Leidos [LDOS] says it took a $14 million non-cash charge in its third quarter related to its acquisition of explosives detection systems (EDS) manufacturer Reveal Imaging three years ago and because of an announcement by the Transportation Security Administration (TSA) in late October that it plans to buy fewer EDS systems over the next few years for checked baggage screening than expected.
In addition to weakness with its Reveal product line in the quarter, the company’s security business was hit by “logistics and administrative delays” related to a large contract in the Middle East, Mark Sopp, Leidos’ chief financial officer, says on during the third quarter earnings call earlier this month.
Sopp adds that the timing related to resolving the delay in the Middle East contract is “uncertain,” so the company is “being cautious in our expectations on this program.”
The bad news in the company’s overall security business in the third quarter follows lower security sales in the second quarter, which Leidos said in September was due to the timing of shipments.
The company took other charges in the third quarter related to one contract in its energy business. As for the fourth quarter, Sopp didn’t offer an insight into how the security and other businesses are fairing with regard to additional charges, adding that “we do our annual testing” in the quarter “So I’ll point your attention to that.”
Roger Krone, Leidos’ CEO, says that the company’s security business remains about the same size now as has in its “recent history” and it “has remained our most profitable business.” He adds that “while we have had this disappointing news from TSA, we are very optimistic in the outlook of that business and of its team. They’ve been quite agile in expanding their products and sales globally despite some of the downticks from military sales and TSA’s pause.”
In addition to the EDS system that it’s Reveal business designs and manufactures, Leidos also makes vehicle and cargo inspection systems, radiation portal monitors, and portable and handheld radiation detection devices.
Overall in the third quarter, Leidos swung to a $34 million, 46 cents earnings per share (EPS) net profit, versus a $3 million (4 cents EPS) loss a year ago. Sales were down 10 percent to $1.3 billion from $1.4 billion a year ago.