Ducommun's Record Quarter Met a 36% Drawdown — and Both Are Telling the Truth
Record bookings, record RPO, record gross margin… and a stock down 30% in 90 days. The gap between the print and the tape is the whole story.
DCO · Earnings Call · 2026-11-05
The best operating quarter the CEO has ever seen, in the worst tape
Ducommun delivered $227M of revenue (+6%), a record 28.9% gross margin, 17.5% adjusted EBITDA margin and $354M of bookings — a 1.6x book-to-bill that reached 2.2x in military and space, lifting remaining performance obligations to a record $1.3B. Steve Oswald did not hedge: “With increased defense spending and positive momentum in commercial aerospace, we have strong tailwinds in both our primary end markets. It is the best I have seen since joining Ducommun in 2017.” — Stephen G. Oswald, Chairman, President and Chief Executive Officer · 2026-11-05
And yet the equity is down 30.4% over the last 90 trading days and 36% from its August 14 peak of $206.98. Some of that is the market's own de-rating of defense-tech; the global theme tape shows the aerospace/defense growth complex in a sustained slide, with flight test program down 35% over 90 days and the catch-all significant growth driver cluster off 45% over the same window. Some of it is valuation. Ducommun spent most of the last decade at 0.6x–1.2x revenue; it now trades at 3.2x price-to-revenue, up 109% year over year. Even after a 36% haircut, this is not a cheap stock trading on a bad print. It is an expensive stock marking time.
So what actually changed this quarter?
A two-year repricing of the scarcest asset in the portfolio
The single most consequential item on the call was buried mid-script: Ducommun's 7-year titanium agreement with Airbus expires at the end of 2026, and management has replaced it with a 2-year deal — at much better prices.
Happy to report we have now finalized a new 2-year agreement to continue supplying super plastic form and hot form titanium products for the a 23 family. And in addition, we received the purchase orders today from Airbus… We will now see significant double digit price increases for both Pratt and CFM to sell components.
The strategic point is that hot form titanium is not commodity machining — Ducommun is the global share leader outside Airbus's own Toulouse operation, one of a very few players on earth. Sales people like to call that a moat; in contract manufacturing it is closer to a toll booth. Management explicitly ties the margin benefit to 2027–2028. That is a cleaner, more durable earnings driver than any single missile program, and it arrived with a signed purchase order attached — rare for this story.
Radar is becoming a franchise; missiles keep promising
Oswald's other genuine enthusiasm was the radar business. YTD 2026 bookings: over $150M across 7 programs, against $65M for 5 programs in all of 2024 and just $11M for 3 in 2025. The catalysts were a $90M SPY-6 order from RTX and $54M for Mesa airborne surveillance for Northrop supporting the E7 Wedgetail. After years of talking about offloading work out of the primes' plants, the Andover CCAs shift is finally converting into orders.
Which makes it awkward that radar revenue actually fell in the quarter. The company has now labeled softness in its defense top line temporary decline for a second consecutive quarter, alongside the usual suspects in ground vehicles and rotorcraft. Revenue in the segment dropped 7% to $100M. The CFO was direct about the mechanism: “We do view this as temporary. We expect growth to come back in 2027.” — Suman Mookerji, Chief Financial Officer · 2026-11-05 Two quarters is a pattern; three would be a thesis problem.
The other timing item deserves attention. The 7-year framework agreements with RTX and Lockheed — the single biggest bull case for the missile franchise — have not produced purchase orders yet, and the timing has slipped. In May the answer on when orders hit backlog was “Second half of '26. Yes.” — Stephen Oswald, Chairman, President and Chief Executive Officer · 2026-05-12 Today it is late Q1 into Q2 of 2027. Framework awards are not orders, and the supply chain only eats when the primes release POs.
The thing nobody asked about anymore
For six straight quarters, aerospace destocking — Boeing Wichita inventory, the fuselage backyard, internal versus external drawdown — dominated this call's Q&A. This quarter it was reduced to a sentence: largely coming to an end in December. That silence is the signal. Growth in commercial aerospace of 28% to $97M, spanning single aisle, widebody, business jets and aftermarket, is what a business looks like on the far side of that drag. It also means the easy comparisons are now spent; the CFO gently declined to model sustained 20%-plus: “I would not say it stays above 20%. That would probably be a bit sporty, but we are going to continue to see the destocking wind down on the 737.” — Suman Mookerji, Chief Financial Officer · 2026-11-05
One uncomfortable detail under the record gross margin: it was all Electronic Systems (22.5% adjusted segment margin versus 18.9%), while Structural Systems adjusted margin fell to 14.2% from 16.4% on mix and manufacturing costs. A consolidated record masking a split segment result is worth watching.
Capital-light, cash-heavy, and finally shopping
The most under-appreciated feature of the missile ramp is that Ducommun does not intend to fund it with steel. Capital expenditure ran just $4M last quarter, down 16% year over year, after a decade of footprint pruning and a $13M facility consolidation program now fully in the P&L. Ramping Tomahawk, PAC-3 and AMRAAM volumes requires people and a few machines, not new plants. “We also are not looking to expand a significant amount of CapEx… it is a mix of existing capacity and nominal expansion at existing facilities that will support the higher volume.” — Suman Mookerji, Chief Financial Officer · 2026-11-05
Cash followed: $65.2M of YTD free cash flow, 103%–134% of adjusted net income, against a stated target two calls ago of simply reaching 100%. The offset is working capital — receivables at 65.4% of revenue, up 6.3 points year over year — and a still-modest $238M net debt position that leaves plenty of headroom on a $650M facility.
Which brings the punchline. Ducommun has spent three years telling investors it was a "picky eater" on M&A while carrying a $75M revenue placeholder in Vision 2027. This quarter the language changed: two corporate-development hires, added bench strength, and an explicit willingness to take a bigger bite. “We are looking to do things that are bigger than what we have looked at in the past… we have much more capacity to process and execute transactions than we have ever had.” — Suman Mookerji, Chief Financial Officer · 2026-11-05 With Engineered Products at a record 24% of revenue and the Vision 2032 strategy calling for at least 40% and 23% EBITDA margins on $1.6–1.7B of revenue, acquisitions are now the load-bearing element of the plan.
The bear case writes itself: an expensive stock, a defense top line that has shrunk two quarters running, orders still hostage to prime-contract timing, and a serial acquirer about to get less picky. The bull case is written in the RPO and the Airbus purchase order. For once, the tape — not the transcript — is the more skeptical document.