Industry Week in Review – February 8, 2013

In a memo submitted by the Army to the Secretary of Defense outlining its plans to implement spending cuts under sequestration and a continuing resolution, the service pointed to a number of operational impacts that could occur under both scenarios.  The Army estimated that sequestration would cut $5.3 billion from its Operations & Maintenance account, while a continuing resolution would reduce funding by another $6 billion.  The decrease in funding could affect contracts serviced by about 300 contractors and 1,000 suppliers in 40 states. 

The memo also noted that it could take as long as 150 days to restart contracts that had been shut down.  This could create an issue for FY14 procurement as acquisition managers would be overburdened with FY13 contract re-negotiations.  The defense services’ reports come ahead of the DoD’s testimony to the House and Senate Armed Services Committees, which will include the service heads, Deputy Secretary of Defense Ashton Carter, and DoD Comptroller Robert Hale.

Big Movers

FLIR Systems (Up 12.2%) – shares were up for the week following the company’s release of 2012 earnings and updated 2013 guidance.  The Company announced 2012 EPS of $1.45, compared to $1.38 in 2011.  Revenue, however, decreased 9% from $1.5 billion in 2011 to $1.4 billion in 2012.  FLIR provided guidance for 2013 EPS growth of 8% – 14% to $1.56 – $1.66 for the year.

KeyW Corporation (Down 13.1%) – shares were down for the week following fourth quarter earnings that missed expectations.  Although revenue jumped 48% to $74.2 million, EPS was break even per share.

CPI Aerostructures (Down 16.5%) – shares were down for the week following the Company’s release of preliminary 2012 results and postponement of 2013 guidance.  Despite achieving revenue growth of 21% and EPS growth of 37% over 2011, the Company missed expectations and provided a cautious outlook.  It announced that it believes 2013 revenue and earnings will fall back down to 2011 levels, driven in large part by the threat of sequestration.

Relevant Transactions

Drew Marine acquired Alexander/Ryan, a manufacturer, distributor, and safety certification provider for maritime and offshore safety equipment, for an undisclosed amount.  The acquisition will expand Drew Marine’s product offerings in maritime safety, fitting into its strategy of growth in the offshore industry.

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