Key Highlights

  • Elbit Systems (ESLT) reported second-quarter Revenue of $2.29 billion, up 15.9% year over year, with non-GAAP Earnings Per Share of $4.14 beating consensus estimates of $3.69.
  • Backlog reached a record $32.0 billion, up from $30.2 billion three months earlier, with roughly 73% of orders now coming from customers outside Israel.
  • Shares fell around 8% despite the beat, as the stock trades near 58 times trailing earnings after a 124% gain the prior year.
  • The company raised planned Capital Investment to roughly $300 million from about $220 million to build new production capacity and convert its Backlog into deliveries faster.

Every Line Moved the Right Way

Elbit's (NASDAQ:ESLT) second-quarter numbers, published on Tuesday morning, were about as clean as a defense contractor's get. Revenue of $2.29 billion was 15.9% higher than the same quarter of 2025 and ahead of the roughly $2.22 billion consensus. Non-GAAP Diluted Earnings per Share of $4.14 rose 28.2% from $3.23, beating the $3.69 analysts were carrying. GAAP diluted earnings per share was $3.61 against $2.69.

Margins did the rest. Gross Profit reached $579.0 million, or 25.3% of sales, up from 24.0%. Operating Income of $218.8 million was 39% higher, lifting the GAAP operating Margin to 9.6% from 8.0%. Chief financial officer Kobi Kagan told analysts that gross, operating and net margins all continued to expand and were surpassing the company's internal targets. Chief executive Bezhalel Machlis said the strong momentum in the second quarter had been sustained, delivering double-digit growth in sales, backlog and earnings per share. Elbit declared a Dividend of $1.00 a share, payable on 26 October.

Investors sold it anyway. The stock fell around 8% to roughly $776, having started 2026 at a then-record $592 after a 124% gain the previous year. It trades near 58 times trailing earnings, well below a 52-week high of $1,016.06 but still priced for near-perfect execution, which helps explain why a beat was not enough.

An Order Book That Has Become European

The headline figure holds up. Backlog stood at $32.0 billion at 30 June, a record, up from $30.2 billion three months earlier and around $23 billion a year ago. Roughly 73% comes from customers outside Israel, and about 42%, some $13 billion, is scheduled for delivery over the remainder of 2026 and 2027, the balance in 2028 and beyond. Elbit said the increase came mainly from Europe.

The contract list bears that out. In May the company won a five-year military modernization programme worth about $1.4 billion for a European customer, covering unmanned systems, electronic warfare, radios and precision munitions. April brought roughly $750 million of precision rocket artillery for Greece, following an earlier Serbian package of more than $1.6 billion. In the United States, Elbit Systems of America picked up more than $370 million from Customs and Border Protection in July and $212 million for U.S. Army night-vision goggles as sole supplier. Closer to home came a $350 million tank upgrade and around $200 million of Israeli air-launched munitions.

The revenue mix is shifting with it. Israel still supplied the largest slice at $855.0 million, or 37.4% of the quarter, but Europe contributed $563.3 million, or 24.6%, North America $464.7 million, or 20.3%, and Asia-Pacific $319.9 million, or 14.0%. By segment, Land grew 32% to $770.2 million on ammunition and munitions Demand in Israel; surveillance and electronic warfare rose 22% to $447.8 million on high-power laser and maritime systems; Elbit Systems of America grew 17% to $476.8 million and command and cyber systems 11% to $252.9 million. Aerospace was the exception, falling 8% to $495.0 million on a weaker Training and simulation mix, one of the few soft spots available, alongside research spending that climbed to 7.0% of revenue from 6.6%.

Building Fast Enough to Deliver It

Machlis was blunt about where the effort goes: the company is making a big push to convert a backlog that will keep growing into revenue and profit. To do it, Elbit has raised planned capital investment to roughly $300 million from about $220 million, building new production facilities and lifting productivity. Its Ramat Beka complex is being expanded, and some lines have increased output as much as tenfold.

Headcount is following. Elbit has added about 2,000 employees and plans to recruit a further 2,000. A new detail emerged on the earnings call: asked about customer-funded capacity, Kagan described customers willing to match the company's investment, and in some cases finance a whole capacity expansion to bring the technology into their country. He called it a very significant change. If that becomes normal practice, the capital intensity of the European rearmament cycle looks materially better for suppliers than the headline capital spending figure suggests.

Elbit also disclosed a high-power airborne laser under development for helicopters and fighter aircraft, extending directed-energy work that already feeds its surveillance division.

Cash, and the Bill Israel Has Not Paid

Cash generation improved sharply. Operating Cash Flow for the first half reached $517.8 million against $304.0 million, helped by higher Net Income and growth in contract liabilities, customer advances in effect. Free cash flow in the quarter was about $150 million, more than double the year-ago figure, after first-half Capital Expenditure of $157.6 million. Gearing is light: no short-term credit, $87.5 million of current maturities, $4.6 million of long-term Debt and $262.9 million of notes across several series.

That comfort has a caveat. Israel's Ministry of Defense has accumulated roughly 13 billion shekels, about $4.3 billion, in unpaid bills to its three largest contractors, around 3 billion shekels of it owed to Elbit, according to local financial media. Foreign customer advances are covering the gap.

What the Backlog Does Not Insure Against

Three risks sit outside the order book. The first is currency. The dollar has fallen to around 2.90 shekels, a level not seen since the 1990s and roughly 20% below where it traded not long ago. With Elbit's costs largely in shekels and about 70% of sales overseas, one defense industry finance chief told local media that inputs had risen 25% to 30% in a year while European rivals gained ground.

The second is political. Norway's Government Pension Fund Global excluded Elbit as far back as 2009 over surveillance systems supplied for the West Bank separation barrier, and the exclusion strand has widened since. In a European market that is now Elbit's main growth engine, procurement can be reversed by politics rather than performance, a point Tuesday's share price reaction arguably reflected better than the earnings did.

The third is tax. The effective rate jumped to 16.4% from 5.6% as an international minimum tax framework took effect, partially offset by roughly $40 million of cumulative benefit this year from Israel's new Research and Development law. Elbit also warned that supply-chain effects from renewed regional hostilities could increase costs again.

Conclusion

None of that changes the central fact: $32 billion of signed work against first-half revenue of $4.48 billion. The catalyst to watch is not the next contract announcement but the conversion rate, whether the new lines at Ramat Beka can turn 42% of that book into deliveries by the end of 2027 without giving back the margin Elbit has just won.