Orbital ATK [OA] opened 2015 with a slight loss due to charges related to the merger with the former ATK and impairment costs while sales, excluding revenue from the former Orbital Sciences for the six weeks of the quarter, rose handsomely.
Sales increased 23 percent to $970 million from $791 million a year ago on strength in the company’s Space Systems and Flight Systems segments, which more than offset a decline in revenue in the Defense Systems segment. However, the results in the 2015 first quarter exclude $129 million in sales from Orbital Sciences before the merger with ATK in February and $323 million from Orbital Sciences for the entire first quarter a year ago.
Pro forma sales in the quarter, which include the entire contribution from Orbital Sciences, were $1.1 billion versus $1.2 billion a year ago, down 3 percent due to declines in the Defense and Flight Systems segments on small caliber systems and launch vehicles, respectively.
The net loss in the quarter was $1.1 million, which was a diluted loss per share of 87 cents, compared to net income of $78.1 million ($1.17 EPS) a year ago. Merger and severance-related expenses lopped more than $55 million off the bottom line, which was also dented by a $34 million goodwill impairment charge and $25 million in legal settlements.
Excluding the various charges, adjusted net income was $67.5 million (1.14 EPS), up 71 percent from $39.5 million (67 cents EPS) a year ago. The adjusted results beat consensus estimates by 7 cents EPS. Operating income at each of the segments was higher, with Flight and Defense Systems accounting for most of the gain. Adjusted operating margin was 10.5 percent in the quarter versus 6.4 percent a year ago.
Jefferies aerospace and defense analyst Howard Rubel liked Orbital ATK’s overall pro forma results, saying in a note to clients that the goals for the merger “appear to be achievable.”Orders in the quarter were a robust $1.6 billion for a nearly 1.2 book-to-bill ratio and total backlog stood at $12.1 billion with $8 billion of it funded. Free cash flow was $59 million.
Ongoing merger activities are proceeding smoothly, the company said, with 35 percent of the 450 post-closing milestones achieved in the past three months. The company is expecting between $25 million and $50 million in revenue synergies from the deal this year and between $150 million and $200 million next year.
On an adjusted basis for the year, Orbital ATK expects sales to be in the range of $4.4 billion to $4.5 billion and earnings between $4.40 and $4.60 EPS. Guidance for free cash flow is between $225 million and $275 million.
In the near-term, the company has bids in on more than $4 billion in potential orders that should be decided by the end of this year, David Thompson, Orbital ATK’s president and CEO, said on the earnings call.