Defense News Roundup: Raytheon Ships Torpedoes As the U.S. Navy Raises CANES

Here's our weekly rundown of the major stories in defense spending.

Aug 25, 2014 at 6:32PM

The U.S. military has a reputation as a somewhat secretive organization. But in one respect at least, the Pentagon is one of the most "open" of our government agencies. Every day of the week, rain or shine, the Department of Defense tells U.S. taxpayers what contracts it's issued, to whom, and for how much -- all right out in the open on its website.

Source: U.S. Department of Defense Fiscal Year 2014 Budget Request (link opens a PDF).

So what has the Pentagon been up to this week?

Between "base" spending levels, and supplementary spending on overseas contingency operations, the DoD is budgeted to spend about $11.8 billion a week in fiscal 2014, of which $6.2 billion goes to military hardware, infrastructure projects, and supplies. But once again, the Pentagon ran under budget last week, awarding contracts for only slightly more than in the previous week -- $5.63 billion.

And what did the generals get for their (read "our") money?

The Mk54 anti-submarine torpedo can engage targets is shallow water or deep. Illustration: Raytheon.

Torpedoes from Raytheon
The U.S. Navy exercised an option under a pre-existing contract Wednesday, instructing defense contractor Raytheon (NYSE:RTN) to supply it with an unspecified number of MK54 Mod 0 Lightweight Torpedo Kits, and to provide related engineering and repair services needed to upgrade these torpedoes. The Mk 54 "MAKO" torpedo is primarily an anti-submarine weapon, and it's a "hybrid" torpedo, combining the homing and warhead portions of the Mk 50 with the Mk 46 torpedo's propulsion unit. Designed primarily for use in shallow waters, the Mk 54 is said to be superior to the original MK46 when used in deep water. These torpedo kits will be supplied for use both by the U.S. Navy, and by the allied militaries of Australia, India, and Turkey.

Raytheon will receive $59 million for the contract.

From Harris Corp., crisis management services
Wednesday was a big day for Pentagon contracts, with an even bigger award going to Harris Corp. (NYSE:HRS). Harris was awarded an indefinite delivery, indefinite quantity contract, or IDIQ, worth up to $450 million to perform engineering, maintenance, and program management work on the Defense Information Systems Agency's Crisis Management System, or CSM. The contract, originally awarded for just one year, may be extended as far out as one full decade if all options are exercised.

In fact, Harris is just coming off a 10-year contract (originally awarded in 2004) for its work on CSM, which provides the U.S. president with a secure, top-secret communications system for use during national emergencies, keeping the Commander-in-Chief in contact with the Joint Chiefs of Staff, members of his Cabinet, and other executives -- including from aboard Air Force One and Marine One.

Sysco gets KP duty
Another of the week's more lucrative contracts -- if not as sexy as the ones for high explosives and high-tech -- went to food services company Sysco (NYSE:SYY). On Tuesday, Sysco was awarded a contract worth up to $281 million to serve as "prime vendor food and beverage" for Army, Navy, Air Force, and Marine Corps locations in North Carolina through July 16, 2016.

Then, three days later, a second contract likely to benefit Sysco was awarded, when US Foods, a company Sysco is set to acquire, was awarded a $17 million contract to serve as "prime vendor full line food distribution" for U.S. Air Force locations in North Dakota.

Together, the two contracts add up to nearly $300 million in incremental revenue for Sysco -- which sounds like a lot, but which is actually barely 0.6% of the revenues the company takes in in a year.

Saving the best for last
And finally, the truly huge news of the week arrived -- when else? -- on Wednesday. That was when the Pentagon named five firms, including General Dynamics (NYSE:GD), Northrop Grumman (NYSE:NOC), privately held Global Technical Systems, and two British firms -- BAE Systems and Serco Group -- to split an IDIQ contract estimated in excess of $2.5 billion in value.

Dubbed "CANES," for "Consolidated Afloat Networks and Enterprise Services," this mammoth project aims to modernize communications networks across the U.S. Navy by August 2022. At least two years in the making already, CANES has already been installed aboard nine U.S. destroyers. Ultimately, the plan is to roll it out across 180 separate "platforms," including shore installations, submarines, and surface vessels. When complete, CANES will consolidate legacy and stand-alone Navy cybersecurity, command and control, communications, and intelligence networks into one unitary system.

Which of the five companies will perform which parts of the project -- and how the $2.5 billion will be divvied up -- remain to be seen. But it's clear that CANES is a big deal for the Navy, and for the defense contractors that will now begin work to implement it as well.

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Guided missile destroyer USS McCampbell (DDG 85), the first U.S. warship to be equipped with CANES.. Photo: U.S. Navy.

Rich Smith owns shares of Raytheon. The Motley Fool recommends Sysco and owns shares of General Dynamics, Northrop Grumman, and Raytheon. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

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Jun 12, 2015 at 5:01PM

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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