Leidos [LDOS] on Thursday posted higher earnings and sales in its third quarter and reported exceptionally strong bookings, particularly from intelligence community customers, and the company said it will reorganize into four operational segments beginning in January.

Net income was up 79 percent to $147 million, 96 cents earnings per share (EPS), from $82 million (53 cents EPS) a year ago. Excluding amortization of acquired intangible assets and other integration and restructuring costs, adjusted earnings were $1.14 EPS, nipping consensus estimates by three pennies.

Leidos Chairman and CEO Roger Krone. Photo: Leidos
Leidos Chairman and CEO Roger Krone. Photo: Leidos

Sales rose 3 percent to $2.6 billion on gains in the Defense Solutions and Civil segments, which more than offset a decline in the Health business.

In January, Leidos plans to add a fourth segment, Intelligence, as it reorganizes to support long-term growth, Roger Krone, the company’s chairman and CEO, said during the analyst call. The Civil business will continue to be led by Angie Heise and Jon Scholl will still lead the Health segment, he said.

The Defense business will be led by Gerry Fasano, who was the company’s chief of Business Development and Strategy, and the Intelligence segment will be led by Vicki Schmanske, the company’s chief administrative officer.

Orders in the quarter were $4.6 billion, nearly two times sales, with $2 billion of the new business from intelligence customers. Krone said this is more business with the intelligence community than the company received in 2016 and in 2017.

The strong order intake drove backlog to a record $20.3 billion, $6.2 billion of which is funded.

Business levels overall were below the company’s expectations. Krone said outlays by the Defense Department and federal civilian agencies are running below expectation, which has meant slower program ramp ups and some business sliding to the right.

Furthermore, Leidos is finding that the labor market is tightening, which “had a regulating effect on our growth in the third quarter and we expect likely into the fourth quarter as well,” he said. The company did hire 2,000 new employees during the quarter, which helps supports the ramp up in new work, he said.

Leidos lowered its sales guidance to between $10.1 billion and $10.3 billion from the prior range of $10.3 billion to $10.7 billion, and narrowed its adjusted earnings guidance to between $4.20 to $4.40 EPS from the prior range of $4.15 to $4.50 EPS.

Operating cash flows are now expected to be at least $775 million, $100 million above the previous forecast.