Leidos Holdings (LDOS) Q4 Earnings Beat, Revenues Rise Y/Y

Leidos Holdings, Inc.’s (NYSE:LDOS) fourth-quarter 2019 adjusted earnings of $1.51 per share surpassed the Zacks Consensus Estimate of $1.35 by 11.9%. The bottom line also increased 37.3% from $1.10 a year ago.

Moreover, the company’s GAAP earnings of $1.26 per share increased from $1.25 in the year-ago quarter. This upside can be attributed to solid revenues and operating income.

For 2019, the company reported adjusted earnings of $5.17 per share that surpassed the Zacks Consensus Estimate of $5 by 3.4%. The bottom line increased 18% from $4.38 a year ago.

Total Revenues

Leidos Holdings generated total revenues of $2,954 million in the quarter, which exceeded the Zacks Consensus Estimate of $2,830 million by 4.4%. The top line also improved 11.6% year over year, backed by growth across all segments.

For 2019, the company generated total revenues of $11.09 billion, which exceeded the Zacks Consensus Estimate of $10.97 billion by 1.1%. The full-year top line also improved 8.8% from the prior year.

Backlog

At the end of 2019, the company’s total backlog was $24.1 billion compared with $20.8 billion as of Dec 28, 2018. Of this, $5.4 billion was funded.

Operational Statistics

Total cost of revenues in the fourth quarter increased 10.9% to $2,527 million. Operating income totaled $261 million, compared with $188 million in the year-ago period. The upside was driven by a decrease in selling, general and administrative expenses along with a decline in integration and restructuring costs.

As a result, operating margin expanded to 8.8% from 7.1% in the year-ago quarter.

Interest expenses were $34 million, which came in line with the prior-year quarter figure.

Segmental Performance

Defense Solutions: Net revenues at this segment increased 10.7% to $1,400 million from $1,265 million in the prior-year quarter. This improvement can be primarily attributed to new awards and a net increase in program volumes.

Also, the segment’s operating income improved 55% to $124 million from the year-ago quarter’s income of $80 million. Operating margin expanded 260 basis points (bps) to 8.9%.

Health: The segment recorded revenues of $526 million in the fourth quarter, up 5.8% year over year. The uptick was primarily driven by a net increase in program volumes, new awards and acquisition of IMX Medical Management Services.

Operating income increased 7.4% to $73 million, while operating margin expanded 40 bps to 13.9%.

Civil: Revenues at this segment amounted to $1,028 million, up 16.2% year over year. New awards and a net increase in program volumes led to the upside.

While operating income improved 54% to $97 million, operating margin contracted 230 bps to 9.4%.

Financials

Cash and cash equivalents as of Jan 3, 2020 were $668 million compared with $327 million as of Dec 28, 2018. Net cash provided by operating activities at the end of 2019 amounted to $992 million compared with $768 million a year ago.

Guidance

Leidos Holdings issued its guidance for 2020. The company currently expects adjusted earnings in the range of $5.30-$5.65. The Zacks Consensus Estimate for 2020 earnings is pegged at $5.45, below the mid-point of the company’s projected range.

Moreover, the company expects 2020 revenues of $12.6-$13.0 billion. The Zacks Consensus Estimate for revenues stands at $11.68 billion, lower than the company’s guided range.

Management expects adjusted EBITDA margin of 10-10.2%, while cash flow from operating activities is expected to be or above $1billion.

Zacks Rank

Leidos Holdings carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Recent Defense Release

Huntington Ingalls Industries (NYSE:HII) fourth-quarter 2019 earnings of $4.36 per share surpassed the Zacks Consensus Estimate of $4.24 by 2.83%. However, the reported figure declined 11.7% from $4.94 reported a year ago.

Teledyne Technologies (NYSE:TDY) reported fourth-quarter 2019 adjusted earnings of $2.90 per share, which surpassed the Zacks Consensus Estimate of $2.76 by 5.1%. The bottom-line figure came above the guided range of $2.71-$2.76 for the reported quarter.

Lockheed Martin (NYSE:LMT) reported fourth-quarter 2019 earnings of $5.29 per share, which surpassed the Zacks Consensus Estimate of $4.99 by 6%. The bottom line also improved 20.5% from $4.39 in the year-ago quarter.

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