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Leonardo DRS reported revenue above the consensus in Q3 FY2026, and adjusted earnings per share of $0.46 also exceeded the $0.36 consensus. The company reported diluted earnings per share of $0.43, compared with $0.26 a year earlier.
Revenue rose 11.0% to $1.1 billion from $960.0 million a year earlier. In its filing, Leonardo DRS attributed the increase to funded backlog conversion and higher demand across both operating segments, including tactical radars, electric power and propulsion, and space payloads. Advanced Sensing and Computing revenue rose 13.6%, while Integrated Mission Systems also grew, supported by naval power programs.
The company reported gross margin of 24.7%, compared with 23.1% a year earlier, and operating margin of 10.9%, up from 9.69%. Its filing attributed gross margin expansion to gross profit growth, program mix and performance. Free cash flow was $58.0 million, down from $77.0 million a year earlier. Leonardo DRS’s revenue also came in above its own quarterly guidance.
| Q3 FY2026 | Q3 FY2025 | Change | |
|---|---|---|---|
| Revenue | $1.1 billion | $960.0 million | 11.0% |
| Diluted EPS | $0.43 | $0.26 | 64.8% |
| Gross margin | 24.7% | 23.1% | 1.5 percentage points |
| Operating margin | 10.9% | 9.69% | 1.2 percentage points |
| Free cash flow | $58.0 million | $77.0 million | −24.7% |
| Against the consensus | Reported | Consensus | Result |
|---|---|---|---|
| Adjusted EPS | $0.46 | $0.36 | Beat by 27.8% |
| Revenue | $1.1 billion | $1.0 billion | Beat by 3.25% |
Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.
| Against its own guidance | For | Guided | Reported | Result |
|---|---|---|---|---|
| Revenue | Q3 FY2026 | $1.0 billion | $1.1 billion | Above the guide |
What management said on the call
CEO John Baylouny said demand for counter-drone defense is supporting radar orders, and Leonardo DRS is expanding radar capacity, including through a new UK operation. He said the company received a contract supporting the Department of War’s counter-drone office, although the contract ceiling is not included in backlog. Baylouny also said the company was selected to provide the electric propulsion system for South Korea’s KDDX destroyer program.
CFO Michael Dippold said revenue growth came from tactical radars, electric power and propulsion, and space sensing. He attributed adjusted EBITDA margin expansion to program execution, favorable mix and greater volume. Dippold said naval power execution and higher volume more than offset increased research and development spending in Integrated Mission Systems.
Asked about margins, Dippold said land and naval programs, as well as counter-drone work, had supported Integrated Mission Systems’ performance. He expected its recent margin level to serve as a baseline, while saying Advanced Sensing and Computing margins depend heavily on mix. Baylouny added that radar sales for counter-drone applications are contributing to that segment’s margin expansion.
On supply-chain pressure, Baylouny said Leonardo DRS learned from its experience with germanium and now uses predictive tools, including AI, to identify potential challenges. He said the company is buying materials ahead of need, sometimes before receiving a contract.
Asked about international radar demand and competition, Baylouny said customers in the Middle East and Eastern Europe are seeking distributed tactical radar capabilities. He acknowledged competitors but said the company is winning a share of that demand.
For the coming quarter, Dippold expected revenue and adjusted EBITDA dollars to grow sequentially. Baylouny said he did not expect the current continuing resolution to have a meaningful effect on the business.
Guidance
Leonardo DRS raised and narrowed its FY2026 revenue outlook. CFO Michael Dippold said the company now expects adjusted EBITDA of $545.0 million to $555.0 million and adjusted diluted earnings per share of $1.50 to $1.53. Leonardo DRS also lowered its full-year tax-rate assumption to 13.0%.
| Metric | For | Guide | Previous guide | Change |
|---|---|---|---|---|
| EPS, non-GAAP | FY2026 | $1.50–$1.53 | $1.34–$1.39 | Raised |
| Tax rate | FY2026 | 13.0% | 16.5% | Cut |
| EBITDA, non-GAAP | FY2026 | $545.0 million–$555.0 million | $525.0 million–$540.0 million | Raised |
| Revenue | FY2026 | $4.0 billion–$4.0 billion | $3.9 billion–$4.0 billion | Raised |
| EPS, Raft Non Gaap Accretion | FY2027 | Leonardo DRS expects RAFT to be accretive to adjusted diluted EPS in its first full year of ownership, FY2027. | — | — |
| Revenue, Radar | FY2027 | Leonardo DRS expects radar revenue growth to outpace its broader FY2027 growth framework. | — | — |
| EBITDA, Non Gaap Margin | FY2027 | Leonardo DRS expects FY2027 margin expansion, but at a slower rate than in FY2026. | — | — |
| Revenue | FY2027 | Leonardo DRS expects low-double-digit revenue growth in FY2027 including RAFT. | — | — |
| EBITDA, Asc Non Gaap Margin | Q4 FY2026 | Leonardo DRS expects ASC margin expansion to accelerate in Q4 FY2026. | — | — |
| EBITDA, Asc Non Gaap Margin | FY2026 | Leonardo DRS expects ASC margin expansion in FY2026. | — | — |
| Free cash flow | Q4 FY2026 | Leonardo DRS expects Q4 FY2026 to be its strongest free cash flow quarter of the year. | Q3 FY2026: Leonardo DRS expects Q3 FY2026 free cash flow to be modestly positive and above its Q2 level. | — |
| Tax rate | Q4 FY2026 | 19.0% | — | New |
| Revenue | Q4 FY2026 | Leonardo DRS expects Q4 FY2026 revenue to grow meaningfully from the prior quarter. | — | — |
| Capex growth, Percent of Revenue | FY2026 | 4.00% | — | New |
| Free cash flow growth, Conversion of Adjusted Net Earnings | FY2026 | 75.0% | 75.0% | Held |
| Units, Diluted Shares | FY2026 | 269,000,000 | 269,000,000 | — |
| Revenue growth, Organic Growth | FY2026 | 8.00%–9.00% | — | New |
| Bookings, Book To Bill | FY2026 | 1.0× | — | — |
| Research and development growth, Percent of Revenue | FY2026 | 4.00% | — | New |
| EPS, Non Gaap, raft Accretion | FY2027 | Leonardo DRS expects RAFT to be accretive to adjusted diluted EPS in FY2027, its first full year of ownership. | — | — |
| EBITDA, Non Gaap, margin | FY2026 | Leonardo DRS expects greater adjusted EBITDA margin expansion in FY2026. | — | — |
| Revenue, Ims | FY2026 | Leonardo DRS expects FY2026 revenue growth in IMS. | — | — |