Kratos (NASDAQ:KTOS) Delivers Impressive Q4 CY2025

Aerospace and defense company Kratos (NASDAQ:KTOS) reported Q4 CY2025 results exceeding the market’s revenue expectations, with sales up 21.9% year on year to $345.1 million. Revenue guidance for the full year exceeded analysts’ estimates, but next quarter’s guidance of $340 million was less impressive, coming in 0.7% below expectations. Its non-GAAP profit of $0.18 per share was 22.1% above analysts’ consensus estimates.

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Eric DeMarco, Kratos’ President and CEO, said, “We finished 2025 exceeding our financial objectives for the fourth quarter, generating approximately 20 percent Q4 year- over-year organic Revenue growth, generating a 1.3 to 1.0 book to bill ratio on top of this 20 percent organic growth, having a record backlog of $1.573 billion, and a record opportunity pipeline of $13.7 billion, with the opportunity set for Kratos having never been stronger and continuing to increase. 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.”

Company Overview

Established with a commitment to supporting national security, Kratos (NASDAQ:KTOS) is a provider of advanced engineering, technology, and security solutions tailored for critical national security applications.

Revenue Growth

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Thankfully, Kratos’s 12.5% annualized revenue growth over the last five years was excellent. Its growth beat the average industrials company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Kratos’s annualized revenue growth of 14% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.

Kratos also reports organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Kratos’s organic revenue averaged 15.1% year-on-year growth. Because this number aligns with its two-year revenue growth, we can see the company’s core operations (not acquisitions and divestitures) drove most of its results.

This quarter, Kratos reported robust year-on-year revenue growth of 21.9%, and its $345.1 million of revenue topped Wall Street estimates by 6.3%. Company management is currently guiding for a 12.4% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 16.8% over the next 12 months, an improvement versus the last two years. This projection is eye-popping and implies its newer products and services will catalyze better top-line performance.

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Operating Margin

Kratos was profitable over the last five years but held back by its large cost base. Its average operating margin of 2.1% was weak for an industrials business.

Looking at the trend in its profitability, Kratos’s operating margin decreased by 1.5 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Kratos’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

In Q4, Kratos generated an operating margin profit margin of 2.4%, up 1.3 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.

Kratos’s EPS grew at an unimpressive 7.1% compounded annual growth rate over the last five years, lower than its 12.5% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.

We can take a deeper look into Kratos’s earnings to better understand the drivers of its performance. As we mentioned earlier, Kratos’s operating margin expanded this quarter but declined by 1.5 percentage points over the last five years. Its share count also grew by 36.4%, meaning the company not only became less efficient with its operating expenses but also diluted its shareholders.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Kratos, its two-year annual EPS growth of 18.8% was higher than its five-year trend. This acceleration made it one of the faster-growing industrials companies in recent history.

In Q4, Kratos reported adjusted EPS of $0.18, up from $0.13 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 Kratos’s full-year EPS of $0.55 to grow 41.3%.

Key Takeaways from Kratos’s Q4 Results

We were impressed by how significantly Kratos blew past analysts’ organic revenue expectations this quarter. We were also excited its revenue outperformed Wall Street’s estimates by a wide margin. On the other hand, its EBITDA guidance for next quarter missed and its revenue guidance for next quarter fell slightly short of Wall Street’s estimates. Zooming out, we think this was a good print with some key areas of upside. The stock remained flat at $91.17 immediately following the results.

Kratos had an encouraging quarter, but one earnings result doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here (it’s free).