Elbit Systems (ESLT) Q2 2025: Backlog Climbs 12% as Europe Drives Double-Digit Growth
Elbit Systems posted another quarter of double-digit growth, propelled by a 12% year-over-year backlog expansion and robust demand across all segments and geographies. European orders and advanced defense solutions are fueling a step-change in scale, with management signaling ongoing investment in production capacity and R&D. Strong order momentum and operational leverage position Elbit for sustained top-line and margin gains into 2026.
Summary
- European Order Surge: Major new contracts and rising demand are expanding Elbit’s continental footprint.
- Land Segment Inflection: Ammunition and munitions sales are now the company’s largest growth engine.
- Capacity Build-Out: Investments in automation and AI-enabled production aim to support multi-year delivery visibility.
Performance Analysis
Elbit Systems delivered broad-based double-digit revenue growth, with all segments and geographies contributing to the upside. Europe accounted for 29% of revenues, reflecting the impact of several large defense contracts, while Israel and North America remained critical pillars at 34% and 21% respectively. Operating income margin climbed year-over-year, benefiting from operational leverage and ongoing cost discipline, even as R&D intensity was maintained at 6.6% of sales, underscoring Elbit’s commitment to innovation in defense technology.
Segment performance was a standout, with Land segment revenues surging 45% year-over-year, now forming the largest business line, driven by heightened demand for ammunition, munitions, and advanced land systems in both Israel and Europe. Aerospace, C4I and Cyber, and I-Star/EW also posted double-digit gains, reflecting a balanced portfolio and strong market positioning across product lines. Cash flow from operations rebounded sharply, supporting both dividend increases and strategic capital deployment.
- Backlog Expansion: Order backlog reached $23.8 billion, up $2.6 billion year-over-year, with 68% from international customers.
- Margin Improvement: Operating margins rose, aided by ERP-driven efficiencies and scale in production.
- Dividend Upside: The board declared a 60% higher dividend, reflecting confidence in sustained cash generation.
One-time G&A expenses and FX volatility were managed without derailing profitability, and management’s disciplined approach to capital allocation is evident in both increased CapEx and M&A readiness.
Executive Commentary
"During the quarter, we carried out a successful share offering, raising $573 million net, with demand for the shares offered reaching three times the initial amount. These proceeds will help support and grow Elbit’s businesses, enabling us to increase our production capacity and deliver on the growing demand of our products."
Butzi Machlis, President and CEO
"We are paying a lot of attention and a lot of effort into expanding our margins as demonstrated in the last three years where we enjoyed around 3% margin expansion. As we demonstrated in the past, we are committed to continue improving the margin by our new ERP, one ERP system, for instance, by operational leverage that is playing an important factor in the margin expansion, and by other means."
Kobi Hayon, CFO
Strategic Positioning
1. European Defense Tailwind
Elbit’s European business is now a leading growth engine, with a $1.625 billion contract announced this quarter for multi-domain defense solutions, including digital battlefield, C4ISR (Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance), and advanced drone technologies. Management emphasized a unique ability to deliver integrated, locally produced solutions through its network of 40 subsidiaries, positioning Elbit as a preferred partner for European modernization programs.
2. Land Systems Scale and Innovation
Land segment momentum is underpinned by strong demand for ammunition, Iron Fist active protection, and ramp-up of the Sigma howitzer and Rampage missile programs. The segment’s 45% growth reflects both domestic and international traction, with management highlighting continued margin expansion potential as new platforms reach scale and legacy contracts are flushed out.
3. Capacity and Technology Investment
Recent capital raised is earmarked for capacity expansion, automation, and AI-enabled manufacturing, including the Ramat Pekka site, which is expected to come online by year-end. R&D remains a priority, with investments in high-power laser solutions (Iron Beam) and advanced counter-drone systems (RedOne) supporting both Israeli and export markets.
4. Portfolio Breadth and Global Reach
Elbit’s ability to offer end-to-end, integrated solutions—spanning unmanned systems, electronic warfare, naval, and airborne platforms—differentiates it from peers focused on narrower product sets. The company’s operational presence in key markets enables local production and job creation, mitigating some geopolitical procurement headwinds.
5. M&A Optionality
With a strengthened balance sheet, Elbit is positioned to pursue M&A to complement organic growth, focusing on technology acquisition and expanding its global footprint in areas aligned with demand signals from NATO and allied customers.
Key Considerations
Elbit’s Q2 performance signals a step-change in scale and strategic optionality, but the evolving defense landscape and operational ramp-up introduce new complexities. The company’s ability to convert backlog into profitable growth and maintain execution discipline will be critical as it enters a period of elevated delivery commitments.
Key Considerations:
- Backlog Conversion Pace: Nearly half of backlog is scheduled for delivery by end of 2026, testing production scalability and supply chain resilience.
- Segment Margin Mix: Land systems’ margin trajectory will hinge on successful execution of new programs and mitigation of legacy contract drag.
- Geopolitical and Regulatory Risk: While global demand is robust, procurement cycles and export controls in some European countries (e.g., France) remain a gating factor.
- Technology Differentiation: Continued R&D investment in laser, counter-drone, and AI-enabled solutions is vital to sustain competitive advantage.
- Capital Allocation Discipline: Management’s readiness to deploy funds into both organic and inorganic growth will shape long-term returns.
Risks
Execution risk is rising as Elbit ramps production to meet record backlog, particularly in the Land segment and new European programs. Macroeconomic and FX volatility, as well as potential delays in site build-outs or supply chain disruptions, could pressure margins or delivery timelines. Geopolitical headwinds, including shifting procurement policies or export restrictions, remain a persistent external variable, especially as Elbit deepens its European presence.
Forward Outlook
For Q3 and the remainder of 2025, Elbit expects:
- Continued double-digit revenue growth, supported by recent order wins and backlog conversion.
- Further margin expansion, as operational leverage from ERP rollout and new production lines takes hold.
For full-year 2025, management maintained its internal target of mid-teens growth and signaled:
- Double-digit growth ambition into 2026, underpinned by large European contracts and robust global demand.
Management highlighted several factors that will shape results:
- Capacity ramp-up and automation at Ramat Pekka, expected to come online by year-end.
- Ongoing investment in R&D and selective M&A, leveraging the recent $573 million equity raise.
Takeaways
Elbit’s Q2 results reflect a business entering a new phase of scale, with backlog, margin, and segment diversification all trending positively. Operational discipline and technology investment are supporting both near-term execution and long-term positioning.
- European demand is now a structural growth lever, with Elbit’s local presence and broad portfolio driving contract wins and delivery visibility.
- Land systems have become the company’s core growth engine, with margin upside as new programs mature and legacy drag abates.
- Investors should monitor backlog conversion rates, segment margin evolution, and the pace of capacity expansion as key signals of sustained performance into 2026 and beyond.
Conclusion
Elbit Systems delivered a decisive quarter, marked by record backlog, robust segment growth, and operational progress across all fronts. With a strengthened balance sheet and growing global demand, the company is positioned to capitalize on multi-year defense modernization cycles, though execution and geopolitical complexity warrant close investor attention.
Industry Read-Through
Elbit’s results underscore the accelerating demand for integrated defense solutions across Europe and allied nations, as governments prioritize modernization and self-sufficiency. The company’s success in combining local production, advanced technology, and operational integration sets a benchmark for peers, highlighting the importance of portfolio breadth and international footprint in winning major contracts. For the broader defense sector, the surge in backlog and rapid capacity build-out signal a multi-year upcycle, but also raise the stakes for supply chain management, talent acquisition, and R&D leadership in an increasingly competitive and regulated market.