By midafternoon, shares had plunged 5.5% to $7.54.
The intelligence, surveillance and reconnaissance technology developer reported revenue 10.6% lower year over year to $235.7 million in the three months to December. Analysts surveyed by Thomson Reuters had forecast $251.73 million.
Net income of 6 cents a share came in as expected.
"Fiscal 2013 was difficult for U.S. Federal Government contractors and for Kratos, with little budgetary clarity throughout the entire year. However, though the environment remains very challenging, there is now a federal budget agreement and a fiscal 2014 Defense Appropriations Bill in place, somewhat reducing the magnitude and random across the board cuts of Sequestration and providing some funding predictability to our largest customer set," said Kratos CEO Eric DeMarco in a statement.
"Since the execution of these budgetary agreements, we have seen our opportunities, bookings and order flow increase, providing us greater confidence for 2014."
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TheStreet Ratings team rates KRATOS DEFENSE & SECURITY as a Hold with a ratings score of C-. The team has this to say about their recommendation:
"We rate KRATOS DEFENSE & SECURITY (KTOS) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. Among the primary strengths of the company is its solid stock price performance. At the same time, however, we also find weaknesses including deteriorating net income, disappointing return on equity and poor profit margins."