Engility [EGL] on Monday reported a steep decline in its first quarter earnings due to lower sales, higher bid and proposal costs, and integration costs related to its acquisition in January of Dynamics Research Corp. (DRC).
Net income slid 36 percent to $8.9 million, 50 cents earnings per share (EPS), from $13.8 million (79 cents EPS) a year ago, still nipping consensus estimates by two cents.
Engility’s selling, general and administrative cots were $7 million higher in the quarter, driven by $3 million more of bid and proposal costs, $3 million of additional expenses related to DRC, and $1 million in indirect reserves. A higher tax rate also contributed to the decline in earnings.
Sales in the quarter fell 6 percent to $338.8 million from $361.7 million a year ago, mainly due to less work supporting United States forces in Afghanistan. Free cash flow was a strong $21.5 million.
Tony Smeraglinolo, Engility’s president and CEO, said on the company’s earnings call Monday evening that award activity remains slow despite congressional passage in January of an FY ’14 spending bill.
“Customers have been slow to award contracts across the industry,” Smeraglinolo said. “However, our proposal activity has increased significantly over the past couple of months (and) we expect award activity to increase in the second half of 2014 as we approach the government’s fiscal year-end and experience typical fourth quarter funding increases.”
Orders in the quarter were light at $205 million for a book-to-bill ratio that was 60 percent of sales. Funded backlog at the end of the quarter was $582 million versus $602 million at the end of 2013.
The integration of DRC is proceeding ahead of schedule, Smeraglinolo said.
The company maintained its financial guidance for the year with sales expected to be between $1.5 billion and $1.6 billion and per share earnings between $2.24 and $2.70. The sales guidance includes about $230 million in revenue from DRC, partially offsetting a projected $115 million decline in war-related business. The company said it is hoping for a book-to-bill ration of about 95 percent of sales this year.