By Calvin Biesecker
Alliant Techsystems [ATK] Wednesday evening posted double-digit top and bottom line growth driven by its ammunition business, which is demonstrating broad strength in multiple markets.
The nation’s leading provider of ammunition for the U.S. military said sales were up due to a contract for non-standard ammunition for the Afghan Security Forces and higher ammo sales for the U.S. military as well as commercial, law enforcement and international customers. Profits were up on the higher ammo sales, as well as higher volumes of commercial and military aircraft structures, and advanced weapons programs.
Despite the sudden departure of Dan Murphy as ATK’s chairman and CEO this week, the current leaders told analysts yesterday that the company will maintain its business development and capital deployment strategies.
The company hopes to have a new CEO in place early next year to be part of the annual budget planning before that process wraps up in the February and March timeframe.
ATK “won’t skip a beat,” Ronald Fogleman, the company’s new chairman, said. He noted that the current leaders remain in place.
Citing Murphy’s lead in establishing ATK’s brand of low cost innovation, Fogleman said that’s an “industry discriminator” for the company, which will also “remain focused on our core areas…I think that the key thing for us is to stay the course that has proven to be successful up to this point.”
As for capital deployment, John Shroyer, ATK’s interim CEO and chief financial officer, said “flexibility” will still be important to deliver shareholder value.
“I don’t anticipate any significant departure from the way we have operated over the last several years,” Shroyer said. “We’ll look to strategic acquisitions, debt repayments, internal investments and share repurchases.”
Net income climbed 18 percent to $72.5 million, $2.19 earnings per share (EPS), compared to $61.5 million ($1.77 EPS) a year ago, topping consensus estimates by 13 cents EPS. Margins improved 20 basis points to 11.2 percent. Higher pension expenses, additional investments in long-term precision weapons systems, and reduced incentive fees on a missile defense program partially offset the improved profits.
Armament Systems, which is responsible for ATK’s ammo and gun businesses, posted a 58 percent increase in its operating profits. Operating profits were down at the Mission Systems and Space Systems segments.
ATK’s sales increased 11 percent to $1.2 billion compared to $1.1 billion a year ago, with organic growth 9 percent. Sales were down as expected at the company’s Space Systems segment due to the ramp down in the Air Force Minuteman III ICBM program and the termination of the Kinetic Energy Interceptor program.
Based on the strong quarter and improved outlook for the rest of its fiscal year, ATK raised its earnings, sales and free cash flow guidance for FY ’10. The earnings outlook was bumped up 15 cents to between $8.60 and $8.75 EPS while sales are forecast to be in the $4.8 billion to $4.9 billion range, a $25 million increase from prior guidance. Shroyer said that international and commercial business is expected to account for 30 percent of FY ’10 sales. Free cash flow is expected to be $150 million versus prior expectations of $110 million to $130 million.
ATK will provide guidance for FY ’11 when it reports third quarter results. Shroyer said he expects pension expense to be a headwind next year but that the company can hold the line on margins and possibly even grow them through strong execution. Sales growth drivers in FY ’11 should be commercial and military aircraft structures and precision weapons, he added.