What Management Said
Read the full Q2 2026 transcript ↗I'd like to welcome everyone to Teledyne's second quarter 2026 earnings release conference call. This morning, we were pleased to announce the strongest quarterly orders, sales, and operating profit in the company's history. Orders have now exceeded sales for the 11th consecutive quarter, and we ended June with approximately $5 billion of funded backlog. Organic growth was greatest in our Digital Imaging segment, where infrared detectors and systems for space, airborne, and marine unmanned systems, as well as counter-unmanned applications, increased significantly.
Furthermore, we achieved mid to single high digit growth in our other segments, as well as each product line within the Instrumentation segment. Largely based on the strong Q2 performance, we now believe 2026 annual revenue will be $120 million greater than we forecast in April. We're also raising our full year non-GAAP earnings outlook by $0.55 per share at the midpoint of our prior outlook to reflect the additional organic growth. Notwithstanding the acceleration of our organic growth, we will continue to compound earnings and cash flow through acquisitions.
In fact, approximately 90% of today's earnings are from businesses that Teledyne has acquired over the past 25 years. With leverage at its lowest level in six years, we have more than ample flexibility to deploy significant capital. In the Digital Imaging segment, second quarter sales increased 12.7% and 11.9% organically due to well-balanced growth among our defense and commercial businesses. In addition, segment sales increased in each of our larger commercial end markets.
What went well
- Teledyne reported the strongest quarterly orders, sales and operating profit in company history, with sales up 9.8% and non-GAAP EPS up 20.8%.
- Orders exceeded sales for the 11th consecutive quarter with a 1.23x book-to-bill (Digital Imaging above 1.4x), ending June with roughly $5 billion of funded backlog.
- Digital Imaging led growth, with sales up 12.7% (11.9% organic) and non-GAAP operating margin up 353 basis points to 25%, as infrared detectors for space rose more than 20% along with unmanned and counter-UAS products.
- Management raised full-year 2026 revenue by about $120 million versus April (to over $6.53 billion, ~7% growth) and lifted full-year non-GAAP EPS guidance by $0.55 at the midpoint.
- Free cash flow grew to $284.7 million (from $196.3 million a year earlier), and net leverage fell to 1.1x, the lowest in six years, leaving ample capacity for acquisitions.
- Short-cycle commercial markets (industrial/scientific vision, healthcare X-ray, test and measurement) inflected positively, and space and unmanned businesses each grew more than 10%.
What went wrong
- Instrumentation non-GAAP operating margin declined year-over-year on unfavorable product mix, as the fastest growth came from lower-margin autonomous underwater vehicles and marine.
- Commercial aerospace sales rose only slightly amid delays in larger avionics retrofit opportunities.
- The fourth-quarter guide implies only modest year-over-year growth against tough Digital Imaging comps, which management attributed to conservatism plus real risks.
- Over $1 billion of annual revenue depends on constrained inputs such as germanium and rare-earth magnets, prompting mitigation like in-house machine shops to recover germanium scrap.
- Management flagged macro uncertainties, including volatile oil prices and a new set of proposed tariffs, as reasons for caution in the second-half outlook.
- Buyback activity was light in the quarter, and Teledyne has been outbid by 30%-33% on some simple acquisitions it declined to overpay for.
Guidance Changes
| Metric | Period | Current guidance |
|---|---|---|
| Full-year 2026 revenue | FY2026 | over $6.53B (+$120M vs April; ~7% growth, +200 bps vs April) |
| Full-year 2026 non-GAAP EPS | FY2026 | $24.45-$24.65 (raised $0.55 at midpoint) |
| Full-year 2026 GAAP EPS | FY2026 | $20.73-$20.99 |
| Q3 2026 non-GAAP EPS | Q3 2026 | $6.05-$6.15 (GAAP $5.10-$5.25) |
| Full-year company margin improvement | FY2026 vs 2025 | ~+56 basis points (upside if revenue rises further) |
| Segment growth outlook | FY2026 | Digital Imaging ~7.5% (FLIR >9%), Instrumentation ~5.7%, Aerospace & Defense ~7.2%, Engineered Systems ~5.6% |
| Commercial short-cycle growth | FY2026 | mid-single digits collectively |
| Defense sales growth | FY2026 | high single digits with pockets of double-digit growth |
Performance Breakdown
| Metric | YoY | Note |
|---|---|---|
| Total sales | +9.8% | Record execution of a nearly three-year backlog build, led by Digital Imaging with broad growth elsewhere. |
| Non-GAAP EPS | +20.8% | Volume leverage, margin expansion and cost control across the portfolio. |
| Digital Imaging sales | +12.7% (+11.9% organic) | Space infrared detectors up >20%, plus unmanned air/maritime, border security and drone-defense products, with broad commercial end-market growth. |
| Digital Imaging non-GAAP margin | +353 bps to 25% | Volume plus ~120 bps from tariff refunds; even excluding tariffs margin rose over 200 bps despite higher R&D. |
| Instrumentation sales | +5.5% | Marine +5.7% on unmanned subsea and submarine interconnects (~+20%), environmental +6% (DD-Scientific plus gas/flame detection), test & measurement +4.3%. |
| Aerospace & Defense Electronics sales | +8.2% | Broad defense-electronics growth led by Qioptiq (+20% organic); slight commercial aerospace growth despite avionics retrofit delays. |
| Engineered Systems revenue | +8.4% (margin +166 bps) | Greater sales and execution in commercial nuclear power and U.S. missile-defense programs. |
| Free cash flow | $284.7M (up from $196.3M) | Favorable operating results and lower income-tax payments; net debt $1.69B, net leverage 1.1x. |
| Unmanned business | ~$575M (from ~$500M, ~12% growth) | Growth in air (Black Hornet 4 nano-drones), ground and underwater vehicles, plus subsystems for unmanned surface vessels. |
Earnings Call Themes & Trends
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Defense demand acceleration | Multi-year defense backlog building | Defense (~30-35% of sales incl. foreign) accelerating to high-single/double-digit growth; missiles & munitions ~$200-250M run-rate (AMRAAM, PAC-3, Hellfire, Javelin, hypersonics) with rising customer inquiries, ~$30M+ government manufacturing-capacity investment and European (MBDA) increases. | — |
| Space / Golden Dome | Growing space business | Space expected to reach ~$400-450M for the year, primary supplier across Golden Dome and Tranche 3, anchored by unique mercury-cadmium-telluride detectors, with electronics being added. | — |
| Unmanned systems portfolio | ~$500M unmanned (2025) | ~$575M in 2026; ~$400M in Digital Imaging (air/ground), ~$100M underwater; Black Hornet 4 selling well, strong UK/Europe underwater orders and large-program competitions; USV subsystems used in the Strait of Hormuz and Gulf. | — |
| M&A strategy / capital deployment | Disciplined acquirer; prices called 'crazy' | Net leverage 1.1x (lowest in six years), $1.2B untouched credit and ~$4B+ potential capacity; ~$1B deployed over two years; actively pursuing small and mid-range (~$1B+) deals across defense and commercial but declining 30-33% overbids. | — |
| Short-cycle commercial inflection | Industrial/healthcare headwinds | Broad-based short-cycle recovery: DALSA e2v industrial/scientific vision +8% (semiconductor/electronics inspection strong), healthcare X-ray +8.5%, test & measurement +4% with protocol solutions picking up (terabit Ethernet, PCIe 6.0). | — |
| Supply-chain constraints | — | Over $1B of revenue depends on germanium and rare-earth magnets; more than a year of mitigation work including in-house machine shops to recover germanium scrap (~50% of lens material). | — |
| CapEx investment for demand | — | ~30% higher CapEx year-over-year to meet demand in IR camera modules, radars, counter-UAS, and unmanned subsea/aerial vehicles, supplemented by government and customer program investments. | — |
| Acquisition integration (Qioptiq, Micropac) | Recently acquired | Qioptiq grew 20% organically with steadily improving margins and enables European space-program wins alongside e2v; Micropac showing margin improvement and power-distribution cross-selling into the space business. | — |
Q&A Summary
Zach Walljasper (UBS) asked how unmanned and space are tracking versus 10%+ targets and about the nature of the order/backlog increase.
Mehrabian said both unmanned and space grew more than 10%; Q2 book-to-bill was 1.23x (Digital Imaging >1.4x), with many defense orders multi-year, and the $120M revenue raise is broad across defense and commercial.
Bradley Eyster (Citi) asked about missiles/munitions exposure, MAC framework opportunities and the medium-term runway.
Mehrabian sized microwave/energetic missiles-and-munitions at ~$200-250M run-rate across programs like AMRAAM, PAC-3, Hellfire, Javelin and hypersonics, noting rising inquiries amid Middle East conflict, government manufacturing investment (~$30M+ in Engineered Systems) and European (MBDA) increases within ~30-35% total defense exposure.
Adam Samuelson (Jefferies) asked to disaggregate margin drivers, the tariff impact and cost-inflation trends.
Bobb said tariff benefit net of one-time items was ~$10M (mostly Digital Imaging, ~120 bps of its 353 bps gain); Mehrabian gave total segment margin 25.1% and company margin 23.4% (+120 bps), expecting the ~56 bps full-year improvement to hold with upside if revenue rises.
Jim Ricchiuti (Needham) asked for full-year growth by segment, an update on unmanned sizing/split, and whether Q2 had pull-ins.
Mehrabian guided Digital Imaging ~7.5% (FLIR >9%), Instrumentation ~5.7%, A&D ~7.2%, Engineered Systems ~5.6%; unmanned ~$575M (from ~$500M) split ~$400M Digital Imaging and ~$100M underwater; and said pull-ins were very little, largely balancing out quarter to quarter.
Ed Magi (BNP Paribas) asked about leverage, the M&A pipeline and which industries screen attractive versus not.
Mehrabian cited 1.1x net leverage (heading toward ~$1B by year-end), ~$1.2B untouched credit and ~$4B+ potential capacity, with broad interest across defense and commercial in small and ~$1B+ mid-range deals, but an unwillingness to match 30-33% overbids.
Ed Magi (BNP Paribas) followed up on which short-cycle end markets are inflecting.
Bobb said the recovery is broad-based: DALSA e2v industrial/scientific vision +8% (semiconductor/electronics inspection), healthcare X-ray +8.5%, and test & measurement +4% with oscilloscopes strong and protocol solutions (terabit Ethernet, PCIe) improving.
Joe Giordano (TD Cowen) asked why Q4 looks conservative given accelerating businesses.
Mehrabian acknowledged conservatism plus tough Q4 Digital Imaging comps and possible $30-40M upside, but cited germanium/rare-earth supply headwinds, volatile oil prices and proposed tariffs as reasons for prudence.
Joe Giordano (TD Cowen) asked how big the space business will be by year-end.
Mehrabian said space should exceed $400M, perhaps ~$450M, as the primary supplier across Golden Dome and Tranche 3, driven by unique mercury-cadmium-telluride detectors.
Sebastian Rivera (Stifel) asked whether lengthening defense awards change investment plans and the government/commercial mix, plus the Canadian MEMS foundry win.
Bobb said yes, CapEx is up ~30% year-over-year plus government and customer investments; Mehrabian said no mix inflection is likely (defense ~30-35%) and described the C2MI Bromont MEMS foundry as a ~$300M-over-time Canadian government investment with Teledyne co-investing toward larger wafers.
Rob Jamieson (Vertical Research) asked about the machine-vision cycle and Qioptiq/Micropac integration and cross-selling.
Mehrabian said industrial businesses are moving up to ~mid-single digits with hot semiconductor/data-center inspection pockets but flat life sciences amid China trade headwinds; Qioptiq grew 20% organically with improving margins enabling European space wins, and Micropac is improving margins with power-distribution cross-selling.
Joe Giordano (TD Cowen) asked how to frame test & measurement into the second half and 2027.
Bobb said oscilloscopes are hitting their marks while protocol solutions were slow in the first half but improving as PCIe and other devices reach production, keeping full-year test & measurement ~3% with a more positive second-half trend; Mehrabian highlighted PCIe 6.0's doubled speed as a future tailwind.
More on Teledyne Technologies Inc
Reported 2026-07-22 · figures from the Teledyne Technologies Inc Q2 2026 earnings call.
See how Top Bucket AI works for your firm
Request DemoTop Bucket AI Research
Stay ahead of private markets
Research and market intelligence for private-markets professionals.
✓
You're subscribed.
Thanks for signing up.