DALLAS, TX -- Park-Ohio Holdings Corp. (NASDAQ: PKOH) reported second-quarter results that marked a clearer inflection in its portfolio, according to an update from Stonegate Capital Partners. The company's performance in the quarter showed that wider demand and better execution in its Engineered Products segment are shifting the growth mix toward higher-margin, more durable businesses.
Revenue increased 10% year-over-year to $440.1 million, and adjusted EBITDA reached $38.8 million, both exceeding consensus estimates. Gross margin expanded 90 basis points to 17.9%, its highest level since 2013. This improvement supports the view that broader demand, higher-volume flow-through, and company-specific productivity initiatives are beginning to translate into better operating leverage across the portfolio.
Engineered Products showed the clearest improvement, with revenue up 10% year-over-year to $129.4 million and operating margin expanding 190 basis points to 7.0%. Backlog increased 29% year-over-year to $252 million. The combination of stronger aftermarket activity, improved forged and machined performance, and a growing backlog is shifting the growth mix toward higher-margin, more durable businesses, supporting management's long-term EBIT margin target above 10% for the segment.
Importantly, management raised its fiscal year 2026 sales, adjusted EPS, and EBITDA margin guidance while retaining the expected ~$0.50 per share loss from Southwest Steel Processing (SSP). This suggests the core portfolio is improving faster than consolidated results imply. With the SSP strategic review expected to conclude around year-end and unchanged free cash flow guidance implying stronger second-half cash conversion, portfolio simplification and cash generation remain important potential drivers of further earnings-quality improvement.
Operating income increased 22% year-over-year, and operating cash flow improved by $23 million. Stonegate analysts believe Park-Ohio is entering a multi-step margin and portfolio-quality improvement cycle, with Engineered Products absorption, company-specific productivity initiatives, second-half cash conversion, and the SSP review being the primary variables through year-end.
The update from Stonegate Capital Partners underscores the significance of Park-Ohio's recent performance and strategic initiatives. The company's ability to raise guidance while absorbing losses from SSP indicates underlying strength and potential for sustained earnings growth. As the company continues to execute on its productivity initiatives and potentially simplifies its portfolio, investors may see further improvements in earnings quality and shareholder value.
