Alliant Techsystems Inc., the largest supplier of ammunition and rocket motors to the U.S. military, said fiscal second-quarter profit fell less than 1 percent because of higher taxes and costs to repurchase shares.
Net income in the quarter ended Oct. 1 fell to $39.9 million, or $1.15 a share, from $40.2 million, or $1.07, a year earlier, the company, based in Edina, Minn., said in a statement Thursday. A stock buyback resulted in fewer shares outstanding and boosted earnings per share.
Revenue rose 7.9 percent to $833.1 million as the start of hunting season boosted commercial ammunition sales and as wars in Iraq and Afghanistan lifted demand for M-16 rifle bullets. Chief Executive Officer Daniel Murphy is preparing for slower ammunition sales when those conflicts wind down by expanding in new areas including composite materials for commercial aircraft.
"Ammunition sales came in a little higher than expected, lifted by a seasonal boost on the commercial ammo side," said Peter Arment, an analyst at JSA Research in Newport, R.I. "Military small-caliber ammunition will remain at the high current production level, sustained by the pace of training requirements." He rates Alliant as a "hold" and doesn't own shares.
Shares of Alliant, which has 4,585 employees in Utah at seven facilities, fell 95 cents to close at $77.40 Thursday on the New York Stock Exchange as the company forecast slower growth in ammunition sales, and said profit may be less than some analysts expect this year and next. The shares have risen 1.6 this year.
"The honing of EPS guidance halfway through the year may be a minor disappointment," Robert Stallard, a New York-based Banc of America Securities analyst, wrote in note to clients.
Since 2000, Alliant has more than quadrupled production capacity at the government-owned Lake City small arms ammunition plant it operates in Independence, Mo., to produce as many as 1.5 billion rounds a year as U.S. ammunition demand surged to its highest level since the Vietnam War.
The company expects military small-caliber ammunition sales growth will level off this year and remain flat next year, Murphy said on a conference call.
"With the added capacity the company has developed at Lake City, ATK is targeting the civil and international markets," Murphy said. "In civil ammunition, the company is having the best sales year in memory."
The company kept the top of its forecast range for this year at $5.05 a share, less than the $5.06 average forecast in a Thomson Financial analyst survey. Alliant raised the low end of its forecast by 5 cents to at least $4.95 a share.
Earnings per share will rise to $1.30 in the current quarter, from $1.26 a year earlier, Chief Financial Officer John Shroyer said on the call, in line with the average estimate of analysts surveyed by Thomson.
Next year, earnings per share will rise 15 percent, Shroyer said, without giving a figure. Based on this year's forecast range, that would mean earnings per share between $5.69 and $5.81. Analysts surveyed by Thomson on average project profit of $5.80.
In the second quarter, Alliant was expected to earn $1.17 a share on sales of $818.5 million, according to Troy Lahr, a Baltimore-based analyst with Stifel Nicolaus, one of the highest-rated analysts by StarMine Corp., which follows the accuracy of analyst estimates. His profit estimate was in line with the average forecast of 14 analysts surveyed by Thomson Financial.
Alliant had forecast second-quarter earnings of $1.17 a share in August, which it said at the time included 5 cents for the expected extension of a research and development tax credit. Approval of that credit was delayed and not reflected in the quarter, raising the tax rate for the period to 37.8 percent from 34.5 percent a year earlier, Steve Wold, Alliant's director of investor relations, said in an interview.
JSA's Arment and Stifel's Lahr both based their estimates on a lower tax rate than the company reported. Both declined to provide a detailed comparison to the reported results.
Excluding the benefit of the tax credit, the company's previous forecast for the quarter was a $1.12, which Alliant beat, Wold said.
Net income also was brought down by about $2 million because of higher interest expenses related to borrowing to buy back shares, Wold said. That reduced the company's average number of shares to 34 million as of Oct. 1, from 37 million a year earlier, which boosted earnings per share.
Alliant raised its full-year sales forecast to $3.45 billion, from a previous forecast of $3.4 billion. The company's sales are expected to rise to $3.44 billion, according to 12 analysts surveyed by Thomson.
Ammunition revenue gained 12 percent to $282.7 million, aided by an 18 percent rise in civil ammunition sales and strong military small-caliber ammunition sales. Operating profit gained 9.7 percent to $26.2 million.
The mission systems group increased sales 6.6 percent to $288.2 million due partly to new contracts for composite materials used on Boeing Co. aircraft. Operating profit surged 24 percent to $26.4 million.