So here's a classic market puzzle: a company reports quarterly numbers that beat expectations, has a record backlog, and gives optimistic guidance. And the stock goes down. Welcome to the world of Kratos Defense & Security Solutions Inc (KTOS).
The defense contractor dropped its fourth-quarter results after the bell on Monday, and the headline numbers looked pretty good. Revenue came in at $345.1 million, comfortably above the $327.79 million analysts were expecting. Adjusted earnings per share hit 18 cents, beating estimates of 16 cents. That revenue figure represents a solid 21.9% jump from the same quarter last year.
The company also said it generated $12.1 million in cash flow from operations during the quarter and ended the period with a hefty $560.6 million in cash and equivalents. But the real eye-catchers were the backlog and pipeline numbers. Kratos reported a record backlog of $1.57 billion and a record opportunity pipeline of $13.7 billion at quarter's end. That's a lot of potential future business sitting in the queue.
"Kratos is positioned to achieve our previously communicated 2026 and 2027 financial targets, and similar to 2025, for 2026 we expect our business to accelerate throughout the year, with increasing Revenue volume and Adjusted EBITDA margins, as several new programs, contracts and initiatives begin, ramp and expand," said Eric DeMarco, the company's president and CEO.
So why did the stock drop more than 4% in after-hours trading to around $90.40? The market can be a fickle beast, but the forward guidance might offer a clue.
For the first quarter of 2026, Kratos expects revenue in the range of $335 million to $345 million. The midpoint of that range is $340 million, which is a bit shy of the $347.64 million analysts were looking for. For the full year 2026, the company guided for revenue of approximately $1.60 billion to $1.68 billion. The consensus estimate was $1.60 billion, so the low end of the guidance just meets it, while the high end offers some upside.
The company also reaffirmed its longer-term outlook, saying it continues to expect 2027 revenue growth of 18% to 23% in its base case. That's the kind of multi-year visibility investors usually like to see.
It's a bit of a mixed bag. The past quarter was strong, the future looks promising with a huge backlog, but the immediate next quarter might be a touch lighter than some hoped. Sometimes that's all it takes for a stock to take a breather, even after a good report. Kratos executives will have a chance to explain it all on an earnings call scheduled for 5 p.m. ET.
