Leidos [LDOS] last week posted higher earnings and sales in the third quarter driven largely by the acquisition of an information and technology services business from Lockheed Martin [LMT] in August combined with a lower tax rate and modest organic growth.

Net income soared 86 percent to $91 million, 80 cents earnings per share (EPS), from $49 million (67 cents EPS) a year ago on the strength of the acquisition, the lower tax rate, and better operating performance.

Leidos Chairman and CEO Roger Krone. Photo: Leidos
Leidos Chairman and CEO Roger Krone. Photo: Leidos

Sales increased 43 percent to $1.9 billion from $1.3 billion on the back of $620 million gained from the acquisition of Information Systems & Global Solutions (IS&GS). Excluding the divestment of its former heavy construction business, Leidos organic sales were up 5 percent in the quarter, Roger Krone, the company’s chairman and CEO, said on the earnings call last Thursday.

Operating margin, excluding $76 million in various costs related to the acquisition, rose to 9.5 percent from 7.2 percent. Including these expenses, operating margin dipped to 5.4 percent.

Bookings were strong in the quarter at $2.9 billion and backlog stood at $18.7 billion, of which $5.6 billion is funded.

Krone said on the call that Leidos is already beginning to take advantage of one of the expected key benefits of the IS&GS purchase by submitting bids with a lower cost structure.

“The experience we have had as a combined entity over the two-and-a-half months since closing increases my confidence that this combination will drive increased value for our customers, our employees, and our shareholders,” Krone said. He also said that Leidos is ahead of schedule in terms of achieving cost savings synergies from the acquisition.

Krone also said that the market outlook continues its “modest recovery” and that the bottom has been reached and “outlays are beginning to tick up.”

Leidos also updated its guidance, raising the outlook for earnings from continuing operations to between $3.50 and $3.60 EPS from the prior range of between $3.15 to $3.35 EPS. Sales are projected to be between $7 billion and $7.1 billion versus the prior outlook of between $6.8 billion and $7 billion.