Espey's FY2026 net income rose 37% to $11.2M on 4.9% higher sales as gross margin jumped to 35.3% on a richer product mix, but new orders trailed shipments and backlog slipped to $134.9M.
Revenue
$46M
+4.9% YoY
Net income
$11M
+37.3% YoY
Diluted EPS
$3.89
+28.8% YoY
Operating margin
25.1%
Overview
Espey Mfg. & Electronics, a small Saratoga Springs, NY maker of power supplies, transformers and magnetic components used mostly in military equipment, finished fiscal 2026 (the year ended June 30, 2026) with sales up 4.9% to $46.1 million but net income up 37.3% to $11.2 million. Almost all of the profit jump came from margin, not volume: gross margin — the share of sales left after the direct cost of building the products — rose from 28.9% to 35.3%, which the company attributes to "higher sales volume and a favorable product mix," plus "higher-than-average profit margins on completed milestone sales and the utilization of lower-cost labor groups than originally budgeted."
The less flattering side of the year: new orders of about $41.4 million ran below the $46.1 million shipped, so the order backlog slipped from $139.7 million to $134.9 million, and management is already warning that fiscal 2027's mix of newer, engineering-heavy products may squeeze gross margin.
Key Metrics
Metric
FY2026
FY2025
YoY Change
Net sales
$46.1M
$44.0M
+4.9%
Gross margin
35.3%
28.9%
+6.4 pts
Operating income
$11.6M
$8.1M
+42.7%
Operating margin
25.1%
18.5%
+6.6 pts
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Net income
$11.2M
$8.1M
+37.3%
Diluted EPS
$3.89
$3.02
+28.8%
Sales backlog (June 30)
$134.9M
$139.7M
-3.4%
New orders
~$41.4M
not disclosed
—
Cash + investment securities (June 30)
$45.4M
$43.6M
+4.3%
Largest customers' share of sales
67% (5 customers)
74% (6 customers)
—
Operating margin is the share of sales left after running the business (production costs plus selling and administrative expenses), before interest income and tax. The 10-K does not state a prior-year new-orders figure, so no comparison is shown.
Where the profit came from
Sales mix, not sales growth. The $2.2 million sales increase came "primarily" from magnetics programs and field-service work, partly offset by lower power-supply sales as some contracts completed and customer delivery schedules left "fewer active orders compared to the prior year." Cost of sales actually fell by $1.4 million (to $29.8 million from $31.3 million) even as sales rose, which is what pushed gross profit up 28.4% to $16.3 million.
Why mix matters so much here. Espey explains that mature, build-to-print products earn higher margins, while products still in engineering development can be "loss contracts" the company accepts to win future production work. A year weighted toward mature programs and completed milestones, like this one, flatters margins; management expects the reverse next year (see Outlook).
Overhead barely moved. Selling, general and administrative expenses rose only $0.13 million to $4.69 million (higher salaries, incentive pay, health costs and ESOP expense, partly offset by lower conference, recruiting and stock-option costs), so nearly all of the extra gross profit fell through to operating income.
Interest on the cash pile. Interest income rose to $1.70 million from $1.26 million on larger investment balances and higher rates. Total other income grew less (to $1.72 million from $1.60 million) because fiscal 2025 included a one-time $300,000 grant tied to completing the company's Magnetics Center of Excellence.
Tax rate roughly flat at 16.0% vs. 16.3%, below the statutory rate thanks to stock-option exercise benefits, dividends on employee stock ownership plan (ESOP) shares and a foreign-derived intangible income deduction.
Why EPS grew slower than net income: diluted EPS rose 28.8% while net income rose 37.3% because the diluted share count grew 6.5% (to 2.87 million from 2.70 million), as employees exercised stock options ($2.1 million of exercise proceeds this year) and ESOP shares were released.
Quarterly shape
Sales built through the year: $9.1 million in the first quarter, $12.1 million and $11.4 million in the middle two, and $13.5 million in the fourth quarter, up 40% from $9.6 million a year earlier (fourth-quarter diluted EPS $1.15 vs. $1.05). Gross margin was steady at roughly 34–37% in every quarter, which suggests the margin improvement was spread across the year rather than one lucky quarter. At a company this size, quarterly sales swing with the timing of individual shipments, so the fourth-quarter jump says more about delivery schedules than about a new run rate.
Backlog and orders
Backlog — the value of firm contracts not yet delivered — is the best forward indicator for a contract manufacturer like Espey.
Total backlog fell $4.8 million to $134.9 million, because new orders (about $41.4 million) did not replace what was shipped ($46.1 million): roughly $0.90 of new orders per dollar of sales.
But the backlog got firmer. The funded portion (money already authorized and appropriated by Congress or paid for by the customer) was $123.7 million; the unfunded portion fell to $11.2 million from about $33 million a year earlier, implying funded backlog rose from roughly $107 million as prior-year orders received funding.
It is long-dated. Only about $48 million of the backlog is expected to ship in fiscal 2027; the revenue note schedules 36% for 2027, 35% for 2028, 12% for 2029 and 17% later. A $134.9 million backlog does not mean near-term sales will triple.
Concentrated. About $88.2 million of the backlog (65%) sits with three significant customers, down from $95.2 million a year earlier. On the sales side, five customers made up 67% of the year's sales (each between 11% and 16%), vs. six customers at 74% in fiscal 2025.
Pipeline: management lists about $173 million of "outstanding opportunities" (quotes it believes are likely to be awarded) as of September 5, 2026, and expects fiscal 2027 new orders "to meet or exceed" fiscal 2026 levels. Neither is a firm order.
Cash, working capital and dividends
Espey has no debt: it did not borrow in either year and has an undrawn $3 million credit line. Cash and investment securities totaled $45.4 million at June 30, 2026, up from $43.6 million, and shareholders' equity rose to $60.6 million from $50.8 million.
Operating cash flow, however, fell to $5.7 million from $21.0 million. The main reason is money tied up in work in progress: inventory of "costs related to contracts in process" rose to $22.8 million from $15.0 million, and prepaid expenses and other current assets roughly doubled to $10.5 million, partly offset by $8.1 million more in customer advances (contract liabilities rose to $31.0 million). Fiscal 2025's cash flow was unusually strong, so part of this is timing, but it means the year's $11.2 million profit did not turn into an equal amount of cash.
Shareholders received $4.8 million in dividends, up from $2.6 million: the regular $1.00 per share plus a special $0.75. Capital spending was $3.1 million, of which $2.0 million was reimbursed under a $3.4 million U.S. Navy award for testing and qualification upgrades at the Saratoga Springs plant; the company budgets only about $0.5 million of unreimbursed capital spending for fiscal 2027.
Takeaway: Fiscal 2026's 37% profit jump came from product mix (mature programs and completed milestones lifting gross margin 6.4 points on only 4.9% more sales) while orders fell short of shipments, and management itself expects fiscal 2027's mix to pressure margins. This year's earnings look more like a high point than a new baseline, even though the funded backlog is now stronger.
Outlook
Management "expects fiscal year 2027 revenues to outpace fiscal year 2026," but says the sales mix will shift toward "new products with heavier engineering investments" whose upfront costs "may temporarily compress near-term gross profits," with manufacturing scaling and efficiency efforts expected to help offset that. Only about $48 million of backlog is scheduled to ship in fiscal 2027, so revenue growth beyond that level depends on winning and delivering new orders within the year.
Our read: modest revenue growth looks achievable given the scheduled backlog, but a repeat of the 35% gross margin is unlikely if engineering-stage programs make up more of shipments, so earnings could grow more slowly than sales or even decline. The numbers to watch in the coming quarterly reports are gross margin (whether it holds well above fiscal 2025's 28.9%), new orders against the $173 million opportunity pipeline (orders above shipments would stop the backlog shrinking), and whether the build-up in contract inventory turns back into cash. Customer concentration remains the main structural risk: losing or delaying one of the three large backlog customers would move results materially.