By Calvin Biesecker
SAIC [SAI] on Wednesday posted solid second quarter results led by strong organic growth and record sales and a modest increase in income from continuing operations, which was hindered by non-recurring charges related to a civil judgment and severance costs.
Net income actually declined 17 percent to $109 million, 27 cents earnings per share (EPS), compared to $131 million (31 cents EPS) a year ago. However, last year’s results benefited from a $31 million pre-tax gain related to reorganization of the former AMSEC joint venture with Northrop Grumman [NOC].
Sales increased 15 percent to $2.6 billion from $2.2 billion a year ago, with 10 percent of the gain organic. SAIC attributed half of the organic growth to five ongoing contracts, two of which are in support of Mine Resistant Ambush Protected vehicles. The other three are the Army’s Future Combat System, the Army Aviation and Missile Command’s Expedited Professional and Engineering Support Services program and the Navy’s SeaPort-Enhanced electronic procurement program.
Income from continuing operations rose 5 percent to $104 million (26 cents EPS) compared to $99 million (24 cents EPS), in line with consensus projections. The company managed to grow EPS by lowering its overall share count through its ongoing stock buyback program.
Earnings were dampened by a $6 million charge the company took related to a civil judgment in favor of the Nuclear Regulatory Commission for an organizational conflict of interest dating back to the 1990s. SAIC plans to appeal the judgment, noting that the final damages haven’t been determined but that the $6 million charge is the worst case scenario. An additional $3 million in charges are related to severance costs and ongoing restructuring.
The strong operating results coupled with recent contract wins and the share repurchase program led SAIC to maintain its financial targets for the year. Earnings should pick up in the second half of the fiscal year largely on the back of scheduled deliveries of 42 VACIS gamma ray inspection systems, which carry high profit margins. The company delivered 10 VACIS units in the first half of its fiscal year.
SAIC disclosed that it has received a contract from Dubai Customs for five VACIS cargo scanning systems for use at the port of Jebel Ali. The company is also expecting decisions from customers on cargo scanning systems in the next few months, including a potential order from the United States military for 50 systems and 37 from Brazil.
SAIC also disclosed that it won a $170 million classified cyber security contract in the second quarter that “positions us well in this fast growing market,” Ken Dahlberg, SAIC’s chairman and CEO, said during Wednesday’s earnings. He said the opportunity pipeline for cyber security continues to build.
The company booked $3.3 billion in business in the second quarter and increased its total backlog 13 percent to $15.9 billion from a year ago. Funded backlog was $5.4 billion, up 20 percent from a year ago.