Industry Week in Review – January 31, 2014

Multiple aerospace and defense earnings results for fiscal quarters ending December 31st, 2013 were released this week with general positivity across the board within both sectors.  Aerospace companies reported exceptional results riding on the momentum of record numbers of year-end deliveries, new orders, and backlogs.  Boeing reported 4Q13 revenue of $23.8 billion, driven by surges in deliveries and accelerated production rates, which beat analyst estimates of $22.5 billion by almost 6%.  Although the Bipartisan Budget Act of 2013 did not directly impact latest fiscal quarter earnings for defense contractors, defense shares still performed relatively well against analyst estimates due to operational efficiencies that helped maintain consistent margins.  L-3 Communications’ $3.3 billion in fiscal fourth quarter revenue beat estimates by 3% and the company’s increased international sales, as well as operating margin improvements through facility consolidations, led to fiscal quarter earnings of $2.17 per share, beating analyst estimates of $1.98 by nearly 10%.  Some defense companies looking forward however are projecting that 2014 may mark a bottom in terms of revenue as Raytheon revised their 2014 revenue forecast to a range between $22.5 and $23 billion, down from the company’s 2013 revenue of $23.7 billion.

In the government services space, CACI International (“CACI”) also released its earnings this week, announcing a 9% year-over-year decline in 2Q2014 revenue, the completion of its Six3 Systems acquisition, and, increased FY2014 guidance.  Unseasonably high operating margins, driven by lower bonus compensation expense and high award fees in the quarter, are expected to return to normal levels for the remainder of FY2014.  The company noted that its 2013 acquisitions of IDL and Emergint contributed approximately $10-15 million of revenue for the quarter.  Additionally, 25% of the contract awards CACI won this quarter, valued at $717 million, came from new business wins.

Big Movers

Alliant Techsystems, Inc. (Up 10.2%) – Shares were up this week after the Company announced an exceptionally profitable fiscal quarter reporting earnings per share of $2.87, 44% above analyst estimates of $2.00 per share.

Triumph Group Inc. (Down 11.1%) – Shares were down this week after the Company announced disappointing fiscal quarter results including revenue and earnings per share 5% and 19% below analyst estimates, respectively, leading to a decreased 2014 revenue forecast.

Relevant Transactions

MacAulay-Brown, Inc. acquired Commonwealth Technology, Inc., a provider of specialized hardware and mission support for defense, intelligence, and security community customers.  Terms of the deal were not disclosed.(1)

AMTEC Corporation acquired Chemring Energetic Devices, Inc.’s Clear Lake Operations(1), a provider of research, design and development, manufacturing, and lifecycle support of energetic materials and systems for missiles, munitions, space, and ammunition.  Terms of the deal were not disclosed.

Insight Equity Holdings acquired Midstate Berkshire, Inc., a provider of precision contract machining, fabrication, and assembly services for the aerospace, defense, power, and oil and gas industries.  Terms of the deal were not disclosed.(1)

(1)    KippsDeSanto & Co. acted as financial advisor to Commonwealth Technology, Inc. and Chemring Group plc

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