FEIM Stock Up 29% Despite Q2 Earnings Dip Y/Y on Contract Delays

Shares of Frequency Electronics, Inc. FEIM have gained 29.2% since the company reported its earnings for the quarter ended Oct. 31, 2025. This compares to the S&P 500 index’s 1.2% decline over the same time frame. Over the past month, the stock has gained 61.4% compared with the S&P 500’s 3.4% growth. The outperformance underscores positive investor sentiment following the company's second-quarter fiscal 2026 results.

For the second quarter of fiscal 2026, Frequency Electronics reported a net income of 18 cents per share, down from 28 cents per share in the prior-year quarter, a 35.7% decline.  

The company’s revenues of $17.1 million indicated a notable increase of 8.3% compared to $15.8 million in the year-ago quarter. 

FEIM’s net income was $1.8 million, down from $2.7 million in the prior-year quarter. Operating income also declined to $1.7 million from $2.6 million a year earlier.

Frequency Electronics, Inc. Price, Consensus and EPS Surprise

Frequency Electronics, Inc. price-consensus-eps-surprise-chart | Frequency Electronics, Inc. Quote

Other Key Business Metrics

Gross margin for the quarter was $6.5 million, down from $7.6 million a year ago, reflecting a decline of approximately 14.2%. Operating income declined due to both increased selling and administrative expenses and reduced research and development (R&D) spending. R&D expenses fell to $1.2 million in the second quarter from $1.6 million in the prior-year period, indicating a 25.7% reduction. Selling and administrative expenses rose modestly to $3.6 million from $3.4 million.

Net cash provided by operating activities during the first six months of fiscal 2026 was $0.6 million, a significant decrease compared to $2.4 million in the same period last year. Meanwhile, the company’s backlog grew meaningfully to approximately $82 million at the end of October 2025, up from $70 million at the end of April 2025, marking a 17.1% increase.

Management Commentary

FEI President and CEO Tom McClelland characterized the second quarter as strong, citing the $17.1 million in revenue as the third-highest quarterly figure in the past decade. He noted that the fiscal first quarter had been impacted by customer-induced program delays, which have now been resolved.

Although the company experienced delays in securing new contracts due to a government shutdown during the second quarter, management anticipates that the effects will reverse in the fiscal third and fourth quarters. McClelland also expressed optimism about upcoming contract awards, potentially larger than any previously received, largely within FEI’s core technology areas.

Additionally, the company sees long-term growth opportunities in quantum sensing applications, such as magnetometers and alternative positioning, navigation, and timing (ALT-PNT) solutions. These efforts are expected to contribute meaningfully to FEI’s growth trajectory over the next three to five years.

Factors Influencing the Headline Numbers

The 24% sequential increase in revenues from the fiscal first quarter to the fiscal second quarter was a rebound from delayed program execution in the prior quarter. However, the year-over-year drop in profitability reflects margin compression due to higher costs and lower R&D capitalization, despite the topline improvement. The delayed contract signings from government agencies during the shutdown also likely dampened potential upside in the quarter.

Moreover, while FEI’s revenue growth in the fiscal second quarter is notable, the sharp decline in net income and cash flow from operations signals pressure on the company’s cost structure and project execution timing. These factors may have contributed to a more cautious interpretation of the otherwise strong revenue performance.

Guidance

Management stated they expect multiple contract wins in the near term, including some that could match or exceed previous high-value awards. This outlook is grounded in confidence around FEI’s core technologies and execution capabilities. Furthermore, the company anticipates these near-term awards will be accretive and contribute to a stronger performance in the second half of the fiscal year.

Management also hinted at sustained strength in the core business, supporting a longer-term strategy focused on next-generation technologies such as quantum sensing and proliferated satellite applications.

Other Developments

A key development during the quarter was the postponement of the second annual Quantum Sensing Summit, originally scheduled for the last week of October, due to constraints stemming from the government shutdown. The event has been rescheduled for Jan. 14-15, 2026, in New York City. The summit is expected to attract stakeholders from government, academia, and industry, highlighting FEI’s expanding role in quantum technologies. 

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