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Defense Stock Roundup: Q3 Results Impress, CW, SPR, AJRD Earnings Top

Zacks Equity Research
Over the past five trading sessions, the defense biggies put up a solid show, except L3 Technologies. The industry's performance over the last six months has also been impressive

The Zacks Aerospace sector witnessed quarterly results from 72.7% of the constituent stocks, as of Oct 31. Notably, these companies came up with earnings growth of 33.7% year over year on 9.6% sales improvement in the current reporting cycle.

Such impressive quarterly numbers provided an impetus to the defense stocks. Consequently, the major indices of the Aerospace-Defense space — the S&P 500 Aerospace & Defense (Industry) and the Dow Jones U.S. Aerospace & Defense index — gained 6.7% in the trailing five trading sessions.

Nevertheless, quarterly results from a number of Aerospace-Defense majors namely FLIR Systems, Inc. FLIR, Curtiss-Wright Corp. CW, Spirit AeroSystems Holdings, Inc. SPR, Aerojet Rocketdyne Holdings, Inc. AJRD and Embraer S.A. ERJ remained a key area of investors’ focus.

Recap of Past Week’s Important Stories

1.    FLIR Systems’ third-quarter 2018 adjusted earnings of 57 cents per share came in line with the Zacks Consensus Estimate. However, its top line missed the Zacks Consensus Estimate of $446.2 million by 2.5%.

Organic revenues increased 3.1% from the prior-year quarter number. Cash flow generated from operating activities in the quarter amounted to $122.5 million, up from $104.1 million in the prior-year period.

The company continues to project adjusted earnings per share in the range of $2.17-$2.22 on revenues of $1.78-$1.80 billion (read more:FLIR Systems Q3 Earnings Meet Estimates, Improve Y/Y).

2.    Curtiss-Wright reported third-quarter 2018 adjusted earnings of $1.70 per share, which surpassed the Zacks Consensus Estimate of $1.58 by 7.6%. Its revenues of $595.4 million increased 5% year over year.

Curtiss-Wright’s total backlog at the end of third-quarter 2018 was $2 billion compared with $2.2 billion in the previous quarter. Operating cash inflow from continuing operations totaled $72.3 million at the end of the third quarter compared with $101.4 million in the year-ago quarter.

The company expects to generate adjusted earnings per share in the range of $6.10-$6.25, higher than $6.00-$6.15 anticipated earlier (read more: Curtiss-Wright Beats on Q3 Earnings, Lifts '18 EPS View).

3.    Spirit AeroSystems reported third-quarter 2018 adjusted earnings of $1.70 per share, which exceeded the Zacks Consensus Estimate of $1.63 by 4.3%. However, total revenues of $1,814 million missed the Zacks Consensus Estimate of $1,817 million by 0.2%.

Cash flow from operating activities decreased to $567.4 million at the end of third-quarter 2018 from $624.6 million at the end of third-quarter 2017.

The company continues to expect adjusted earnings per share in the range of $6.10-$6.35 on revenues of $7.2-$7.3 billion (read more: Spirit AeroSystems Q3 Earnings Beat, Revenues Miss)

4.    Aerojet Rocketdyne reported third-quarter 2018 adjusted earnings of 42 cents per share, which outpaced the Zacks Consensus Estimate of 30 cents by 40%. Its revenues of $498.8 million also came ahead of the Zacks Consensus Estimate of $478 million by 4.4%.

The company’s funded backlog totaled $1.6 billion compared with $1.5 billion at second-quarter end. Free cash inflow at the end of the third quarter was $63.8 million compared to the year-ago quarter’s free cash outflow of $16.2 million.

Aerojet Rocketdyne exited the third quarter with cash and cash equivalents of $608.6 million, up from $535 million as of Dec 31, 2017 (read more: Aerojet Rocketdyne Q3 Earnings Top, Backlog Slips).

5.    Embraer incurred third-quarter 2018 adjusted loss of 16 cents per American Depository share (ADS), while the Zacks Consensus Estimate for earnings was pegged at 6 cents. Its top line declined 11.5% year over year.

Embraer’s backlog at the end of the quarter under review was $13.6 billion, down from $18.8 billion in the year-ago quarter.

As of Sep 30, 2018, the company’s adjusted free cash outflow summed $166.4 million compared with free cash outflow of $22.8 million at the end of the year-ago period (read more: Embraer Q3 Earnings Lag Estimates, Deliveries Drop Y/Y).
 

Performance

Over the past five trading sessions, the defense biggies put up a solid show, except L3 Technologies. Northrop Grumman gained the most with 7.1% share price improvement.

The industry's performance over the last six months has also been impressive, except Lockheed Martin. Keeping up with its trend, Boeing gained the most, with its shares rallying 6.3% 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.

Company Last Week Last 6 Months
LMT 4.16% -2.64%
BA 3.47% 6.33%
GD 3.54% 3.90%
RTN 5.74% 3.10%
NOC 7.10% 4.75%
COL 2.40% 1.37%
TXT 2.58% 4.11%
LLL -0.49% 0.97%

What’s Next in this Space?

Triumph Group, Inc. TGI is scheduled to report its second-quarter fiscal 2019 numbers on Nov 8.

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