Leidos [LDOS] on Tuesday reported strong fourth quarter earnings and sales as the bottom-line benefitted from gains across its operating segments.
Net income increased 28 percent to $230 million, $1.66 earnings per share (EPS), from $180 million (1.28 EPS) a year ago. Excluding acquisition, restructuring, and goodwill charges, adjusted earnings per share of $1.99 topped consensus estimates by 25 cents.
Sales in the quarter increased 8 percent to a record $4 billion on growth in each segment, led by Health and followed by Defense Solutions. Organic growth was 7 percent.
Defense was higher on the Navy’s Next Generation Enterprise Network Recompete Service Management, Integration and Transport Contract, work on testing related to offensive hypersonic weapons, C5ISR work, and the acquisition a year ago of Cobham Special Missions.
The Health segment also drove the higher earnings followed by Defense Solutions and Civil segments. Defense income was up 27 percent on the higher sales, better program execution and cost management.
For all of 2023, sales increased 7 percent to $15.4 billion from $14.4 billion in 2022 and net income fell to $208 million ($1.44 EPS) from $693 million ($4.96 EPS) due to a $699 million pre-tax charge recorded in the Security Enterprise Solutions business during the third quarter.
In 2024, Leidos expects sales to grow in the 2 to 4 percent range to between $15.7 billion and $16.1 billion. Company officials said the forecast is conservative given uncertainty over congressional action on the fiscal year 2024 budget.
Adjusted earnings are projected to be between $7.50 and $7.90 EPS versus $7.30 in 2023. Adjusted operating margin in 2023 was 10.8 percent, up 40 basis points from 2022, and for 2024 is forecast in the mid-to-high 10 percent range.
Leidos tallied a robust $16.5 billion in orders in 2023, driving backlog to $37 billion, up 3 percent from $35.8 billion in 2022. Free cash flow in 2023 was $958 million.
Leidos is targeting “industry leading win rates” in its business capture efforts and “above market organic growth,” Tom Bell, CEO of Leidos, said during the company’s earnings call.
Repurchasing the company’s stock is a top priority for deploying cash this year with acquisitions being a low priority, Bell said. The company’s cash position gives it leverage to pursue other investments, including ideas borne from an ongoing strategy review, he said.
“And we’re very excited about bringing forward those ideas and deploying cash responsibly organically in great capabilities and great technologies that will enable us to have differentiated solutions going forward,” Bell said.
Leidos is aiming to deliver financial results “at or near the top of the industry,” Bell said, and will be bolstered by the “deep strategic analysis” that will be led by each sector president to produce a three-to-five-year growth and profitability plan for their respective markets.
Leidos is also looking ahead to customers’ needs in 2028 and 2033 to “identify market gaps and growth opportunities,” Bell said.