ATRO — Q2 2026 Financial Report Analysis

Overview

Astronics makes electrical and electronic equipment for aircraft: in-seat power and connectivity systems for passenger cabins, cabin and exterior lighting, motors that move premium seats, and flight-critical power systems for military and civil aircraft. A much smaller second segment, Test Systems, builds test equipment mainly for the U.S. military. In the second quarter of 2026 (the three months ended July 4, 2026), sales rose 27.0% to a record $260.0 million, beating the $245–250 million management had guided to in May. Operating income rose from $4.8 million to $40.5 million, and diluted EPS went from $0.03 to $0.75.

Most of the growth came from airline demand. Commercial Transport sales, which are sales tied to airliners, rose 21.6% to $177.0 million, led by seat motion and inflight entertainment & connectivity (IFEC) products. The profit jump is bigger than the sales jump for two reasons: higher volume through factories that were already paid for, and a weak year-ago quarter that carried about $16.6 million of one-time charges.

At a glance

• Sales +27.0% to $260.0M, about $10–15M above the top of May's guidance. Management raised its full-year 2026 revenue range to $1.02–1.04 billion, from $970 million–$1 billion.
• Operating margin 15.6% vs 2.3%. Even on management's adjusted basis, which strips out the year-ago charges, the margin rose from 8.9% to 16.6%. The improvement is real, not only an easy comparison.
• Orders of $306.2M exceeded sales by 18% (book-to-bill 1.18). Backlog, meaning signed orders not yet delivered, reached a record $780.6M, up 20.9% from $645.4M a year earlier.

Key metrics

Per-share figures reflect the 20% Class B stock distribution to shareholders of record on June 15, 2026; prior-year figures were restated for it. "Adjusted" figures are the company's own non-GAAP measures, meaning figures that exclude items management treats as unusual.

Where the growth came from

Aerospace (91% of sales): sales rose 22.6% to $237.3 million. Of that growth, $5.9 million came from Bühler Motor Aviation (BMA), acquired in October 2025, so growth excluding the acquisition was about 19.5%.

By product line, Seat Motion (the motors and actuators that recline lie-flat business-class seats) more than doubled, from $10.2 million to $22.2 million. Part of that increase is BMA, which makes seat-motion products. Flight Critical Electrical Power grew 49.4% to $23.7 million on military airframe power products. IFEC, the largest line at $126.0 million, grew 19.0%. General Aviation's 50% jump came from IFEC systems for VVIP (very large private and government) jets. Lighting & Safety grew only 5.5%.

Aerospace operating profit was $48.3 million, a 20.3% margin compared with 9.3% a year ago. On the company's adjusted basis the margin was 21.4%, up from 16.3%, and the filing credits higher volume and better production efficiency.

Test Systems (9% of sales): sales doubled to $22.7 million from $11.1 million, and the segment swung from a $6.7 million loss to a $0.6 million profit. The year-ago quarter is a weak comparison, because a $6.4 million downward revision on long-term mass-transit contracts reduced revenue that quarter. The margin is still thin at 2.6%. The filing gives three reasons: weak mix, fixed costs spread over low volume, and about $4.1 million of revenue booked at zero margin for raw materials bought for Army and Marine Corps radio test set programs. The margin on that revenue is recognised later as production moves forward.

The segment's biggest event was an order. Test Systems booked $63.1 million in the quarter, including a $44.7 million U.S. Army order that starts full-rate production of the TS-4549/T Radio Test Set, with deliveries expected over the next 18 months. Test Systems backlog rose from $83.0 million to $123.3 million in one quarter. Management expects "similar annual orders in each of the coming four years."

What the headline numbers hide

• About $16.6M of the profit swing is a weak comparison, not this quarter's strength. Q2 2025 carried a $6.2 million Aerospace simplification charge (mostly severance and restructuring), a $6.9 million hit from the mass-transit cost revision, and a $3.5 million legal-fee reimbursement charge from the UK patent case with Lufthansa Technik. Adjusted operating income rose from $18.3 million to $43.2 million, up 136%, which is still large.
• This quarter's figures include a one-off gain. Cost of sales included a $2.0 million refund of IEEPA tariffs, meaning import duties imposed under the International Emergency Economic Powers Act that are now being refunded. The company does not remove this gain in its adjusted figures, although it does remove ERP-implementation consulting ($0.5M), litigation legal expenses ($1.9M) and a warranty reserve ($0.4M). Excluding the refund, the adjusted operating margin would be about 15.9% rather than 16.6%. Management expects another $6–8 million of refunds, with no timing given.
• The tax rate is doing part of the work. The effective tax rate was 7.4% compared with 29.0% a year ago. The low rate comes from releasing part of a valuation allowance (a reserve against past tax losses the company had not expected to use) and from expensing previously capitalised R&D costs for tax purposes under the One Big Beautiful Bill Act. At management's "normal" 25% tax rate, adjusted EPS is $0.70, below GAAP EPS of $0.75. That makes it one of the few cases where the adjusted figure is the more conservative one.
• Share count rose, so EPS growth came from operations. Diluted shares rose 6.6% to 46.5 million. That figure includes 1.7 million shares assumed for the premium on the 0% convertible notes, because the stock traded above the $45.19 conversion price. The company also holds a capped call, a hedge that offsets that dilution for actual shareholders up to $68.44 a share. There were no buybacks.
• Cash lags profit because inventory is building. First-half operating cash flow was $40.7 million against net income of $60.6 million, about 67% conversion. Inventory rose $27.5 million and receivables rose $25.0 million in the half, each up roughly 12% since December. Higher supplier payables (+$23.6M) offset part of that. Management says the inventory supports "anticipated revenue growth in the coming quarters," which fits the guidance, but it is cash tied up until those sales ship. Capex of $16.9 million in the first half, against $6.7 million a year earlier, is for the Seattle facility consolidation. Free cash flow (operating cash flow minus capex) was $24.4 million in Q2 and $23.9 million for the half. Long-term debt fell $24.1 million to $310.3 million since year-end.
• Guidance vs previous guidance: Q2 sales of $260.0 million beat the $245–250 million guide. The full-year range rose by $50 million at the midpoint, to $1.02–1.04 billion. One timeline slipped: in May the Seattle consolidation was due to finish in Q2, and now it is due in Q3.

Takeaway: On an adjusted basis that already excludes last year's charges, Aerospace margin rose 510 basis points to 21.4% on 22.6% more sales. Most of the profit gain therefore comes from volume going through existing factories, not from accounting or one-offs. The weak point is Test Systems: it is now booking large orders but still earns only a 2.6% margin, so its profit depends on the Army radio test set program ramping up as planned.

Outlook

Management now expects 2026 revenue of $1.02–1.04 billion. The first half was $490.6 million, so the range implies about $530–550 million in the second half. That is roughly 8–12% above the first half and the reason management says momentum "will build." Q3 guidance is $265–275 million, another record, with Q4 to "improve modestly from there." About 82% of the $780.6 million backlog ($642.2 million) is expected to turn into revenue within 12 months, which covers most of that second-half figure.

Other items management flagged:

• Capex of $40–45 million for 2026, mostly the Seattle consolidation, which now ends in Q3. Management expects positive free cash flow for the rest of the year.
• UK patent appeal: the UK Court of Appeal ruled in the company's favour on July 27, 2026. Astronics expects about $2.2 million of damages already paid to Lufthansa to be returned, plus some legal fees it cannot yet estimate. These are expected in Q3 and would be a one-off gain that quarter.
• The MV-75 FLRAA program (the Army's tiltrotor that will replace the Black Hawk) signed its engineering-phase contract, a $27.4 million booking. Development is expected to finish in mid-2027.

Our view. The guidance looks achievable. Backlog covers most of it, three straight quarters of book-to-bill above 1.0 show orders still exceed shipments, and Q2 came in above its own guidance. Three things to watch in Q3:

1. Whether Aerospace margins stay near 20% without the tariff refund.
2. Whether Test Systems margin rises as the zero-margin radio-test materials turn into finished, profitable shipments.
3. Whether the inventory built in the first half turns into cash. If inventory keeps growing faster than sales, the cash story weakens.

Q3 will also carry one-offs in the other direction: the patent-case refund and any further tariff refunds. Expect headline Q3 profit to look better than the underlying business.