By Calvin Biesecker
Alliant Techsystems [ATK] yesterday reported strong fourth quarter earnings amid modest sales growth as earnings a year ago were hurt by a large charge but the company is forecasting flat to declining sales in its new fiscal year due to less work for NASA and the possible loss of an Army energetic facility that it manages.
Mark DeYoung, ATK’s president and CEO, said on an earnings call that growth opportunities with the Defense Department and NASA, two key customers historically, are “limited and that the company will have to look to expand and extend our capabilities by entering higher growth markets.”
Those higher growth markets include an expanded international presence, which has been a focus of DeYoung’s since taking over the top job at ATK early last year. The company increased its international sales by 10 percent in its FY ’11 and DeYoung sees new and additional potential in a number of areas overseas such as military and sporting ammunition, composites for aircraft, precision missiles and munitions, and gun systems.
As for domestic growth, DeYoung said ATK has more potential in the markets for security and sporting ammunition and tactical accessories, commercial and military aerostructures, precision munitions. ATK continues to explore adjacent markets, he said.
Over the years ATK has shaped itself in part through acquisitions. But the company is considering divestitures too as it contends with a constrained federal spending environment and a desire on its part to continue to not only expand sales but also boost profits by improving operating margins to a long-term goal of 12 percent.
The company is currently conducting a review that will be completed this summer that looks at “rationalizing and rebalancing ATK’s portfolio,” DeYoung said. Last month ATK divested a small machine shop to its employees, he said.
In the quarter, net income increased 22 percent to $71.1 million, which included a record $2.10 earnings per share (EPS), from $58.4 million ($1.73 EPS), whopping consensus estimates by 17 cents EPS. Higher pension expenses weighed on earnings but the comparison to last year benefits from a $38 million non-cash impairment charge recorded a year ago. Absent the charge, ATK’s per share earnings in the fourth quarter were down 14 percent from $2.44 EPS a year ago.
Margins in the quarter, excluding the charge a year ago, declined 170 basis points to 10.1 percent.
Sales in the quarter increased 4 percent to $1.3 billion versus $1.2 billion a year ago, with double-digit growth in the Security and Sporting, and Armament Systems segments more than offsetting double-digit declines in Missile Products and Aerospace Systems. Organically, sales increased 2 percent, driven by military small-caliber ammunition, commercial ammunition and tactical accessories.
For the year, net income rose 12 percent to a record $313 million, $9.32 EPS, versus $279 million, $8.33 EPS. Sales were up nearly a percent to a record $4.8 billion. Free cash flow was $291 million.
In ATK’s FY ’12, the company is projecting sales to be between $4.6 billion and $4.8 billion, with the range including a win or a loss by ATK in an ongoing competition to continue managing the Army’s Radford energetics facility. Per share earnings are expected to be between $8 and $8.60 and free cash flow between $225 million and $250 million.
ATK has a $6.7 billion backlog and had $4.8 billion in orders for the year.