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DRS BEATS WALL STREET EXPECTATIONS

05 Aug 03. DRS Technologies Inc. beat Wall Street expectations for its first quarter, as revenue rose 27% from a year ago. DRS earned $7.3m, or 32 cents a share, in its latest quarter, above analysts’ expectations of 29 cents a share. The company earned $5.4m, or 31 cents a share, a year ago. Fiscal first quarter revenue was $167.2m, up from $131.2m a year ago.

Chairman and Chief Executive Mark S. Newman said the company’s first quarter was driven by its electronic systems segment. Newman also noted that backlog was about $900m at the end of the quarter. The Electronic Systems Group posted a sales increase of 135% to $81.9m and operating income of $8.4m, up from $1.3m a year ago.

DRS’s Electronic Systems Group reported substantial increases in all major metrics for the first quarter of fiscal 2004, exceeding company expectations. Sales of $81.9m were up 135 percent from a year ago, and operating income of $8.4m was significantly higher than the $1.3m of operating income for the same prior-year period. The increases were due primarily to the addition of programs associated with the company’s fiscal 2003 acquisitions of three power systems businesses and a tactical computer systems business, coupled with improved program performance at the group’s United Kingdom DRS Tactical Systems unit, which posted an operating loss for the same period last year. The group’s 10.3 percent operating margin was a significant improvement over the 3.8 percent operating margin reported for the first quarter in the prior year. Bookings of $100.5m contributed to record funded backlog of approximately $446.0m at June 30, 2003.

DRS’s Electro-Optical Systems Group posted revenues of $65.7m for the first quarter, 6 percent lower than sales of $69.5m in the prior year, in line with company expectations for the first quarter. Revenues were led by certain ground and airborne electro-optical sighting system product lines, offset primarily by a decline in sales for Horizontal Technology Integration (HTI)-related products, electro-optical manufacturing services, maritime systems and remote sensing technology. Operating income of $6.2m reflected a healthy 9.5 percent operating margin, though lower than last year’s exceptionally strong first quarter operating margin of 14.0 percent, which included a favourable contract mix. The group’s fiscal 2004 first quarter results also reflected higher operating margins on certain ground vehicle and airborne sighting system programs, due to their transfer to and integration with existing company facilities, resulting in decreased costs. A five percent increase in new orders totalling $74.9m contributed to funded backlog of $318.0 million at the end of the period.
DRS expects second-quarter revenue to rise between 21% and 24% from the year- ago period to between $195m and $200m, yielding earnings between 38 and 40 cents a share. For the year, DRS backed its earlier guidance for revenue between $800m
and $815m, with earnings between $1.65 and $1.68 a share.

Comment: DRS is looking strong rights across the board with electronics systems in particular powering ahead. We will be running an interview with mark Newman CEO of DRS in our AUSA issue.

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