Leidos [LDOS] on Tuesday reported lower net income on lower operating profit, higher taxes and a foreign exchange loss related to the acquisition of a business in Australia.
Net income slid 21 percent to $164 million, $1.17 earnings per share (EPS), from $208 million ($1.43 EPS) a year ago due to higher taxes, lower operating income and a loss related to foreign exchange on the acquisition.
Adjusted income, which excludes various acquisition-related costs and derivatives was $1.59 EPS, two cents ahead of consensus estimates. Adjusted operating margin fell 1.3 percent to 10.3 percent.
Sales in the quarter increased 4 percent to a record $3.6 billion from $3.5 billion a year ago.
At the operating level, a steep decline in income in the Health segment and a slight drop at the Defense Solutions segment more than outweighed handsome gains at the Civil segment.
The higher sales were driven by increases in Civil and Defense due to a NASA information technology program, a Navy next-generation IT program, force protection programs, security detection work and commercial energy programs. A defense health program also contributed to the higher sales.
Orders were strong at $4.1 billion representing a book-to-bill ratio of 1.1 times sales. Leidos had nearly $1 billion worth of awards protested during the quarter, Roger Krone, the company’s chairman and CEO, said during an earnings call.
Backlog at the end of the quarter stood at $35 billion, up a percent from $34.7 billion a year ago. Foreign exchange headwinds were a $363 million drag on the backlog.
Free cash flow was a record $721 million in the quarter. Krone said that capital deployment of the company’s cash “will lean toward share repurchases,” and that Leidos also plans to retire some debt.
Leidos narrowed its adjusted earnings guidance for the year to between $6.20 and $6.40 EPS versus the prior outlook of between $6.10 and $6.50 EPS, with a higher tax rate trimming the high-end of the guidance.
Sales are now forecast to be between $14.2 billion and $14.4 billion, up from the prior range of between $13.9 billion and $14.3 billion, in part due to revenue from the closure on Monday of Cobham’s special mission business in Australia. The new Leidos business unit will have about $100 million in annual sales.
Leidos didn’t provide a rough outlook for 2023 but Krone said the company has increased its headcount by more than 2,000 employees so far this year and “we don’t expect that staffing will significantly constrain our plans for next year.”