Leidos Holdings (LDOS) Earnings Date & Reports

Key Takeaways

• Leidos reported non-GAAP diluted earnings per share (EPS) of $3.62, up 19% year over year and well above the roughly $3.04 consensus estimate.
• Revenue came in at $4.63 billion, up 4% from a year ago but slightly below the approximately $4.71 billion Wall Street had projected.
• Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) reached $644 million, with the margin improving to 13.9%.
• The company raised its fiscal 2026 non-GAAP EPS guidance to $12.50–$12.70 while lowering its full-year revenue range to $18.00–$18.20 billion.
• Health segment weakness tied to Veterans Benefits Administration (VBA) contract changes weighed on results, and management signaled 2027 will not be a bottom-line growth year.
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Earnings Context and Why It Matters

Leidos Holdings is a leading defense, intelligence, and government technology contractor with a fiscal year that ends in early January, making its third-quarter fiscal 2026 report cover the three months ended in early October. This earnings event matters because it tests how well the company is absorbing the previously announced changes to its VBA disability exam contracts, which drive a large share of its Health segment. It also offers a read on demand across defense technology, homeland security, and intelligence programs, areas where Leidos has been winning substantial new awards. Investors are watching whether strong profit conversion and cash generation can offset softer top-line growth, and how updated full-year guidance frames the path into 2027.

Reported Results

Leidos delivered third-quarter fiscal 2026 revenue of $4.63 billion, a 4% increase from $4.47 billion a year earlier, though slightly below the consensus estimate of about $4.71 billion. Organic growth was roughly 1%, reflecting the impact of the VBA contract changes. On the bottom line, GAAP diluted EPS was $3.28, up from $2.82 in the prior-year quarter, while non-GAAP diluted EPS climbed 19% to $3.62, exceeding the approximately $3.04 consensus estimate. Adjusted EBITDA rose 5% to $644 million, with the adjusted EBITDA margin improving to 13.9% from 13.8%.

Segment results were mixed. Homeland led growth with a 32% revenue increase to $1.02 billion, helped by the ENTRUST Solutions acquisition and strong air traffic management demand. Defense rose 3% to $992 million, and Intelligence & Digital edged up 1% to $1.55 billion. Health was the weak spot, with revenue down 12% to $1.07 billion as expected VBA-related program shifts took hold. Cash generation remained a highlight, with $523 million in operating cash flow and $476 million in free cash flow during the quarter. Net awards totaled $5.5 billion, producing a 1.2x book-to-bill ratio, while total backlog reached $49.6 billion, up 4% year over year.

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Market Reaction and Investor Sentiment

The market's response to Leidos' report was cautious despite a sizable earnings beat. Shares fell after the release, with reports indicating a decline of roughly 4% to 6% in the trading session that followed, leaving the stock well below its 52-week high. The negative reaction likely reflected a combination of factors: the top-line miss against consensus, continued uncertainty around the VBA contract recompete, and management's explicit warning that fiscal 2027 will not be a bottom-line growth year. Investors appeared to weigh those medium-term headwinds against otherwise strong profitability, cash flow, and backlog momentum, producing a mixed sentiment picture heading into the final quarter of the fiscal year.

Forward Outlook and Key Factors to Monitor

Leidos revised its fiscal 2026 outlook, raising its non-GAAP diluted EPS guidance to a range of $12.50 to $12.70, up from $12.20 to $12.50, while lowering its full-year revenue guidance to $18.00 to $18.20 billion from $18.20 to $18.40 billion. The lower revenue range reflects the October 5, 2026 contribution of the Security Enterprise Solutions and Industrial Automation businesses to a newly formed joint venture, in which Leidos retained a 41.5% equity stake. The company also raised its operating cash flow guidance to approximately $1.90 billion from $1.85 billion, while keeping its adjusted EBITDA margin outlook in the mid-13% range.

Looking ahead, investors should monitor the VBA Medical Disability Examination recompete, where management expects a final request for proposals later in November and a likely extension of existing contracts into the first half of 2027. The outcome of this process will be central to the Health segment's trajectory. Management also cautioned that 2027 will not be a bottom-line growth year, attributing the pressure to the VBA contract transition.

Offsetting that headwind, Leidos pointed to accelerating customer procurement activity, a large pipeline of roughly $28 billion awaiting decision, and strong defense book-to-bill momentum of 1.9x in the quarter. Continued wins in defense technology, energy, cyber, and homeland security — alongside disciplined cost control and capital deployment, including $500 million in share repurchases and a dividend increase — will be important signals to watch in coming quarters. These factors do not guarantee any particular outcome, but they help frame the balance between near-term transition pressure and longer-term growth potential.

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