DRS ONWARDS AND UPWARDS – LED BY ELECTRONIC SYSTEMS
12 Feb 04. The strategy put in place five years ago by DRS CEO Mark Newman and his team is paying off with continued strong growth in sales and profitability. He indicated a pause in expansion by acquisition in his interview with BATTLESPACE last year of about 18 months while the company grows internally, and this is now showing through.
On Thursday DRS reported its quarterly profit rose 57 percent on higher military spending and an acquisition. The defense technology company reported earnings for the fiscal third quarter ended Dec. 31 of $11.6m, or 45 cents per share, compared with $7.4m, or 41 cents a share, in the year-ago quarter.
Revenue soared 68 percent to $280.6m, boosted by DRS’s $540.7m purchase of Integrated Defense Technologies Inc. and strong sales of its infrared sighting and targeting systems. Demand for products and services increased funded backlog, a measure of unfilled orders, to a record high. Backlog had soared 51 percent to $1.27bn at the end of the quarter. Looking ahead, the company forecast fourth-quarter earnings in a range of 52 cents to 55 cents a share, on revenue of $310m to $325m. For the fiscal year ending March 31, the company raised its earnings outlook to a range of $1.71 to $1.74 a share, on revenue of $960m to $975m.
DRS had earlier forecast full-year earnings of $1.68 to $1.71 per share.m Analysts, on average, have forecast fourth-quarter earnings of 54 cents a share, and full fiscal-year profit of $1.69 per share.
“DRS’s results for the third quarter of fiscal 2004 were outstanding, with strong performance reported in all major metrics by each of our operating segments,” said Mark S. Newman, chairman, president and chief executive officer of DRS Technologies. “With new records achieved for the period in sales and profitability, and robust new order flow enhanced by backlog from Integrated Defense Technologies acquired during the quarter, the company is well positioned for a solid fourth quarter and a strong finish to the fiscal year.”
New Contract Awards and Backlog
DRS secured a third quarter record of $355.9m in new orders for products and services during the period, reflecting an increase of 52 percent above $234.1m million in bookings for the comparable prior-year period. For the first nine months of fiscal 2004, the company was awarded $769.7 million in new contracts, 53 percent higher than the same nine-month period in the previous year. Funded backlog at December 31, 2003 climbed to $1.27bn, 51 percent above backlog of $844.0m at the end of the third quarter of fiscal 2003 and 46 percent higher than backlog of $867.1 million at March 31, 2003, the company’s previous fiscal year end.
Balance Sheet Highlights
At December 31, 2003, the company had $29.7m in cash and cash equivalents. Total debt on December 31, 2003 was $593.5m, compared with $225.1m at the end of fiscal 2003. During the quarter, the company completed an offering of $350m in 6.875 percent senior subordinated notes due 2013. DRS used the net proceeds from the offering, together with a portion of its available cash and initial borrowings under an amended and restated credit facility, to fund the acquisition of Integrated Defense Technologies during the period, to repay certain of the company’s and Integrated Defense Technologies’ outstanding indebtedness, and to pay related fees and expenses.
Segment Results
DRS’s Electronic Systems Group reported substantial increases in all major metrics for the third quarter of fiscal 2004. Sales of $122.9m were up 53 percent from $80.2m a year ago, and operating income of $11.8m was an 82 percent improvement over $6.5m for the same prior-year period. The increases were due primarily to the benefit of a full three months of operations from the company’s tactical computer systems business, as a result of the company’s November 2002 acquisition of Paravant Inc., higher organic performance in