It has been about a month since the last earnings report for Kratos (KTOS Quick QuoteKTOS - Free Report) . Shares have added about 2.9% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Kratos due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Kratos' Q2 Earnings & Revenues Top Estimates, Down Y/Y

Kratos Defense & Security Solutions, Inc. reported second-quarter 2020 earnings of 8 cents per share, which surpassed the Zacks Consensus Estimate of 5 cents by 60%. The bottom line, however, declined 27.2% from the prior-year quarter’s earnings of 11 cents per share.

Barring one-time adjustments, the company reported a GAAP loss of a penny per share in the second quarter of 2020.

Total Revenues

Total revenues amounted to $170.4 million, surpassing the Zacks Consensus Estimate of $167 million by 2%. Revenues although declined 9.3% from $187.9 million reported in the year-ago quarter. The year-over-year downside was led by lower product sales and service revenues.

Operational Update

Kratos’ operating expenses amounted to $39.8 million in the quarter compared with the prior-year quarter’s $35.5 million. Selling, general and administrative expenses were up 8.6%, while research and development expenses rose 33.3%.

The company reported second-quarter 2020 operating income of $2.9 million compared with the operating income of $9 million reported in the second quarter of 2019.

Kratos reported second-quarter 2020 bookings of $163.7 million and a book-to-bill ratio of 1.3 to 1.0, with a backlog of $683.4 million as of Jun 28, 2020.

Segmental Performance

Unmanned Systems: Net sales during the second quarter declined 1.2% year over year to $42 million.

Government Solutions: Net sales in the second quarter fell 11.7% year over year to $128.4 million.

Financial Details

As of Jun 28, 2020, cash and cash equivalents were $397.2 million compared with $172.6 million as of Dec 31, 2019.

Long-term debt, including net of current portion, totaled $295.9 million as of Jun 28, 2020, up from $295.1 million as of Dec 31, 2019.

At the end of first-half 2020, cash generated from operating activities summed $10.8 million compared with $20 million in the first half of 2019.

Q3 & 2020 Guidance

For the third quarter of 2020, Kratos expects revenues of $195-$205 million. The Zacks Consensus Estimate for sales is pegged at $200.4 million, which lies above the midpoint of the company’s projected view.

For 2020, the company increased its revenue guidance from $720-$760 million to $740-$780 million, primarily reflecting the expected contribution of the ASC Signal acquisition for the second half of 2020. The Zacks Consensus Estimate for full-year sales is pegged at $750.8 million, which lies below the midpoint of the company’s projected range.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -17.86% due to these changes.

VGM Scores

Currently, Kratos has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Kratos has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.