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Defense Stock Roundup: BA, GD, UTX Top, LMT Misses Q3 Earnings

The Q3 earnings season is in full swing, with 38.2% of the S&P 500 members having reported their numbers as of Oct 25. So far, earnings growth rate for these 164 index members have been lower than the preceding quarter, whereas revenue growth rate shows acceleration.

As far as the broader Aerospace sector is concerned, although earnings growth projections are not very inspiring, 83.3% of the stocks that have reported results delivered a beat as of Oct 25.

In fact, the outlook for defense stocks improved significantly after the U.S. Senate passed the defense policy bill worth $700 billion which surpassed the fiscal 2018 budget proposal proposed by Trump in March.

Over the last five trading sessions, major indices of the Aerospace-Defense industry hint at conflicting results, probably on mixed earnings expectations from major defense biggies that are lined up for their quarterly release this week. While the S&P 500 Aerospace & Defense (Industry) Index dipped 0.6%, the Dow Jones U.S. Aerospace & Defense Index inched up 0.2% during this period.

Among last week’s highlights, defense primes The Boeing Company BA, General Dynamics Corporation GD, Northrop Grumman Corporation NOC, Honeywell International Inc. HON, Lockheed Martin Corporation LMT, United Technologies Corporation UTX and Textron Inc. TXT released their third-quarter numbers.

Recap of Last Week’s Key Stories

1. Aerospace giant, Boeing reported adjusted earnings of $2.72 per share for third-quarter 2017, beating the Zacks Consensus Estimate of $2.65 by 2.6%. The company's revenues amounted to $24.31 billion in the reported quarter, missing the Zacks Consensus Estimate of $24.06 billion by 1%. The top line also declined 1.7% year over year.

Backlog at the end of the third quarter was down to $474.3 billion from $482.2 billion at the end of the second quarter. Reported backlog included $16 billion of net orders during the quarter.

Boeing’s adjusted or core earnings per share expectation for 2017 are in the range of $9.90-$10.10, up from the prior guided range of $9.80-$10.00. GAAP earnings are now projected to be in the range of $11.20-$11.40 per share compared with the previous range of $11.10-$11.30 (read more: Boeing Tops Q3 Earnings Estimates, Updates '17 Guidance).

2. Military shipbuilder General Dynamics reported earnings from continuing operations of $2.52 per share, beating the Zacks Consensus Estimate of $2.43 by 3.7%. The company’s third-quarter total revenues of $7,580 million missed the Zacks Consensus Estimate of $7,892 million by 4%. Reported revenues also dipped 1% from $7,657 million in the year-ago quarter.

The company recorded a total backlog of $63.9 billion, down 0.2% year over year. Funded backlog at the quarter end was down 1% to $52.7 billion.

As of Oct 1, 2017, General Dynamics’ cash and cash equivalents were $2,722 million compared with $2,334 million as of Dec 31, 2016. Free cash flow from operations at the end of the third quarter was $751 million, compared with $389 million in the previous year (read more: General Dynamics Beats Q3 Earnings, Revenues Dip Y/Y).

3.Defense major Northrop Grumman reported earnings of $3.68 per share, beating the Zacks Consensus Estimate of $2.92 by 26%. The company reported total revenues of $6.53 billion, beating the Zacks Consensus Estimate of $6.32 billion by 3.3%. Revenues also increased 6% from the year-ago figure of $6.16 billion.

Northrop Grumman’s cash and cash equivalents as of Sep 30, 2017 were $1.88 billion, down from $2.54 billion as of Dec 31, 2016.

Northrop Grumman raised its financial guidance for 2017. The company currently expects to generate revenues approximately $25.5 billion during 2017 compared with its earlier guidance of lower than $25 billion (read more: Northrop Grumman Beats Q3 Earnings, Raises '17 Outlook).

4. Honeywell International reported adjusted earnings of $1.75 a share beating the Zacks Consensus Estimate of $1.74 by 0.6%. The company’s third-quarter revenues improved 3.2% year over year to $10,121 million and exceeded the Zacks Consensus Estimate of $10,056 million.

Net cash provided from operating activities for the three months ended Sep 30, 2017, was $1,407 million compared with $1,554 million in the prior-year period. Honeywell exited third-quarter 2017 with free cash flow of $1,195 million compared with the year-ago figure of $1,280 million.

The company raised earnings and revenue guidance for 2017. Its earnings per share are currently expected in the range of $7.05-$7.10 (from $7.00-$7.10) (read more: Honeywell Beats on Q3 Earnings & Revenues, Guides Well).

5. Pentagon’s largest defense contractor Lockheed Martin reported earnings from continuing operations of $3.24 per share, which missed the Zacks Consensus Estimate of $3.25 by 0.3%. Its total revenues came in at $12.17 billion, which missed the Zacks Consensus Estimate of $12.83 billion by 5.1%.

Lockheed Martin ended the third quarter (on Sep 24, 2017) with $103.6 billion in backlog, up 12.5% from $92.1 billion at the end of the second quarter.

Lockheed Martin raised 2017 financial guidance. The company expects to generate revenues in the range of $50.0-$51.2 billion, higher than the earlier provided projection of $49.8-$51.0 billion (read more: Lockheed Misses on Q3 Earnings, Raises '17 Outlook).

6. United Technologies reported adjusted earnings of $1.73 per share which beat the Zacks Consensus Estimate by 5 cents. Net sales in the reported quarter came in at $15,062 million compared with $14,354 million in the year-ago quarter and exceeded the Zacks Consensus Estimate of $14,886 million.

For the first nine months of 2017, United Technologies generated net cash of $3,110 million from operating activities, down from $4,567 million recorded in the year-ago period.

The company raised full-year 2017 earnings guidance. Adjusted earnings are currently anticipated to lie within the $6.58-$6.63 per share range compared with the previously estimated range of $6.45-$6.60 (read more: United Technologies Beats Q3 Earnings, 2017 View Up).

7. Textron reported adjusted earnings from continuing operations of 65 cents per share, beating the Zacks Consensus Estimate of 62 cents by 4.8%. Total revenues in the quarter was $3.48 billion, which missed the Zacks Consensus Estimate of $3.54 billion by 1.5%. Reported revenues however improved 7.2% from the year-ago figure of $3.26 billion.

Cash flow from operating activities were $119 million at the end of the third quarter, compared to $175 million in the prior year quarter.

Textron lowered the upper limit of adjusted earnings guidance range for 2017. The company currently expects to generate adjusted earnings in the range of $2.40-$2.50 per share, compared to prior guidance range of $2.40-$2.60 per share.

Performance

Over the last five trading sessions, the defense biggies put up a mixed show. While Lockheed Martin, Boeing and General Dynamics lost in the last five days, others gained considerably.

On a brighter note, over the last six months, the entire industry has put up a stellar performance. Boeing gained the most, with its shares rising 40.82%, followed by Rockwell Collins.

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

CompanyLast WeekLast 6 Months
LMT-2.14%15.71%
BA-0.89%40.82%
GD-2.85%7.25%
RTN0.57%21.27%
NOC4.37%22.82%
COL0.23%27.87%
TXT0.84%14.20%
LLL0.45%10.55%

What’s Next in this Space?

Rockwell Collins is set to release fiscal  fourth-quarter 2017 results on Oct 27.

Harris Corporation is slated to report fiscal  first-quarter 2018 results on Oct 31.

Spirit Aerosystems Holdings is scheduled to report third-quarter results on Nov 1.

Leidos Holdings and Orbital ATK are set to release their third-quarter results on Nov 2.

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Northrop Grumman Corporation (NOC): Free Stock Analysis Report
 
Boeing Company (The) (BA): Free Stock Analysis Report
 
General Dynamics Corporation (GD): Free Stock Analysis Report
 
Lockheed Martin Corporation (LMT): Free Stock Analysis Report
 
Textron Inc. (TXT): Free Stock Analysis Report
 
Honeywell International Inc. (HON): Free Stock Analysis Report
 
United Technologies Corporation (UTX): Free Stock Analysis Report
 
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