BELFB — Q2 2026 Financial Report Analysis

Sales up 25%, but shareholders' share of the profit fell — because a minority stake got more expensive

Bel Fuse makes the unglamorous parts that keep electronics working in harsh or high-stakes settings: power supplies, rugged connectors and cable assemblies, circuit protection and networking components for defense, aerospace, industrial and data-center customers. In the quarter ended June 30, 2026 it sold $210.7 million of product, up 25.2% from $168.3 million a year earlier and near the top of the $195–215 million range management gave in April. Defense and "Data Solutions" (networking products for data infrastructure) did most of the work.

The profit picture is more tangled. The operating business clearly improved — income from operations rose 28.7% to $38.4 million — yet net earnings attributable to Bel shareholders fell 5.1% to $25.5 million, and Class B diluted earnings per share (EPS) fell 11.7% to $1.89. The gap comes from three items below the operating line, chiefly an accounting charge tied to Bel's 80%-owned subsidiary Enercon, explained below.

At a glance

• Backlog of $594.7 million, up 35.4% since December 31, 2025 — orders already booked equal roughly 2.8 quarters of current sales, the clearest sign demand is still building.
• Gross margin of 39.9% vs 38.7% — gross margin is the share of each sales dollar left after paying for materials, factory labor and plant costs; a 1.2-point gain on 25% more sales means volume is now covering fixed factory costs better.
• $306.1 million of cash and no revolver debt, after a May share sale raised $441.6 million net and $197.5 million of it repaid the credit line — the balance sheet went from borrower to net cash in one quarter, at the price of more shares outstanding.

Q2 2026 results

Operating margin is the share of revenue left after running the business (factories, R&D, sales and admin), before interest and tax. Bel has two share classes, Class A (BELFA) and Class B (BELFB); they share one set of financial statements, and Class B's per-share figures run slightly higher because of how earnings are allocated between the classes. Class A diluted EPS was $1.79 vs $2.03.

Takeaway: The business had a strong quarter — sales +25%, operating income +29%, adjusted EBITDA margin up to 23.2% — but shareholders' reported earnings fell because of a $6.7 million charge for the rising value of the 20% of Enercon that Bel doesn't own yet, plus a currency swing and last year's one-off property gain. That Enercon charge is a cost of a business that is doing well, not a sign of weakness, and it should end once Bel buys the remaining stake (planned for early 2027). Meanwhile the May share sale means each future dollar of profit is spread over about 17% more Class B shares (12.3 million outstanding at June 30 vs 10.5 million at year-end).

Where the growth came from

At the start of 2026 Bel reorganized into two reporting segments (prior-year figures recast to match):

• ADRS (the old Connectivity business plus Enercon, a power-systems maker serving defense customers that Bel bought 80% of in late 2024): defense sales rose $14.7 million (+28.4%) and rugged industrial sales $7.5 million (+51.4%), while commercial aircraft sales fell $3.6 million (-14.1%). Gross margin slipped 0.3 points; the filing says favorable mix and efficiency were outweighed this quarter by a stronger Israeli shekel and Mexican peso raising local factory costs in dollar terms.
• ITDS (the old Power Solutions and Magnetics businesses): Data Solutions sales jumped $20.7 million (+54.4%), industrial rose $3.5 million (+12.1%), and transportation slipped $0.4 million (-4.3%). Its gross margin gained 2.2 points on higher volume and better factory utilization, partly offset by a stronger Chinese renminbi and euro.
• Acquisition contribution: dataMate, a networking-connectivity business bought in March 2026 for $15.2 million, added $4.4 million of Q2 sales. Excluding it, sales grew about 22.6% — the growth is overwhelmingly organic (from existing businesses rather than bought in).

What the headline numbers hide

Why shareholders' profit fell while pre-tax profit rose. Pre-tax earnings increased $4.1 million to $37.8 million, and the tax bill fell. Three items pulled the other way:

1. Enercon "redemption value adjustment": a $6.7 million charge vs a $0.9 million credit last year. Bel bought 80% of Enercon in November 2024; the sellers can require Bel to buy the last 20% at a price set by a multiple of Enercon's earnings. As Enercon earns more, that price rises, and the increase is deducted from earnings available to Bel's shareholders. The value of that 20% stake rose from $93.2 million at December 31 to $102.6 million at June 30. This one item alone is worth about $0.50 of Class B EPS this quarter.
2. Currency: a $1.4 million foreign-exchange loss vs a $7.6 million gain in Q2 2025, booked in "other income" from revaluing foreign-currency balances.
3. No repeat of last year's $4.1 million gain on selling properties, which flattered Q2 2025's operating income. Excluding it, operating income grew about 49%, not 29%.

The tax rate helped — a lot. The effective tax rate was 10.0% vs 20.5%, which the filing attributes to a benefit from restricted stock vesting, reversal of uncertain-tax reserves as statutes expired, and a revaluation of a foreign deferred tax asset. These are not repeatable at the same size; at last year's rate the quarter's tax bill would have been roughly $4 million higher.

GAAP vs "non-GAAP". Bel's non-GAAP EPS of $2.90 (Class B, basic) excludes the Enercon charge ($0.50), amortization of acquired intangibles ($0.24), stock-based compensation ($0.17), a $0.64 million write-off of debt fees from repaying the revolver ($0.04), FX losses and small acquisition and earnout items. Stock-based compensation is a real, recurring cost — it rose 76% to $3.0 million from $1.7 million — so the 74% non-GAAP EPS growth overstates the improvement; the 49% gain in operating income excluding last year's property sale is a fairer read.

Cash conversion is weaker than earnings. For the first half, operating cash flow was $31.8 million against net earnings of $49.0 million (about 65%), only modestly above last year's $28.9 million. Receivables rose 28% since December (to $155.9 million) and inventory 20% (to $200.2 million), versus first-half sales growth of 21.4%. Days to collect from customers lengthened to 67 from 64, and inventory turns slowed to 2.2 from 2.5. The filing ties the inventory build to supporting demand, managing longer lead times for chips (which it partly attributes to AI-driven demand) and higher metal prices — plausible with a growing backlog, but worth watching if sales growth cools.

Material costs are creeping up. Materials rose to 33.1% of sales from 31.8%, due to a richer mix of power products with more purchased components, higher prices for gold, silver, copper and some electronic parts, and outsourcing work previously done at Bel's Pingguo, China plant. Lower labor and overhead percentages more than offset it this quarter.

Dilution from the share sale. Bel sold 1,725,000 Class B shares in May at $266 each, lifting Class B shares outstanding to 12.3 million from 10.5 million at December 31 (+17%). Class B weighted diluted shares were already 11.5 million in Q2 vs 10.6 million a year ago, and Q3 will carry the full count. The $441.6 million raised repaid the revolver (interest expense fell to $1.8 million from $4.0 million) and is earmarked for the remaining 20% of Enercon and further acquisitions.

Tariffs. The filing says tariffs did not have a material impact on first-half results. The Supreme Court's February 2026 ruling struck down tariffs imposed under emergency-powers law (IEEPA), and Mexican imports are exempt under the USMCA trade agreement, but Bel manufactures heavily in China and warns tariffs could return under other legal authorities. It is evaluating possible refund claims for tariffs already paid.

What to watch next

Management guided Q3 2026 sales of $205–225 million and gross margin of 39%–41%, citing healthy bookings. The midpoint ($215 million) is about 2% above Q2 — a flatter sequential step than the backlog build might suggest, which leaves room for upside if defense and data shipments keep pace.

Three things will decide how the next few quarters read:

• The Enercon charge. As long as Enercon keeps growing, the redemption value keeps rising and keeps reducing reported EPS. Bel intends to buy the remaining 20% by early 2027, which should end this charge; a 2026 earnout payment of up to $5 million also depends on Enercon's EBITDA.
• Commercial aerospace. The 14.1% decline in the quarter (after a 1.4% gain for the half) is the one soft spot in the higher-margin segment.
• Per-share growth vs company growth. With about 17% more Class B shares and a normalizing tax rate, EPS will grow more slowly than operating profit unless the new cash goes into acquisitions (and the Enercon buyout) that earn more than the interest Bel now collects on it — Q2 interest income was $1.3 million.

Our read: the core business is in a demand upswing led by defense and data infrastructure, with a backlog that supports Q3 guidance. Reported per-share earnings will stay noisier than the operating trend until the Enercon buyout closes.

Source: Bel Fuse Inc. Form 10-Q for the quarter ended June 30, 2026 (filed August 4, 2026), with guidance and non-GAAP reconciliations from the company's July 29, 2026 earnings release (Form 8-K, Exhibit 99.1).