable to an increase in raw material costs and higher compensation costs and expenses.
The trend continued in the first six months of fiscal 2026 (ended March 2026), with cost of sales rising 3% year over year, and selling, general and administrative expenses increasing 17.9%. The rise in operating expenses weighed on the company’s margins and profitability.
In second-quarter fiscal 2026, the company’s gross profit margin contracted 30 basis points (bps) to 29.6%, while the operating margin declined 170 bps to 19.4%. It’s worth noting that material costs represented 45% of the company’s revenues in fiscal 2025, 47% in fiscal 2024 and 49% in fiscal 2023.
POWL has also experienced supply-chain disruptions in the utility and commercial sectors in recent quarters that resulted in delays and increased costs. Despite moderation, the persistence of supply-chain issues is likely to continue impacting its margins and profitability in the quarters ahead.
Peers’ Margin Performance
Among its major peers, EnerSys ENS is facing cost pressure. In fiscal 2026 (ended March 2026), the company’s cost of sales increased 5.2% year over year, while its operating expenses rose 2%. EnerSys’ gross margin declined 100 bps to 29.2% in the year.
Franklin Electric Co, Inc.’s FELE cost of sales rose 11.7% year over year in first-quarter 2026. The company’s SG&A expenses also increased 2.8% year over year. Franklin Electric’s gross margin declined 10 bps to 9.6% in the quarter.
POWL’s Price Performance, Valuation and Estimates
Shares of Powell have surged 64.5% in the past three months against the industry’s decline of 0.4%.
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From a valuation standpoint, POWL is trading at a forward price-to-earnings ratio of 45.86X, above the industry’s average of 23.43X. Powell carries a Value Score of F.
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The Zacks Consensus Estimate for POWL’s fiscal 2026 (ending September 2026) earnings has inched down 0.2% over the past 60 days.
Image Source: Zacks Investment Research
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.
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This article originally published on Zacks Investment Research (zacks.com).