3 Takeaways From Orbital ATK's Earnings

By Matt DiLalloFool.com

Aerospace and defense manufacturer Orbital ATK reported its first-quarter earnings results before the opening bell on Thursday. It's the company's first report since it was formed by way of mergerin February, and the results include a number of adjustments for that merger and for comparison purposes. Those numbers aside, the report hammered home the point that the newly combined entity's integration is running smoothly and that it is well positioned for 2015 and beyond. Here are three takeaways from that report that drive home this overriding theme.

1. The numbers were solidFor the quarter, Orbital ATK reported adjusted pro-forma revenue of $1.1 billion. That was slightly off from the comparable period in 2014 and missed estimates by about $20 million. The decrease in revenue was led by the company's flight systems and defense systems groups, where revenue dropped by 5% and 4%, respectively. The decline in revenue within those two groups was derived from lower revenue in the company's launch vehicles and small caliber systems divisions. Meanwhile, revenue for Orbital ATK's third operating group, space systems, increased by 4% thanks to higher revenue in its commercial satellite division.

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While revenue was down a bit, earnings were much stronger: The company reported adjusted operating income of $116.7 million and adjusted earnings per share of $1.14. That not only beat analysts' consensus estimate by $0.07 per share, but was well above the comparable period's $74.3 million in adjusted operating income and adjusted EPS of $0.67.

Orbital ATK also reported strong adjusted free cash flow of $58.7 million. A portion of that cash flow will be used to pay the company's recently initiated quarterly dividend of $0.26 per share. Management also plans to use free cash flow this year to buy back $75 million in stock and pay down $60 million in debt.

2. Backlog is strongOrbital ATK recorded $1.48 billion in new firm and option contract bookings, which it added to its backlog. On top of that, the company received nearly $120 million in option exercises under existing contracts. This brings the company's total firm backlog to $7.97 billion, and its total backlog, which includes options and other contracts, to nearly $12.08 billion. This strong backlog helps to lock in revenue for future years. Furthermore, backlog growth that outstripped revenue in the quarter suggests revenue growth in future quarters.

3. Guidance points to a good yearOrbital ATK expects 2015 to be a solid year. Its full-year guidance calls for revenue of $4.35 billion to $4.45 billion and earnings of $4.40 to $4.60 per share. In addition, the company expects strong free cash flow generation of $225 million to $275 million.

Investor takeawayWhile adjusted pro-forma revenue was down, that's not much of a worry as this was very much a transitional quarter for Orbital ATK. More important was the growth in the company's backlog and strong free cash flow generation. Both suggest the new company is on pace to create value for investors in 2015 and beyond.

The article 3 Takeaways From Orbital ATK's Earnings originally appeared on Fool.com.

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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