Leidos (NYSE: LDOS) raises EPS outlook, but organic revenue grows just 0.6%

Posted by Bonnie Powley on Nov 3rd, 2026

What happened

Leidos Holdings, Inc. (NYSE: LDOS) raised its 2026 earnings and cash flow guidance after profit grew faster than sales in the third quarter. The open question for holders is how much of that profit growth is operating strength, since sales growth leaned on an acquisition.

Non-GAAP diluted EPS rose 19% to $3.62 from $3.05 a year earlier. Revenue was $4.63 billion, up 4%. That is $161 million above the $4.47 billion of the third quarter of 2025. Adjusted EBITDA was $644 million, up 5%, and its margin edged up to 13.9% from 13.8%.

Leidos raised full-year non-GAAP diluted EPS guidance to $12.50 to $12.70 from $12.20 to $12.50. It raised operating cash flow guidance to about $1.90 billion from about $1.85 billion. It kept the adjusted EBITDA margin at mid-13%.

The revenue range came down to $18.00 billion to $18.20 billion from $18.20 billion to $18.40 billion. Leidos said the outlook adjusts for the joint venture it closed with Altaris on Oct. 5. Leidos put its Security Enterprise Solutions and Industrial Automation businesses into it.

Key numbers

Metric	Latest	Change	Source
Third-quarter revenue	$4.63 billion	from $4.47 billion, +3.6%	SEC 8-K, Exhibit 99.1
Non-GAAP diluted EPS	$3.62	from $3.05, +19%	SEC 8-K, Exhibit 99.1
Adjusted EBITDA	$644 million	from $616 million, +5%	SEC 8-K, Exhibit 99.1
Organic revenue	$4.49 billion	from $4.46 billion, +0.6%	SEC 8-K, Exhibit 99.1
Operating cash flow	$523 million	from $711 million, -26.4%	Calculated from SEC 8-K
FY26 non-GAAP diluted EPS guidance	$12.50 to $12.70		SEC 8-K, Exhibit 99.1

Read more: Leidos (LDOS) company research

Where the earnings growth came from

Lower taxes carried much of the GAAP gain. Income tax expense fell to $69 million from $115 million. Income before taxes was $482 million against $484 million a year earlier. The filing credits the lower tax rate mainly to a larger federal research tax credit and a decrease in unrecognized tax benefits.

GAAP net income rose 12% to $413 million, and diluted EPS rose 16% to $3.28. Diluted shares were 125 million against 130 million a year earlier. Non-GAAP net income rose 14% to $455 million after adjustments that include $12 million of costs tied to recent strategic corporate transactions.

Operating income rose to $553 million from $535 million. Total operating margin slipped to 11.9% from 12.0%.

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Growth by segment

Strip out acquisitions and divestitures and the sales growth nearly disappears. Organic revenue rose 0.6% to $4.49 billion from $4.46 billion, according to the filing's reconciliation. ENTRUST Solutions, acquired March 27, 2026, added $142 million in the quarter, all in the Homeland segment.

Homeland revenue rose 32% to $1.02 billion, and its operating margin improved to 7.9% from 6.5%. Health revenue fell 12% to $1.07 billion, and its margin dropped to 22.5% from 26.8%. The filing ties the Health declines to expected program shifts and lower volumes on managed health services programs.

Intelligence Digital revenue grew 1% to $1.55 billion, and its margin rose to 11.1% from 9.2%. The filing credits better program execution, including strong award fee scores, and tight cost control.

Cash, buybacks and debt

Cash generation stayed strong but fell short of the year-earlier quarter. Operating cash flow was $523 million, a 128% conversion of net income attributable to common stockholders. A year earlier it was $711 million. Free cash flow was $476 million, a 105% conversion ratio. Over nine months, operating cash flow was $1.62 billion versus $1.26 billion.

Leidos returned $556 million to shareholders, including $504 million of share repurchases and $52 million of dividends. Shares outstanding fell to about 122.0 million at Oct. 2 from about 126.4 million on Jan. 2. The cash flow statement shows repurchases of stock and other of $102 million in the year-earlier quarter.

Debt stood at $6.0 billion with $630 million in cash. Net interest expense rose to $67 million from $51 million.

Why it matters

OptimistFi has argued that Leidos works if government demand and contract execution keep margins and cash flow durable despite slower sales growth. The quarter supports the cash and execution parts. But margins were flat, and part of the GAAP earnings gain came from taxes.

Demand indicators are firmer. Net bookings were $5.5 billion, a book-to-bill ratio of 1.2. Backlog ended the quarter at $49.6 billion, of which $11.1 billion was funded. Trailing-twelve-month funded backlog grew 22% year over year, while total backlog grew 4%. Awards included a $717 million Air Force Air Combat Command contract and a $672 million Transportation Security Administration contract.

The quarter does not prove broad durability. Health revenue fell, organic growth was thin, and the revenue range was lowered after the Altaris joint venture closed.

What's next

Leidos management's earnings call begins at 8 a.m. Eastern on Nov. 3. A supplemental presentation is on the company's investor relations website.

The board declared a quarterly dividend of $0.45 per share on Oct. 30, up 4.7% from the prior quarter. It is payable Dec. 31 to holders of record on Dec. 15.

The next quarterly report is the test. Faster organic growth and steadier Health margins would back the raised EPS range. Another quarter of thin organic growth would leave the case resting on taxes and buybacks.