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Defense Stock Roundup: FLIR & HII Q4 Earnings Top, LMT Wins Deal

Zacks Equity Research
Illinois Tool's (ITW) first-quarter 2019 earnings to gain from Enterprise Strategy, solid products offering and share buyback activities. Forex woes, restructuring charges and high taxes are concerning.

The S&P 500 Aerospace & Defense (Industry) and the Dow Jones U.S. Aerospace & Defense index have gained 1.2% in the past five trading sessions on upbeat fourth-quarter reports.

Quarterly releases from Zacks Aerospace sector like Triumph Group Inc. TGI, FLIR Systems, Inc. FLIR and Huntington Ingalls Industries, Inc. HII as well as Lockheed Martin Corp.'s LMT contract win were among past week's highlights.

Recap of the Past Week’s Important Stories

1. Triumph Group’s adjusted earnings from continuing operations in third-quarter fiscal 2019 (ended Dec 31, 2018) came in at 42 cents per share, which surpassed the Zacks Consensus Estimate of 38 cents by 10.5%. Meanwhile, net revenues of $807.9 million lagged the Zacks Consensus Estimate of $822 million by 1.7% but improved 4.2% year over year.

In the quarter, the company’s operating loss of $16.9 million was narrower than $154.2 million incurred in the year-ago quarter.

As of Dec 31, 2018, Triumph Group’s cash and cash equivalents totaled $28.7 million compared with $35.8 million on Mar 31, 2018. Also, the company reaffirmed its fiscal 2019 guidance (read more: Triumph Group Q3 Earnings Beat, Revenues Lag Estimates).

2.    FLIR Systems reported fourth-quarter 2018 adjusted earnings of 62 cents per share, which exceeded the Zacks Consensus Estimate of 60 cents by 3.3%. The company’s revenues declined 9.4% year over year to $448.5 million.

Adjusted operating income came in at $107.9 million compared with $111.7 million in the prior-year quarter, reflecting a 3.4% decline.

At the end of 2018, the company’s cash flow generated from operating activities amounted to $374.2 million, up 21.3% from the prior-year tally of $308.3 million. The company projects adjusted earnings per share in the range of $2.30-$2.36 on revenues of $1.92-$1.95 billion (read more: FLIR Systems Q4 Earnings Beat Estimates, Improve Y/Y).

3. Huntington Ingalls' fourth-quarter 2018 earnings of $4.94 per share surpassed the Zacks Consensus Estimate of $4.45 by 11%. The company’s total revenues came in at $2.20 billion exceeding the Zacks Consensus Estimate of $2.06 billion by 6.9%.

Moreover, Huntington Ingalls received new orders worth $3.3 billion in the fourth quarter. As a result, the company’s total backlog reached $23 billion as of Dec 31, 2018.

Its cash from operating activities, at the end of 2018, grossed $914 million compared with $814 million at the end of 2017 (read more: Huntington Ingalls Q4 Earnings Top, Revenues Up Y/Y).

4.  Lockheed Martin’s Aeronautics business won a $90.3-million modification contract to identify and execute cost reduction initiatives for the overall cost reduction of the F-35 Lightning II Air System. Work related to this project will be performed in Fort Worth, TX, and is expected to be completed by June 2022.

Per a report by Avionics International, for the F-35A program, Lockheed Martin intends to implement strategic cost reduction initiatives to bring down the unit price to $80 million by 2023 (read more: Lockheed Martin Wins $90M Navy Deal to Support F-35 Program).

Performance

Over the trailing five trading sessions, the defense biggies put up a solid show, except General Dynamics. L3 Technologies gained the most with 3.2% increase in share price, followed by Raytheon.

However, the industry's performance over the last six months has been mostly disappointing. This time Textron lost the most with its shares plunging more than 18%. Nevertheless, shares of Boeing gained a solid 23.5%.  

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

Company Last Week Last 6 Months
LMT 0.18% -5.52%
BA 1.15% 23.53%
GD -0.86% -11.12%
RTN 2.87% -8.32%
NOC 0.74% -4.51%
TXT 1.75% -18.22%
LLL 3.18% -0.39%

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