Defense Stock Roundup: US-North Korea Conflict, Q2 Earnings Beat at LDOS & AJRD

The U.S. Aerospace and Defense industry’s Q2 earnings performance in the past week has been impressive. However, disagreements between North Korea and the United States over the past few days might have proved detrimental. Notably, major indices like the S&P 500 Aerospace & Defense (Industry) and the Dow Jones U.S. Aerospace & Defense Index have lost 4.4% in the trailing five trading sessions.

Among the past week’s highlights, quarterly results from a number of Aerospace-Defense majors namely Leidos Holdings Inc. LDOS, Aerojet Rocketdyne Holdings, Inc. AJRD, L3Harris Technologies Inc.LHX, Spirit AeroSystems Holdings, Inc. SPR, Curtiss-Wright Corporation CW, Triumph Group, Inc. TGI and Huntington Ingalls Industries Inc. HII remained a key area of investors’ interest.

Recap of Past Week’s Important Stories

1.    Leidos Holdings’ second-quarter 2019 adjusted earnings of $1.16 per share surpassed the Zacks Consensus Estimate by 5.5%. The bottom line also increased 3.6% from $1.12 registered a year ago. Total revenues of $2,728 million exceeded the Zacks Consensus Estimate by 3.5% and improved 7.9% year over year.

At the end of the reported quarter, the company’s total backlog was $21.7 billion compared with $21.5 billion at the end of the first quarter. Net cash provided by operating activities at the end of second-quarter 2019 amounted to $186 million compared with $271 million a year ago.

Furthermore, Leidos Holdings partially raised its outlook for 2019. The company currently expects its adjusted earnings to be in the $4.50-$4.75 range on revenues of $10.65-$10.95 billion (read more: Leidos Holdings' Q2 Earnings Beat, 2019 EPS View Up).

2.    Aerojet Rocketdyne’s reported second-quarter 2019 adjusted earnings of 50 cents per share, which surpassed the Zacks Consensus Estimate by 28.2%. Its second-quarter revenues of $485 million came in 3.8% higher than the year-ago quarter’s figure. The top line also exceeded the Zacks Consensus Estimate by 2.3%

Total backlog at the end of the second quarter was $4.6 billion, significantly higher than $3.8 billion registered at the end of the first quarter.

Operating cash outflow from continuing operations summed $31.2 million (as of Jun 30, 2019) compared with $24.5 million in the year-ago period (read more: Aerojet Rocketdyne's Q2 Earnings Beat, Revenues Up Y/Y).

3.    L3Harris’ adjusted earnings from continuing operations during the fourth quarter of fiscal 2019 came in at $2.44 per share, which surpassed the Zacks Consensus Estimate by 6.1%. The bottom line also increased 39% year over year. Its total revenues came in at $1.87 billion, outpacing the Zacks Consensus Estimate by 3.4%

Orders in the fiscal fourth quarter totaled $1.90 billion, reflecting a 2% rise from the year-ago quarter. Net cash flow from operating activities amounted to $1,185 million at the end of fiscal 2019 compared with $751 million a year ago.

L3Harris expects to generate revenues of $18.0-$18.1 billion for calendar year 2019 (read more: L3Harris Technologies Q4 Earnings Top Estimates, Up Y/Y).

4.    Spirit AeroSystems’ second-quarter 2019 adjusted earnings of $1.71 per share surpassed the Zacks Consensus Estimate of $1.64. On a year-over-year basis, the bottom line registered an improvement of 5%. Revenues of $2,016 million exceeded the Zacks Consensus Estimate by 1.7%.

Backlog at the end of the reported quarter was $46 billion, lower than $48 billion in the prior quarter.

Cash flow from operating activities increased to $471.7 million at the end of the second quarter from $397.2 million at the end of second-quarter 2018 (read more: Spirit AeroSystems Q2 Earnings Beat, Backlog Slips Q/Q).

5.    Curtiss-Wright’s second-quarter 2019 adjusted earnings of $1.90 per share surpassed the Zacks Consensus Estimate by 7.3%. Total sales came in at $639 million, which increased 4% year over year but missed the Zacks Consensus Estimate by a whisker.

Total backlog at the end of the second quarter was $2.2 billion, in line with the figure registered in the first quarter. New orders rose 3% year over year to $1.3 billion in the first six months of 2019.

Adjusted free cash flow at the end of the quarter was $16.1 million compared with the year-ago figure of $56.8 million (read more: Curtiss-Wright Q2 Earnings Top Estimates, Orders Up Y/Y).

6.    Triumph Group’s adjusted earnings from continuing operations in first-quarter fiscal 2020 (ended Jun 30, 2019) came in at 46 cents per share, which surpassed the Zacks Consensus Estimate by 2.2%. Net sales came in at $730.2 million, outpacing the Zacks Consensus Estimate by 3.6% but declined 12.3% on a year-over-year basis.

Backlog was $3.7 billion, which increased 1% organically from the prior-year period’s figure and flat on a sequential basis.

Cash flow from operating activities in the fiscal first quarter was $5 million compared to cash outflow of $65.7 million in the year-ago quarter (read more: Triumph Group Q1 Earnings Top Estimates, Sales Down Y/Y).

7.    Huntington Ingalls’ second-quarter 2019 earnings of $3.07 per share missed the Zacks Consensus Estimate by 13.8% and decreased 43.1% year over year. Total revenues came in at $2.19 billion, outpacing the Zacks Consensus Estimate by 3.1% and rose 8.3% year over year.

As of Jun 30, 2019, the company’s total backlog reached $39.4 billion compared with $41 billion as of Mar 31, 2019.

Cash outflow from operating activities, at the end of second-quarter 2019, totaled $33 million against cash inflow of $359 million at the end of second-quarter 2018 (read more: Huntington Ingalls Q2 Earnings Miss, Revenues Up Y/Y).

Price Performance

Over the past five trading sessions, the defense biggies put up a dismal show. General Dynamics lost the most with 6.9% decline in share price followed by Textron.

The industry's performance has been mixed over the last six months. While Lockheed Martin and Northrop Grumman gained, Textron and Boeing lost significantly.

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

Company	Last Week	Last 6 Months
LMT	-1.81%	19.69%
BA	-2.69%	-19.29%
GD	-6.88%	2.64%
RTN	-5.02%	2.37%
NOC	-3.55%	23.11%
TXT	-6.44%	-14.21%
LLL	0.00%	6.48%

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