Orbital Swings 'Round Again

Shares of Orbital Sciences (NYSE: ORB  ) rocketed higher on Thursday, after the Motley Fool Rule Breakers pick reported Q1 sales of $296 million -- 30% better than last year, and a good bit more than Wall Street was expecting. Profits came in precisely as predicted, at $0.23 per share, and free cash flow amounted to $17.8 million. That's a more than 350% improvement on what Orbital generated last year.

In order, running from "spectacular" to "respectable" to "detectable by the Hubble Space Telescope," revenue growth by division went like this:

  • Advanced Space Programs, which covers Orbital's work on the NASA Orion space program, saw its revenue shoot up 176%
  • Transportation Management Systems (TMS) ascended 20%. Grand news for Orbital, which presumably was able to use the division's growth this quarter, along with its even better 33% pace set last quarter, in negotiating the just-announced sale of TMS to Affiliated Computer Services (NYSE: ACS  ) for $42.5 million.
  • Launch Vehicles grew 19%, helped by "substantial bookings of additional interceptor and target vehicle orders in our missile defense business."
  • Last and least was Satellites and Space Systems, which remained Orbital's largest revenue winner, despite turning in its weakest growth -- 2%.

Sounds pretty good so far, huh? But here's perhaps the best news of all: Remember how, last quarter, Orbital warned us that the cost of developing its new Taurus II medium-launch satellite might cost it $0.14 per share in profit this year, and perhaps half of its potential free cash flow? Well, Orbital has decided to go ahead with developing the Taurus II -- but on further reflection, it thinks the financial damage could be less serious than we were first led to believe.

From an accounting perspective, we're still looking at about a 100-basis-point reduction in operating margin, and perhaps $0.14 fewer profits per share. But from a cash flow perspective, the risk of a halving of free cash flow has vanished. Orbital now predicts:

  • Nearly $1.2 billion in revenue this year.
  • 7% to 7.5% operating margin. (That's less than some of the large aerospace players like Raytheon (NYSE: RTN  ) , Lockheed (NYSE: LMT  ) , Northrop (NYSE: NOC  ) , and Boeing produce, but better than previously expected.)
  • About $0.86 per share in profit.
  • And $80 million or more in free cash flow.

Way to go, rocket man.

Retrace Orbital's trajectory:

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