What happened

Mercury Systems (MRCY -1.94%) beat earnings expectations but disappointed on guidance. Investors were more focused on what is coming up ahead, sending shares down 15% on Wednesday morning.

So what

Mercury, a maker of electronics, subsystems, and related software for the aerospace and defense industry, reported adjusted fiscal fourth-quarter earnings of $0.73 per share on revenue of $250.8 million, beating analyst expectations for $0.67 per share in earnings on sales of $243 million.

Engineer using flashlight to analyze airplane part.

Image source: Getty Images.

But all of that growth was thanks to acquisitions. Organic revenue, defined by the company as sales from businesses that weren't acquired over the past year, was down 3% year over year to $210 million from $217 million. And management tempered expectations for the upcoming fiscal year.

Mercury expects fiscal first-quarter earnings of $0.38 to $0.41 per share, below the $0.55-per-share consensus. For the full fiscal year, Mercury forecast adjusted earnings of $2.45 to $2.55 per share. Analysts had been expecting $2.61 per share in full-year earnings.

Now what

Company executives during the post-earnings call tried to downplay the lack of growth, with CEO Mark Aslett attributing the fiscal 2021 issues to "COVID, customer execution issues on various programs, and the change in administration." As a result, "we're taking a more conservative approach to the year," which could mean there is some upside to the forecast.

That said, taken at face value, Mercury today isn't looking like the growth story that investors had hoped it would be. At least two banks, Baird and Truist, downgraded the stock from buy to hold or neutral following the announcement on just those fears. Judging by the stock's reaction, investors are in no mood to hold tight and see how the next few quarters play out.