Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



GenCorp's Sales Rocket, but Profits Flame Out

As the company behind rocket engine specialist Aerojet Rocketdyne, GenCorp (NYSE: AJRD  ) is a bona fide "rocket stock." Sadly, its profits just went up in flames.

GenCorp reported its fiscal second-quarter 2014 earnings results yesterday after the close of trading. To wit, revenue leapt 40% year over year, boosted by new revenue streams from the company's acquisition of Rocketdyne from United Technologies (NYSE: UTX  ) . Profit, however, was nonexistent. Thanks largely to a steep increase in the cost of goods sold, along with a $46 million accounting "loss" on debt that the company has repurchased and retired, GenCorp's $0.87 per-share quarterly loss more than quadrupled the loss booked in last year's second quarter.

Meanwhile, operating cash flow contracted by 75%, to just $3 million. An increase in capital spending left the company with negative $6.2 million in free cash flow -- 10 times worse than last year's $0.6 million cash burn.

So you could say the news was not great. And yet, the company is not without hope.

Space is the future
The big hope for GenCorp investors is that past performance is not indicative of future results. That new spending by the government and by other contractors working on government programs -- on Terminal High-Altitude Area Defense, on the United Launch Alliance's Atlas V rockets, and on other engines to power new space launch rockets -- will ultimately return GenCorp to profitability.

These hopes are not entirely without basis.

GenCorp's funded backlog at the end of the quarter hit $2 billion, after all. Add in the backlog for which Congress has not yet appropriated funds (unfunded backlog), and GenCorp's total contract backlog number topped $3 billion.

With GenCorp generating about $1.5 billion in revenue over the past year, this means the company has about two years' worth of business "in the bag." And this solid book of business lends some confidence to analysts' belief that the company will produce 20% profit growth annually over the next five years.

On the other hand, this quarter's loss raises some questions as to exactly what "profits" analysts expect to see growing at that 20% rate. For the time being, the stock has to be viewed as a "trust but verify" proposition. As one of the nation's premier rocket producers, GenCorp provides an essential service to the U.S. government. But the company's spotty record on generally accepted accounting principles profitability, and its recent plunge into free cash flow negativity, suggest investors should view this stock with caution.

Take advantage of this little-known tax "loophole"
NASA consumes just a small fraction of 1% of the taxes Americans pay. Even so, taxes are on the rise, and their increases have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3024881, ~/Articles/ArticleHandler.aspx, 8/30/2015 10:32:25 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Rich Smith

As a defense writer for The Motley Fool, I focus on defense and aerospace stocks. My job? Every day of the week, I'm monitoring the news, figuring out the winners and losers, and tracking down the promising companies for you to invest in. Follow me on Twitter or Facebook for the most important developments in defense & aerospace, and other great stories.

Today's Market

updated 1 day ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/28/2015 4:01 PM
AJRD $20.60 Down -0.01 -0.05%
Aerojet Rocketdyne… CAPS Rating: No stars
UTX $93.24 Down -0.03 -0.03%
United Technologie… CAPS Rating: ****