ATK [ATK] posted strong fourth quarter results on Thursday, including record profits driven by organic growth in its commercial sporting business coupled with two acquisitions and lower pension expenses.
Net income increased 32 percent to $96 million, $2.90 earnings per share (EPS), from $72.7 million ($2.23 EPS) a year ago. Excluding one-time items that combined to lop $10.4 million after-taxes from operating earnings, adjusting earnings were $85.6 million ($2.59 EPS), still handily topping consensus estimates of $2.41 EPS.
Sales increased 17 percent to $1.3 billion from $1.2 billion a year ago.
The Sporting Group had $558.4 million in sales in the quarter, up 72 percent on the acquisitions of Savage Arms and Bushnell, with 12 percent of gain organic, driven by higher volume and price increases on ammunition. The segment’s operating profit more than doubled to $87.5 million on the higher volume, pricing, the acquisitions and a product mix that favored higher margin items.
The Defense Group managed a nearly 3 percent boost in sales to $548.8 million, with revenue benefiting from a pension segment close out related to ATK’s completion of operations responsibilities for the Army’s Radford ammunition plant. Sales of small and medium caliber ammunition and of AN/AAR-47 missile warning receivers were down. Segment profit tumbled 34 percent to $40.4 million on declines in the Defense Electronics division and for ammunition.
Mark DeYoung, ATK’s president and CEO, said Thursday that the Defense Electronics division was impacted by lower sales of the AN/AAR-47 missile warning system and the transition of the Navy’s Advanced Anti-Radiation Guided Missile to low-rate production.
The Aerospace Group posted a 4 percent drop in sales to $332.8 million on a decline in revenues in the Space Systems Operations divisions while operating profit fell 12 percent to $30.7 million on the lower sales and higher research and development costs.
ATK tallied $1.6 billion in orders in the quarter for a 1.2 book-to-bill ratio.
For the year, ATK’s sales climbed 10 percent to $4.8 billion while net earnings jumped 25 percent to $340.9 million ($10.42 EPS). Operating earnings for the quarter and the year were both records. Free cash flow was $242.1 million.
For its fiscal year 2015, ATK is forecasting sales between $5.2 billion and $5.3 billion. The company doesn’t provide segment guidance but DeYoung said on Thursday’s earnings call that the Sporting Group expects organic growth in the mid- to high-single digits, with the Aerospace segment relatively flat and the Defense business down slightly given pressure in the domestic market.
Earnings are expected to be between $10.80 and $11.20 EPS, which includes $10 million (19 cents EPS) in restructuring charges related to the consolidation of facilities but is below consensus estimates of $11.40. Free cash flow is projected to be between $250 million and $275 million.
ATK’s stock took a bit of a beating on Thursday given the earnings guidance, sliding more than 9 percent to close at $134.09, off $13.82. Jefferies aerospace and defense analyst Howard Rubel said in a note to clients that the sell-off in ATK’s stock “appears overdone,” and he upped his FY ’15 earnings estimate for the company a nickel to $11.35.
The earnings guidance is “cautiously optimistic at this point,” said Neal Cohen, ATK’s chief financial officer. He added that there will be an increase in ATK’s share count given the suspension of its stock repurchase program due to the pending merger and spin-off as well as dilution that will come from convertible bonds.
The guidance doesn’t include any impact from the pending merger of ATK’s Aerospace and Defense groups with Orbital Sciences [ORB] and the spin-off of its Sporting Group into a separately traded public company to be led by DeYoung.