Leidos [LDOS] on Thursday posted strong top and bottom line increases in the first quarter driven by its acquisition last summer of a former business segment of Lockheed Martin [LMT].
Net increased 40 percent to $74 million, 47 cents earnings per share (EPS), from $53 million (72 cents EPS) a year ago. Excluding amortization expenses and restructuring and acquisition costs related to the acquisition of Information Systems & Global Solutions (IS&GS) in August, per share earnings would have been 88 cents, topping consensus estimates by 9 cents EPS.
Per share results also suffered in the quarter from a significantly hire share count related to the acquisition of IS&GS.
Sales doubled to $2.6 billion from $1.3 billion a year ago, driven by IS&GS deal. The sales at IS&GS were up a percent from a year ago when the business was still part of Lockheed Martin, a positive turn for a business that had seen its top line trimmed amid increased competition and constrained federal spending environment.
The slight increase in sales at IS&GS comes two to three reporting quarters ahead of Leidos’ original expectations. James Reagan, the Leidos’ chief financial officer, said on the company’ earnings call that cost reduction actions taken at IS&GS and in the legacy Leidos business are improving margins and program performance and that this will shortly translate into improved win rates.
Reagan said that Leidos’ organic sales were flat in the quarter.
Orders were $1.7 billion, just 70 percent of sales, in part due to some competitive contract losses in the quarter and also because purchases by the company’s customers have slowed more than expected due to “the slow pace of executive leader appointments and budget uncertainty” at federal departments and agencies, Roger Krone, chairman and CEO of Leidos, said during the call.
Total backlog in the quarter stood at $16.9 billion, with $4.9 billion funded, versus backlog of $17.7 billion at the end of 2017, $6 billion of which was funded. Krone said Leidos won positions on 38 indefinite-delivery, indefinite-quantity (ID/IQ) contract vehicles during the quarter, with the top five of these holding more than $1.1 billion in expected revenue for the company. He pointed out that ID/IQ contract aren’t counted as orders or put into backlog until task orders are awarded.
The company still expects its orders for the year to top sales, Krone said.
With Congress poised to pass an omnibus appropriations bill for FY ’17, Krone said that this should enable federal procurement authorities to improve the flow of awards, noting that the bill increases spending on defense and operational accounts for ongoing warfighting while avoiding the “deep cuts” that had been proposed for domestic spending.
Leidos maintained its financial guidance for the year. Reagan said that despite a lower than expected tax rate in the quarter, the company isn’t changing its rate expectations for the year just yet.
The company also said it took a charge in the quarter on a program in its Defense Solutions segment. The program wasn’t disclosed but Reagan put the size of the reserve in mid-teens in terms of millions of dollars.