By Calvin Biesecker

Despite pressure on defense spending in the United States and abroad, ATK‘s [ATK] new chief believes his company has plenty of opportunities to improve its market position to continue to improve key financial aspects of the business including sales, margins and cash flow.

These opportunities include a more aggressive focus on organic growth, increasing the percentage of business it does internationally, maintaining a diversified portfolio of products, and ensuring that each of the company’s operating sectors get a fair shake in contributing to its success, Mark DeYoung, ATK’s president and CEO, told Defense Daily in an interview this week.

DeYoung calls the growth model “distributive,” and it means he won’t be looking for a particular group or two to always be the growth engine for ATK or the business that shores up its cash flow. Put another way, the model means “that we’re not focused on just one area in the future,” he said.

Whether it’s acquisitions, organic growth or capital deployment, each of the operating groups is “able to come forward and present their strategies and justify the need for investment and for us to work through that with them in order to grow in each of those segments,” DeYoung said.

The distributed model fits with DeYoung’s first significant move to position the company for future growth and to better serve its customers. In March, shortly after taking the helm at ATK, where he has worked for 25 years across all of its operating segments, DeYoung realigned the organization into four operating groups from three previously (Defense Daily, March 12).

The realignment is meant to create a greater market and customer focus for each of the groups, which should help cash flow and margins, “and we’re looking for great execution as a result of properly aligning ourselves toward the market,” DeYoung said. “The realignment into the four group structure sets the foundation for the future growth of the company.”

The new operating structure consists of the Aerospace Systems, Armament Systems, Missile Products, and the Security and Sporting Group, which has responsibility for law enforcement and sporting ammunition as well as tactical accessories for government and commercial markets.

Organic growth is nothing new to ATK, but DeYoung said he is taking a “more aggressive focus” toward this. One way he’s trying to work this out is by striking a different balance of when ATK should pursue business opportunities as a prime contractor and when it should partner with other prime contractors rather than compete with them.

While ATK has a legacy position as a prime contractor for military ammunition, in 2002 the company made a nifty acquisition of a small developer of guidance technology that enabled ATK to assert itself as a prime contractor and systems integrator for precision munitions and missiles. That effort is now bearing fruit as evidenced by the start of deliveries this month of the Advanced Anti-Radiation Guided Missile (AARGM) for the Navy and forthcoming production decisions by the Army for the Precision Guidance Kit and Mortar Guidance Kit.

Nonetheless, “I’m trying to shift the focus of we don’t have to necessarily always pursue the role of the prime,” DeYoung said. “I’m trying to back off that strategy a little bit from what we previously had and say, ‘Wait a minute. Let’s look at where we should prime where it makes sense but let’s look at how we become a partner of choice. Let’s look at how we work with Raytheon or how we work with Lockheed or how we work with Boeing and others to support them so that they can be more successful and we can grow our work share on those programs.'”

Where ATK has a competitive advantage, a solution that the customer wants and the company can be the prime, then it makes sense to compete as a prime, DeYoung said. “But where we have niche capabilities, where we have specific capabilities like in our Missile Products group, there’s a real opportunity for us to partner instead of just flat out compete on everything,” he said.

Another way DeYoung hopes to drive organic growth is to boost international sales, which currently account for about 10 percent of ATK’s $4.8 billion in annual revenues.

ATK has had success in its ammunition business overseas, selling non-standard ammo as well as small and medium caliber ammo. “And what I’m trying to do now is just look across ATK’s portfolio and help inspire the rest of the organization to recognize the opportunities that exist for ATK products to be sold to our allies and into international markets,” DeYoung said. “We have not had a real concentrated focus like we’re putting in place now going global with our capability.”

One group he singled out is Security and Sporting, which currently drives about 10 percent of its sales from the international market. DeYoung said the group has strong brands, technology and product that are “underrepresented in the international market.”

DeYoung also said the tactical accessories business, which ATK basically acquired as part of two acquisitions over the past year and which accounts for about $100 million in annual sales, has foreign market potential. That business, which includes a range of products such as holsters, tactical vests, load bearing harnesses, footwear and more, sells into the military and law enforcement markets. This business also has greater commercial opportunities, he said.

ATK will also continue striving to be a supplier of affordable products and solutions for its customers, DeYoung said. This has been one of the company’s arguments since getting into the precision munitions business that it can upgrade existing “dumb” munitions such as mortar and artillery rounds with an advanced guidance kit to create a cost- effective smart bomb.

As with non-standard ammunition, which uses a supply chain model that results in ATK coordinating and overseeing the supply and production of the end product without actually doing the manufacturing, DeYoung said this model can work for tactical accessories to serve security and law enforcement customers globally.

The supply chain model requires low capital investments, allowing ATK to leverage investments made by others which in turn contributes to margin improvement, DeYoung said.

While DeYoung is focused on organic growth, acquisitions remain part of the plan. In keeping with the distributive growth model, acquisitions won’t necessarily be focused in a particular area, he said.

“So we’re going to be very opportunistic in looking how we grow and we’re going to focus that in all four of these lanes,” DeYoung said.

ATK the past few years has been leveraging its legacy capability in developing and producing composite parts for rocket motors and expanding that capability into other parts for fighter aircraft, satellite structures and now commercial passenger planes. On Monday, ATK announced it has begun shipping composite parts for a new Airbus plane, the A350. Airbus is part of the European Aeronautic Defence and Space Co.

DeYoung sees opportunities to supply composite parts to other commercial aircraft makers as well.

The success in expanding its composite capabilities has enabled ATK to enter adjacent markets, thereby diversifying its product and customer base. DeYoung said these types of efforts will continue.

ATK’s space business has been a cause of worry for investors of late given the Obama administration’s winding down of the Space Shuttle program and the cancellation of the Constellation project, a manned spaceflight program meant to replace the shuttle. Both programs combined have accounted for a significant portion of the company’s revenue.

However, a recent Senate authorization bill seeks to retain the work that has been done under Constellation to leverage it going forward. DeYoung said that this likely “bodes well for solid propulsion.” So it’s “moving in the right direction,” he said.

On top of that, ATK has demonstrated that it can quickly build a satellite bus structure that can be outfitted with sensors and other instruments to meet the military’s demand for rapidly developed and launched capabilities to meet urgent mission needs. The Operationally Responsive Space-1 satellite is slated to be launched later this year (Defense Daily, Feb. 26).