Argan Reports Record Backlog and Income

Argan(NYSE:AGX) reported its results for the fiscal second quarter ended July 31, 2025, posting record net income of $35.3 million, revenue of $237.7 million (up 5% year-over-year), and a backlog reaching an all-time high of $2 billion. Enhanced gross margins of 18.6% and a strong cash position of $572 million underscore the company’s operational execution and financial strength, supported by a robust pipeline of power and industrial projects. The following analysis highlights strategic backlog growth, margin dynamics, and capital allocation decisions with implications for long-term investors. For reference, the company's fiscal year ends January 31, 2026.

Backlog reaches record $2 billion as Argan expands project scope

As of July 31, 2025, the backlog grew 5% sequentially from April 30, 2025, including the addition of a major 170-megawatt thermal facility in Ireland to the backlog and a significant water treatment contract in Alabama, while all three business segments recorded their highest backlogs ever. The project mix is weighted approximately 61% to natural gas and 29% to renewables as of July 31, 2025, reflecting evolving demand driven by grid reliability concerns and "electrification of everything."

"our consolidated project backlog was approximately $2 billion at Q2 FY2026, representing backlog growth of 5% from 04/30/2025, and as I mentioned, we expect to add a couple more projects before the end of the fiscal year. Our current backlog includes fully committed projects in both the Power and Industry Services and Industrial Construction Services segments, as well as in our Telecom segment. In fact, each of our business segments has achieved record backlog as we generate significant organic growth across the entire Argan platform. Of note, we have a growing portion of traditional gas-fired plants in the current backlog, and we believe the representation of natural gas-fired facilities in our backlog will continue to increase in the near to mid-term."
-- David Watson, Chief Executive Officer

Elevated backlog across multiple geographies and end-markets strengthens the company’s visibility on future revenue growth.

Gross margin surges as Argan delivers operational outperformance

Power Industry Services revenue rose to $197 million (83% of total), while consolidated gross margin expanded to 18.6% from 13.7% a year earlier, driven by outstanding execution and milestone achievements like first-fire events and early completions. The Power Industry Services segment delivered a 19.6% gross margin, boosted by favorable weather and marquee project wins, but management maintains a conservative, execution-focused outlook on future profitability amid cyclical variability.

"It's really hard to provide any kind of particular guidance on our gross margins. I mean, this quarter, there's clear and frankly, the last three quarters, there's just been significant execution excellence, especially in the power sector, right, between reaching first fire on the unit at Kilrood to, you know, finishing out that LNG job early, you know, early this past quarter. You know, too favorable weather, allowing us to achieve a lot of progress on some more renewable projects. So, you know, as you know, on our last earnings call, I indicated that we expect to exceed last year's fiscal year's gross profit margin as a percent of revenues. And with continued strong execution across businesses, that continues to be our expectation. Know? As you know, we are unapologetically conservative in all things that we do here. Given the lumpy nature of this business, especially this construction business, which is one of the reasons why we don't provide revenue and EPS guidance. So we're pleased with the margins to halfway point this year and expect to continue to, you know, achieve our main goal. Which is to bring each of our customers another successful project."

-- David Watson, Chief Executive Officer

Enhanced project execution contributed to margin improvement, enhancing the company’s capacity to manage cyclical swings typical of engineering and construction while reinforcing its reputation for operational reliability.

Capital allocation strategy signals confidence in sustained cash generation

The company increased its quarterly dividend 25% to $0.375 per share in September 2024, resulting in a 50% rise in the annual dividend run rate over less than two years, and returned $25 million to shareholders in the first six months of fiscal 2026, while maintaining zero debt. It also expanded its share repurchase authorization to $150 million in April as part of a disciplined capital allocation approach prioritizing workforce investment, dividends, buybacks, and selective M&A to drive long-term shareholder value.

"Second, the company pays a quarterly dividend, which we increased 25% to 37.5¢ per common share in September 2024, creating an annual dividend run rate of $1.50 per share. Of note, that increase came just a year after we'd raised our dividend to 30¢ per share in September 2023. Together, these two increases represent an aggregate 50% increase in our annual dividend run rate in less than two years, reflecting the strength of our business."
-- David Watson, Chief Executive Officer

Consistent capital returns alongside a debt-free, high-liquidity balance sheet offer investors downside protection and signal management’s confidence in the durability of the business model and earnings power.

Looking Ahead

Management reiterated expectations to finish fiscal 2026 with a backlog "significantly over $2 billion," driven by pending project awards in the U.S. and abroad, including large-scale gas and renewable power facilities. While detailed revenue or EPS guidance was not provided, management affirmed ongoing project discipline. No formal margin, revenue, or earnings guidance was disclosed during the call.

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This article was created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.