ATK [ATK] yesterday reported an essentially flat first quarter but its earnings came in well above consensus estimates due to contract completions and profit adjustments at the Army’s Radford ammunition plant, which the company had managed until June before turning operations over to a another contractor, and an asset sale.
Sales increased less than a percent to $1.1 billion while net income eased down a percent to $71 million, $2.16 earnings per share (EPS), from $72 million ($2.13 EPS) a year ago. The average projection of analysts was $1.42 EPS.
A higher tax rate in the quarter due to the lack of a federal research and development tax credit, which expired at the end of 2011, led profits down. The combined operating profits at ATK’s three groups were flat.
Operating profits increased 48 percent at ATK’s Defense Group, nearly offsetting double-digit declines at its Sporting and Aerospace Groups. The strong defense profits came on higher sales and profit rates at the Radford plant, which is now being managed and operated by BAE Systems after the Britain-based company ousted incumbent ATK in a competition that was decided earlier this year. The group also recorded a profit gain on an asset sale.
Profits at the Sporting Group were off, despite a double-digit increase in sales, due to a continued shift toward the purchase of lower-margin ammunition combined with the costs of closing some facilities. Sales were up on increases in ammunition and accessories volume.
The Aerospace Group saw its sales fall inline with the decrease in operating profits due to lower revenues from NASA and commercial aerostructures. A year ago the division’s profits benefited from a one time gain related to a land sale.
ATK raised its sales and earnings guidance for the year based on results from the first quarter and a lower-than-expected tax rate for the year, which assumes the federal R&D tax credit will be reinstated and made retroactive to the beginning of 2012.
The company now projects earnings between $7 to $7.30 EPS, a 75 cent bump from earlier guidance. The assumption already bakes in delays in the European Aeronautic Defence & Space Co.’s A350 commercial plane program, which Mark DeYoung, ATK’s president and CEO, said is being offset with efficiency improvements and other cost savings to offset the schedule slip.
The sales target has been raised by $50 million to between $4.1 billion to $4.2 billion due to higher than forecast volume at the Sporting Group and the first quarter gains at Radford.
While free cash in the first quarter was a $320 million outflow, ATK expects free cash flow for the year between $140 million and $165 million.
Bookings in the first quarter were strong at $1.1 billion while backlog stood at $6.1 billion.