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Defense Stock Roundup: TXT Tops Q1 Earnings, LMT Wins Deals, ERJ Deliveries Slip

Zacks Equity Research
Atlassian Corporation PLC (TEAM) delivered earnings and revenue surprises of 5.26% and 3.04%, respectively, for the quarter ended September 2018. Do the numbers hold clues to what lies ahead for the stock?

The Q1 earnings season has started to gather steam, with results from 87 S&P 500 members having on board as of Apr 20. So far, earnings for these index members have moved up 25% year-over-year on 7.7% higher revenues.

As far as the broader Aerospace sector is concerned, so far only a handful of the stocks in this space has released their quarterly results, with 14.9% witnessing growth in earnings, while 4.6% in sales.

Over the last five trading sessions, a stellar performance of the major defense biggies as well as a generous flow of funds from the Pentagon helped the major indices of the Aerospace-Defense industry to end in the green. Consequently, both the S&P 500 Aerospace & Defense (Industry) as well as the Dow Jones U.S. Aerospace & Defense indices moved up 2.4% during this period.

Among this week’s highlights, Honeywell International Inc. HON and Textron Inc. TXT posted better-than-expected results. Defense primes Lockheed Martin Corp. LMT and General Dynamics GD won contracts from the Pentagon. While, Embraer S.A. ERJ released delivery numbers for the first quarter of 2018.

(Read Defense Stock Roundup for Apr 13, 2018 here)

Recap of Last Week’s Key Stories

1. Honeywell International’s adjusted earnings of $1.95 a share surpassed the Zacks Consensus Estimate of $1.89 by 3.2%. The figure increased 17.5% on a year-over-year basis.

The company’s first-quarter revenues came in at $10,392 million, up 9.5% year over year. The top line also exceeded the Zacks Consensus Estimate of $9,936 million.

Cash and cash equivalents as of Mar 31, 2018 were $7,897 million compared with $7,710 million in the prior-year period. Currently, the company projects 2018 earnings to be in the range of $7.85-$8.05 per share compared with $7.75-$8.00 guided earlier (read more: Honeywell Q1 Earnings Beat on Solid Top-Line Growth).

2. Textron’s first-quarter 2018 earnings from continuing operations of 72 cents per share beat the Zacks Consensus Estimate of 46 cents by 56.5%. Earnings were up 94.6% from 37 cents in the year-ago quarter.

Total revenues in the quarter were $3,296 million, which surpassed the Zacks Consensus Estimate of $3,114 million by 5.8%.

As of Mar 31, 2018, cash and cash equivalents were $688 million compared with $1,079 million as of Dec 31, 2017. The company continues to expect earnings per share from continuing operations in the range of $2.95-$3.15 (read more: Textron Tops Q1 Earnings Estimate, Keeps '18 EPS View).

3. Lockheed Martin’s Space Systems segment secured a $928-million modification contract for the development of hypersonic conventional strike weapon. The contract was awarded by the Air Force Life Cycle Management, Eglin Air Force Base, Florida.

Per the terms, Lockheed Martin will offer the design, engineering, systems integration, test, logistics planning, and aircraft integration support of all the elements of a hypersonic, conventional, air-launched, stand-off weapon.

Operations related to the deal will be carried out in Huntsville, AL (read more: Lockheed Martin Wins $928M Hypersonic Strike Weapon Contract).

The company also clinched a $200-million modification contract for enhancing the Terminal High Altitude Area Defense (THAAD) and Phased Array Tracking to Intercept of Target (PATRIOT) Advanced Capability-3 (PAC-3) missile segment. Per the terms, Lockheed Martin will help to develop Patriot's Launch on Remote. The contract was awarded by the U.S. Army Contracting Command, Redstone Arsenal, Alabama.

Operations related to the deal will be carried out in Grand Prairie, TX. Work related to the deal is scheduled to be completed by Feb 28, 2022 (read more: Lockheed Martin Wins $200M Deal to Upgrade THAAD and PATRIOT).

4. Total number of jets delivered by Embraer in the first quarter of 2018 was 25, marking a decline of 24.2% from the year-ago quarter’s figure of 33 jets.

The company delivered 14 jets in the first quarter, in the commercial aviation market, compared to 18 jets dispatched in the prior-year quarter.

In the business aviation market, 11 aircraft were delivered in the first quarter, of which eight were light jets and three large jets. On a year-over-year basis, commercial deliveries dropped 22.2%, while executive aviation deliveries fell 26.7% (read more: Embraer's Q1 Deliveries Decline Y/Y, Backlog Slips).

5.  General Dynamics’ subsidiary, General Dynamics Mission Systems, won a $144-million contract for the operation, maintenance and expansion of the global U.S. Battlefield Information Collection and Exploitation System Extended (US BICES-X) federated trusted network environment infrastructure. Operations related to the deal will be carried out across multiple locations globally.

The contract was awarded by the Secretary of the Air Force, Concepts, Development, and Management Office, Pentagon, Washington, DC. Work related to the deal is scheduled to be completed by Mar 31, 2024 (read more: General Dynamics Wins $144M US BICES-X Maintenance Deal).

Performance

Over the last five trading sessions, the defense biggies put up a solid show, except Rockwell Collins. Textron gained the most with its share price rising 10.4% in this period.

Over the last six months the entire industry put up a stellar performance. Keeping up with its usual trend, Boeing once again gained the most, with its shares surging 29.1%, 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 1.78% 9.75%
BA 2.07% 29.11%
GD 2.20% 4.33%
RTN 0.98% 20.35%
NOC 1.16% 20.81%
COL -1.27% -1.45%
TXT 10.41% 22.05%
LLL 1.14% 13.55%

 

What’s Next in this Space?

Lockheed Martin and United Technologies UTX are set to release their first-quarter results on Apr 24.

Northrop Grumman, Boeing and General Dynamics are scheduled to release first-quarter results on Apr 25.

Raytheon RTN is set to report first-quarter numbers on Apr 26, while Rockwell Collins will release second-quarter fiscal 2018 results on Apr 27.

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