Near the close of the third-quarter 2015 earnings season, defense majors Northrop Grumman NOC and General Dynamics GD reported impressive numbers last week. Importantly, Northrop grabbed a multi-billion dollar defense order for the Long Range Strike Bomber (LRS-B). Textron TXT also posted estimate-beating earnings in the third quarter.
However, L-3 Communications Holdings LLL missed on earnings this season.
(Read Defense Stock Roundup for Oct 27, 2015 here.)
Recap of the Week’s Most Important Stories
1. Northrop Grumman clearly stole the limelight with its two wins. Firstly, the maker of the current B-2 bomber and Global Hawk unmanned planes reported solid third-quarter 2015 results with revenues and earnings beating the Street expectations by 9% and 2.4%, respectively. Chief Executive Officer Wesley Bush, said that the international market accounted for 15% of its business so far this year and the company is witnessing demand from Europe on the Triton plane.
The company raised its 2015 diluted earnings per share guidance to the range of $9.70 to $9.80 per share from the earlier range of $9.55 to $9.70 (read more: Northrop Tops Q3 Earnings, Raises 2015 Bottom-Line View).
Apart from the solid earnings report, Northrop shares climbed 5.48% on Wednesday, Oct 28, after winning a contract from the Department of Defense (DoD) for the LRS-B, beating out a Boeing-Lockheed Martin team. The new B-3 bomber will replace Boeing's B-52s, which have been in operation since the 1950s. The Air Force plans to buy 80 to 100 of the new airplanes, and the contract could go up to $50 billion to $80 billion. The first airplanes are scheduled to enter service around 2025.
2. General Dynamics’ third-quarter earnings from continuing operations of $2.28 per share topped the Street consensus by 8.6% and also increased 11.2% from the year-ago period on the back of higher defense orders and solid demand for its Gulfstream airplanes.
Revenues of $7.99 billion surpassed the Street expectation by 3.1%. Notably, General Dynamics delivered 31 "outfitted" large-cabin aircraft in the third quarter, up by 6 units, while deliveries of mid-cabin jets doubled to 12.
General Dynamics’ third-quarter results were also driven by international defense orders, comprising a contract announced in September to refurbish and upgrade 150 Abrams tanks for sale to the Kingdom of Morocco.
The company raised its 2015 profit outlook based on Q3 results, higher deliveries of Gulfstream business jets and surging sales at the submarine-building unit. Earnings are expected to be between $8.90 and $9.00 per share for 2015, up from $8.70 to $8.80 projected earlier (read more: General Dynamics Beats on Q3 Earnings and Revenues).
3. Diversified U.S. conglomerate Textron TXT reported third-quarter 2015 earnings from continuing operations of 63 cents per share, beating the Zacks Consensus Estimate of 60 cents by 5%. The reported figure also increased 10.5% from the year-ago quarter, driven by solid margin contribution across all its segments despite the plunge in revenues.
The company’s share prices also moved north as the maker of Bell helicopters and Cessna business jets is valiantly weathering turbulence in the aerospace market. Although Bell was hurt by slumping oil and gas industry demand, its 13.1% margin grew from a year earlier on solid performance (read more: Textron Tops Earnings, Lags Revenues, Narrows Guidance).
4. Defense operator L-3 Communications Holdings Inc. posted third-quarter 2015 adjusted earnings of $2.09 per share (adjusted for asset impairment costs and non-recurring costs), beating the Zacks Consensus Estimate by 16.1%. Earnings were however lower than the year-ago figure by 17.4%. The bottom line was affected by ongoing headwinds from U.S. defense budget constraints.
The company’s revenues also missed the Street estimates and were lower year over year due to defense budget constraints, the U.S. military drawdown in Afghanistan and business divestitures, primarily Marine Systems International. Hence, the company lowered its revenue forecast and narrowed its earnings projection for the year (read more: L-3 Communications Beats on Q3 Earnings, Cuts Profit View).
5. Rockwell Collins Inc. COL reported financial results for fourth-quarter fiscal 2015 ending Sep 30, 2015, wherein its earnings per share missed the Zacks Consensus Estimate by 2.1%. Reported earnings, however, improved 9% year over year driven by a strong operating margin. The company’s revenues not only missed the Street mark but also decreased on lower sales across the board, barring Information Management Services (read more: Rockwell Collins Misses on Q4 Earnings, Keeps FY16).
6. Orbital ATK, Inc. OA also reported solid third-quarter results with both the top and the bottom line beating the Street expectations by 4.3% and 25%, respectively. Quarterly earnings also improved 17.4% from the comparable year-ago period on the back of higher operating income at Space Systems Group (read more: Orbital ATK Beats Q3 Earnings Estimates, Guides Up).
7. Lockheed Martin LMT clinched two big ticket programs from the DoD last week apart from wining various smaller contracts. It won a $478 million U.S. Air Force contract. Lockheed Martin Aeronautics was awarded this modification contract to exercise the option on a previously awarded contract for F-22 sustainment. Work is expected to be complete by Dec 31, 2016. Lockheed Martin also received a $262 million U.S. Air Force contract.
Its Missiles and Fire Control unit, based in Orlando, FL, has been awarded this firm fixed-price, minimal cost-plus-fixed-fee, indefinite-delivery/indefinite-quantity contract for sustainment. Per the contract, Missiles and Fire Control will provide sniper advanced targeting, low-altitude navigation and targeting infrared for night navigation pod, and infrared search and track. Work under this contract is slated for completion by Oct 29, 2020.
Performance
In the last five trading days, share prices of the major defense companies showed a mixed trend. Two defense majors − Lockheed Martin and Boeing BA – were in red territory, while others like General Dynamics and Raytheon witnessed tepid appreciation. However, L-3 Communications gained the most, in the high single digit, followed by Textron.
In the last six months, the picture also remains mixed with more gains than losses. Although share prices of Lockheed Martin, Boeing, General Dynamics, Raytheon and Northrop Grumman were in the green, Rockwell Collins, Textron and L-3 Communications Holdings ended in the red.
The following table shows the price movement of the major defense players over the past five trading days and during the last six months.
|
Company |
Last Week |
Last 6 months |
|
LMT |
-1.10% |
18.50% |
|
BA |
-0.04% |
3.89% |
|
GD |
0.22% |
7.17% |
|
RTN |
0.44% |
14.42% |
|
NOC |
4.95% |
22.70% |
|
COL |
2.00% |
-9.06% |
|
TXT |
6.01% |
-3.40% |
|
LLL |
8.54% |
9.78% |
What’s Next in the Defense World?
Northrop Grumman will attend Goldman Sachs Industrials Conference 2015 on Nov 4.
Huntington Ingalls Industries, Inc. HII will report third-quarter results on Nov 5, 2015.
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