Orbital Sciences Corp. [ORB] on Thursday reported strong third quarter financial results, led by solid operating performance, and the company increased its earnings outlook for the year.
Net income jumped 36 percent to $21.2 million, 35 cents earnings per share (EPS), from $15.6 million (26 cents EPS), beating consensus estimates by 7 cents. The gain in earnings was aided by a significant increase in research and development expenses, $7.5 million versus $23.1 million a year ago, due to completion of development work on NASA’s Commercial Orbital Transportation Services program.
Sales increased 5 percent to $338.2 million from $322 million a year ago.
The strong earnings results were driven by a nearly 130 percent increase in operating income at the Advance Space Programs segment, which benefited from a profit margin adjustment in the Commercial Resupply Services (CRS) contract with NASA to service the International Space Station, and profit margin improvement in the Launch Vehicles segment related to the Antares launch vehicle for the CRS program. The results in these segments offset a double-digit decline in operating income at the Satellites and Space Systems segment, which suffered on lower profit from communications satellites.
The strong earnings overcame $3.2 million in transaction costs related to Orbital’s pending acquisition of
ATK [ATK]. David Thompson, Orbital’s chairman and CEO, said the acquisition is still expected to close late this year although if regulatory approvals wait until the holidays then the deal would probably slip until January.
Thompson said on the company’s earnings call that merger activities are progressing apace, saying that there has been “substantial progress” toward things like “refining the common operating model, defining organizational structure” and selecting most senior leaders, which will amount to about 250 individuals for Orbital ATK.
The modest increase in Orbital’s sales was driven mainly by a 20 percent increase in revenue in Satellites and Space Systems, mainly due to new contracts for GEOSTAR-3 communications satellites. Revenue from Launch Vehicles was up slightly on target launch vehicles and missile defense interceptors. Sales were off at Advanced Space Programs due to less activity on national security satellite contracts and the CRS contract.
Orbital raised its adjusted earnings guidance for the year by a dime on the low end of the range and a nickel on the high end to between $1.20 and $1.25 EPS, largely due to the margin improvement in the CRS contract and the potential for an additional adjustment in the fourth quarter, said Garrett Pierce, the company’s chief financial officer. Guidance for free cash flow was raised to between $165 million and $175 million, the highest in the past 14 years, he said.
Sales guidance was lowered slightly but is still forecast to be around $1.4 billion.
Bookings in the quarter, including options, totaled $405 million, while firm backlog stood at $2.3 billion and total backlog $4.7 billion.