Orbital ATK (OA) Tops Q2 Earnings Estimates, Revenues Lag

Orbital ATK, Inc.’s (NYSE:OA) second-quarter 2016 adjusted earnings of $1.35 per share beat the Zacks Consensus Estimate of $1.30 per share by 3.8%.Reported earnings also surged 37.8% from the year-ago tally of 98 cents.

Total Revenue

Orbital ATK's total revenue in the second quarter came in at$1,052 million, lagging the Zacks Consensus Estimate of $1,136 million by 7.4%. Moreover, reported revenues fell 2.6% from the year-ago figure of $1,077 million primarily due to lower sales from Flight Systems Group and Space Systems Group, partially offset by higher contribution from Defense Systems Group.

Segmental Update

Flight Systems Group: Segment sales were down5.4% year over year to $370 million. Adjusted operating income, however, climbed 5.6% to $54.4 million. Lower sales were mostly offset by increased profit margins at the Launch Vehicles division.

Defense Systems Group: The segment reported sales of $441 million, up 8.6% year over year. Adjusted operating income also increased 5.5% to $38.2 million primarily driven by higher revenues in Defense Electronics and Missile Products, partially offset by lower revenues and margins at Small Caliber Systems.

Space Systems Group: The segment reported sales of $265 million, down 10.8% year over year, primarily due to lower revenues at Satellite Systems. Adjusted operating income, however, surged 10.4% primarily on the back of higher profit margins at Advanced Programs.

Highlights of the Release

Total adjusted operating income jumped 22% to $125.2 million backed by higher contributions from each of the segments.

As of Jul 3, 2016, Orbital ATK’s firm backlog stood at approximately $8.48 billion, up 1% year over year. Total backlog (including options, indefinite quantity contracts and undefinitized orders) was approximately $15.17 billion, up 25%.

Dividend and Share Repurchase

Orbital ATK repurchased nearly $18 million of its common stock and paid dividends totaling $17 million during the second quarter of 2016, thereby returning a total of about $35 million to shareholders.

Financial Highlights

Adjusted free cash flow stood at $110.7 million for the quarter ended Jul 3, 2016.

Capital expenditure was $36.1 million in the quarter.

Cash generated by operating activities came in at $143.3 million. The company repaid outstanding debt of about $85 million in the second quarter.

Guidance

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.

Free cash flow is expected to be between $225 million and $275 million, while capital expenditure is projected at about $200 million. Operating income is expected to be between $551 million and $540 million.

Peer Releases

Spirit AeroSystems Holdings, Inc. (NYSE:SPR) posted second-quarter 2016 adjusted earnings of $1.21 per share, beating the Zacks Consensus Estimate of $1.05 by 15.2%.

Raytheon Company (NYSE:RTN) reported second-quarter 2016 adjusted earnings from continuing operations of $1.75 per share, beating the Zacks Consensus Estimate of $1.70 by 2.9%.

The Boeing Company (NYSE:BA) reported second-quarter 2016 loss of 44 cents per share, narrower than the Zacks Consensus Estimate of a loss of 88 cents.

Zacks Rank

Orbital ATK currently carries a Zacks Rank #3 (Hold).