Kratos (NASDAQ:KTOS) Beats Expectations in Strong Q2 CY2026, Full-Year Sales Guidance is Optimistic

Aerospace and defense company Kratos (NASDAQ:KTOS) reported Q2 CY2026 results beating Wall Street’s revenue expectations, with sales up 30.5% year on year to $458.8 million. Guidance for next quarter’s revenue was better than expected at $470 million at the midpoint, 1.1% above analysts’ estimates. Its non-GAAP profit of $0.21 per share was 44.4% above analysts’ consensus estimates.

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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. Luckily, Kratos’s sales grew at an exceptional 13.5% compounded annual growth rate over the last five years. Its growth beat the average industrials company and shows its offerings resonate with customers, a helpful starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Kratos’s annualized revenue growth of 16.3% 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 14.9% 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 wonderful year-on-year revenue growth of 30.5%, and its $458.8 million of revenue exceeded Wall Street’s estimates by 11.6%. Company management is currently guiding for a 35.2% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 26.9% over the next 12 months, an improvement versus the last two years. This projection is eye-popping and indicates its newer products and services will spur better top-line performance.

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Operating Margin

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses — everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Kratos’s operating margin has more or less stayed the same over the last 12 months , averaging 1.9% over the last five years. This profitability was lousy for an industrials business and caused by its suboptimal cost structure.

Analyzing the trend in its profitability, Kratos’s operating margin might have fluctuated slightly but has generally stayed the same 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.

In Q2, Kratos’s breakeven margin was -0.3%, down 1.4 percentage points year on year. This reduction is quite minuscule and indicates the company’s overall cost structure has been relatively stable.

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 spectacular 15.2% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.

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 18.7% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q2, Kratos reported adjusted EPS of $0.21, up from $0.11 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 to grow 36.5% from $0.69 to $0.94.

Key Takeaways from Kratos’s Q2 Results

We were impressed by how significantly Kratos blew past analysts’ organic revenue expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. On the other hand, its EBITDA guidance for next quarter missed and its full-year EBITDA guidance fell short of Wall Street’s estimates. Zooming out, we think this was a solid print. The stock remained flat at $53.82 immediately following the results.

Kratos put up rock-solid earnings, but one quarter 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).