Market Overview

Orbital ATK Announces First Quarter 2018 Financial Results

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Company Posts Strong Quarterly Revenue, Earnings and Orders

  • Revenue Increases 21% in Quarter on Sales Gains in All Segments
  • GAAP EPS Increases 51% to $1.74 in Quarter on Higher Margins and Lower
    Taxes
  • New Orders and Option Exercises Totaled $3.02 Billion in Quarter

Orbital ATK, Inc. (NYSE:OA), a global leader in aerospace and defense
technologies, today reported financial results for the first quarter
ended April 1, 2018.

Orbital ATK generated revenues of $1,312 million in the first quarter of
2018, up 20.9% from $1,085 million in the first quarter of 2017. Income
from operations(1) and operating margin were $153.6 million
and 11.7%, respectively, compared to $121.1 million and 11.2%,
respectively, in the first quarter of 2017. The company reported first
quarter 2018 earnings per diluted share of $1.74 compared to $1.15 in
the comparable quarter in 2017. Free cash flow(2), which is a
non-GAAP measure defined as GAAP cash flow from operating activities of
negative $237.0 million minus capital expenditures of $71.3 million, was
negative $308.3 million in the first quarter of 2018 compared to
negative $77.7 million in the first quarter of 2017. First quarter 2018
free cash flow was negatively impacted by the timing of milestone
payments and disbursements as well as investments related to the
company's growth.

For the first quarter of 2018, non-GAAP adjusted(2) operating
income and operating margin, which exclude certain acquisition and
restatement expenses, were $154.9 million and 11.8%, respectively,
compared to $127.1 million and 11.7%, respectively, in the first quarter
of 2017. Adjusted diluted earnings per share were $1.76 and $1.23 in the
first quarters of 2018 and 2017, respectively. Adjusted free cash flow,
which excludes certain acquisition and restatement-related cash expenses
totaling $4.0 million, was negative $304.3 million in the first quarter
of 2018 (see non-GAAP reconciliation tables in the Appendix for details).

__________________________________________

(1)   Income from operations (or operating income) is income before
interest, non-service pension costs, income taxes and
non-controlling interest.
(2) Free cash flow and adjusted financial results contained in this
press release are non-GAAP financial measures. Please refer to the
reconciliation tables contained in the Appendix- "Disclosure of
Non-GAAP Financial Measures" of this press release for more details.
 

"Orbital ATK reported excellent first quarter financial results,
reflecting strong revenue and earnings growth together with robust new
business wins," said David W. Thompson, Orbital ATK's President and
Chief Executive Officer. "Operationally, the company carried out
numerous successful space and defense missions in the first quarter of
2018, while also delivering record quantities of tactical missiles,
precision weapons, aerospace structures and related systems to
government and commercial customers."

Consolidated Financial Highlights

        First Quarter
($ in millions, except per share data)       2018     2017
Revenues $1,312     $1,085
Operating Income 153.6 121.1
Net Income 101.0 66.4
Diluted Earnings Per Share $1.74 $1.15
 
Non-GAAP
Adjusted Operating Income(1) $154.9 $127.1
Adjusted Net Income(1) 102.1 70.7
Adjusted Diluted Earnings Per Share(1)       $1.76     $1.23
 

(1)

 

Non-GAAP Results. See non-GAAP reconciliation tables in the
Appendix for details.

 

Revenues increased $227 million, or 20.9%, in the first quarter of 2018
compared to the first quarter of 2017 with increased sales in Flight
Systems Group (FSG), Defense Systems Group (DSG) and Space Systems Group
(SSG). Operating income increased $32.5 million, or 26.8%, in 2018
compared to 2017, due to increases in FSG and DSG operating income
partly offset by lower SSG income.

Net income and earnings per share reflected income tax rates of 17.4%
and 29.3% in the first quarters of 2018 and 2017, respectively. Adjusted
net income and earnings per share reflect the same tax rates as the GAAP
numbers.

"Orbital ATK reported very strong financial results in the first
quarter, with substantial revenue and operating profit growth from
strong new orders over the past two years," said Garrett E. Pierce,
Orbital ATK's Chief Financial Officer.

Capital Allocation Activities

During the first quarter of 2018, Orbital ATK returned approximately $18
million to shareholders through dividends. As previously announced, the
company halted its share repurchase program in connection with the
signing of the Northrop Grumman acquisition transaction in September
2017. The company also invested about $100 million in research and
development and capital equipment in the quarter.

New Business Summary

In the first quarter of 2018, Orbital ATK received new firm and option
orders of approximately $1,950 million and existing option exercises of
$1,070 million, for a total of $3,020 million in quarterly new business
volume. These new awards increased firm contract backlog to
approximately $9.4 billion and total backlog to approximately $16.6
billion as of April 1, 2018, representing increases of 14% and 12%,
respectively, compared to backlog at April 2, 2017, as recast for the
new revenue accounting standard (ASC 606) that the company adopted in
the first quarter of 2018. The company's Flight Systems segment
accounted for $1,830 million, or 60%, of the first quarter's new
business volume, while Defense Systems added $650 million, or 22%, and
Space Systems contributed $540 million, or 18%. The first quarter's firm
book-to-bill ratio was 190%.

First Quarter Operational Highlights

Orbital ATK's strong operational execution led to the achievement of
numerous milestones in the first quarter of 2018. These included the
following important events:

  • Flight Systems conducted its fifth IRBM target launch from a C-17
    aircraft in the first quarter and delivered two additional target
    vehicles that were launched in April. The company completed major
    development milestones on its OmegA next-generation large-class launch
    vehicle and made good progress on its advanced GEM-63 solid rocket
    motors. Flight Systems also produced a record 25,000 aerostructures
    parts in the quarter, including the 5,000th F-35 military
    aircraft part.
  • Defense Systems delivered 4,000 tactical rocket motors and warheads
    and conducted more than 160 motor tests in the quarter. In addition,
    the company produced over 3,200 artillery precision guidance kits,
    boosting cumulative deliveries to 25,000 kits during the last four
    years. Defense Systems also manufactured over 350 million rounds of
    small-caliber ammunition and continued flight testing of its advanced
    proximity-fuzed medium-caliber rounds in the first three months of
    2018.
  • Space Systems deployed its first two GEOStar-3 medium-class
    communications satellites in the first quarter, while also introducing
    its second-generation in-space satellite servicing technology for
    commercial operators. The company delivered four other commercial,
    scientific and defense satellites to launch sites in preparation for
    launches that took place in April. Finally, Space Systems shipped over
    300 spacecraft and related components and conducted three scientific
    research rocket missions in the quarter.

"First quarter operational results were outstanding across all three
business groups, as program execution and product quality metrics
remained at very high levels for our customers. In addition, our major
operational and test results were 100% successful throughout the first
quarter of 2018," said Chief Operating Officer Blake E. Larson. "We are
very proud of what our teams achieved in support of national security,
civil government, commercial and international customers."

Segment Financial Results

Orbital ATK conducts its operations in three business segments: Flight
Systems Group, Defense Systems Group and Space Systems Group. Segment
operating results include pension expense recoverable under U.S.
Government contracts as determined in accordance with Government Cost
Accounting Standards. The FAS/CAS pension expense difference is recorded
at the corporate level.

Flight Systems Group:

        First Quarter
($ in millions)       2018     2017
Revenues $482     $371
Operating Income 60.8 40.6
Operating Margin       12.6%     10.9%
 

FSG revenues for the first quarter of 2018 increased $111 million or
29.9%, compared to the first quarter of 2017 due primarily to higher
activity in Aerospace Structures Division driven by major aircraft
program ramp-ups. First quarter operating income increased $20.2
million, or 49.8%, primarily due to higher volume and improved program
performance in 2018 on certain Propulsion Systems and Aerospace
Structures Divisions contracts.

Defense Systems Group:

        First Quarter
($ in millions)       2018     2017
Revenues $559     $451
Operating Income 54.2 42.0
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