Leidos Holdings, Inc. (LDOS) Earnings & Analysis

Latest quarter

Leidos reported Q2 FY2026 revenue of $4.6 billion, compared with the consensus revenue estimate of $4.4 billion. The company reported adjusted EPS, as the consensus counts it, of $3.26, compared with the consensus adjusted EPS estimate of $2.90.

Revenue was $4.6 billion in Q2 FY2026, versus $4.3 billion a year earlier, while diluted EPS was $2.81, versus $3.01. Leidos reported that gross margin was 17.9%, compared with 18.4%, and operating margin was 11.3%, compared with 13.4%.

Tom Bell said Homeland led segment growth, while Defense accelerated and Intel and Digital maintained its Q1 growth rate. Chris said Health revenue contracted following the full incorporation of a fourth vendor on the Medical Disability Examination Regions contract, while technology-enabled efficiencies maintained Health margins. The company reported free cash flow of $765.0 million, compared with $457.0 million a year earlier. Its filing attributed the quarterly revenue and operating-income increase primarily to program wins, partly offset by completed contracts.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

Tom Bell said customer procurement activity was beginning to accelerate and that Leidos anticipated continued positive bookings momentum through the remainder of FY2026. He said Defense recorded a 2.2 book-to-bill ratio in the quarter, while several major defense programs begun during the year were not yet reflected in bookings. Bell also said the company had an agreement valued at more than $1 billion to deliver 3,000 low-cost containerized munitions by 2030.

Chris said Homeland’s growth reflected demand in commercial energy infrastructure and air-traffic management, while Defense ramped production on integrated air defense and counter-UAS programs. He said Intel and Digital’s growth principally reflected intelligence-community demand. Chris added that profitability improved in Defense and Homeland from Q1 through program execution, changes in estimates at completion, corporate-cost management, and award and incentive fees.

On Health, Bell said the VA had suspended incentive payments for Medical Disability Examination vendors for the remainder of the year while it reviewed administrative aspects of the program. He said the company considered the effect of that action in its enhanced FY2026 guidance. Analysts pressed management on the Health recompete and potential contract extensions; Bell said Leidos had not received a draft request for proposals and did not know the exact terms of the next contract. He said the company had been informed that the current contract would probably be extended into the early part of the next year, and that international and pre-discharge work was expected to be extended for another year.

When analysts asked about government agencies insourcing work, Bell said Leidos saw interest in insourcing systems integration and acquiring commercial technology directly. He said the company expected customers would still require support to maintain and enhance systems. Chris said the company was maintaining adjusted EBITDA margin guidance in the mid-13% range, while Defense revenue was expected to accelerate to above the high-single-digit range for FY2026. He also said the company made no commitment on the amount of future share repurchases.

Guidance

Leidos raised the lower end of its FY2026 revenue guidance by $200.0 million and raised the lower end of its non-GAAP diluted EPS guidance by $0.10. The company now expects FY2026 non-GAAP diluted EPS of $12.20–$12.50. Chris said Leidos increased FY2026 operating-cash-flow guidance by $50.0 million, expects capital expenditures of about $250.0 million, and continues to guide for adjusted EBITDA margin in the mid-13% range. The company said its guidance excludes the pending SES joint venture with Analogic.