Elbit Systems reported its second quarter today, 11 August 2026.
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The Quarter
| The quarter | A year ago | |
|---|---|---|
| Revenue | $2,287.1 million | $1,972.7 million |
| GAAP gross profit | $579.0 million · 25.3% | $472.9 million · 24.0% |
| Non-GAAP gross profit | $586.5 million · 25.6% | $480.4 million · 24.4% |
| Research and development, net | $159.1 million · 7.0% | $129.7 million · 6.6% |
| Marketing and selling, net | $103.2 million · 4.5% | $91.5 million · 4.6% |
| General and administrative, net | $97.9 million · 4.3% | $93.9 million · 4.8% |
| GAAP operating income | $218.8 million · 9.6% | $157.8 million · 8.0% |
| Non-GAAP operating income | $237.5 million · 10.4% | $175.1 million · 8.9% |
| Financial expenses, net | $22.0 million | $31.2 million |
| GAAP net income | $173.6 million · 7.6% | $125.7 million · 6.4% |
| Non-GAAP net income | $199.1 million · 8.7% | $151.0 million · 7.7% |
| Diluted EPS | $3.61 | $2.69 |
| Non-GAAP diluted EPS | $4.14 | $3.23 |
Revenue rose roughly 16%. Earnings per share rose 34%.
That is operating leverage in practice: gross margin rose from 24.0% to 25.3%, and operating margin from 8.0% to 9.6% - 1.6 percentage points. When revenue grows and margin expands at the same time, profit rises far faster than sales.
One line worth noting: general and administrative expenses rose only 4% while revenue rose 16%, so their share of revenue fell from 4.8% to 4.3%. Research and development, by contrast, rose 23% and its share actually increased - investment, not efficiency.
The Backlog, and That Is the Story
Order backlog as of 30 June 2026 stood at $32.0 billion - a record.
For scale: revenue in the quarter was $2.29 billion. The backlog is worth roughly 14 quarters at the current run rate, meaning about three and a half years of work already signed.
And three details inside it matter as much as the total:
1. The quarter's increase came mainly from Europe. That is not a footnote - it is the thesis. Europe is in the middle of a multi-year rearmament cycle, and Elbit is one of the suppliers benefiting directly.
2. Roughly 73% of the backlog is attributable to orders outside Israel. The company is not dependent on the domestic defence budget - it is an exporter.
3. Roughly 42% of the backlog is scheduled to be performed during the remainder of 2026 and 2027. That is the detail that turns the backlog from a big number into a measurable one: close to half of it should convert to revenue within eighteen months.
The Segment Breakdown
| Segment | Change | The company's explanation |
|---|---|---|
| Land | +32% | Ammunition and munitions sales in Israel |
| ISTAR and EW | +22% | Airborne and land High Power Laser, Electronic Warfare and Maritime systems in Asia-Pacific |
| Elbit Systems of America | +17% | A one-time favourable project mix, Night-Vision, Maritime and Electronic systems |
| C4I and Cyber | +11% | Radio systems and command and control systems in Europe |
| Aerospace | -8% | A one-time unfavourable project mix and lower training and simulation sales in Europe, partly offset by higher UAV sales in Israel |
Four segments growing at double digits, and one falling.
What is interesting in this breakdown is the geography behind it: Land's growth is Israeli, ISTAR's is Asian, and C4I is growing in Europe. The company is not leaning on one market.
The Offsetting Item
The effective tax rate rose from 5.6% to 16.4%.
In numbers: tax expense in the quarter was $32.7 million, against $7.1 million a year ago.
The reason, per the company: implementation of the OECD Pillar II global minimum tax rules.
Why this matters beyond this quarter: it is a structural change, not a one-off item. Israeli companies enjoyed very low tax rates for years under the capital investment encouragement law, and the new global framework narrows that advantage. Anyone modelling Elbit on its historical tax rate needs to update it.
And to see the scale: absent the tax increase, net income would have been materially higher. The fact that EPS still rose 34% is itself evidence of operating strength - it absorbed this and still jumped.
Cash Flow and the Dividend
Cash flow provided by operating activities in the first half of 2026 was $517.8 million, against $304.0 million a year ago.
That is an increase of more than 70%, which the company attributes mainly to the strong increase in net income and an increase in contract liabilities - that is, customer advances.
And a point worth knowing: contract liabilities are money received before the work has been performed. That is real cash, but it is also an obligation to deliver - so growth in that line is good when matched by delivery capacity, and risky when it is not.
Dividend: $1.00 per share. Record date 13 October 2026, payment 26 October 2026.
What Management Emphasises
CEO Bezhalel (Butzi) Machlis:
"Our backlog reached a new record of $32 billion, providing long-term visibility and demonstrating the continued confidence of customers worldwide in Elbit Systems' technologies and capabilities"
He devotes a separate paragraph to investment in production infrastructure, describing it as a disciplined approach to scaling capacity and converting backlog into revenue. That is precisely the bottleneck to watch: a backlog growing faster than the ability to deliver it turns from an asset into a constraint.
And on the technology front: the company recently unveiled an airborne high-power laser system, under development for helicopters and fighter aircraft.
הזווית שלי
דעה אישית של אילן אברמוב - לא ייעוץ ולא המלצה
This is a report where it is hard to find a genuine flaw, which is exactly why it is worth looking for one deliberately.
What works here works well: revenue up 16%, operating margin expanding 1.6 percentage points, EPS up 34%, cash flow up more than 70%, and a record $32 billion backlog that is mostly export. A company that grows sales and improves margin simultaneously is doing something right at the operating level, not just riding demand.
And what I regard as the strongest part is not the profit - it is that the backlog grew from Europe. Israeli defence demand is cyclical and event-driven; a European rearmament cycle is a multi-year budget decision by dozens of countries, and that is an entirely different revenue base. And 73% of the backlog sitting outside Israel says the company has already made that transition.
And now the other side, because it exists.
The first is tax, and it is structural. A jump from 5.6% to 16.4% is not noise. Any model built on Elbit's historical tax rate needs rewriting, and that holds for every Israeli exporter that enjoyed the preferential track.
The second is Aerospace at minus 8%. The company explains it as a one-time project mix, which is an entirely reasonable explanation. But it is also the only segment falling while four others grow at double digits, so it is worth seeing whether it repeats next quarter.
And the third, which is what I will actually watch: the ratio of backlog to capacity. A $32 billion backlog is only an asset if it can be built. The company itself talks about increasing investment in production infrastructure, which means it has identified the constraint. The number that will reveal whether it is overcoming it is simple: whether revenue keeps growing at a double-digit rate, or the backlog grows while sales mark time.
