BWXT Q3 Deep Dive: Backlog Surges, Margin Pressures Temper Outlook

Aerospace and defense company BWX (NYSE:BWXT) reported revenue ahead of Wall Streets expectations in Q3 CY2025, with sales up 28.9% year on year to $866.3 million. On the other hand, the company’s full-year revenue guidance of $3.1 billion at the midpoint came in 0.5% below analysts’ estimates. Its non-GAAP profit of $1 per share was 16.5% above analysts’ consensus estimates.

Is now the time to buy BWXT? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

BWX's third quarter was marked by robust revenue growth and exceeded Wall Street’s expectations, yet the market reacted negatively as investors weighed the company’s lower operating margin and cautious guidance. Management pointed to significant contributions from both government and commercial operations, highlighting strong execution in new national security contracts and rapid growth in the commercial nuclear and medical isotope businesses. CFO Michael Fitzgerald noted, “Seasonality in large material procurements shifted some revenue forward, resulting in a larger than expected beat this quarter, but also implies a weaker fourth quarter.”

Looking ahead, BWX’s updated guidance reflects optimism for continued growth in specialized nuclear programs while acknowledging initial lower margins on large, recently awarded contracts. CEO Rex Geveden emphasized the company’s “unprecedented demand across global security, clean energy, and medical markets,” but cautioned that margin performance will depend on successful cost management and operational improvements. Management expects capacity investments, government-funded capital expenditures, and ongoing operational initiatives to drive future performance but flagged that near-term profitability may be challenged by contract mix and start-up costs.

Key Insights from Management’s Remarks

Management attributed the quarter’s performance to strong backlog growth, operational execution, and new contract wins, while highlighting margin pressures from contract mix and ramp-up costs.

• Backlog driven by defense contracts: BWX recorded a sharp increase in backlog, up 23% from the prior quarter and 119% year-over-year, primarily from new multiyear national security contracts for defense fuels and high-purity depleted uranium. These awards are expected to be long-term revenue contributors but will carry below-average margins during initial phases due to customer-funded capital expenditures and infrastructure build-out.

• Operational leverage in commercial power: The Commercial Operations segment delivered strong double-digit organic growth, with particular momentum in the CANDU life extension projects and medical isotopes. Management cited the Kinectrics acquisition as outperforming expectations, especially in aging infrastructure testing and offshore wind cable work, expanding its reach in Europe and supporting additional licensing opportunities in Canada.

• Margin headwinds from contract mix: Despite outperformance in revenue and earnings, the operating margin declined year-over-year, a result of early-stage, lower-margin work on new government contracts and lingering effects from legacy pricing agreements. Fitzgerald explained that these pressures will persist over the next few years until cost recoveries and productivity improvements materialize.

• Growth in advanced nuclear technologies: BWX continued to invest in next-generation nuclear solutions such as microreactors and TRISO fuel. The company is progressing on Project Pele and the Army’s Janus program, both of which are expected to drive future government and commercial opportunities, though initial revenues are limited.

• Medical isotope expansion: BWX increased production capacity for therapeutic isotope precursors, notably ytterbium-176 for lutetium-177, positioning its medical business to benefit from rising demand in cancer radiotherapy and diagnostic markets. Strategic synergies with Kinectrics are generating new growth avenues within the medical segment.

Drivers of Future Performance

Management expects future performance to be driven by a combination of new contract execution, capacity expansion, and continued commercial nuclear and medical market demand.

• Execution on large government contracts: The ramp-up of recently awarded defense fuels and depleted uranium contracts will be a major revenue driver for the next several years. However, management cautioned that these programs will have lower initial margins due to customer-funded capital expenditures and the fixed-price structure, with margin improvement anticipated as the projects mature and operational efficiencies are realized.

• Commercial nuclear pipeline acceleration: CEO Rex Geveden pointed to a robust pipeline of small modular reactor (SMR) and large reactor opportunities, especially in Canada and Europe. The timing and conversion of these opportunities into orders remains a key uncertainty, but management expects commercial order activity to increase in the coming year, which could shift the revenue mix and support higher margins longer term.

• Ongoing investments and risk factors: The company is increasing capital expenditures to expand capacity, particularly for the AUKUS submarine program and commercial nuclear initiatives. Management flagged risks from potential government shutdowns, defense spending fluctuations, and timing of commercial nuclear orders, noting that sustained delays or policy changes could impact the 2026 outlook.

Catalysts in Upcoming Quarters

In the next few quarters, the StockStory team will focus on (1) the pace of ramp-up and margin improvement in the newly awarded defense contracts, (2) the volume and timing of new commercial nuclear order announcements, especially in SMRs and large reactors, and (3) the operational integration and performance of the Kinectrics and AOT acquisitions. Continued growth in medical isotope production and expansion into new geographies will also be important markers for sustained commercial momentum.

BWX currently trades at $204.32, down from $215.99 just before the earnings. At this price, is it a buy or sell? Find out in our full research report (it’s free for active Edge members).

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