Defense Stock Roundup: COL, SPR Meet Earnings, HRS Tops, RTN Wins Big

The third-quarter reporting cycle is nearing its tail end, with 71.2% of the S&P 500 members having reported their results (as of Nov 1, 2017). Notably, 74.9% of these index members surpassed EPS estimates with a revenue beat ratio of 65.7%. Meanwhile, majority of the companies from the broader Aerospace sector have already released their quarterly numbers.

A handful of companies from this space have released their financial numbers in the past five trading sessions. Defense stocks continued to receive a moderate flow of fund from the Pentagon. However, major indices of the Aerospace-Defense industry ended in the red over the trailing five sessions. This may have been induced by investors’ fear that widespread geo-political tensions, in particular the possibility of a war with North Korea, may hit the economy as whole. While the S&P 500 Aerospace & Defense (Industry) index dropped 2.5%, the Dow Jones U.S. Aerospace & Defense index slipped 1.1% during this period.

Among last week’s highlights, while defense primes Rockwell Collins, Inc. (NYSE:COL) , Harris Corporation (NYSE:HRS) and Spirit AeroSystems Holdings, Inc. (NYSE:SPR) released their quarterly numbers, Raytheon Company (NYSE:RTN) won a number of contracts from the Pentagon.

(Read Defense Stock Roundup for Oct 26, 2017 here)

Recap of Last Week’s Key Stories

1. Rockwell Collins reported results for fourth-quarter fiscal 2017 (ended Sep 30, 2017), wherein adjusted earnings per share of $1.80 came in line with the Zacks Consensus Estimate.For fiscal 2017, the company reported adjusted earnings of $6.15, which beat the Zacks Consensus Estimate of $6.11 by 0.7%.

In the quarter, Rockwell Collins’ total sales was $2,193 million, which missed the Zacks Consensus Estimate of $2,241 million by 2.1%. Revenues however grew 51.8% year over year. For fiscal 2017, the company reported total sales of $6.82 billion, which also missed the Zacks Consensus Estimate of $6.88 billion by 0.9%.

As of Sep 30, Rockwell Collins’ cash and cash equivalents were $703 million compared with $340 million as of Sep 30, 2016. Cash used for operating activities at the end of fiscal 2017 was $1,264 million, compared with $723 million a year ago (read more: Rockwell Collins Q4 Earnings in Line, Sales Up Y/Y ).

2. Harris Corporation reported first-quarter fiscal 2018 (ended September 29, 2017), wherein earnings of $1.38 per share beat the Zacks Consensus Estimate of $1.35.Revenues in the quarter came in at $1,413 million, below the Zacks Consensus Estimate of $1,424.8 million.

The company’s projections for fiscal 2018 remain unchanged. It continues to expect earnings per share (on an adjusted basis) in the band of $5.85-$6.05 (read more: Harris Q1 Earnings Surpass, Revenues Miss Estimates).

3. Spirit AeroSystems posted third-quarter 2017 adjusted earnings of $1.26 per share, which came in line with the Zacks Consensus Estimate. Earnings improved 9% from the year-ago figure of $1.16.

Total revenues of $1,748 million in the third quarter surpassed the Zacks Consensus Estimate of $1,729 million by 1.1%. Backlog at the end of the reported quarter was $45 billion, lower than the prior-quarter figure of $46 billion.

Spirit AeroSystems reiterated its financial guidance for 2017. The company continues to expect to generate adjusted earnings per share in the range of $5.00-$5.25 and revenues in the band of $6.8-$6.9 billion (read more: Spirit AeroSystems Q3 Earnings In Line, '17 View Intact ).

4. Missile-maker Raytheon’s Integrated Defense Systems has won an Army contract with a maximum value of $1.5 billion. Per the terms of the deal, Raytheon will provide operations and sustainment (O&S) support for the Army Navy Transportable Radar Surveillance Model 2 (AN/TPY-2) and Sea-Based X-Band (SBX) radar.

Work related to this deal will be carried out in Woburn, MA, as well as several stateside and overseas locations.The contract has been offered by the Missile Defense Agency, Huntsville, AL and is expected to be over by Oct 31, 2020.

This business segment also won another contract worth $371.2 million from the Missile Defense Agency in the past five trading sessions. For this agreement, Raytheon will provide research and development (R&D) support for the Army Navy Transportable Radar Surveillance Control Model-2 (AN/TPY-2); and Sea-Based X-Band (SBX) radar.

This R&D support includes product improvement; warfighter support; engineering services; Ballistic Missile Defense System test subject matter experts support; modeling and simulation SME support; and cybersecurity. Work related to this deal will be carried out in Woburn, MA, and is expected to be over by Oct 31, 2020.

Performance

Over the last five trading sessions, most of the defense biggies put up a dismal show. General Dynamics Corporation (NYSE:GD) lost the most in the last five days, with its share price declining 5.76%.

On a brighter note, over the last six months, the entire industry has put up a stellar performance. The Boeing Company (NYSE:BA) gained the most, with its shares rising 41.73%, followed by Rockwell Collins, Inc. (NYSE:COL) .

The following table shows the price movement of the major defense players over the past five trading days and during the last six months.

What’s Next in this Space?

Triumph Group, Inc. (TGI) and Huntington Ingalls Industries, Inc. (HII) are set to release their next quarter results on Nov 8.

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