Leidos on Tuesday reported strong increases in its top and bottom lines in the third quarter, driven by growth across its operating segments and receipt of a payment going back to the 2004 Olympics in Greece.
The company also reported record bookings and backlog, tallying $5.2 billion in orders that were nearly double sales that drove total backlog to $23.9 billion, up 15% from $20.8 billion since the end of 2018.
Net income was up 10% to $161 million, $1.11 earnings per share (EPS), from $147 million ($0.96 EPS) a year ago. Adjusted earnings, which exclude non-operating expenses and certain tax impacts, were $1.36 EPS, which beat consensus estimates by $0.17.
During a conference call with financial analysts, Chairman and CEO Roger Krone said he still expects the U.S. Energy Department this year to issue the potential 10-year, $6 billion support services contract for the Hanford Site in Washington state. “But I’m sure you would remind me, at one time, I thought Hanford would be awarded in July,” the CEO said.
Krone did not comment further on the delay. In its informal procurement schedule that was last updated in May, the Energy Department had targeted the contract award by the end of August.
Leidos-led Mission Support Alliance holds the current “landlord” contract covering services including emergency response, road and vehicle fleet maintenance, computer support. and management of the HAMMER Federal Training Center. Energy Department sources said earlier this month that MSA is expected to get another six-month extension to keep it on the job through May 25, 2020. The firm is finishing up an extension currently set to expire Nov. 25.
In a letter last month, three Democratic Party senators questioned if the Energy Department was preparing to award the new contract to a group that includes current members of MSA, while that vendor team is currently the subject of an ongoing Justice Department fraud lawsuit. That case, which alleges overbilling and improper bonuses to executives, focuses on activities by Lockheed Martin before it divested its stake in Mission Support Alliance.
Among other work for DOE, Leidos is also a minority partner in Consolidated Nuclear Security, management and operations contractor for the DOE National Nuclear Security Administration’s Y-12 complex in Tennessee and Pantex Plant in Texas.
The company’s latest earnings benefited from a $59 million cash payment from the Greek government, which more than offset bad debt expense on some international contracts in the Civil segment. At the operating level, the bad debt expense combined with start-up costs on new programs and lower net profit write-ups in the Civil segment, more than offset increased income at the Health and Defense Solutions segments.
Sales increased 10% to $2.8 billion from $2.6 billion, with both the Health and Civil segments up double-digits and Defense Solutions in the high single digits. Growth drivers included new awards and higher program volumes.
For 2019, Leidos raised and narrowed its sales guidance to between $10.9 billion and $11 billion versus the prior outlook of $10.65 billion to $10.95 billion. Adjusted earnings are expected to be between $4.90 and $5.10 EPS versus prior projections of $4.50 to $4.75 EPS.
James Reagan, chief financial officer of Leidos, said on the company’s earnings call that boost in the sales outlook is due to new wins and an expansion of work under existing programs. He also said the company’s ability to hire new employees is helping to convert work in backlog into revenue.
The earnings guidance is up due to the higher net income in the third quarter and a lower share count due to repurchases of stock.
Leidos also raised its outlook for operating cash flow to at least $875 million from the prior guidance of $825 million.
Leidos didn’t provide guidance for 2020 but expects growth to continue given its strong backlog and bookings. The company also has about $35 billion in submitted bids awaiting decision, Krone said.
Krone also said that even if the federal government operates under a continuing resolution for its entire fiscal year 2020, which began on Oct. 1, it will have a minimal impact on Leidos’ outlook. Under a continuing resolution, the government primarily operates on prior-year spending levels and can’t initiate new programs.
