By Calvin Biesecker
ATK [ATK] yesterday said its third quarter earnings fell due to a charge related to development work the company is doing on composite structures for the Airbus A350 commercial plane while sales dipped a percent mainly on less work for NASA programs and special mission aircraft.
The $15 million, 45 cents earnings per share (EPS), after-tax charge related to the A350 stems largely from development issues as the company matures its designs, specifications and tooling for the eventual production of the composite structures, and also to the opening of a new facility in which it will do the work for the aircraft, company officials said on yesterday’s earnings call. They still expect ATK’s work on the A350 to be profitable and didn’t adjust their estimate of about $1.2 million in sales per aircraft through the first 800 ship sets.
Net income slid 10 percent to $70.2 million ($2.09 EPS), from $78.4 million ($2.33 EPS) a year ago, in large part due to the $15 million impact from the aerospace structures program, which was partially offset by the retroactive extension of the federal research and development tax credit, which contributed 11 cents to EPS in the third quarter. Despite the earnings tumble, results still beat consensus estimates by 11 cents EPS.
Margins in the quarter fell 70 basis points to 11.2 percent but were otherwise strong excluding the impact of the A350-related charge.
Sales remained at around $1.1 billion in the quarter, as gains in the Security and Sporting and Armament Systems segments slightly outweighed declines at the Aerospace Systems and Missile Products segments.
The A350-related charge combined with fewer NASA sales, which are down on the completion of the Reusable Solid Rocket Motor program for the Space Shuttle and less revenue on the Ares 1 program, led to a 47 percent decline in operating profits at the Aerospace Systems group.
Operating profits were up at ATK’s three other segments, driven by a 42 percent gain at Armament Systems on higher sales and improved operating efficiencies. Growth at Armament Systems was due to gains in small-caliber and non-standard ammunition as well as medium-caliber weapons sales.
At the Missile Products and Security and Sporting groups, profits were up in the low double digits. Security and Sporting is facing headwinds from rising prices for commodities such as copper used in the production of ammunition for commercial and law enforcement customers. ATK plans to raise its prices for ammunition to help offset the increase in materials costs.
The Security and Sporting group benefited in part from the acquisition last year of tactical accessories company Blackhawk Industries, which contributed $21 million in sales. Gains from Blackhawk were below the company’s expectations due to a “slow start” on an aggressive set of initiatives planned for the business, Mark DeYoung, ATK’s president and CEO, said.
Still, DeYoung said that Blackhawk will drive accelerated growth and that he is pleased with the higher margins the business is delivering.
ATK left its guidance intact for the year but said it would wait until it reports fourth quarter results to provide expectations for its fiscal year 2012 due to uncertainty in the federal budget and pension expenses, which as of now the company predicts will be about $15 million higher than the current fiscal year.
DeYoung said that the company will continue to press ahead with initiatives to improve program execution, particularly the transition from development to production, and lean manufacturing initiatives to boost margins and counter pension headwinds.
Orders in the quarter were $1.2 billion, slightly ahead of sales, and total backlog stood at $6.6 billion.