Direct Answer
25 SEC filers are classified under the Standard Industrial Classification codes that describe the defense contractors industry, and their latest annual reports show $224.6 billion of combined revenue and a median operating margin of 1.9%. Investors should still evaluate its revenue model, industry-specific KPIs, valuation framework and the risks that can change the group's economics.
Industry Overview
Defense contractors build weapons, aircraft, ships, vehicles and electronics for government customers under long contracts. Budgets, program awards and execution drive revenue, and margins are regulated by contract type. The first numbers to compare across companies here are backlog and book-to-bill, segment operating margin and free cash flow.
Key Industry Metrics
- Backlog and book-to-bill: Backlog is contracted work not yet delivered, and book-to-bill compares new awards with revenue recognized. A ratio above one means backlog is growing, and below one means it is being worked down.
- Segment operating margin: Operating profit as a share of revenue for each business segment. Margins reflect contract type: cost-plus work tends to earn lower, steadier margins than fixed-price work, which carries overrun risk.
- Free cash flow: Cash from operations less capital spending. On long programs, cash timing depends on milestone and progress payments, so compare it with net income to see whether profit is converting to cash.
- Program awards: New contracts or extensions won for specific weapons or platform programs. Large awards extend revenue visibility for years, while a lost competition or a successful protest removes expected volume.
- International sales share: Share of revenue from foreign customers, including government-to-government sales. A rising share diversifies away from one national budget but depends on export approvals and allied spending.
Primary Macro Drivers
- Defense budgets: Appropriations set the funding pool for new awards and ongoing programs, so budget growth feeds backlog and revenue, while flat or cut budgets slow book-to-bill.
- Geopolitical tension: Heightened threats push governments to raise readiness and buy equipment, supporting program awards and international orders; watch backlog growth and customer commentary.
- Modernization programs: Replacing aging aircraft, ships and systems creates multi-year production and development contracts, lifting backlog and giving revenue visibility across the program life.
- Foreign military sales: Allied government purchases add revenue beyond the home budget, often with long sustainment tails; watch the international share of sales and orders.
Major Risks
- Budget and policy shifts: Spending cuts, continuing resolutions or priority changes can delay awards or cancel programs, showing as lower book-to-bill and backlog; watch appropriations and program funding lines.
- Program cost overruns: Fixed-price development contracts can force charges when costs exceed the price, hitting segment margin and free cash flow; watch reach-forward loss disclosures.
- Contract protests: Losing bidders can challenge awards, freezing work and delaying revenue for months; watch protest filings and award decisions in company disclosures.
- Supply chain: Shortages or late parts from sole-source suppliers delay deliveries and push out revenue recognition; watch delivery schedules, inventory build and supplier commentary.
Industry Characteristics
| Characteristic | Profile |
|---|---|
| Cyclicality | Defensive |
| Capital Intensity | Medium |
| Regulatory Intensity | High |
| Industry Maturity | Mature |
| Geographic Importance | U.S. |
Defense Contractors Filers in the SEC Record
25 companies with annual reports in the dataset are classified by the SEC in the Standard Industrial Classification codes 3760, 3812, 3480, 3730. Their latest fiscal years end between 2025 and 2026, and together they reported $224.6 billion of revenue. Median revenue growth over the prior year was 7.9%. Median operating margin was 1.9% and median net margin 1.8%. Median total liabilities were 33% of total assets, and 14 of 25 reported a profit in their latest year.
| Company | Revenue | Growth | Operating margin | Net margin | Year |
|---|---|---|---|---|---|
| Lockheed Martin Corp | $75.0 billion | 5.6% | 10.3% | 6.7% | FY 2025 |
| General Dynamics Corp | $52.5 billion | 10.1% | 10.2% | 8.0% | FY 2025 |
| Northrop Grumman Corp | $42.0 billion | 2.2% | 10.8% | 10.0% | FY 2025 |
| L3harris Technologies, Inc. | $21.3 billion | 9.8% | 9.0% | 7.0% | FY 2025 |
| Huntington Ingalls Industries, Inc. | $12.5 billion | 8.2% | 5.3% | 4.8% | FY 2025 |
| Garmin Ltd | $7.2 billion | 15.1% | 25.9% | 23.0% | FY 2025 |
| Teledyne Technologies Inc | $6.1 billion | 7.9% | 18.8% | 14.6% | FY 2025 |
| Axon Enterprise, Inc. | $2.8 billion | 33.5% | -2.2% | 4.5% | FY 2025 |
The 8 largest of 25 by revenue. Source: each company's own annual report as filed with the SEC (XBRL data), figures in U.S. dollars. A company's SIC code reflects its main business as the SEC records it, so it can differ from how an index provider or analyst classifies the company, and a diversified group appears under only one code.
Where to Go Next
The Defense Contractors guide describes how the industry earns money, what to measure and what can go wrong. To see how it compares, read the neighbouring industries in the same sector, then apply the same checks to a specific company.
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Frequently Asked Questions
What are the main KPIs for the Defense Contractors industry?
Key performance indicators for the Defense Contractors industry include: Backlog and book-to-bill, Segment operating margin, Free cash flow, Program awards, International sales share. Which matter most depends on the company's model, so compare them across several companies rather than relying on one.
How cyclical is the Defense Contractors industry?
The Defense Contractors industry is generally defensive, meaning demand tends to remain relatively stable regardless of the economic cycle. Companies in this space can provide portfolio stability during recessions, though growth may lag in strong expansions.
What are the biggest risks in the Defense Contractors industry?
The primary risks for Defense Contractors companies include: Budget and policy shifts, Program cost overruns, Contract protests, Supply chain. Investors should assess each company's exposure to these factors and its track record of navigating them.