By Calvin Biesecker

Alliant Techsystems [ATK] yesterday appointed Mark DeYoung as its new president and CEO effective immediately, ending a three-month search for a new top executive after Dan Murphy stepped down last November due to family matters.

The choice of DeYoung, 51, to lead the company is no surprise as he was named by ATK in December at its leading internal candidate although the company did review outside candidates as well. DeYoung has led ATK’s Armaments business for nearly eight years, growing it from $600 million in revenues in the company’s fiscal year 2003 to a projected $2.1 billion in the ongoing fiscal year 2010 through a combination of acquisitions and organic growth.

DeYoung has also overseen ATK’s expansion into commercial ammunition and tactical accessories as well as international markets for Armaments products.

“We view this as a solid selection,” Credit Suisse aerospace and defense analyst Rob Spingarn said in a note to clients yesterday on the company’s third quarter results. “Mark has grown the Armaments business very successfully over the past decade.”

DeYoung has been with ATK and its predecessor companies for 25 years, joining Hercules Aerospace as a financial analyst in 1985, later assuming an operational role in 1994. Since then, he has held a number of financial and operational positions within the company including with the Radford Army Ammunition Plan and ATK Missile Systems. He was named president of the ATK Lake City Ammunition business in 1999. He was picked to head ATK’s Ammunition Group, which later became Armaments, in February 2002.

John Shroyer, ATK’s chief financial officer who was the interim CEO after Murphy resigned, said yesterday that DeYoung is a “results driven leader.”

As for its third quarter results, ATK’s net income increased 28 percent to $78.4 million, $2.33 earnings per share (EPS), from $61.4 million ($1.85 EPS) a year ago. Earnings benefited from higher operating margins and a lower than expected tax rate. Consensus estimates were for $2.19 EPS. Excluding the benefit from the lower than expected tax rate, ATK still beat expectations by three cents.

Sales in the quarter increased 3 percent to $1.1 billion, led by the Armament and Mission Systems groups.

Armament Systems paved the way to the higher overall sales and earnings, posting double-digit gains in sales and operating profits. ATK credited sales of non-standard ammunition, modernization efforts at two ammunition plants, and business from the acquisition of Eagle Industries for the 16 percent growth at Armament. Operating profits were up a whopping 45 percent on the higher sales and improved profitability across the group.

The company’s Space Systems group eked out a 1 percent profit on higher sales of its Ares I rocket and an incentive fee on the Space Shuttle program. The profit came despite a double-digit drop in sales, which were hampered by lower sales related to the Space Shuttle and Minuteman III ICBM programs and the termination of the Kinetic Energy Interceptor program.

Profits declined at the Mission System group due to a lower incentive fee on the Standard Missile-3 program and higher pension expense, although sales were up.

Shroyer reiterated the company’s disappointment over NASA’s proposed termination of the Constellation program, which Ares is a part of, but said the debate on the fate of the project is still ahead. He pointed to “wide bipartisan” support in Congress for the program and expects the current program to continue for now. The fate of Constellation in upcoming budget deliberations on the Hill presents a significant challenge for DeYoung in his first year at the helm.

ATK currently expects $500 million in sales in its fiscal year 2011, which begins this spring, from the Constellation and Space Shuttle programs. If the program is terminated, Shroyer said that ATK will get its share of termination money associated with the shutdown of the program. ATK will remain a “significant player in space exploration for decades to come” no matter the outcome on Constellation, he said.

The improved operating performance and lower tax rate led ATK to increase its earnings guidance for the year to between $8.80 and $8.90, a 20-cent boost on the low end of the range and 15 cents on the upper end from previous expectations. Free cash flow is still expected to be around $150 million despite an additional $10 million in capital expenditures.

ATK won’t provide guidance for FY ’11 until DeYoung has an opportunity to put his stamp on the company’s strategy going forward, but Shroyer said to expect flat sales and a significant increase in pension expense, about $60 million higher, which will put pressure on operating margins. The company is already working to mitigate the impact now, he said.