Defense company Elbit Systems (TASE: ESLT; Nasdaq: ESLT) continues to break records with its orders backlog, which totaled NIS 20.4 billion at the end of the first quarter, $2.6 billion (14.6%) more than at the end of 2023, and $4.6 billion (29%) more than at the end of the first quarter of 2023. Elbit received orders amounting to $4bn in the first quarter, mostly from overseas.
The positive trend found expression in the revenue line, which grew 11.5% in comparison with the corresponding quarter to NIS 1.55 billion, and in the bottom line, with a net profit attributable to shareholders up 18.7% in comparison with the corresponding quarter, at $73.7 million, or $80.7 million on a non-GAAP basis.
The cash flow from regular operations, however, was still negative, even if improved from the corresponding quarter, at minus $6.4 million, compared with minus $73 million.
"The company is undergoing unprecedented growth," Elbit Systems CEO Bezhalel Machlis said today. "The backlog grew by 29% in comparison with the corresponding quarter, we received many orders during the quarter, the vast majority of them from overseas, and we have continued to receive orders in the second quarter - only last week, we reported orders from Israel and overseas amounting to $1 billion.
"The business potential is very great, in the tens of billions of dollars, and the growth will continue. If in the past we said that we could reach revenue of $7 billion in 2026, in my view we will reach that target earlier. We also continue to adhere to the target of a 10% operating margin (in the first quarter the margin was 7.8% on a non-GAAP basis, S. H-V.) and that is set in stone as part of the strategy. This is an opportunity to say a heartfelt thank you to the people at Elbit who work around the clock under great pressure."
Will the backlog continue to increase, or was the bulk of the orders in the first quarter?
Machlis: "I estimate that the growth in the orders backlog will continue. It’s not an exact science, but last week we reported orders amounting to $1 billion."
Why isn’t the growth reaching the cash flow, and why is the cash flow from operations negative?
Elbit CFO Dr. Kobi Kagan: "In comparison with the first quarter of last year, we have certainly seen an improvement. The accounting cash flow is close to zero, to being balanced. The quarter was characterized by growth in working capital. Because of delays in the supply chain, we put a stress on being able to accelerate exports, and that’s the main explanation."
According to Kagan and Machlis, unlike last year, there were no delays in payments from the Ministry of Defense in the first quarter, and at the end of the quarter the ministry had met all its commitments to the company.
Despite the growth, the company’s share price is back to where it was before the war. In Canada there have been protests against an Elbit shareholder, the Bank of Nova Scotia, which sold a substantial part of its holding. What do you hear from foreign investors?
"First of all, it’s true that there were protests in Canada and pressure on the bank, but on the other hand it’s important to say that I manage a company, not a stock, and it’s hard to argue with the company’s results: it’s growing, profitable, and developing, and it will continue to develop and grow in Israel and around the world. My experience tells me that you have to look at the long term, so while it’s a fact that, looking at the short term, someone sold, and that perhaps caused temporary pressure, it’s impossible to argue with the company’s growth, and I believe that that will find expression in the stock. All in all, the financials are good, and we are making a very great operational effort to take the orders and fulfil them, in Israel and around the world."
Elbit Systems is controlled by Federmann Enterprises, and has a market cap of $8.8 billion. Its share price is currently down 1.2% in Tel Aviv.
Published by Globes, Israel business news - en.globes.co.il - on May 28, 2024.
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