Defense contractor Leidos (NYSE: LDOS) announced better-than-expected revenue in Q1 CY2025, with sales up 6.8% year on year to $4.25 billion. The company expects the full year’s revenue to be around $17.1 billion, close to analysts’ estimates. Its non-GAAP profit of $2.97 per share was 18.7% above analysts’ consensus estimates.
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Leidos (LDOS) Q1 CY2025 Highlights:
- Revenue: $4.25 billion vs analyst estimates of $4.1 billion (6.8% year-on-year growth, 3.6% beat)
- Adjusted EPS: $2.97 vs analyst estimates of $2.50 (18.7% beat)
- Adjusted EBITDA: $601 million vs analyst estimates of $521.2 million (14.2% margin, 15.3% beat)
- The company reconfirmed its revenue guidance for the full year of $17.1 billion at the midpoint
- Management reiterated its full-year Adjusted EPS guidance of $10.55 at the midpoint
- Operating Margin: 12.5%, up from 10.4% in the same quarter last year
- Free Cash Flow Margin: 0.8%, similar to the same quarter last year
- Backlog: $46.3 billion at quarter end, up 26.6% year on year
- Market Capitalization: $18.97 billion
"Our robust first quarter results build on the momentum from 2024, demonstrating the team's ability to execute in a dynamic environment that demands agility and innovation," said Leidos 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.
Sales Growth
A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Thankfully, Leidos’s 8.2% annualized revenue growth over the last five years was decent. Its growth was slightly above the average industrials company and shows its offerings resonate with customers.
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 7.7% over the last two years aligns with its five-year trend, suggesting its demand was stable. 
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 $46.3 billion in the latest quarter and averaged 9% year-on-year growth over the last two years. Because this number is in line with its revenue growth, we can see the company effectively balanced its new order intake and fulfillment processes. 
This quarter, Leidos reported year-on-year revenue growth of 6.8%, and its $4.25 billion of revenue exceeded Wall Street’s estimates by 3.6%.
Looking ahead, sell-side analysts expect revenue to grow 2.2% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and indicates its products and services will see some demand headwinds.
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Operating Margin
Leidos has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 8.2%, higher than the broader industrials sector.
Analyzing the trend in its profitability, Leidos’s operating margin rose by 2.7 percentage points over the last five years, as its sales growth gave it operating leverage.
This quarter, Leidos generated an operating profit margin of 12.5%, up 2 percentage points year on year. This increase was a welcome development and shows it was more efficient.
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 a spectacular 15.9% compounded annual growth rate over the last five years, higher than its 8.2% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
We can take a deeper look into Leidos’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, Leidos’s operating margin expanded by 2.7 percentage points over the last five years. On top of that, its share count shrank by 9%. These 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 shorter period to see if we are missing a change in the business.
For Leidos, its two-year annual EPS growth of 29.7% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.
In Q1, Leidos reported EPS at $2.97, up from $2.29 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 of $10.90 to stay about the same.
Key Takeaways from Leidos’s Q1 Results
We were impressed by how significantly Leidos blew past analysts’ backlog expectations this quarter. We were also excited its EBITDA outperformed Wall Street’s estimates by a wide margin. On the other hand, its full-year EPS guidance slightly missed. Zooming out, we think this was a mixed print with some key areas of upside. The stock remained flat at $148.66 immediately following the results.
Indeed, Leidos had a rock-solid quarterly earnings result, but is this stock a good investment here? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.
