ATK [ATK] yesterday lowered its earnings, sales and free cash flow guidance for the rest of its fiscal year, saying it would take a $38 million pre- tax charge in the fourth quarter due to a decision to discontinue using two trade names associated with previous acquisitions.
The charge is related to the Thiokol and Mission Research Corp. acquisitions in 2001 and 2004, respectively, and amounts to 71 cents earnings per share (EPS). ATK now expects to report FY ’10 EPS between $8.09 and $8.19. Excluding the charge, the company expects earnings from continuing operations to come in near the top of the previous guidance due to better than expected operating margins.
J.P. Morgan defense analyst Joseph Nadol in a note to clients said he expects the various changes in guidance to ultimately boost ATK’s FY ’11 EPS outlook. He added that the impairment charge will have a “modest benefit” because it should reduce amortization.
Sales guidance for the year was reduced between $25 million and $75 million to $4.8 billion, primarily due to timing issues across a number of projects, an ATK spokesman told Defense Daily.
On March 31, ATK made a $150 million discretionary cash contribution to its pension plans. That payment will lower free cash flow for the year, which is now expected to be about $50 million. The company’s previous guidance projected $150 million in cash flow in FY ’10. The reason the contribution to the pension didn’t wipe out free cash for the year is due to stronger than expected operating cash flow.
ATK continues to expect about $130 million in FY ’11 pension expense.