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DUCOMMUN INC /DE/ (DCO)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 delivered record revenue ($212.6M) and record gross margin (26.6%), with adjusted EPS $0.99 and adjusted EBITDA $34.4M (16.2% of revenue); GAAP EPS of $(4.30) reflected a $99.7M litigation settlement charge .
  • Results modestly beat S&P Global consensus: revenue $212.6M vs $211.9M*, adj. EPS $0.99 vs $0.95*, supported by strength in defense; commercial aerospace remained a headwind from OEM destocking .
  • Guidance maintained: mid‑single‑digit FY25 revenue growth and low double‑digit Q4 growth; management reiterated confidence in defense momentum and Boeing/Airbus ramp despite prolonged destocking into 2026 .
  • Book‑to‑bill was 1.6x on $338M bookings; Remaining Performance Obligations hit a record $1.03B; backlog rose to $1.136B, providing visibility into 2026 .
  • Liquidity stood at $250.7M; company expects a ~$95M net cash settlement outflow in Q4 and pro‑forma net leverage of ~2.3x, with plans to expand/extend its credit facility—key near‑term stock catalysts alongside defense orders and Boeing 737 MAX/787 production rate increases .

What Went Well and What Went Wrong

What Went Well

  • Defense strength: Military & space revenue up $14.2M YoY, with missile (+21%), fixed‑wing (+17%), and rotorcraft (+22%) growth; segment margin expansion in both Electronic Systems and Structural Systems .
  • Margins at records: Gross margin 26.6% (+40 bps YoY) and adjusted EBITDA margin 16.2% (+40 bps YoY), driven by pricing, mix, productivity, and consolidation savings .
  • Orders/visibility: Book‑to‑bill 1.6x, RPO at $1.03B record, backlog $1.136B; management highlighted confidence in Q4 and 2026 pipeline .
    • “We were also very pleased to see the Book to Bill ratio very strong for the Company at 1.6 times which established a new record for remaining performance obligations” — CEO Stephen Oswald .

What Went Wrong

  • Commercial aerospace headwinds: revenue down $8.1M YoY in commercial markets amid continued destocking at Boeing/Spirit AeroSystems despite production rate increases .
  • GAAP loss from litigation: $99.7M settlement costs drove GAAP EPS to $(4.30), overshadowing otherwise strong operating performance (adjusted operating income +$1.3M YoY) .
  • Tariffs and macro: while tariffs had no material Q3 impact, management acknowledged evolving tariff environment and mitigation plans; destocking likely to persist into 1H26, tempering near‑term commercial recovery .

Financial Results

MetricQ3 2024Q1 2025Q2 2025Q3 2025
Revenue ($USD Millions)$201.412 $194.114 $202.260 $212.558
Gross Margin %26.2% 26.6% 26.6% 26.6%
GAAP Diluted EPS ($)$0.67 $0.69 $0.82 $(4.30)
Non‑GAAP Diluted EPS ($)$0.99 $0.83 $0.88 $0.99
Adjusted EBITDA ($USD Millions)$31.884 $30.934 $32.408 $34.354
Adjusted EBITDA Margin %15.8% 15.9% 16.0% 16.2%

Segment performance:

SegmentQ3 2024Q3 2025
Electronic Systems Revenue ($USD Millions)$115.412 $123.082
Electronic Systems Operating Income ($USD Millions)$18.910 $21.098
Electronic Systems Operating Margin %16.4% 17.1%
Structural Systems Revenue ($USD Millions)$86.000 $89.476
Structural Systems Operating Income ($USD Millions)$8.289 $11.927
Structural Systems Operating Margin %9.6% 13.3%

KPIs:

KPIQ3 2025
Book‑to‑Bill (x)1.6x
Remaining Performance Obligations ($USD Millions)$1,031
Backlog ($USD Millions)$1,135.7
Net Cash from Operations ($USD Millions)$18.1
Free Cash Conversion YTD (%)73%
Liquidity ($USD Millions)$250.7
Pro‑Forma Net Leverage (post settlement) (x)~2.3x

Comparison to S&P Global consensus:

MetricConsensus*ActualBeat/Miss# of Estimates*
Q3 2025 Revenue ($USD Millions)211.859*212.558 Beat (≈$0.7M)4*
Q3 2025 Primary EPS ($)0.9525*0.99 Beat (≈$0.04)4*

Values retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue Growth (YoY)FY 2025Mid‑single‑digit (Q1 and Q2 calls) Mid‑single‑digit (Q3 call) Maintained
Revenue Growth (YoY)Q4 2025Low double‑digit (Q2 call) Low double‑digit (Q3 call) Maintained
MarginsFY 2025Aim ~16% EBITDA by year‑end (commentary) Margins stable; adj. EBITDA 16.2% in Q3; 18% target by 2027 Maintained trajectory
Restructuring ChargesH2 2025Additional $0.5M–$1.0M to complete program Additional ~$0.5M in Q4 to complete Narrowed lower end
Tariff ImpactFY 2025Not material; largely U.S. manufacturing Not material; mitigation plans in place Maintained
Net LeverageQ4 2025—~2.3x pro‑forma post ~$95M cash settlement outflow New disclosure

Earnings Call Themes & Trends

TopicQ1 2025 (Prev)Q2 2025 (Prev)Q3 2025 (Current)Trend
Defense missiles/radarDefense +15%; missiles/EW/radar strength Defense +16%; missiles +39%, radar +46% Defense +13%; missiles +21% Sustained strength
Commercial destocking (BA/SPR)MAX weakness; 737 ramp to ~38 by YE Destocking persists; Q4 low double‑digit growth; 737/787 outlook positive Commercial down 10%; destocking likely into 1H26; FAA approves 737 rate 42; 787 positive Gradual improvement, protracted destock
Engineered products mix23%; target 25%+ 23%; accretive; M&A pipeline active 23% YTD; confidence to beat 25% Steady progress
Facility consolidationMonrovia/Berryville closing; savings ramp 2026 Apache rotor blades, spoilers/TOW moves; savings Apache approved; $11–$13M savings on track 2026 Execution progressing
TariffsNo material impact; U.S. maker No material impact; EU deal aids Airbus No measurable impact; mitigations Unchanged
Cash/leverage/settlementLiquidity $221.7M; hedge in place Liquidity $236.9M; full revolver available Liquidity $250.7M; ~$95M cash outflow; net leverage ~2.3x; facility expansion planned Adequate liquidity; clarity post‑settlement
Orders/RPO/backlogBacklog $1.054B; defense backlog +$51M YoY Backlog $1.018B; expect 2H uptick Book‑to‑bill 1.6x; RPO $1.03B; backlog $1.136B Strengthening
M&AActive pipeline; likely 2025 deal More competition; pipeline promising Focus continues; expanding credit capacity Continued focus

Management Commentary

  • “Net revenue grew 6% to a new quarterly record of $212.6 million, led by strength in our defense business… Commercial aerospace was weak across the board and destocking continued to impact revenues… Book to Bill ratio… 1.6 times” — CEO Stephen Oswald .
  • “Adjusted EBITDA exceeded $30 million for the third consecutive quarter… keeping us on a good pace to meet the VISION 2027 financial goal of 18% Adjusted EBITDA” — CEO Stephen Oswald .
  • “We did not see any measurable impact from tariffs… we are a U.S. manufacturing business with U.S. employees and generate 95% of revenues from our domestic facilities” — CFO Suman Mookerji .

Q&A Highlights

  • Commercial aerospace cadence and MAX ship rates: management cited mid‑20s to high‑20s shipments, building ahead to level‑load capacity; 787 build rate increases viewed as a near‑term positive .
  • Guidance drivers: low double‑digit Q4 growth driven primarily by defense and easier comparables; commercial destocking remains a headwind in Q4 and likely into 1H26 .
  • Backlog vs RPO: RPO is GAAP remaining obligations; backlog includes LTAs constrained to two years and shipment‑linked—explained for investor clarity .
  • Engineered products and industrial pruning: engineered mix steady at 23% and accretive; industrial cards capacity reallocated to higher‑margin defense cards (e.g., Raytheon) .
  • Cash/leverage outlook: ~$95M net cash settlement outflow expected in Q4; pro‑forma net leverage ~2.3x; facility expansion/extension in progress to support growth and M&A .

Estimates Context

  • Revenue and EPS beat: Q3 revenue $212.6M vs $211.9M consensus*, EPS $0.99 vs $0.95 consensus*; # of estimates = 4*, suggesting modest beat and likely minor upward revisions to Q4/FY25 tracking .
  • Forward consensus snapshots: Q4 2025 revenue $217.3M*, EPS $0.985*; FY 2025 revenue $826.2M*, EPS $3.695*—management’s reaffirmed growth outlook aligns with these ranges .
    Values retrieved from S&P Global.

Key Takeaways for Investors

  • Defense momentum remains the core earnings driver, offsetting commercial aerospace destocking; segment margins expanded in both Electronic and Structural Systems .
  • Margins are durable at record levels (26.6% gross, 16.2% adj. EBITDA); consolidation actions and engineered product mix support sustained margin profile into 2026 .
  • Litigation settlement clarity is a de‑risking event; watch Q4 cash outflow (~$95M) and pro‑forma leverage (~2.3x) vs liquidity ($250.7M) and planned facility expansion—credit headroom supports M&A .
  • Orders/visibility are strengthening: book‑to‑bill 1.6x, RPO $1.03B, backlog $1.136B—this underpins Q4 low double‑digit growth and FY25 mid‑single‑digit trajectory .
  • Near‑term trading catalysts: ongoing defense bookings (missiles/radar), Boeing FAA clearance to 42/month on 737 MAX, 787 ramp, and potential Q4 estimate revisions post beat .
  • Risks: prolonged destocking into 1H26, tariff/regulatory developments, and timing of consolidation savings ramp—balance with resilient defense demand and engineered products strategy .
  • Action: maintain focus on defense‑exposed margin expansion, monitor commercial OEM production normalization, and watch liquidity/leverage updates and any M&A announcements to enhance engineered product mix .