Industry Week in Review – November 28, 2014
Aerospace & Defense Update
This week saw two transformational leadership announcements. Defense Secretary, Chuck Hagel, resigned from office Monday afternoon in a move prompted by weeks of disagreement with the current Administration. The recipient of two purple hearts reportedly found fault with what he saw as indecisiveness by the White House Security Council. The transition comes as the military advance of the Islamic extremists in Iraq and Syria has prompted fundamental reassessment of U.S. defense policy. Hagel will remain in office until his successor takes office which will likely not occur until early 2015. Initial replacement candidates included Michele Flournoy, a former undersecretary of defense, and Senator Jack Reed of Rhode Island; however, both have declined in order to fulfill other duties. This has left Ashton Carter, a former deputy defense secretary as the leading candidate for succession.
Secondly, United Technologies Corporation CEO, Louis Chenevert, suddenly stepped down in an act which stunned investors. Although the move was not attributed to financial performance, it cannot be fully ruled out as shares have dropped 3.1% this year. During his six year tenure, Chenevert led the company through its acquisition of Goodrich Corporation and reshaped its building-services business lines by combining Otis elevators, Carrier climate-control, and its fire and security divisions. The 25-year veteran of UTC will walk away with about $172 million in vesting options, performance-based restricted-stock awards, and a pension. The Board of Directors chose current CFO, Gregory Hayes to succeed Chenevert. The bold move suggests that the Company will undergo strategic assessment and change in the future with a growing likelihood that focus will shift towards the building services side.
Government Technology Solutions Update
The General Services Administration (“GSA”) is preparing to launch the second generation of the Veterans Technology Services (“VETS”) contract. VETS is used by Federal agencies to purchase a wide range of IT products and services from service-disabled, veteran-owned small businesses and makes it easier for agencies to meet socio-economic category goals. The GSA is currently involving VETS stakeholders in the development of the follow-on vehicle to align VETS II with agency IT needs.
The Department of Veteran Affairs (“VA”) released a request for information (“RFI”) for a commercial off-the-shelf (“COTS”) patient scheduling system. The COTS solution would replace the current system which has been partially blamed for long physician wait times. Additionally, it will integrate with the existing Veterans Health Information Systems and Technology Architecture (“VistA”) to better coordinate Veteran care.
Big Movers
Cubic Corporation (Up 11.4%) – Shares were up this week after the Company announced fourth quarter and full year 2014 earnings. Cubic reported $1.22 earnings per share, beating estimates of $.94, and record fourth quarter sales of $396.4 million.
AeroVironment (Down 6.4%) – Shares were down this week after the Company reported a double-digit decline in income for the year and inferior gross margins.
Transactions
ATLAS North America LLC acquired assets of Marine Sonic Technology Ltd., a developer and manufacturer of ultra-high resolution side scan sonar systems. Terms of the deal were not disclosed.
U.S. private equity firm to acquire G4S Government Solutions, Inc., to be rebranded as Centerra Group, LLC, a provider of protective services to the Federal Government. The deal is worth an estimated $135 million.
