Aerospace and defense company Ducommun (NYSE: DCO) reported Q1 CY2025 results exceeding the market’s revenue expectations, with sales up 1.7% year on year to $194.1 million. Its non-GAAP profit of $0.83 per share was 18.5% above analysts’ consensus estimates.
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Ducommun (DCO) Q1 CY2025 Highlights:
- Revenue: $194.1 million vs analyst estimates of $192.8 million (1.7% year-on-year growth, 0.7% beat)
- Adjusted EPS: $0.83 vs analyst estimates of $0.70 (18.5% beat)
- Adjusted EBITDA: $30.93 million vs analyst estimates of $27.94 million (15.9% margin, 10.7% beat)
- Operating Margin: 8.5%, up from 6.6% in the same quarter last year
- Free Cash Flow was -$4.04 million compared to -$6.62 million in the same quarter last year
- Backlog: $1.05 billion at quarter end, in line with the same quarter last year
- Market Capitalization: $1.01 billion
StockStory’s Take
Ducommun’s Q1 performance was driven by robust growth in its military and space segment, which saw a 15% year-over-year increase, counterbalancing a 10% decline in commercial aerospace revenue. Management attributed revenue growth and margin expansion to its engineered products mix, targeted pricing strategies, and cost-saving restructuring actions, including facility consolidations. CEO Steve Oswald emphasized that the company’s Vision 2027 plan to increase engineered and aftermarket content is ahead of schedule, with 23% of total revenue now coming from these higher-margin offerings.
Looking ahead, management highlighted the anticipated recovery in commercial aerospace, particularly with Boeing and Spirit AeroSystems ramping production, as a key driver of second-half growth. The company reaffirmed its target for mid-single-digit revenue growth in 2025 and expects further margin improvement as newly transferred programs and facility consolidations mature. Oswald noted, “We are positioned to benefit from the expected Boeing recovery in the second half along with defense, which includes three programs coming back online in Q2 and Q3.”
Key Insights from Management’s Remarks
Management’s commentary focused on the ongoing execution of Ducommun’s Vision 2027 strategy, with a particular emphasis on product mix, operational efficiency, and balancing exposure between defense and commercial aerospace sectors.
- Defense Segment Expansion: Military and space revenues grew 15% from the prior year, driven by missile and electronic warfare programs, including new awards on the TOW, AMRAAM, and NGJ platforms. Management expects continued strength as additional defense programs ramp up later in the year.
- Engineered Products Growth: The mix of engineered and aftermarket products increased to 23% of total revenue. These products command higher margins and management indicated that both organic growth and targeted acquisitions will further shift the product portfolio toward this segment.
- Facility Consolidation and Restructuring: The company is consolidating production by closing two U.S. plants and transferring work to existing facilities, including its lower-cost operation in Mexico. Management expects these actions to generate $11–13 million in annual savings, with higher benefits realized in late 2025 and 2026.
- Commercial Aerospace Destocking: Commercial aerospace revenue fell 10% due to lower production rates at Boeing and Spirit AeroSystems, as well as inventory destocking. However, management cited signs of improving demand and anticipates a recovery in the second half of the year.
- Limited Tariff Impact: Ducommun’s U.S.-centric manufacturing base and minimal China exposure mean tariffs are not expected to materially affect 2025 results. Management noted that less than 3% of revenue is tied to China, and supply chain risks from tariffs are considered manageable.
Drivers of Future Performance
Management sees the balance between defense program momentum and a recovering commercial aerospace sector as pivotal for near-term growth, while an expanding engineered products portfolio supports margin gains.
- Defense Program Ramps: New and existing defense contracts—including missile, radar, and rotorcraft platforms—are expected to deliver steady revenue growth, with management identifying offload opportunities from major defense customers.
- Commercial Aerospace Rebound: Boeing and Spirit AeroSystems are projected to increase production rates in the second half of the year, which should drive a recovery in Ducommun’s commercial aerospace segment following recent destocking.
- Margin Expansion Initiatives: Facility consolidation and higher-margin engineered products are expected to continue supporting improved operating and EBITDA margins. Management also cited ongoing strategic pricing as a contributor.
Top Analyst Questions
- Mike Crawford (B. Riley Securities): Asked about the timing of increased shipset rates for Boeing and Spirit AeroSystems as production ramps. Management replied that rates are trending upward and expects full benefit as Boeing approaches higher monthly build rates later in the year.
- Ken Herbert (RBC Capital Markets): Questioned the status of Ducommun’s M&A pipeline and its role in achieving the Vision 2027 targets. Management indicated several active opportunities and reaffirmed the focus on engineered product businesses for future deals.
- Michael Ciarmoli (Truist Securities): Sought clarity on growth expectations for commercial aerospace versus defense segments. Management responded that defense will remain strong, while commercial aerospace is set for improvement in the second half, largely through destocking resolution and higher build rates.
- Jason Gursky (Citi): Inquired about new work scope opportunities, especially from Spirit AeroSystems and potential outsourcing by large defense contractors. Management noted active discussions and ongoing bids for new work in both commercial and defense sectors.
- Noah Poponak (Goldman Sachs): Asked if Q1 margins represent a low point for the year and about free cash flow conversion expectations. Management explained that margins benefited from some favorable mix and expects continued strength, while cash conversion should improve as working capital investments unwind.
Catalysts in Upcoming Quarters
In the coming quarters, the StockStory team will monitor (1) the pace of commercial aerospace recovery as Boeing and Spirit AeroSystems increase production rates, (2) the realization of cost savings and operational efficiencies from facility consolidations, and (3) the contribution of new defense program ramps to both backlog and revenue growth. Additionally, progress on targeted acquisitions and further expansion of engineered products will be important indicators of future performance.
Ducommun currently trades at a forward P/E ratio of 17.8×. At this valuation, is it a buy or sell post earnings? See for yourself in our free research report.
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