Engineered Support Systems (NASDAQ:EASI)
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Engineered Support Comments on 2005 Financial Outlook; Recent
Business Developments
-- Revised 2005 Forecasted Revenues of $1.02 Billion to $1.05 Billion
Represents 15% to 19% Year-Over-Year Growth
ST. LOUIS, June 2 /PRNewswire-FirstCall/ -- Engineered Support Systems, Inc.
(NASDAQ:EASI) held a conference call and webcast yesterday morning in
conjunction with the announcement of its financial results for the quarterly
period ended April 30, 2005. For the second quarter of 2005, the Company
reported record net revenues of $263.8 million, an increase of 25% compared to
the second quarter of the prior year and posted quarterly net earnings from
continuing operations of $20.1 million, or $.46 per diluted share on a post-
split basis. As discussed on the call, the recently completed quarter's
results were adversely affected by temporary production delays and increased
estimated costs related to one of the Company's major defense programs, the
Deployable Power Generation and Distribution System (DPGDS), a mobile power
generation and distribution system used extensively by U.S. forces deployed
around the globe. According to Company Vice Chairman and CEO Gerald A.
Potthoff, these temporary developments accounted for an estimated $8 million
reduction in pre-tax income from operations compared to the earnings levels
previously forecasted by the Company for the second quarter of 2005.
During the conference call conducted by Mr. Potthoff, Vice Chairman and CFO
Gary C. Gerhardt, and Daniel A. Rodrigues, President and COO, management
discussed the current situation with the DPGDS program, its 2005 financial
outlook and recent industry and business developments.
As discussed on the call, in partnership with its military customers and key
subcontractors, the Company is continuing to address the underlying causes of
performance issues with the primary power units, a key component of the DPGDS,
and is in the process of implementing a remediation plan which it expects will
result in recommencement of full rate production of the program once testing is
completed early in the fourth quarter of 2005.
As a result of these delays the Company revised its previously existing revenue
and earnings forecast for 2005 and is now forecasting significantly higher
overall revenues of between $1.02 billion and $1.05 billion, an increase of 15%
to 19% from the prior year, and earnings per share from continuing operations
of $87 million to $88 million, or $2.00 to $2.03 (post- split), for the current
year, an increase in earnings per share of 10% to 12% over 2004 levels.
Potthoff commented on the DPGDS situation and its revised financial forecast,
"Although successful completion of reliability testing remains as the key
hurdle in the near term, we fully expect to be successful in getting DPGDS
production back on line in the fourth quarter of this year. Through the
strength of our broad business base, we have actually increased our 2005
revenue forecast and expect to largely mitigate the net adverse financial
impact of the program on this year's financials. Given the significance of the
expected profit contributions from the DPGDS program, our ability to replace
nearly $10 million in pre-tax operating earnings via other profitable growth in
a variety of product and service areas represents a remarkable achievement for
our team. Our diversity and lack of reliance on any single program provides
strength to ESSI's financial position and long-term prospects for new
business."
Also during the conference call, the Company significantly increased its 2005
expected free cash flow (cash flow from operations less capital expenditures)
with $75 million now expected for the full year. Free cash flow for the first
half of 2005 totaled $27 million. Strong earnings growth, despite the impact
of the DPGDS delays, combined with improved working capital management will
contribute to the anticipated record level of free cash flow in 2005.
Engineered Support's total backlog level reached a new milestone totaling a
record of nearly $2.1 billion as of the end of its second quarter. Several
large, multi-year contract awards were received during the quarter boosting
backlog above the $2 billion mark for the first time in the Company's history.
Entered orders for the year totaling $1.1 billion are anticipated including
certain contributions from the Pentagon's recently enacted $82 billion
Supplemental spending bill. This represents a solid base of business growth
for future years to come.
In its remarks Company management announced the receipt of another major
contract award -- a multi-year follow-on contract with the U.S. Army to provide
telecommunications support services under its Rapid Response (or R2) contract
vehicle. Initial funding under the $172 million ceiling, two-year contract
(including an option year) totaled $10.5 million and supports continuation of
the Company's Technical and Management Services Company (TAMSCO) efforts in
this growing area.
"We remain quite optimistic about our long-term prospects for continued
business growth in the military and homeland security markets we serve.
Opportunities for remote telecommunications support, equipment refurbishment
and replacement, logistics services and the development and production of next
generation military sustainment solutions abound. We appreciate the support of
our shareholders as we address the performance issues on the DPGDS program over
the next couple months and look forward to a very bright future for Engineered
Support," Potthoff concluded.
Engineered Support Systems, Inc. designs, manufactures and supplies integrated
military electronics, support equipment and technical and logistics services
for all branches of America's armed forces and certain foreign militaries,
homeland security forces and selected government and intelligence agencies.
The Company also produces specialized equipment and systems for commercial and
industrial applications. To access the archived webcast of the call or for
additional information, please visit the Company's website at
http://www.engineeredsupport.com/ .
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995: Except for historical information contained herein, the matters set
forth in this news release are forward-looking statements. The forward-
looking statements set forth above involve a number of risks and uncertainties
that could cause actual results to differ materially from any such statement.
Important factors which could cause the Company's actual results to differ
materially from those projected in, or inferred by, forward-looking statements
include, but are not limited to, the following: the decision of any of the
Company's key customers, including the U.S. government, to reduce or terminate
orders with the Company; cutbacks in defense spending by the U.S. government;
increased competition in the Company's markets; the Company's ability to
achieve and integrate acquisitions; and other risks discussed in the Company's
reports filed with the Securities and Exchange Commission from time to time.
DATASOURCE: Engineered Support Systems, Inc.
CONTACT: Larry Cox, Communications Mgr of Engineered Support Systems,
Inc., +1-314-553-4960,
Web site: http://www.engineeredsupport.com/