Aerospace and defense company Alliant Techsystems Inc. (ATK) announced operating earnings of $2.09 per share for its third-quarter fiscal 2011, which surpassed the Zacks Consensus Estimate of $1.98. However, the company’s quarterly earnings fell below the year-ago earnings by 24 cents per share.
Total Revenue
Net quarterly revenue of Alliant remained relatively flat at $1.13 billion compared with $1.14 billion in the year-ago quarter. Quarterly revenue was also marginally below the Zacks Consensus Estimate of $1.17 billion.
Alliant’s relatively stable revenues compared to last year were mainly due to strong sales growth in two of its segments, while two other segments witnessed decline.
Armament Systems sales in the reported quarter increased 8.3% year over year to $431.5 million. The improvement was driven by small-caliber ammunition, medium-caliber gun systems, and non-standard weapon sales, partially offset by lower sales of medium-caliber ammunition and lower funding for revamp.
Security and Sporting sales in third-quarter fiscal 2011 grew by 24.7% to $208.6 million compared with $167.3 million in the prior-year quarter. The improvement was due to higher sales from commercial ammunition and tactical equipments, including $21 million of new sales from the recently acquired BLACKHAWK! business.
Aerospace Systems sales decreased 16.6% from the year-ago quarter to $321.3 million from $385.2 million. The decline was due to lower sales on the Space Shuttle’s Reusable Solid Rocket Motor program, and lower sales on the Ares I program.
Missile Products sales in third-quarter fiscal 2011 were $167.9 million versus $190.8 million recorded in the prior-year quarter. The 12.0% year-over-year decline was due to lower sales of NASA’s launch abort system and special mission aircraft.
Operational Update
Total operating expenses of Alliant declined 6.8% over the prior-year quarter driven by the company’s cost management initiatives, which run across the company. The year-over-year decline in expenses was a result of 13% decline in general and administrative expenses, and a 21% decline in R&D expenses.
Lower operating expenses in the quarter slightly offset the revenue decline, giving way to a 7.3% decline in operating income of the company. Alliant’s interest expenses increased 40.8% during the reported quarter to $25.2 million from $17.9 million in the year-ago quarter.
Financial Update
Total cash and cash equivalents as of January 2, 2011, were $467.9 million versus $385.8 million as of January 3, 2010.
Cash flow from operating activities summed to $126.7 million for the nine months ended January 2, 2011, compared with $139.7 million as of January 3, 2010. Alliant spent approximately $73.0 million on capital expenditure for the nine month period, down from $99.3 million in the prior-year period.
Outlook
Given the company’s cost containment efforts, Alliant reaffirmed its fiscal 2011 sales and EPS guidance. The company continues to expect full-year sales in a band of $4.775 – $4.85 billion. For fiscal 2011, the company’s EPS guidance remains in the $8.90 – $9.10 range.
Alliant pegged its full-year interest expense at $88 million and lowered its expectations for the full-year tax rate to 29%, from 30% stated previously. Pension expense is still expected to be roughly $130 million and average share count still at roughly 34 million.
Free cash flow for the full year is expected to range within $275 – $300 million with capital expenditures of roughly $120 million. Net cash provided by operating activities will be in the range of $395-$420 million for fiscal 2011.
Our View
Despite the not so good sales numbers in the third quarter, we expect the company’s organic growth prospects and cost containment initiatives to hold good for the company in the near-term. Based on these positive attributes, we expect the company to meet its targets for fiscal 2011.
Alliant Techsystems currently retains a Zacks #3 Rank (short-term Hold rating).
Minneapolis, Minnesota-based Alliant Techsystems supplies aerospace and defense products to government agencies in the United States. The company also supplies ammunition and related accessories to law enforcement agencies and commercial customers. Primary competitors of the company include General Dynamics Corp. (GD) and Raytheon Co. (RTN).
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