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Leidos Holdings (LDOS) Beats on Q3 Earnings, Ups 2019 View

Zacks Equity Research

Leidos Holdings, Inc.’s LDOS third-quarter 2019 adjusted earnings of $1.36 per share surpassed the Zacks Consensus Estimate of $1.20 by 13.3%. The bottom line also increased 19.3% from $1.14 a year ago. This upside can be attributed to solid revenues and operating income.

However, the company’s GAAP earnings of $1.11 per share declined from 96 cents in the year-ago quarter.

Total Revenues

Leidos Holdings generated total revenues of $2,835 million in the quarter, which exceeded the Zacks Consensus Estimate of $2739 million by 3.5%. The top line also improved 10.1% year over year, backed by growth across all segments.

Backlog

At the end of the reported quarter, the company’s total backlog was $23.9 billion compared with $20.8 billion as of Dec 28, 2018. Of this, $5.7 billion was funded.

Operational Statistics

Total cost of revenues in the third quarter increased 12.7% to $2,450 million. Operating income totaled $249 million, compared with $203 million in the year-ago period. This 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 7.9% in the year-ago quarter.

Interest expenses were $28 million compared with $35 million in the prior-year quarter.

Segmental Performance

Defense Solutions: Net revenues at this segment increased 8.3% to $1,354 million from the prior-year quarter’s $1,250 million. This improvement can be primarily attributed to new awards received by the segment during the quarter under review along with a net increase in program volumes.

Also, the segment’s operating income rose 4.5% to $93 million from the year-ago quarter’s income of $89 million. Operating margin contracted 20 basis points (bps) to 6.9%.

Health: The segment recorded revenues of $508 million in the third quarter, up 14.4% year over year. The uptick was primarily driven by a net increase in program volumes and new awards.

Operating income increased 21.1% to $63 million, while operating margin expanded 70 bps to 12.4%.

Civil: Revenues at this segment amounted to $973 million, up 10.4% year over year. New awards and a net increase in program volumes led to the upside.

While operating income declined 38% to $57 million, operating margin contracted 450 bps to 5.9%.

Financials

Cash and cash equivalents as of Sep 27, 2019, were $635 million compared with $327 million as of Dec 28, 2018. Net cash provided by operating activities at the end of third-quarter 2019 amounted to $349 million compared with $371 million a year ago.

Leidos Holdings, Inc. Price, Consensus and EPS Surprise

Leidos Holdings, Inc. Price, Consensus and EPS Surprise

Leidos Holdings, Inc. price-consensus-eps-surprise-chart | Leidos Holdings, Inc. Quote

2019 Guidance

Leidos Holdings raised its guidance for 2019. The company currently expects adjusted earnings of $4.90-$5.10, up from $4.50-$4.75 anticipated earlier. The Zacks Consensus Estimate for 2019 earnings is pegged at $4.72, below the company’s projected figure.

Moreover, the company expects 2019 revenues of $10.90-$11 billion compared with the earlier guidance of $10.65-$10.95 billion. The Zacks Consensus Estimate for revenues stands at $10.82 billion, below the company’s guided range.

Management expects adjusted EBITDA margin of 10.2-10.4%, up from the previous guidance of 9.9-10.1%.

Cash flow from operating activities is expected to be at or above $875 million, up from the previous guidance of $825 million.

Zacks Rank

Leidos Holdings carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Recent Defense Releases

Lockheed Martin Corp. LMT reported third-quarter 2019 earnings of $5.66 per share, which surpassed the Zacks Consensus Estimate of $5.03 by 12.5%. The bottom line also improved 10.1% from $5.14 in the year-ago quarter.

Textron Inc. TXT reported third-quarter 2019 earnings from continuing operations of 95 cents per share, which surpassed the Zacks Consensus Estimate of 85 cents by 11.8%. The bottom line increased 55.7% from the year-ago quarter.

General Dynamics Corporation GD reported third-quarter 2019 earnings from continuing operations of $3.14 per share, which beat the Zacks Consensus Estimate of $3.06 by 2.6%. The bottom line also improved 10.2% from the prior-year quarter’s $2.85.

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