Aerojet Rocketdyne has had its ups and downs in 2015 -- and basically gone nowhere fast. AJRD Total Return Price data by YCharts.

Aerojet Rocketdyne (NYSE:AJRD) is not having a good year.

First, in June, we learned that Aerojet CEO Scott Seymour has left the company, to be replaced by new CEO Eileen Drake. Then in successive announcements, key customer United Launch Alliance, or ULA, a joint venture between Lockheed Martin (NYSE:LMT) and Boeing (NYSE:BA), confirmed that it would not be buying engines from Aerojet to form the main engine on its new Vulcan space rocket (probably) or to serve as the solid rocket boosters on Vulcan either (definitely). That's billions of dollars in potential revenues for Aerojet -- that will not in fact be going to Aerojet.

Adding to the company's misery, a reported $2 billion bid to acquire ULA in its entirety, converting the space launch giant into essentially a "captive market" for Aerojet's engines, has apparently failed. Boeing apparently rejected the bid out of hand. And positive comments on the overture from paid Lockheed Martin consultant Loren Thompson to the effect that both Lockheed Martin and Boeing would be best advised to grab Aerojet's offer as a chance to "exit" a declining business failed to sway ULA's owners.

Strike three (or is it five? I'm losing count)
Now, the latest blow: In an earnings announcement released on Tuesday, Aerojet has just reported a massive $0.62-per-share loss for its business. Here's how that one went down:

  • Q3 started out on a positive note for Aerojet, with revenues rising a modest 5% to $440.5 million.
  • Costs of goods sold fell modestly, resulting in a significant rise in quarterly gross margins from 10.6% to 15.2%.
  • Unfortunately, these gross profits were entirely erased by a combination of rising operating costs and -- even more significantly -- a $50 million pre-tax charge to earnings for a legal settlement and a further $29.5 million charge for "environmental remediation reserve requirements."
  • Together, these costs and one-time charges to earnings pushed Aerojet into a $38.1 million loss for the quarter -- $0.62 per share.

Topping off the bad news, while some might discount the significance of one-time accounting charges to earnings, Aerojet is also hurting where it really counts -- on the cash flow statement. According to the company's report, free cash flow produced in Q3 2015 was just $33.6 million, a 24% drop in comparison to Q3 2014 cash production.

Aside from that, Mrs. Lincoln, how was the play?
Amid all this bad news, an investor is pretty much forced to grasp at straws to find any good news in Aerojet's report. That's not to say there were no such straws, however.

For one thing, while I personally prefer to use free cash flow over accounting "earnings" as a measure of a company's true profitability, there's no denying that free cash flow can be more volatile than GAAP earnings from quarter to quarter. Over the longer term, though, Aerojet Rocketdyne has actually been doing pretty well on this metric. Even if Q3's cash tally was a bit light, year to date, the company has produced $52.6 million in real cash profit -- a big improvement over the $2.2 million in FCF that Aerojet Rocketdyne produced through the first three quarters of 2014.

Also encouraging is that fact that despite losing some pretty big contracts it was hoping to receive from Boeing and Lockheed Martin, Aerojet's still winning its fair share of orders from other customers. According to the company, funded backlog is now up $400 million from the end of last fiscal year, and stands at $2.6 billion. That's enough work "in the bag" to keep Aerojet Rocketdyne working full speed for more than 18 straight months at current revenue rates. And indeed, Aerojet says it expects about $1.5 billion of its total backlog to be completed over the next year.

Foolish takeaway
Things are not looking good for Aerojet Rocketdyne right now, and the stock's ultra-low valuation -- just 6.7 times free cash flow as tallied by S&P Capital IQ -- reflects this fact. That said, Aerojet still has enough business to keep it in business for at least the next year, and probably a good while longer than that. With smart management (and perhaps a higher bid to buy ULA?), that gives new CEO Drake time to right the ship, and chart a course to a better tomorrow.

Whether Aerojet Rocketdynegets there remains to be seen. But rest assured that we'll be watching, and keeping you up to date as the story progresses.