Aerospace and defense company Ducommun (NYSE:DCO) announced better-than-expected revenue in Q2 CY2025, with sales up 2.7% year on year to $202.3 million. Its non-GAAP profit of $0.88 per share was 7% above analysts’ consensus estimates.
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Ducommun (DCO) Q2 CY2025 Highlights:
- Revenue: $202.3 million vs analyst estimates of $199.6 million (2.7% year-on-year growth, 1.3% beat)
- Adjusted EPS: $0.88 vs analyst estimates of $0.82 (7% beat)
- Adjusted EBITDA: $32.41 million vs analyst estimates of $30.97 million (16% margin, 4.6% beat)
- Operating Margin: 8.5%, up from 7.1% in the same quarter last year
- Backlog: $1.02 billion at quarter end, down 4.7% year on year
- Market Capitalization: $1.33 billion
StockStory’s Take
Ducommun’s second quarter results were met with a negative market reaction, despite the company surpassing Wall Street’s revenue and profit expectations. Management cited robust growth in its defense segment, particularly in missiles and radar systems, which offset ongoing challenges in commercial aerospace stemming from persistent inventory destocking by major customers like Boeing and Spirit AeroSystems. CEO Stephen Oswald emphasized, “Our missile business is up 39% in the second quarter, and our missile backlog also increased 30% compared to the year ago.” Management also acknowledged the continued impact of destocking on commercial aerospace and highlighted efforts to mitigate these effects through facility consolidation and strategic product portfolio growth.
Looking forward, management’s guidance is shaped by an anticipated recovery in commercial aerospace and sustained momentum in the defense sector. The company is banking on ramp-ups in key platforms, such as the Apache helicopter and Tomahawk missile systems, as well as ongoing execution of its engineered product strategy. CFO Suman Mookerji noted, “We expect the synergies to ramp up in late 2025 and into 2026 as the product recertification is complete and the receiving facilities move up the learning curve and ramp up production.” Management also emphasized that tariffs are not expected to have a material impact, given Ducommun’s predominantly U.S.-based operations.
Key Insights from Management’s Remarks
Management attributed Q2 performance to strong defense demand, effective facility consolidation, and increased engineered product mix, while acknowledging commercial aerospace headwinds and a competitive M&A environment.
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Defense segment drives growth: The defense business, notably missile and radar programs, delivered double-digit growth, with missile revenues up 39% and radar up 46%. This offset commercial aerospace declines and was fueled by replenishment of global missile inventories and alignment with current U.S. defense priorities.
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Commercial aerospace weakness persists: Ongoing inventory destocking by Boeing and Spirit AeroSystems weighed on commercial aerospace revenues, which declined 10% year over year. Management expects this headwind to continue through the remainder of 2025, with gradual improvement anticipated as production rates recover.
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Facility consolidation and cost actions: Ducommun continued its strategy of consolidating operations, closing sites in California and Arkansas, and transferring work to lower-cost facilities. These moves are expected to generate $11–13 million in annual savings, with full benefits realized in late 2025 and beyond.
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Engineered products portfolio expands: The engineered and aftermarket content now represents 23% of total revenue, up significantly from past years. Management views this as critical for margin expansion and aims to further increase this mix through internal growth and selective acquisitions.
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M&A opportunities remain competitive: Ducommun is actively evaluating acquisition targets to support its portfolio strategy, though management acknowledged increased competition for attractive assets in the aerospace and defense space. The pipeline is described as promising, but management remains selective and disciplined in pursuing deals.
Drivers of Future Performance
Ducommun’s forward outlook centers on recovery in commercial aerospace, continued defense strength, and execution on engineered product strategy.
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Commercial aerospace recovery: Management expects gradual improvement in commercial aerospace revenues as Boeing and Spirit AeroSystems work through excess inventory, with the ramp-up in programs like the Apache rotor blade contributing to growth in late 2025 and 2026.
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Defense and engineered products momentum: The company projects sustained demand for missile and radar systems, supported by strong defense budgets and replenishment needs, while aiming to increase revenue share from engineered and aftermarket products to expand margins.
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Facility consolidation benefits: Synergies from the ongoing facility consolidation program are expected to ramp up in the second half of 2025 and into 2026, driving cost savings and margin improvement as product lines are fully transitioned and production stabilizes.
Catalysts in Upcoming Quarters
In future quarters, we will be monitoring (1) the pace of commercial aerospace recovery as Boeing and Spirit AeroSystems work through inventory, (2) progress on facility consolidations and realization of targeted cost savings, and (3) the growth trajectory of defense and engineered product platforms. Additionally, the StockStory team will track Ducommun’s ability to capitalize on M&A opportunities and the scaling of new production lines, such as Apache rotor blades.
Ducommun currently trades at $90.43, down from $91.65 just before the earnings. At this price, is it a buy or sell? The answer lies in our full research report (it’s free).
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