Leonardo DRS, Inc.
DRS · NASDAQ-GS
Next quarter
Consensus is $0.45 EPS for Dec 2026 across 4 estimates, ranging $0.43 to $0.48.
DRS Sep 2026
- 27.78%
- -4.94%
- $0.36
- $0.46
- —
- $1.07B
Reported results
- $1.07B
- 24.67%
- $116.00M
- 10.88%
- $115.00M
- $0.43
Highlights
- Earnings and expectations: Adjusted diluted EPS was $0.46, 27.8% above the $0.36 consensus and up 59% year over year; GAAP diluted EPS was $0.43, versus $0.26 a year ago and $0.32 in Q2.
- Revenue and margins: Revenue rose 11% year over year to $1.066 billion, while adjusted EBITDA increased 27% to $149 million and its margin expanded 180 basis points to 14.0%.
- Orders and backlog: Bookings reached a record quarterly $1.639 billion, or 1.5x book-to-bill; funded backlog hit a record $5.640 billion, up 21% year over year.
- Raised outlook: 2026 revenue guidance increased to $3.950–$3.985 billion, adjusted EBITDA to $545–$555 million and adjusted diluted EPS to $1.50–$1.53; guidance excludes the pending Raft acquisition.
- Tax benefit: The 0.9% quarterly effective tax rate included a roughly $22 million benefit from releasing unrecognized tax benefits, amplifying net earnings growth to 60%, to $115 million.
- Segment growth: ASC revenue rose 14% to $659 million and bookings were $1.017 billion; IMS revenue increased 12% to $428 million, with operating margin expanding 250 basis points to 15.0%.
- Cash generation: Quarterly operating cash flow was $96 million and free cash flow was $61 million, both below year-ago levels ($107 million and $77 million) because of higher working-capital use; nine-month free cash flow improved to negative $28 million from negative $149 million.
- Capital returns and liquidity: DRS ended the quarter with $294 million of cash and no borrowings under its revolving credit facility; it repurchased $12 million of shares and declared a $0.09-per-share dividend.
Analysis
Leonardo DRS delivered a strong Q3 FY2026, with adjusted diluted EPS of $0.46 beating the $0.36 consensus by 27.8%. Revenue of $1.066 billion rose 11% year over year and 17% from Q2’s $913 million. GAAP diluted EPS was $0.43, up from $0.26 a year ago and $0.32 in Q2; the adjusted figure grew 59% year over year. Operating income increased to $116 million from $93 million a year ago and $102 million in Q2. Adjusted EBITDA grew faster than revenue, up 27% to $149 million, with margin improving 180 basis points to 14.0%.
The quarter’s defining combination was stronger execution and demand, record orders, and a favorable tax item. Bookings of $1.639 billion drove 1.5x book-to-bill and lifted funded backlog 21% year over year to $5.640 billion. Both segments grew, with IMS delivering particularly strong margin expansion. The 0.9% effective tax rate included a roughly $22 million release of unrecognized tax benefits, so the 60% increase in net earnings to $115 million was not solely operational. Management raised 2026 revenue, adjusted EBITDA and adjusted EPS guidance, citing year-to-date performance and improved fourth-quarter visibility. Quarterly cash flow was softer year over year on working capital, although nine-month operating cash flow turned positive.
Profitability and outlook
Operating leverage, favorable program mix and execution lifted profitability faster than sales. Gross margin increased 160 basis points year over year to 24.7%, while operating income rose 25% to $116 million. The company raised its full-year outlook, supported by year-to-date results and improved visibility into Q4.
- Revenue: 2026 guidance is now $3.950–$3.985 billion, versus the prior $3.900–$3.975 billion range.
- Adjusted EBITDA: The forecast increased to $545–$555 million from $525–$540 million.
- Adjusted diluted EPS: The range rose to $1.50–$1.53 from $1.34–$1.39; the assumed tax rate also fell to 13.0% from 16.5%.
- Scope: Guidance excludes the pending acquisition of Raft LLC.
Bookings and backlog
Demand produced DRS’s strongest quarterly bookings since becoming a public company, according to management. Funded bookings of $1.639 billion were up 25% year over year, yielding 1.5x book-to-bill. Funded backlog reached a record $5.640 billion, up 21% year over year, while total backlog was $9.381 billion, up 8.2%. The broader remaining-performance-obligation balance was $9.381 billion; the company expects to recognize about 40% as revenue over the next 12 months. Naval power and propulsion, tactical radars and force protection contributed to bookings.
Segment execution
- Advanced Sensing and Computing: Revenue rose 14% to $659 million, led by tactical radar and space-sensing programs. Operating earnings increased 27% to $57 million and operating margin widened 80 basis points to 8.6%. Bookings were $1.017 billion, up 34%, with demand for tactical radars and aircraft protection systems.
- Integrated Mission Systems: Revenue increased 12% to $428 million, mainly on naval power programs. Operating earnings grew 33% to $64 million and margin expanded 250 basis points to 15.0%, reflecting program improvement and operating leverage. Bookings reached $622 million, up 13%, supported by naval power and propulsion awards.
Tax and earnings
The tax line materially boosted reported earnings. Pretax income rose to $116 million from $87 million, while the tax provision fell to $1 million from $15 million. The 0.9% effective tax rate, compared with 17.2% a year ago, primarily reflected discrete tax benefits, including an approximately $22 million release of unrecognized tax benefits after the statute of limitations expired. DRS also purchased about $20 million of tax credits for $18 million in cash. Net earnings consequently rose 60% to $115 million; adjusted net earnings were $124 million, up 59%.
Cash and capital
Quarterly operating cash flow of $96 million and free cash flow of $61 million were below the year-ago $107 million and $77 million, respectively, as greater working-capital needs more than offset higher earnings. For the first nine months, operating cash flow was $65 million, versus cash use of $59 million in 2025, and free cash flow was negative $28 million versus negative $149 million. Cash was $294 million at quarter-end; total debt was $175 million, and the company had no outstanding borrowings on its $500 million revolving credit facility. DRS repurchased 288,633 shares for about $12 million and declared a quarterly dividend of $0.09 per share.
