Industry Week in Review – August 1, 2014

Aerospace & Defense Update

Boeing recently released its second quarter earnings report, highlighted by a 1% rise in revenue and a 52% rise in net earnings compared to the same period last year.  The Company announced earnings per share of $2.42, beating analysts’ estimates of $1.99 by a considerable margin.  For 2014, the Company now projects full-year earnings in the range of $7.90 – $8.10 per share, up from the previous estimate of $7.15 – $7.35 per share.  Notable accomplishments during the quarter include the delivery of its first 787-9 aircraft and its 8,000th 737.  Although the company’s commercial airplanes segment boasted strong performance, its defense segment witnessed declining revenues compared to the second quarter last year, a common trend throughout the defense industry.  Furthermore, Boeing disclosed a design flaw in its KC-46A aerial refueling tanker that is costing the Company an additional $272 million.

A number of flight restrictions placed on the F-35 Joint Strike Fighters were lifted earlier this week.  The Pentagon relaxed speed restrictions on the aircraft from Mach 0.9 to Mach 1.6 and eased maneuverability limits from 3 Gs to 3.2 Gs.  Other restrictions, stemming from a June 23rd engine fire on an F-35, are still in place and threaten to delay the initial operating capability dates for the jet.  Despite a number of setbacks, top Air Force generals continued to express confidence in the aircraft.  General Mark Welsh praised the jet saying, “The F-35 is the answer, the only answer, to ensure future air campaigns are not a fair fight.”  The F-35 program was also defended by General Michael Hostage who proclaimed the U.S. will “have a fleet that will defend this country as far into the 2030s as we expect it to.”

Government Technology Solutions Update

On July 28th the House passed the National Cybersecurity and Critical Infrastructure Protection Act, a conglomerate of three bills designed to enhance public-private information sharing and expand cybersecurity efforts in the Department of Homeland Security (“DHS”).  The bills require that cybersecurity systems be updated regularly, allow entities to submit cybersecurity procedures to gain liability protection, and facilitate real-time sharing of cyber threat information between the DHS and critical industries.  Additionally, the Act intends to strengthen cyber security personnel efforts by issuing a standard classification for cyber activity employees, and using these classifications to fill in any gaps in DHS’ workforce.

The National Geospatial-Intelligence Agency is developing a new pilot program, the GEOINT Solutions Marketplace (“GSM”), to expand industry partnerships and facilitate a faster acquisition cycle for capabilities.  The GSM will be used to send out a needs statement to vendors, allow vendors to respond with their proposed solutions and capabilities, and provide an online environment where capabilities can be demonstrated.  This system will allow the industry, and especially small businesses with niche capabilities, to address broader problems that a single company may not be able to handle alone.

Big Movers

Ducommun, Inc. (Up 18.1%) – Shares were up this week after the Company announced a strong fiscal second quarter, reporting a 17.6% increase in net income over the same period last year.

KEYW Holding Corporation (Down 17.7%) – Shares were down this week after the Company released its quarterly earnings, missing both earnings per share and revenue projections.  The Company missed analysts’ earnings estimates by $.02 per share, and posted revenue of $74.2 million, a decrease of 5% versus the same period last year.

Relevant Transactions

Undisclosed Buyer to acquire Rockwell Collins Inc.’s Satellite Communications Business, a designer and manufacturer of mobile satellite communications systems for military, government, and commercial markets.  The deal is worth an estimated $10 million.

Precision Aviation Group, Inc. acquired Aviation Controls, Inc., a provider of maintenance, repair, and overhaul services for engine accessories, specializing in components for GE J-85, Honeywell LTS-101, and Rolls Royce 250 engines.

BAE Systems plc to acquire Signal Innovations Group, Inc., a provider of decision systems for various sensor and data types for government customers and industry partners in national security, public safety, and commercial surveillance sectors.  Terms of the deal were not disclosed.

Novetta Solutions, LLC acquired Global News Intelligence, a provider of sentiment and influence analytics that supports commercial and government clients in the U.S. and abroad. Terms of the deal were not disclosed.

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