Aviation and fleet aftermarket services provider VSE Corporation (NASDAQ: VSEC) reported Q2 CY2025 results beating Wall Street’s revenue expectations, with sales up 2.3% year on year to $272.1 million. Its non-GAAP profit of $0.97 per share was 38.2% above analysts’ consensus estimates.

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Company Overview

With roots dating back to 1959 and a strategic focus on extending the life of transportation assets, VSE Corporation (NASDAQ: VSEC) provides aftermarket parts distribution and maintenance, repair, and overhaul services for aircraft and vehicle fleets in commercial and government markets.

Revenue Growth

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Luckily, VSE Corporation’s sales grew at a decent 8.3% compounded annual growth rate over the last five years. Its growth was slightly above the average industrials company and shows its offerings resonate with customers.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. VSE Corporation’s annualized revenue growth of 22.5% over the last two years is above its five-year trend, suggesting its demand recently accelerated.

We can dig further into the company’s revenue dynamics by analyzing its most important segment, Aviation. Over the last two years, VSE Corporation’s Aviation revenue (aftermarket parts, maintenance) averaged 46.3% year-on-year growth. This segment has outperformed its total sales during the same period, lifting the company’s performance.

This quarter, VSE Corporation reported modest year-on-year revenue growth of 2.3% but beat Wall Street’s estimates by 3.4%.

Looking ahead, sell-side analysts expect revenue to grow 5.3% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and indicates its products and services will face some demand challenges.

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Operating Margin

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

VSE Corporation was profitable over the last five years but held back by its large cost base. Its average operating margin of 7.4% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.

On the plus side, VSE Corporation’s operating margin rose by 5.4 percentage points over the last five years, as its sales growth gave it immense operating leverage.

This quarter, VSE Corporation generated an operating margin profit margin of 8.3%, up 6 percentage points year on year. The increase was solid, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

Earnings Per Share

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

VSE Corporation’s EPS grew at a remarkable 14.2% compounded annual growth rate over the last five years, higher than its 8.3% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into VSE Corporation’s earnings to better understand the drivers of its performance. As we mentioned earlier, VSE Corporation’s operating margin expanded by 5.4 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For VSE Corporation, its two-year annual EPS growth of 4.3% was lower than its five-year trend. We hope its growth can accelerate in the future.

In Q2, VSE Corporation reported adjusted EPS at $0.97, up from $0.64 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects VSE Corporation’s full-year EPS of $3.36 to grow 16%.

Key Takeaways from VSE Corporation’s Q2 Results

We were impressed by how significantly VSE Corporation blew past analysts’ EPS expectations this quarter. We were also excited its EBITDA outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this was a good print with some key areas of upside. The stock traded up 4% to $147 immediately after reporting.

Sure, VSE Corporation had a solid quarter, but if we look at the bigger picture, is this stock a buy? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.