SAIC [SAI] on Monday reported strong earnings and sales in its fiscal year 2008 third quarter as the company benefited from growth in defense, intelligence and homeland security programs.
Net income increased 7 percent to $105 million, 25 cents earnings per share (EPS), from $98 million (28 cents EPS). Excluding discontinued operations, which cost SAIC $3 million in the quarter versus a $25 million gain a year ago, income from continuing operations increased 21 percent to $109 million from $90 million. Margins increased over 1 percent to 7.9 percent.
Sales increased 14 percent to $2.4 billion from $2.1 billion, with organic growth accounting for 8 percent of the gain. Organic growth drivers were new and expanding programs for defense and intelligence customers and higher sales of border, port and mobile security products. Backlog was $15.8 billion, with $5.4 billion of it funded.
SAIC affirmed its fiscal 2008 guidance and said that earnings will be on the high end of expectations, and possibly top them. The company didn’t provide an outlook for fiscal year 2009 but said expectations will depend in part on timely passage of a wartime supplemental bill and to a lesser extent spending bills for federal civilian agencies.
The Defense Department is already borrowing from its operations and maintenance accounts to pay for the wars in Iraq and Afghanistan and absent a supplemental bill will begin taking from its base programs to prosecute the wars, Ken Dahlberg, chairman and CEO of SAIC, said during Monday’s analyst call. If the non-defense agencies are funded by a continuing resolution for all of FY ’08, SAIC will see the most impact from new program starts in the Department of Homeland Security and Department of Health and Human Services budgets, he said. SAIC’s organic growth in the homeland security market could reach between 8 and 10 percent next year, the company believes.
About 70 percent of SAIC’s revenues come from defense spending.
Dahlberg also said that a recent strategic planning session run by SAIC has the company convinced that in the long-term the defense and homeland security markets will be healthy. The federal government’s mission is becoming more complex in a dangerous world while the government’s work senior workforce is shrinking, he said.
SAIC has also finished planning for a major transition to a shared services model for its back office functions, which should result in costs being cut by about $100 million over the next two to three years, Dahlberg said. This new model will be implemented in four phases lasting six to nine months each. The cost cuts are already factored into SAIC’s long-term plans to expand operating margins by 20 to 30 basis points annually until reaching a sustainable level between 8 and 9 percent, he said.