Aerospace and defense company Alliant Techsystems Inc. (ATK) announced operating earnings of $2.24 per share for its first-quarter fiscal 2011 ended July 4, 2010, which surpassed the Zacks Consensus Estimate of $1.96. The results also exceeded $2.09 per share reported in the year-ago quarter.
Total Revenue
Total revenue of Alliant during the quarter decreased 0.6% to $1,202.1 million from $1,209.1 million in the year-ago quarter. The reported revenue, however, met the Zacks Consensus Estimate of $1,201 million.
The company experienced a year-over-over decline in two segments, while its two other segments witnessed growth.
Aerospace Systems sales decreased 11% from the year-ago quarter to $369 million. The decline in sales from this segment was due to lower sales on the Space Shuttle’s Reusable Solid Rocket Motor program as it completes its production run, lower volume on the Minuteman III program and the cancellation of a government satellite program.
Missile Products sales in first-quarter fiscal 2011 were $156 million versus $177 million recorded in the prior-year quarter. The decline was due to lower sales on NASA’s launch abort system and a missile interceptor program, which was partially offset by higher sales on defense electronics programs.
Armament Systems sales in first-quarter fiscal 2011 increased 9% year over year to $439 million. The improvement was driven by continued strength in military small-caliber ammunition, higher sales of energetics products, and revenues from the group’s precision mortar program.
Security and Sporting sales in first-quarter fiscal 2011 grew by 11% to $238 million, compared with $215 million in the prior-year quarter. The growth in demand in commercial, law enforcement, and international markets, and increased sales of accessories associated with the acquisition of Blackhawk led to improved sales.
Operational Update
Total operating expenses of Alliant fell by 7.2% over the prior-year quarter, and so did operating expense as a percentage of total revenue. The year-over-year reduction in expenses was primarily due to cost-management initiatives and operating efficiency improvements across the company.
Accordingly, the operating margin of the company improved by 20 basis points from the year-ago quarter despite higher pension expenses.
Alliant’s interest expenses declined 15.5% during the reported quarter to $17.7 million from $20.9 million in the year-ago quarter. The reduction in interest expenses indicated a decline in debt levels of the company.
Financial Update
Total cash and cash equivalents as of July 4, 2010, were $91.9 million versus $154.9 million as of July 5, 2009.
Alliant spent approximately $35 million on capital expenditure in the quarter, up from $32.2 million in the prior-year quarter.
Outlook
Alliant now expects total revenue in fiscal 2011 to range between $4.775 billion and $4.85 billion, up from the previous range of $4.75 billion to $4.85 billion. The new guidance takes into account the impact of an improving NASA business.
The company also raised the earnings guidance for fiscal 2011 to $8.50–$8.80 per share from $8.00–$8.50 per share earlier. The new guidance takes into consideration the possible benefits from efficiency and margin-improvement initiatives and a lower-than-expected tax rate for the full year.
The average tax rate for the full year is now expected to be 30%, down from the previous level of 34%.
Free cash flow for the full year is expected to range between $275 million and $300 million and capital expenditure for the year is expected to be $120 million.
Our View
It is encouraging to see that effective cost management has aided the company in improving its margins during the quarter despite a decline in the topline. However, it would be interesting to see whether expense containment can provide the same degree of tailwind over rest of the year.
We retain a short-term Zacks #4 Rank on the stock, which translates into a Sell rating.
Based in Minneapolis, Minnesota, Alliant Techsystems supplies aerospace and defense products to the United States government agencies. The company also supplies ammunition and related accessories to law enforcement agencies and commercial customers.
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