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Defense Stock Roundup: BA, HRS Top Q4 Earnings, Wall Street Takes a Hit

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The Q4 earnings season has crossed the halfway mark, with more than 75% of S&P 500’s total market capitalization having released their quarterly results. As of Feb 7, of the 294 index members that have reported results, 79.6% beat on earnings, while 76.9% surpassed revenue estimates.

Coming to the broader Aerospace sector, 81.8% of the defense stocks have an earnings beat ratio of 77.8% on sales beat of 55.6%, as of Feb 7.

Given the impressive Q4 performance of the defense stocks, the sector’s recent performance should have been a robust one.  However, a spike in bond yields last week and chances of increased inflation along with a plunge in oil prices dealt a huge blow to Wall Street. Evidently, major indices of the Aerospace-Defense space — the S&P 500 Aerospace & Defense (Industry) index fell 2.9%, while the Dow Jones U.S. Aerospace & Defense index dropped 3.1% — over the last five trading sessions.

Among last week’s highlights, defense primes, Lockheed Martin Corp. (LMT - Free Report) , The Boeing Company (BA - Free Report) , Textron Inc. (TXT - Free Report) , Triumph Group (TGI - Free Report) and Harris Corp. released their quarterly figures. Meanwhile, Boeing and Raytheon Company won a number of contracts from Pentagon. 

Recap of Last Week’s Key Stories

1. Lockheed Martin reported fourth-quarter 2017 adjusted earnings from continuing operations of $4.30 per share, which surpassed the Zacks Consensus Estimate of $4.06 by 5.9%.

In the quarter, total revenues came in at $15.14 billion, which exceeded the Zacks Consensus Estimate of $14.75 billion by 2.6%.

Lockheed Martin ended 2017 (on Dec 31, 2017) with $99.9 billion in backlog, up 3.9% from $96.2 billion at the end of 2016. Cash from operations at the end of 2017 was $6.5 billion compared with $5.2 billion at the end of 2016 (read more: Lockheed Beats on Q4 Earnings, Issues '18 Outlook).

2. Boeing reported adjusted earnings of $4.80 per share for fourth-quarter 2017, beating the Zacks Consensus Estimate of $2.91 by 64.9%. The quarterly bottom line reflected an improvement of 94% from $2.47 in the year-ago quarter.

The company's fourth-quarter revenues amounted to $25.37 billion, beating the Zacks Consensus Estimate of $24.83 billion by 2.2%. The top line also improved 9% year over year.

Backlog at the end of 2017 was $488.1 billion from $473.5 billion at the end of 2016-end. Boeing generated $13.34 billion of operating cash flow at the end of 2017, up 27.1% year over year (read more: Boeing Tops Q4 Earnings Estimates, Issues '18 Guidance ).

The company secured a modification contract worth $6.6 billion for extending the Ground-based Midcourse Defense (GMD) development and sustainment contract (DSC). The DSC contract will be executed through December 2023.

The deal was awarded by the Missile Defense Agency, Huntsville, AL; with Boeing as the prime contractor. The modification contract has the total cumulative value of $12.6 billion.

The deal entitles the Missile Defense Agency to execute missile defense and defense enhancements to complete the accelerated delivery of a new missile field and procurement and deployment of 20 additional Ground Based Interceptors (read more: Boeing Wins $6.6B Deal to Aid US Missile Defense System).

3. Textron reported fourth-quarter 2017 adjusted earnings from continuing operations of 74 cents per share, which missed the Zacks Consensus Estimate of 77 cents by 4.1%. Adjusted earnings were down 7.5% from 80 cents in the year-ago quarter.

Total revenues of $2.57 billion in the quarter beat the Zacks Consensus Estimate of $2.55 billion by 1.1%. However, the top line was down 3% year over year. Its funded backlog was $9 billion as of Dec 31, 2017, up 6% from $8.4 billion as of Dec 31, 2016.

Cash flow from operating activities totaled $947 million at the end of 2017, compared with $988 million in the prior-year quarter. In 2018, the company expects earnings per share from continuing operations in the range of $2.95-$3.15 (read more: Textron Misses on Earnings in Q4, Issues '18 Guidance).

4. Triumph Group’s adjusted earnings from continuing operations in third-quarter fiscal 2018 (ended Dec 31, 2017) came in at 76 cents per share, reflecting a decline of 24.8% from $1.01 a year ago. The bottom line surpassed the Zacks Consensus Estimate of 68 cents by 11.8%.

In the quarter, net sales were $775.2 million, lagging the Zacks Consensus Estimate of $776 million by 0.1%. The top line also declined 8.2% year over year.

Cash flow from operations during the quarter was $100.8 million, compared with outflow of $41.4 million in the prior-year quarter (read more: Triumph Group Beats on Q3 Earnings, Misses Revenues).

5. Harris reported second-quarter fiscal 2018 (ended Dec 29, 2017) earnings (excluding 52 cents from non-recurring items) of $1.67 per share, beating the Zacks Consensus Estimate of $1.40. The bottom line expanded 17.6% on a year-over-year basis.

Revenues in the quarter came in at $1,535 million, outpacing the Zacks Consensus Estimate of $1,483.7 million. However, the top line decreased 9.7% year over year.

The company tweaked its projection for fiscal 2018 banking on its impressive performance in the first half of the fiscal and benefits of the new tax law. It expects fiscal 2018 earnings per share (on an adjusted basis) in the band of $6.30 to $6.50 (old guidance: $5.85 to $6.05 per share) (read more:Harris Beats on Q2 Earnings, Updates FY18 Guidance).

6. Raytheon won a hybrid contract worth $2.3 billion for providing engineering services to the Phased Array Tracking Radar Intercept on Target (PATRIOT) weapon systems program. The deal has been awarded by the U.S. Army Contracting Command, New Jersey.

Work is scheduled to be completed by Jan 31, 2023.

Performance

Over the last five trading sessions, the defense biggies put up a dismal show, hit by the broader market volatility. General Dynamics lost the most with its share price declining 4.5% in this period, followed by Lockheed Martin.

Over the last six months, the entire industry put up a stellar performance. Keeping up with its usual trend, Boeing gained the most, with its shares gaining 45.4%, followed by Northrop Grumman.

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

 

CompanyLast WeekLast 6 Months
LMT-3.33%16.25%
BA-2.53%45.42%
GD-4.49%6.87%
RTN-3.09%17.76%
NOC-1.53%25.25%
COL-2.87%7.72%
TXT-3.23%17.23%
LLL-2.97%16.56%

 

What’s Next in This Space?

Huntington Ingalls (HII - Free Report) is set to release fourth-quarter 2017 results on Feb 15.

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