Orbital ATK [OA] on Wednesday posted preliminary results for its fourth quarter with double-digit increases in both earnings and sales.
Net income rose 17 percent to $62.1 million, $1.08 earnings per share (EPS), from $53.3 million (89 cents EPS) a year ago. Sales increased 11 percent to a record $1.3 billion from $1.1 billion a year ago. Operating margin was 9 percent, up from 8.2 percent a year ago.
Excluding costs associated with the merger of the Orbital Sciences and Alliant Techsystems two years ago, adjusted net income was $72.7 million ($1.26 EPS) in the quarter, 21 cents EPS below consensus estimates, down 15 percent from $86 million ($1.44 EPS) a year ago.
At the operating level, the earnings growth in the quarter was driven primarily by strong results in the Space Systems Group, which benefited from favorable profit adjustments on certain contracts in the Satellite Systems Division. The Flight Systems Group also eked out a slight profit gain due to higher volume in the Launch Vehicles Division.
Profit in the Defense Systems Group was down due to favorable profit adjustments in the fourth quarter of 2015 that did not reoccur in 2016.
Sales were up nicely in all three of the company’s segments on higher activity in Advanced Programs Division, Armament Systems Division, and Satellite Systems Division contracts, and higher volume in the Launch Vehicles Division.
Beginning with the company’s second quarter results in 2016, Orbital ATK has been reporting preliminary financials pending finalization of an assessment of accounting matters associated with its small caliber ammunition contract with the Army that is expected to have a loss over its 10-year terms. The contract is in its fourth year.
Orbital ATK is “well on our way” to completing the restatement process for its financial results, Garrett Pierce, the company’s chief financial officer, said on its earnings call. The review hasn’t uncovered material issues related to accounting on other contracts, he said, adding that the company has made changes to systems, procedures and personnel associated with its financial controls “to strengthen them so such issues will not reoccur.”
Overall in 2016 net income doubled to $292.2 million ($5.00 EPS) from $145.8 million ($2.89 EPS) while sales increased 2 percent to $4.5 billion from $4.4 billion a year ago.
In 2017 the company expects sales of around $4.6 billion and earnings between $5.80 and $6.20 EPS.
Orders in the quarter were $2 billion and for the year $8.5 billion, nearly 1.3 times earnings and a record for the company. Firm backlog at the end of 2016 stood at $9.3 billion, up 13 percent from a year ago, with total backlog of $14.4 billion, 10 percent higher than a year ago.
Free cash flow in the quarter was $330.2 million, and for the year $331 million. In 2017 Orbital ATK expects to record between $250 million and $300 million in free cash flow.