Leonardo DRS met Wall Street’s revenue expectations for the second quarter, but the market responded negatively due to concerns around margin pressure and operational challenges. Management cited strong demand across electric power and propulsion, naval computing, and advanced infrared sensing as primary growth drivers. CEO Bill Lynn pointed to “a complex operational environment,” noting that germanium supply chain disruptions and rising raw material costs affected profitability, particularly in the advanced sensing segment. Increased internal research and development spending also weighed on margins, as leadership acknowledged these investments were necessary to keep pace with evolving defense requirements.
Is now the time to buy DRS? Find out in our full research report (it’s free).
Leonardo DRS (DRS) Q2 CY2025 Highlights:
- Revenue: $829 million vs analyst estimates of $826.5 million (10.1% year-on-year growth, in line)
- Adjusted EPS: $0.23 vs analyst estimates of $0.21 (7.4% beat)
- Adjusted EBITDA: $96 million vs analyst estimates of $93.52 million (11.6% margin, 2.7% beat)
- The company lifted its revenue guidance for the full year to $3.56 billion at the midpoint from $3.48 billion, a 2.5% increase
- Management raised its full-year Adjusted EPS guidance to $1.09 at the midpoint, a 3.3% increase
- EBITDA guidance for the full year is $445 million at the midpoint, below analyst estimates of $451 million
- Operating Margin: 8.4%, up from 7.3% in the same quarter last year
- Backlog: $8.61 billion at quarter end, up 8.6% year on year
- Market Capitalization: $11.07 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From Leonardo DRS’s Q2 Earnings Call
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Peter Arment (Baird) asked about the timing of Golden Dome-related orders and how quickly new programs would impact backlog; CEO Bill Lynn explained that early orders are likely in 2026 due to current architectural planning.
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Robert Stallard (Vertical) pressed for details on the germanium shortage and its impact; Lynn described sourcing, recycling, and product redesign efforts, while CFO Mike Dippold elaborated on margin impacts in the infrared segment.
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Seth Seifman (JPMorgan) inquired about the electric power and propulsion business and new Navy opportunities; Lynn and Dippold detailed new contracts, facility build-outs in South Carolina, and expected revenue contributions from 2026 onward.
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Andre Madrid (BTIG) raised questions about international growth and NATO commitments; Lynn highlighted ongoing demand in Eastern Europe and the potential for European partnerships leveraging the company’s ownership structure.
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Jon Tanwanteng (CJS Securities) asked about the drivers behind raised revenue guidance and future R&D intensity; Dippold attributed the uplift to strong bookings and supply base stability, and forecasted continued elevated R&D spending to support growth.
Catalysts in Upcoming Quarters
In the coming quarters, the StockStory team will focus on (1) progress in securing germanium supply and margin stabilization in the advanced sensing business, (2) contract wins and execution milestones in naval power and shipbuilding programs—especially the Columbia Class and steam turbine generator initiatives, and (3) international sales momentum stemming from rising NATO defense budgets and new partnerships. Developments in U.S. defense funding and industrial base investments will also be key signposts.
Leonardo DRS currently trades at $42.30, down from $48.22 just before the earnings. In the wake of this quarter, is it a buy or sell? The answer lies in our full research report (it’s free).
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