I'd like to welcome everyone to Teledyne's first quarter 2026 earnings release conference call. Of course, before we get started, all forward-looking statements made this morning are subject to various assumptions, risks, and caveats, as noted in the earnings release and our periodic SEC filings. We started 2026 with record first quarter sales, earnings per share, and operating margin. In addition, despite a 30 basis point increase in R&D expense, non-GAAP operating margin increased 58 basis points year over year.
While we acquired DD-Scientific in January and increased our capital expenditures significantly from last year, our leverage ratio declined to the lowest level in five years, since before the acquisition of FLIR in 2001. Excluding the impact of acquisitions, sales increased 5.3%, due in part to the performance of our Digital Imaging segment, while organic growth was 6.9%. Also, within the digital imaging segment, our industrial imaging and X-ray businesses each returned to year-over-year growth, which helped contribute to the strong margin performance in the first quarter. We believe now sales will be in the range of $6.415 billion or 70 basis points higher than we communicated in January.
We're also raising our earnings outlook at both the bottom and top of our prior range to about $24 at midpoint or $0.35 overall an increase. In the Digital Imaging segment, first quarter sales increased 7.9% due to well-balanced growth throughout the segment, including Teledyne Imaging Sensors, Teledyne e2v, and Teledyne FLIR. In the first quarter and early Q2, we received orders for infrared cameras and subsystems totaling $ tens of millions for counter-drone applications. Sales of microelectromechanical systems, or MEMS, grew over 20%, primarily due to demand for micromirrors used for optical switching in high-speed networking applications.
| Metric | Period | Current guidance |
|---|---|---|
| Full-year 2026 sales | FY2026 | ~$6.415 billion (Raised ~70 bps) |
| Full-year 2026 non-GAAP EPS | FY2026 | $23.85-$24.15 (Raised ~$0.35 at midpoint) |
| Full-year 2026 GAAP EPS | FY2026 | $20.08-$20.44 (Raised) |
| Q2 2026 non-GAAP EPS | Q2 2026 | $5.70-$5.80 (New) |
| Q2 2026 GAAP EPS | Q2 2026 | $4.75-$4.90 (New) |
| Capital expenditures | FY2026 | ~$150 million (Increased vs last year) |
| Metric | YoY | Note |
|---|---|---|
| Total sales | +7.6% | Strong Digital Imaging and Aerospace & Defense growth; organic growth of 6.9% plus acquisitions |
| Non-GAAP EPS | +17.2% | Higher sales, operating leverage, margin expansion, and tax benefits from stock option exercises |
| Digital Imaging sales | +7.9% | Balanced growth across imaging sensors, e2v, and FLIR including space detectors, drones, and recovering industrial/X-ray |
| Aerospace & Defense Electronics sales | +14.4% | Extra month of Qioptiq results plus 8.4% organic defense electronics growth, partially offset by weaker commercial aerospace |
| Test and measurement sales | -3.7% | Lower protocol analyzer sales on PCI Express Gen 6 timing, partially offset by oscilloscope growth |
| Engineered Systems revenue | -2.6% | Decline in revenue, though segment operating margin rose 113 bps |
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Defense demand (drones, counter-drone, munitions, space) | — | Very strong orders across the portfolio; defense roughly 30%-35% of company; expects orders to pick up further over the next six months tied to Middle East and European conflicts | Accelerating |
| M&A pipeline | — | Leverage at five-year low; pursuing tuck-ins first, mid-size second, larger opportunistically; concerned about high prices; $900M spent in last 12-13 months | Active |
| Short-cycle industrial recovery | Prior headwinds in machine vision, test and measurement, semiconductor | Inflecting; machine vision and semiconductors healthy (low single-digit short-cycle growth), test and measurement still weak | Improving |
| Margin expansion | — | Expect full-year margin up about 60 bps, led by Digital Imaging at 105-107 bps and A&D at about 70 bps | Expanding |