Defense electronics maker Leonardo DRS reports 28% profit jump in Q1

Leonardo DRS opened 2026 with its strongest quarterly earnings performance in recent memory, reporting first quarter revenue of $846 million and net earnings of $62 million while raising its full-year guidance across every key financial metric, the Arlington, Virginia-based defense electronics company announced on May 5.

Revenue grew 6% over the same period last year. Net earnings jumped 24%. Adjusted EBITDA, the profitability measure the defense industry watches most closely, came in at $105 million, up 28% year-over-year, with margins expanding 210 basis points to 12.4%. Diluted earnings per share reached $0.23, up 21%, while the adjusted figure hit $0.26, a 30% improvement. “Leonardo DRS delivered a strong start to the year,” said John Baylouny, President and CEO of Leonardo DRS, in the company’s earnings release. “Our first quarter 2026 results meaningfully outperformed expectations thanks to disciplined execution, program momentum and sustained demand for our differentiated technologies,” Baylouny said.

The growth wasn’t uniform across the business, but the programs driving it tell a clear story about where defense spending is going. Revenue gains came primarily from tactical radars, infrared sensing, and electric power and propulsion, according to the company’s announcement. Those three areas map directly onto the technology investments the U.S. military is prioritizing for the next generation of ground, naval, and air platforms — precision sensing, directed energy support systems, and the electric drive systems that are reshaping naval propulsion. Columbia Class submarine work contributed meaningfully to profitability in the Integrated Mission Systems segment, where strong program execution drove margin expansion alongside the radar and sensing revenue increases in the Advanced Sensing and Computing segment.

The two business segments reported notably different profiles. Advanced Sensing and Computing, which covers tactical radars, infrared sensing, and radio frequency technologies, generated $559 million in revenue, up 9% year-over-year, with operating earnings of $40 million representing a 60% jump from the prior year period and margin expansion of 230 basis points to 7.2%. Bookings in the segment reached $429 million against a book-to-bill of 0.8x, reflecting solid demand for multi-modal sensing even as a particularly strong prior year comparison kept the ratio below 1.0. The Integrated Mission Systems segment, covering electric power and propulsion, force protection, and submarine systems, posted $295 million in revenue with a more modest 1% growth rate but delivered a book-to-bill of 1.5x on $456 million in new bookings, driven by strong demand for electric power and propulsion and force protection programs.

Total company bookings reached $885 million for the quarter, producing a book-to-bill ratio of 1.0x. More significant is what that means for the backlog: funded backlog exited the quarter at $4.7 billion, a new record for the company and an 8% increase over the prior year figure. A funded backlog at record levels entering the second quarter provides visibility into revenue that most defense companies would be comfortable describing as reliable, assuming program execution holds. Baylouny noted that demand remained resilient across the portfolio, with particular momentum in electric power and propulsion, tactical radars, and force protection, per the company’s release.

The cash flow picture was less uniformly positive. Net cash used in operating activities was $66 million for the quarter, and free cash outflow reached $95 million. Both figures improved substantially from first quarter 2025, when operating cash outflow was $138 million and free cash outflow was $170 million, driven by higher profitability and better working capital efficiency in the current quarter. First quarter cash outflows in defense manufacturing are common, reflecting the timing of customer payments and contract milestones that typically weight cash generation toward the second half of the year. The balance sheet remained solid, with $328 million in cash and no outstanding borrowings under the company’s credit facility at quarter end.

On the capital return side, the company paid $24 million in dividends during the quarter and declared a new cash dividend of $0.09 per share payable June 2, 2026, to stockholders of record on May 19. The company also repurchased 91,238 shares of common stock for approximately $4 million during the quarter under its existing repurchase program.

The guidance raise that accompanied the results is where the company’s confidence in its trajectory becomes most explicit. Leonardo DRS increased its full-year 2026 revenue guidance to a range of $3,900 million to $3,975 million, up from the prior range of $3,850 million to $3,950 million. Adjusted EBITDA guidance moved to $515 million to $530 million from $505 million to $525 million. Adjusted Diluted EPS guidance increased to $1.26 to $1.30 from the prior $1.20 to $1.26. A company that raises guidance after the first quarter of the year is telling investors it can see further into its program pipeline than the baseline assumptions suggested, and that what it sees looks better than what it projected entering the year.

Leonardo DRS has built its business around the systems that sit inside platforms rather than the platforms themselves — the sensors, the computing architecture, the power and propulsion electronics, the force protection systems that determine whether a ship, vehicle, or aircraft can find its target, survive the engagement, and sustain its mission over time. That positioning has insulated it from some of the program risk that affects prime contractors while keeping it exposed to the sustained demand that comes from the U.S. military’s need to continuously upgrade and replace the electronics inside its existing fleet. A record funded backlog, expanding margins, and raised guidance heading into the second quarter suggests that positioning is working exactly as intended.