BAE Systems Earnings Gain on Increased U.S. Defense Spending

(Bloomberg) --

BAE Systems Plc’s first-half profit rose 14% as the British weapons-maker tapped an increase in U.S. defense spending.

Underlying earnings before interest, tax and amortization rose to 999 million pounds ($1.2 billion), BAE said in a statement Wednesday. Analysts expected a profit of 936 million pounds, according to data compiled by Bloomberg.

Key Insights

• Honeywell International Inc. said this month that U.S. defense spending was “on fire.” For BAE that translated into a $1 billion increase in orders, helping to support a backlog that’s been shrinking with the fulfillment of deals in the Middle East.
• A German ban on arms exports to Saudi Arabia, BAE’s biggest foreign market after the U.S., poses a threat to contracts to support a fleet of warplanes. The U.K. company said it’s working with the government and industrial partners to meet maintenance obligations.
• London-based BAE is accelerating the timetable for delivering Eurofighter Typhoon aircraft to Qatar. That will help keep net debt broadly unchanged in 2019 versus December 2018, a “slight improvement” from the previous guidance, the company said.
• The numbers suggest BAE has improved its program execution, while the reduced likelihood of a change of U.K. government that would cut defense spending is also positive, Jefferies International analyst Sandy Morris said in a note. Morris predicts that the Saudi issues will be overcome, resulting in more Eurofighter orders, and says Brexit-related uncertainty is already factored into BAE’s valuation.

Market Reaction

• BAE traded 1.6% higher as of 9:15 a.m. in London, taking gains this year to 20% and valuing Europe’s biggest defense company at 17.7 billion pounds.

Read More

• First-half revenue gained 6.8% to 9.42 billion pounds.
• To see the statement click here.

To contact the reporter on this story: Benjamin Katz in London at bkatz38@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Christopher Jasper, Benjamin Katz

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