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Defense Stock Roundup: BA Incurs a Loss; GD, NOC, LLL, RTN, UTX Beat on Earnings

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Earnings dominated the major stories in the defense and aerospace sector over the past five trading sessions as we entered the thick of the reporting season. Among the defense majors, Boeing (BA - Free Report) , the world's largest plane maker, reported its first quarterly net loss in nearly seven years.

Companies like Northrop Grumman (NOC - Free Report) , General Dynamics (GD - Free Report) , L-3 Communications Holdings and Raytheon have come up with estimate-beating results.

Unlike the broader markets, the defense sector registered meek gains last week. The S&P 500 Aerospace & Defense (Industry) index and Dow Jones U.S. Aerospace & Defense Index inched up 0.7% and 0.77%, respectively, over the last five trading sessions.

Total earnings for the defense and aerospace sector are likely to be down 27.4% while revenues are expected to grow a slight 1.5% in the second quarter of 2016.

(Read Defense Stock Roundup for Jul 26, 2016 here.)
 

AEROSPACE/DEFENSE Industry Price Index

AEROSPACE/DEFENSE Industry Price Index

Recap of the Week’s Most Important Stories

1.    Aerospace giant The Boeing Company delivered second-quarter 2016 adjusted loss of 44 cents, narrower than the Zacks Consensus Estimate of a loss of 88 cents. The company’s bottom line suffered due to a 787 cost reclassification and charges on the 747 and KC-46 Tanker programs. Revenues came in at $24.76 billion for the quarter, exceeding the Zacks Consensus Estimate of $24.45 billion and increasing 1% from the year-ago level.

For 2016, the company lowered its adjusted or core earnings per share expectation to the range of $6.10–$6.30 from $8.15−$8.35 expected earlier, while maintaining the revenue guidance in the range of $93−$95 billion (read more: Boeing Incurs Loss in Q2 Hit by Charges, Guides Down).

If we set the dismal release aside, Boeing received quite a number of big ticket programs from the Pentagon’s daily funding sessions last week.

Specifically, the company received as many as six contracts yesterday with the total value climbing to approximately $1.27 billion. Of these, Boeing won $640.1 million to provide spare parts for F/A-18 fighter jets. Boeing received two other orders to manufacture more spare parts for the F/A-18. The first was for $220.9 million and the second was for $123.2 million. It also nabbed a $254.5 million contract for repair of aircraft flight control surfaces in support of the F/A-18 E/F and EA-18G aircraft.

2.    Northrop Grumman Corp. reported mixed second-quarter 2016 results with revenues missing but earnings beating the Zacks Consensus Estimate by 1.7% and 4%, respectively. The maker of the current B-2 bomber and Global Hawk unmanned planes expects earnings to be in the range of $10.75 to $11.00 per share (prior projection: $10.40–$10.70) on revenues of $23.5 billion to $24 billion in 2016 (read more: Northrop Grumman Beats Q2 Earnings, Ups '16 View).

Meanwhile, Northrop Grumman also won a modification contract, worth $164 million, from the U.S. Navy for one E-2D Advanced Hawkeye aircraft configured for the Government of Japan under the Foreign Military Sales program. The contract will run through Mar 2018.

3.    General Dynamics Corp.’s second-quarter earnings topped the Zacks Consensus Estimate by 6.09% and increased 7.5% year over year. Revenues of $7.7 billion missed the Zacks Consensus Estimate by 3.6% due to lower contributions from the Aerospace, Combat Systems and Marine segments. Investors reacted positively to the earnings beat with the stock gaining after the company released its results. The company has also boosted its 2016 earnings outlook. It now expects 2016 EPS in the range of $9.20-$9.70, up from $9.20 expected earlier (read more: General Dynamics Q2 Earnings Beat, Revenues Miss).

In a separate development, General Dynamics’ Ordnance and Tactical Systems unit has been awarded a $167.4 million contract with options for MK84-4 tritonal-filled general purpose bomb components procured by the Air Force. This contract is slated for completion by Mar 31, 2019.

4.    Missile maker Raytheon Company reported second-quarter 2016 adjusted earnings from continuing operations of $1.75 per share, beating the Zacks Consensus Estimate by 2.9%. Earnings also increased 6.1% from the year-ago figure. The company’s top line also surpassed the Zacks Consensus Estimate by 3.3% and improved 3.2% year over year.

Although the company has maintained its 2016 revenue projection, it increased the EPS guidance to the range of $7.13−$7.33 per share from $6.93−$7.13 per share expected earlier (read more: Raytheon Beats on Q2 Earnings, Boosts EPS Outlook).

Separately, Raytheon secured a $132.5 million modification contract under which it will continue software maintenance, models and simulations, engineering support and Ballistic Missile Defense System test planning, execution and analysis for X-Band radars.

5.    L-3 Communications Holdings’ second-quarter revenues and earnings not only came in above the Zacks Consensus Estimates, but also grew a respective 33.3% and 4.8% year over year, backed by improved operations, largely from Aerospace. Its quarterly sales grew 7% organically in the second quarter and 3% in the first half of 2016. This has helped the company to boost its 2016 guidance (read more: L-3 Communications Tops Q2 Earnings, Ups '16 View).

6.    United Technologies Corporation reported second-quarter adjusted earnings of $1.82 per share, up 9% year over year. The figure also surpassed the Zacks Consensus Estimate of $1.65. Quarterly revenues of $14.9 billion also beat the Zacks Consensus Estimate of $14.6 billion, driven by improved performances from all segments except Otis.

The company narrowed its 2016 guidance; it now expects adjusted earnings to be in the range of $6.45 to $6.60 per share (prior guidance: $6.30 to $6.60) on revenues of $57 billion to $58 billion (prior guidance: $56 billion to $58 billion). (read more: United Technologies Tops Q2 Earnings, Tweaks View).

7.    Triumph Group Inc.’s (TGI - Free Report) adjusted earnings from continuing operations for first-quarter fiscal 2017 (ended Jun 30, 2016) came in at $1.04 per share, missing the Zacks Consensus Estimate of $1.13 by 8.7%. Reported earnings also declined 20.6% from $1.31 per share a year ago.

However, net sales of $893.3 million beat the Zacks Consensus Estimate of $872 million by 2.4%. Net sales nonetheless declined 6.9% year over year. Moreover, organic sales were down 8% primarily due to rate reductions on key Aerospace structures programs. Investors reacted negatively to the news, causing the shares of the company to fall 23.9% after the earnings release (read more: Triumph Stock Down on Q1 Earnings Miss; Cuts View).

Performance

It was a mixed performance for defense stocks last week with gains outpacing losses. In the last five trading sessions, Raytheon gained the most with over 3.5% share price appreciation, while Textron (TXT - Free Report) lost the most by 2.25%.

The six-month picture shows only gains after weeks of mixed performances. L-3 Communications Holdings was in the leading position with almost 30% share price appreciation followed by Textron.

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

0.03%

21.09%

BA

-1.22%

13.35%

GD

3.17%

11.65%

RTN

3.58%

11.80%

NOC

-0.76%

15.60%

COL

0.39%

7.10%

TXT

-2.25%

21.76%

LLL

2.39%

29.77%


What’s Next in the Defense World?

Spirit AeroSystems Holdings, Inc. (SPR - Free Report) will report second-quarter 2016 results on Aug 3 while Huntington Ingalls Industries, Inc. (HII - Free Report) will rerelease its numbers on Aug 4.

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