Showing continued strength in its growing sporting business, ATK [ATK] on Wednesday delivered strong third quarter financial results, with the company increasing its fiscal year outlook and quarterly dividend.
Net income in the third quarter increased 27 percent to $80 million compared to $63 million a year ago. Adjusted net income in the third quarter was $93 million. Fully diluted earnings per share (EPS) were $2.46 compared to $1.93 in the prior-year period. On an adjusted basis, fully diluted EPS were $2.87. Adjusted net income and EPS increased due to the operating profit and a lower tax rate, partially offset by a higher interest expense.
Third quarter year-over-year sales were up 14 percent to $1.2 billion, due to increased sales in the Sporting and Aerospace Groups, partially offset by a sales decline in the Defense Group.
Mark DeYoung, ATK president and CEO, said in an earnings call: “Our performance this year across the company is the result of a disciplined business model focused on execution excellence, wise capital deployment and creating leadership positions in our core markets.”
Sporting Group third quarter sales increased 78 percent to $524 million, compared to $294 million in the prior-year quarter, including results from recently acquired businesses of Savage and Bushnell, and a 31 percent organic growth rate. Operating profit in the third quarter increased 168 percent to $81 million, compared to $30 million a year ago.
The Army chose the company’s BLACKHAWK!® SERPA® Tactical Holster for its Improved Modular Tactical Holster Program, a five-year, $24 million Indefinite Delivery Indefinite Quantity, multiple source contract. The holster is now the current platform for the Army, Army Military Police, Marines, the German Army and other law enforcement and military agencies both domestic and international. In addition to organic growth, the company is successfully integrating both Savage and Bushnell into its Sporting Group.
The third quarter was also the first full quarter ATK was operating under its new Army contract at Lake City Ammunition Plant, Mo. DeYoung said military demand is softening, demand trending downward, with a decline of $200 million that was expected. However, more M855A1 ammunition is likely to be required as the Army moves from M855 ammunition for training, inventory and in the field. Overall, DeYoung said the outlook is that “we will have reasonable sustainment of volumes similar to where we are right now going forward.”
Defense Group sales in the third quarter decreased 10 percent to $455 million driven by reduced sales in the Armament Systems and Small Caliber Systems divisions as programs neared completion, and impacts from federal budget reductions. Operating profit for the quarter was relatively flat at $53 million, reflecting the reduced sales volume, offset by some operational improvements.
During the call, DeYoung said ATK targets composite aerostructures as a long term growth market and the company “continues to gain positions on some of the world’s key platforms in that market.”
During the third quarter, the Aerospace Group recorded strategic contract wins including contracts from Boeing [BA] and Airbus. Also, the Italian air force committed to be the first customer for MC-27J aircraft equipped with ATK’s unique roll-on, roll-off palletized gun and command and control systems. The aircraft was showcased at the recent Dubai Airshow and received “significant interest,” DeYoung said. The group also received additional orders on the Trident D-5 missile, and continues to build on international F-35 opportunities.
International sales continue to hover around 10 percent, the company target, DeYoung said. The company has some “interesting leads” as well as a disappointment. ATK was one of three final bidders identified as in the running to manage two Australian ammunition plants. The tender was pulled back, which could mean as much as a year delay. However, the Italian gunship program is moving along as is progress on the Jordan light gunship.
DeYoung also cited AARGM missile sales to Italy and Australia, and PGK sales to Australia.
The ATK Board of Directors Jan. 29, 2014 declared a 23 percent increase in its quarterly cash dividend to $0.32 per share, up from $0.26 per share.
The board also approved the extension of the share repurchase program until March 31, 2015. This will allow the company the option to offset the potential dilution of any shares that could be issued in connection with the potential retirement of the convertible notes in August 2014.
ATK is raising its full-year FY’14 sales guidance to a range of approximately $4.73 billion to $4.78 billion, up from previous guidance of $4.68 billion to $4.73 billion. This reflects improved operating performance in the Sporting Group.
The full-year FY’14 EPS guidance is now $9.50 to $9.80, up from previous guidance of $9.10 to $9.40, reflecting improved sales as noted above and a lower expected tax rate.
“We are pleased with our third quarter performance and execution across the business, said Neal Cohen, ATK Executive Vice President and Chief Financial Officer.