Yes, it’s that time again. Obviously, the results below are extremely brief, and we’ve now added Boeing and Raytheon. Full statements and figures can be found at each of the linked URLs:
Boeing Company. Boeing’s overall revenue rose 15% to $61.5 billion reported and earnings were up 7% to $3.014 billion, but a slight decline in operating margins dropped reported net income by 14%; on the other hand, record operating cash flow of $7.5 billion offers strong liquidity, and commercial aircraft sector sales, backlog, et. al. remain very strong. Boeing’s stock price rose after the release. Boeing Integrated Defense Systems (IDS) also had its ups and downs; revenues were up 4% to a record $32.4 billion, but problems with its 737 AEW&C program and associated penalties in Turkey and Australia were visible on the bottom line. While Boeing IDS operating margins absent divestitures were higher in 2006 than 2005, the hit to “Precision Engagement & Mobility Systems” dropped the 2006 figure to 9.3% vs. 12.6% in 2005 (including divestitures) despite gains from F-15 fighter sales and H-47 helicopter contracts. Network and Space Systems saw a 2% revenue decrease and 32% earnings decrease from 2005, while Support Systems which includes the C-17 GSP and other offerings was the only solid winner with revenues up 14% and earnings up 9%. See Q4/2006 results release [PDF format] | Webcast | Financial Slide Presentation [PDF format].
General Dynamics. Earnings from continuing operations for 2006 grew by 18.1% to $1.71 billion, or $4.20 per share on a fully diluted basis, compared with earnings of $1.45 billion ($3.58 fully diluted) in 2005. Revenue for the full year of 2006 increased 14.7% to $24.1 billion, compared with $21 billion for 2005.
Lockheed Martin. Net earnings for the year ended December 31, 2006 were $2.5 billion ($5.80 per share), compared to $1.8 billion ($4.10 per share) in 2005. Net sales were $39.6 billion, up 6% from $37.2 billion. Cash from operations was $3.8 billion, and Return on Invested Capital (ROIC) was 19.2% compared to 14.5% in 2005.
Northrop Grumman. Income from continuing operations for 2006 rose 13% to $1.6 billion ($4.44 per diluted share), from $1.4 billion ($3.83 per diluted share) in 2005. Sales for 2006 were comparable to 2005. Net income for 2006 rose 10 percent to $1.5 billion ($4.37 per diluted share), from $1.4 billion ($3.85 per) in 2005. Total operating margin for 2006 increased 12% to $2.5 billion from $2.2 billion, driven by higher operating margin in all 4 of the company’s businesses, and double-digit percentage increases in Information & Services and Ships operating margin.
Raytheon: Total 2006 net sales were $20.3 billion, up 7% from $19.0 billion for 2005. In 2006, net income rose 47% to $1.283 billion ($2.85 per diluted share) vs. $871 million ($1.92 per diluted share) in 2005. Improved operating results at Integrated Defense Systems, Missile Systems and Network-Centric Systems combined with lower net interest expense and a reduction in pension expense, brought income from continuing operations up 35% to $1.107 billion ($2.46 per diluted share) compared to $818 million ($1.80) in 2005. Net income for 2006 included $176 million of income from discontinued operations, and Raytheon’s sales of its civil aircraft division was factored in to the way it reported its results, as well as the results themselves. See release for details.
The Seattle Post-Intelligencer reports that ScanEagle UAV makers The Insitu Group of Bingen, WA just received $23 million in venture capital financing from Battery Ventures, Second Avenue Partners and others. The firm has grown quickly since 1992, posting revenues of $25 million last year after a UAV it developed to monitor tuna schools and dolphins turned out to have exactly the characteristics that the Marines were looking for. A partnership with Boeing firmed up their marketing channels, and the US Navy has also deployed these UAVs on the HSV-2 high-speed catamaran and the LPD 14 USS Trenton amphibious support ship, where it has been used to help protect oil platforms in the Persian-Arabian Gulf.
To date, the paper reports that Insitu has produced 190 aircraft. The article offered the interesting tidbit that the UAVs are designed to last about 2,000 flight hours, but crash landings, system failures, and weather-related mishaps have ensured that none of their military UAVs have hit that target yet. Interest in the $100,000 UAVs remains high, however, including the possibility that Canada may appreciate their land and naval versatility enough to select the ScanEagle in its mini-UAV competition. Insitu is currently developing additional UAV platforms, including the SeaScan and GeoRanger for commercial and research purposes. Readers are invited to peruse the newspaper article for further details.
Both BAE Systems and EADS have confirmed that BAE has initiated a discussion on the potential disposal of BAE Systems’ 20% stake in Airbus.” Negotiations were described as being in “the very early stages”; BAE’s 20% holding is valued at EUR 3.5 billion ($4.3 billion) in EADS’s books, but The Scotsman newspaper noted that analysts expect any sale to be worth GBP 3.0-4.5 billion ($5.2-7.8 billion at current conversion). EADS adds that the initiation of these discussions does not represent an exercise of the put option held by BAE Systems in relation to this stake.
More details regarding the potential deal, its military procurement significance, and some analysis regarding both its strategic implications and BAE’s future options can be found below… along with updates as the deal progresses.
EADS’s two biggest corporate shareholders, DaimlerChrysler and Lagardere SCA, announced on April 4, 2006 that they’re each selling 7.5% stakes in EADS in simultaneous transactions. Bloomberg reports that the transaction is valued by sale managers JP Morgan Chase & Co. and Morgan Stanley at about EUR 2.5 billion ($3.02 billion at current conversion).
French defense electronics group Thales announced a modest 2.5% rise in net profit for 2005 to EUR 334 million, while announcing plans to go on the offensive in foreign markets with a EUR 1 billion ($1.19 billion at current conversion) fund for acquisitions. In its news release, Thales noted that its “ambition, as compared to its current position, is to achieve, by 2008, a 25 percent growth in revenues, 15 percent from organic growth and the remainder through acquisitions”.
The firm may already have begun. In December, DID covered Thales’ deal with French state-owned naval shipyards DCN, giving it a 25% stake in the company (note that Thales is itself 31.3% owned by the French state). The company also revealed its intention to buy the 50% of Australia’s ADI recently, conditional on the approval of Australia’s Foreign Investment Review Board (see ADI release, PDF format). This would complete its takeover of Australia’s largest military manufacturer, and extend the firm’s drive to expand its Pacific Rim operations and sales.
European defense industry giant EADS recently announced its FY 2005 results. Amidst a year that saw it close out a deal for 10% of Russia’s SU-30 source Irkut Corp., buy Atlas Elektronik from BAE, and open an Alabama facility to help it focus on the US market, Revenues were up only 8% to EUR 34.2 billion. Yet EBIT pre-goodwill impairment and exceptionals was up 17% to EUR 2.85 billion, and Net Income rose 39% to EUR 1.7 billion. EADS’ Airbus civil aircraft segment was largely responsible for these results, accompanied by a combination of modest gains and modest losses in its defense and space businesses. EADS Eurocopter, which includes military and civilian aircraft but is tilted toward the civilian side, saw EBIT rise about 6% to EUR 212 million while revenues increased by 15% to EUR 3.21 billion.
EADS also announced that FY 2006 revenues were expected to exceed EUR 37 billion, with 2006 EBIT expected to grow to between EUR 3.2-3.4 billion. See the full release for complete figures and more in-depth breakdowns.
Andrew Leckey has some interesting observations about the US defense industry as a whole right now. The hot tickets, he says, are information technology, communication, and high-tech equipment designed to assist soldiers in the field. These trends have helped drive recent acquisitions of defense IT firms (CACI International Inc. – Information Systems Support Inc.; General Dynamics – Anteon International Corp.; L-3 – Titan; Lockheed Martin – Aspen Systems Corp.; ManTech – Gray Hawk; et. al.).
He also quotes some analysts who see the small-mid cap defense technology companies outperforming large caps throughout the whole cycle of upturns and downturns in defense spending. Acquisitions drive that, too, and are are driven in turn by US government procurement policies. Some create set-asides for small businesses, which drives the consistent formation of new companies. These set asides also encourage cooperation with larger defense firms via strategic partnering, which is given a further boost by contract vehicles like NetCents. These smaller firms may get bought by larger firms in time, and so the cycle continues. Additional thoughts on key sectors, stocks to watch, and industry performance can be found in the article itself: “Tech Firms Big Guns In Defense Sector” (defunct) | FindArticles.com version | RedOrbot version.
UPDATE: The acquisition trend has continued; between the March 2005 selection of firms eligible to compete for the $20 billion ITES-2 contract, and its final resolution of awards in November 2006, 3 of the 17 firms on the original short list had been acquired by larger firms.
Over the past couple of weeks, the major American defense manufacturers have announced their Q4 2005 and FY 2005 financial results. Below, DID has noted some quick year-end figures for each. These figures are for total operations, including defense and civilian activities.
Follow the links for more in-depth results and in some cases, performance breakdown by division:
Boeing (Sales $54.85B/+5%; Net income $2.57B/+37%; EPS $3.29/+39%)
General Dynamics (Sales $21.2B/+11%; Net Earnings $1.46B/+19%; Dil EPS $7.22/+19%). You’d think with all that cash, they could afford to do something about the worst major defense contractor site on the web…
Lockheed Martin (Sales $37.21B/+4.7%; Net earnings $1.825B/+44%; EPS $4.10/+44.9%)
This profit compares to $16.1 million in FY 2003/04, on total revenues of $255.9 million. Meanwhile, total assets rose by about $50 million in FY 2004/05, to $293.9 million. As our many Australian readers are aware, however, there’s more to this story.
L-3 Communications (NYSE:LLL) today announced its results for Q3 of FY 2005, including sales of $2.5 billion, operating income of $266.5 million, diluted earnings per share of $1.11, and net cash from operating activities of $219.0 million. All represent an increase over the same quarter last year; full details may be found in L-3’s financial release.
During Q3 2005 third quarter, L-3 also revised the aggregation of its divisions into four reportable segments, to provide a more clearly defined presentation of L-3’s businesses. The company’s reportable segments are now: