What happened

Government services specialist Leidos Holdings (LDOS -0.84%) missed earnings expectations for the first quarter, and investors were left wondering what its growth will look like in 2024. Its stock sold off as a result on Tuesday morning. As of 11:55 a.m. ET, it was down by almost 15%.

So what

Leidos is the largest of the so-called "Beltway Bandits" -- defense contractors that specialize in doing outsourced IT work and performing other services for government customers. The company reported its first-quarter results before the bell Tuesday, hitting a record for revenue but falling short of analysts' estimates on earnings.

Leidos earned $1.47 per share in the first quarter on revenue of $3.7 billion. Analysts had been expecting $1.58 per share in earnings on $3.65 billion in sales. Weakness in the company's business with civil agencies drove the miss, although its civil segment was also responsible for a large portion of the organic revenue growth.

"Our first quarter results demonstrate our ability to drive strong organic growth, as record revenue performance was consistent with our long-term target," CEO Roger Krone said in a statement. "We expect earnings and cash performance to build momentum as we progress through the year and are fully committed to achieving our 2023 guidance."

Now what

Krone is optimistic about the quarters ahead, but the company's relatively weak 0.81 book-to-bill ratio -- a measure comparing new awards in the quarter to sales -- didn't offer a lot of reason for optimism. For comparison, in Q1 2022, that ratio was a robust 1.55.

Krone will soon step down as CEO after a legendary 50-year career in aerospace that includes almost nine years with Leidos and two decades at Boeing (NYSE: BA) before that. The transition has been well-telegraphed to investors, and his replacement, current Rolls-Royce President for Defense Thomas Bell, has a strong reputation.

For long-term-focused investors, Leidos appears to be set up well to be a winner. But given all that is going on at this company, the markets are reacting poorly to its Q1 earnings weakness.