Financial Trends -- 6/10

• Revenue peaked in FY2023 at $67.1B, declined -3.4% in FY2024 on dealer destocking and CI/RI weakness, then recovered to record $67.6B in FY2025 (+4.3%) driven by E&T. Q1'26 revenue of $17.4B (+22.2% YoY) confirms sharp re-acceleration
• Margin compression is the key concern: Adjusted OPM fell from 20.7% (FY2024) to 17.2% (FY2025), -350 bps. ~$2.6B tariff headwinds drove the erosion. Q1'26 shows early recovery to 18.0%
• GAAP operating income fell ~15% in FY2025 despite revenue growth of +4.3% -- the penalty trigger. Q1'26 op profit returned to YoY growth ($3.1B vs $2.6B)
• Record backlog of $62.7B as of Q1'26 (+79% YoY), up from $51.2B at FY2025 year-end. Power-gen large-engine shipments +48% YoY
• Consistent buyback program: Diluted shares declined from 489.4M to 472.3M (FY24 to FY25), -3.4%/yr

• Power & Energy is the growth engine: +12.7% FY2025, accelerating to +22.8% in Q1'26. Now ~35% of revenue. Data center power generation (reciprocating engines, Solar turbines) is the primary driver. Power Gen large-engine shipments +48% YoY in Q1'26
• CI surging off the trough: +38% YoY in Q1'26 after troughing at -19.8% in Q1'25. Data center construction demand and lapping of dealer destocking driving the inflection
• RI soft but stable: +3.5% in Q1'26, the weakest segment

• P&E margins expanded sharply to 25.4% in Q1'26 -- up from 19.9% in FY2025. Volume leverage on the power-gen supercycle is powerful when tariff headwinds ease
• CI margins recovering to 21.6% in Q1'26, up from the 18.7% FY2025 average, aided by volume leverage off the easy comp
• RI margins deteriorated further to 10.2% in Q1'26 -- the weakest segment by far, margin down ~700 bps YoY

• FY2025 EPS declined 14.7% -- the first annual decline since 2020. All four quarters showed YoY declines
• Q1'26 Adj EPS of $5.54 beat the prior-year Q1'25 of $4.25 by +30%, confirming the earnings inflection alongside the revenue recovery
• Adjusted EPS for FY2025 was $19.06 per management

• Consistent buyback program reducing share count ~3-5% annually
• Over 5 years, diluted shares declined from 548.5M to 465.8M (-15.1%)
• FY2024 to FY2025 decline of 489.4M to 472.3M = -3.4%/yr, continuing into Q1'26 at 465.8M

Score of 6/10 reflects the genuine bifurcation between extraordinary forward indicators and trailing earnings deterioration.

Positives (base ~7): Revenue YoY decisively accelerating (-9.8% to +22.2% over five quarters) -- the single strongest factor. Record $62.7B backlog (+79% YoY) with next-12-month shippable up ~44%. Power & Energy segment in a structural growth phase (+22.8% Q1'26) driven by data center power-gen secular tailwind. ME&T FCF resilient at >$9.5B, third straight year above $9B. Share count declining ~3.4%/yr via disciplined buyback.

Penalty applied (-1): Revenue grew +4.3% in FY2025 while GAAP operating income fell ~15% and adjusted operating margin compressed ~350 bps -- driven by ~$2.6B of tariff costs. No negative-FCF penalty (solidly positive). No dilution penalty (count is shrinking). No debt penalty.

7 - 1 = 6/10. The forward setup is clearly improving -- Q1'26 already shows op profit back to YoY growth, margins inflecting up to 18.0%, and a record $62.7B backlog -- which is why this scores at the top of the penalized band rather than lower. But the rubric rightly docks the trailing year where revenue strength did not translate to operating-income strength.