Al Root

Sometimes, reactions to earnings reports are difficult to predict.

Take Mercury Systems, a maker of defense electronics supplying larger contractors such as Lockheed Martin. It reported its earnings for its fiscal second-quarter earnings on Tuesday evening.

Earnings per share were 16 cents from sales of $233 million. Wall Street was looking for 7 cents and $211 million, respectively, according to FactSet. Orders exceeded sales, and the company ended the quarter with a record backlog of $1.5 billion.

Yet the stock was down 19% at $80.26 in early trading, while the S&P 500 was down 0.3% and the Dow Jones Industrial Average gained 0.2%.

One of the problems was management's financial guidance. Mercury still expects "low-single-digit" revenue growth for fiscal year 2026. That implied about $490 million in second-half 2026 sales. Wall Street's consensus call was closer to $510 million.

Some revenue was pulled forward into the second quarter, wrote Jefferies analyst Sheila Kahyaoglu on Tuesday. That will drive fiscal third-quarter sales down year over year to about $ 210 million. Wall Street was looking for closer to $230 million.

The outlook, however, doesn't include any upside from projects such as the Golden Dome missile defense shield.

William Blair analyst Jonathan Ho called the quarter "solid" in a Wednesday report, while noting the revenue issue.

"Our overall take is that Mercury is executing against its plan to replace lower-margin backlog with higher-margin programs while also carefully managing its supply chain to allow for pull-forward deliveries, " he said. "We believe the company remains prudent and conservative in not building programs into guidance that management may not be able to deliver."

Ho rates the shares at Buy. Kahyaoglu has them at Hold.

Starting points are also a factor in the stock's performance. Coming into Wednesday trading, Mercury stock was up 136% over the past 12 months. Those gains left the shares trading for about 76 times the earnings expected over the coming 12 months, up from about 61 times a year ago.

A lot of good news was already reflected in Mercury stock.

Write to Al Root at allen.root@dowjones.com

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February 04, 2026 11:17 ET (16:17 GMT)

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