OSIS Q4 Earnings Beat on Margin Gains, Revenues Miss Estimates

OSI Systems OSIS reported fourth-quarter fiscal 2026 adjusted earnings of $3.78 per share, up 16.7% year over year and surpassing the Zacks Consensus Estimate by 0.53%. 

Revenues fell 4.1% to $484.06 million and missed the consensus mark by 8.38%. About $50 million of planned Security deliveries shifted beyond fiscal year-end because of Middle East conflict-related delays and site access constraints. Backlog still ended at a record $1.90 billion.

OSIS Security Faces Middle East Timing Pressure

Security revenues declined 7.4% year over year to $339.73 million. The decrease reflected delayed Middle East deliveries and a difficult comparison with Mexico program revenues. Management said the fiscal fourth quarter included about a $20 million year-over-year revenue headwind from the Mexico security contracts. 

The underlying service picture was firmer. Excluding prior-year installation revenues tied to Mexico contracts, Security service revenues increased 9% year over year. Management stressed that the delayed Middle East deliveries were deferred rather than cancelled, while related orders remained in backlog with revised schedules.

OSI Systems, Inc. Price, Consensus and EPS Surprise

OSI Systems, Inc. price-consensus-eps-surprise-chart | OSI Systems, Inc. Quote

OSI Systems Adds U.S. Security Awards

Since the end of fiscal 2026 on June 30, 2026, U.S. Customs and Border Protection (CBP) awarded OSIS two five-year IDIQ contracts. One carries a ceiling of about $200 million for relocatable passenger vehicle inspection systems, while the other has an approximately $85 million ceiling for van-mounted mobile X-ray inspection systems. OSIS has already received delivery orders, including a roughly $21 million task order.

Radio-frequency programs also remain an important growth avenue. During fiscal 2026, OSIS secured an undefinitized contract action with a not-to-exceed value of about $235 million for a homeland defense over-the-horizon radar transmit subsystem. Management said customer engagement across the RF portfolio is at its highest level to date.

OSIS Optoelectronics & Healthcare Add Growth

Optoelectronics and Manufacturing revenues rose 4.6% year over year to $117.81 million. Adjusted operating margin improved to 14.7% from 13.6%, aided by scale benefits and a more favorable revenue mix. Management expects the segment to pair revenue growth with further operating-margin expansion in fiscal 2027.

Healthcare revenues increased 4.8% year over year to $44.75 million. Its adjusted operating margin climbed to 10.0% from 0.9% a year earlier, reflecting operating leverage and improvements implemented during the year. The division continues to focus on installed-base expansion and next-generation patient-monitoring products.

OSIS Expands Profitability on Favorable Mix

Gross profit totaled $167.95 million compared with $168.24 million in the prior-year quarter. Gross margin expanded 140 basis points year over year to 34.7%, as a more favorable product sales mix more than offset the prior-year benefit from higher Mexico-related installation service revenues. 

Operating expenses declined 1.2% year over year to $94.07 million. Selling, general and administrative expenses fell 6.6% year over year to $69.75 million, representing 14.4% of revenues, down from 14.8% a year ago. R&D expenses increased to $19.50 million, or 4.0% of revenues, from $18.84 million, or 3.7%, as OSIS continued investing in innovation. 

Non-GAAP operating margin reached 17.7%, up 200 basis points from 15.7% in the prior-year quarter. Security, Optoelectronics and Manufacturing, and Healthcare all posted year-over-year adjusted operating margin improvement, with margins rising 40, 110 and 910 basis points, respectively.

OSIS' Balance Sheet & Cash Flow

As of June 30, 2026, cash and cash equivalents were $359.83 million, up from $345.24 million as of March 31, 2026. 

As of June 30, 2026, the company had about $998.52 million of long-term debt up from $463.50 million a year earlier.

Net cash provided by operating activities increased to $182.11 million in the fourth quarter of fiscal 2026 from $0.56 million in the year-ago period.a 

OSI Systems repurchased 564,880 shares for $123.6 million during the quarter.

OSI Systems Sets Fiscal 2027 Growth Outlook

For fiscal 2027, OSIS expects revenues to be in the range of $1.875 billion to $1.930 billion, implying growth of 5.0% to 8.1%. Adjusted earnings are projected at $11.13 to $11.49 per share, representing growth of 7.5% to 11.0%.

Management expects growth to be strongest in the second half, reflecting conservative assumptions for Middle East deliveries and limited near-term contributions from newer U.S. security awards. OSIS expects strong double-digit growth in service revenues, while larger contributions from recent CBP programs are anticipated in fiscal 2028 and beyond.

OSIS Zacks Rank & Other Stocks to Consider

Currently, OSI Systems carries a Zacks Rank #2 (Buy).

NVIDIA NVDA, KLA KLAC and Synopsys SNPS are other stocks worth considering in the broader Zacks Computer and Technology sector, each carrying a Zacks Rank of 2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The long-term earnings growth rates for NVIDIA, KLA and Synopsys are pegged at 104.76%, 15.74% and 17.23%, respectively.

Shares of NVIDIA have appreciated 8.5%, while Synopsys and KLA shares have declined 10.7% and 38.4%, respectively.

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