By Calvin Biesecker
Alliant Techsystems [ATK] yesterday posted a strong end to its fiscal year driven by performance in its Space Systems and Mission Systems segments, although a previously reported non-cash impairment charge stemming from a decline in the company’s stock price led to a loss of net income in the fourth quarter.
The net loss was $32.8 million, $1.00 earnings per share (EPS), compared to net income of $60.4 million ($1.72 EPS) a year ago. The decline in ATK’s stock price, stemming from the general pummeling the stock markets have suffered since last fall, led to an “implied decline” in the valuation of the Spacecraft Systems division related to several acquisitions the company completed between 2003 and 2007. The impairment charge was $108.5 million.
Excluding the charge, ATK’s net income increased 33 percent to $2.28 EPS, handily topping consensus estimates of $2.11 EPS. Operating margins without the charge rose 1.5 percent to 11.5 percent. ATK’s income a year ago was hindered by a charge related to the failed acquisition of the space-related business of Canada’s MDA.
Sales increased 11 percent to $1.3 billion from $1.1 billion a year ago, with Space Systems and Mission Systems posting double-digit increases.
Strong ongoing operations, lower than expected pension expenses and the recent acquisition of Eagle Industries led ATK to increase its earnings and sales guidance for fiscal year 2010. Earnings are now expected to be between $8.05 and $8.25 EPS, a 65 cents boost. Operating margins are expected to be around 11 percent. Sales are forecast to be in the range of $4.7 billion to $4.8 billion, up about $150 million.
Operating earnings in the Space Systems business, excluding the impairment charge, increased 32 percent on higher sales, which were up 14 percent, incentive fees related to NASA program and better operating performance from the Spacecraft Systems division. NASA, commercial launch and missile defense programs accounted for the improved sales.
In the Mission Systems group, operating profits increased 19 percent on higher sales in composite structures, including the Airbus A350 program that ATK said will be worth $1 billion extending beyond 2020. Sales rose 13 percent on the composite work, tactical rocket motors and the ramp up of advanced weapons programs.
Dan Murphy, ATK’s chairman and CEO, said that the aircraft structures business is emerging as a significant component of the group’s business. Business here is expected to ramp up in the 2012 to 2013 period. In addition to commercial work on the A350 and Rolls-Royce‘s next-generation engine, ATK expects to generate $2 million on each Joint Strike Fighter aircraft, a program central to the Defense Department’s future tactical fighter fleet.
Sales in the Armament Systems group slowed in the fourth quarter to 7 percent–versus 18 percent on the year–driven by commercial ammunition deliveries and the start-up of deliveries of non-standard ammo for the Afghanistan Security Forces. Operating profits slipped a percent due to a write off related to a customer’s bankruptcy filing.
Murphy expects continued growth in the ammunition business in both the defense and commercial markets. He also said the company’s revenues from international and law enforcement markets are also expanding with growth rates outpacing the commercial business.
For the year, ATK’s net income declined 30 percent to $155.1 million ($4.56 EPS) from $222.3 million ($6.32 EPS) due to the impairment charge. Margins, excluding the charge, were 10.3 percent. Sales increased 10 percent to $4.6 billion from $4.2 billion. Free cash flow was $313 million and backlog was $7 billion at the end of the fiscal year.