All aerospace and defense companies have reported their Q2 numbers which aren’t all too flattering. Overall, the sector has recorded an earnings decline of 27% despite 2.9% growth in revenues. Yet, most of the major defense companies stood up pretty well in what was a tough quarter, boosting their 2016 outlook. Last week, Orbital ATK came up with second-quarter results which beat estimates.

Meanwhile, defense primes witnessed positive movements in the market sessions last week. Among the other important highlights, the Air Force won permission from the Pentagon to sign two production contracts with Boeing (BA Quick QuoteBA - Free Report) for the first 19 KC-46 tankers. Lockheed Martin (LMT Quick QuoteLMT - Free Report) and United Technologies also picked up a few important contracts.

(Read Defense Stock Roundup for Aug 9, 2016 here.)

AEROSPACE/DEFENSE Industry Price Index

AEROSPACE/DEFENSE Industry Price Index

Recap of the Week’s Most Important Stories

1.    Orbital ATK, Inc.’s second-quarter 2016 earnings not only came above the analysts’ expectation by 3.8% but also surged 37.8% from the year-ago figure. However, Orbital ATK's total revenue in the quarter missed the consensus by 7.4%. Moreover, reported revenues fell 2.6% from the year-ago figure primarily due to lower sales from Flight Systems Group and Space Systems Group, partially offset by higher contribution from Defense Systems Group.

However, the company raised the low end of its 2016 earnings per share guidance to the range of $5.30–$5.50 from the initial guidance of $5.25–$5.50. Revenues are projected to be in the range of $4,450–$4,500 million (read more: Orbital ATK Tops Q2 Earnings Estimates, Revenues Lag).

2.    After a strong beat last quarter, TransDigm Group Incorporated (TDG Quick QuoteTDG - Free Report) followed it up with another striking beat in its third-quarter fiscal 2016. The company raised its fiscal 2016 guidance as well.

The aircraft supplier posted adjusted quarterly earnings (including stock-based compensation adjustments) of $2.94 per share, trumping the Zacks Consensus Estimate of $2.80 by 5%. The figures fared even better in the year-over-year comparison, registering an increase of almost 37.4% from the year-ago tally of $2.14 per share. Net sales for the quarter came in at $797.7 million, representing year-over-year growth of 15.4%. The top line missed the Zacks Consensus Estimate of $822 million (read more: TransDigm Q3 Earnings Beat; Sales Rise Y/Y, View Up).

3.    The Boeing Co.’s KC-46 tankers got production approval from the Pentagon. The Air Force won permission from the Pentagon to sign two production contracts with Boeing for the first 19 KC-46 tankers under a deal valued at a combined $2.8 billion. Boeing expects to deliver the first batch of 18 tankers in Jan 2018 instead of Aug 2017.

Boeing’s KC-46 program faced multiple delays due to technical problems with the tanker. In June, the Air Force said that it will seek compensation from Boeing for delays in the program. The company has already taken $1.3 billion in pretax charges for cost overruns.

Manufactured on the air frame of Boeing’s 767 commercial jet, the KC-46 is the first new U.S. tanker since the 1980s. In words of Air Force Secretary Deborah Lee James, "The KC-46 program has made significant strides in moving the Air Force toward the modernization needed in our strategic tanker fleet."

4.    Lockheed Martin Corp. secured a $490.6 million contract to bring integrated air and missile defense (IAMD) capabilities to the global Aegis fleet. Lockheed will bring ballistic missile defense to the latest U.S., Korean and Japanese destroyers. The company will produce one destroyer for the U.S., three for South Korea and two for Japan.

Per the contract, Lockheed Martin will produce Aegis Weapon System MK-7 ship sets and associated spares, engineering efforts and support equipment and engineering efforts to support production, system testing, shipyard installation, and related requirements. The contract is slated for completion by May 2022.

Meanwhile, Lockheed Martin’s Mission Systems and Training division has also secured a $112.7 million modification contract from the U.S. Navy for fiscal 2016 AEGIS Modernization (“AMOD“) production requirements. The contract covers the production of multi-mission signal processor equipment sets; ballistic missile defense 4.0.2 equipment; AEGIS weapon system AMOD upgrade equipment; and associated spares to support the fielding of AMOD capabilities to the fleet.

5.    A unit of United Technologies Corp., Pratt & Whitney Military Engines, has been awarded a three-year, $151.7-million contract modification from the U.S. Navy for its F-35 Lightning II aircraft supplies and services.

The work under the contract comprises initial spare modules, engine system trainers, support equipment and depot activation services and supplies. Sep 2019 is the projected completion date. The defense department said that customers include the Marine Corps, Navy, Air Force, international partners and foreign military sales clients.

Performance

Defense companies ended in the green last week after experiencing volatility in recent times. In the last five trading sessions, General Dynamics Corp. (GD Quick QuoteGD - Free Report) gained the most with over 3% share price appreciation, followed by Textron Inc. (TXT Quick QuoteTXT - Free Report) .

The six-month picture also shows only gains for the major defense stocks. L-3 Communications Holdings maintained its leading position with almost 30% share price appreciation followed by Lockheed Martin.

The following table shows the price movement of the major defense players over the past five trading days and during the last six months.

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