By Calvin Biesecker
Alliant Techsystems [ATK] yesterday reported strong third quarter financials led by strength in the commercial ammunition and military medium-caliber guns and ammunition businesses and better operating efficiencies.
ATK’s Armament Systems segment, which designs and produces ammunition and medium-caliber gun systems, posted double-digit sales and profit increases.
The company’s strong quarter was aided as well by double-digit profit gains at its Mission Systems segment despite a modest uptick in sales. ATK cited operating efficiencies and lower pension costs as well as the improved revenues for the profit increase. Segment revenues were expected to be higher but a delay in the Navy’s Multi-Stage Supersonic Target program limited the gains. The reason for the delay, a protest from a losing bidder, has been resolved and ATK is moving out on the program.
ATK’s income growth was hindered by lower operating profits at its Space Systems segment, due to lower sales, and lower profits in the spacecraft structures business. Results a year ago also benefited from some one-time gains.
The slowdown in the space business has much to do with the winding down of the company’s work under the Air Force Minuteman III program. ATK had expected this drop in program revenues to be somewhat mitigated by sustainment work but that wasn’t included in the FY ’09 budget. Dan Murphy, ATK’s chairman and CEO, believes sustainment funds will be in the Pentagon’s FY ’10 budget.
In addition, ATK is looking for the Defense Department to resolve its plans for a possible Prompt Global Strike initiative, which would involve putting conventional warheads atop of strategic rockets for a quick-strike capability anywhere.
Murphy doesn’t believe talk within the new Obama administration regarding the use of existing rockets that lift satellites into space will lead to a cancelation of the Ares manned rocket program. He said the crew safety features of the Ares combined with the high costs to human-rate the existing Evolved Expendable Launch Vehicles make Ares the better choice. ATK is the prime contractor on NASA’s Ares I crew launch vehicle.
Overall in the third quarter, ATK said net income increased 12 percent to $65 million, $1.96 earnings per share (EPS), from $58.3 million ($1.65 EPS), beating consensus estimates by four cents. Sales increased 5 percent to just over $1.1 billion. Free cash flow was $77 million.
For its fiscal year ATK softened the sales outlook by $50 million down to $4.5 billion due to the delays on the supersonic target program. Earnings are projected to be at the upper end of the previous guidance which is between $7.40 and $7.50 EPS.
ATK established guidance for FY ’10, with sales expected to be between $4.6 billion and $4.7 billion and earnings between $7.40 and $7.60 EPS. The moderating outlook for next year is due in part to continued softness in the space business. Murphy said that growth will accelerate again in FY ’11 in part due to a pickup in the company’s work installing intelligence, surveillance and reconnaissance systems on special mission aircraft.
ATK is a subcontractor to L-3 Communications [LLL] to equip ISR systems on some Air Force turboprop planes under Project Liberty. ATK is also missionizing special mission aircraft for Customs and Border Protection.
ATK is also finding success in transferring its composite aircraft structures work from military planes into the commercial aircraft business, Murphy said. He expects the company to record over $1 billion in commercial aircraft composite structure orders in the current quarter.