Argan Posts 91% Profit Jump in Fiscal Q2

Key Points

• Q2 revenue grew 4.7% year over year to $237.7 million, with a sharp jump in profitability.

• EPS surged 90.8% year over year to a record $2.50 for Q2, aided by an unusually low tax rate.

• Project backlog reached a record $2 billion, raising future revenue visibility.

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Argan (NYSE:AGX), a construction and engineering firm specializing in power generation projects, reported its second-quarter results for fiscal 2026 on Sept. 4, 2025. The company posted higher revenue, a large increase in profitability, and a record project backlog. Revenue (GAAP) was $237.7 million, up 4.7% from the prior year. Diluted earnings per share (GAAP) jumped to $2.50, compared to $1.31 in Q2 FY2025, reflecting a sharply improved gross margin and a significant, nonrecurring tax benefit (GAAP). Only earnings surpassed those expectations.

Overall, the quarter demonstrated solid growth across key metrics and enhanced visibility for future revenue.

Source: Argan. Note: Fiscal 2026's second quarter ended July 31, 2025. Fiscal 2025's Q2 ended July 31, 2024.

Argan's Business and Core Drivers

Argan is a holding company whose main activities are delivering engineering, procurement, and construction (EPC) services for large power-generation projects. Its primary customers are utilities and energy firms aiming to build, modernize, or expand power plants—including both gas-fired and renewable energy facilities. The company's work includes all stages of project delivery, from design to completion.

Recently, Argan’s focus has been on expanding project backlog and winning new contracts, especially in renewables and gas-fired power. Success in this sector is driven by strong project execution, the ability to maintain high safety and quality standards, and winning contracts that ensure predictable cash flow. A robust project backlog provides visibility into future earnings and is an important sign of business health. Other key factors for Argan include its ability to manage risks related to supply chains, workforce availability, and regulatory requirements.

Quarter Highlights and Drivers

For Q2 FY2026, revenue (GAAP) increased to $237.7 million, a 4.7% rise over the prior year. Sequentially, GAAP revenue also jumped as new projects ramped up. The company’s gross margin improved to 18.6%, compared to 13.7% a year ago. This margin measures how much of each dollar in sales is left after covering the costs of goods sold. Management cited improved gross profit margins for the Power Industry Services segment as the main cause of the margin jump.

Net income (GAAP) surged to $35.3 million, nearly doubling the previous year’s result. Diluted earnings per share (GAAP) reached $2.50, up sharply from $1.31. The increase was partly due to a favorable project mix and strong execution. A sizeable contributor to the profit increase was the company’s unusually low income tax expense—just $0.4 million on $35.6 million of pre-tax income, caused by large stock option deductions. This one-time tax benefit reduced the effective tax rate to 1%, much lower than the typical rate, and may not recur in future quarters.

Earnings before interest, taxes, depreciation, and amortization (EBITDA) rose 46% year over year Operating costs, measured by selling, general, and administrative (SG&A) expenses (GAAP), rose 14% year over year. In addition to operational gains, Argan earned $5.6 million in investment income (GAAP), boosting net results. The company’s project backlog—a key industry metric showing the value of signed but incomplete contracts—hit a record $2.0 billion. Backlog growth was driven by new contract awards, including both traditional gas and renewable power projects.

On the project front, Argan completed a major liquefied natural gas (LNG) facility in Louisiana and reported milestones on several large gas-fired and renewable power generation projects. Notably, it secured an engineering, procurement, and construction contract for the 170-megawatt Platin Power Station in Ireland, underscoring efforts to diversify by geography and energy type. The company said, “Several of our renewable projects advanced meaningfully this summer, as cooperative weather allowed us to make significant progress.”

The balance sheet remains one of Argan’s strengths. Cash, cash equivalents, and investments rose to $572.2 million, while net liquidity reached $344.5 million. There is no debt. These funds provide flexibility for future projects and shareholder returns. The quarterly cash dividend was raised from $0.30 to $0.375 per share in September 2024. Share repurchases totaled about $8.9 million in the first half of FY2026. The buyback program was recently increased to $150 million.

Management commented that strong results reflected “excellent execution and solid progress within our project base.” While the report was largely upbeat, it did note that the pace of backlog growth has slowed versus earlier in the year. Additionally, management highlighted that progress on certain jobs benefited from “cooperative weather,” an uncontrollable factor. Broader risks around supply chain reliability and workforce availability, major themes last year, were not discussed in detail this quarter but remain important background considerations.

Outlook and Key Topics for Future Quarters

Argan did not provide specific revenue or earnings guidance for coming quarters or the full year. Instead, management framed its outlook around the record $2.0 billion backlog and ongoing strong demand for both gas-fired and renewable energy projects.

No further commentary on supply-chain disruptions, labor costs, or project delays was given in this earnings release, but management had discussed these as ongoing risks previously. Investors should monitor how the company manages project execution risk and maintains margins with more work underway. Project revenue may remain “lumpy” from quarter to quarter, given the size and complexity of jobs. Dividend payments were increased to $0.375 per share. The company maintains a strong balance sheet with no debt and substantial cash reserves.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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