Leidos Raises 2026 EPS and Cash Flow Outlook, Cuts Revenue Range

Leidos Holdings (NYSE: LDOS) raised its 2026 non-GAAP earnings and operating cash flow forecasts after third-quarter profit increased, while lowering its revenue range to reflect the timing and structure of the SES joint-venture closure. Quarterly revenue rose 3.6%, but organic growth was 0.6% as acquisition-related revenue contributed to a sharp increase in the Homeland segment.

For 2026, Leidos now expects non-GAAP diluted earnings per share of $12.50 to $12.70, compared with its previous range of $12.20 to $12.50. The company forecasts approximately $1.90 billion of operating cash flow, up from about $1.85 billion previously.

The revenue outlook was reduced to $18.00 billion to $18.20 billion from $18.20 billion to $18.40 billion. Leidos maintained its adjusted EBITDA margin forecast in the mid-13% range. The guidance assumes a continuing resolution through 2026, a weighted-average diluted share count of 126 million and a non-GAAP effective tax rate of approximately 20%.

Earnings rise as margins edge higher

Revenue for the quarter ended Oct. 2 increased to $4.63 billion from $4.47 billion a year earlier. Excluding acquisition and divestiture revenue, organic revenue was $4.49 billion, up 0.6% from $4.46 billion.

Adjusted EBITDA rose to $644 million from $616 million, while the adjusted EBITDA margin increased 10 basis points to 13.9%. Non-GAAP operating income was $607 million, compared with $575 million in the prior-year period.

Non-GAAP diluted EPS climbed 18.7% to $3.62 from $3.05. On a GAAP basis, net income attributable to Leidos common stockholders increased to $410 million from $367 million, and diluted EPS rose to $3.28 from $2.82.

Cash generation declined from the unusually high prior-year level. Operating cash flow fell 26.4% to $523 million from $711 million, while non-GAAP free cash flow decreased to $476 million from $680 million. Free-cash-flow conversion was 105%, compared with 171% a year earlier.

Homeland growth offsets Health decline

Homeland recorded the strongest top-line growth among Leidos’ four segments. Revenue increased 32.1% to $1.02 billion, including revenue from Entrust, which was acquired in March 2026. On an organic basis, Homeland revenue rose 14.8% to $882 million. Its non-GAAP operating margin expanded to 11.3% from 7.5%.

Intelligence & Digital revenue increased 1.4% to $1.55 billion. The segment’s non-GAAP operating margin rose 160 basis points to 11.5%, lifting non-GAAP operating income to $178 million from $151 million.

Defense revenue advanced 3.4% to $992 million, while its non-GAAP operating margin edged down to 9.7% from 9.8%. Management highlighted contract activity involving infrared space-sensing payloads, Havoc Spear, the Navy’s nuclear-armed sea-launched cruise missile program and an Army passive-sensing program.

Health was the principal revenue drag, with sales falling 11.7% to $1.07 billion. Its non-GAAP operating margin declined to 22.8% from 27.3%, and non-GAAP operating income fell to $244 million from $330 million.

Portfolio changes and capital deployment

Leidos said its portfolio strategy included the divestiture of SES and a significant continuing equity interest in the resulting joint venture. SES assets and liabilities were classified as held for sale at the end of the third quarter, and Leidos reported a 41.5% equity ownership in the joint venture as of the fourth quarter.

The company also pointed to investments in commercial offerings, including MySTR/Military OneSource and the AI-powered Parcata patching platform. In energy, Leidos said it had expanded its SkyWire AI engineering tool to gas and power-generation applications and was pursuing opportunities tied to data-center power generation and grid security.

During the quarter, Leidos spent $47 million on capital expenditures and $500 million on open-market share repurchases. Total returns to shareholders were $556 million. The company ended the period with approximately $2.0 billion of liquidity, $6.0 billion of debt, a gross leverage ratio of 2.5 times and a net leverage ratio of 2.2 times.

The outlook remains exposed to U.S. government budget decisions, possible shutdowns, procurement delays and contract protests. Leidos also identified inflation and fixed-price contract costs, cybersecurity threats, employee recruitment and security-clearance requirements, acquisition integration, geopolitical developments and regulatory compliance among the factors that could cause results to differ from its forecasts.