Teledyne Technologies (NYSE:TDY) reported third-quarter financial results on Wednesday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
Teledyne Technologies reported its strongest third-quarter sales and operating earnings in company history, exceeding initial 2026 projections with revised sales guidance of $6.625 billion and earnings of $25.45 per share.
Orders have outpaced sales for 12 quarters, and the funded backlog is approximately $5.3 billion, with significant growth driven by the Digital Imaging segment, particularly in infrared detectors for space and unmanned applications.
The company completed $224.6 million in stock repurchases and is pursuing a complementary acquisition of Barex, expected to close in early 2027, while maintaining low leverage and strong free cash flow.
The Digital Imaging segment saw a 15% sales increase, with substantial growth in defense and commercial markets, and a 376 basis point increase in operating margin.
Management provided a positive outlook for 2027, anticipating continued growth across its diverse portfolio, driven by a strong backlog and strategic initiatives.
Free cash flow reached a third-quarter record of $319.5 million, and the company ended the quarter with $1.47 billion in net debt.
GAAP earnings per share for the fourth quarter are projected between $5.68 and $5.83, with non-GAAP EPS between $6.60 and $6.70.
Full Transcript
OPERATOR
Welcome to Teledyne’s third quarter earnings call. Here’s our first speaker, Mr. Jason Van Wiese.
Jason Van Wiese (Vice Chairman)
Good morning everyone. Thanks for joining us. This is Jason Van Wiese, Vice Chairman of Teledyne, and I’d like to welcome everyone to Teledyne’s third quarter 2026 earnings release conference call. We released our earnings earlier this morning before the market opened. Joining me today are Teledyne’s Executive Chairman Robert Moravian, President and CEO George Bobb, EVP and CFO Steve Blackwood, and Melanie Civic, EVP, General Counsel, Chief Compliance Officer, and Secretary.
After remarks by Robert, George, and Steve, we will ask for your questions. However, our attorneys have reminded me that before we get started, all forward-looking statements this morning are subject to various assumptions, risks, and caveats as noted in the earnings release and in our periodic SEC filings, and of course actual results may differ materially. In order to avoid potential selective disclosures, this call is simultaneously being webcast, and a replay via webcast and dial-in will be available for approximately one month.
Robert Moravian (Executive Chairman)
Thank you, Jason, and good morning everyone. Our third quarter sales and operating earnings were the strongest in Teledyne’s history. For the third quarter in a row, we’re raising our full year 2026 sales and earnings guidance. In January we forecasted revenue of $6.37 billion, a 4.2% increase from 2025, and non-GAAP earnings of $23.65 per share. Today, our outlook for 2026 sales is $6.625 billion, a year-over-year increase of 8.3% and nearly double the growth rate projected in January, and earnings of $25.45 per share, which is $1.80 per share, or almost 8% higher than forecast in January, and a 16% increase compared to last year.
For all of Teledyne, orders have exceeded sales for 12 consecutive quarters and funded backlog is now approximately $5.3 billion. In the third quarter, organic growth accelerated in our Digital Imaging segment and was led by sales of infrared detectors and subsystems for space and unmanned applications. Furthermore, each of our major commercial imaging businesses such as industrial vision, sensors and systems, as well as healthcare, increased year over year.
Our third quarter performance reflected not only the strong execution of the backlog that we’ve been building for three years, but also the strength of our business portfolio and what Teledyne is today: a company with a broad set of sensors and vertically integrated platforms from space to deep sea. We also continue to enjoy robust free cash flow and recently made $224.6 million of opportunistic stock repurchases at a weighted average price of approximately $607 per share. We did the same in 2025 and 2024 when we felt Teledyne was undervalued. During the past three years, we’ve deployed nearly $980 million to buy back shares of our company at a total weighted average price of $479 per share.
Regarding the pending acquisition of Barex, we were following the company for more than six years. As healthcare and life sciences markets began to recover earlier this year, we felt the timing was finally right for us to pursue and then announce this highly complementary acquisition in the third quarter. The regulatory process is underway and a special stockholder meeting is scheduled for October 28th. We continue to anticipate closing early in 2027.
Notwithstanding the stock repurchases and the pending acquisition, current leverage remains at the lowest level in six years, and we have more than ample flexibility to continue compounding earnings growth for years to come. George will now comment on the performance of our four business segments.
George Bobb (President and Chief Executive Officer)
Thank you, Robert. In the Digital Imaging segment, third quarter sales increased 15% and 14.3% organically due to well-balanced growth among our defense and commercial businesses. Sales of infrared detectors for space-based imaging increased more than 25%, as did revenue from infrared subsystems and cameras for our customers’ unmanned air systems and unmanned maritime surface vehicles. In addition, segment sales increased in each of our larger commercial end markets, i.e., sensors and cameras for industrial and scientific vision applications, X-ray products for healthcare, commercial thermography cameras, electronics for maritime navigation, geospatial sensors and software, and microelectromechanical systems, or MEMS. Finally, non-GAAP operating margin in the segment increased 376 basis points to 25.4%.
In the Instrumentation segment, which consists of our marine, environmental, and test and measurement businesses, third quarter sales increased 1.9% versus last year. Overall sales of marine instruments increased 2%, primarily due to strong defense-related sales of interconnects for U.S. Virginia and Columbia submarines, as well as continued growth in the offshore energy exploration and production market. Sales of environmental instruments increased 7.1% due to increased sales of gas monitoring instrumentation, along with more modest growth in sales of laboratory and life sciences instruments.
Sales of electronic test and measurement systems decreased 6.3% due in part to the timing of orders, which increased 18% year over year for a record book-to-bill ratio of 1.23. Instrumentation non-GAAP operating margin in the third quarter decreased modestly due to product mix but was sequentially higher for the second consecutive quarter. In the Aerospace and Defense Electronics segment, third quarter sales increased 4.3%. Growth in defense electronics of 7.4% was partially offset by lower sales in commercial aerospace. However, third quarter bookings were very strong in both the defense and aerospace markets, with a segment book-to-bill ratio of 1.29. Non-GAAP segment margin increased 86 basis points year over year, even though there was a greater mix of defense electronics, which as a whole have a lower operating margin compared with commercial avionics.
For the Engineered Systems segment, third quarter revenue increased 7.8%, driven primarily by greater sales of marine and other manufacturing programs. Segment operating margin was largely flat with last year. I will now pass the call back to Robert.
Robert Moravian (Executive Chairman)
Thank you very much, George. To conclude, right now virtually all of our businesses are moving in a positive direction simultaneously, and our growth remains balanced across many end markets and geographies and not due to any singular, potentially fleeting market driver. Given our backlog, the pending acquisition of Verex, our strong balance sheet, and outstanding operating discipline, I’m already looking forward to 2027. I will now turn the call over to Steve.
Stephen F. Blackwood (Executive Vice President & Chief Financial Officer)
Thank you, Robert, and good morning. I will first discuss some additional financials for the quarter not covered by Robert, and then I will discuss our fourth quarter and full year 2026 outlook. In the third quarter, cash flow from operating activities was $352.5 million, compared with $343.1 million in 2025. Free cash flow, that is, cash flow from operating activities less capital expenditures, was $319.5 million, a third quarter record, compared with $313.9 million in 2025. Cash flow increased due to favorable operating results in the third quarter of 2026 compared with 2025, partially offset by higher inventory purchases. Capital expenditures were $33 million in the third quarter of 2026, compared with $29.2 million in 2025.
Depreciation and amortization expense was $84.7 million in the third quarter of 2026, compared with $84.5 million in 2025. We ended the quarter with $1.47 billion of net debt; that is approximately $2.03 billion of debt less cash of $562.4 million. Now turning to our outlook, management currently believes that GAAP earnings per share in the fourth quarter of 2026 will be in the range of $5.68 to $5.83, with non-GAAP earnings per share in the range of $6.60 to $6.70. And for the full year 2026, we believe that GAAP earnings per share will be in the range of $21.71 to $21.87, and non-GAAP earnings per share in the range of $25.40 to $25.50. I will now pass the call back to Robert.
Robert Moravian (Executive Chairman)
Thank you, Steve. We would now like to take your questions. Rob, if you’re ready to proceed with the questions and answers, please go ahead.
OPERATOR
Thank you. We’ll now be conducting our question-and-answer session. To ask a question at this time, you may press star one on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star two if you’d like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please for our first question.
Thank you. And the first question today comes from the line of Zachary Waljasper with UBS. Please proceed with your question.
Zachary Waljasper (Analyst at UBS)
Hi. Thank you for the question. My first question is around backlog. So total company backlog has grown sequentially every quarter so far this year. So with the trends you’re seeing in unmanned and space, can you talk about the visibility of the teams building from a top-line perspective heading to 2027? Because based on the awards you’re winning now, I would assume they’ll be delivered next year. And then my second question is around Instrumentation. It sounded from the prepared remarks there’s a bit of mistiming, or a bit of a timing of orders. Was that just for test and measurement, or for the whole segment? Thank you.
Robert Moravian (Executive Chairman)
Thank you, Zach. Let me take the backlog question first. I want to just take it on a larger scale. As we mentioned, the backlog right now stands at $5.3 billion. Of that, about 72% will be available for us as revenue in the next 12 months. To put that in perspective, that number is about half of the revenue that we enjoy for 2026. Now, the backlog in other areas, it varies, but a lot of our longer-term defense and other areas, the backlog is for the full 18 months, with nine months of it being as I mentioned.
And overall, if you look at the different segments, even in instruments that George talked about and you just mentioned, our book-to-bill is 1.07. So we feel pretty good about it. Even though the revenue may have been down in certain parts of that, overall the pickup in our orders in Q3 points to a fairly favorable future.
Zachary Waljasper (Analyst at UBS)
Okay, great. Thank you so much.
Robert Moravian (Executive Chairman)
Thank you, Zach.
OPERATOR
Our next questions are from the line of Andrew Buscaglia with BNP Paribas. Please proceed with your question.
Andrew Buscaglia (Analyst at BNP Paribas)
Hey, good morning everyone.
Robert Moravian (Executive Chairman)
Good morning, Andrew.
Andrew Buscaglia (Analyst at BNP Paribas)
I wanted to touch on Digital Imaging. It seems like things have really accelerated and it seems really broad-based. But what changed intra-quarter that made you exceed your expectations by so much? Was it on the defense side, or is it more kind of commercial infrared stuff that really picked up?
George Bobb (President and Chief Executive Officer)
Yeah, I think, Andrew, obviously we anticipated based on the orders we had that we would do better than we initially thought, but obviously everything depends on execution. I think when you look at our Digital Imaging and you look at it both as what we call our historical Digital Imaging, which would be our Teledyne DALSA, e2v, our imaging systems here, what we call Teledyne Scientific and Imaging, those grew very nicely, primarily due to space. As you know, we do a lot of work in space with our infrared image sensors, and the whole missile warning and tracking system has been a really good domain for us.
So that picked up. The other area, of course, is the unmanned systems, and that did very well, better than we thought. And then lastly, in the commercial domain, which is machine vision, healthcare, microelectronic mechanical systems, if you add them all up, they all did very well. And Digital Imaging book-to-bill as a whole, both what we call our legacy and FLIR, had a book-to-bill of about 1.22x. So things worked out across the board very well.
Andrew Buscaglia (Analyst at BNP Paribas)
Okay. Yeah.
Robert Moravian (Executive Chairman)
Well, I’ll let George talk about the cost structure because that’s been a significant undertaking in the whole digital imaging domain, especially in what we call our historical digital imaging. All along we’ve said that FLIR is going to do better year over year, quarter over quarter, and it’s finally arrived at a point where we feel very comfortable with the growth, both in revenue as well as earnings. Overall we’re projecting robust growth in FLIR year over year of 12% in defense as well as the commercial domain.
In terms of the cost structure, I’ll let George, as I said, answer it. But I think what we’re aiming for is to continuously improve our margins. And we started the year—just broadly—we started the year by saying digital imaging margins would grow about 150 basis points in Q2. Today we’ve added another 61 basis points, so we’re projecting for the whole year margins to grow 225 basis points. So with that I’ll pass this to George to talk about the cost structure.
George Bobb (President and Chief Executive Officer)
Sure. So we did take cost out in 2025. We’re getting the benefit of that, as evidenced by the margins that we had here in Q3, up 180 basis points. And gross margins are up year over year, at least in the neighborhood of 100 basis points. Beyond that, R&D really wasn’t up materially in the quarter. And I think the rest of the cost structure is fine. I think we’re getting the benefit of the cost we took out and, obviously, the volume growth that we have.
That’s about it. I hope that answers your question.
OPERATOR
The next question is from the line of Sheila Kaigle with Jefferies. Please proceed with your question.
Adam Samuelson (Analyst at Jefferies)
Yeah, hi, it’s Adam Samuelson for Sheila. Good morning. Maybe the first question is on instrumentation. I know you talked about test and measurement bookings improving and that giving you confidence on the outlook for the top line as you go into the fourth quarter. I’m wondering if you could comment on the margin outlook there as we think about that mix maybe flipping more favorably within the segment. Should we think about that segment returning to year-on-year margin expansion in the fourth quarter?
And is there any way you think about the margin trajectory for that business as we move into 2027? Thank you.
Robert Moravian (Executive Chairman)
Thank you, Adam. I’ll pass this one back to George again.
George Bobb (President and Chief Executive Officer)
Yes, I think largely we continue to see sequential margin improvement as we go through the year, quarter over quarter. I don’t think we quite get back to 2025 margins in Q4. Having said that, based on the outlook for 2027, I feel good about the direction we’re headed.
Adam Samuelson (Analyst at Jefferies)
Got it. And then maybe just switching gears, if I sneak one more in, back in digital imaging on the unmanned side: any way to differentiate the demand for infrared systems on customer platforms versus your own? And any thoughts on whether there is any need for incremental capacity to support some of the demand growth that you’re seeing there?
Robert Moravian (Executive Chairman)
Yeah. First of all, our subsystems have been the strongest of all of our defense programs in the infrared and visible domain. Our sensors, as you said, we supply to our own as well as other people, and that has grown substantially year over year. There are good reasons for that. One of them is, obviously, as the demand is growing, the ability to meet the demand—and confidence that the customers have in a demand environment that you will be supplying and not get offline—is very, very important.
And the second thing is, of course, we’re improving our product continuously. We have 12‑micron detectors that we’ve been shipping now. We’ve announced eight‑micron, plus software additions, etc. On the bigger system, which would be our total defense system, we’re looking at about a 10% growth, whereas in the subsystems we’re looking at multiples of that.
Adam Samuelson (Analyst at Jefferies)
All right, that’s very helpful color. Thank you. I’ll pass it on.
OPERATOR
The next questions are from the line of Jonathan Segman with Stifel. Please proceed with your questions.
Jonathan Siegman (Analyst at Stifel)
Good morning. Thanks for taking my question. Congratulations on the nice balanced growth across the portfolio. Again, a question on the budget environment. Teledyne has some terrific exposure both in space and in drones and counter‑drone applications. Those are disproportionately funded by some of the reconciliation money, which there are some worries out there may be stalled out in the months ahead in Congress. As a supplier, what impact does that have on your business?
What are your prime customers saying in terms of any impact on this powerful growth you’re seeing? Thank you.
Robert Moravian (Executive Chairman)
That’s a very good question. Right now, as you mentioned, there’s uncertainty in the budget. On the other hand, because of our longer‑term programs that we’ve won, including the most recent one in the Golden Dome, we don’t see an issue for us in 2027. Having said that, you know, there are other things that are happening that may change the outlook in ’28 and ’29. We don’t know. On the other hand, right now, sitting where I am and where George is, we think we’re okay in 2027 with all the uncertainty surrounding the budget as well as everything else that’s going on in Europe and the Middle East.
Jonathan Siegman (Analyst at Stifel)
Thank you. And if I could just slip one in on Varex, given we’re used to looking at businesses that fly and blow up. I understand you’ve looked at Varex for quite some time. Maybe could you talk a little bit about what attracted you to that business and maybe comment on some of the declines in revenue that business saw and why you’re excited about it? I’d appreciate it.
Robert Moravian (Executive Chairman)
Thank you. That’s a very good question. First of all, we’ve been looking at that business for a long time—at least in the last six years pretty actively. We wanted to buy pieces of that business before; we were not able to. But what happened is recently, as the whole arena of healthcare and the products that they make began to recover, we thought it was an appropriate time for us to approach them. And that would be, obviously, in the recovery after the post‑COVID era.
And we were able to approach them, we were able to go through the process. They had a lot of other potential buyers that they were dealing with—and that’s, by the way, detailed in their merger proxy. And in the end we ended up with a friendly transaction. Why Varex? Very simple. We have healthcare products; we have X‑ray detectors, but nothing like they do. We primarily focus on ceramic metal oxide detectors, which are small in size and cannot tolerate high‑energy, high X‑ray energy levels like you have in oncology. They have a bunch of other detectors led by amorphous silicon that are uniquely designed for high‑energy oncology X‑rays. Also, they have really different, complementary products to us.
And I’ll end with one thing that they have that’s exciting to us, and that’s their photon detectors, which can detect X‑rays without having to go through an intermediate layer called scintillation. And that’s very attractive to us because we’ve always wanted to get into that. And they’re already in it, have advanced in it. And we think while the revenue has been relatively flat, we think for us the opportunity is to improve margins like we’ve done in all of our acquisitions. I’ll give you one example: FLIR. We bought it at a multiple of 16.7× EBITDA. If you look at it today, in just four years, that’s down to 13.7×. And broadly, Teledyne has improved almost every acquisition that we’ve made and improved the margins. I would say on the average we paid 13.5× EBITDA and today they’re less than 8×.
So that’s the other driver: we think we can improve it with our 80/20 programs and by not having the public costs associated with a smaller public company. So that kind of sums up the best answer I can give you at this time.
Jonathan Siegman (Analyst at Stifel)
Great, thank you. Congratulations on… and a nice final one for Jason to have his contributions on. Good luck with it.
Robert Moravian (Executive Chairman)
Thank you.
OPERATOR
The next question is from the line of Guy Hardwick with Barclays. Please proceed with your questions.
Guy Hardwick (Analyst at Barclays)
Hi, good morning, Robert. Considering your pretty upbeat comments on the backlog, are you willing to give us kind of an early look as to what revenue growth potential could be in 2027, excluding the Varex acquisition? And just to say my follow‑up now: did digital imaging margins in Q3 benefit from any tariff reversals or refunds?
Stephen F. Blackwood (Executive Vice President & Chief Financial Officer)
No, the refunds were really taken up in Q2, so it doesn’t affect Q3. Let me start there. It’s a little early for us to talk about ’27. Matter of fact, we had our first cut of half of our businesses that George went through with our board. I think our momentum is there. I think we will improve next year. Again, whether it be at the level we did this year, or are projecting to do this year, I don’t know. It’s a little early. Improve we will—that I can tell you.
Guy Hardwick (Analyst at Barclays)
Thank you.
OPERATOR
Thank you. The next question is from the line of Joe Giordano with TD Cowen. Please proceed with your questions.
Joe Giordano (Analyst at TD Cowen)
Hey guys. Good morning. So on the orders there, I mean, again, at a consolidated level, really strong. It’s a pretty similar number to what you had in dollars last quarter. I’m just curious if there are any parts of that where you feel like customers are ordering earlier or excessively because of worries about a budget or anything like that. I mean, I know your products are not stocked in inventory typically or anything like that, but just curious if there are any parts of the business where you feel like there is a little bit of different order patterns for whatever reason.
Robert Moravian (Executive Chairman)
Yeah, Joe, I don’t think so. We haven’t seen anything unusual. The backlog and the orders are broad‑based across our products. We’re not looking at any huge movements because of data centers or other things. So we feel comfortable about that. That’s the best answer I can give. We haven’t noticed anything unusual across our portfolio.
Joe Giordano (Analyst at TD Cowen)
And then on Varex—like I think my phone cut out a little bit, you may have gotten into this a little bit on the last question—but on the growth side of Varex, I mean, you guys have shown the ability to cut costs out and so I think people would expect that on the margin side. But growth, you mentioned it’s been flattish. What do you do there? Is that just the market dynamic? You know, I know you’re probably not wanting to buy something that’s wildly dilutive to the total growth profile of Teledyne.
So what do you do there to stimulate that?
Robert Moravian (Executive Chairman)
Yeah, I think first we’re going to apply, like we do in all of our businesses every single quarter, every single month. We’re going to apply our 80/20 principles to Varex. What do we mean by that? We haven’t done detailed analysis because obviously we’re going through the process now. So the first thing in 80/20 is that’s probably going to shrink revenue somewhat because we look at the 80% of the revenue that is substantially available for us to improve margins and there’s 20% that goes to smaller customers that are dilutive to earnings.
And we do that across Teledyne. If you looked at Teledyne today versus four or five years ago, we’ve reduced the number of SKUs that we have by 50%. So we’re going to do that first. So that might actually reduce our revenue a little bit at the beginning. But then we think after that we think we’ll get back to mid-single-digit growth like we do under normal circumstances across our own portfolio. And we obviously look for synergies where we can sell similar but different products to the same customer. So I think initially revenue down a little bit, margins up, gross margins up, almost first-year accretive, and then as we go forward grow the business like we’ve done every other acquisition that we’ve made.
I think it’s going to be one face. That is very important because George really was the architect of what we call One Teledyne. And it’s not just across healthcare but across all of our products. So when a market representative, a sales representative approaches a company, whether it’s a defense company or a commercial company, they have the visibility of all of our products. And so somebody in defense might mention some of the products we have in the commercial domain.
We’re going to do the same thing with Varex. It’s not going to be separate. It’s got to be a One Teledyne approach. Thank you.
OPERATOR
The next questions are from the line of Ron Epstein with Bank of America. Please proceed with your questions.
Ron Epstein (Analyst at Bank of America)
Good afternoon. Good morning, guys. So, yeah, just quickly, I didn’t hear much discussion around how are supply chains holding up for you? We’ve gone to some of the recent trade shows. We’ve heard that there’s shortages on things like printed circuit boards and some basic electronic components. Given all the—how can I say it—capacity that’s being thrown to the hyperscalers and the AI build-out, that they’re kind of like sucking up everything. How’s that impacting you guys and how are you managing it?
Robert Moravian (Executive Chairman)
Well, that’s a very good question. Obviously, there’s a lot of shortages. We have a dedicated team that works with our businesses that ensures that we get what we need to produce our products. The only problem that we see, because of the shortages, the inflation—specific inflation to the different areas you mentioned—is higher than normal, but we try and make up for that with price increases. This year we’ve been successful in enjoying probably one of our better price increases across our portfolio.
So it’s an annoyance from an inflation perspective, and sometimes you have a hard time getting specifically what you need. But we’re very aggressively planning ahead with our suppliers, recognizing that some of the shortages would probably not last, let’s put it that way.
Ron Epstein (Analyst at Bank of America)
Got it, got it. Thank you very much.
OPERATOR
The next questions are from the line of Noah Poponak with Goldman Sachs. Please proceed with your questions.
Noah Poponak (Analyst at Goldman Sachs)
Hey, good morning, everyone.
Robert Moravian (Executive Chairman)
Good morning, Noah.
Noah Poponak (Analyst at Goldman Sachs)
Jason, congrats on your announcement and thanks for all the time you spent with us over the years. Always super helpful.
Jason Van Wiese (Vice Chairman)
Thanks, Noah. And I’ll see you in December. So I’m still here for now.
Noah Poponak (Analyst at Goldman Sachs)
Yeah, appreciate that, Robert. Given the diversification of your business as well as you guys have done over the years, there aren’t that many quarters in any of the businesses that look like the last two growth rates in digital imaging. I guess it leaves me wondering, how sustainable is that? Because what’s happening in the defense verticals you feed into right now is pretty unique and at least for now seems fairly enduring. And I guess you kind of have that happening at the same time that your commercial side is picking up.
That has a little bit more of a cyclical element to it. Can we—do you see these growth rates sustaining for a period of time, or is this more the early pickup on easy compares?
Robert Moravian (Executive Chairman)
Thank you, Noah. Very good question, as usual. Difficult one to answer. Let me just say short term, and short term 20, 27, we think that we’re going to do better than we have historically this year. As you know, we’re looking at about 8.3, 8.4% growth. That’s organic, which is higher—the organic, sorry, is about 7.5%, but still it’s higher than what we’ve enjoyed the last 15 years or so. I think that’s going to sustain, maybe not exactly at that level, but it’s going to be better than low single digits, which we’ve been stuck on for a while.
Mid to higher single digits is what we’re anticipating. It’s hard to say, but you know, we have a balanced portfolio. We’ve intentionally worked very hard to balance our portfolio so that when things get tough, we survive and do well. And when things are going well, some parts of our portfolio outshine like they are this year. I feel comfortable that we’re going to do better than our historical—maybe not as aggressive as this year, but pretty close to it.
Noah Poponak (Analyst at Goldman Sachs)
And then I also wanted to ask about the margin in that segment. You know, when it was under some pressure you would project when you, when you expected it to be back to the level it’s at now. I guess now that it’s here and it maybe has growth ahead of it, but also pieces moving around under the hood. Is there a framework for how to think about the three- to five-year out or just the longer-term profitability potential of digital imaging?
Robert Moravian (Executive Chairman)
Yeah, in digital imaging, obviously we’ve enjoyed significant margin improvement this year over last year. By the end of the year, we expect the total margin to go up 225 basis points. Our target for every year across our portfolio is at least 50 basis points. This year we’re going to enjoy closer to 90 basis points, and that improvement, really we just announced this quarter—last quarter we were closer to 50, 55. So I think our target is to stay on that 50 and do what we can year over year to improve our margins.
And that goes to the heart of what George talked about. When necessary, cut cost. When things improve, don’t put it back.
Noah Poponak (Analyst at Goldman Sachs)
Okay, one last one. Just what’s the implied fourth quarter total company organic revenue growth that’s embedded in your revised guidance? I realize you raised the bottom line considerably, but it seems like it would require organic growth that maybe looks a little conservative given you still have the easy compares.
Robert Moravian (Executive Chairman)
I think 7 to 8% is the number we have in mind at the present time. It may be a little higher, but 7 to 8% for Q4. As we get into Q4, which we are now, things are looking pretty well. We just have to execute. Execution is, as you well know, everything in our portfolio. So 8% is a good number.
Noah Poponak (Analyst at Goldman Sachs)
Okay, thanks very much.
Robert Moravian (Executive Chairman)
Thank you, Noah.
OPERATOR
The next question is from the line of Robert Jamison with Needham & Company. Please proceed with your question.
Robert Jamison (Analyst at Needham & Company)
Hey, good morning. Thanks for taking my questions here. Just back on the 4Q guide as well. Just with everything and the positive commentary around order books and book-to-bill, and then just looking historically, I got to go back to 2015, 2016 to see, sequentially, when EPS was kind of like similar in 3 to 4Q. So just wondering what’s kind of embedded in your outlook and any puts and takes in the broader macro that you’re considering that might be just keeping a little bit more cautious here on your guidance?
Robert Moravian (Executive Chairman)
Yeah, I think if you kind of look back at those years—and by the way we do all the time—what happened is by the end of fourth quarter of 2025, we started seeing some tax benefits, which by the way, we’re not enjoying today. So we’re very hard at work making sure that we get those tax credits. But they play an important role, obviously, especially if we can move the IRS to do what it’s supposed to do—make decisions. If we can do that, we might enjoy some tax benefits on top of everything else.
But if you look back at what we call coming out of the hard years, simply what happened is we cut costs, as I mentioned before—George did, let’s say in marine and other domains—but when markets turned up, we didn’t put all that cost back. We had very good discipline. If we can do that again, that would sustain us for a while and our EPS will grow just like we did subsequent to the tough years that we had in the mid 2015 and 2016. So that’s the best I can do in my answers.
George, do you have anything you want to add?
George Bobb (President and Chief Executive Officer)
No, no, I guess not.
Robert Jamison (Analyst at Needham & Company)
No, thank you. That’s helpful. And then just can you update us on the unmanned outlook? Just how much you expect to generate just on dollar growth for this year? I know you guys kind of bumped that up the last couple quarters. So just curious where that stands today. Thank you.
Robert Moravian (Executive Chairman)
Yeah, broadly 15% year over year, 25 to 26, just unmanned. If you put everything else in with space, electronic warfare, missiles, and of course underwater, if you do all of that, it’s still double digits. It’s 11.3, 11.5%. So while unmanned is doing really great, everything else in the portfolio seems to be moving up in double digits in that domain.
Robert Jamison (Analyst at Needham & Company)
That’s great.
Robert Moravian (Executive Chairman)
Thank you.
OPERATOR
Thank you. The next question is from the line of John Godin with Citigroup. Please proceed with your questions.
Bradley Oyster (Analyst at Citigroup)
Hi, this is Bradley Oyster for John Godin. Thanks for taking my question. So I just want to follow up on Noah’s question about the growth trajectory for digital imaging. I mean, 2Q, 3Q have been strong, but I’m just trying to think for the potential outlook here, given that you called programs such as space sensors, missile detection. These programs still seem to be in their infancy. So I’m just trying to think what the size and shape of this segment looks like over the fullness of time.
Any color you can give here would be appreciated. Thank you.
Robert Moravian (Executive Chairman)
Let me just say right now, from where we sit, George and I, we’re looking at mid-single digits, maybe a little higher than that, 5 to 8%. It’s too early right now. Right now we’re working on 2027, and I’ve never been one to project beyond a year. I know some people would tell you, you know, three to five years, everything’s going to be great. But that’s not us because we don’t see that far into the future. But I think single digits on the high side, we’d be comfortable with that.
And as we execute and as we compete with new programs, with things like our new drones, loitering drones that are armed, with our new nano drones that you can release three of them simultaneously from a single platform and recover them, with our ability to have an environment where all of our drones, whether it’s ground based or air, talk to one another, I think we feel comfortable with the, let’s say, higher single-digit growth.
Bradley Oyster (Analyst at Citigroup)
Got it. Appreciate the color. I’ll keep that to one. Thank you.
Robert Moravian (Executive Chairman)
Thank you.
OPERATOR
Thank you. The next question is from line of Joe Giordano with TD Cowen. Please proceed with your question.
Joe Giordano (Analyst at TD Cowen)
Thanks for letting me back in. Just wanted to clarify something—I may have heard wrong. Robert, I thought you said for DI, for the year, you were thinking like 8, 8-point-something percent. Is that a fourth quarter number or is that a full-year number? Because if it’s a full-year number—I’m guessing it’s not—then it would mean like fourth quarter organic is barely up. I just wanted to clarify that.
Stephen F. Blackwood (Executive Vice President & Chief Financial Officer)
Yeah, I think for the year it’s higher than that. Organic is 10% with 0.6 from acquisition. It’s 10.6, closer to 11%. So if I said that, I may have misspoken. We’re talking about the revenue for digital imaging around $3.5 billion.
Joe Giordano (Analyst at TD Cowen)
That makes much more sense. Thank you.
Stephen F. Blackwood (Executive Vice President & Chief Financial Officer)
Thank you, Joe.
OPERATOR
Thank you. At this time we’ve reached the end of our question and answer session and I’ll hand the floor back to management for any closing comments.
Robert Moravian (Executive Chairman)
Thank you, Rob. I will now ask Jason to conclude our conference call.
Jason Van Wiese (Vice Chairman)
Thanks, Robert. And again, thank you, Rob, for hosting the call. And if any of you have follow up questions, please feel free to call me or you have my email else. So. Thanks, everyone. Bye.
OPERATOR
This will conclude today’s conference. You may disconnect your lines at this time. We thank you for your participation. Have a wonderful day.
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