By Calvin Biesecker

Alliant Techsystems [ATK] yesterday posted strong earnings and sales to open its new fiscal year, powered by record results in its ammunition business that more than offset poor earnings in its space business, which suffered a $15 million charge related to performance fixes on spacecraft structures.

Net income increased 10 percent to $57.9 million, $1.64 earnings per share (EPS), from $52.4 million ($1.50 EPS). Operating margins dipped a full percent to 9.6 percent due to the charge, which will trim expected margins for the full year versus original guidance. Sales in the quarter increased 17 percent to $1.1 billion from $958.4 million. About 12 percent of the growth was organic.

Income and sales growth was led by ATK’s Armament Systems segment, which increased operating profits by 53 percent to $44 million on a 32 percent sales gain to $442 million. It was the biggest quarter ever for the segment, which was boosted by $26 million in medium caliber ammunition sales that had been expected later in the year.

In addition to the strong medium-caliber sales, ATK said other military ammunition sales grew as well, along with commercial ammunition, which is also benefiting from international demand due to the weak dollar, Dan Murphy, ATK’s chairman and CEO, said on yesterday’s earnings call.

Profits in the Armaments segment increased on the higher sales and on better performance in commercial ammunition and energetics. Raw material costs partially offset the higher profits.

The Space Systems business turned in a relatively weak performance. Sales were up 11 percent to $407 million due mainly to revenue from the acquisition of Swales Aerospace last year. However, the $15 million charge in the company’s spacecraft structures business was entirely unexpected and Murphy said that ATK’s focus on its ultimately failed acquisition of the space assets of MacDonald Dettwiler and Associates led management to take its "eye off the ball."

Murphy described the problems at ATK’s spacecraft systems business unit in Corona, Calif., as an "anomaly" given company’s 30-year legacy there but said they have had trouble properly manufacturing some components on satellite bus structures on two programs. Those difficulties also led to missed business opportunities elsewhere, which led to a drop in overall work. Now ATK is in the process of laying off some spacecraft workers to level its workforce with its business base, Murphy said.

"We hope to right the ship in three to six months," Murphy said.

Despite the setback in the space business, Murphy said that ATK’s growth plans in space remain on track. He disclosed that the company recently was one of four companies that have been downselected to provide the Defense Department with studies on how to quickly provide mission ready satellites to meet urgent space requirements. That helps get ATK’s "foot in the door" to be a player in future Operationally Responsive Space (ORS) missions, a company spokesman told Defense Daily.

Profits at Space Systems were also dampened by higher research and development expenses as ATK gets ready to launch its own rocket this fall with a NASA payload to help prove out its ability to reliably and affordably to develop and produce launch vehicles that can also meet ORS missions.

ATK’s Mission Systems segment helped boost the company’s overall results through a double-digit increase in profits and an 8 percent increase in sales. Sales were up on space exploration work for NASA and tactical rocket motors, which both helped boost profits along with work on military aircraft structures. Murphy said that ATK is working to boost its structure work on the F-35 Joint Strike Fighter program from $1.2 billion per aircraft to nearly $2 billion.

ATK also said yesterday that it will jointly bid with Britain’s BAE Systems on the Unites States Navy and Marine Corps Joint Allied Threat Awareness System program, which is aimed at developing the next-generation of missile warning systems capable of protecting rotary-wing aircraft from infrared guided missiles. Bids are due in December, Murphy said.

The strong quarter, coupled with better than expected strength at Armament Systems the rest of the year, led ATK to increase its sales guidance for the year by $50 million to nearly $4.6 billion and to narrow its earnings guidance to the upper end of the range at $7.25 to $7.35 EPS.

ATK yesterday also announced a new 5 million share repurchase reauthorization program that will primarily be used to offset dilution from stock-based compensation.