Defense contractor Leidos (NYSE: LDOS) beat Wall Street’s revenue expectations in Q2 CY2026, with sales up 7.2% year on year to $4.56 billion. The company expects the full year’s revenue to be around $18.3 billion, close to analysts’ estimates. Its non-GAAP profit of $3.26 per share was 12.1% above analysts’ consensus estimates.

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"I'm pleased to report another strong quarter for Leidos," said Chief Executive Officer Tom Bell.

Company Overview

Formed through the split of IT services company SAIC, Leidos (NYSE: LDOS) offers technology and engineering solutions such as military training systems for the defense, civil, and health markets.

Revenue Growth

A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Unfortunately, Leidos’s 5.9% annualized revenue growth over the last five years was tepid. This wasn’t a great result compared to the rest of the industrials sector, but there are still things to like about Leidos.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Leidos’s annualized revenue growth of 5% over the last two years aligns with its five-year trend, suggesting its demand was consistently weak.

We can dig further into the company’s revenue dynamics by analyzing its backlog, or the value of its outstanding orders that have not yet been executed or delivered. Leidos’s backlog reached $48.71 billion in the latest quarter and averaged 15.9% year-on-year growth over the last two years. Because this number is better than its revenue growth, we can see the company accumulated more orders than it could fulfill and deferred revenue to the future. This could imply elevated demand for Leidos’s products and services but raises concerns about capacity constraints.

This quarter, Leidos reported year-on-year revenue growth of 7.2%, and its $4.56 billion of revenue exceeded Wall Street’s estimates by 2.6%.

Looking ahead, sell-side analysts expect revenue to grow 6.3% over the next 12 months, similar to its two-year rate. While this projection indicates its newer products and services will fuel better top-line performance, it is still below the sector average. At least the company is tracking well in other measures of financial health.

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Operating Margin

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Leidos has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 9.1%, higher than the broader industrials sector.

Looking at the trend in its profitability, Leidos’s operating margin rose by 3.6 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, Leidos generated an operating margin profit margin of 11.3%, down 2.1 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than its revenue.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth — for example, a company could inflate its sales through excessive spending on advertising and promotions.

Leidos’s EPS grew at 14% compounded annual growth rate over the last five years, higher than its 5.9% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into the nuances of Leidos’s earnings can give us a better understanding of its performance. As we mentioned earlier, Leidos’s operating margin declined this quarter but expanded by 3.6 percentage points over the last five years. Its share count also shrank by 11.9%, and these factors together are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Leidos, its two-year annual EPS growth of 16.8% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q2, Leidos reported adjusted EPS of $3.26, up from $3.21 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Leidos’s full-year EPS to grow 3.9% from $12.20 to $12.68.

Key Takeaways from Leidos’s Q2 Results

We enjoyed seeing Leidos beat analysts’ EBITDA expectations this quarter. We were also glad its revenue outperformed Wall Street’s estimates. Overall, we think this was a solid quarter with some key areas of upside. The stock traded up 5.3% to $125 immediately following the results.

Leidos may have had a good quarter, but does that mean you should invest right now? If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here (it’s free).