BAE First-Half Earnings Rise 6.1% on Jet, Cyber-Security

BAE Systems Plc said first-half earnings rose 6.1 percent as its main customers expanded military budgets and the manufacturer delivered more training combat jets and information-technology security systems.
Underlying earnings before interest, taxes and amortization increased to 849 million pounds ($1.12 billion), or 17.4 pence a share, from 800 million pounds, or 17.1 pence, a year earlier, BAE said Thursday in a statement. That compares with the 851.5 million-pound average of four analyst estimates compiled by Bloomberg. The company reiterated a forecast that full-year underlying earnings per share will rise 5 percent to 10 percent.
“Despite economic and political uncertainties, governments in our major markets continue to prioritize national security, with strong demand for our capabilities,” Chief Executive Officer Ian King said in the statement. “In the U.K., the result of the EU referendum will lead to a period of uncertainty, but we do not anticipate any material near-term trading impact on our business.”
The maker of Astute submarines and Eurofighter warplanes is gaining new orders as mounting tensions between its main government clients in NATO and China and Russia prompt a reversal of military-budget cuts that followed the 2008 global recession. BAE is also seeking customers in new countries and more revenue from outside the defense area through acquisitions in recent years to bolster its cyber-security business.
The earnings “look solid,” though they only “contain limited encouragement as to near-term growth,” Sandy Morris, an analyst at Jefferies International analyst, wrote in a report to investors.
BAE rose as much as 1.1 percent and was trading up 0.8 percent at 544 pence as of 8:19 a.m. in London. The stock has gained 8.9 percent this year, valuing the manufacturer at 17.3 billion pounds.
The U.K. defense firm will eventually get an earnings boost from the approval last week of the Trident submarine order by parliament under new Prime Minister Theresa May. BAE said preparations for the model are accelerating.

An order that the company’s Italian partner in Eurofighter, Leonardo-Finmeccanica SpA, signed in April to supply 28 of the jets to Kuwait will provide 1 billion pounds worth of work for BAE, it said. Deliveries of the model, which BAE markets as the Typhoon, continued to the U.K. and Saudi Arabia, while the first five Hawk trainer aircraft for Saudi Arabia under a 2012 contract were handed over in the first half, BAE said.
The company’s share of its net pension deficit widened by 1.6 billion pounds from December 2015 to 6.1 billion pounds, affected by lower interest rates in the U.K. and the U.S. At the next U.K. triennial funding review, starting in April 2017, BAE will look at “various options with a focus on the longer-term view,” it said.


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