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ManTech International Continues to Retrench As Results Disappoint

By Dan Caplinger - Jul 29, 2015 at 7:40PM

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The provider of defense and intelligence services might finally see a bottoming in its sales declines, but a full recovery could still take a while.

Image: ManTech International.

Many defense contractors have struggled to handle the rapidly changing conditions in the defense industry in recent years, with the needs to respond to geopolitical events having to compete against budgetary considerations among government agencies. ManTech International ( MANT 2.20% ) has been a vital player in helping the U.S. military meet its strategic objectives in key areas of the world, but coming into Wednesday afternoon's second-quarter financial report, ManTech investors still seemed uncertain whether the company would be able to replace revenue from areas in which the military is no longer operating. ManTech wasn't able to meet investor expectations on some key metrics, but there are still some signs that a longer-term turnaround could be under way. Let's look more closely at ManTech's latest results and what could be ahead for the company.

ManTech earnings rise on slumping sales
ManTech International's trend over the past few quarters continued in the first quarter, as challenging sales figures didn't hold back the company's income growth. Revenue plunged 17% to $384.4 million, performing even more poorly than the 14% drop that investors had expected ManTech to post for the quarter. Yet as we've seen before, ManTech managed to produce strong net-income gains, with income rising more than 60% to $12.5 million. Earnings per share weighed in at $0.33, and while that was a penny less than investors had wanted to see, it nevertheless showed how much progress the company has made in maximizing profitability in a tough sales environment.

Still, ManTech emphasized some of the nearer-term progress it has made on the revenue front. Sales climbed 4% sequentially from the first quarter, and ManTech pointed to nearly $700 million in new contract awards during the quarter. More than half of those awards were for brand-new business, with a focus in intelligence, cyber-security, and systems engineering, and the contracts gave ManTech an impressive book-to-bill ratio for the quarter of 1.8. In particular, work for the Defense Intelligence Agency, Department of Homeland Security, and the various Armed Forces branches focused on areas from IT support to systems governing unmanned mine-detecting platforms.

ManTech CEO George Pedersen kept his eyes on the future, noting that the company's results "demonstrate positive momentum across all of our key operating metrics." Pedersen further said that strong bookings and improving business metrics complemented "our plan to invest in growth markets with strategic acquisitions that greatly enhance our position in cyber-defense services and the intelligence community."

Will ManTech start seeing sales climb soon?
Two of those strategic moves came from the purchases of Welkin Associates and Knowledge Consulting Group. Between Welkin's expertise in providing engineering services and KCG's cyber-security product offerings, the new businesses should fit well under the ManTech umbrella.

Still, downward revisions to ManTech's guidance suggest that a full turnaround will take longer than investors would like. The company reduced its revenue guidance by another $50 million to a range of $1.55 billion to $1.65 billion, with net income expected to fall between $51 million and $53.3 million. That would equate to earnings of $1.35 to $1.41 per share, and that range is well below the $1.44 per share that most of those following the stock currently expect. CFO Kevin Phillips tried to explained the cuts in a positive light, characterizing the guidance as "reflect[ing] some delays in contract awards out of our strong pipeline of new opportunities." Still, investors have already waited a while for a turnaround to take shape, and so forcing them to remain patient a while longer could be difficult.

ManTech International investors didn't respond strongly to the news, with shares remaining unchanged in the first hour and a half of after-hours trading following the announcement. For longer-term investors, though, ManTech needs to build up a few consecutive quarters of revenue growth to demonstrate the likely success of its big-picture strategy. If it can do so, ManTech could finally start rewarding shareholders for staying the course.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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