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25 Jan 24. L3Harris’ fourth-quarter results top estimates on weapons demand. L3Harris (LHX.N), opens new tab beat estimates for fourth-quarter profit on Thursday, benefiting from higher weapons demand and increased global defense spending amid escalating security concerns.

U.S. defense companies are experiencing a surge in contracts on account of the Russia-Ukraine war, the Middle East crisis and the specter of Chinese aggression, but growth is capped by persisting labor and supply chain disruptions.

L3Harris expects its 2024 sales to be between $20.7 bn and $21.3 bn, below LSEG estimates of $21.45bn, sending its shares down about 3% in extended trading.

Peers Lockheed Martin (LMT.N), opens new tab also forecast its 2024 profit below analysts estimates this week, while Northrop Grumman (NOC.N), opens new tab posted a fourth-quarter loss.

L3Harris had said last month it would suspend its merger and acquisition activity for the “foreseeable future”, in its efforts to strengthen balance sheet.

The company, formed by the merger of L3 Technologies and Harris Corp in 2019, counts the Pentagon, planemaker Boeing (BA.N), opens new tab and defense and aerospace major RTX (RTX.N), opens new tab among its customers.

On an adjusted basis, the defense contractor earned $3.35 per share, compared with analysts’ estimate of $3.31 per share.

Its overall sales rose 17% during the quarter ended Dec. 29 to $5.34bn, versus analysts’ expectations of $5.29bn.

(Source: Reuters)

25 Jan 24. L3Harris Technologies Reports Fourth Quarter and Full-Year 2023 Results; Initiates 2024 Guidance.

* Full year (FY) 2023 orders1 of $22.8bn; book-to-bill of 1.18x

* 4Q23 revenue of $5.3bn and FY23 of $19.4bn, up 17% and 14% respectively

* 4Q23 operating margin of 2.9% and FY23 of 7.3%, reflecting goodwill impairment for pending business sale

* 4Q23 segment operating margin1 of 15.1% and FY23 of 14.8%

* 4Q23 earnings per share (EPS) of $0.83 and FY23 of $6.44; 4Q23 non-GAAP EPS1 of $3.35 and FY23 of $12.36

* FY23 cash from operations of $2.1bn, free cash flow1 of $2.0bn

L3Harris Technologies, Inc. (NYSE: LHX) reported fourth quarter and full-year 2023 results, and initiated 2024 financial guidance.

“We delivered on our 2023 financial commitments and reported record backlog of $33bn, further demonstrating that our strategy to be the industry’s Trusted Disruptor is working. Our agility and innovation continue to resonate with customers, enabling us to broaden our capabilities into high-growth markets,” said Christopher E. Kubasik, Chair and CEO. “Last year, we also closed, integrated, and are benefiting from two acquisitions and we announced the sale of a non-core business. These actions are strengthening and better aligning our portfolio with the Department of Defense and U.S. allied partner priorities.”

Kubasik continued, “We are confident on achieving the financial framework that we shared in early December at our investor day, while we execute on our 2024-2026 capital allocation priorities of reducing leverage and returning excess cash to shareholders. Entering 2024, we remain focused on driving towards the $1 bn cost savings target from our LHX NeXt program to enable operational improvements, margin expansion and free cash flow growth.”

Revenue: Fourth quarter revenue increased 17%, primarily from the acquisitions of Aerojet Rocketdyne (AR), its own reporting segment, and Tactical Data Links (TDL), reported in the Communication Systems (CS) segment. Fourth quarter revenue increases were also driven by 2% organic growth from the Space & Airborne Systems (SAS) and CS segments. Full year revenue increased 14%, primarily from the acquisitions of AR and TDL, and increased 6% on an organic1 basis primarily from growth in the SAS and CS segments.

Operating Margin: Fourth quarter operating margin decreased, primarily from the impairment associated with the pending sale of the Commercial Aviation Solutions (CAS) business within the Integrated Mission Systems (IMS) segment. Segment operating margin1 expanded 50 bps to 15.1% due to efficiencies realized by increased revenue and favorable product mix. Full year operating margin increased 70 bps. 2022 had a higher level of impairments than 2023. This improvement was partially offset by unfavorable net changes in Estimates-at-Completion (EAC). Full year segment operating margin1 decreased 60 bps to 14.8% primarily due to the factors noted above excluding the impact of impairments and other non-recurring items detailed in table 5.

Earnings Per Share (EPS): Fourth quarter EPS decreased to $0.83 driven primarily by the impairment associated with the pending sale of the CAS business, an increase in amortization of acquisition-related intangibles and higher interest expense from the funding of the AR and TDL acquisitions. Non-GAAP EPS1 increased 2% to $3.35 driven by higher segment operating income1 and a lower effective tax rate on non-GAAP income, partially offset by lower pension income and the higher interest expense. Full year EPS increased 17% to $6.44 driven primarily from lower impairments, partially offset by lower pension income and the higher interest expense. Full year Non-GAAP EPS1 decreased 4% to $12.36 driven by lower pension income and the higher interest expense, partially offset by higher segment operating income1, lower share count and a lower effective tax rate on non-GAAP income1.

Cash Flows: Fourth quarter cash from operations increased 1% primarily from less cash used to fund net working capital. Fourth quarter free cash flow1 was comparable. Full year cash from operations decreased 3% due to acquisition-related expenses, higher tax payments and higher interest, partially offset by less cash used to fund net working capital. Full year free cash flow1 was down 1%.

SEGMENT RESULTS AND GUIDANCE:

This section contains reporting segment drivers of fourth quarter and full year for revenue, operating margin, a GAAP measure, and segment operating margin1, a non-GAAP measure, which excludes unallocated items, impairments to goodwill or other assets and the gain on the sale of plant, property and equipment.

Space & Airborne Systems

Revenue: Fourth quarter revenue increased 6%, primarily from growth in Space, Mission Networks and Intel and Cyber, partially offset by a decline in legacy airborne platform volume. Full year revenue increased 7% primarily from growth in Space Systems, Mission Networks and Intel and Cyber.

Operating Margin: Fourth quarter operating margin and segment operating margin1 decreased 70 bps largely due to an increase in lower margin space revenue. Full year operating margin increased 60 bps. 2022 had a higher level of impairments. 2023 was negatively impacted by mix and net unfavorable EAC. Full year segment operating margin1 decreased 30 bps from the factors noted above, excluding impairments.

Integrated Mission Systems (IMS)

Revenue: Fourth quarter revenue decreased 6%, primarily from lower Intelligence, Surveillance and Reconnaissance (ISR) aircraft missionization efforts, partially offset by increases in CAS and Maritime. Full year revenue was flat primarily from lower ISR aircraft missionization volume, offset by higher revenue in Electro Optical, Maritime and CAS.

Operating Margin: Fourth quarter operating margin was down primarily from the impairment associated with the pending sale of the CAS business. Fourth quarter segment operating margin1 increased 150 bps from improved program performance. Full year operating margin declined 60 bps primarily due to an unfavorable net change in EACs, the sale of end-of-life inventory in the prior year and higher volume of lower-margin domestic ISR aircraft revenue, partially offset by lower impairments and research and development expenses. Full year segment operating margin1 decreased 180 bps from the factors noted above excluding impairments.

Communication Systems

Revenue: Fourth quarter revenue increased 14%, primarily from the TDL acquisition and higher volume of night-vision products. Full year revenue increased 20%, primarily from the TDL acquisition and higher volumes of legacy Broadband Communications programs, Tactical Communications and Public Safety products.

Operating Margin: Fourth quarter operating margin and segment operating margin1 increased 120 bps primarily from the acquisition of TDL and efficiencies realized from higher volume. Full year segment operating margin increased 840 bps primarily from an impairment in the prior year. Full year segment operating margin1 was comparable.

Revenue and Operating Margin: Fourth quarter and full year (5-month post acquisition period) results are attributed to program execution across missile and space programs. (Source: BUSINESS WIRE)

25 Jan 24. Rising B-21 production costs lead to $1.6bn charge for Northrop. Northrop Grumman reported a nearly $1.6bn pre-tax charge on the B-21 Raider program in the last quarter of 2023, as the stealth bomber moved into its low-rate initial production phase.

The charge was mainly caused by higher-than-expected production costs and macroeconomic disruptions, company officials said in an earnings call with investors Thursday. The B-21’s charge included $143 m in cost growth on the first LRIP lot, they said.

The Air Force plans to field a fleet of at least 100 of the Northrop-made bombers, beginning in the mid-2020s. The B-21 is designed with the latest stealth technology and intended to penetrate deep into enemy territory for strike missions, even against adversaries with the latest radar and air defenses.

The B-21 program has been relatively successful and on schedule so far. It was publicly rolled out in December 2022, and almost a year later, moved into the flight testing phase at Edwards Air Force Base in California. The Pentagon was impressed enough with the results of the B-21?s ground and flight tests to start production late last year.

But throughout 2023, Northrop Chief Executive Officer Kathy Warden repeatedly warned investors that losses were likely as the B-21 moved into production — losses that are now starting to materialize.

She said the Northrop was “disappointed” by the charge and how its initial assessment of how the LRIP conditions shook out, but emains confident that it can deliver on the company’s outlook going forward.

The B-21 charge caused Northrop’s aeronautics sector to record a loss of nearly $1.3bn for the quarter, and the company as a whole reported a net loss of $535m.

The results for all of 2023 were somewhat more positive. The aeronautics sector lost $473m, while the company overall saw $2.1 bn in earnings.

Warden said the Air Force last year provided about $50 m in inflation relief funding on the initial LRIP lot — but cautioned investors not to get their hopes up for future relief.

Northrop is trying to work with the government to see if there are any further opportunities for further inflation relief, Warden said. Given the Pentagon’s tightening budgets, however, Warden said the company is tempering its expectations.

Now that Northrop has the production and ground test of the first B-21 under its belt, “we have a lot more information today than we did at this time last year,” CFO Dave Keffer said on the call.

Northrop also has most of the suppliers for the Raider program under contract, and has almost finished negotiating with the rest, and latest productivity estimates. The stabilizing economy and inflation also will help, Keffer said.

Sentinel nuclear missile

Warden also said the company will work with the Pentagon over the next few months to look for ways to bring costs down on the LGM-35A Sentinel nuclear missile.

The Air Force notified Congress last week that the intercontinental ballistic missile program’s costs had grown by at least 37%, triggering a critical Nunn-McCurdy breach and an automatic review. The Pentagon will now review the program and perhaps restructure it. A Nunn-McCurdy breach could also lead to a program being cancelled, but the Air Force has ruled that out.

Air Force officials have repeatedly called Sentinel one of the most complicated acquisition programs it has ever undertaken — but one that it has no choice but to complete.

Lt. Gen. Richard Moore, the Air Force’s deputy chief of staff for plans and programs, said at a Center for Strategic and International Studies panel Wednesday that the 1970s-era Minuteman III ICBMs were only originally expected to last about a decade and are well past their expected lifespan.

Moore said repeatedly the Air Force is committed to Sentinel and that it will make the necessary tradeoffs to pay for it.

“Sentinel is going to be funded,” Moore said. “There is not a viable service life extension program for Minuteman III. Extending it for some lengthy period of time, that’s not a viable option.”

Warden said the Pentagon’s review of the Sentinel program will likely last several months. She noted that the Air Force has attributed the bulk of the cost growth on Sentinel to its command and launch segment. This is a complex process that involves the construction of more than 400 new launch facilities, laying of thousands of miles of fiber optic networks, thousands of miles of utility tunnels, and obtaining real estate easements from hundreds of landowners.

The cost growth estimates on Sentinel included inflation since 2020, the last time the program’s projected costs were estimated, Warden said.

During the most recent three years of Sentinel’s engineering and manufacturing development phase, Warden said Northrop has brought on engineers, matured the system’s design, and achieved milestones such as successful static fire tests of the solid rocket motors for Sentinel’s first two stages. (Source: Defense News)

24 Jan 24. Amphenol Reports Fourth Quarter and Full Year 2023 Results.

Fourth Quarter 2023 Highlights:

Record Sales of $3.33bn, up 3% in U.S. dollars and down 1% organically compared to the fourth quarter of 2022
GAAP Diluted EPS of $0.83, up 1% compared to prior year
Record Adjusted Diluted EPS of $0.82, up 5% compared to prior year
GAAP Operating Margin of 20.7% and Record Adjusted Operating Margin of 21.2%
Record Operating and Free Cash Flow of $842m and $739m, respectively
Acquired TPC Wire & Cable, Airmar, LID Technologies and PCTEL

Full Year 2023 Highlights:

Sales of $12.55bn, down slightly in U.S. dollars and down 3% organically compared to the full year 2022
Record GAAP Diluted EPS of $3.11, up 2% compared to prior year
Record Adjusted Diluted EPS of $3.01, up slightly compared to prior year
GAAP and Adjusted Operating Margin of 20.4% and 20.7%
Record Operating and Free Cash Flow of $2.53bn and $2.16bn
Completed ten acquisitions
Returned nearly $1.1bn to shareholders

Corporation (NYSE: APH) today reported fourth quarter and full year 2023 results.

“We are pleased to have closed 2023 with fourth quarter sales and Adjusted Diluted EPS both exceeding the high end of our guidance”

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“We are pleased to have closed 2023 with fourth quarter sales and Adjusted Diluted EPS both exceeding the high end of our guidance,” said Amphenol President and Chief Executive Officer, R. Adam Norwitt. “Sales increased from prior year by 3%, driven by growth in the commercial air, defense, automotive and IT datacom markets, as well as contributions from the Company’s acquisition program. For the full year, sales were down slightly compared to 2022, with growth in the commercial air, defense and automotive markets as well as contributions from the Company’s acquisition program, offset by moderations in the mobile networks, IT datacom, mobile devices and broadband markets. Despite the moderating demand in the communications-related markets during 2023, we again realized strong profitability with Adjusted Operating Margin of 21.2% and 20.7% in the fourth quarter and full year, respectively. Given the market environment, we are very proud of the Company’s outstanding performance in 2023.”

Throughout 2023, Amphenol continued to deploy its financial strength in a variety of ways to increase shareholder value. During the fourth quarter, the Company purchased 1.3m shares of its common stock for $115 m and paid dividends of $126m, resulting in total capital returned to shareholders of $1.09bn in 2023.

“We remain focused on expanding our growth opportunities through a deep commitment to developing enabling technologies for customers across our served markets, an ongoing strategy of market and geographic diversification as well as an active and successful acquisition program. To that end, we are excited to have closed four acquisitions during the fourth quarter of 2023: TPC Wire & Cable (TPC), Airmar Technology Corporation (Airmar), LID Technologies (LID) and PCTEL, Inc. (PCTEL). Based in Ohio and with annual sales of approximately $110 m, TPC is a value-add provider of harsh environment cable and cable assemblies for the industrial market. Based in New Hampshire and with annual sales of approximately $90 m, Airmar is a global leader in ultrasonic sensors and sensor systems for marine and other industrial applications. Based in France and with annual sales of approximately $40m, LID is a supplier of pressure sensor products for the industrial and automotive markets. In December, the Company also closed on the previously announced acquisition of PCTEL, a global leader in the engineering and manufacturing of antennas and wireless technology, including purpose-built Industrial IoT products and test and measurement solutions, with annual sales of approximately $85m. TPC will be included in our Harsh Environment Solutions Segment, Airmar and LID will be included in our Interconnect and Sensor Systems Segment, and PCTEL will be included in our Communications Solutions Segment. All of these acquisitions further expand our offering of high-technology interconnect products across a variety of our end markets, while adding talented management teams to the Amphenol family.”

First Quarter 2024 Outlook

Assuming the continuation of current market conditions as well as constant exchange rates, for the first quarter of 2024, Amphenol expects sales to be in the range of $3.04bn to $3.10bn. This represents a 2% to 4% increase over the prior year quarter. Adjusted Diluted EPS is expected to be in the range of $0.71 to $0.73, representing a 3% to 6% increase from the first quarter of 2023.

Mr. Norwitt continued, “I am encouraged by our strong finish to 2023. While we faced many challenges across the global marketplace, the revolution in electronics has continued to accelerate, with new innovations creating exciting growth opportunities for Amphenol across each of our diversified end markets. In turn, we have expanded our range of high technology interconnect products, both through our organic innovation efforts as well as through our successful acquisition program. This expanded technology position coupled with our unique entrepreneurial culture has strengthened our competitive advantage. Our ongoing drive to leverage that competitive advantage and thereby create sustained financial strength has established an excellent base for the Company’s future performance. I am confident in the ability of our outstanding and growing entrepreneurial management team to continue to dynamically adjust to changing market conditions, to capitalize on the wide array of growth opportunities that arise in all market cycles and to continue to generate sustainable long-term value for our shareholders and other stakeholders. Finally, I remain truly grateful to our team for their extraordinary efforts in navigating the many challenges around the world while continuing to strongly support our customers and drive outstanding operating performance.”

24 Jan 24. Textron Reports Fourth Quarter 2023 Results; Announces 2024 Financial Outlook.

EPS of $1.01; adjusted EPS of $1.60, up 30% from a year ago
Full-year adjusted EPS of $5.59, up from $4.45 in 2022
Full-year share repurchases $1.168bn
Aviation backlog of $7.2bn at year-end 2023, up $782m from year-end 2022
2024 full-year EPS outlook of $5.62 to $5.82, full year adjusted EPS outlook of $6.20 to $6.40

Textron Inc. (NYSE: TXT) today reported fourth quarter 2023 income from continuing operations of $1.01 per share, as compared to $1.07 per share in the fourth quarter of 2022. Adjusted income from continuing operations, a non-GAAP measure that is defined and reconciled to GAAP in an attachment to this release, was $1.60 per share for the fourth quarter of 2023, compared to $1.23 per share in the fourth quarter of 2022.

Full year 2023 income from continuing operations was $4.57 per share, up from $4.01 in 2022. Full year 2023 adjusted income from continuing operations was $5.59, as compared to $4.45 in 2022.

“2023 was a strong year at Textron with solid revenue and profit growth along with segment profit margin expansion,” said Textron Chairman and CEO Scott C. Donnelly. “At Aviation, we saw continued backlog growth and, at Bell, the team began executing on our transformational FLRAA program.”

Cash Flow

Net cash provided by operating activities of the manufacturing group for the full year was $1.3bn. Manufacturing cash flow before pension contributions, a non-GAAP measure that is defined and reconciled to GAAP in an attachment to this release, totaled $931m for the full year, down from $1.178bn in 2022.

In the quarter, Textron returned $283m to shareholders through share repurchases. Full year 2023 share repurchases totaled $1.168bn.

Outlook

Textron is forecasting 2024 revenues of approximately $14.6bn, up from $13.7bn in 2023. Textron expects full-year 2024 GAAP earnings per share from continuing operations will be in the range of $5.62 to $5.82 or $6.20 to $6.40 on an adjusted basis, which is reconciled to GAAP in an attachment to this release.

The company is estimating net cash provided by operating activities of the manufacturing group will be between $1.3bn and $1.4bn and manufacturing cash flow before pension contributions, a non-GAAP measure, will be between $900 m and $1.0bn, with planned pension contributions of about $50m.

“The 2024 outlook reflects higher revenues, increasing segment profit and operating margin expansion with a continuation of our growth strategy of ongoing investments in new products and programs to drive increases in long-term shareholder value,” Donnelly concluded.

Fourth Quarter Segment Results

Textron Aviation

Revenues at Textron Aviation of $1.5bn were down $58m from the fourth quarter of 2022, reflecting lower volume and mix of $158m, partially offset by higher pricing of $100m.

Textron Aviation delivered 50 jets in the quarter, down from 52 last year, and 44 commercial turboprops, down from 47 last year.

Segment profit was $193m in the fourth quarter, up $23m from a year ago, reflecting a favorable impact from pricing, net of inflation, of $51m, partially offset by lower volume and mix of $22m.

Textron Aviation backlog at the end of the fourth quarter was $7.2bn.

Bell

Bell revenues were $1.1bn, up $255m from last year’s fourth quarter, reflecting higher commercial revenues of $171m largely driven by increased deliveries and higher military revenues of $84m related to the FLRAA program.

Bell delivered 91 commercial helicopters in the quarter, up from 71 last year.

Segment profit of $118m was up $55m from a year ago, primarily driven by higher volume and mix of $39m.

Bell backlog at the end of the fourth quarter was $4.8bn.

Textron Systems

Revenues at Textron Systems were $314m, flat with last year’s fourth quarter.

Segment profit of $35m was equal to last year’s fourth quarter.

Textron Systems’ backlog at the end of the fourth quarter was $2.0bn.

Industrial

Industrial revenues were $961m, up $54m from last year’s fourth quarter, largely reflecting higher volume and mix at Kautex and a favorable impact from pricing at Textron Specialized Vehicles.

Segment profit of $57m was up $14m from the fourth quarter of 2022, primarily due to higher pricing, net of inflation, of $18m.

Textron eAviation

Textron eAviation segment revenues were $10m and segment loss was $23m in the fourth quarter of 2023, which reflected the operating results of Pipistrel along with research and development costs for initiatives related to the development of sustainable aviation solutions.

Finance

Finance segment revenues were $12m, and profit was $4m in the fourth quarter of 2023.

Restructuring

In November, we announced a restructuring plan that resulted in pre-tax special charges of $126m in the fourth quarter. We anticipate the restructuring plan will be substantially completed in the first half of 2024, resulting in annualized cost savings of approximately $75m.

(Source: BUSINESS WIRE)

24 Jan 24. Hexcel Reports 2023 Fourth Quarter and Full Year Results.

Strategic buy-out of UK defined benefit pension plan in Q4 2023. $1.9m cash surplus returned to Hexcel and GAAP EPS impacted by a non-cash charge of $70.5m.
Q4 2023 GAAP diluted EPS of $(0.21), compared to Q4 2022 GAAP diluted EPS of $0.43.
Q4 2023 adjusted diluted EPS of $0.43, compared to Q4 2022 adjusted diluted EPS of $0.40.
Q4 2023 Sales were $458m, compared to $429m in Q4 2022.
FY 2023 GAAP diluted EPS of $1.24 compared to FY 2022 GAAP diluted EPS of $1.49. FY 2023 adjusted diluted EPS of $1.81, compared to FY 2022 adjusted diluted EPS of $1.28.
FY 2023 sales were $1,789m, compared to $1,578m for FY 2022.
Divested Hexcel’s 50% interest in Boeing/Hexcel 50:50 ACM JV to Boeing in Q4 2023.
Free Cash Flow of $149m in FY 2023, including $7.5m cash dividend from JV.
Quarterly dividend increased 20% to $0.15.

Hexcel Corporation (NYSE: HXL) today reported fourth quarter 2023 results including net sales of $458m and adjusted diluted EPS of $0.43 per share.

Chairman, CEO and President Nick Stanage said, “Sales in our Commercial Aerospace and Space & Defense markets each grew 17% in 2023 and our annual adjusted EPS grew more than 40% year over year from improved operating leverage. Commercial Aerospace growth was led by widebody sales as demand for lightweight and fuel-efficient composite aircraft is strong and growing. Our Space and Defense sales benefitted from higher spending globally, with record level sales achieved in the fourth quarter. We continue to focus on ensuring operational readiness for the expected growth ahead – this involves training new labor across our manufacturing sites, driving operational excellence programs for yield and efficiency gains, and bringing assets on-line for the expected increase in demand. Although there is some near-term margin pressure as a result, all of these efforts will position Hexcel to maximize our margin opportunity in the coming years as build rates ramp upwards.

Mr. Stanage continued, “Based on record commercial aircraft backlogs and our customers anticipated build rate ramp, we expect double digit sales growth again in 2024. Operational margins are expected to continue to grow as the business benefits from increased operating leverage and enhanced productivity, supporting another year of strong EPS growth forecasted in 2024. We generated $149m of free cash flow in 2023, and as sales grow, margins expand, and capital expenditure remains subdued, we anticipate continued strong free cash flow generation in the coming years. This will enable us to continue to invest in our people, drive operational excellence and pursue technology innovation, as well as returning cash to our stockholders.”

Patrick Winterlich, Chief Financial Officer commented, “During the fourth quarter of 2023, we transferred our UK pension plan, that was frozen in 2011, to a third-party insurer, thereby removing any future liability for the company. The pension buy-out resulted in a non-cash accounting charge of $70.5 m in the quarter and a return of $1.9m cash, as the plan was in a surplus position.”

Markets

Sales in the fourth quarter of 2023 were $457.5m compared to $429.4m in the fourth quarter of 2022.

Commercial Aerospace

Commercial Aerospace sales of $267.5m for the fourth quarter of 2023 increased 4.4% (5.3% in constant currency) compared to the fourth quarter of 2022. Increasing widebody sales for the Airbus A350 and Boeing 787 supported the sales growth, partially offset by lower narrowbody sales year-over-year. Other Commercial Aerospace increased modestly in the fourth quarter of 2023, led by continued growth in business jets.

Space & Defense

Space & Defense sales of $152.3m increased 20.4% (19.7% in constant currency) for the quarter as compared to the fourth quarter of 2022. Growth was particularly strong with space markets and classified programs.

Industrial

Total Industrial sales of $37.7m in the fourth quarter of 2023 decreased 19.3% (22.3% in constant currency) compared to the fourth quarter of 2022. Automotive sales continued to grow, though this growth was more than offset by sales declines in other industrial markets.

Consolidated Operations

Gross margin for the fourth quarter of 2023 was 22.5% compared to 23.1% in the fourth quarter of 2022. The fourth quarter 2023 margin reflected higher infrastructure levels ahead of anticipated increases in customer production rates in 2024 and beyond. As a percentage of sales, selling, general and administrative and R&T expenses for the fourth quarter of 2023 were 11.8% compared to 12.3% for the fourth quarter of 2022. Adjusted operating income in the fourth quarter of 2023 was $49.1 m or 10.7% of sales, compared to $46.3m, or 10.8% of sales in 2022. Other operating expense for both the fourth quarter of 2023 and 2022 included restructuring costs.

During the fourth quarter of 2023, Hexcel sold its 50% interest in Malaysian-based Aerospace Composites Malaysia (ACM) to joint venture partner Boeing for cash proceeds of approximately $44.7m and in addition, received a cash dividend of $7.5m. Income to Hexcel from this joint venture has previously been reported as equity in earnings from affiliated companies, and this contributed approximately $0.09 to as reported and adjusted diluted EPS in 2023. Following this transaction, Hexcel will no longer have any equity in earnings from affiliated companies.

Other non-operating expense in the fourth quarter of 2023 included (i) the non-cash pre-tax charge of $70.5m related to the buy-out of the UK pension plan; (ii) a pre-tax gain of $1.9m for the reversion of excess assets related to the UK pension plan; and (iii) an accounting charge of $3.0m (including the write-off of approximately $9 m in currency translation amounts) related to the sale of the ACM JV interest. Other non-operating income in the fourth quarter of 2022 included the receipt of $10.5m related to the Aviation Manufacturing Jobs Protection program. Foreign exchange rates had a favorable impact of approximately 30 basis points on operating income as a percentage of sales in the fourth quarter of 2023 compared to the fourth quarter of 2022.

FY 2023 Results

Sales for the full year of 2023 were $1,789.0m compared to $1,577.7m, a 13.4% increase from 2022 sales.

Commercial Aerospace (60% of sales)

Commercial Aerospace sales of $1,068.2m increased 17.2% (17.0% in constant currency) for the full year of 2023 compared to the full year of 2022. The strongest growth came from the Airbus A350 and Boeing 787 widebodies, supported by moderate growth from the Airbus A320neo and Boeing 737 MAX narrowbodies. Other Commercial Aerospace increased 14.1% for the full year of 2023 compared to the same period in 2022, driven by increasing composite adoption on large-cabin business jets.

Space & Defense (30% of sales)

Space & Defense sales of $544.8m increased 17.1% (16.6% in constant currency) for the full year of 2023 as compared to the full year of 2022. Growth was across numerous programs including fixed-wing and space programs globally and European helicopters.

Industrial (10% of sales)

Total Industrial sales of $176.0m in the full year of 2023 decreased 12.3% (13.6% in constant currency) compared to the full year of 2022 as a number of industrial sub-markets softened, more than offsetting the double-digit sales growth in automotive.

Consolidated Operations

Gross margin for 2023 was 24.2% compared to 22.6% in the prior year benefiting from higher sales volume leverage. As a percentage of sales, selling, general and administrative and R&T expenses for the full year of 2023 were 12.1% compared to 12.3% for 2022. Adjusted operating income for the full year of 2023 was $216.7m or 12.1% of sales, compared to $163.3 m or 10.4% of sales in 2022. Other operating expense for the full year of 2023 included restructuring costs partially offset by a pre-tax net gain of $0.8 m from the sale of a facility in Colorado. Other operating income for the full year of 2022 included a pre-tax net gain of $19.4m from the sale of a facility in California, partially offset by restructuring costs. Other non-operating expense for the full year of 2023 included (i) a non-cash pre-tax charge of $70.5m related to the buy-out of the UK pension plan; (ii) a pre-tax gain of $1.9m for the reversion of excess assets related to the UK pension plan; and (iii) an accounting charge of $3.0m (including the write-off of approximately $9m in currency translation amounts) related to the sale of the ACM JV interest. Other non-operating income for the full year of 2022 included the receipt of $10.5 m related to the Aviation Manufacturing Jobs Protection program. The impact of foreign exchange rates on operating income as a percentage of sales was favorable by approximately 40 basis points for 2023 compared to 2022.

Cash and other

Net cash provided by operating activities in 2023 was $257.1m, compared to $173.1m in 2022. Working capital was a cash use of $27.4m in 2023 compared to a use of $72.7m in 2022. Capital expenditures on a cash basis were $108.2m in 2023, including approximately $38m for the purchase of the land and building at the Hexcel Amesbury, Massachusetts facility. Capital expenditures in 2022 were $76.3m. Net cash used for investing activities in 2023 included net proceeds of $44.7m from the sale of the ACM JV interest, and net proceeds of $10.3m received from the sale of the Colorado facility. Net cash used for investing activities for the full year of 2022 included the net proceeds of $21.2m received from the California facility sale. Free cash flow was $148.9m in 2023 compared to $96.8m in 2022. Free cash flow is defined as cash generated from operating activities less cash paid for capital expenditures. Capital expenditures on an accrual basis were $121.6m in 2023 and $69.8m in 2022.
The Company did not repurchase shares of its common stock during the fourth quarter. The remaining authorization under the share repurchase program on December 31, 2023 was $187m.
As announced today, the Board of Directors declared a quarterly dividend of $0.15 per share payable to stockholders of record as of February 9, 2024, with a payment date of February 16, 2024.

2024 Guidance

Sales of $1.925bn to $2.025bn
Adjusted diluted earnings per share of $2.10 to $2.30
Free cash flow of greater than $200m

Market-Specific Sales Outlook

Commercial Aerospace: Up mid-teens
Space & Defense: Up mid-single digits
Industrial: Up low to mid-single digits

Hexcel will host an investor day on February 20, 2024 where additional 2024 guidance, and mid-term outlook will be provided. The event will be webcast. (Source: BUSINESS WIRE)

25 Jan 24. Northrop Grumman Reports Fourth Quarter and Full-Year 2023 Financial Results

Total backlog rises to record $84.2bn driven by full year book to bill of 1.14
Q4 Sales increase 6 percent to $10.6 bn; 2023 sales increase 7 percent to $39.3bn
Company records $1.56bn pre-tax charge associated with LRIP phase of B-21 program
2023 Diluted EPS of $13.53, including B-21 charge of $7.68 and MTM expense of $2.08
2023 Operating cash flow of $3.9bn, 2023 adjusted free cash flow1 of $2.1bn
Company introduces strong 2024 sales and margin guidance inline with prior outlook

Northrop Grumman Corporation (NYSE: NOC) reported fourth quarter 2023 sales increased 6 percent to $10.6bn, as compared with $10.0bn in the fourth quarter of 2022. Sales increased 7 percent to $39.3 bn in 2023, as compared with $36.6bn in 2022. Fourth quarter and full year 2023 sales reflect continued strong demand for our products and services. Fourth quarter 2023 net loss totaled $535m, or $3.54 per diluted share, and 2023 net earnings were $2.1bn, or $13.53 per diluted share.

Both periods include an after-tax charge on the B-21 program of $1.17bn ($7.68 per diluted share for the full year) and an after-tax mark-to-market pension and OPB (“MTM”) expense of $316 m ($2.08 per diluted share for the full year). “Our team delivered a strong finish to the year in 2023. We generated free cash flow at the high end of our guidance range, significantly exceeded our sales guidance and beat EPS consensus absent the B-21 charge we identified as a possibility this time last year,” said Kathy Warden, chair, chief executive officer and president. “With sustained global demand for our products, our 2024 guidance reflects continued strong sales and earnings growth. In addition, we’re reaffirming our cash flow outlook for 2024 and 2025, with free cash flow expected to grow at a greater than 15 percent CAGR through 2026. Northrop Grumman’s solid performance, record backlog and differentiated portfolio support our outlook for robust cash generation and our plans to return a significant amount of capital to shareholders.”

Impact to Net Earnings and EPS of B-21 Charge and MTM Expense B-21 Charge – In 2015, the U.S. Air Force awarded Northrop Grumman the B-21 contract, which includes a base contract for engineering, manufacturing, and design (EMD) and five low-rate initial production (LRIP) options. The EMD phase of the program is largely cost type and began at contract award. The LRIP options are largely fixed price and are expected to be awarded and executed through approximately the end of the decade. During the fourth quarter of 2023, the B-21 program entered flight testing and the company received an award for the first LRIP lot. We previously disclosed it was reasonably possible one or more of the LRIP options could be performed at a loss principally due to the company’s estimate of the impact macroeconomic factors may have on our cost to complete the LRIP options, as well as ongoing discussions with our suppliers and our customer. During the fourth quarter of 2023, we again reviewed our estimated profitability on the LRIP phase of the program, and we now believe it is probable each of the first five LRIP lots will be performed at a loss. The loss is largely driven by a change in our assumptions regarding funding to mitigate the impact of macroeconomic disruptions on the LRIP phase of the program and higher projected manufacturing costs that reflect recent supplier negotiations and our experience in completing the first aircraft. MTM Expense – The MTM expense relates to pension and OPB actuarial gains and losses, which the company recognizes immediately through earnings upon annual remeasurement of the assets and projected benefit obligations of our pension and OPB plans.

Sales

Fourth quarter 2023 sales increased $605m, or 6 percent, due to higher sales at Space Systems, Aeronautics Systems and Mission Systems. 2023 sales increased $2.7bn, or 7 percent, due to higher sales at all four sectors. Fourth quarter and full year sales reflect continued strong demand for our products and services.

Operating Income and Margin Rate Fourth quarter 2023 operating income decreased $1.3bn primarily due to a $1.56bn charge on the LRIP phase of the B-21 program at Aeronautics Systems, partially offset by higher operating income at the other three sectors. The decrease was also offset by $192m of lower unallocated corporate expense, largely due to higher deferred state tax benefits associated with the MTM adjustment and B-21 charge.

Fourth quarter 2023 operating margin rate declined to (3.7) percent from 9.0 percent reflecting the items above. 2023 operating income decreased $1.1bn, or 30 percent, primarily due to the B-21 charge discussed above, partially offset by higher operating income at Space Systems and Defense Systems. The decrease was also offset by $311 m of lower unallocated corporate expense, largely due to higher deferred state tax benefits associated with the MTM adjustment and B-21 charge and lower intangible asset amortization and PP&E step-up depreciation, as well as a $118 m reduction in the FAS/CAS operating adjustment. 2023 operating margin rate declined to 6.5 percent from 9.8 percent reflecting the items above.

Segment Operating Income and Margin Rate

Fourth quarter 2023 segment operating income decreased $1.5bn and segment operating margin rate declined to (3.6) percent primarily due to the B-21 charge at Aeronautics Systems. Operating income at each of the other sectors was higher than in the prior year period. 2023 segment operating income decreased $1. bn, or 35 percent, and segment operating margin rate decreased to 7.0 percent primarily due to the B-21 charge at Aeronautics Systems. Operating income at Space Systems and Defense Systems was higher than in the prior year period. Federal and Foreign Income Taxes The fourth quarter 2023 effective tax rate (ETR) increased to 29.3 percent from 15.2 percent in the fourth quarter of 2022 primarily due to lower earnings before income taxes as a result of the B-21 charge and MTM expense, which collectively increased the fourth quarter 2023 ETR by 14.0 percentage points. The 2023 ETR decreased to 12.4 percent from 16.1 percent in 2022 primarily due to lower earnings before income taxes as a result of the B-21 charge and MTM expense, which collectively reduced the 2023 ETR by 3.8 percentage points.

The 2022 MTM benefit increased the 2022 ETR by 1.2 percentage points. Net Earnings Fourth quarter 2023 net loss was $535m compared to net earnings of $2.1bn in the fourth quarter of 2022, principally due to a $1.7bn decrease in MTM (expense) benefit, the $1.3 bn decrease in operating income described above and a 243 m reduction in the non-operating FAS pension benefit, partially offset by a $594 m decrease in income tax expense.

2023 net earnings decreased $2.8bn, or 58 percent, principally due to a $1.7bn decrease in MTM (expense) benefit, a $975m reduction in the non-operating FAS pension benefit and the $1.1bn decrease in operating income described above, partially offset by a $650m decrease in income tax expense, a $107m increase in returns on marketable securities related to our non-qualified benefit plans, and a $97m gain recognized upon the sale of our minority investment in an Australian business. Cash Flows Fourth quarter 2023 net cash provided by operating activities increased $179m, or 8 percent, principally due to improved trade working capital.

Fourth quarter 2023 adjusted free cash flow decreased $47m, or 3 percent, principally due to higher capital expenditures, partially offset by an increase in net cash provided by operating activities. 2023 cash provided by operating activities increased $974m, or 34 percent, principally due to improved trade working capital largely driven by increased billings and cash collections, partially offset by higher supplier payments. 2023 adjusted free cash flow increased $479m, or 30 percent, principally due to higher net cash provided by operating activities, partially offset by an increase in capital expenditures.

Awards and Backlog

Fourth quarter and year to date 2023 net awards totaled $10.9bn and $44.8bn, respectively, and backlog totaled $84.2bn. Significant fourth quarter new awards include $3.5bn for restricted programs (primarily at Aeronautics Systems, Space Systems and Mission Systems), $1.2bn for F-35 programs (primarily at Mission Systems and Aeronautics Systems), $1.2bn for Triton, $0.7bn for Space Development Agency (SDA) Tranche 2 Transport Layer, and $0.3bn for B-2. Significant 2023 new awards include $15.5bn for restricted programs (primarily at Space Systems, Aeronautics Systems and Mission Systems), $2.1 bn for F-35 programs (primarily at Aeronautics Systems and Mission Systems), $1.7bn for E-2, $1.5bn for Triton, $1.4bn for SDA Tranche 2 Transport Layer, and $0.8bn for Guided Multiple Launch Rocket System (GMLRS). Segment Operating Results

AERONAUTICS SYSTEMS

Sales

Fourth quarter 2023 sales increased $153m, or 6 percent, primarily due to higher volume on restricted programs as well as the Triton and E-2 programs, partially offset by a decrease in production volume on the F-35 program and lower volume on the F/A-18 program largely due to post Multi-Year Procurement 4 (MYP4) contract award timing. 2023 sales increased $255m, or 2 percent, primarily due to higher volume on restricted programs, partially offset by a $191m decrease on the F/A-18 program largely due to post MYP4 contract award timing, a $131m decrease on the Joint Surveillance and Target Attack Radar System (JSTARS) program as that program nears completion, and a decrease on the E-2 program largely related to higher material volume in the prior year. Operating Income

Fourth quarter 2023 operating income decreased $1.6bn and operating margin rate decreased to (43.7) percent primarily due to the previously described $1.56bn charge recorded on the LRIP phase of the B-21 program, inclusive of a $143m unfavorable EAC adjustment for the first LRIP lot. The prior year period includes a $66 m favorable EAC adjustment on the engineering, manufacturing and development (EMD) phase of the B-21 program. Apart from these B-21 EAC adjustments, net EAC adjustments across the sector were $39m higher than in the prior year period. 2023 operating income decreased $1.6bn and operating margin rate decreased to (4.4) percent primarily due to the B-21 charge and related unfavorable EAC adjustment on the LRIP phase of the program described above. The prior year period includes $133m of favorable EAC adjustments on the EMD phase of the B-21 program and a $38m gain on a property sale. Apart from the B-21 EAC adjustments noted above, net EAC adjustments across the sector were $58m higher than in the prior year.

DEFENSE SYSTEMS

Sales

Fourth quarter 2023 sales decreased $12m, or 1 percent, primarily due to a decrease on the Integrated Air and Missile Defense Battle Command System (IBCS) largely driven by the timing of material receipts in the prior year, partially offset by higher sales on GMLRS. 2023 sales increased $283m, or 5 percent, primarily due to higher volume on several programs, including ammunition programs, GMLRS, an international training program, Hypersonic Attack Cruise Missile (HACM), and Stand-in Attack Weapon (SiAW). Operating Income Fourth quarter 2023 operating income increased $19m, or 10 percent, primarily due to a higher operating margin rate. Operating margin rate increased to 12.3 percent from 11.0 percent primarily due to higher net EAC adjustments. 2023 operating income increased $46m, or 7 percent, due to higher sales and a higher operating margin rate. Operating margin rate increased to 12.1 percent from 11.9 percent primarily due to the write-down of an unconsolidated joint venture investment in the prior year.

MISSION SYSTEMS

Sales

Fourth quarter 2023 sales increased $136m, or 5 percent, primarily due to higher restricted sales on advanced microelectronics programs as well as higher volume on marine systems programs, partially offset by lower volume on airborne radar programs.

2023 sales increased $499m, or 5 percent, primarily due to higher restricted sales on advanced microelectronics programs, as well as a $165m increase on marine systems programs. These increases were partially offset by a $107m decrease on the Ground/Air Task Oriented Radar (G/ATOR) program largely driven by the timing of material receipts and fullrate production (FRP) 5 contract award, as well as lower volume on airborne radar programs. Operating Income Fourth quarter 2023 operating income increased $10m, or 2 percent, due to higher sales, partially offset by a lower operating margin rate. Operating margin rate decreased to 15.1 percent from 15.4 percent primarily due to lower net EAC adjustments. 2023 operating income decreased $9m, or 1 percent, due to a lower operating margin rate, which more than offset higher sales. Operating margin rate decreased to 14.8 percent from 15.6 percent primarily due to a prior year $33m benefit recognized in connection with a contract-related legal matter, as well as changes in contract mix toward more cost-type content. SPACE SYSTEMS

Sales

Fourth quarter 2023 sales increased $324m, or 10 percent, primarily due to higher volume on restricted programs and ramp-up on development programs, including a $100m increase on the Space Development Agency (SDA) Tranche 2 Transport Layer program and higher volume on the Next-Generation Overhead Persistent Infrared Polar (NextGen Polar) program. 2023 sales increased $1.7 bn, or 14 percent, primarily due to higher volume on restricted programs and ramp-up on development programs, including increases of $426m on the Ground Based Strategic Deterrent (GBSD) program, $333m on the NextGen Polar program, $219 m on the Next Generation Interceptor (NGI) program, $119m on the SDA Tranche 1 Tracking Layer program and $102m on the SDA Tranche 2 Transport Layer program. These increases were partially offset by a $172m decrease for Commercial Resupply Services (CRS) missions and a $109m decrease on the Habitation and Logistics Outpost (HALO) program. Operating Income Fourth quarter 2023 operating income increased $7m, or 2 percent, due to higher sales, partially offset by a lower operating margin rate, which decreased to 8.4 percent from 9.1 percent. During the fourth quarter of 2023, we recorded a $42m unfavorable EAC adjustment on the HALO program largely due to cost growth stemming from evolving Lunar Gateway architecture and mission requirements combined with macroeconomic challenges. Apart from the HALO program, net EAC adjustments across the sector were $58m higher than in the prior year period. Fourth quarter 2023 operating margin also includes a $26m benefit from insurance recoveries in our commercial space business, partially offset by a $25m write-down of commercial inventory. The prior year period includes a $96m gain recognized in connection with a land exchange transaction and a $45m write-down of commercial inventory. 2023 operating income increased $54m, or 5 percent, due to higher sales, partially offset by a lower operating margin rate. Operating margin rate decreased to 8.7 percent from 9.4 percent primarily due to the prior year $96m gain recognized in connection with a land exchange transaction, as well as lower net EAC adjustments driven by $100m of unfavorable EAC adjustments on the HALO program in 2023. These decreases were partially offset by a $42m benefit from insurance recoveries in our commercial space business during 2023.

24 Jan 24. General Dynamics Reports Fourth-Quarter and Full-Year 2023 Financial Results.

Fourth-quarter net earnings of $1bn, diluted EPS of $3.64, on revenue of $11.7bn
Highest quarterly EPS and revenue in company history
$1.2bn net cash provided by operating activities, or 119% of net earnings
Ended the quarter with $93.6bn in backlog

General Dynamics (NYSE: GD) today reported quarterly net earnings of $1bn, or $3.64 diluted earnings per share (EPS). Revenue of $11.7bn was up 7.5% over the year-ago quarter.

For the full year, net earnings were $3.3bn, or $12.02 per diluted share.

“We had a solid fourth quarter, capping off a year that saw growth in all four segments and continued strong cash flow,” said Phebe N. Novakovic, chairman and chief executive officer. “Our Aerospace segment in particular saw solid execution and continued demand in the quarter and is well positioned for a surge in deliveries upon FAA certification of the G700.”

Cash

Net cash provided by operating activities in the quarter totaled $1.2bn, or 119% of net earnings. For the year, net cash provided by operating activities totaled a record-high $4.7bn, or 142% of net earnings.

During the year, the company reduced debt by $1.2bn, invested $904m in capital expenditures, paid $1.4bn in dividends, and used $434m to repurchase shares, ending 2023 with $1.9bn in cash and equivalents on hand.

Backlog

Orders remained strong across the company with a consolidated book-to-bill ratio, defined as orders divided by revenue, of 0.8- to-1 for the quarter and 1.1-to-1 for the year. Backlog of $93.6bn was the highest year-end backlog in the company’s history. In addition to backlog, estimated potential contract value, representing management’s estimate of additional value in unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised options, was $38.3bn at year end. Total estimated contract value, the sum of all backlog components, was $132 bn at the end of the year.

In the Aerospace segment, orders in the quarter totaled $3.2bn, growing backlog to $20.5bn, up 4.8% from the year-ago quarter. Aerospace book-to-bill was 1.2-to-1 for the quarter and the year.

In the three defense segments, significant awards in the quarter included an IDIQ contract with maximum potential value of $2.5bn from the Indian Health Service to modernize its electronic health record system; an IDIQ contract with maximum potential value of $975m to provide mission command training and technical support services to the U.S. Army; $395m, with options having maximum potential value of $840m, for maintenance and modernization of two U.S. Navy Arleigh Burke-class (DDG-51) guided-missile destroyers; a contract with maximum potential value of $420m to provide ongoing lead yard services for the Navy’s DDG-51 program; $265m for various munitions and ordnance; and $245m, with maximum potential value of $590m, for several key contracts for classified customers.

24 Jan 24. CACI Reports Results for Its Fiscal 2024 Second Quarter and Raises Fiscal Year Guidance.

Revenues of $1.8bn, +11% YoY

Net income of $83.9m and diluted EPS of $3.74, +2% YoY

Adjusted net income of $97.6m and adjusted diluted EPS of $4.36, +2% YoY

Contract awards of $2.2bn and book-to-bill of 1.2x

Raising Fiscal Year 2024 guidance for revenue, adjusted net income, adjusted diluted EPS, and free cash flow

CACI International Inc (NYSE: CACI), a leading provider of expertise and technology to government customers, announced results today for its fiscal second quarter ended December 31, 2023.

“I’m pleased with how our business is performing, both the near-term conversion of our growing backlog as well as our positioning for future growth,” said John Mengucci, CACI President and Chief Executive Officer. “The first half of Fiscal Year 2024 played out as we expected and we are seeing increasing momentum in the second half of the year. This acceleration enables us to raise our Fiscal Year 2024 guidance. We continue to win in the marketplace by providing differentiated capabilities, investing ahead of customer need, and leveraging our exceptional past performance and business development. We remain confident in our ability to drive long-term growth, increase free cash flow, and generate value for our customers and our shareholders.”

Second Quarter Contract Awards

Contract awards in the second quarter totaled $2.2bn, with approximately 55 percent for new business to CACI. Awards exclude ceiling values of multi-award, indefinite delivery, indefinite quantity (IDIQ) contracts. Some notable awards during the quarter were:

CACI was selected for Global Enterprise Network Modernization (GENMOD), a five-year, single-award task order worth up to $526m to provide network modernization and sustainment technology to the U.S. Army. CACI will deliver vertical integration to create a robust, reliable, and high-speed network modernizing the Army’s enterprise IT infrastructure and facilities across the Pacific and Southwest Asia.
CACI won a single-award, five-year task order worth up to $382m to provide technology to the U.S. Army Combat Capabilities Development Command (DEVCOM) Engineering and Systems Integration Directorate (ESID) Trojan Engineering and Systems Integration (ESI) Advancement of Trojan Systems (EATS). CACI will provide advanced software and full life cycle support for the Trojan family of systems across the Army military intelligence enterprise at all echelons.
CACI was awarded a $239m task order to provide technology, including commercial solution for classified (CSfC), to modernize a Department of Defense network.
CACI was awarded a five-year task order valued at up to $64m to provide complete life cycle hardware and systems engineering for the U.S. Air Force Distributed Common Ground System (DCGS). CACI’s proven mobile technologies deliver scalable, customizable mobile command, control, computers, and communications (C4) capabilities. This technology award will support the Air Force Life Cycle Management Center C2ISR Division under the Program Executive Office (PEO) – Digital Directorate.

Total backlog as of December 31, 2023 was $26.9bn compared with $26.5bn a year ago, an increase of 2 percent. Funded backlog as of December 31, 2023 was $3.7bn compared with $3.2 bn a year ago, an increase of 16 percent.

Additional Highlights

CACI was named to the Forbes 2023 list of America’s Best Employers for Veterans for the fourth consecutive year. As an employer with a workforce of approximately 23,000 employees, of which 38% are veterans, military spouses, or current members of the National Guard and Reserves, CACI strives to create a welcoming environment that allows veterans to thrive and continue their mission. CACI ranked seventh in Aerospace and Defense and 39th overall.
CACI received the National Veteran Small Business Coalition’s (NVSBC) Champions Award for exceeding the NVSBC-established goals for subcontracting to service-disabled and veteran-owned small businesses (SD/VOSB’s) during the federal government’s fiscal year 2022.
CACI hired Tanya M. Skeen, former Assistant Secretary of Defense for Acquisition (Acting), as Senior Vice President of Corporate Strategy and Development. In this role, she will be providing guidance and recommendations on investments to further advance CACI’s capabilities aimed at satisfying our customers’ future mission needs.

Fiscal Year 2024 Guidance

The table below summarizes our fiscal year 2024 guidance and represents our views as of January 24, 2024. Our revenue guidance reflects approximately $200m of higher-than-expected material purchases by our customers, split evenly between the first and second quarters of fiscal year 2024. Our guidance also reflects lower diluted weighted average shares due to the effect of share repurchases.

(Source: BUSINESS WIRE)

24 Jan 24. Teledyne Technologies Reports Fourth Quarter Results

Post this

All-time record orders of $1,519.4m
All-time record sales of $1,425.0m
Fourth quarter GAAP operating margin of 19.1% and record fourth quarter non-GAAP operating margin of 22.7%
All-time record GAAP and non-GAAP diluted earnings per share of $6.75 and $5.44, respectively
Record full year GAAP and non-GAAP operating margin of 18.4% and 22.0%, respectively
Record full year GAAP and non-GAAP diluted earnings per share of $18.49 and $19.69, respectively
Issuing full year 2024 GAAP diluted earnings per share outlook of $17.15 to $17.53 and full year 2024 non-GAAP earnings per share outlook of $20.35 to $20.68
Consolidated Leverage Ratio improved to 1.9x

Teledyne today reported fourth quarter 2023 net sales of $1,425.0m, compared with net sales of $1,418.2m for the fourth quarter of 2022, an increase of 0.5%. Net income attributable to Teledyne was $323.1m ($6.75 diluted earnings per share) for the fourth quarter of 2023, compared with $226.4m ($4.74 diluted earnings per share) for the fourth quarter of 2022, an increase of 42.7%. The fourth quarter of 2023 included $48.6m of pretax acquired intangible asset amortization expense, $3.0m of pretax FLIR integration costs and $102.2m of acquisition related discrete income tax benefits. Excluding these items, non-GAAP net income attributable to Teledyne for the fourth quarter of 2023 was $260.5m ($5.44 diluted earnings per share). The fourth quarter of 2022 included $47.9m of pretax acquired intangible asset amortization expense, $4.0m of pretax income related to the favorable resolution of certain pretax FLIR integration costs, and $24.1 m of acquisition related discrete income tax expense benefits. Excluding these items, non-GAAP net income attributable to Teledyne for the fourth quarter of 2022 was $236.1m ($4.94 diluted earnings per share). Operating margin was 19.1% for the fourth quarter of 2023, compared with 19.3% for the fourth quarter of 2022. Excluding the non-GAAP items discussed above, non-GAAP operating margin for the fourth quarter of 2023 was 22.7%, compared with 22.4% for the fourth quarter of 2022.

“In the fourth quarter, we achieved record sales and GAAP and non-GAAP earnings per share,” said Robert Mehrabian, Executive Chairman. “Sales increased primarily due to the performance of our marine, medical and aerospace businesses, which were more than able to compensate for the previously announced headwind in the industrial automation and laboratory instrumentation markets. Furthermore, overall record orders exceeded sales in every business segment but were particularly strong in our marine and defense businesses. Leverage declined further and our balance sheet remains very healthy. Finally, we continue to acquire complementary businesses as shown by the acquisition of Xena Networks in the fourth quarter.”

Full Year

Full year sales for 2023 were $5,635.5m, compared with $5,458.6m for 2022, an increase of 3.2%. Net income attributable to Teledyne was $885.7m ($18.49 diluted earnings per share) for fiscal year 2023, compared with $788.6m ($16.53 diluted earnings per share) for fiscal year 2022, an increase of 12.3%.

Full year 2023 net sales included $99.8m in incremental net sales from current and prior year acquisitions. The full year of 2023 included $196.7 m of pretax acquired intangible asset amortization expense, $8.8m of pretax FLIR integration costs and $100.5m of acquisition related net discrete income tax benefits. Excluding these items, non-GAAP net income attributable to Teledyne for the full year of 2023 was $943.3m ($19.69 diluted earnings per share). The full year of 2022 included $201.7m of pretax acquired intangible asset amortization expense, $4m of pretax income related to the favorable resolution of certain FLIR integration costs and $72.7m of acquisition related net discrete income tax benefits. Excluding these items, non-GAAP net income attributable to Teledyne for the full year of 2022 was $867.8m ($18.19 diluted earnings per share). Operating margin was 18.4% for 2023, compared with 17.8% for 2022. Excluding the non-GAAP items discussed above, non-GAAP operating margin for 2023 was 22.0%, compared with 21.4% for 2022.

Full year 2023 income tax expense reflected net discrete income tax benefits of $137.5m compared with net discrete income tax benefits of $86.7m for 2022.

Review of Operations

Comparisons are with the fourth quarter of 2022, unless noted otherwise.

Digital Imaging

The Digital Imaging segment’s fourth quarter 2023 net sales were $802.5m, compared with $806.7m, a decrease of 0.5%. Operating income was $134.3m for the fourth quarter of 2023, compared with $152.0m, a decrease of 11.6%. The fourth quarter of 2023 included $3.0m of pretax FLIR integration costs compared to $4.0 m of pretax income related to the favorable resolution of certain FLIR integration costs in the fourth quarter of 2022. Acquired intangible amortization expense for the fourth quarter of 2023 was $44.9m compared with $44.1m. Excluding these items, non-GAAP operating income for the fourth quarter of 2023 was $182.2m, compared with $192.1m, a decreased of 5.2%.

The fourth quarter of 2023 net sales included $17.6m in incremental sales from recent acquisitions, as well as greater sales of x-ray products and surveillance systems, offset by lower sales of industrial imaging cameras, unmanned air systems, micro-electro-mechanical systems (“MEMS”), and commercial maritime products. The decrease in operating income was due to product mix as well as higher FLIR integration costs.

Instrumentation

The Instrumentation segment’s fourth quarter 2023 net sales were $335.2m, compared with $326.2m, an increase of 2.8%. Operating income was $90.7m for the fourth quarter of 2023, compared with $79.0m, an increase of 14.8%.

The fourth quarter of 2023 net sales increase resulted from higher marine instrumentation product lines. Sales of marine instrumentation increased $18.1 m, partially offset by an $8.8m decrease in sales of environmental instrumentation and a $0.3m decrease in sales of test and measurement instrumentation. The increase in operating income primarily reflected the impact of higher sales as well as improved product margins.

Aerospace and Defense Electronics

The Aerospace and Defense Electronics segment’s fourth quarter 2023 net sales were $184.0m, compared with $177.9m, an increase of 3.4%. Operating income was $50.0m for the fourth quarter of 2023, compared with $52.8 m, a decrease of 5.3%.

The fourth quarter of 2023 net sales reflected higher sales of $7.6m for aerospace electronics partially offset by lower sales of $1.5m for defense electronics. The decrease in operating income primarily reflected the impact of product mix.

Engineered Systems

The Engineered Systems segment’s fourth quarter 2023 net sales were $103.3m, compared with $107.4m, a decrease of 3.8%. Operating income was $12.3m for the fourth quarter of 2023, compared with $9.3m, an increase of 32.3%.

The fourth quarter of 2023 net sales reflected lower sales of $4.5m for engineered products partially offset by an increase of $0.4m for energy systems. The lower sales for engineered products primarily reflected decreased sales from maritime and other manufacturing services products partially offset by higher revenue from space programs and electronic manufacturing service products. The increase in operating income was primarily driven by program mix, with the fourth quarter of 2023 having a higher percentage of electronic manufacturing services products.

Additional Financial Information

Cash Flow

Cash provided by operating activities was $164.4m for the fourth quarter of 2023 compared with $237.7m. Depreciation and amortization expense for the fourth quarter of 2023 was $77.4m compared with $81.8m. Stock-based compensation expense for the fourth quarter of 2023 was $8.0m compared with $11.4m. The IRS announcements related to the California floods (IR-2023-33 and IR-2023-189) postponed approximately $139m of Teledyne’s second and third quarter 2023 U.S. federal income tax payments, which the Company paid in the fourth quarter of 2023.

Capital expenditures for the fourth quarter of 2023 were $40.2 m compared with $34.1m. Teledyne received $18.2m from the exercise of stock options in the fourth quarter of 2023 compared with $5.2m.

As of December 31, 2023, net debt was $2,596.6m which is calculated as total debt of $3,244.9m, net of cash and cash equivalents of $648.3m. As of January 1, 2023, net debt was $3,282.5m representing total debt of $3,920.6m, net of cash and cash equivalents of $638.1m. During 2023, Teledyne repaid approximately $680 m of debt, including $300.0m of debt that matured in April 2023 and $370.0m of floating rate debt under its term loan due May 2026 and under its credit facility. Teledyne also repurchased and retired $10.0m of its Fixed Rate Senior Notes due April 2031, recording a $1.6m non-cash gain on the extinguishment of this debt.

As of December 31, 2023, $1,129.1m was available under the $1.15 bn credit facility, after reductions of $20.9m in outstanding letters of credit.

Income Taxes

The effective tax rate for the fourth quarter of 2023 was negative 27.3%, compared with 10.1%. The fourth quarter of 2023 reflected net discrete income tax benefits of $123.4m compared with $28.9m, primarily related to the resolution of certain historical acquisition-related tax positions. Excluding the net discrete income tax items in both periods, the effective tax rates would have been 21.3% for the fourth quarter of 2023, compared with 21.6%.

Other

Corporate expense was $15.8m for the fourth quarter of 2023 compared with $19.3m, with the decrease driven by lower stock-based compensation expense and lower professional fees. Non-service retirement benefit income was $3.1m for the fourth quarter of 2023 compared with $2.8m. Interest expense, net of interest income, was $15.6m for the fourth quarter of 2023 compared with $22.5m. The decrease was due to reduced outstanding borrowings with lower weighted average interest rates compared to the fourth quarter of 2022.

Outlook

Based on its current outlook, the company’s management believes that first quarter 2024 GAAP diluted earnings per share will be in the range of $3.73 to $3.86 and full year 2024 GAAP diluted earnings per share will be in the range of $17.15 to $17.53. The company’s management further believes that first quarter 2024 non-GAAP diluted earnings per share will be in the range of $4.55 to $4.65 and full year 2024 non-GAAP diluted earnings per share will be in the range of $20.35 to $20.68. The non-GAAP outlook excludes acquired intangible asset amortization for all acquisitions, further FLIR integration costs and acquisition-related tax matters. The company’s annual expected tax rate for 2024 is 22.5%, before discrete tax items. (Source: BUSINESS WIRE)

23 Jan 24. Airbus Helicopters delivers solid sales performance in 2023. In 2023, Airbus Helicopters logged 410 gross orders (net: 393), highlighting a steady market recovery with a strong performance this year for the light twin and medium twin helicopters. Orders came from 179 customers in 47 countries. The Company delivered 346 helicopters in 2023, resulting in a preliminary 54% share of the civil and parapublic market.

“Airbus Helicopters’ order intake in 2023, with an increase bordering 10 percent in units in comparison to 2022, highlights its stable growth despite the ongoing global context of inflation and geopolitical instability,” said Bruno Even, CEO of Airbus Helicopters. “It’s also a testament to the versatility of our products on both the civil and military market and I’d like to thank our customers for continuing to entrust their critical missions to Airbus Helicopters,” he added.

2023 was a year of many firsts, with the first flight of the DisruptiveLab demonstrator featuring a new aerodynamic architecture aimed at reducing fuel consumption and the first flight of the NH90 Sea Tiger, the state-of-the-art anti-submarine warfare helicopter for the German Navy. The Company also welcomed a new member to the Airbus family when the Spanish Navy took delivery of their first H135 helicopters.

“Defence and security is one of Airbus Helicopters’ strategic priorities and we continue to innovate and develop to increase mission capabilities for our customers. The German armed forces signing the largest H145M contract with up to 82 light attack helicopters at the end of 2023 is testimony to that. On the development side, the H175M successfully performed flight demonstrations in the extreme hot and high conditions of the desert in Saudi Arabia while the VSR700 demonstrated its performance during sea trials from a French Navy multi-mission frigate. We also continue to expand our UAS portfolio with the acquisition of Aerovel which will allow us to offer our customers additional mission capabilities with manned-unmanned teaming,” continued Even.

Global support contracts and the HCare offering continued to prove popular in 2023 both with civil and military customers. 140 new helicopters were covered by “by-the-hour” contracts bringing the total to 2760 helicopters.

Innovation and sustainability remained a strong focus for the Company as it continued to invest in demonstrators aimed at advancing its decarbonisation roadmap and enhancing aviation safety. Airbus Helicopters’ FlightLab successfully tested an electric flight control system that allowed for a single pilot stick to replace all three conventional pilot controls, a first in the helicopter industry. Following these successful FBW flight trials, Airbus Helicopters, in partnership with Airbus UpNext, was able to test advanced autonomous features in order to simplify mission preparation and management, reduce helicopter pilot workload, and further increase safety.

“In the same way as the DisruptiveLab will be used to test hybridisation for single-engine helicopters, we unveiled the PioneerLab with the aim of testing hybridisation for twin-engine aircraft as well as introducing bio-based materials. We also started assembling CityAirbus NextGen in Donauwörth and wrapped up the year by performing the power-on. We also ramped up the use of SAF for our own development test flights, training, deliveries and ferry flights in Marignane and Donauwörth to 10% and we will continue to roll this out to our other sites in 2024,” continued Even.

Airbus’ 2023 full year financial results will be disclosed on 15 February 2024.

23 Jan 24. Lockheed forecasts dour 2024 profit on supply chain woes.

Summary
Companies
Lockheed 2024 profit forecast lower than expected
Supply chain disruptions weighing on results
F-35 bears brunt of supply shortages
Testing and approval of software update delays F-35 payments

Lockheed Martin (LMT.N), opens new tab forecast its 2024 profit below Wall Street expectations on Tuesday, as the U.S. defense contractor’s largest aeronautics segment that makes the F-35 jets faces supply chain disruptions.

Shares were down by about 3% in mid-day trading in New York after the company’s CEO said profits from F-35 jets could be depressed into the third quarter.

U.S. defense firms are seeing a notable increase in orders amid escalating tensions between China and the Philippines, the ongoing conflict between Russia and Ukraine, and in the Middle East. However, pandemic-related disruptions in labor and supply chains are weighing on the sector.

The company said in October its production rate was affected by low availability of processor assemblies, solid-rocket motors, castings and forgings, and its F-35 program had taken the worst hit.

Net sales from the F-35 program fell $275m in the fourth quarter from a year earlier. Final payments for some F-35s, a keystone for the Aeronautics business’ margin, have been delayed by several months because a software update on recently built jets needs final testing and approval.

During a post earnings call with analysts, CEO Jim Taiclet said these payments, expected by June 30, could continue to be delayed into the third quarter.

Some analysts have raised concerns around the risks associated with supply chain disruptions, which they fear are not likely to dissipate quickly.

DEFENSE INDUSTRY BELLWETHER

Lockheed’s earnings are seen as a bellwether for the arms sector. Rivals Northrop Grumman (NOC.N), opens new tab and General Dynamics (GD.N), opens new tab are due to report quarterly results later this week.

Bethesda, Maryland-based Lockheed on Tuesday forecast 2024 profits in the range of $25.65 to $26.35 per share. Analysts on average are expecting a profit of $26.62, according to LSEG data.

It also reported fourth-quarter net income of $1.87bn, down 2.4% from a year earlier. On a per share basis, however, profit rose to $7.58 from $7.40.

Sales in the company’s largest aeronautics business declined 0.3%, while total sales for the company fell 0.7% to $18.87bn in the quarter ended Dec. 31.

Revenue at its Missiles and Fire Control unit, which makes the High Mobility Artillery Rocket System (HIMARS), fell 3.5% to $3.17bn.

Capital expenditures will remain elevated in 2024, Chief Financial Officer Jay Malave told Reuters in an interview, because the company will continue to invest in building out production for weapons systems that are in high demand in Ukraine, such as the Guided Multiple Launch Rocket System (GMLRS), HIMARS and others, which the Pentagon has said would be used in the Pacific theatre, such as the Joint Air-to-Surface Standoff Missile (JASM) and Long Range Anti-Ship Missile LRASM.

Lockheed expects 2024 sales in the range of $68.50bn to $70 bn, above analysts’ average expectations of $68.66bn.

23 Jan 24. Lockheed Martin Reports Fourth Quarter and Full Year 2023 Financial Results.

Net sales of $18.9bn in the fourth quarter and $67.6bn in 2023
Net earnings of $1.9bn, or $7.58 per share in the fourth quarter; $6.9bn, or $27.55 per share in 2023
Cash from operations of $2.4bn and free cash flow of $1.7bn in the fourth quarter; cash from operations of $7.9bn and free cash flow of $6.2bn in 2023
$3.8bn of cash returned to shareholders through dividends and share repurchases in the fourth quarter, and $9.1bn in 2023
Record backlog of $160.6bn
2024 financial outlook provided

Lockheed Martin Corporation [NYSE: LMT] today reported fourth quarter 2023 net sales of $18.9bn, compared to $19.0bn in the fourth quarter of 2022. Net earnings in the fourth quarter of 2023 and 2022 were $1.9 bn, or $7.58 and $7.40 per share, respectively. Cash from operations was $2.4bn in the fourth quarter of 2023, compared to $1.9bn in the fourth quarter of 2022. Free cash flow was $1.7bn in the fourth quarter of 2023, compared to $1.2bn in the fourth quarter of 2022.

Net sales in 2023 were $67.6bn, compared to $66.0bn in 2022. Net earnings in 2023 were $6.9bn, or $27.55 per share, compared to $5.7bn, or $21.66 per share, in 2022. Cash from operations in 2023 was $7.9bn, compared to $7.8bn in 2022. Free cash flow in 2023 was $6.2bn, compared to $6.1bn in 2022.

“Our solid finish to 2023 and full-year results reflect continued strong demand for our all-domain portfolio of advanced defense tech solutions. Backlog reached a record $160.6bn and sales increased 2 percent year-over-year to $67.6bn,” said Lockheed Martin Chairman, President and CEO Jim Taiclet. “In 2023 we invested $1.5 bn in research and development and an additional $1.7bn of capital expenditures to create, accelerate and refine the development of innovative 21st Century Security capabilities. In line with our expectations, we generated $6.2bn of free cash flow for the year, supporting strong free cash flow per share growth, and we returned over $9 bn to shareholders through dividends and share repurchases.

“Looking ahead to 2024 and beyond, our opportunities to support global security for the U.S. Government and its allies remain robust with traditional and breakthrough technologies. Our team will continue to realize the vision for 21st Century Security integrated platforms and systems, working with industry and commercial partners to pioneer and mature deterrence solutions for customers worldwide. Inside the company, our 1LMX digital transformation initiative will further materialize and drive speed, resiliency, efficiency and competitiveness across our operations. As a result, we anticipate continued top-line growth in 2024 and sustained cash flow conversion and deployment, in support of our mid-single digit growth target in free cash flow per share.”

Severance and other charges

During the fourth quarter of 2023, the company recorded charges totaling $92m ($73m, or $0.30 per share, after-tax) which include severance costs for the planned reduction of certain positions across the company and asset impairment charges. This action resulted from a review of the company’s business segments and corporate functions and is intended to improve the efficiency of the company’s operations.

Net sales and operating profit of the company’s business segments exclude intersegment sales, cost of sales, and profit as these activities are eliminated in consolidation and not included in management’s evaluation of performance of each segment. Business segment operating profit includes the company’s share of earnings or losses from equity method investees as the operating activities of the equity method investees are closely aligned with the operations of the company’s business segments.

Business segment operating profit excludes the FAS/CAS pension operating adjustment, a portion of corporate costs not considered allowable or allocable to contracts with the U.S. Government under the applicable U.S. Government cost accounting standards (CAS) or federal acquisition regulations (FAR), and other items not considered part of management’s evaluation of segment operating performance such as a portion of management and administration costs, legal fees and settlements, environmental costs, stock-based compensation expense, retiree benefits, significant severance actions, significant asset impairments, gains or losses from divestitures, intangible asset amortization expense, and other miscellaneous corporate activities. Excluded items are included in the reconciling item “Unallocated items” between operating profit from the company’s business segments and its consolidated operating profit.

Changes in net sales and operating profit generally are expressed in terms of volume. Changes in volume refer to increases or decreases in sales or operating profit resulting from varying production activity levels, deliveries or service levels on individual contracts. Volume changes in segment operating profit are typically based on the current profit booking rate for a particular contract. In addition, comparability of the company’s segment sales, operating profit and operating margin may be impacted favorably or unfavorably by changes in profit booking rates on the company’s contracts. Increases in profit booking rates, typically referred to as favorable profit adjustments, usually relate to revisions in the estimated total costs to fulfill the performance obligations that reflect improved conditions on a particular contract. Conversely, conditions on a particular contract may deteriorate, resulting in an increase in the estimated total costs to fulfill the performance obligations and a reduction in the profit booking rate and are typically referred to as unfavorable profit adjustments. Increases or decreases in profit booking rates are recognized in the period they are determined and reflect the inception-to-date effect of such changes.

The company’s consolidated net favorable profit booking rate adjustments represented approximately 23% and 21% of total segment operating profit in the quarter and year ended December 31, 2023 and 24% in both the quarter and year ended December 31, 2022.

Aeronautics

Aeronautics’ net sales in the fourth quarter of 2023 were comparable to the same period in 2022. Net sales on the F-35 program decreased $275m due to lower volume on production contracts partially offset by higher volume on development and sustainment contracts. Net sales increased on classified programs by $180m driven by higher volume and increased on the F-16 program by $65m due to the ramp up on production.

Aeronautics’ operating profit in the fourth quarter of 2023 decreased $55m, or 7%, compared to the same period in 2022. The decrease was primarily attributable to lower operating profit of $50m on the F-35 program due to the lower cost throughput described above and lower net favorable profit adjustments on production contracts. Total net profit booking rate adjustments were $85m lower in the fourth quarter of 2023 compared to the same period in 2022.

Aeronautics’ net sales in 2023 increased $487m, or 2%, compared to 2022. Net sales increased by approximately $540m for the ramp up on classified programs and $230m on the F-16 program related to the ramp up in production. These increases were partially offset by lower net sales of $400m on the F-35 program due to lower volume on production contracts partially offset by higher volume on sustainment and development contracts.

Aeronautics’ operating profit in 2023 decreased $42m, or 1%, compared to 2022. The decrease was primarily attributable to lower operating profit of $100m on the F-22 program due to lower net favorable profit adjustments and $95m on the F-35 program due to lower net favorable profit adjustments on production contracts. These decreases were partially offset by higher operating profit of $115m on classified programs due to higher net favorable profit adjustments and the impact of the higher sales as discussed above. Total net profit booking rate adjustments were $180m lower in 2023 compared to 2022.

Missiles and Fire Control

MFC’s net sales in the fourth quarter of 2023 decreased $116m, or 4%, compared to the same period in 2022. The decrease was primarily attributable to lower net sales of approximately $150m for integrated air and missile defense programs primarily due to supplier cost timing on PAC-3, partially offset by higher net sales of approximately $60m for tactical and strike missile programs due to production ramp up on Long Range Anti-Ship Missile (LRASM) and Joint Air-to-Surface Standoff Missile (JASSM).

MFC’s operating profit in the fourth quarter of 2023 decreased $56m, or 12%, compared to the same period in 2022. The decrease was primarily attributable to lower operating profit for tactical and strike missile programs due to a $40m loss recognized on a classified program. Total net profit booking rate adjustments were $30m lower in the fourth quarter of 2023 compared to the same period in 2022.

MFC’s net sales in 2023 decreased $64m, or 1% compared to the same period in 2022. Net sales decreased $165m for integrated air and missile defense programs due primarily to supplier cost timing on PAC-3 and $115m for sensors and global sustainment programs due primarily to the absence in 2023 of the impact of a favorable profit adjustment on an international program in 2022. These decreases were partially offset by higher net sales of $145m for tactical and strike missile programs primarily due to production ramp up on JASSM, LRASM, and precision fires programs.

MFC’s operating profit in 2023 decreased $96m, or 6%, compared to 2022. The decrease was primarily attributable to lower operating profit for tactical and strike missile programs due to $45m of losses recognized on a classified program. Total net profit booking rate adjustments were $95m lower in 2023 compared to 2022.

Rotary and Mission Systems

RMS’ net sales in the fourth quarter of 2023 decreased $92m, or 2%, compared to the same period in 2022. The decrease was primarily attributable to lower net sales of $115m on integrated warfare systems and sensors (IWSS) programs due to lower volume on the Multi-Mission Surface Combatant (MMSC) program and $80m for training and logistics solutions (TLS) programs due to lower volume. These decreases were partially offset by higher net sales of $140m for Sikorsky helicopter programs due to higher deliveries on international Black Hawk programs.

RMS’ operating profit in the fourth quarter of 2023 increased $12m, or 2%, compared to the same period in 2022. The increase was primarily driven by favorable contract mix across the IWSS programs portfolio. Total net profit booking rate adjustments in the fourth quarter of 2023 were comparable to the same period in 2022.

RMS’ net sales in 2023 increased $91m, or 1% compared to the same period in 2022. Higher net sales of $265m on IWSS programs due to higher volume on the Aegis program and new program ramp ups within the radar and laser systems portfolios were partially offset by lower net sales of $55m for Sikorsky helicopter programs due to lower Black Hawk production volume.

RMS’ operating profit in 2023 decreased $41m, or 2%, compared to 2022. The decrease was primarily attributable to lower operating profit for Sikorsky helicopter programs primarily due to an unfavorable profit adjustment of $100m in the second quarter of 2023 on the Canadian Maritime Helicopter Program (CMHP) and lower Black Hawk production volume. This decrease was partially offset by higher operating profit for IWSS programs primarily due to a favorable profit adjustment of $65m in the second quarter of 2023 on an international surveillance and control program, along with higher volume on the Aegis program. Total net profit booking rate adjustments were $100 m lower in 2023 compared to 2022.

Space

Space’s net sales in the fourth quarter of 2023 increased $113m, or 3%, compared to the same period in 2022. The increase was primarily attributable to higher net sales of $155m for strategic and missile defense programs due to ramp up in the Next Generation Interceptor (NGI) development program.

Space’s operating profit in the fourth quarter of 2023 increased $73m, or 31%, compared to the same period in 2022. Total net profit booking rate adjustments across the portfolio were $90m higher in the fourth quarter of 2023 compared to the same period in 2022.

Space’s net sales in 2023 increased $1.1bn, or 9%, compared to 2022. The increase was primarily attributable to higher net sales of $620m for strategic and missile defense programs due to ramp up in the NGI development program and higher volume in the Fleet Ballistic Missile (FBM) program; and higher net sales of $225m for national security space programs due to development ramp up on Transport Layer and classified programs.

Space’s operating profit in 2023 increased $101m, or 10%, compared to 2022. The increase was primarily attributable to higher operating profit of $140m for national security space programs due to the absence of unfavorable profit adjustments in 2023 on a ground solutions program and higher net favorable profit adjustments in classified programs. This increase was partially offset by $80m of lower equity earnings resulting from lower launch volume and an increase in new product development costs at United Launch Alliance (ULA). Total net profit booking rate adjustments were $150m higher in 2023 compared to 2022.

Total equity earnings (primarily ULA) for the quarter ended Dec. 31, 2023 were not significant, compared to approximately $15m, or 6% for the same period in 2022. Total equity earnings for the year ended Dec. 31, 2023 were $20m, or 2% of Space’s operating profit, compared to approximately $100m, or 9% in 2022.

Income Taxes

The company’s effective income tax rate was 13.0% and 14.5% for the quarter and year ended Dec. 31, 2023, compared to 12.7% and 14.2% for the quarter and year ended Dec. 31, 2022. The rates for all periods benefited from research and development tax credits, tax deductions for foreign derived intangible income, dividends paid to the company’s defined contribution plans with an employee stock ownership plan feature and employee equity awards.

23 Jan 24. RTX beats estimates on aviation strength, defense demand. A recovery in commercial air traffic and increased global defense spending helped RTX (RTX.N), opens new tab report better-than-expected fourth-quarter earnings on Tuesday, boosting margins in its aftermarket service and defense business lines.

RTX shares were up 6.5% in early trading in New York.

The defense and aerospace major also forecast 2024 profit in the range of $5.25 to $5.40 per adjusted share, while analysts estimate $5.28 per share, according to LSEG data.

RTX capitalized on a strong aftermarket business as airlines extend the use of their planes to meet strengthened travel demand and amid a shortage of new jets.

Pratt and Whitney, an RTX subsidiary, booked a 25% jump in operating profit in the reported quarter, amid an ongoing inspection drive to check for potentially flawed components in its geared turbofan jet engines.

The issue relates to a powder metal used in engine parts, such as high pressure turbine disks and high-pressure compressor disks, that could result in micro-cracks and fatigue.

Chief Financial Officer Neil Mitchill told Reuters in an interview the company’s negotiations with customers were progressing and “we’re closing those agreements in line with the financial and operational assumptions that we have made.”

Financial assumptions about the GTF issue were unchanged from guidance issued in October. RTX still expects about 350 aircraft to be grounded at any time due to engine removals, but peak groundings in early 2024 are projected to be lower than the original estimate of 650 aircraft, executives said.

The company is also working with GTF maintenance providers on “light and medium work scopes” that can decrease repair time.

RTX’s defense arm Raytheon, led by retiring Wes Kremer, reported a 14% rise in operating profit, helped by AMRAAM rockets and Patriot systems, key weapons used by Ukraine to repel Russia’s invasion.

U.S. defense companies are getting more contracts as the Russia-Ukraine war, the need to support allies in the Middle East and the specter of Chinese aggression drive up demand, even as growth is hindered by pandemic-related labor and supply-chain disruptions.

Experts expect a boost in the order backlog of RTX along with other major companies that receive government contracts, such as Lockheed (LMT.N), opens new tab, General Dynamics (GD.N), opens new tab and Northrop Grumman (NOC.N), opens new tab, following the passage of the $886bn U.S. defense policy bill.

RTX reported adjusted net income of $1.29 per share in the fourth quarter, ahead of analysts’ estimate of $1.24 per share. Sales came in at $19.93bn, beating Street expectation of $19.7bn, as per LSEG data.

However, the company forecast 2024 revenue below expectations, owing to lingering supply challenges in the global aerospace industry.

It expects revenue between $78bn and $79bn, against analysts’ average expectation of $79.67 bn. (Source: Google/Reuters)

23 Jan 24. RTX Reports 2023 Results and Announces 2024 Outlook.

RTX delivers 10% sales growth in Q4 and exceeds full year cash flow expectations; expects continued sales and earnings growth in 2024

RTX (NYSE: RTX) reported fourth quarter 2023 results and announces 2024 outlook.

Fourth quarter 2023

Reported sales of $19.9bn, up 10 percent versus prior year
Adjusted sales* of $19.8bn, up 10 percent versus prior year
GAAP EPS from continuing operations of $1.05 included $0.29 of acquisition accounting adjustments and a $0.05 benefit from restructuring and net significant and/or non-recurring items
Adjusted EPS* of $1.29, up 2 percent versus prior year
Operating cash flow from continuing operations of $4.7bn; Free cash flow* of $3.9bn
Company backlog of $196bn; including $118bn of commercial and $78bn of defense
Repurchased $10.3bn of RTX shares

Full year 2023

Reported sales of $68.9bn, up 3 percent versus prior year, reflecting the impact of the previously disclosed Pratt powder metal matter
Adjusted sales* of $74.3bn, up 11 percent versus prior year
GAAP EPS of $2.23, down 36 percent versus the prior year, reflecting the impact of the previously disclosed Pratt powder metal matter
Adjusted EPS* of $5.06, up 6 percent versus the prior year
Operating cash flow from continuing operations of $7.9bn; Free cash flow* of $5.5bn
Achieved approximately $295m of incremental RTX gross synergies
Repurchased $12.9bn of RTX shares

Outlook for full year 2024

Sales of $78.0 – $79.0 bn
Adjusted EPS* of $5.25 – $5.40
Free cash flow* of approximately $5.7bn

2025 RTX financial commitments

Updates 2020 to 2025 adjusted annual sales* growth to 5.5 to 6.0 percent1, down from 6.0 to 7.0 percent
Updates 2020 to 2025 adjusted segment margin* expansion to 500 to 550 basis points1, down from 550 to 650 basis points
Reaffirms 2025 free cash flow* commitment of $7.5bn
Reaffirms 2025 capital return commitment of $36 to $37bn through 2025

“RTX reported solid full-year results, delivering 11 percent organic sales* growth and $5.5 bn in free cash flow* for the year, exceeding our expectations” said RTX Chairman and CEO Greg Hayes. “Across our portfolio, we supported the continued recovery in commercial aerospace and provided critical platforms and advanced technologies to our customers, achieving $95 bn in new awards and ending the year with a record backlog of $196 bn. I am extremely proud of what RTX has been able to accomplish, and I’m even more excited to see the innovations that RTX will deliver in the future.”

“RTX is beginning 2024 with strong momentum and we are projecting another year of strong sales growth and continued segment margin expansion,” said RTX President and COO Chris Calio. “The financial and operational outlook of our GTF fleet management plans remain consistent from October and continues to be a top priority as we focus on driving performance across all three businesses to support our customers and deliver shareowner value. With the execution of our $10bn accelerated share repurchase program, we’ve delivered over $29 bn to shareowners since the merger, achieving significant progress toward our capital return commitment of between $36 – $37bn through 2025.”

Fourth quarter 2023

RTX reported fourth quarter sales of $19.9bn, up 10 percent over the prior year, which included a benefit of $0.1bn related to a customer settlement. On an adjusted basis, sales* were $19.8bn, up 10 percent over the prior year. GAAP EPS from continuing operations of $1.05 was up 9 percent versus the prior year, and included $0.29 of acquisition accounting adjustments, a $0.06 benefit related to a customer settlement and $0.01 of restructuring and other net significant and/or non-recurring charges. Adjusted EPS* of $1.29 was up 2 percent versus the prior year.

The company recorded net income from continuing operations attributable to common shareowners in the fourth quarter of $1.4bn which included $394m of acquisition accounting adjustments, a benefit of $87m related to a customer settlement and $20m of restructuring and other net significant and/or non-recurring charges. Adjusted net income* was $1.8bn, down 6 percent versus prior year as adjusted segment operating profit* growth was more than offset by higher interest expense and tax expense, and lower non-operating pension income. Operating cash flow from continuing operations in the fourth quarter was $4.7bn. Capital expenditures were $805m, resulting in free cash flow* of $3.9bn.

Backlog and Bookings

Backlog at the end of the fourth quarter was $196 bn, of which $118 bn was from commercial aerospace and $78 bn was from defense.

Notable defense bookings during the quarter included:

$2.8bn for GEM-T production at Raytheon
$1.3bn of classified bookings at Raytheon
$838m for F135 sustainment at Pratt & Whitney
$443m for F119 sustainment at Pratt & Whitney
$408m for HACM development at Raytheon
$355m for F100 sustainment at Pratt & Whitney
$343m for StormBreaker production at Raytheon
$321m for Silent Knight production at Raytheon

Segment Results

The company’s reportable segments are Collins Aerospace, Pratt & Whitney, and Raytheon.

Collins Aerospace

Collins Aerospace had fourth quarter 2023 reported sales of $7,120m, up 14 percent versus the prior year. Reported sales benefited from a customer settlement. The remaining increase in sales was driven by a 23 percent increase in commercial aftermarket, a 17 percent increase in commercial OE, and a 1 percent increase in military. The increase in commercial sales was driven primarily by strong demand across commercial aerospace end markets, which resulted in higher flight hours and higher OE production rates. The increase in military sales was driven primarily by the timing of deliveries. On an adjusted basis, sales* were up 12 percent versus the prior year.

Collins Aerospace recorded operating profit of $1,126m, up 34 percent versus the prior year. The increase in operating profit was primarily driven by drop through on higher commercial aftermarket volume and favorable mix, partially offset by lower commercial OE as drop through on volume was more than offset by higher production costs. Higher R&D expenses were offset by lower SG&A. Reported operating profit included a $112m benefit from a customer settlement. On an adjusted basis, operating profit* of $1,035m was up 22 percent versus the prior year.

Pratt & Whitney

Pratt & Whitney had fourth quarter 2023 reported sales of $6,439m, up 14 percent versus the prior year. The increase in sales was driven by a 20 percent increase in commercial OE, an 18 percent increase in commercial aftermarket, and a 4 percent increase in military sales. The increase in commercial sales was primarily due to higher aftermarket volume, higher OE volume and favorable mix. The increase in military sales was driven by higher sustainment volume partially offset by lower material inputs on production programs.

Pratt & Whitney recorded operating profit of $382 m, up 25 percent versus the prior year. The increase in operating profit was primarily driven by drop through on higher commercial aftermarket volume and favorable commercial OE mix. This was partially offset by higher commercial OE volume, higher production costs, an unfavorable military contract adjustment, and the absence of a benefit from a prior year customer contract adjustment. Higher R&D expenses were offset by lower SG&A. On an adjusted basis, operating profit* of $405 m was up 26 percent versus the prior year.

Raytheon

Raytheon had fourth quarter 2023 reported sales of $6,886m, up 3 percent versus prior year. The increase in sales was primarily driven by higher volume on advanced technology and air power programs.

Raytheon recorded operating profit of $604m, up 14 percent versus the prior year. The increase in operating profit was driven primarily by higher volume and lower operating expenses, partially offset by unfavorable net program efficiencies. The prior year operating profit also included a charge of $42 m related to a divestiture. On an adjusted basis, operating profit* of $618 m was up 8 percent versus the prior year.

22 Jan 24. Leonid Capital Partners Adds to National Security Portfolio with Strategic Investment in EMPEQ. Leonid Capital Partners, a leading provider of alternative financing solutions for US Defense contractors, today announced a strategic investment in EMPEQ, a groundbreaking technology company tackling critical National Security challenges through advanced materials analysis. The facility is tailored to EMPEQ’s Air Force Direct to Phase 2 SBIR contract, underscoring Leonid’s dedication to supporting ventures safeguarding America’s defense infrastructure.

EMPEQ stands at the forefront of using computer vision and artificial intelligence to identify military parts and detect defective components. Their innovative software platform leverages cutting-edge technology to identify electronic components with unparalleled accuracy and speed. By partnering with Leonid, EMPEQ gains the financial agility needed to accelerate their crucial mission. Leonid’s debt structure, based on the overall value of EMPEQ’s Air Force contracts, provides flexible, non-dilutive capital while minimizing upfront costs.

“As a U.S. Marine, I know we put our warfighters in dangerous and compromising positions. To me, ensuring the quality of parts and components within military equipment is really about protecting my sisters and brothers in uniform,” said Herbert Dwyer, CEO and Co-Founder of EMPEQ. “Leonid recognizes the urgency of our mission and has provided us with the financial resources we need to enhance our ability to protect our troops and ensure the integrity of our military equipment.”

“EMPEQ’s work goes beyond safeguarding individual missions; it strengthens the very foundation of our national defense,” said James Parker, Managing Partner at Leonid Capital Partners. “Their innovative technology represents a paradigm shift in quality control regarding National Security supply chain, and we are proud to support their mission through our unique investment strategy.”

About Leonid Capital Partners

Leonid Capital Partners (leonidfinance.io) is a leading provider of alternative financing solutions for government contractors. The firm offers a variety of flexible financing options, including term loans, lines of credit, working capital and venture debt, all tailored to the unique needs of government contractors. https://leonidfinance.io

About EMPEQ

EMPEQ is an artificial intelligence technology company developing cutting-edge equipment and part identification and analysis solutions for critical national Hardware Supply Chain Security and energy applications. Their AI-powered platform enables rapid and accurate identification of equipment and parts, ensuring the integrity and reliability of military and critical infrastructure hardware. https://empeq.co/ (Source: BUSINESS WIRE)

22 Jan 24. Comtech Announces $45m Strategic Investment and Exchange of Convertible Preferred Stock. Comtech Telecommunications Corp. (NASDAQ: CMTL) (“Comtech” or the “Company”), a leading global technology company providing terrestrial and wireless network solutions, next-generation 911 emergency services, satellite and space communications technologies, and cloud native capabilities, today announced a $45.0m investment by current shareholders White Hat Capital Partners LP (“White Hat”), an investment firm focused on sustainable value creation in technology companies serving mission-critical applications, and funds affiliated with Magnetar, a leading alternative investment manager with over $14bn of assets under management. In connection with the investment, the Company exchanged all outstanding shares of Comtech’s existing convertible preferred stock for a new series of convertible preferred stock.

This strategic investment enhances Comtech’s financial flexibility and strengthens the Company’s ability to capitalize on its recent large contract awards and growing customer demand for its satellite communications technologies and next-generation terrestrial and wireless solutions. Comtech expects to apply the proceeds of this investment across a range of initiatives which not only support near-term working capital needs and general corporate purposes, including the repayment of certain outstanding indebtedness, but also its growth prospects. The issuance of the new series of convertible preferred stock demonstrates the continued commitment of White Hat and Magnetar, and is an important step towards the completion of the Company’s previously announced process to refinance its existing Credit Facility and further increase its financial and operational strength.

Mark Quinlan, who currently serves as an appointee of White Hat and Magnetar on the Company’s Board of Directors, will retain his position on the Board. Mr. Quinlan is White Hat’s Co-Founder and Managing Partner and has more than 20 years of experience in the technology sector. He has provided valuable insight and experience to the Board of Directors since January 2022.

“We are grateful for this investment and endorsement of our strategy and team by two of our existing long-term shareholders,” said Comtech’s Chairman and CEO, Ken Peterman. “Magnetar and White Hat understand our Company, our end markets, and the potential of our One Comtech vision. With White Hat’s investment experience within the technology sector and Magnetar’s breadth of investment experience in both private and public markets and across asset classes and capital structures, we value their continued support and are excited to strengthen our relationship with them at this key inflection point for the Company.”

“Under CEO Ken Peterman’s leadership, the entire Comtech team has made incredible progress on its One Comtech transformation,” said Mr. Quinlan. “We recognize Comtech’s potential and believe this investment further supports the Company’s commitment to developing and delivering mission-critical solutions for its customers.”

Summary of Investment Terms

White Hat and Magnetar purchased $45.0m of a new series of convertible preferred stock and exchanged all outstanding shares of Comtech’s existing convertible preferred stock for shares of the new series of convertible preferred stock. The preferred stock will be convertible into shares of Comtech common stock at a conversion price of $7.99 per share; carries a 9.00% dividend, payable in kind, or a 7.75% dividend, payable in cash, at Comtech’s election; and contains an optional redemption date of October 31, 2028. Further details will be included in the Company’s Current Report on Form 8-K to be filed with the Securities and Exchange Commission. That report will describe the investment in additional detail, including exhibits with copies of associated transaction documentation.

Paul, Weiss, Rifkind, Wharton & Garrison LLP is serving as legal advisor to Comtech and Sidley Austin LLP is serving as legal advisor to the Special Committee of the Board of Directors of Comtech. Willkie Farr & Gallagher LLP is serving as legal advisor to Magnetar and Schulte Roth + Zabel LLP is serving as legal advisor to White Hat.

18 Jan 24. Bodycote’s (BOY) prospects are heating up. Bodycote (BOY) is an apt name for a company that applies treatments to metals and alloys to make them more resilient.

Tip style

VALUE

Risk rating

MEDIUM

Timescale

MEDIUM TERM

Bull points

Strong balance sheet
Cash generation improving
Attractive valuation
Operational changes

Bear points

Manufacturing activity still weak
Margins well below previous highs
Chief executive retiring

The Macclesfield-based group’s moniker was not dreamt up by an advertising agency, though. It actually dates back to the Bodycote family, which founded the company in 1923. It started life in the textiles game, but turned to metallurgy in the late 1970s under former chief executive Joe Dwek, who oversaw a 26-year transformation.

In 1972, Dwek took control of a small organisation with 11 sites in three countries. He moved Bodycote into the heat treatment market in 1979, and by the time he retired in 1998 it was a major player, with more than 150 plants in 17 countries. A profile of Dwek by the Mersey Basin Campaign, of which he was chair, said Bodycote’s market capitalisation increased from £3m at the start of his reign to £1.4bn at the end.

Some 25 years have passed since the profile was published, but Bodycote is worth less now than it was then – its current market cap is just over £1.1bn. What went wrong?

Blowing hot and cold

Sales more than doubled between 1998 and 2022 (the last year for which accounts are available) but over a 24-year period this represents a fairly pedestrian compound annual growth rate of 3.6 per cent. There were growth spurts but also some severe periods of downsizing – especially during the global financial crisis. Between 2007 and 2009, revenue shrank by a third and Bodycote posted pre-tax statutory losses of over £100m, but the £420m sale of its testing business helped to shore up its balance sheet.

The annus horribilis that was 2020 proved equally tough. Sales dropped by 17 per cent to £598m as the Covid-19 pandemic clobbered demand from both the aerospace and automotive sectors. During this period, Bodycote cut more than 1,000 jobs, or 18 per cent of its workforce, and closed 26 plants.

Profit margins also withered. In Dwek’s last few years in charge, Bodycote’s operating margin exceeded 20 per cent. However, the last time Bodycote recorded this feat was two years after his retirement, in the first year of the new millennium.

Bodycote’s two restructuring periods were more than a decade apart, but both were overseen by current chief executive Stephen Harris, who joined in the teeth of the global financial crisis in November 2008.

The more recent shake-up was in the works prior to the pandemic. Even before Covid hit, Harris was seeking “permanent structural savings” in Bodycote’s operations, and wanted to reposition the company to reflect changes in its end markets.

Bodycote generates around a quarter of its revenue from aerospace and defence, a quarter from the automotive sector and the remaining 50 per cent from general industrial work.

In aerospace, it sought to reflect the shift by airlines away from a ‘hub-and-spoke’ model – in which planes gravitate around a central base – towards ‘point-to-point’ flying. This translated into reduced demand for large, wide-bodied planes and greater demand for narrowbodies. According to Airbus, narrowbodies will form 80 per cent of the new plane market over the next 20 years.

Similarly, in the automotive sector, Bodycote cut capacity serving combustion engine cars in western Europe and increased exposure to plants serving electric vehicle production in Eastern Europe.

Part of the plan was also to make the sites more flexible, allowing them to operate efficiently whatever the level of demand. Management wanted to invest more in Bodycote’s higher-margin, specialist technologies arm too, which uses more sophisticated processes than standard heat treatment to strengthen parts and make them more resistant to wear or corrosion.

Bodycote was starting from a good position due to the specialist nature of its processes. The engineer is either a market leader or one of very few major players that can deliver them. They also generally emit less carbon than classic heat treatment techniques, meaning it can charge more.

Pandemic recovery

Bodycote’s post-pandemic record is one of gradual improvement, even though there have been setbacks along the way. In the first half of last year, revenue grew by 17 per cent to £420m, and headline operating profit increased by 24 per cent to £62.8m. If energy surcharges imposed on customers to cover higher fuel costs were stripped out, the company’s operating margin increased by 180 basis points to 16.5 per cent.

However, sales slowed as the year progressed, with the United Auto Workers’ strike in the US blamed for falling automotive revenues. Sales to customers in emerging markets also fell by 7 per cent, which was attributed to slowdowns in China and Eastern Europe.

Perhaps this explains the market’s lack of enthusiasm for Bodycote’s shares, which have fallen in value by 15 per cent over the past 12 months. They now trade at 11 times forecast earnings, well below their five-year average of 15.3 times. Enterprise value, which accounts for debt and is the favoured metric of private equity bidders sweeping the UK for bargains, is less than six times the 2023 consensus forecast cash profit of £211m.

There are encouraging signs that sentiment is changing. Last week, broker consensus on the shares moved from ‘hold’ to ‘overweight’, according to FactSet, and long-term investor Artemis Fund Managers bought 3.67m more shares, taking its total holding to 9.65m, or just over 5 per cent of the group.

Artemis holds Bodycote shares in both its UK Select and UK Special Situations funds. The co-manager of the latter, Henry Flockhart, said that management had been focused on increasing the company’s margin potential and its return on capital employed, but pandemic-related shutdowns, the energy crisis in Europe and the chip shortage in the car industry had all caused disruptions to the business. With survey data on both sides of the Atlantic indicating that a slowdown in manufacturing activity is bottoming out, an improvement is expected.

“A recovery in end markets should lead to better operating leverage for Bodycote than the market anticipates as the headwinds over the past four years have masked the internal improvement,” he said.

Decent cash generation also adds options. Its free cash flow conversion ratio in the first half of 2023 improved to 90 per cent, from 63 per cent a year earlier, and by the end of October the company’s net debt (excluding leases) had fallen by almost £20mn to just £6.7mn.

This will increase again once Bodycote completes the acquisition of two companies in the US for $145m (£114m). Lake City HT and Stack Metallurgical are being bought for a combined multiple of around nine times their forecast cash profits for 2024 and “will be accretive to group margins and earnings per share from the first year post-completion”, management said. Their contribution is expected to exceed the company’s cost of capital from 2025 onwards.

Peel Hunt also believes Bodycote will become a more profitable business. The specialist technologies arm contributed 31 per cent of revenue in the first half of last year, up from 24 per cent in 2016, it said. Based on this and other improvements, the broker argued that the company should be capable of generating a margin of more than 20 per cent again, at least on a cash profit basis.

Harris can also be confident that he won’t need to embark on a third round of restructuring – if only because he is set to retire after the next annual general meeting in May. He will be succeeded by Jim Fairbairn, who has run several engineering businesses.

Harris hasn’t transformed Bodycote to the same extent as Joe Dwek, but he leaves the company in a much healthier position than he found it. Crucially, this isn’t reflected in the share price yet. (Source: Investors Chronicle)

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SPX CommTech, part of SPX Technologies Inc, innovates specialised technologies within the Radio Frequency (RF) spectrum to ensure a smarter, more secure future for all. Formed by TCI and ECS, SPX CommTech’s Battlespace portfolio enables defence and security teams to detect, defeat and exploit RF signals to enhance communications intelligence (COMINT) and counter unmanned aerial systems (Counter-UAS). Additionally, its Tactical Data Link portfolio allows intelligence gathering agencies, special forces, emergency response, and security teams to securely and reliably transfer video and data between enabled-aircraft and ground teams over long distances for airborne Intelligence, Surveillance, Reconnaissance (ISR). For more information visit www.tcibr.com and www.enterprisecontrol.co.uk

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