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Orbital ATK Inc.'s Satellite Systems Send Earnings Into Orbit

By Matthew DiLallo – May 6, 2016 at 8:34AM

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The aerospace and defense technology company is sticking with its 2016 guidance.

Image source: Orbital ATK. 

Orbital ATK (OA) started 2016 on a solid note, delivering first-quarter results that were within its expectations. While its revenue was a bit weaker than the first quarter of last year, that's mostly due to the timing of some of its projects. Meanwhile, earnings were much stronger than last year's, thanks in part to the strength of its satellite systems division. Overall, the company's solid performance has it on pace to meet its full-year targets.  

Orbital ATK results: The raw numbers

 

Q1 2016 Actuals

Q1 2015 Actuals

Growth (YOY)

Adjusted revenue

$1.065 billion

$1.116 million

-4.6%

Adjusted operating income

$125.6 million

$116.7 million

7.6%

Adjusted EPS

$1.31

$1.14

14.9%

Data source: Orbital ATK.

What happened with Orbital ATK this quarter?
Orbital ATK reported a somewhat mixed quarter.

  • Orbital's flight systems group was a bit weaker, with adjusted revenue slipping 2.8% to $356 million. However, adjusted operating income was much stronger, increasing by 11.8% to $50 million thanks to higher revenue and robust profit margins in the launch systems division.
  • The company's space systems group was also a bit weaker, with adjusted revenue decreasing 13% to $437 million. Adjusted operating income, likewise, was lower, falling 23.1% to $39.7 million. This weakness was primarily due to higher product shipments in the first quarter of last year.
  • The space systems group, however, was a bright spot. While revenue was flat year over year at $287 million, adjusted operating income soared 40.7% to $31.1 million due to higher profit margins in the satellite systems division.
  • New order growth was strong, with Orbital ATK recording $2.5 billion in new firm and option contract bookings as well as receiving $720 million in option exercises under existing contracts. That pushed the company's firm backlog up to $8.6 billion, which is up 8% from the year-ago quarter. Meanwhile, its total backlog is up to $14.8 billion, which is 23% higher than last year.

What management had to say
CFO Garrett Pierce noted:

While the first quarter produced solid margins and earnings per share, our top-line revenues and cash flow were affected by timing on certain programs and milestone payments... As we look to the remainder of 2016, the company expects to see revenue and cash flow strengthen, particularly in the second half, leading us to reaffirm our previous annual guidance.

According to Pierce, the company delivered a pretty solid quarter, with strong earnings growth offsetting the fact that its revenue can be a bit lumpy. That aside, the company still expects to hit its full-year targets because it sees the business strengthening in the second half of the year.

Looking forward
As Pierce also mentioned, Orbital ATK is reaffirming its annual guidance, which is detailed in the table below:

Guidance

2016 Guidance

Revenues ($ in millions)

$4,575-$4,650

Operating income profit margin

11%-11.5%

Diluted earnings per share

$5.25-$5.50

Free cash flow ($ in millions)

$275-$325

Data source: Orbital ATK.

At the midpoint, this guidance reflects revenue growth of 2.2% over 2015, while earnings per share is expected to increase by 7.1%.

Matt DiLallo owns shares of Orbital ATK. The Motley Fool recommends Orbital ATK. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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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