Elbit profit beats estimates on cost cutting
Israeli defense contractor confident it can sustain improvement this year despite falling public spending in some key markets
Growth of $330 million in the company's backlog of orders in the past four quarters "provides us with confidence that we will continue our improved performance in the future," Bezhalel Machlis, who became chief executive in April, said on Wednesday.
First quarter net profit rose to 98 cents per share in the first quarter from 77 cents a year earlier and the 85 cents forecast by analysts in a Reuters poll.
Revenue, however, slipped to $680.2 million from $690.8 million a year earlier and analysts said cuts in defense budgets, particularly in Europe, would keep pressure on the company.
Machlis said the decline in first quarter revenue – analysts had expected it to rise to $708.5 million – did not represent a trend.
"I am optimistic about the continued results of the group. If the (order) backlog grows there is room for optimism," he told Reuters.
Elbit is Israel's largest publicly traded defense company but three quarters of its business is overseas. Its backlog of orders rose to $5.78 billion at the end of March from $5.68 billion at the end of 2012.
Dov Rozenberg, an analyst at Clal Finance, said Elbit is operating in a very challenging environment but its areas of focus and cost saving measures were helping to maintain profitability.
"We estimate that the second and third quarters will also show low revenue with a significant jump in the fourth quarter that will lead to low annual growth," he said.
North America accounted for 32% of Elbit's revenue in the first quarter, with Asia Pacific at 19 percent, Europe at 17.6% and Latin America increasing to 9.6%.
Diverse portfolio
The company maintains that growing defense budgets in Latin America and Asia-Pacific will help offset declining spending in some of the world's largest developed economies.
"The company has a diverse portfolio and is in a lot of markets. If we look at this drop of $10 million it is insignificant," he said.
He attributed the improvement in profitability to measures such as a reduction in headcount as some of its 12,000 employees have not been replaced when they leave. He did not say how many but said the number was not substantial.
Research and development expenses in the quarter fell to $51 million from $58.8 million and Machlis said Elbit was focusing its efforts on areas where it has a competitive advantage.
It is investing in growth areas such as cyber defense systems, intelligence including unmanned air vehicles and sensors, electronic warfare and self-defense systems for aircraft.
Elbit will pay a quarterly dividend of 30 cents a share, unchanged from the fourth quarter.
