Number One With a Bullet

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I once went to school with a guy who came from a family that became fabulously wealthy because at the outbreak of one of America's wars -- I can't remember which -- his grandfather happened to own the only factory in the country capable of producing the casing for a certain artillery shell.

That's the sort of situation that Alliant Techsystems (NYSE: ATK) finds itself in these days. The firm, perhaps best known for its more advanced work on missile systems, advanced munitions, and NASA rockets, also cashed in on the Iraq war last year, selling over a billion rounds of small-arms ammo from one plant alone. It's the army's only provider of small-arms cartridges (not bullets, please; that word refers to the projectile only).

Full-year numbers show a 9% uptick in revenues, totaling $2.4 billion. Small arms and related sales, the no. 2 contributor to the top line, was up 11% alone. But, thanks to recent acquisitions, the precision systems group put in a 13% increase. The near $1 billion aerospace segment was up only 4%. At the bottom line, earnings jumped a robust 35%, to $4.14 per share, primarily due to a drop in tax provisions and lighter interest payments.

There was a bit of press-release baseball, too. Management was happy to break out a slight 0.3% increase in EBIT margin -- excluding pesky pension responsibilities, as well -- but wasn't enthusiastic enough with the calculator to highlight or explain the 1% decrease in gross margins for the full year.

At about $60 per share, the firm trades at a P/E around 15, but if that looks cheap to you, keep in mind that the firm predicts lighter earnings for next year. Free cash flow is slimming down as well, to just over $121 million for FY04. That puts it at an overly rich enterprise value-to-free cash flow ratio of 27.

Discuss the Iraq war in the Fool's Current Events board.

Fool contributor Seth Jayson owns no stake in any firm mentioned in this article, but he thinks his uncle Ed might work for ATK. View his Fool profile here.