Aerospace and defense company Alliant Techsystems Inc. (ATK) announced operating earnings of $2.28 per share for its third-quarter fiscal 2012 ended January 1, 2012. Results exceeded the Zacks Consensus Estimate of $2.02 but fell short of the year-ago earnings of $2.54 per share.
GAAP earnings in the quarter were $1.51 per share versus $2.09 in the prior-year quarter.
The difference between GAAP and operating earnings in the reported quarter was due to a $25 million (77 cents) impact from a lawsuit related to the manufacture of LUU flares.
Total Revenue
Alliant’s total revenue fell 1.1% to $1,117.5 million from $1,129.3 million in the year-ago quarter. Reported revenue also lagged the Zacks Consensus Estimate of $1,132 million.
Segment-wise Revenue
Aerospace Systems sales decreased 6.2% from the year-ago quarter to $301.5 million. The decline was due to lower sales on NASA human space flight programs.
Armament Systems sales in third-quarter fiscal 2012 dropped 6.4% year over year to $403.6 million. The downside resulted from lower sales of medium-caliber guns. Besides, the absence of modernization funding at the Radford Army Ammunition Plant and Lake City Army Ammunition Plant impacted the results.
Missile Products sales were $168.9 million, up 0.6% year over year. The increase was mainly due to higher sales in missile defense programs.
Security and Sporting sales grew 16.5% to $243.6 million, compared with $208.6 million in the prior-year quarter. The growth in revenue reflects stronger domestic and international demand for commercial ammunition.
Operational Update
Total operating expenses of Alliant increased by 31.2% over the prior-year quarter. The year-over-year rise in expenses was primarily due to an increase in research and development as well as general and administrative expenses.
The reduction of total revenue along with the increase in total operating expenses affected the operating income of the company, which decreased 16.6% year over year to $105.4 million from $126.4 million in the year-ago quarter.
Alliant’s net interest expenses decreased 21.6% during the reported quarter to $19.7 million from $25.2 million in the year-ago quarter.
Financial Update
Total cash and cash equivalents as of January 1, 2012, were $355.48 million versus $702.27 million as of March 31, 2011.
Alliant spent approximately $97.6 million on capital expenditure in the first nine months of the fiscal compared with $72.98 million in the prior-year period.
Long-term debt at quarter-end was $1.280 billion, down marginally from $1.289 billion at the fiscal-end 2011.
Outlook
After the completion of the first nine months of fiscal 2012, the company narrowed its projection for the full year having considered the impacts of $33 million from the LUU flares accrual and lower margins within its Security and Sporting group.
Alliant now projects fiscal 2012 sales at $4.6 billion, down from the earlier range of $4.6 billion to $4.7 billion.
Alliant also trimmed its earnings forecast for fiscal 2012 to the range of $7.65-$7.75, down from the previous expectation between $8.50 and $9.00 per share.
The company expects to generate free cash flow in the range of $225-$250 million, with capital expenditures of approximately $130 million in fiscal 2012.
Peer Comparison
General Dynamics Corp. (GD), which competes with Alliant, reported fourth quarter 2011 earnings from continuing operations of $2.20 per share, surpassing the Zacks Consensus Estimate of $2.00. Results also comfortably exceeded earnings of $1.91 in the year-ago quarter.
General Dynamics generated total revenue of $9.1 billion in the reported quarter versus $8.6 billion in the year-ago quarter, reflecting a growth of 6.3%.
Reported quarterly revenue however failed to meet the Zacks Consensus Estimate by $206 million.
Our View
Alliant Techsystems’ margins during the quarter were impacted by consumers’ decision to purchase lower priced and lower margin ammunition products.
We believe the decision of the company to modify its reporting segments, effective fiscal 2013 is an excellent strategic decision. Alliant’s new reporting segments will be Aerospace Group, the Defense Group, and the Sporting Group. These modifications were directed to increase competitiveness and ensure long-term growth of the company.
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. We presently retain a short-term Zacks #4 Rank on the stock, which translates into a Sell rating.
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