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Alliant 2Q Beats, Ups Guidance

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Alliant Techsystems Inc. (ATK - Analyst Report) posted operating earnings of $1.86 per share for its second quarter of fiscal 2013 ended September 30, 2012, beating the Zacks Consensus Estimate of $1.48 per share but falling short of the year-ago earnings of $1.92 per share.

The company’s bottom-line beat came on the back of major defense and aeronautical contract wins and strong order bookings.

Alliant’s GAAP earnings in the quarter were $2.00 per share versus $2.43 per share in the prior-year quarter. The difference of 14 cents was due to a one-time impact from the sales and profits associated with Radford Army Ammunition Plant (RFAAP), loss on early extinguishment of debt and favorable settlement of 2009 and 2010 tax returns.  

Total Revenue

Alliant's total revenue in the second quarter of fiscal 2013 was $1,069.8 million, down 4% from $1,109.4 million reported in the year-ago quarter.

The revenue downturn resulted from lower sales from its core businesses of aerospace and defense partially offset by solid bookings worth $1.3 billion.

Alliant’s quarterly revenue, however, beat the Zacks Consensus Estimate of $994 million.

Segmental Update

Sales from the Aerospace Systems segment in the second quarter of fiscal 2013 shrank 7% to $310 million from $333 million in the prior-year quarter. The year-over-year shortfall was due to lower performance from the National Aeronautics and Space Administration’s (NASA) space system operations unit and commercial aerospace structures.

The Defense segment also registered an 8% drop in sales to $484 million from $528 million reported in the year-earlier quarter. However, excluding the effect of sales related to The RFAAP and favorable contract resolution, the unit witnessed a sales jump of 5% year over year driven by higher sales of small caliber systems. This was partially offset by a decline in armament transactions.

Sporting Group segment recorded sales of $275 million in the reported quarter versus $249 million in the prior-year period. The 11% year-over-year growth was due to increased volumes from commercial ammunition and tactical accessories businesses.

Operational Highlights

The cost of sales in the second quarter of fiscal 2013 was $841.5 million, declining marginally from $848.2 million in the year-ago quarter.

Gross profit fell by 13% year over year to $228.3 million from $261.3 million in the year-ago quarter.

Interest expenses in the second quarter of fiscal 2013 stood at $18.1 million versus $24 million in the year-ago quarter.

Financial Update

Total cash and cash equivalents as of September 30, 2012, were $237.3 million versus $568.8 million as of March 31, 2012.

Long-term debts of the company as of September 30, 2012 were $1.04 billion versus $1.27 billion as of March 31, 2012.

Cash used in operating activities in the six months ending September 30, 2012 was $33 million versus $6 million in the six months ending October 2, 2011

Alliant’s capital spending was $40.2 million in the six months ending September 30, 2012, down 46% from $74.0 million in the six months ending October 2, 2011.

Quarterly Distribution

The company's board of directors announced a quarterly cash dividend increase of 30% to 26 cents per share, payable on December 13, 2012, to shareholders of record as of November 21, 2012.

Guidance

Alliant revised its fiscal 2013 earnings to the range of $7.40-$7.70 per share, up from its prior expectation of $7.00-$7.30 per share. The company also raised its sales forecast to the range of $4.1-$4.2 billion from its previous projected range of $4.05-$4.15 billion.

Cash flow for fiscal 2013 is expected in the range of $175 million to $200 million, up from to its earlier estimate of $140 million to $165 million. The company expects a reduction in the effective tax rate to roughly 30% from the previous 32%.

Peer Comparison

Among the top Alliant competitors, General Dynamics Corporation (GD - Analyst Report) announced operating earnings for the third quarter 2012 of $1.70 per share, falling short of the Zacks Consensus Estimate by seven cents and the year-ago results by 7.1%.

Operating revenue in the third quarter 2012 was $7.93 billion, increasing marginally by 1% year over year but failing to meet the Zacks Consensus Estimate of $8.05 million.

Our View

Alliant Techsystems reported favorable financial surprises in the second quarter of fiscal 2013 as earnings and revenue surpassed the corresponding Zacks Consensus Estimates. Despite the favorable sales outlook for 2013, we believe defense austerity measures will continue to thwart the company’s growth prospects. In addition, Alliant is expected to experience margin pressure from rising defense costs.

However, this could be partially tempered by continued upcycle in the Aerospace business which is expected to contribute significantly to the company’s profitability.

Alliant Techsystems currently has a Zacks #4 Rank (Sell rating). Alliant Techsystems supplies aerospace and defense products to the United States government agencies. The company also supplies ammunition and related accessories to law enforcement agencies and commercial customers.

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