By Calvin Biesecker
Alliant Techsystems [ATK] yesterday posted strong third quarter financial results due to balanced performance across its operating divisions and the company raised its fiscal year 2008 earnings guidance.
That strong performance is expected to continue. ATK is predicting double-digit earnings and strong organic growth in fiscal year 2009. ATK has $4.3 billion in orders so far in FY ’08 and expects to end the year with $6 billion, laying the foundation for up 10 percent annual growth for the foreseeable future, Dan Murphy, the company’s chairman and CEO, said on yesterday’s earnings call.
Each of ATK’s operating segments achieved double-digit earnings and sales growth in the third quarter. Aided by strong growth in the civil ammunition and military medium- caliber systems coupled with lower pension expense, Ammunition Systems increased operating profits and sales 15 percent to $37.3 million and $381.3 million, respectively.
Launch Systems, which is benefiting from work its development of the first stage and launch abort systems for NASA’s Ares I Crew Launch Vehicle, grew 12 percent to $307.8 million. Sales related to the Space Shuttle and strategic missile programs were down as expected. Operating profits increased 25 percent to $43.3 million on the higher sales, lower pension expenses and the resolution of certain-prior year overhead rate matters.
The Mission Systems segment, benefiting from work in defense electronics, the Ares I Attitude Control Motor and satellite subsystems, and the acquisition last year of Swales Aerospace, boosted sales 22 percent to $365.8 million. Organic growth was 10 percent. Operating profits increased 22 percent to $36.7 million on the higher sales, better margins in defense electronics and lower pension expenses.
ATK’s net income increased 14 percent to $58.3 million, $1.65 earnings per share (EPS), from $51.2 million ($1.53 EPS), a year ago. Sales increased 17 percent to $1.1 billion from $903.8 million, with 13 percent of the gain organic. Free cash flow through the first nine months of the fiscal year was $133 million.
Regarding the use of cash, Murphy said that the company expects to concentrate on paying down debt once it completes its pending acquisition of the space and related information systems businesses of Canada’s MacDonald Dettwiler and Associates (MDA). The closing of that deal is still expected in the second quarter of 2008.
ATK said yesterday it has decided to file an Investment Canada Act Registration to ensure a thorough review of the acquisition by Canadian industry and government officials. Murphy said this process could take three months. He noted that a "spirited" discussion is ongoing in the Canadian press over the "hollowing out of Canadian industry" and said ATK’s goal is to strengthen the business and open new markets for it. Murphy said he’s confident the deal will get done.
With two months left in its fiscal year 2008, ATK said that based on the strength of the operating segments and improved visibility, it is increasing its earnings guidance by a nickel to a range of $6.25 to $6.35 EPS. Sales are still expected to top $4.1 billion.
In fiscal year 2009 ATK expects earnings to grow another 12 to 17 percent, reaching between $7.10 and $7.30 EPS. Sales are expected to be about $4.5 billion with organic growth in the 8 to 10 percent range. Free cash flow is expected to be $260 million. The anticipated results don’t include the purchase of MDA.
ATK has been positioning itself as the low-cost, yet still technologically savvy provider of defense and space systems and components to the U.S. government and defense industry. Murphy calls it "affordable innovation" and said that ATK’s competitors are taking notice.
However, regarding the company’s recent loss to Raytheon [RTN] on the Army’s Medium-Range Munition (MRM) program, Murphy said a key lesson learned in becoming a systems integrator is the need to look to industry suppliers for existing "best solutions for components before building our own." For the MRM, ATK was developing its own seeker but realized too late that it probably should have partnered with L-3 Communications [LLL] or BAE Systems for the development, he said.