Electrical energy control systems manufacturer Powell (NYSE: POWL) announced better-than-expected revenue in Q3 CY2025, with sales up 8.3% year on year to $298 million. Its GAAP profit of $4.22 per share was 12.2% above analysts’ consensus estimates.

Is now the time to buy POWL? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

Powell’s third quarter results surpassed Wall Street’s expectations for both revenue and earnings, yet the market responded negatively following the announcement. Management attributed the quarter’s performance to increased project execution, particularly in nonindustrial markets—such as Electric Utility and Commercial sectors—which now comprise a much larger share of backlog than five years ago. CEO Brett Cope described the quarter as a reflection of “the ongoing high level of project execution across all of our operations,” noting significant progress in diversifying beyond traditional oil and gas markets. The company also highlighted favorable gross profit margins driven by strong pricing discipline and operational throughput. However, some end markets, like oil and gas and petrochemicals, experienced softness, while the mix of projects shifted toward smaller and medium-sized orders rather than large-scale contracts.

Looking ahead, Powell’s management is focused on continued expansion in Electric Utility, data center, and natural gas projects, as well as the integration of Remsdaq to broaden its automation offerings. CEO Brett Cope emphasized that “opportunities are growing in both size and volume as well as product applications” in the data center space, which is expected to be a key driver of future growth. The company plans further investments in manufacturing capacity, particularly to support anticipated LNG project demand, and expects to see new product launches from increased R&D investment in the coming year. CFO Michael Metcalf stated that margins in the upper 20% range remain realistic, underpinned by a solid backlog and stable pricing, but acknowledged that certain segments may face ongoing competitive and pricing pressures.

Key Insights from Management’s Remarks

Management attributed the quarter’s results to strong execution in nonindustrial segments, a growing backlog, and strategic investments in manufacturing and automation.

• Nonindustrial market momentum: Electric Utility and Commercial sectors drove revenue growth, now making up nearly half the company’s backlog, compared to just under 20% five years ago. Management sees this as a result of a deliberate diversification strategy away from traditional oil and gas reliance.

• Data center opportunity expansion: The Commercial and Other Industrial segment, largely powered by demand from data centers, continues to show robust activity. CEO Brett Cope noted that “the size and breadth of the opportunity for Powell is clearly growing,” with the company actively quoting sizable projects and expanding its footprint in this fast-evolving market.

• Project mix shift: The quarter saw a higher volume of small- and medium-sized project orders, rather than large-scale “mega” projects. Management explained this shift supports manufacturing productivity and balances risk, though it can moderate revenue visibility compared to periods dominated by larger contracts.

• Gross margin improvement: Gross profit margins increased due to project closeouts, disciplined pricing, and operational leverage. CFO Michael Metcalf pointed to “continued strong project execution” as a key factor in margin sustainability, with project closeouts contributing an incremental 100 basis points in the quarter.

• Strategic acquisitions and capacity investment: Powell closed its acquisition of Remsdaq, aiming to accelerate its electrical automation strategy. The company also announced a major expansion at its Jacintoport facility in Houston, primarily to capture anticipated growth from U.S. LNG projects, reflecting a commitment to organic and inorganic growth initiatives.

Drivers of Future Performance

Powell’s outlook centers on sustained momentum in Electric Utility, data center, and LNG markets, alongside margin stability and new product introductions.

• Electric Utility and data center strength: Management expects continued demand for power distribution solutions from both Electric Utility customers—driven by infrastructure investment—and data center operators, where reliability and capacity remain critical. Brett Cope stated that Powell’s presence in these sectors is expanding, and that “opportunities are growing in both size and volume.”

• Capacity and automation investments: The ongoing expansion of the Jacintoport facility and integration of Remsdaq are intended to support growth in LNG and automation markets. These investments are expected to enhance Powell’s manufacturing capabilities and product offerings, with management believing these will yield “margin-accretive economics.”

• Margin and competitive headwinds: While margins are projected to remain in the upper 20% range, management cautioned that portions of the traditional oil and gas and petrochemical segments are experiencing softness and increased price sensitivity. CFO Michael Metcalf noted that some subsectors are “a little softer, a little bit more price sensitive,” which may temper overall profitability.

Catalysts in Upcoming Quarters

In the coming quarters, our analysts will be monitoring (1) the pace at which Powell converts its growing backlog into revenue, especially in Electric Utility and data center segments; (2) the impact of the Jacintoport facility expansion on capacity and order fulfillment; and (3) early returns from the Remsdaq acquisition as Powell integrates automation offerings. The sustainability of margins and new product launches will also be important signposts for execution.

Powell currently trades at $292.70, down from $321.66 just before the earnings. At this price, is it a buy or sell? The answer lies in our full research report (it’s free for active Edge members).

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