BAE Systems (OTC: BAESY), a prominent UK-based defense contractor listed on the FTSE 100, specializes in advanced military equipment including aircraft, munitions, warships, and cybersecurity solutions. It competes globally with firms like Lockheed Martin and Northrop Grumman, benefiting from heightened geopolitical tensions and increased defense budgets in regions such as Europe, the US, and Asia.
On February 18, 2026, BAE Systems released its full-year 2025 earnings before market open, showcasing robust performance despite a complex global environment. The results highlighted sustained demand for its products, driven by orders for Eurofighter Typhoon jets, frigates, and combat vehicles from European governments aiming to enhance security capabilities.
Key financial metrics distinguish between underlying (non-IFRS) figures, which include the Group’s share of equity-accounted investments and exclude one-off items, and statutory IFRS numbers. Underlying sales advanced 10% to £30,662 million (approximately $41.6 billion at prevailing exchange rates), marking a record high. This growth was supported by strong performances across all sectors, including Electronic Systems, Air, Maritime, and Platforms & Services.
Statutory revenue under IFRS increased 8% to £28.3 billion from £26.3 billion the prior year. The discrepancy arises because underlying sales incorporate proportional contributions from joint ventures, providing a broader view of operational scale.
Operating profits also demonstrated resilience. Underlying EBIT rose 12% to £3,322 million, achieving a return on sales of 10.8%, up 20 basis points from 10.6%. Statutory EBIT was £2,934 million, up from £2,684 million, reflecting a more conservative accounting approach that excludes certain adjustments.
Earnings per share (EPS) figures vary by metric and share class. Underlying EPS grew 12% to 75.2 pence from 68.5 pence. Statutory EPS was 68.0 pence, compared to 64.1 pence previously. For the ADR (BAESY), which represents four ordinary shares, this translates to an underlying EPS of approximately $4.07 (using a GBP/USD rate of 1.354), though specific ADR-reported figures may adjust for dividends and taxes.
Order activity remained a standout, with intake of £36.8 billion across sectors. Notable contracts included deals with Norway for combat vehicles, the US for electronic warfare systems, and Turkey for munitions. This contributed to a record order backlog of £83.6 billion, an increase of £5.8 billion from 2024’s £77.8 billion, providing visibility into future revenues.
Cash generation was solid, with free cash flow of £2,158 million, down from £2,505 million but still strong amid elevated capital expenditures nearing £1 billion and increased R&D spending. The three-year cumulative free cash flow for 2023-2025 exceeded £7 billion, surpassing guidance.
Looking forward, BAE Systems provided optimistic guidance. For 2026, underlying sales are projected to grow 7-9%, with underlying EPS increasing 9-11%. Free cash flow is expected to exceed £1.3 billion. Multi-year outlooks include cumulative free cash flow over £6 billion for 2024-2026 (upgraded from £5.5 billion), over £5.5 billion for 2025-2027, and over £6 billion for 2026-2028. These projections underscore confidence in sustained growth, fueled by a “new era” of defense spending amid escalating security challenges.
Stock market response was favorable. BAESY shares opened at $113.82 from a previous close of $110, reaching highs of $115.82, representing an intraday gain of about 4%. This aligns with a 6% rise in the ordinary shares (BA.L), though ADR movements can lag due to trading volumes and currency fluctuations. Year-to-date, BAESY has returned over 23%, outperforming benchmarks like the FTSE 100.
Valuation metrics reflect investor optimism. The trailing P/E ratio stands at approximately 32.35, indicating investors are paying a premium for growth prospects. The P/S ratio is about 2.20, valuing the company at more than twice its annual sales. Enterprise value to operating cash flow is around 27, based on EV of $87.65 billion and OCF of $3.24 billion, suggesting a balanced view of cash efficiency relative to debt and market cap.
