SPX Corporation Earnings Call Signals Strong Growth

SPX Corporation ((SPXC)) has held its Q1 earnings call. Read on for the main highlights of the call.

SPX Corporation struck an upbeat tone on its latest earnings call, pairing double-digit growth with higher guidance and clear momentum in its core markets. Management acknowledged some near-term cost and tariff pressures, but stressed that strong margins, surging data center demand, and a solid balance sheet leave the company well positioned for continued expansion.

Robust Q1 Performance and Upgraded Profit Outlook

SPX posted a 17.4% year-over-year revenue increase in Q1, while adjusted EBITDA rose 23% and adjusted EPS climbed 22% to $1.69. Segment income grew 22% to $135 million with roughly 100 basis points of margin expansion, and management lifted full-year adjusted EPS guidance by $0.15 to a midpoint of $7.95, implying about 21% adjusted EBITDA growth by 2026.

HVAC Growth Fueled by Data Centers and Backlog Strength

The HVAC segment delivered 22% revenue growth, split between 11.5% inorganic and 9.6% organic gains, with segment income up $15 million. Backlog surged to $755 million, up 38% organically, helped by strong data center orders, while capacity expansions for dampers and coil products in Tennessee, Olathe, and Madison are on track to meet rising demand.

Data Center Demand Accelerates and Capacity Ramps

Management highlighted a sharp acceleration in data center demand, pushing expected segment growth from around 50% toward as high as 70% for the year. New and expanded production in Olathe, Tennessee, and Madison is intended to unlock meaningful incremental capacity, with the company aiming to move data center revenue toward the mid-hundreds of millions of dollars as the build-outs mature.

D&M Margin Expansion and Software-Driven Product Momentum

Detection & Measurement revenue increased 8.3% year-over-year, with organic growth near 3% and contributions from the KTS acquisition, while segment income jumped 28%. Margin expanded about 410 basis points on stronger volumes and a richer mix that included unusually high software content, supported by new tools such as locate performance management software for radio detection systems.

Strong Balance Sheet Underpins M&A Flexibility

SPX exited the quarter with $158 million of cash, $674 million of total debt, and leverage of roughly 0.9 times under its covenant metric, well below the 1.5 to 2.5 times target range. That balance sheet strength, combined with about $16 million of adjusted free cash flow and $60 million of proceeds from a divestiture, gives management ample room to pursue accretive deals, with recent acquisitions integrating in line with historical valuation targets.

HVAC Margins Temporarily Hit by Start-Up Costs

Despite strong growth, HVAC segment margins slipped about 40 basis points in Q1 as the company absorbed start-up costs tied to new capacity. Management pegged these costs at roughly $8 million to $9 million, concentrated in the first half of the year, and emphasized that the spending was planned to support long-term growth and should ease as new facilities ramp.

Tariff Changes Create Limited EPS Headwind

Recent Section 232 tariff changes are expected to trim 2026 adjusted EPS by $0.05 to $0.10, with a gross cost impact of about $10 million and most of the near-term pressure in Q2, particularly in HVAC. SPX expects to offset roughly half of that cost through pricing and other measures and believes the tariff impact will be minimal by 2027.

Free Cash Flow Still Modest Despite Growth Investments

Adjusted free cash flow in Q1 was about $16 million, modest relative to SPX’s growth and investment ambitions, as the company continues to fund capacity expansions. Management noted that the roughly $60 million of proceeds from the sale of a discontinued business provided extra liquidity but was not included in the original 2026 planning framework.

D&M Backlog Softness Offsets Margin Strength

While D&M margins improved sharply on better mix and software volume, backlog ended the quarter at $333 million, down modestly from a year earlier. Management acknowledged some project softness in the segment even as it leans on new product introductions and higher-margin software to support profitability.

End-Market Soft Spots and Input Cost Inflation Risks

SPX pointed to lingering weakness in commercial real estate and hotel markets, as well as softer battery and semiconductor demand versus prior years, although bidding activity has begun to return. The company also faces upward pressure on steel and aluminum costs, which make up a mid-single-digit share of total cost of goods sold, and is using pricing and supply adjustments to offset these headwinds.

Raised Guidance and Confident Multi-Year Outlook

Management raised 2026 adjusted EPS guidance by $0.15 to a midpoint of $7.95, reiterating an implied roughly 21% adjusted EBITDA growth trajectory driven by HVAC and D&M strength. Although Section 232 tariffs are expected to reduce near-term earnings, particularly in Q2, SPX believes the impact will fade in the second half and not affect 2027, while a healthy balance sheet and M&A pipeline support its growth plan.

SPX’s earnings call painted a picture of a company leaning into structural growth in data centers and HVAC while carefully managing costs and tariffs. With upgraded guidance, robust margins, and room for further acquisitions, management appears confident that near-term headwinds are manageable and that the business can deliver attractive earnings growth over the next several years.