Leidos [LDOS] on Tuesday reported a strong opening to its fiscal year with broad strength across its portfolio of health, defense and civil businesses combined with contributions from recent acquisitions.
Sales increased 15 percent to $3.3 billion, a quarterly record, from $2.9 billion a year ago, with organic revenue up 9 percent and the rest of the growth driven by several acquisitions.
Net income soared 78 percent to $205 million, $1.42 earnings per share (EPS), from $115 million (80 cents EPS) a year ago. Excluding costs related to the acquisitions, integration, restructuring, adjusted earnings of $1.73 EPS handily beat consensus estimates of $1.48 EPS.
Earnings benefited from program performance, work favoring higher margin business, cost management, and a $26 million benefit related legal matter for a joint venture that provides operational support to the Hanford decommissioned nuclear site in Washington.
Operating margin was up 270 basis points to 9.3 percent.
Sales in all three segments, Defense Solutions, Civil and Health were up in the double-digits due to the acquisitions, new program wins, and higher volume from existing work. Work on the Navy’s $7.7 billion Next Generation Enterprise Network was slow in the first quarter but is expected to “pick up considerably over the next two quarters giving us confidence in the organic contribution in both this year and next,” Jim Reagan, Leidos’s chief financial officer, said on the company’s earnings call.
Sales from the Security Detection and Automation business, which largely serves airports in the U.S. and worldwide with screening equipment and related baggage conveyor systems, remain lighter than planned due to the ongoing COVID pandemic and its impact on airport traffic, particularly overseas, Roger Krone, chairman and CEO of Leidos, said on the call. He expects a full recovery either by late 2022 or early 2023.
Krone said there may be opportunities for security business and some other parts of Leidos related to the Biden administration’s proposed infrastructure spending. In the security area, he said ports and borders and even airports may benefit from an infrastructure package.
As for the administration’s proposed high-level budget for fiscal year 2022, Krone said that the defense request is in line with expectations and the priorities match well with Leidos’ solutions in digital modernization, cyber security, autonomy and hypersonics. He also said the proposed 16 percent increase in federal civilian spending “supports the value proposition of our diverse business portfolio, which extends beyond defense and intelligence into the federal health and civil markets, including ports, borders and airport security.”
Orders in the quarter were a robust $3.8 billion, driving total backlog to a record $32.6 billion, up 2 percent since the beginning of the year. The healthy backlog gives Leidos confidence it its near-term outlook.
Leidos raised guidance for adjusted earnings by 20 cents EPS to between $6.35 and $6.65 per share due the legal settlement and reduced share count. Sales this year are still forecast to be between $13.7 billion and $14.1 billion.