Mercury Systems sinks 10% on revenue miss, weak 2027 outlook

Mercury Systems (MRCY) shares fell after the defense electronics contractor posted fiscal fourth-quarter revenue that missed analyst estimates and issued a 2027 outlook that came in well below Wall Street expectations.

The company reported adjusted earnings of 17 cents a share for the quarter ended June 26, matching the consensus estimate compiled by Bloomberg. Revenue came in at $213.5 million, short of the $228.1 million analysts had expected.

For fiscal 2027, Mercury forecast revenue between $780 million and $820 million. The midpoint of $800 million is roughly 10% below the $891 million analysts were projecting. The company sees adjusted earnings per share of 65 to 85 cents, with the midpoint about half the $1.44 consensus.

"Our fiscal 2027 guidance reflects a conservative view of the current environment," Chief Executive Officer Bill Ballhaus said on the earnings call. "We're seeing program delays and longer conversion cycles across our portfolio."

The company reported total backlog of $1.06 billion, down from $1.18 billion a year earlier. Funded backlog, which excludes unfunded portions of contracts, was $672 million.

Mercury has been grappling with supply-chain headwinds and shifting customer priorities as the Pentagon works through its own budget uncertainty. The company's processing modules and RF subsystems go into radar, electronic warfare and missile systems for primes such as Lockheed Martin and Raytheon.

Organic revenue, which strips out acquisitions, fell 4% in fiscal 2026. The company has been investing in new manufacturing capacity in New Hampshire and California. Ballhaus said those facilities are taking longer to ramp than planned.

Gross margin in the quarter was 31.2%, up from 29.8% a year earlier still well below the mid-30s range the company has targeted. Operating cash flow was $23.5 million, down from $31.2 million in the same period last year.

"The revenue miss and the magnitude of the FY27 guidance gap versus consensus is going to weigh on the stock," said Kenneth Herbert, an analyst at RBC Capital Markets. "The question is how much of this is already priced in."

Mercury's stock market analysis page shows the shares have lost about a third of their value over the past 12 months. The company's JPM stock page reflects broader defense-sector headwinds as budget negotiations remain unresolved.

For the full fiscal 2026, Mercury reported revenue of $816.5 million, down from $860.2 million in fiscal 2025. Adjusted earnings were 67 cents a share, compared with $1.06 a year earlier.

The company said it expects fiscal 2027 first-quarter revenue of $175 million to $190 million, with adjusted earnings per share of 5 to 11 cents. Analysts had been modeling $220 million and 22 cents.

Ballhaus said the company expects a recovery in the second half of fiscal 2027 as program starts accelerate. "We have line of sight to several large awards that should materialize over the next two quarters," he said.

Mercury ended the quarter with $450 million in total debt and $106 million in cash. The board authorized a new $100 million share repurchase program. Ballhaus said the company would be "opportunistic" about buybacks given the need to invest in capacity.

"We are managing the business for the long term, and that means continuing to invest through this cycle," he said. "We have the balance sheet to do that."