Last week, the Aerospace-Defense sector was weighed down by the cross-border missile power tussle between North Korea and the U.S. Notably, the battle was sparked when North Korea fired four ballistic missiles into the waters off its east coast on Mar 6. What analysts had initially suspected was later confirmed by North Korea’s media that these launches were aimed at practice hitting U.S. military bases in Japan (as told to The Washington Post).

In retaliation, the U.S. military deployed the THAAD anti-ballistic missile system in South Korea. In the wake of such heightened tensions, China vehemently criticized both the countries’ missile deployment strategy, expressing fears that it might get caught in the crossfire owing to its geographical proximity to North Korea. Again, since three of the four nukes fired by North Korea had landed near Japan, the U.S., South Korea as well as Japan are currently dispatching advanced missile defense ships to the area which North Korea had initially targeted (as per CNN).

Meanwhile, President Donald Trump’s promise to spend “big” on military had initially boosted the sector, which seems to have come to a standstill now. These factors along with the dearth of defense contracts from Pentagon forced major indices of the Aerospace-Defense sector to end in the red in the trailing five trading sessions. Consequently, the S&P 500 Aerospace & Defense (industry) Index dropped 0.8% while the Dow Jones U.S. Aerospace & Defense Index declined 1.3%.

Among last week’s highlights, defense primes Northrop Grumman Corp. (NOC Quick QuoteNOC - Free Report) and Lockheed Martin Corp. (LMT Quick QuoteLMT - Free Report) secured a few contracts from the Department of Defense (DoD). Meanwhile, Orbital ATK, Inc. and Embraer SA (ERJ Quick QuoteERJ - Free Report) reported fourth-quarter results.

(Read Defense Stock Roundup for Mar 6, 2017 here)

Recap of the Last Week’s Most Important Stories

1. Defense giant Northrop secured a modification contract worth $91 million for providing upgraded software and hardware support to The Boeing Company’s (BA Quick QuoteBA - Free Report) EA-18G aircraft. Work pertaining to this deal is scheduled to be over by Jul 2019.

This contract has been awarded by the Naval Air Warfare Center Weapons Division, China Lake, CA; and work under this will be carried out in Pt. Mugu, CA. Per the terms of the deal, Northrop has been entrusted with the design, development and implementation of Airborne Electronic Attack (AEA) requirements for software configuration and upgrade of the same as well as ancillary hardware in support of the EA-18G aircraft for the U.S. and the government of Australia.

Notably, the U.S. Navy will fund 92% of the total contract while the rest of the expenses will be borne by the Australian government. Boeing’s EA-18G Growler is the most advanced AEA aircraft, which integrates advanced AEA capabilities which have been developed and manufactured by Northrop for the purpose of identifying, degrading and destroying hostile radar-guided air defense and communication systems (read more: Northrop Grumman Wins $91M Deal to Upgrade Boeing EA-18G Jet).

2. Pentagon’s prime contractor Lockheed Martin’s clinched a contract worth $750 million for providing flight line spare parts. Work related to this deal will be executed in Georgia, Oklahoma and Utah.

This is a five-year base contract with three-year and two-year option periods. Lockheed Martin will complete work under this agreement utilizing fiscal 2017 through 2022 defense working capital funds and expects to finish the project by Mar 31, 2022. The contract was awarded by the Defense Logistics Agency Aviation, Richmond, VA.

Lockheed Martin’s Global Supply Chain Services (GSCS) offers hardware replacements for both structural and consumable parts as well as a certified vendor program. Under various programs, GSCS provides crucial support to the three U.S. Air Force depots by maintaining a ready and constant supply of miscellaneous, small consumable parts (read more:Lockheed Wins $750M Defense Deal for Spare Parts Supply).

Meanwhile, Lockheed Martin’s Rotary and Mission Systems business segment clinched a modification contract worth $100.4 million for the procurement of Technical Insertion-16 Acoustic-Rapid-Commercial-Off-The-Shelf Insertion (A-RCI) systems, spares and pre-cable kits. Majority of the work related to this deal will be carried out in Manassas, VA.

This contract was awarded by the Naval Sea Systems Command, Washington, D.C. and is scheduled to be over by Dec 2022. A-RCI is an open-architecture sonar system that uses legacy sensors and replaces central processors with commercial off-the-shelf (COTS) computer technology and software, within submarines.

In the 1990s, Lockheed Martin unveiled A-RCI Systems which allowed frequent hardware and software upgrades, was highly effective and offered improved acoustic quieting measures at a far lower cost than previously possible (read more: Lockheed Martin Wins $100M Deal for A-RCI Systems).

3. Embraer reported fourth-quarter 2016 adjusted earnings of $1.14 per American Depository Share (ADS) that beat the Zacks Consensus Estimate of 79 cents by 44.3%. Adjusted earnings were also up a massive 612.5% year over year.

Embraer posted total revenue of $2,027.8 million that surpassed the Zacks Consensus Estimate of $1,867 million by 8.6%. Reported revenues however declined 2.2% year over year owing to lower revenues at the Commercial Aviation and Executive Jets segments.

The company delivered a total of 75 jets in the quarter, down 3.8% year over year. In 2016, the company delivered 225 jets, up 1.8% from 221 jets in 2015. Embraer reported an order backlog of $19.6 billion as of Dec 31, 2016, compared with $22.5 billion at 2015-end (read more: Embraer Tops Q4 Earnings, Revenues; Backlog Down Y/Y).

4. Orbital ATK reported fourth-quarter 2016 adjusted earnings of $1.26 per share, which missed the Zacks Consensus Estimate of $1.45 per share by 13.1%. The company’s total revenue in the fourth quarter came in at $1,272 million, beating the Zacks Consensus Estimate of $1,195 million by 6.4%.

Reported revenues were up 11.1% year over year on improved sales from Flight Systems Group, Space Systems Group and Defense Systems Group, partially offset by an increase in corporate revenue eliminations.

As of Dec 31, 2016, Orbital ATK's firm backlog was approximately $9.34 billion, up 13% year over year. Total backlog (including options, indefinite quantity contracts and undefinitized orders) was approximately $14.36 billion, up 10% (read more:Orbital ATK Q4 Earnings Miss Estimates, Gives '17 View).

Last Week’s Performance

The defense biggies posted mixed numbers over the past five trading sessions. While a few like Lockheed Martin, Rockwell Collins Inc. gained; companies like General Dynamics  Corp. (GD Quick QuoteGD - Free Report) and Textron, Inc. (TXT Quick QuoteTXT - Free Report) witnessed a drop in share prices.

However, over the past six months, all the industry majors delivered a stellar performance. Notably, Boeing gained the maximum at 33.88%, followed by General Dynamics.

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

What’s Next in This Sector?

AAR Corp. (AIR Quick QuoteAIR - Free Report) recently announced that it will release its third-quarter 2017 results on Mar 21, after market close.

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