06 Aug 20. Perspecta announces financial results for first quarter of fiscal year 2021.
– Revenue of $1.11bn
– Diluted loss per share of $0.02; adjusted diluted earnings per share of $0.47
– Operating cash flow of $132m
– Bookings of $1.2bn (book-to-bill ratio of 1.1x; trailing-twelve-month book-to-bill ratio of 1.4x)
– Reaffirming fiscal year 2021 guidance
Perspecta Inc. (NYSE:PRSP), a leading U.S. government services provider, today announced financial results for the first quarter of fiscal year 2021, which ended July 3, 2020.
“We are off to a solid start this fiscal year and our first quarter results continue to demonstrate solid execution across the enterprise, delivering on our revenue, adjusted diluted earnings per share and free cash flow conversion expectations,” said Mac Curtis, chairman and chief executive officer of Perspecta. “I am pleased with both our operational performance and business development efforts during these challenging market conditions. Additionally, our new business wins build on the positive momentum in both of our segments and we remain dedicated to meeting our customers’ needs and generating value for all our stakeholders.”
Revenue for the quarter was $1.11bn, up slightly compared to the first quarter of fiscal year 2020, and up 1% compared to the fourth quarter of fiscal year 2020. The sequential increase in revenue was primarily driven by contract growth and the in-quarter acquisition of DHPC Technologies, Inc., and was partially offset by the COVID-19 impact of approximately $23 m.
Income before taxes for the first quarter of fiscal year 2021 was $3m, which was down 93% compared to the first quarter of fiscal year 2020. Operating margin decreased from 3.8% to 0.3% year-over-year. Net loss was $3 m, or a loss of $0.02 per diluted share.
Adjusted net income was $76m for the first quarter of fiscal year 2021, down 11% year-over-year. Adjusted EBITDA was $167m for the first quarter of fiscal year 2021, down 18% compared to adjusted EBITDA for the first quarter of fiscal year 2020; adjusted EBITDA margin decreased from 18.4% to 15.1% over the same period. The year-over-year decrease in profitability was primarily due to lower asset intensity, an increased mix of cost-reimbursable programs and an $8m COVID-19 impact. Adjusted diluted EPS for the first quarter of fiscal year 2021 was $0.47, down 10% compared to adjusted diluted EPS for the first quarter of fiscal year 2020.
Segment operating results (unaudited)
For the fiscal quarter ended July 3, 2020, Defense and Intelligence segment revenue of $776m increased by 3% compared to the first quarter of fiscal year 2020, primarily due to new business wins and growth on existing programs. Civilian and Health Care segment revenue of $332m decreased by 6% compared to the segment’s revenue from the comparable period of the prior year due to NASA Agency Consolidated End-User Services and other program wind downs.
Defense and Intelligence adjusted segment profit margin for the first quarter of fiscal year 2021 decreased to 12.6% from 15.7% in the first quarter of fiscal year 2020. Civilian and Health Care adjusted segment profit margin for the first quarter of fiscal year 2021 improved to 10.2% from 9.3% in the first quarter of fiscal year 2020. Total adjusted segment profit for the first quarter of fiscal year 2021 decreased to $132m from $151m in the first quarter of fiscal year 2020.
Cash management and capital deployment
Perspecta generated $132m of net cash provided by operating activities in the first quarter of fiscal year 2021. Quarterly adjusted free cash flow was $102m, or 134% of adjusted net income. During the first quarter of fiscal year 2021, Perspecta used $26m to make permanent debt repayments, used $50m to repay revolver borrowings and returned $10m to shareholders in the form of its regular quarterly cash dividend program.
At quarter end, Perspecta had $122m in cash and cash equivalents, $750m of undrawn capacity in its revolving credit facility, and $2.5bn in total debt, including $229m in finance lease obligations. On August 5, 2020, the Perspecta Board of Directors declared that Perspecta will pay a cash dividend of $0.07 per share on October 15, 2020 to Perspecta shareholders of record at the close of business on August 26, 2020.
Contract awards (bookings) totaled $1.2bn in the first quarter of fiscal year 2021, representing a book-to-bill ratio of 1.1x. Included in the quarterly bookings were several particularly important single-award prime contracts:
- U.S. Army Training and Doctrine Command Army Training Information System (ATIS) contract: Perspecta was awarded an Other Transaction Agreement from the U.S. Army Training and Doctrine Command to deliver Phase II of the ATIS program including the development, integration, delivery, operation and maintenance of an enterprise capability for Army training and education information. The Perspecta solution will consolidate 28 legacy systems, implement proven processes and migrate data into a single-entry, integrated, cloud-based system. This will provide the Army with a real-time understanding of combat readiness with reduced cost and complexity. The four-year fixed-price program, which represents new work for Perspecta, has a ceiling value of $237m.
- Received multiple awards on classified systems engineering and integration programs in our Defense and Intelligence segment: Perspecta will provide support to various U.S. government customers. The total potential contract value of these awards is $370m with a period of performance of up to eight years.
- U.S. Department of Homeland Security (DHS) new Data Center Two (DC2) Support Services contract: Perspecta will provide DHS headquarters and all authorized components with full scope managed services including baseline data center hosting and engineering services, as well as application and system migration, planning and execution support. The indefinite delivery / indefinite quantity fixed-price contract has a two-year base with two six-month option periods and a ceiling value of $112m.
- Defense Advanced Research Projects Agency (DARPA) Fast Network Interface Cards (FastNICs) program: DARPA awarded Perspecta Labs a contract on the FastNICs program, with an objective of speeding up complex computing applications, such as the distributed training of machine learning classifiers and video analysis applications, by 100x through the development, implementation, integration and validation of innovative networking approaches. Perspecta Labs will research, design, develop and demonstrate new network interface hardware that operates at a 10-terabits-per-second speed, and the associated system and programming software to manage and utilize the new hardware. The award, which represents new work for the company, has a total ceiling value of $37m and a four-year period of performance if all options are exercised.
Perspecta’s backlog of signed business orders at the end of the first quarter of fiscal year 2021 was $13.5bn; funded backlog at the end of the first quarter was $1.9bn. John Kavanaugh, chief financial officer of Perspecta, commented, “We are pleased to begin FY21 with strong results. We remain dedicated to delivering a consistent track record of execution. Our first quarter performance reinforces our efforts of continuing to deliver on our commitments.”
The fourth quarter of fiscal year 2020 marked the beginning of the COVID-19 pandemic in the United States, and the pandemic has continued through the first quarter of fiscal year 2021. Due to the mission-critical nature of the majority of our business, substantially all of the services we provide to our government customers have been considered essential services, which has allowed them to continue, and the company has maintained its workforce at near full capacity. For the fiscal quarter ended July 3, 2020, the overall impact of the COVID-19 pandemic on our results of operations was approximately $23 m lower revenue, $8 m lower adjusted EBITDA and a liquidity benefit due to a $20 m deferral of payroll tax payments afforded by the Coronavirus Aid, Relief and Economic Security Act. We continue to assess further possible implications to our business, supply chain and customers, and to take actions in an effort to mitigate adverse consequences. Our fiscal year 2021 guidance above accounts for a potential impact of the COVID-19 pandemic of approximately $75m in revenue and $20m in adjusted EBITDA. (Source: PR Newswire)
06 Aug 20. Aerobotix and Shape Fidelity Announce Merger. Combination Creates Unparalleled Portfolio of Powerful and Innovative Brands. Aerobotix, Inc. and Shape Fidelity, Inc. have announced the finalization of a full stock merger of all their business operations. The companies have merged all assets, intellectual property, contracts, and people to strengthen the complexity of offerings to our cutting-edge customer base. Shape Fidelity leads the industry with highly-customized, precision metrology solutions ranging from medical implants to full-up aircraft and spacecraft; Aerobotix’s expertise includes robotic painting, sanding, and inspection systems on a wide variety of missiles, fighters, bombers, and UAVs. Aerobotix and Shape Fidelity have been working together on critical aerospace projects for over ten years, growing to rely on each other while implementing advanced metrology hardware and software into turn-key automation systems alongside some of the world’s largest Aerospace companies. Aerobotix and Shape Fidelity partnered on multiple projects to push DoD and Aerospace manufacturing capabilities to areas that have never been reached before and will now be poised to work and grow together to benefit both our customers and our newly combined team. Founded in 2005, Aerobotix has 42 employees and over 125 robotic systems currently operating in the United States and abroad. Founded in 2010, Shape Fidelity has 23 employees with several stationed in critical support positions at facilities like NASA. “We’ve been working so closely for nearly ten years that it just makes sense for us to consolidate operations and still give our customers high quality, cutting edge solutions,” says Rob Black, President of Shape Fidelity. (Source: PR Newswire)
07 Aug 20. Defence sector deal confidence ‘vanishes’: Market report. The prospects of mid-market merger and acquisition activity in the defence and government sectors in the next 12 months have dwindled, according to a new report released by national accounting association Pitcher Partners.
The Dealmakers Mid-Market M&A in Australia 1H20 update from Pitcher Partners, produced in conjunction with Mergermarket, has found a drastic decline in enthusiasm for defence sector deals with not one operator believing there would be an increase in the near term, and figures for the government services sector only slightly more favourable.
The news comes as a striking change from an earlier (annual) report released before the outbreak in February, in which 43 per cent of respondents tipped an increase in defence deals.
The collapse in sentiment comes on the back of changes to the Foreign Investment Review Board framework, which set to zero the threshold for FIRB review from late March, and the proposed new changes that are due to start from January 2021.
Under the revamped FIRB conditions, the federal government will be able to impose conditions or block investment by a foreign person on national security grounds regardless of the value of investment and introduce mandatory notification of any proposed investment by a foreign person in a “sensitive national security” business.
Pitcher Partners corporate finance partner Michael Sonego said confidence in completing mid-market deals had been sapped in many sectors during the first half of 2020 but it had vanished completely in the defence sector.
“We had anticipated the regulatory changes could have a chilling impact on business investment in areas like defence and government services but the fall in confidence for these sectors is still remarkable,” he said.
“Other areas where there has been a sharp decline are government services and energy, mining and utilities. Each were thought to offer opportunities for deals by about a third of the respondents in the last survey, but that confidence has disappeared. Only 3 per cent of respondents think either of those sectors will grow.” (Source: Defence Connect)
06 Aug 20. ValueAct sells entire stake in Rolls-Royce. Investor’s exit comes as aero-engine maker eyes capital raising to help repair balance sheet. ValueAct’s move signals frustration over progress at Rolls-Royce, where shares this week hit their lowest level in more than a decade. ValueAct, the California-based activist investor, has sold out of Rolls-Royce as the UK aero-engine maker contemplates raising £1.5bn-£2bn from shareholders to help restore a coronavirus-ravaged balance sheet. The activist, which built a 10 per cent stake in Rolls-Royce in 2015 after it issued a string of profit warnings, has exited the FTSE company almost five years after becoming its biggest shareholder, said two people with knowledge of the situation. The departure of the San Francisco hedge fund, which has been Rolls-Royce’s biggest shareholder for most of the past five years, comes amid one of the worst downturns in the aerospace industry’s history. But it also signals frustration over progress at a group that has for the last six years been caught up in serial restructuring, according to insiders. Meanwhile, existing investors are pushing back against a rush to raise funds after the shares this week hit their lowest in more than a decade. Several investors have indicated they would prefer to wait until the end of the year when they said Rolls-Royce can show it has stemmed the cash outflow, forecast to hit £4bn this year.
“If people are comfortable that going forward the cash flow is turning positive then the discussions will become a lot easier,” said a top shareholder. “They will have stopped the bleeding and . . . the dilution wouldn’t be as high.” ValueAct will not be there to take part, however. The activist began reducing its stake — which peaked in 2017 at 10.9 per cent — after the departure of its chief operating officer Brad Singer from Rolls-Royce’s board in December. At the beginning of April it declared a holding of 4.5 per cent, which was largely sold later that month, said a person familiar with the situation. The disposals were made when Rolls-Royce’s shares were trading between 250p and 350p, compared with a range of between 480p and 980p between January and the end of November in 2015, when the activist was building its initial stake. Rolls-Royce shares closed at 253.1p in London on Thursday after hitting an 11-year low of 212p on Monday. One source estimated the overall loss recorded by ValueAct would come to about 20 per cent. Neither ValueAct nor Rolls-Royce would comment. The exit comes as Rolls-Royce weighs a sale of its Spanish subsidiary ITP Aero as well as a capital raising. Moody’s and Standard and Poor’s have stripped the company of its investment-grade credit rating on concerns over cash burn, potentially hindering its ability to strike long-term service contracts with airlines when demand returns. The group has said it is considering options to shore up its balance sheet and reports suggest it could announce a rights issue as early as the end of the summer.
Recommended LexRolls-Royce Holdings PLC Rolls-Royce: flying on fumes Premium But with the share price at historic lows, many investors are reluctant to be heavily diluted. They would prefer the company first to deliver on its cost-cutting programme. Rolls-Royce in May unveiled plans to cut 9,000 jobs by next summer, targeting annual savings of £1.3bn. Advisers, however, are urging the company to move quickly before a wave of equity issues from others in the sector soaks up investor appetite, said two people with knowledge of the situation. British Airways’ parent IAG recently announced a €2.75bn rights issue to shore up its balance sheet. Rolls-Royce said early last month it had access to liquid funds totalling just over £8bn in early July. However, given a collapse in the service revenues it earns from long-term contracts, it will need new funds to speed up the return to investment grade. Rolls-Royce has also started to market ITP Aero, which makes components for all of the group’s Trent engines, as well as parts for rival engine makers General Electric and Pratt & Whitney. Discussions last year about a sale to Spain’s Indra Sistema, a technology company, stalled over price. Rolls-Royce was reported to be seeking between £1bn and £1.5bn at the time. Private equity groups such as Blackstone, KKR and Carlyle are said to be interested although there have been no formal approaches as yet, said people with knowledge of the situation. (Source: FT.com)
06 Aug 20. Vitec swings to loss. Vitec (VTEC) swung to an adjusted pre-tax loss of £4.4m in the first half, as demand for video and broadcast equipment was pummeled by the suspension of television productions and the cancellation of sports events.
Imaging solutions, its largest division, sunk to an operating loss of £1.2m, compared with a £13.4m profit in the same period last year. Management has been redirecting the segment towards its higher-margin e-commerce channel, which chief executive Stephen Bird estimates made up around 70 to 80 per cent of US sales in the period, compared with around 60 per cent before the outbreak of the pandemic.
Vitec had been affected early on in the year by the impact of coronavirus, with half of group revenue derived from products either sourced from China or made in Italy. Small wonder then that management has already identified £13m-worth of cost savings in the first half. It expects savings in the remainder of the year to be lower, as the group weans itself off government support and ups expenses at its creative solutions to bolster sales.
Broker Peel Hunt forecasts adjusted pre-tax profits of £3.6m and EPS of 5.9p in the full year for 2020, rising to £30.5m and 50.3p in 2021.
Vitec’s trading has improved since April, when revenue was down 57 per cent – it expects that in July and August sales will be down by around a tenth. But the medium-term outlook for Vitec is still foggy, given that the media industry has not yet recovered to normal levels of production. We stick to hold. Last IC View: Hold, 850p, 28 Feb 2020. (Source: Investors Chronicle)
06 Aug 20. Bombardier reports earnings miss, hit by rail costs, COVID-19. Canada’s Bombardier Inc missed quarterly earnings estimates on Thursday, hurt by higher costs in its train business and a more than 40% drop in business jet deliveries due to the COVID-19 pandemic.
The maker of business jets and trains recorded a $435m charge in its rail business during the second quarter, mainly related to costs for several late-stage projects in the UK and Germany.
This led to an adjusted quarterly loss of $319m compared with a profit of $312m a year earlier, the company said. Analysts on average were expecting Bombardier to report profit before interest, taxes, depreciation and amortization of $39.33m.
Corporate planemakers are reporting an uptick in interest as demand for private aviation flights rises, although this has not yet translated into aircraft orders, Bombardier Chief Executive Eric Martel told analysts.
Business jet deliveries are expected to fall industry-wide this year as the pandemic keeps people under lockdown, disrupts global travel and slows economic activity around the world.
“We expect the next few quarters will be challenging and difficult to predict,” Martel said.
He said Bombardier expects to deliver approximately twice the number of its flagship Global 7500 business jets in the second half of the year as the 11 it delivered during the first six months of 2020.
Bombardier said it used free cash of about $1.04bn in the quarter ended June 30, up from $429m a year earlier, but better than analysts’ expectation of $1.47bn.
Chief Financial Officer John Di Bert says the company still aims to break even on free cash flow in 2020, “assuming operations continue to stabilize.”
Montreal-based Bombardier aims to become a pure-play business jet maker after agreeing to sell its rail business to France’s Alstom SA, in a deal expected to close in 2021. The sale of its aerostructures business to U.S. aero parts maker Spirit AeroSystems is expected to close this fall.
Bombardier’s business aircraft backlog was $12.9bn as of June 2020, down from $14.4 bn as of 2019 end.
Business jet deliveries fell about 43% to 20 planes in the quarter, with revenue declining about 37% to $2.70bn but topping analysts’ expectation of $2.48 bn. (Source: Reuters)
06 Aug 20. FLIR Systems Announces Second Quarter 2020 Financial Results.
– Second Quarter Revenue of $482.0m
– Record Total Backlog of $912.8m
– Second Quarter GAAP Diluted Earnings Per Share (“EPS”) of $0.47
– Second Quarter Adjusted Diluted EPS of $0.64
FLIR Systems, Inc. (NASDAQ: FLIR) (“FLIR” or the “Company”), a world leader in the design, manufacture, and marketing of intelligent sensing technologies, today announced financial results for the second quarter ended June 30, 2020.
Commenting on FLIR’s second quarter results, Jim Cannon, President and Chief Executive Officer, said, “I am extremely pleased with our strong performance and operational execution in the quarter amid unprecedented challenges. This quarter marked the second consecutive quarter of record-breaking total backlog, and we continue to build a robust, sustainable pipeline with several key program wins. Additionally, we are beginning to realize cost savings from the successful execution of Project Be Ready, which aims to better align resources with higher growth opportunities, while reducing costs. We also continue to see demand for our Elevated Skin Temperature—or EST—solutions and we are extremely proud of the role our products and technologies continue to play in helping mitigate the spread of COVID-19. Importantly, our continued emphasis on cash optimization has provided financial flexibility as we enter the second half of the year.”
Mr. Cannon continued, “I am humbled and inspired by the commitment of our employees around the globe and their dedication to our mission to save lives and livelihoods during this crucial time. As we look ahead, we remain focused on ensuring the safety of our employees, delivering the mission-critical products our customers need and continuing to create value for our shareholders. We are confident that the purposeful diversity of our product portfolio will continue to be a competitive strength for FLIR in the quarters ahead. We look forward to emerging from this difficult environment as an even stronger company.”
Revenues for the quarter were $482.0m, consistent with the prior year quarter. Bookings totaled $546.3m in the quarter, representing a book-to-bill ratio of 1.13. Backlog at the end of the quarter was a record $912.8m, reflecting a 12.8% increase relative to the prior year quarter.
GAAP Earnings Results
Gross profit for the quarter was $252.2m, compared to $233.4m in the prior year quarter. Gross margin increased to 52.3% from 48.4% in the prior year quarter, primarily attributable to favorable product mix in the Industrial Technologies segment. Earnings from operations for the quarter was $99.8m, compared to $63.7m in the prior year quarter. Operating margin increased to 20.7% from 13.2% in the prior year quarter, primarily as a result of higher revenue and gross profit in the Industrial Technologies segment as well as decreases in intangible asset amortization, marketing, travel, and deferred compensation expenses. Diluted EPS was $0.47, compared to $0.34 in the prior year quarter. The weighted average diluted share count for the quarter was 132m, down from 137 m in the prior year quarter primarily due to stock repurchase activity initiated in the first quarter of 2020.
Non-GAAP Earnings Results
Adjusted gross profit for the quarter was $261.9m, compared to $246.3m in the prior year quarter. Adjusted gross margin increased to 54.3% from 51.1% in the prior year quarter, primarily attributable to favorable product mix in the Industrial Technologies segment. Adjusted operating income for the quarter was $126.1m, compared to $95.8m in the prior year quarter. Adjusted operating margin increased to 26.2% from 19.9% in the prior year quarter, primarily as a result of higher revenue and gross profit in the Industrial Technologies segment and decreases in marketing, travel, and deferred compensation expenses. Adjusted diluted EPS was $0.64, compared to $0.52 in the prior year quarter.
Industrial Technologies Segment
Industrial Technologies revenues for the quarter were $300.2m, representing an increase of $15.7m, or 5.5% compared to the prior year quarter. The revenue increase was primarily attributable to heightened demand for EST solutions as a result of the COVID-19 pandemic, partially offset by lower volume in commercial end markets such as maritime and security products.
Industrial Technologies segment operating income was $107.1m, compared to $71.6m in the prior year quarter. Segment operating margin increased to 35.7% from 25.2% in the prior year quarter, primarily attributable to the aforementioned higher revenue and associated gross profit, favorable product mix, and lower marketing, travel, and deferred compensation expenses.
Industrial Technologies bookings totaled $334.0m for the quarter, representing a book-to-bill ratio of 1.11. Backlog at the end of the quarter was $350.7m, reflecting a 48.1% increase relative to the prior year quarter, primarily as a result of award timing and increased orders for EST solutions.
Defense Technologies Segment
Defense Technologies revenues for the quarter of $181.8m decreased by $15.7m, or 7.9% compared to the prior year quarter. The revenue decrease was primarily attributable to the completion of certain contracts that contributed to revenue in the prior year quarter partially offset by increased volumes for unmanned systems.
Defense Technologies segment operating income was $41.2m, compared to $45.8m in the prior year quarter. Segment operating margin decreased to 22.6% from 23.2% in the prior year quarter, primarily attributable to the aforementioned lower revenue and associated gross profit.
Defense Technologies bookings totaled $212.2m for the quarter, representing a book-to-bill ratio of 1.17. Backlog at the end of the quarter was $562.1m, reflecting an 1.8% decrease relative to the prior year quarter, primarily as a result of order and subsequent deployment timing for a few major programs.
Balance Sheet and Liquidity
FLIR ended the second quarter of 2020 with $333m in cash and cash equivalents and approximately $365 m in borrowing capacity under its credit facility based on current profitability levels and leverage covenants.
After the end of the quarter, on July 20, 2020 the Company announced the pricing of a public offering of $500 m aggregate principal amount 2.5% notes due August 1, 2030 (the “Notes”). FLIR expects to receive net proceeds of approximately $494 m, after deducting underwriting discounts and estimated offering expenses. The proceeds from the sale of the Notes are expected to be used to redeem FLIR’s $425 m in aggregate principal amount of 3.125% notes due June 15, 2021 (the “2021 notes”), and for general corporate purposes, which may include funding for working capital, investments in its subsidiaries, capital expenditures, or acquisitions. On August 3, 2020, the Company completed the offering and the Notes were issued. The Company intends to redeem the 2021 notes in full on August 19, 2020.
As previously announced, FLIR’s businesses have been deemed essential for critical infrastructure under the Cybersecurity and Infrastructure Security Agency exemption, and all of its manufacturing facilities remain operational. FLIR has implemented stringent safety protocols and continues to monitor recommendations and guidelines issued by the Centers for Disease Control, the European Centre for Disease Prevention, and the World Health Organization to ensure the health and safety of its employees.
Given the high degree of uncertainty in the current macroeconomic environment resulting from COVID-19, the Company remains focused on cash optimization activities, disciplined capital allocation, and executing Project Be Ready to simplify its product portfolio and better align resources with higher growth opportunities while reducing costs.
Shareholder Return Activity
FLIR’s Board of Directors has declared a quarterly cash dividend of $0.17 per share on FLIR common stock, payable on September 4, 2020, to shareholders of record as of close of business on August 21, 2020.
FLIR expects to continue to provide returns to its stockholders in the form of quarterly dividends. However, in accordance with the Company’s focus on cash optimization activities given the macroeconomic uncertainty resulting from COVID-19, FLIR’s share repurchase program remained paused throughout the second quarter of 2020.
The COVID-19 pandemic has generated significant uncertainty, including an overall lack of visibility into future demand trends and economic conditions in the markets in which FLIR operates. The Company is continuing to closely monitor the impact of the pandemic on its operational and financial performance and take action as necessary; however, the magnitude and duration of the outbreak including its impact to FLIR’s operations, supply chain partners and customers remains uncertain. As a result, the Company has withdrawn its previously issued guidance for the full year ending December 31, 2020.
06 Aug 20. KBR Reports Solid Second Quarter 2020 Financial Results; Announces Portfolio Shaping to Advance Business Transformation.
– Reports solid second quarter results in line with expectations and strong cash generation
– Raises 2020 GAAP and Adjusted OCF guidance to a range of $195m – $235m and $210m – $250 m, respectively
– Announces DOJ closes KBR Unaoil investigation
KBR, Inc. (NYSE: KBR), a global provider of differentiated technologies, professional services and solutions across the asset and program life cycle, today announced the initiation of a portfolio transformation and strong second quarter 2020 financial results.
KBR has completed its portfolio review and is advancing its business transformation, moving from its current three-segment business model to a two-segment model, featuring Government Solutions and Technology Solutions. This portfolio shaping, which will occur over the remainder of 2020, combined with strong second quarter results, demonstrate continued advancement of the company’s long-term vision.
“The transformation of our operating model greatly simplifies our business and allows us to further reduce risk and narrow our strategic focus. We continue to move upmarket into differentiated areas that provide attractive returns, consistent growth and strong cash conversion,” said Stuart Bradie, KBR President and CEO. “This transformation is the culmination of a years-long shift away from high-risk and commoditized markets and toward more agile, technology-driven, knowledge-based delivery.”
In addition to its world class process technologies and catalysts, the new Technology Solutions business will be enhanced and augmented by investment in the company’s advisory/consulting practice particularly as it pertains to energy transition, energy efficiency and sustainability. To build more resilience into the future business model, the company will also be leveraging its proven digital remote monitoring solutions into greater technology-led industrial services.
“Recent and ongoing market disruptions, particularly in the energy sector, have allowed us to reimagine how we best add value to our customers. We accelerated our thinking and implementation to becoming a solutions-oriented business,” Bradie continued. “Enhancing our Technology Solutions business with our high-end, sustainability-focused industrial sector expertise and client relationships creates exciting synergy opportunities. Looking ahead to a reimagined KBR, we are confident in our ability to drive continued growth and value creation for our shareholders and other stakeholders.”
Summarized Second Quarter 2020 Financial Results
KBR’s second quarter financial results were generally in line with the company’s expectations. While the company reported an operating loss attributable to primarily non-cash restructuring and impairment charges of $96 m in connection with the portfolio review completed in the quarter, adjusted EBITDA benefited from continued strong results from Government Solutions delivering 11% margins and heritage Technology Solutions delivering 26% margins. These strong margins resulted from favorable revenue mix, strong execution and proactive cost control. Quarterly operating cash flow of $109m was outstanding, with all businesses reporting cash at or above targeted levels.
Government Solutions and heritage Technology Solutions achieved strong bookings, posting 1.0x and 1.5x book-to-bill, respectively, excluding the impact of long-term PFIs. The company de-booked approximately $1.2bn of backlog associated with projects in the Energy Solutions business that will no longer be pursued or performed as a result of market conditions and portfolio shaping actions taken by the company.
Liquidity and Capital Structure
In early 2020, KBR strengthened its liquidity profile with the successful closing of its amended credit facility, meaningfully lowering cost of capital and increasing financial flexibility. In the second quarter, the company shifted $500m of capacity formerly available for performance letters of credit to increase its revolving credit facility capacity from $500m to $1bn, with no change to underlying rates. This shift was facilitated by KBR’s track record of strong earnings and cash generation, the favorable change in business mix and its improvement in corporate credit ratings. As of June 30, 2020, KBR had no borrowings outstanding under its revolving credit facility.
As the company has previously disclosed, the DOJ, SEC, and SFO have been conducting investigations of Unaoil, a Monaco based company, in relation to international projects involving several global companies, including KBR. The DOJ has informed KBR that its investigation with regard to KBR is now closed. The SFO has informed the company that its KBR investigation is no longer focused on allegations of corruption involving Unaoil although some lines of inquiry remain under investigation. To the extent necessary, KBR continues to cooperate with the authorities in their investigations, including through the voluntary submission of information and responding to formal document requests.
KBR has updated its FY 2020 GAAP EPS guidance to $(0.48) to $(0.18), reaffirmed Adjusted EPS guidance of $1.50 to $1.80, increased GAAP operating cash flow guidance to $195m to $235m, and increased adjusted operating cash flow guidance to $210m to $250m. The company intends to provide 2021 guidance in connection with its fourth quarter and full year 2020 earnings results.
06 Aug 20. Defence engineering firm Meggitt insisted on Thursday that its financial position is “strong” following a press report that it is considering an equity offering to counter the economic fallout from the coronavirus pandemic.
Meggitt said it has continued to trade in line with its internal expectations.
“While there have been initial signs of a recovery in the civil aerospace sector, considerable uncertainty remains in relation to Covid-19,” it said. “Against this backdrop, the group continues to review a range of trading scenarios and associated actions to mitigate any material adverse change to the industry outlook.”
The company said its current financial position and liquidity “remain strong”. At 30 June, it had £1.7bn of committed facilities in place providing headroom of £856m. It also has access to additional liquidity as an eligible issuer under the Bank of England’s Covid Corporate Financing Facility.
The statement came after Bloomberg reported that the company was considering selling as much as $600m of new stock in preparation for another wave of the coronavirus outbreak. (Source: Sharecast)
06 Aug 20. Serco Group plc half year results. Very strong first half; guidance maintained for 2020.
- Revenue(1) : grew by 24% to £1.8bn, with organic growth of 15% and a 9% uplift from the acquisition of the Naval Systems Business Unit of Alion in North America (NSBU).
- Underlying Trading Profit(2): increased by 53% to £78m, with NSBU adding 20%. Group margin increased from 3.4% to 4.3%.
- Reported Operating Profit: increased by £72m to £89m as a result of the strong increase in underlying profit and exceptional items.
- Underlying EPS: increased by 47%, reflecting the growth in Underlying Trading Profit, partially offset by higher interest and tax.
- Free Cash Flow(4): improved to £81m, or £32m excluding the deferral of £49m of tax payments.
- Adjusted Net Debt(5): fell £58m to £143m. Underlying leverage stands at 0.7x EBITDA or 0.9x excluding tax deferrals.
- Order Intake: strong at £1.9bn; >100% book-to-bill. Approximately 60% of the order intake related to existing contracts being rebid or extended and 40% was new work.
- Order Book: increased from £14.1bn at the end of 2019 to £14.5bn.
- Pipeline: value of larger new bid opportunities has reduced from £4.9bn to £4.1bn, reflecting recent contract wins.
- Government support: subject to circumstances at the time our intention is to pay taxes deferred by government by year end; we are not planning to apply for UK government re-employment incentives. Rupert Soames, Serco Group Chief Executive, said: “Operationally, the first half has been dominated by the rapid adjustments which have had to be made in the way we deliver our services as a consequence of Covid-19. The response of colleagues has been exemplary and they have worked throughout with the same courage, dedication and commitment as their public-sector co-workers on the front line in prisons, hospitals, trains, ferries, defence establishments and immigration facilities. As a result of the significant investments we have made in recent years, our management teams, business processes and systems have shown themselves to be capable of responding at great speed and effectiveness to governments’ needs. We commissioned the UK’s first drive-through test centre in two days; in Australia accommodation was provided for more than 1,300 quarantined travellers on one week’s notice; and as part of the NHS Test & Trace programme we mobilised 10,500 contact tracers in a four-week period. Worldwide, we have mustered over 15,000 full and part-time people to help governments respond to the crisis. We think that these and other examples will reinforce in our customers’ minds the value Serco can bring and the need more generally of governments to have vibrant, resilient and secure supply chains that can support public services in good times and bad. Financially, the performance in the first half has been exceptionally strong, largely as a result of contract wins in 2019 and the acquisition of the Naval Systems Business Unit of Alion last August; Covid-19 has had little effect on profits; although there have been some dramatic impacts, positive and negative, on individual contracts, in aggregate the “ups” on profits have balanced the “downs”. Revenues were up 24% and Underlying Trading Profit increased by 53%; Reported Operating Profit increased from £17m to £89m. Pleasingly, at a time when a number of tenders have been delayed as a result of the crisis, our order intake was once again ahead of our revenues giving us a positive book-to-bill ratio. Free Cash Flow increased by £80m year-on-year, and Adjusted Net Debt fell by £58m to £143m; cashflow benefitted from tax payment deferrals of around £49m; excluding the temporary benefit of these deferrals.
Subject to trading in the second half, it would be our intention to pay taxes deferred by the end of the year, even if not strictly required to do so, and we do not intend to take advantage of the UK government’s £1,000 per person re-employment incentive as we do not think it right that we should take money from the taxpayer to employ people who will be delivering services paid for by the taxpayer. Serco’s strategy of focusing on supporting governments around the world in the delivery of public services is working well for us. In the Outlook sections we describe some of our thinking on how the current crisis will change our business in the years ahead as governments grapple with conflicting needs: to help people get back to work; to build quality and resilience into public services; to tame ballooning deficits. In other words, how to deliver more, and better, for less – an approach we have been promoting since 2014. We re-instated guidance for 2020 in our trading update on 17th June, saying that we expected revenue to be around £3.7bn (2019: £3.2bn), and Underlying Trading Profit of £135-£150m (2019: £120m). Nothing in recent weeks has changed our view, although, as set out in our Outlook section, Covid-19 has introduced a greater degree of risk around our guidance than would normally be the case.” FY 2020 guidance
06 Aug 20. Opportunity Knocking? Meggitt Plc (MGGT LN)
BUY, 295.20p PT: 375.00p.
End FY19 position. At end FY19, Meggitt’s net debt was £911.2m, including lease liabilities of £152.6m. FY19 underlying EBITDA was £507.3m and underlying EBIT was £402.8m. There were two main financial covenants: net debt/EBITDA should not exceed 3.5x (on a frozen GAAP basis, this was 1.5x at end FY19), and interest cover of not less than 3.0x (FY19 actual 16.3x). At end FY19, Meggitt had facility headroom of £805.8m. US$275m of senior notes mature in FY20 of which US$125m were repaid on 15 June 2020. The covenants will be tested at end June 2020, but we note 2H20 EBITDA was around £295m, and 2H20 underlying EBIT was around £242m. We cannot picture significant strain in terms of meeting covenants at end 1H20.
JEFe FY20. We forecast EBITDA to fall from £507.3m to £299m, underlying EBIT to fall from £507.3m to £299m, and net debt to increase from £911.2m to £938.4m. The increase arises because we forecast £70m of new leases. No dividend is forecast to be paid. Our forecasts do not reflect the sale of Meggitt Training Systems on 1 July 2020 for US$146m. If we start with net borrowings of £758.6m at end FY19 (excludes leases), allow for a forecast cash inflow of £42.8 before changes in borrowings and leases, and add net disposal proceeds of around £115m, we generate end FY20 net debt of around £601m. End FY20 net debt/EBITDA would be 2.0x for covenant purposes, in our view.
Situation report end May 2020. At end May 2020, Meggitt had £1,630m of committed facilities providing headroom of £662m. Versus end FY19, we estimate the committed facilities had risen by £66m, and headroom had fallen by around £144m. That implies a cash outflow of around £210m to end May 2020, and end May 2020 net debt of around £968m. This is before disposal proceeds of around £115m received on 1 July 2020. At end 1Q20, Meggitt had £1,671m of committed facilities providing headroom of £668m, implying net debt (excluding leases) of around £1,003m. The slightly grey area is the Bank of England’s Covid Corporate Financing Facility (CCFF) that Meggitt stated on 2 July 2020 provided access to additional liquidity. At 29 July 2020, Meggitt had drawn £130m under the CCFF.
Opportunity knocking? The 2 July Trading Update stated Meggitt remained on track to reduce FY20 cash outflows by around £400m to £450m, the only slip being progress in reducing inventory. Meggitt anticipated a significant FCF outflow in 1H20, but that it would be “substantially” offset by the disposal proceeds from the sale of Training Systems. Meggitt expected to be FCF positive for FY20. We recognise times are tough, but lean towards an equity raise as being designed primarily to enable Meggitt to seize opportunities more than to repair the balance sheet. (Source: Jefferies)
06 Aug 20. Rheinmetall in the first half of 2020: Defence remains an anchor of stability during coronavirus crisis. The Group’s half-year sales fall by 7.7% to €2,597m due to declining automotive markets.
Coronavirus crisis causes drop in consolidated operating earnings from €163m to €70m
Defence continues to grow: sales rise by 19% to €1,641m; operating earnings improved by 75% to €122m.
Automotive significantly affected by crisis-induced production decline: sales fall by 34% to €956m with operating earnings of €-41m.
Impairment of €300m on account of reduced growth forecast in Automotive sector.
Annual forecast for Defence specified: sales growth of 6% to 7%; aiming for operating earnings at the upper end of the forecast range.
Forecast for Automotive: target is operating net income of between €-30m and break-even.
Rheinmetall AG in Düsseldorf demonstrated resilience in a challenging economic environment in the first half of the year. The technology group’s Defence sector continued to grow and significantly increased its income. However, this only partially offset the crisis-induced decline in the Automotive sector. Overall, the Rheinmetall Group therefore posted a year-on-year reduction in sales and operating earnings in the first half of 2020.
The technology group is confirming and specifying its 2020 forecast from March of this year for the expected business performance of the Defence sector. In 2020 as a whole, sales growth is currently expected to be between 6% and 7% (previously 5% and 7%). A figure of around 10% is now being targeted for the sector’s operating margin, i.e. the upper end of the annual forecast of 9% to 10%.
A more precise forecast for Automotive is currently impossible due to the persistent uncertainties in regard to the future development of demand and production in the automotive industry. As things stand, however, the management is targeting operating net income of between €-30m and break-even for the sector.
Armin Papperger, CEO of Rheinmetall AG said: “Our Defence sector, with its strong performance, is Rheinmetall’s anchor of stability during the crisis. In the Automotive sector, we, like the rest of the global automotive industry, were affected by the massive production declines and general market weakness in the second quarter in particular. With strict cost management, however, we were able to significantly limit the effects of the crisis. We will continue doing this. We want to keep growing profitably in the Defence sector in the current fiscal year and are now targeting an operating margin of 10%. The situation in Automotive remains very challenging. However, in the coming months we will do our utmost to get as close as possible to breaking even in terms of operating result and to develop the business positively again in subsequent years.”
Rheinmetall Group: strong Defence sector provides stability during crisis
Consolidated sales decreased by €217m or 7.7% year-on-year to €2,597m in the first half of 2020. Adjusted for currency effects, the decline was 7.0%.
The Group’s drop in sales was entirely due to the Automotive sector, where sales declined by a massive €484m year-on-year due to the impact of the coronavirus pandemic. The Defence sector, in contrast, is proving a stable source of support during the crisis. The sector increased its sales by €266m year-on-year despite the government-ordered plant closures as a result of coronavirus lockdowns in certain countries.
The differing performance of the two sectors is reflected accordingly in the operating earnings for the first half of 2020. While the Defence sector increased its operating earnings by €52m to €122m, Automotive posted negative operating earnings of €-41m, down €143m year-on-year. Operating earnings in Others/Consolidation fell slightly by €2m. For the Group, this results in operating earnings of €70m, down €93m on the previous year’s figure of €163m.
The Group’s reported earnings before interest and taxes (EBIT) amounted to €-232m in the first half of 2020, €402m lower than in the previous year. As well as the declining operating earnings, the reduction in reported EBIT is largely attributable to negative non-recurring effects of €302m. These comprise impairment of €300m, which is almost exclusively attributable to the Hardparts division in the Automotive sector. The impairment resulted primarily from the international automotive industry’s drastically reduced production volume on account of the coronavirus pandemic in 2020 and to current expert assessments, which – compared with pre-coronavirus forecasts and planning assumptions – anticipate significantly lower growth for passenger cars and light commercial vehicles even over the medium term. In addition, non-recurring effects of €2m were recognized in the Defence sector as a result of restructuring measures.
Automotive: sharp sales decline and strict cost management during coronavirus crisis
The Automotive sector did not escape the negative effects of the global crisis in the automotive industry and posted a 34% reduction in sales to €956m (previous year: €1,440m). Sales were down by 33% after adjustment for currency effects. The global production of light vehicles according to IHS Markit Vehicle Production Forecast (update of August 4, 2020, vehicles under 6 t) declined by 33% year-on-year in the first half of 2020.
As a result of the crisis-induced sales decline, Automotive closed the first six months of 2020 with operating earnings of €-41m, compared with €102m in the first half of 2019. The operating margin was -4.3% (previous year: 7.1%). The reported earnings before interest and taxes (EBIT) of €-341m in the first half of 2020 were likewise significantly lower than the previous year’s figure of €104m, which largely resulted from the impairment of €300m recognized in the second quarter of 2020.
The negative development in operating earnings was chiefly due to the crisis-induced lack of sales in the second quarter of 2020, which – because automotive production in Europe and North America temporarily came almost to a complete standstill – decreased by more than half (53%) compared with the previous year’s figure. The management countered this development with strict cost management. Extensive and fast-acting measures significantly reduced the size of the earnings decline in the Automotive sector. In addition, net investments in the first half of the year were reduced by 40% compared with the previous year in order to secure liquidity.
In the first half of 2020, the Mechatronics division generated sales of €520m, down €288m or 36% on the previous year’s figure. As a result of the sales decline, the division’s operating earnings fell to €-15m after €66 m in the previous year.
At €332m, the Hardparts division’s sales were down in the first half of 2020, falling by €172m or 34% year-on-year. Despite the above-mentioned measures to reduce costs, the Hardparts division’s operating earnings amounted to €-29m, down €51m year-on-year.
In the Aftermarket division, sales decreased by €26m or 15% year-on-year to €150m in the first half of 2020. The division’s operating earnings amounted to €6m. This decline of €11m compared with the previous year’s figure of €17m was due both to lower sales and to the first-time allocation of micromobility activities to the Aftermarket division.
After the early coronavirus-induced sales slump in the first quarter of 2020, the joint ventures in China, which are not included in the Automotive sector’s sales figures, increased their sales again in the second quarter thanks to a recovery of the Chinese automotive industry. In the first half of 2020, the companies achieved sales of €393m, down 14% on the previous year’s figure. By comparison, the production of light vehicles in China declined by 22% in the same period.
Defence: strong sales growth and sharper rise in earnings
In the first half of 2020, the Defence sector increased its sales by 19% or €266m year-on-year to €1,641m (previous year: €1,375m). The significant growth resulted partly from higher orders and customers bringing delivery dates forward.
The sector’s operating earnings increased at a higher rate than sales, namely by 75% year-on-year to €122m. The operating earnings margin thus increased to 7.4%, after 5.0% in the previous year. Because of non-recurring effects of €2m from restructuring measures, the reported earnings before interest and taxes (EBIT) amounted to €120m, €52m above the previous year’s figure of €67m.
With growth of 39%, the sector’s order intake also increased significantly. In the first half of 2020, Rheinmetall Defence posted orders of €1,483m, after €1,065m in the comparative period.
The order backlog in the Defence sector was €10,125m as of June 30, 2020. Compared with the figure for the same period of the previous year of €8,307m, this is an increase of 22%, resulting primarily from high-volume incoming orders for military vehicles.
Sales in the Weapon and Ammunition division – driven mainly by international ammunition business – increased from €384m in the previous year to €443m in the first half of 2020. This equates to growth of €59m or 15%. The division’s operating earnings increased to €15m in the first half of 2020, after €-1m in the same period of the previous year.
The Electronic Solutions division reported a year-on-year increase in sales of 8.0% or €29m to €398m in the first half of 2020. The division’s operating earnings increased by 8.9% to €29m (previous year: €27m).
The Vehicle Systems division increased its sales from €718m to €903m in the first half of 2020. The year-on-year increase of €185m or 26% is due primarily to increased deliveries of logistics and tactical vehicles to the German and Australian armed forces. Operating earnings rose from €45m in the previous year to €84m in the reporting period, growth of 88%.
Rheinmetall does not currently expect the coronavirus crisis to have any lasting impact on the Defence sector’s business performance in the current year. For this reason, the annual forecast for the Defence sector published in mid-March 2020 has been confirmed and specified in light of the positive development in the first half of 2020. For 2020 as a whole, sales growth is currently expected to be between 6% and 7% (previously: 5% and 7%). A figure of around 10% is now expected for the operating margin, i.e. the upper end of the annual forecast of 9% to 10%.
In the Automotive sector, the effects of the coronavirus crisis on end-customer demand, automotive manufacturers’ production figures and global supply chains still cannot be reliably forecast. An adjusted sales and earnings outlook for 2020 as a whole that reflects the changed market situation is still not possible given the existing uncertainties. Provided there is no new lockdown, operating net income of between €-30m and break-even is currently targeted for the Automotive sector.
05 Aug 20. Innovative Solutions & Support, Inc. Announces Third Quarter Fiscal 2020 Financial Results.
Recent OEM Contract with Textron Further Solidifies Growing ThrustSense® Auto-Throttle Franchise.
Innovative Solutions & Support, Inc. (“IS&S” or the “Company”) (NASDAQ: ISSC) today announced its financial results for the third quarter of fiscal 2020, ended June 30, 2020.
For the third quarter of fiscal 2020, the Company reported net sales of $6.0 m, up 30% from $4.6 m in the third quarter a year ago. The Company reported third quarter net income of $1.3m, or $0.07 per share, an increase of 146% and 133% respectively, as compared to the $0.5m, or $0.03 per share, in the third quarter of fiscal 2019.
Geoffrey Hedrick, Chairman and Chief Executive Officer of IS&S, said, “The necessary and prudent actions we implemented early on to reduce the impact of the pandemic have once again led to a strong performance. Revenues increased 30% in the third quarter as compared to the prior quarter, and we generated our best quarterly operating income in thirteen quarters and our best nine months operating income in four years. We signed an OEM contract to supply Textron with our ThrustSense® Auto-throttle with LifeGuard™ Protection as standard equipment on all their new King Air 360 turboprops. Textron will also offer Auto-throttle with LifeGuard™ Protection for retrofit at all of its service centers to the thousands of King Airs currently in use. Our financial performance over the last few quarters, as well as the expanding number of new OEM platforms on which IS&S is standard equipment, are strong indicators of the value of our innovative technology. We believe our increased market presence will lead to more profitable growth opportunities and continue to build shareholder value.”
At June 30, 2020, the Company had $23.0m of cash on hand, as net cash flows from operating activities were $0.6m over the first nine months of the year. New orders in the third quarter of fiscal 2020 were approximately $2.7m, and backlog as of June 30, 2020 was $6.5m. Backlog excludes potential future sole-source production orders from the Pilatus PC-24, KC-46A and the Textron King Air 360 all of which are currently in production. The Company expects these programs to remain in production for multiple years and that these contracts will add to production sales already in backlog.
Nine Months Results
Total sales for the nine months ended June 30, 2020, were $15.3m, up 20% from $12.8m for the nine months ended June 30, 2019. For the nine months ended June 30, 2020, the company reported net income of $2.0m, or $0.12 per share, an increase of 137% and 140% respectively, as compared to the $0.9m, or $0.05 per share, for the first nine months of fiscal 2019. (Source: BUSINESS WIRE)
05 Aug 20. Embraer reports earnings.
- Embraer delivered four commercial jets and 13 executive jets (nine light / four large) in 2Q20, and the Company’s firm order backlog at the end of 2Q20 was US$ 15.4 bn;
- Excluding special items, adjusted EBIT and EBITDA were US$ (140.5)m and US$ (120.4)m, respectively, negatively impacted by weak Commercial Aviation results, yielding adjusted EBIT margin of -26.2%% and adjusted EBITDA margin of -22.4%;
- The 2Q20 results include total net negative non-cash special items of US$ 202m: 1) additional negative provisions for expected credit losses during the Covid-19 pandemic of US$ 16.1 m, 2) an impairment loss on the Commercial Aviation business unit of US$ 91.1m, 3) recognition of previous period depreciation and amortization expense in the Commercial Aviation business of US$ 101.2m, and 4) a positive valuation mark to market of US$ 6.5m on the Company’s stake in Republic Airways shares;
- 2Q20 adjusted net loss (excluding special items and deferred income tax and social contribution) was US$ (198.8)m, with Adjusted loss per ADS of US$ (1.08);
- Embraer reported Free cash flow of US$ (476.2)m in 2Q20, still affected by working capital needs in Commercial Aviation, but an improvement versus the US$ (676.5)m usage of free cash flow reported in 1Q20, due to several initiatives to reduce investments, control working capital, and minimize fixed costs;
- Embraer’s liquidity remains solid as the Company finished the quarter with total cash of US$ 2.0bn and major debt maturities starting in 2022 onwards. The Company also finalized the terms of contracts for working capital and export financing with export credit agencies in Brazil and the United States and private and public banks, adding a total of up to US$ 700m to its total liquidity. Disbursements of these new financing lines are expected to be completed in the third quarter of 2020 reinforcing Embraer’s cash position in the second half of 2020 and into 2021;
- Due to continued uncertainty related to the COVID-19 pandemic, financial and deliveries guidance for the Company’s 2020 results remains suspended at this point.
04 Aug 20. Leidos Holdings, Inc. Reports Second Quarter Fiscal Year 2020 Results.
– Revenues: $2.91bn, year-over-year growth of 6.8%
– Diluted Earnings per Share: $1.06; Non-GAAP Diluted Earnings per Share: $1.55
– Net Bookings: $4.6 bn (book-to-bill ratio of 1.6)
– Cash Flows from Operations: $422m
Leidos Holdings, Inc. (NYSE: LDOS), a FORTUNE 500® science and technology leader, today reported financial results for the second quarter of fiscal year 2020.
Roger Krone, Leidos Chairman and Chief Executive Officer, commented: “Leidos’ second quarter results demonstrate the resiliency of our business model, the value of our market diversity and the strength of our team as we delivered on commitments through the most challenging quarter I have seen in my career. We exited the second quarter with a strong business capture win rate, record-setting backlog, resilient cash position and improved capital structure. These factors galvanize our optimism for the future despite the extended effects of the current pandemic.”
Revenues for the quarter were $2.91bn, compared to $2.73bn in the prior year quarter, reflecting a 6.8% increase. Revenues for the quarter included $206 m and $80m related to the acquisitions of Dynetics, Inc. (“Dynetics”) and L3Harris Technologies’ security detection and automation businesses (the “SD&A Businesses”), respectively.
Operating income for the quarter was $249m, compared to $210m in the prior year quarter, reflecting an 18.6% increase. Operating income margin increased to 8.5% from 7.7% in the prior year quarter. Non-GAAP operating income margin for the quarter was 11.2%, compared to 9.4% in the prior year quarter, primarily attributable to an $81m net gain recognized upon the receipt of proceeds related to the VirnetX, Inc. (“VirnetX”) legal matter and program wins, partially offset by reduced volume on certain contracts due to negative impacts related to the coronavirus pandemic (“COVID-19”).
Diluted earnings per share (“EPS”) attributable to Leidos common stockholders for the quarter was $1.06, compared to $0.93 in the prior year quarter. Non-GAAP diluted EPS for the quarter was $1.55, compared to $1.16 in the prior year quarter. The weighted average diluted share count for the quarter was 144m compared to 146 m in the prior year quarter.
Defense Solutions revenues for the quarter of $1,757m increased by $197m, or 12.6%, compared to the prior year quarter. The revenue increase was primarily attributable to $206m of revenues related to the acquisition of Dynetics and program wins, partially offset by the completion of certain contracts and reduced volume on certain contracts due to negative impacts related to COVID-19.
Defense Solutions operating income margin for the quarter was 6.8%, compared to 7.2% in the prior year quarter. On a non-GAAP basis, operating income margin for the quarter was 8.1%, compared to 8.3% in the prior year quarter. The decrease in margin was primarily attributable to the impacts of COVID-19, partially offset by program wins.
Civil revenues for the quarter of $758m increased by $91m, or 13.6%, compared to the prior year quarter. The revenue increase was primarily attributable to $80m of revenues related to the acquisition of the SD&A Businesses and program wins, partially offset by the completion of certain contracts and reduced volume on certain contracts due to negative impacts related to COVID-19.
Civil operating income margin for the quarter was 10.3%, compared to 8.4% in the prior year quarter. On a non-GAAP basis, operating income margin for the quarter was 12.9%, compared to 11.1% in the prior year quarter, primarily attributable to program wins, improved performance on certain programs and income attributable to the acquisition of the SD&A Businesses.
Health revenues for the quarter of $399m decreased by $102m, or 20.4%, compared to the prior year quarter. The revenue decrease was primarily attributable to timing of program execution due to COVID-19, the impact from the sale of our health staff augmentation business in the third quarter of fiscal year 2019 and the completion of certain contracts. This was partially offset by program wins and the impact from our acquisition of IMX Medical Management Services, Inc. in the third quarter of fiscal year 2019.
Health operating income margin for the quarter was 0.3%, compared to 12.2% in the prior year quarter. On a non-GAAP basis, operating income margin for the quarter was 5.3%, compared to 14.4% in the prior year quarter, primarily attributable to reduced volume on certain managed service contracts with fixed cost infrastructures that were impacted by COVID-19.
Cash Flow Summary
Net cash provided by operating activities for the quarter was $422m compared to $186m in the prior year quarter. The increase in cash inflows was primarily due to the timing of advance payments from customers, the receipt of $85m of proceeds related to the VirnetX legal matter, lower tax payments, partially related to the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), and the sale of accounts receivable in the last month of the quarter. This was partially offset by the timing of payroll payments.
Net cash used in investing activities for the quarter was $1,014m compared to $16m in the prior year quarter. The increase in cash outflows was primarily due to net cash paid related to the acquisition of the SD&A Businesses.
Net cash provided by financing activities for the quarter was $709m compared to $64m net cash used in financing activities in the prior year quarter. The increase in cash inflows was primarily due to proceeds received related to the issuance of debt, partially offset by higher principal repayments from the refinancing of our outstanding debt.
As of July 3, 2020, we had $588m in cash and cash equivalents and $5.0bn of debt.
New Business Awards
Net bookings totaled $4.6bn in the quarter, representing a book-to-bill ratio of 1.6.
Notable recent awards received include:
- U.S. Customs and Border Protection Software Development Services Support: The Company was awarded a new Blanket Purchase Agreement (“BPA”) by the U.S. Customs and Border Protection (“CBP”) to provide software development services and related specialized equipment. Under the BPA and its subsequent task orders, Leidos will provide a full range of software development life cycle services to support CBP’s mission to safeguard America’s borders and enhance the nation’s global economic competitiveness. This single award BPA has a one-year base period of performance followed by four one-year option periods, and a total estimated value of $960m.
- Department of Justice Information Technology Services Support: The Company was awarded the Enterprise Standard Architecture V (“ESA V”) task order to provide managed IT services for the Bureau of Alcohol, Tobacco, Firearms and Explosives within the Department of Justice. Under the ESA V task order, Leidos will expand upon its continuous innovation, integration and improvement model to facilitate economies of scale in managed IT services. The single award hybrid task order has one ten-month and two one-year base periods of performance followed by six one-year option periods. It includes a ceiling value not to exceed $850 m, if all options are exercised.
- Laboratory Intelligence Validated Emulator Production and Sustainment Support: Dynetics, Inc., a wholly owned subsidiary of Leidos, was awarded a sole-source contract for production and sustainment of foreign radar simulators known as the Laboratory Intelligence Validated Emulator family of products. Under the contract, Dynetics’ objective is to navigate the vertical testability construct as part of a broader Live, Virtual, Constructive environment for both test and training of legacy and advanced electronic warfare platforms. The contract has a total estimated value of $356 m for production and sustainment for the next ten years.
- U.S. Intelligence Community: The Company was awarded contracts valued at $496m, if all options are exercised, by U.S. national security and intelligence clients. Though the specific nature of these contracts is classified, they all encompass mission-critical services that help to counter global threats and strengthen national security.
Backlog at the end of the quarter was $30.7bn, of which $7.0bn was funded.
As a result of the Company’s year-to-date performance and updated expectations, the Company is revising its fiscal year 2020 guidance as follows:
- Revenues of $12.2bn to $12.6bn, from $12.5 bn to $12.9bn;
- Adjusted EBITDA margins of 10.0% to 10.2%, from 9.8% to 10.0%;
- Non-GAAP diluted EPS of $5.25 to $5.55, from $5.00 to $5.30; and
- Cash flows provided by operating activities at or above $1.2bn, from at or above $1.0bn.
The Company’s updated forward guidance reflects the currently expected impacts related to COVID-19. (Source: PR Newswire)
05 Aug 20. Defence in a post-Covid world. Defence companies have been a relative safe haven during the Covid-19 crisis. While few stocks were left unscathed by the ‘Corona-crunch’, companies in the defence sector with more limited commercial exposure have largely outperformed the FTSE 350. Protective equipment specialist Avon Rubber (AVON) has been particularly impressive – its shares are up around 60 per cent so far this year, compared to a 21 per cent decline for the wider index.
That’s not to say that the good times will continue. There are threats on the horizon, not least over what will happen to defence spending moving forward. Post-pandemic budget pressures and the upcoming US election could motivate cuts to spending. But before looking ahead, it’s worth catching up with some recent results to see how defence companies have weathered the impact of Covid-19 thus far.
Mapping out the terrain
BAE Systems (BA.) saw its underlying operating profit dip by 11 per cent at constant currencies in the six months to 30 June, to £895m. This came as the Covid-19 pandemic hit in the second quarter, impacting cost recoveries and sales volumes in its UK air and maritime businesses as well as commercial aerospace demand in its US-based ‘controls and avionics’ segment.
Despite the pandemic, BAE secured £9.3bn of new orders during the first half, taking its total order backlog to £46.1bn. With its involvement in long-term government programmes – including building the UK’s Type 26 frigate and 15 per cent of Lockheed Martin’s F-35 Joint Strike Fighter jet – it therefore has good visibility over its earnings.
Net debt has surged from £743m at the December year-end to £2bn. This follows a £1bn bond issue to fund its pensions deficit and the £217m acquisition of Raytheon’s (US:RTX) Airborne Tactical Radios business in May. It has likely increased further after the $1.9bn (£1.5bn) purchase of Collins Aerospace’s Military Global Positioning System (GPS) business in July. Nevertheless, the interim dividend has been held steady at 9.4p and BAE will also the pay the deferred 13.8p final dividend for 2019.
Barring any further Covid-19 complications, the group is expecting a more positive second half. It is guiding that full year revenue will increase by a “low-single digit percentage” as volume growth from the F-35, combat vehicles and electronic defence offset commercial weakness. Meanwhile underlying EPS is projected to be a “mid-single digit percentage” below the 45.8p seen last year. Analysis consensus compiled by FactSet places EPS at 43p in 2020 with underlying operating profit ticking down 4 per cent to £2.02bn.
Ultra Electronics (ULE) had similarly good news for income investors – it has increased its interim dividend to 15.4p and is also set to distribute its postponed 2019 final payout. This comes as the group increased underlying pre-tax profit by 3 per cent to £47.9m in the six months to 30 June, aided by higher sales of its Orion radio systems. Although statutory pre-tax profit dropped by more than a fifth to £29.8m due to a loss of forward foreign exchange contracts. Still, Ultra has continued to pull in orders – including a $101m order for sonobuoys via its joint venture Erapsco – bringing its order book to an all-time high of £1.2bn.
Looking across the pond
Lockheed Martin (US:LMT) saw net sales rise by 12 per cent year-on-year in the three months to 28 June, to $16.2bn. This was boosted by $700m of net sales from its F-35 programme as well as higher volumes of its integrated air and missile defence systems. The group has raised its full year guidance, now expecting net sales of $63.5bn-65bn and diluted EPS of $23.75-24.05, up from $59.8bn and $21.95 in 2019.
Meanwhile Northrop Grumman’s (US:NOC) second quarter sales improved by 5 per cent to $8.9bn, with revenue from its space division rising by 15 per cent. Operating cash for the three months to 30 June surged by 45 per cent to £2.3bn thanks to payroll tax deferrals and faster payments from the DoD. Northrop has also lifted its expectations for the full year and is pointing to adjusted EPS of $22.0-22.4 versus $21.21 last year.
Earnings were less buoyant at Raytheon as it was weighed down by weakness in commercial aerospace. The three months to 30 June saw it swing to a $3.8bn operating loss – from a $1.4bn profit a year earlier – thanks to a $3.2bn goodwill impairment in light of Covid-19.
Are defence budgets due for a course correction?
Conventional wisdom would suggest that economic downturns go hand-in-hand with a decline in defence spending as governments look to counter lower revenue and rising deficits. Given the scale of government borrowing to keep economies afloat during the Covid-19 crisis – and the recession ahead – arguably cuts to defence budgets are inevitable. While members of the North Atlantic Treaty Organisation (NATO) are committed to spending 2 per cent of their gross domestic product (GDP) on defence, as their economies shrink, their defence budgets are likely to follow.
Even the mighty US reduced defence spending in the wake of the global financial crisis and its behaviour then could be a precursor for what is to come – spending by the Department of Defence (DoD) dropped from $691bn in 2010 to $580bn in 2015. While it has been ramping back up in recent years, even before Covid-19 struck, growth was set to slow. In February, the Trump administration proposed a $705.4bn budget for the DoD for 2021, which would be just 0.1 per cent higher than the $704.6bn package approved by Congress for 2020. The pattern of US defence spending is significant for UK companies because it is the world’s largest defence market – more than two-fifths of BAE’s sales come from across the Atlantic.
Thanks to emergency measures in response to Covid-19, the Congressional Budget Office (CBO) reckons the US is facing a $3.7trn federal deficit in 2020 – up from its pre-pandemic estimate of just over $1trn – and a $2.1trn deficit in 2021. That means attention could turn to where savings can be made.
“What has historically happened is when Congress and fiscal conservatives come out and get serious about reducing the debt and reducing spending, defence is almost always part of what they come up with for a solution,” says Todd Harrison, director of defence budget analysis at the Center for Strategic and International Studies (CSIS). “So, we could be looking at a deficit-driven defence drawdown coming in the next two or three years.”
Much will also depend on November’s election. While defence spending typically enjoys bipartisan support, should Joe Biden secure the White House and the Democrats also take the Senate – an unlikely but possible scenario – that could also place defence cuts on the agenda. More progressive Democrats will likely push moderates to prioritise spending elsewhere, such as on healthcare.
That said, the appetite to raid the defence budget could be tempered in light of the threat environment – tensions between the US and China have continued to ratchet up, Russia is becoming increasingly emboldened and there are worrying flare-ups at the Indo-China border. As we look to be entering a ‘new Cold War’ between the US and China, there is historical precedent from the last one. Despite recessionary conditions between 1980 and 1982, President Jimmy Carter still boosted defence spending as frictions with the Soviet Union increased. In theory, policymakers in Washington could even decide it prudent to expand investment in the military, particularly as the US continues its pivot towards Asia and seeks to counter China’s rise.
Closer to home
The UK defence sector is facing an integrated review into security, defence, development and foreign policy, which will shape the agenda for many years to come. While the defence secretary, Ben Wallace, says the review is “not driven by financial pressures”, it is running parallel to the government’s wider comprehensive spending review – and that will likely face up to the fact that the Covid-19 bailout of the economy must somehow be paid for.
The Conservative party pledged in its manifesto that it would increase the UK’s defence budget by at least 0.5 per cent above inflation each year. Despite the Covid-19 turmoil, Professor Malcom Chalmers, deputy director general of the Royal United Services Institute (RUSI), expects this promise will be honoured: “There’s no indication so far that they’re about to renege on that commitment. I think the most likely scenario is that the defence budget will get a small real terms increase.”
Much has been made of adviser Dominic Cummings’ involvement in the review process. The Whitehall reformist has previously accused the MoD of “corruption” and has criticised government procurement processes, citing “a mix of ignorance, incompetence and flawed incentives so big powerful companies continue to loot the taxpayer.” Mr Cummings seems to prefer the likes of drones and artificial intelligence over expensive manned equipment.
The MoD spent £38bn on defence last year, of which more than 40 per cent went towards equipment and associated support. A perennial issue is the affordability of its equipment plan – the National Audit Office (NAO) has called the 10-year plan running to 2028 “unaffordable”, with forecast costs exceeding its £181bn budget by £13bn in a worst-case scenario.
“Traditionally what governments have done to balance the books when defence budgets have gone haywire is to delay projects and ordering,” says defence analyst Howard Wheeldon. “I think that we will see things that were planned for 2022/23 will be 2025/26 instead.”
Conservative MP Mark Francois recently warned Sir Nick Carter, the chief of the defence staff, that he should “nip back to department and ask them to sort their bloody selves out. Because if not, Cummings is going to come down there and sort you out his own way, and you won’t like it.”
What changes are we likely to see?
“The classic response of salami-slicing defence while retaining all of the options, even at lower mass or readiness, is becoming unsustainable”, says Professor Peter Roberts, director of military sciences at RUSI. The UK’s review will have to strike a balance between what is needed, wanted and affordable.
Writing in The Telegraph, Mr Wallace says that as the nature of warfare changes, the MoD will be “reshaped to operate much more in the newest domains of space, cyber and sub-sea.” That would follow the reorientation of US defence spending – its 2021 budget proposal includes an extra $3.9bn for space.
BAE’s electronics systems business looks well-placed – it provides technology used in electronic warfare, surveillance and communications intelligence and its capabilities have been bolstered by the recent GPS acquisition. Defence engineer Chemring (CHG) should also benefit from an increased focus on cybersecurity through its Roke advisory services. Roke saw double-digit revenue and underlying operating profit growth in the six months to 30 April, and also secured its first electronic warfare order with the DoD for the ‘Resolve’ tactical system.
However, if defence departments spend more on cutting-edge technologies, it will likely require sacrifices elsewhere, particularly to address overhanging budget pressures such as at the MoD. Mr Wheeldon believes legacy programmes are likely to be the subject of cuts and BAE could feel some pressure. “When programmes are cut very suddenly…you lose all the support and MRO [maintenance, repair and overhaul] work that you were doing,” says Mr Wheeldon. “For a company like BAE Systems there will be some squeaking at the corners in terms of legacy programmes coming out, but I don’t think we will see any big changes in the capital programmes.”
The Tempest programme will likely remain untouched. Launched in 2018, it aims to produce the UK’s next generation of stealth fighter jets. With the potential to be unmanned, it is set to enter service in 2035, and replace the Typhoon. Tempest is being developed by a consortium of companies including BAE, Rolls-Royce (RR.), QinetiQ (QQ.) and Melrose’s (MRO) GKN. In order to spread the costs and ensure a large enough market to make the project viable, the UK is encouraging other countries to sign up – Italy has already joined and Sweden is said to be edging closer.
The aerospace conundrum
Not all defence companies have been faring well in recent times, namely those with significant exposure to commercial aerospace – this includes the likes of Meggitt (MGGT), Senior (SNR) and Rolls-Royce, the latter of which is mulling a £1.5bn rights issue to shore up its balance sheet according to Reuters. With the airline industry decimated by the Covid-19 pandemic, this has had a knock-on impact on plane makers such as Boeing (US:BA) and Airbus (FR:AIR) and that has fed down through the entire supply chain.
Brigadier Ben Barry, senior fellow for land warfare at the International Institute for Strategic Studies (IISS) says, “In 2008 and 2009, commercial aerospace helped carry defence aerospace through the public spending downturn. That’s unlikely to happen now.” With the civil aviation industry facing a potential multi-year downturn, we’ll be exploring the implications further in this week’s Investment Hour podcast.
Kathy Warden, chief executive of US defence giant Northrop Grumman, says that “defence spending is largely threat driven…Despite fiscal pressures, emerging threats are intensifying.” While Ms Warden is perhaps not the most impartial actor, she is nonetheless correct. We are facing a world that is arguably less stable than it was pre-pandemic and that could make severe budget cuts hard to justify. Defence is a long-term game and policymakers must look beyond short-term constraints. While the uncertainty could weigh on the sector’s share prices, it’s not worth making any rash decisions until a clearer picture emerges. (Source: Investors Chronicle)
04 Aug 20. TransDigm Group Reports Fiscal 2020 Third Quarter Results. TransDigm Group Incorporated (NYSE: TDG), a leading global designer, producer and supplier of highly engineered aircraft components, today reported results for the third quarter ended June 27, 2020, which were significantly impacted by the COVID-19 pandemic.
Third quarter highlights include:
- Net sales of $1,022m, down 32.8% from $1,521m in the prior year’s quarter;
- Loss from continuing operations of $(5)m;
- Loss per share from continuing operations of $(0.09);
- EBITDA As Defined of $424m, representing a margin of 41.5%;
- EBITDA As Defined of $424m is down 35.7% from $659m in the prior year’s quarter;
- Adjusted earnings per share of $1.54, down 66.9% from $4.65; and
- Strong operating cash flow generation of $397m.
Fiscal 2020 financial guidance remains suspended due to COVID-19 pandemic.
Net sales for the quarter declined 32.8%, or $499m, to $1,022m from $1,521m in the comparable quarter a year ago. In the current quarter, all sales represent organic sales.
Loss from continuing operations for the quarter was $(5)m, a decrease of 103.9% to compared to income from continuing operations of $128m in the comparable quarter a year ago. The decrease in income from continuing operations primarily reflects the decline in net sales described above, along with COVID-19 restructuring costs, higher interest expense and a higher tax rate due to discrete one-time tax charges being taken during the quarter. This decline in income from continuing operations was offset partially by lower acquisition-related expenses.
Adjusted net income for the quarter decreased 66.4% to $88m, or $1.54 per share, from $262m, or $4.65 per share, in the comparable quarter a year ago.
EBITDA for the quarter decreased 24.8% to $366 m from $487m for the comparable quarter a year ago. EBITDA As Defined for the period decreased 35.7% to $424m compared with $659m in the comparable quarter a year ago. EBITDA As Defined as a percentage of net sales for the quarter was 41.5%.
“Throughout our third fiscal quarter much of the global fleet was grounded and there was a substantial reduction in both passenger demand and air traffic due to the COVID-19 pandemic and the ensuing widespread lockdowns. Despite these headwinds, I am pleased that we were able to achieve an EBITDA As Defined margin of 41.5% as a result of swift and purposeful management of our cost structure,” stated Kevin Stein, TransDigm Group’s President and Chief Executive Officer. “These circumstances required actions that were necessary, but difficult to implement. We are better positioned as a Company to endure and emerge strongly from the ongoing weakness in our primary commercial end markets. In the past few months, initial signs of a recovery in commercial aerospace have emerged with commercial airlines bringing more of the fleet back into service. We will remain focused and diligent in our management of the details as much uncertainty remains about the duration of the pandemic and pace of recovery.”
The effective tax rate in the current quarter was negatively impacted due to the unfavorable economic impact of the COVID-19 pandemic on the Company’s net interest deduction limitation and a discrete cumulative adjustment associated with excess tax benefits from share based payments. The current effective tax rate was 113.5% compared to 30.0% for the comparable period of fiscal 2019. For the full 2020 fiscal year, the Company expects the effective tax rate to be 17% to 19%.
During the quarter, on April 8, 2020, TransDigm successfully completed a private offering of $1.1 bn of 8.00% Senior Secured Notes due 2025. Additionally, on April 17, 2020, TransDigm successfully completed a private offering of an additional $400m of 6.25% Senior Secured Notes due 2026 at a price equal to 101% of the par value, or an effective interest rate of approximately 6.05%.
Net sales for the thirty-nine week period ended June 27, 2020 rose 6.7%, or $248m, to $3,930m from $3,682m in the comparable period a year ago. Organic sales declined 9.6%. Acquisition sales growth over the comparable period a year ago was $603m, all of which are attributable to Esterline.
Income from continuing operations for the thirty-nine week period ended June 27, 2020 increased 5.3% to $552m compared to $524m in the comparable period a year ago. The effective tax rate for the thirty-nine week period was positively impacted by a one-time provisional benefit from dividend and dividend equivalent payments made in the period, as well as the enactment of the CARES Act which included favorable modifications to the interest deduction limitation. The effective tax rate in the current thirty-nine week period was 16.9% compared to 24.9% for the comparable period of fiscal 2019. The balance of the increase in net income from continuing operations primarily reflects the increase in net sales described above and lower acquisition-related expenses. This growth in income from continuing operations was offset partially by higher interest expense and one-time refinancing costs, higher operating costs and amortization expense attributable to Esterline and COVID-19 restructuring costs.
GAAP earnings per share were reduced in fiscal 2020 and 2019 by $3.22 per share and $0.43 per share, respectively, as a result of dividend and dividend equivalent payments made during each year.
Adjusted net income for the thirty-nine week period ended June 27, 2020 decreased 6.6% to $664m, or $11.57 per share, from $711m, or $12.64 per share, in the comparable period a year ago.
EBITDA for the thirty-nine week period ended June 27, 2020 increased 13.1% to $1,637 m from $1,448 m for the comparable period a year ago. EBITDA As Defined for the period increased 4.0% to $1,780m compared with $1,712m in the comparable period a year ago. EBITDA As Defined as a percentage of net sales for the current period was 45.3%.
Please see the attached tables for a reconciliation of (loss) income from continuing operations to EBITDA, EBITDA As Defined, and adjusted net income; a reconciliation of net cash provided by operating activities to EBITDA and EBITDA As Defined, and a reconciliation of earnings per share to adjusted earnings per share for the periods discussed in this press release.
Fiscal 2020 Outlook
Given the considerable uncertainty around the extent and duration of business disruptions related to the COVID-19 pandemic, and how that will impact operations, the Company suspended its previously provided fiscal year 2020 guidance. (Source: PR Newswire)
04 Aug 20. AMETEK Announces Second Quarter Results. AMETEK, Inc. (NYSE: AME) today announced its financial results for the second quarter ended June 30, 2020.
AMETEK’s second quarter 2020 sales were $1.01bn, a 22% decline compared to the second quarter of 2019. Operating income in the quarter was $227.0m and operating margins were 22.4%.
On a GAAP basis, second quarter earnings per diluted share were $0.72. Adjusted earnings were $0.84 per diluted share. Adjusted earnings adds back non-cash, after-tax, acquisition-related intangible amortization of $0.12 per diluted share. A reconciliation of reported GAAP results to adjusted results is included in the financial tables accompanying this release and on the AMETEK website.
“As we manage through the COVID-19 pandemic we continue to focus on the safety and well-being of all AMETEK colleagues. This remains our highest priority,” said David A. Zapico, AMETEK Chairman and Chief Executive Officer. “While our businesses were impacted by the pandemic during the second quarter, AMETEK colleagues rose to the challenge and delivered strong performance that exceeded expectations,” added Mr. Zapico. “Our businesses were able to mitigate the impact of sales weakness with impressive operating execution resulting in record adjusted EBITDA margins at 28.6%. We further bolstered our already strong balance sheet and liquidity position with outstanding cash generation,” Mr. Zapico continued. “Operating cash flow in the second quarter was $315 m, up 28% compared to the prior-year period, and free cash flow conversion was 183% of net income. AMETEK remains well positioned to continue to invest in our growth initiatives during this economic downturn while being positioned to deploy meaningful capital on acquisitions.”
Electronic Instruments Group (EIG)
EIG sales in the second quarter were $647.9m, down 21% from the same quarter in 2019. Operating income for EIG in the quarter was $159.6m and operating income margins were 24.6%.
“EIG sales in the quarter were impacted by the global pandemic,” noted Mr. Zapico. “However, our businesses delivered strong operating performance in the face of these difficult market conditions with excellent operating margins.”
Electromechanical Group (EMG)
Second quarter sales for EMG were $364.0m, down 22% versus the same quarter last year. EMG’s second quarter operating income was $84.3m and operating income margins were a record 23.2%.
“EMG drove outstanding operating performance in the quarter, despite lower sales due to the global pandemic. Through continued execution of Operational Excellence initiatives, EMG expanded operating margins by an impressive 170 basis points over last year’s second quarter,” commented Mr. Zapico.
“AMETEK navigated extremely well through a challenging quarter. Our flexible and proven operating model enabled us to deliver solid results while positioning us for robust growth coming out of the downturn. We have confidence in our ability to react to changing end market dynamics and deliver strong performance while continuing to invest in our long-term strategic initiatives,” noted Mr. Zapico.
“Given the on-going uncertainty related to the spread of COVID-19 and the effect that may have across economies, we will not be providing guidance at this time,” added Mr. Zapico. “We will provide forward guidance when visibility improves.” (Source: PR Newswire)
04 Aug 20. Sumitomo Corporation of Americas Makes Strategic Investment in Sintavia. Follow-on investment to accelerate Sintavia’s growth plans in key Aerospace and Space markets.
Sumitomo Corporation of Americas (“SCOA”), the largest subsidiary of Sumitomo Corporation, one of the world’s largest traders of goods and services, announced today that it entered into an agreement to increase its investment in Sintavia, LLC (“Sintavia”), the Aerospace and Space industry’s leading Tier One metal additive manufacturer, based in Hollywood, FL. The parties jointly announced that the minority investment, which follows an initial investment by SCOA in 2018, will be used to fund Sintavia’s rapidly growing business of providing additively manufactured parts to the world’s largest Aerospace and Space companies. Terms of the deal were not disclosed.
The investment will help Sintavia scale its production capacity for flight-critical components that are produced via additive manufacturing while continuing to advance its industry-leading technical capabilities. In addition to the financial investment, SCOA and Sintavia will continue to identify opportunities to apply Sintavia’s best-in-class additive manufacturing and design capabilities toward Sumitomo Corporation Group’s global industrial activities.
“We truly value SCOA as a long-term partner for Sintavia and are excited to expand our existing relationship. With this investment, we are further aligning ourselves with a global thought leader in additive manufacturing that is committed to supporting our continued growth,” said Brian R. Neff, Sintavia’s Chief Executive Officer and Managing Partner of Neff Capital Management LLC, Sintavia’s majority owner.
“Since our initial investment in 2018, we’ve been impressed by Sintavia’s leadership and growth in such a short time,” said Kevin Hyuga, SVP and General Manager of SCOA’s Construction and Transportation Systems Group. “We see continued synergies in the future through this partnership, and look forward to continuing to help Sintavia support the Aerospace and Space industry. Moreover, Sintavia is well-aligned with our company’s sustainability goals. Through its technology, Sintavia is capable of reducing waste in the additive manufacturing production process, allowing end-stage products to fly lighter, ultimately reducing greenhouse gases and helping to create a more sustainable society.”
The transaction is expected to close in the second half of 2020 following customary regulatory review. RBC Capital Markets acted as exclusive advisor to Sintavia on the transaction.
About Sumitomo Corporation of Americas
Established in 1952 and headquartered in New York City, Sumitomo Corporation of Americas (SCOA) has eight offices in major U.S. cities. SCOA is the largest subsidiary of Sumitomo Corporation, one of the world’s leading traders of goods and services. As an integrated business enterprise, the firm has emerged as a major organizer of multinational projects, an expediter of ideas, an important international investor and financier, and a powerful force for distribution of products and global communications through a network of offices worldwide. Its core business units include Tubular Products, Environment and Infrastructure, Steel and Non Ferrous Metals, Transportation and Construction Systems, Chemicals and Electronics, Media and IOT Applications, Real Estate, Mineral Resources and Energy, and Food. For more information, visit www.sumitomocorp.com.
Sintavia is the global leader in applied additive manufacturing for the Aerospace and Space industry. With high-speed printers co-located alongside precision post processing equipment, a full complement of mechanical testing equipment, and a full metallurgical and powder laboratory, Sintavia is able to optimize parameters, serially manufacture, and audit quality parts for aerospace applications. A founding member of the Additive Manufacturer Green Trade Association, Sintavia is committed to the highest quality standards in the industry, and holds multiple Nadcap and other aerospace accreditations. For more information visit http://www.sintavia.com. (Source: BUSINESS WIRE)
04 Aug 20. Teledyne Aerospace & Defense Electronics UK Launches New Business Unit: Teledyne Energetics UK. Today, Teledyne Aerospace & Defense Electronics UK (TADE UK) announced the latest business unit addition to its brand portfolio, Teledyne Energetics UK, headquartered in Lincoln, England. TADE UK is now comprised of 8 distinct business units, including Teledyne CML Composites; Teledyne Defence & Space; Teledyne Defence Australia; Teledyne Energetics UK; Teledyne Labtech Limited; Teledyne Lincoln Microwave; Teledyne Paradise Datacom; and Teledyne Reynolds UK.
Teledyne Energetics UK designs and develops solutions for the safety, arming, and initiation technology sector, in particular military energetic devices from components through to complete systems. Some of the flagship product lines include active vehicle safety systems; sea mine fuzes; modular artillery fuzes; flight termination units; electronic Safe & Arm Units (eSAUs); and electronic Ignition Safety Devices (eISDs).
“By joining the Teledyne Defense & Aerospace Electronics UK family of companies under our own new Teledyne brand, we believe Energetics UK can better define our capabilities to customers as we execute go-to-market strategies,” said Brion Weller, General Manager of Teledyne Energetics UK. “We can now better leverage the complementary technologies and global sales presence of our fellow TADE UK business units to grow our business opportunities globally.”
Originally part of the Teledyne e2v family, the new Teledyne Energetics UK has been active in safety, arming, and initiation technology since 1984. Building on the existing high speed switch tube technology, early development activity began with Exploding Foil Initiator (EFI) technology in conjunction with RARDE (now QinetiQ and Dstl).
Today, Teledyne Energetics UK supplies eSAU and eISD units to over 27 active weapons systems, including missiles, torpedoes, and Explosive Ordnance Disposal (EOD) systems for warhead initiation and rocket motor ignition.
Teledyne Energetics also delivers a range of services to its global customer base. Design services include modelling and testing of fully packaged circuitry for control and initiation of detonators. For manufacturing and test, the Energetics UK facility in Lincoln is licensed to store and test explosives and is certified for BS-EN-ISO 9001:2015, BS-EN-ISO 14001:2015, and BS-EN-ISO45001:2018. (Source: Google/https://www.businesswire.com/)
05 Aug 20. Kratos Defense & Security Solutions, Inc. (KTOS). BUY, $18.63 PT: $20.00. Kratos reported Q2:20 adj. EPS from cont. ops of $0.08, vs our est./cons. of $0.05/$0.06. GAAP EPS was a loss of $0.01. Revs fell 9% y-o-y, but were 3% above our forecast. Op. profit missed due to higher corporate expense w/ the delta below the line. Bookings of $207MM were up 10% y-o-y and generated a B2B of 1.2X. Backlog grew 6% sequentially led by C5ISR.
Mgmt Reaffirmed 2020 EBITDA Guidance, but Raised Revenue to Reflect Acquisition of ASC Signal. 2020 sales guidance is now expected to be in the range of $740-780m from $720-$760m prior, or 3% at the mid-pt, to account for the ~$20m expected contribution from ASC Signal (closed June 30). This implies 6% y-o-y growth (2% organic) at the mid-point. The FTT acquisition (closed Feb. 2019) adds ~$10m to 2020 ($5m total). Guidance compares to our est./cons. of $775m/$747m (we had incorporated ASC). H1 revenues were $339m or ~45% of our full year estimate. Implied sales growth in H2:20 of 14% (7% organic) implies a ramp from the 3% y-o-y decline in H1 driven by ramping production on certain contracts in Microwave Electronics, C5ISR, and space. EBITDA guidance was reaffirmed in the range of $72-78m, implying a FY20 adj. EBITDA margin of 9.9%. H2 margins are an implied 10.3% at the mid-point vs. H1 margins of 9.3% with improved mix in H2.
Revenues of $170m were 3% above our forecast of $165m. Revenue fell 9%, driven by a 12% decline in KGS (7% above our est) due to previously disclosed scope reductions in int’l training. Unmanned revs declined 1% y-o-y and were 7% below our forecast. Flight tests scheduled for H2:20 including Thanatos and Air Wolf have been delayed due to COVID-related restrictions on the test ranges. Valkyrie has achieved all milestones required for LCASD in previous completed test flights.
Operating income of $2.9m compared to our est. of $5.8m due to Higher Corporate. EBIT fell from $9m in Q2:19, driven by a 41% decline in Unmanned to $1.m (vs. our est. of $0.9m), while KGS contracted 28% to $7.7m vs. our estimate of $8.4m. Unmanned EBIT reflected higher mix of development programs. Adj. EBITDA margin of 9.0% compared to our estimate of 9.1% and FY20 guidance of 9.9%.
Backlog Grew 6% Sequentially. Bookings of $207m grew 10% y-o-y driving a 1.2X B2B. KGS reported a B2B of 1.3X with KUS at 1.1X. KGS bookings included a 2.4x B2B in the C5ISR sub-segment. The $50m C5ISR contract protested following the initial award in Q1:20 is currently under procurement re-evaluation with a decision expected in the near term. In late July, KTOS was selected as one of four contractors for the Skyborg prototype competition under a $400MM multi-award ID/IQ, not included in bookings. The first task order decision is expected in the next 60-90 days.
Mgmt. reaffirmed FCF guide of generation of $7m to a use of $1m, implying a use of $2.2m in H2 at the Mid-Pt. FCF was a use of $0.9m in Q2 and a use of $3.3m in H1. Capex of $7.7M in the Q is elevated w/ $15-17m of expenditure planned for the production of 12 Valkyrie aircraft prior to production contract award. (Source: Jefferies)
04 Aug 20. Babcock International Group PLC (Babcock or the Group). Babcock, the aerospace and defence company, issues the following update on trading for the first quarter of the financial year ending 31 March 2021 (“the period”).
Coronavirus (COVID-19) had a significant impact on our financial results in the period but work has continued on key customer programmes and demand for our work in critical areas remains resilient.
Underlying revenue for the first quarter was 11% lower than last year. This reflects the absence of Magnox revenue and weakness in our Land adjacent market short cycle businesses including South Africa. Group revenue from the core business grew slightly, demonstrating the high level of continuing work across the majority of our business.
The necessary safety constraints on close proximity working have had a significant impact on costs and efficiency, directly impacting Group margins and profitability. These include restricted access to customer sites, complex safety measures, reduced numbers of staff on site, changed shift patterns and additional costs. These have led to slower progress on some work streams which has impacted margins on some of our long term contracts in the quarter.
Underlying operating profit for the first quarter was around 40% lower than last year. Around half of this profit reduction was due to lower levels of productivity in the core business while Magnox, South Africa and Land adjacent market businesses account for the other half.
Order intake in the quarter was £0.7bn and in July we secured around £500m of new contracts in our Aviation business, helped by the delays in bid decisions beginning to clear.
We made progress on our cash performance, with the receivables outstanding at 31 March 2020 now collected and the Group’s working capital position at 30 June 2020 better than at 30 June 2019.
Our substantial long term order book and strong liquidity position underpins our confidence in navigating the short term financial impacts of COVID-19 whilst safeguarding our key capabilities for the future.
Expectations for this financial year
Although we remain confident about the long term, there is uncertainty around the duration and extent of the impact of COVID-19 on productivity, margins and pipeline development. As a result we are not giving detailed financial guidance today and will provide an update at our half year results in November.
We are working closely with our customers to return productivity to prior levels and have made steady progress in bringing our staff safely back into their workplaces. As we adapt to the new working environment, we continue to identify new and more efficient ways of working and this is supporting a gradual improvement in productivity.
As we progress through the year, assuming we are able to make steady progress without further major setbacks from COVID-19, we would expect to see a gradual improvement in Group performance from the 40% reduction in operating profit in the first quarter. As with previous years, performance for the year is expected to be weighted to the second half.
After careful consideration the Board has made an exceptional decision not to pay a final dividend for the financial year ended 31 March 2020, given the continued uncertainty around the outturn for this financial year. This supports our strategy of continuing to reduce net debt and is appropriate given the Group’s limited use of the UK Government’s Coronavirus Job Retention Scheme.
The Board recognises the importance of dividends to our shareholders and will resume dividend payments at the earliest opportunity.
Balance sheet and liquidity
During the period, we repaid our revolving credit facility and extended its term by a year. This facility of up to £775m now expires in August 2025. In total, the Group has access to around £2.4bn of borrowings and facilities of mostly long-term maturities.
Assuming a gradual improvement in Group performance, as well as cash mitigation measures including reducing capex and accelerating aircraft fleet rationalisation, we aim to end the financial year with a net debt to EBITDA ratio1 of around 2 times, well within our covenant levels of 3.5 times.
Our Marine sector revenue grew in the first quarter led by increasing work on the Type 31 Frigate programme and continued strong growth in our technology businesses. Operating profit for the sector was down year on year due to the impact of COVID-19 restrictions on operational performance.
Despite the challenging environment, the sector made good operational progress. The Type 31 Frigate programme has completed its preliminary design review and the majority of tier 1 suppliers are now under contract. UK warship support slowed due to the initial lockdown measures but work is now moving towards more normal levels. We were also awarded a further batch of missile launch tube assemblies for the UK’s Dreadnought and the USA’s Columbia nuclear submarine programmes.
Revenue in our Nuclear sector was lower than last year. Revenue in the naval nuclear business grew in the period led by submarine support activity and nuclear infrastructure investment programmes. Revenue in the civil nuclear business was lower due to COVID-19 restrictions on nuclear site access, lower levels of work in support of nuclear power generation and the absence of revenue from the Magnox decommissioning contract that ended in August 2019.
Sector operating profit was also lower, mainly due to the impact of COVID-19 on revenue in civil nuclear and a lower margin earned in naval nuclear, as a result of restrictions in the number of people allowed on site and the practical application of safe distancing and PPE guidelines.
In July, the Nuclear Decommissioning Authority (NDA), in support of the roll out of its “One NDA” strategy, announced that the Dounreay decommissioning contract, currently being delivered by a joint venture including Babcock, will be taken back into the NDA in March 2021. We are continuing our restructuring programme for the sector announced in June, including integrating our civil and naval nuclear businesses into a single operating structure.
In our Land sector, we maintained critical support activity across defence and emergency services throughout the period. However, this sector has been hardest hit by COVID-19 due to its large exposure to adjacent market short cycle businesses. Revenue, margins and profits were lower in the first quarter compared to the same period last year with COVID-19 impacting performance in our civil training, airports, rail, and power businesses. Trading in South Africa was tough with our business there broadly breaking even in the quarter.
In June, we announced the sale of our stake in the Holdfast joint venture for £85m. We are continuing to deliver the long term RSME military training contract associated with Holdfast.
In our Aviation sector, defence revenues were as planned as work continued across our defence programmes. In Europe, Scandinavia and Australia our Aerial Emergency Service bases have remained fully operational. However, sector revenue in the first quarter was lower given the impact of COVID-19 on flying hours and the ongoing weakness in our oil and gas business. The sector’s operating profit was lower than last year due to lower volume related revenue and additional COVID-19 related costs.
The civil aviation market continues to provide good long term growth opportunities. In July, we won around £500m of new civil aviation contracts across both oil and gas and aerial emergency services, helped by the delays in bid decisions beginning to clear.
We are progressing with our sector restructuring programme and accelerating our fleet rationalisation programme.
Order book and pipeline
The Group’s order book at 30 June 2020 was £17.3bn and our bid pipeline was around £17bn.
Ruth Cairnie, Chair said: “We continue to deliver critical programmes for our customers but our financial performance is being impacted by the challenges created by COVID-19. Given the continued uncertainty over the impacts of the pandemic, we are not giving detailed financial guidance for the year at this stage. The Board has decided not to pay the final dividend for the 2020 financial year in order to prioritise strengthening our balance sheet and reducing net debt. We recognise the importance of dividends to our shareholders and we will resume dividend payments at the earliest opportunity. Our experience of the pandemic so far has demonstrated that the foundations of our business – long term programmes in critical and non-discretionary areas – provide a solid platform for delivery in the medium term. David Lockwood will join the Board on 17 August as CEO Designate and replace Archie Bethel as CEO on 14 September. Franco Martinelli has informed the Board of his intention to retire and a search will be initiated for a new Group Finance Director. I thank Archie and Franco for their contributions to Babcock over many years and look forward to welcoming David as we continue to reshape our operations and adapt to the COVID-19 business environment.”
Investors Chronicle Comment: Babcock reports underlying revenue was 11 per cent lower year-on-year in the three months to 30 June, reflecting the end of the Magnox nuclear decommissioning contract last year and weakness in the short cycle land business. Combined with lower productivity thanks to Covid-19 disruption, first quarter underlying operating profit was down 40 per cent. Having deferred its decision, there will now be no final dividend for 2020. The shares were down over 13 per cent in early trading.
BATTLESPACE Comment: There was nothing in these results about the DSG name change to Babcock Land Defence Limited. It looks like the name change has been made given that FV432/6 and CVR(T) are being retired as well as the WCSP integration contract being competed, thus the repair revenue at the old DSG will come under pressure. This would leave the Land Rover Wolf, BV206 and other smaller Programmes as the rump. As Babcock has only made a profit once (£7m in 2018) these cuts will be a drastic reduction in revenue and any profitability. In addition, the new MoD spares contract we announced on Monday (BATTLESPACE UPDATE Vol.22 ISSUE 31, 03 August 2020, LOGISTICS AND THROUGH LIFE UPDATE, Vehicle Support Capital Spares Supply Framework)may require Babcock to partner to bid the new Programme against such bidders as TVS, BAE Systems, Lockheed Martin, KBR and Thales, given that the new Programmes such as Ajax and Boxer require that the Prime, RBSL for Boxer and GDELS for Ajax supply Through Life Support including spares and reapirs as part of their respective contracts. (See: BATTLESPACE UPDATE Vol.22 ISSUE 31, 03 August 2020, LOGISTICS AND THROUGH LIFE UPDATE, DSG is confined to history)
04 Aug 20. Melrose Industries PLC (“Melrose” or the “Group”) today issues an update on financing. Following the trading updates on 30 March 2020 and 22 July 2020, Melrose has now agreed amended arrangements with its banking syndicate including improved financial covenants to 31 December 2022. Beyond that date the Group reverts to the original covenants for the balance of the facilities’ term. These amendments cover all the Group’s primary borrowing arrangements that contain financial covenants. The Group’s committed c.£3.2bn revolving credit facility is repayable in January 2023 and the Group’s committed term loan of c.£0.9bn can be extended to April 2024 at Melrose’s option. In addition to these committed banking lines the Group has two bonds: a £450m bond maturing in September 2022 and a £300m bond maturing in May 2032, neither of which contain financial covenants. Melrose is grateful for the continued support of its lending banks which means that it has the flexibility it needs to continue to focus on cash generation and adapting the Group to current market conditions. The new financial covenants have been designed to give Melrose considerable headroom and flexibility. There is a modest cash cost to secure this amendment but there is no change to previously agreed interest rate calculations. Melrose has passed its covenant tests for 30 June 2020 and would not in fact have needed the net debt: EBITDA waiver granted previously.
03 Aug 20. Curtiss-Wright Corporation (NYSE: CW) reports financial results for the second quarter ended June 30, 2020.
Second Quarter 2020 Highlights:
- Reported diluted earnings per share (EPS) of $0.74, with Adjusted diluted EPS of $1.31;
- Reported free cash flow (FCF) of $130 m, up 71% compared to the prior year period, with Adjusted FCF of $136m, up 70%, and Adjusted FCF conversion of 247%;
- Net sales of $550m, down 14%, with defense market sales up 5%;
- New orders of $620m, up 3%, led by strong growth in naval defense;
- Reported operating income of $55m, down 48%, with Reported operating margin of 10.1%, down 640 basis points; and
- Adjusted operating income of $79m, down 27%, with Adjusted operating margin of 14.3%, down 250 basis points.
“Our second quarter performance reflects our team’s ability to take swift action and effectively manage the business in this exceptionally challenging environment,” said David C. Adams, Chairman and CEO of Curtiss-Wright Corporation. “Across Curtiss-Wright, we continue to take the necessary steps to protect the health and safety of our employees and ensure the continuity of our operations. Our results reflect solid sales growth in our defense markets, the benefits of our ongoing cost containment initiatives and strong free cash flow which produced a robust free cash flow conversion of 247% in the quarter.
“Looking ahead to the remainder of 2020, we expect continued overall growth in our defense markets, which remain strong, along with sequential improvement in our commercial markets, as we slowly rebound from lower second quarter demand resulting from the COVID-19 pandemic. We are increasing and accelerating difficult, but essential, restructuring actions aimed at mitigating the challenging conditions within our commercial end markets. As a result, we now anticipate $35 m in restructuring costs in 2020 to generate $40m in annualized savings, which is expected to benefit our performance for the remainder of 2020 and in 2021.
“Our balanced portfolio, along with the anticipated cost savings generated by these actions, provides the necessary confidence to reinitiate our full-year 2020 guidance. Further, it supports our ability to generate strong Adjusted free cash flow of $350 to $380 m. Overall, we remain focused on executing on our long-term strategy to deliver significant value for our shareholders.”
Full-Year 2020 Adjusted Guidance (compared to Full-Year 2019 Adjusted Actuals):
- Overall sales expected to be down 4% to 6%; Defense market growth remains in-line with prior guidance at 8% to 10%;
- Adjusted operating income expected to be down 5% to 8%;
- Adjusted operating margin expected to be down 30 to 50 basis points to new range of 16.0% to 16.2%, as cost containment actions expected to partially offset impact of decline in sales volume;
- Adjusted diluted EPS range of $6.60 to $6.85, with approximately 40% of full-year 2020 EPS expected to be recognized in the fourth quarter;
- Adjusted FCF guidance range of $350 to $380m, with Adjusted FCF conversion increasing to approximately 130%; and
- The Company now anticipates $35m in restructuring costs in 2020 to generate $40m in annualized savings, which is expected to benefit our performance for the remainder of 2020 and in 2021; this exceeds the original expectations of $28m in restructuring costs in 2020 to generate $20m in annualized savings which were to begin in 2021.
Financing of $300m in Senior Notes:
- During the second quarter, the Company priced a private placement debt offering of $300m for senior notes, consisting of $150m 3.10% notes due 2030 and $150m 3.20% notes due 2032; The offering is expected to close on August 13, 2020; and
- Curtiss-Wright maintains a flexible and conservative capital structure, including significant dry powder for acquisitions and other corporate needs.
Second Quarter 2020 Operating Results
- Sales of $550m, down $89m, or 14%, compared to the prior year (down 17% organic, up 3% acquisitions);
- Sales to the defense markets increased 5%, led by solid growth in aerospace and naval defense, while sales to the commercial markets decreased 29%, due to reduced demand in the general industrial, commercial aerospace and power generation markets resulting from the widespread impact of the COVID-19 pandemic. Please refer to the accompanying tables for an overall breakdown of sales by end market;
- Adjusted operating income was $79m, down 27%, while Adjusted operating margin decreased 250 basis points to 14.3%, reflecting unfavorable overhead absorption on lower organic revenues in the Commercial/Industrial and Power segments, partially offset by the benefits of our company-wide cost containment actions; and
- Non-segment expenses of $8m decreased by $2m, or 21% compared to the prior year, primarily due to lower corporate spending.
Net Earnings and Diluted EPS
- Reported net earnings of $31m, down $49m, or 61% from the prior year, reflecting lower segment operating income, a non-cash currency translation loss related to the liquidation of a foreign legal entity and a higher effective tax rate;
- Reported diluted EPS of $0.74, down 60% from the prior year, reflecting lower net earnings, partially offset by a lower share count;
- Adjusted net earnings of $55 m, down 33%;
- Adjusted diluted EPS of $1.31, down 31%; and
- Effective tax rate of 27.4%, an increase from 22.7% in the prior year quarter, primarily due to the aforementioned foreign currency translation loss.
Free Cash Flow
- Reported free cash flow was $130m, an increase of $54m compared to the prior year, principally driven by higher collections, timing of tax payments and a reduction in capital expenditures, partially offset by lower cash earnings;
- Capital expenditures decreased $6 m to $11m compared to the prior year, primarily due to lower capital investments within the Power segment; and
- Adjusted free cash flow, which excludes restructuring in the current period, as well as the DRG facility investment in the current and prior year periods, improved by $56m, or 70%, to $136m.
New Orders and Backlog
- New orders of $620m increased 3% compared with the prior year period, led by strong organic growth in naval defense for aircraft carrier and submarine platforms, which more than offset reduced demand in the commercial markets; and
- Backlog of $2.2bn increased 1% from December 31, 2019.
Share Repurchase and Dividends
- During the second quarter, the Company repurchased 132,443 shares of its common stock for approximately $13m;
- Year-to-date, the Company repurchased 1.2m shares for approximately $125m, which included a $100m opportunistic share repurchase program executed in March; and
- The Company also declared a quarterly dividend of $0.17 a share, unchanged from the previous quarter.
Second Quarter 2020 Segment Performance
- Sales of $214m, down $79m, or 27%, compared to the prior year (down 28% organic, up 1% acquisition), primarily due to reduced demand resulting from the impact of the COVID-19 pandemic, though order activity sequentially improved as the quarter progressed;
- Lower commercial aerospace market revenues principally reflect reduced OEM sales of actuation and sensors equipment, as well as surface treatment services;
- General industrial market sales declines reflect reduced demand for industrial vehicle, valve and controls products, as well as surface treatment services;
- Reported operating income was $14m, with Reported operating margin of 6.7%; and
- Adjusted operating income was $22m, while Adjusted operating margin decreased 720 basis points to 10.3%, reflecting unfavorable absorption on lower revenues across our commercial markets, partially offset by the benefits of our cost containment initiatives.
- Sales of $170m, up $11m, or 7%, compared to the prior year (down 2% organic, up 9% acquisition);
- Higher aerospace defense market revenues principally reflect increased sales of embedded computing equipment on various Intelligence, Surveillance and Reconnaissance (ISR) programs, including fighter jets and Unmanned Aerial Vehicle (UAV) platforms;
- Strong naval defense market revenue growth was due to higher sales of valves on the Virginia class submarine program as well as the contribution from the 901D acquisition;
- Reduced ground defense market revenues reflect lower sales on domestic and international tank platforms;
- Lower commercial aerospace market revenues reflect lower sales of flight test instrumentation equipment;
- Reported operating income was $28m, with Reported operating margin of 16.4%; and
- Adjusted operating income was $37m, up 10% from the prior year, while Adjusted operating margin increased 60 basis points to 21.6%, primarily reflecting the contribution from the 901D acquisition and the benefits of our cost containment actions.
- Sales of $166m, down $21m, or 11%, compared to the prior year;
- Lower naval defense market revenues reflect production timing, as we completed the transition of our DRG business from New York to South Carolina in the second quarter and expect a steady, sequential ramp up to full production in the second half of the year; In addition, lower service center sales were partially offset by increased Columbia class submarine revenues;
- Reduced power generation market sales principally reflect lower domestic and international aftermarket revenues; and
- Reported operating income was $21m, with Reported operating margin of 12.8%; and
- Adjusted operating income was $28m, down 16%, while Adjusted operating margin decreased 100 basis points to 16.7%, reflecting unfavorable overhead absorption on lower naval defense and power generation revenues, partially offset by the benefits of our cost containment actions.
03 Aug 20. Aircraft engine maker MTU posts 73.9% drop in second-quarter net income. German aircraft engine maker MTU Aero Engines (MTXGn.DE) on Monday reported a 73.9% drop in second-quarter adjusted net income and a 30.2% fall in revenue citing the impact of the coronavirus pandemic. Adjusted earnings before interest and taxes (EBIT) fell by 76.2% to 42.4 euros (38.14m pounds). The company on Friday published a new forecast for 2020 calling for revenue of between 4bn and 4.4bn euros. (Source: Reuters)
02 Aug 20. BAE Systems poised to rescue suppliers and other aerospace companies that are struggling because of the crisis in aviation industry.
- The collapse in air travel has hammered many of the UK’s aerospace groups
- BAE said acquisitions were not the only option, and it was considering other ways to support suppliers
BAE Systems is poised to rescue suppliers and other aerospace companies that are struggling because of the crisis in the aviation industry.
Chief executive Charles Woodburn has said the defence giant is open to buying firms to ‘strengthen its portfolio’, even though coronavirus is squeezing its own finances.
The collapse in air travel has hammered many of the UK’s aerospace groups.
Demand is not expected to pick up soon and the collapse is sending shockwaves through firms in their supply chain, who often also make defence parts or technology.
The crisis risks putting them out of business, creating a major headache for BAE, Britain’s largest defence company. Woodburn, who has been its head since 2017, said: ‘We are very mindful of our supply chain. On the defence and aerospace side, there is overlap and many defence suppliers also supply into civil aerospace. They are facing some tough times.
‘We will see what the opportunities are. We are always keen to strengthen our portfolio.’
BAE said acquisitions were not the only option, and it was considering other ways to support suppliers. Last month it handed out £100m of early funding to five companies working on the Navy’s next warship, the Type 2 frigate, which BAE is building.
Around 120,000 people are directly employed in the UK’s aerospace sector, which generates £34bn in exports a year. There are fears that important British companies could be picked off by foreign bidders – particularly the Chinese. But Prime Minister Boris Johnson has pledged to introduce rules to limit Chinese investment.
Woodburn said: ‘I am sure the Government will be very thoughtful on this.’
Takeovers under his leadership include the purchase of Prismatic, which is developing solar-powered drones. And it recently completed the £1.7bn takeover of two US firms.
Last week BAE, which has seen its share price fall by 13 per cent in 2020, said it would reinstate its full-year dividend and also committed to a half-year payout. The pandemic will make a small dent in profits, which fell by 11 per cent to £689m in the first six months of the year.
Despite the slump in demand from commercial plane makers, Government defence spending has held up well. (Source: Google/https://www.thisismoney.co.uk/)
03 Aug 20. UK aerospace supplier Senior Plc posts half-year loss. British aerospace supplier Senior Plc (SNR.L) swung to a loss in the first half of 2020 and shelved its interim dividend as costs rose and its sales were hammered by coronavirus-driven cuts across the air industry and other manufacturing partners.
The company, which counts planemaker Boeing (BA.N) and heavy equipment maker Caterpillar (CAT.N) as some of its biggest customers, reported a pretax loss of 136.3m pounds, compared with a profit of 26.5m pounds a year earlier. (Source: Reuters)
31 Jul 20. L3Harris Technologies Completes Sale of EOTech to American Holoptics. L3Harris Technologies (NYSE:LHX) today completed the previously announced sale of its EOTech business to American Holoptics, an affiliate of Koucar Management. With annual revenue of approximately $60m, L3Harris’ EOTech business manufactures holographic sighting systems, magnified field optics and accessories for military, law enforcement and commercial markets around the world. (Source: BUSINESS WIRE)
31 Jul 20. BAE Systems completes acquisition of Military Global Positioning System business. Further to the announcement of 20 January 2020, BAE Systems has completed the acquisition of the Collins Aerospace Military Global Positioning System business (“GPS business”) from Raytheon Technologies Corporation, after receiving all necessary regulatory approvals and fulfilling other customary conditions for closing. The consideration of $1.925bn (approximately £1.48bn) has been funded from new external debt.
The GPS business is the leading provider of mission critical military GPS receiver solutions and has been a pioneer in the market for over 40 years, including designing and producing advanced hardened and secure GPS products that include next-generation M-Code technologies.
The GPS business is highly complementary to our priority growth area of precision guided munitions. We expect continued customer demand for the secure geo-positioning needs of the modern battlespace that support the increasingly critical role of precision guided munitions in military operations.
Based in Cedar Rapids, Iowa, the GPS business has approximately 700 employees across its skilled workforce and experienced management team who will be joining the Precision Strike & Sensing Solutions business within the Electronic Systems sector.
Charles Woodburn, Chief Executive of BAE Systems, said: “This acquisition, which follows the successful purchase of the Airborne Radios business in May, is another example of us delivering on our strategy to invest in technology that positions the Group for future growth. The Military GPS business brings high quality products which complement our Electronic Systems portfolio, strengthening our position as a leading provider of defence electronics.”
29 Jul 20. Intelsat Shareholders Obtain Their Day In Court. Dissatisfied Intelsat shareholders who allege that there were breaches of fiduciary duties by certain directors at Intelsat have won their day in court. The Shareholders Foundation, in a statement, said, “According to that complaint filed in the US District Court for the Northern District of California the plaintiff alleges that the Defendants violated provisions of the Exchange Act by selling a block of Intelsat shares while in possession of material non-public information, including that Intelsat had met with the FCC on November 5, 2019, to discuss the private sale of certain wavebands controlled by Intelsat for future “5G” use (the “C-Band”) and that the FCC opposed Intelsat’s then-existing proposal, instead favoring a public auction rather than private sale of the C-Band.”
The Shareholders Foundation say that an investigation into this alleged potential wrongdoing has been started by current, long-term holders of Intelsat stock and concerns whether some Intelsat shareholders are liable. (Source: Satnews)