Daktronics' Record Year: Margin Expansion, Tariff Hedging, and a Software Pivot
How the LED giant turned record orders and pricing power into a 290bps margin expansion while hedging tariff risk with a Mexico ramp and a new recurring-revenue product.
DAKT · Earnings Call · 2026-06-24
Strong Finish, Record Year
Daktronics capped fiscal 2026 with a record quarter and a clear message: the transformation plan is working. The company delivered record annual revenue of $839M (up 10.9%), record annual orders (averaging >$215M per quarter), and a 290-basis-point expansion in operating margin. Total Revenue was broad-based across four of five segments, with international up 25% and commercial up 16%. CEO Ramesh Jayaraman opened the call by saying, “We delivered record annual revenues and record annual orders, drove meaningful expansion in operating margins and EPS growth.” — Ramesh Jayaraman, President and CEO · 2026-06-24Margins: Pricing Power Meets Operating Leverage
The margin story was the quarter's standout. Fourth-quarter gross profit margin rose to 28%, or 27.4% excluding a warranty recapture, versus the prior four-quarter average of 26.4%. Howard Atkins credited "stronger revenue conversion operating leverage manufacturing expense discipline and working capital efficiency improvements." Indeed, Operating Margin roughly doubled year over year, and fourth-quarter adjusted EPS grew 50%, to $0.27. The company's value based pricing actions—combined with end market demand and a leaner cost structure—have been the primary levers overcoming a "more challenging input cost environment," including tariff headwinds. Howard reiterated on the prior call that the team is “well into the game” — Howard Atkins, Acting Chief Financial Officer · 2026-03-04 on the operational initiatives, and the results confirm that.Tariffs and the Mexico Hedge
Tariffs remain a live issue. Howard noted on the prior call, “our extra tariff expense this year is almost another $8 million on the tariff expense that we had in the quarter of this year that we didn't have a year ago” — Howard Atkins, Board Member and Acting Chief Financial Officer · 2025-12-10—a reminder that even with pricing power, tariff volatility is costly. Management's answer is a combination of pricing, supplier negotiations, and manufacturing footprint optimization. The 110,000-square-foot Mexico facility is central to that hedge; production begins in July and first shipments are expected in Q2 FY27. Ramesh was direct about the strategic rationale: “Provided how all tariffs and other stuff work. This should result in better margins over a period of time.” — Ramesh Jayaraman, President and CEO · 2026-06-24 He cautioned that initial margins will be muted, but the facility is designed for long-term flexibility in a dynamic trade environment. This also aligns with a broader global theme of Tariff exemptions and manufacturing relocation as companies adapt.Software and Services: Camino 8 and Beyond
Beyond hardware, Daktronics is positioning itself for recurring revenue. The new Camino 8 software platform, unveiled at Angel Stadium in April, integrates with Daktronics' show-control systems and enables real-time data graphics, lighting, and audio for live storytelling. When asked about a recurring revenue component, Ramesh said, “There will be a combination that will sit with the initial software and some element of recurring.” — Ramesh Jayaraman, President and CEO · 2026-06-24 The company also launched a modernized services system in May, reaching 100% customer adoption and generating cost efficiencies through automation. These moves support the strategy of expanding software and services-enabled growth, which management believes will deepen customer relationships and raise the quality of earnings.Reaffirming FY28 Targets
The end-market momentum is visible in the record backlog of $356 million, up 4% year over year, with approximately 52% expected to convert to revenue in Q1 FY27. Transportation delivered a record order year (up 24%), and international won large projects in Qatar and the UAE. Meanwhile, the high-school and recreation market continues to see the secular shift from static scoreboards to video—a driver that CEO Ramesh called "long-term secular demand." Management reaffirmed its fiscal 2028 targets: 10% revenue CAGR, 10-12% operating margin, and 17-20% ROIC.The company's cash generation remains strong despite a lower year-over-year figure (due to a tough compare), and it returned $25.5M via buybacks. The balance sheet holds Effective Net Cash of $133M, giving ample dry powder for the "tuck-in" M&A they've discussed. Daktronics enters Q1 FY27 with a 13-week quarter (vs 14 weeks last year), but management is confident: backlog, pricing discipline, and the Mexico ramp should keep the transformation story on track. The stock has pulled back ~30% from its February peak, offering a potential entry point for investors who believe the FY28 targets are achievable.We enter fiscal 27 with a very strong backlog, continued demand across our major end markets, and a clear set of execution priorities that support our path to fiscal 28 financial targets.