What happened
Government services specialist Leidos Holdings (LDOS +1.14%) missed earnings expectations for the first quarter, and investors were left wondering what its growth will look like in 2024. Its stock sold off as a result on Tuesday morning. As of 11:55 a.m. ET, it was down by almost 15%.
So what
Leidos is the largest of the so-called "Beltway Bandits" -- defense contractors that specialize in doing outsourced IT work and performing other services for government customers. The company reported its first-quarter results before the bell Tuesday, hitting a record for revenue but falling short of analysts' estimates on earnings.
Leidos earned $1.47 per share in the first quarter on revenue of $3.7 billion. Analysts had been expecting $1.58 per share in earnings on $3.65 billion in sales. Weakness in the company's business with civil agencies drove the miss, although its civil segment was also responsible for a large portion of the organic revenue growth.
"Our first quarter results demonstrate our ability to drive strong organic growth, as record revenue performance was consistent with our long-term target," CEO Roger Krone said in a statement. "We expect earnings and cash performance to build momentum as we progress through the year and are fully committed to achieving our 2023 guidance."
NYSE: LDOS
Key Data Points
Now what
Krone is optimistic about the quarters ahead, but the company's relatively weak 0.81 book-to-bill ratio -- a measure comparing new awards in the quarter to sales -- didn't offer a lot of reason for optimism. For comparison, in Q1 2022, that ratio was a robust 1.55.
Krone will soon step down as CEO after a legendary 50-year career in aerospace that includes almost nine years with Leidos and two decades at Boeing (BA 0.96%) before that. The transition has been well-telegraphed to investors, and his replacement, current Rolls-Royce President for Defense Thomas Bell, has a strong reputation.
For long-term-focused investors, Leidos appears to be set up well to be a winner. But given all that is going on at this company, the markets are reacting poorly to its Q1 earnings weakness.
