Elbit Systems finished the second quarter of the year with growth in revenue and non-GAAP net profit. The defense industry company, controlled by Michael Federmann, is listed on Nasdaq and the Tel Aviv Stock Exchange with a market cap of $6.8 billion, a new record. Elbit Systems' revenue totaled over $1 billion in the second quarter, 19.3% more than in the corresponding quarter last year, and its first-half revenue grew 21.9% to $2.1 billion. The increase was due mostly to consolidation of the results of Israel Military Industries (IMI), acquired by Elbit Systems.
Net profit according to GAAP accounting standards was down for both the second quarter and the first half of 2019. Second-quarter GAAP net profit was $53.8 million, down 41.5%, while first-half GAAP net profit was $104 million, down 26.3%. The decline in net profit is attributable to higher operating expenses and an increase in the miscellaneous revenue item in the corresponding quarter last year. Non-GAAP net profit, however, which excludes various accounting times, reached $64.3 million in the second quarter, 5.4% more than in the second quarter of 2018, while first-half non-GAAP net profit was up 12.1% to $130 million. Elbit Systems' orders backlog totaled $9.8 billion at the end of the second quarter.
Elbit Systems' share price is gaining ground, pushing the company's market cap up to NIS 24 billion, putting the company in a position to overtake Teva's market cap.
"I am very satisfied with the results. The growth trend is continuing in both sales and orders backlog," Elbit Systems president and CEO Bezalel Machlis said today. "There are two reason for this: we are growing both organically and as a result of the acquisitions that we have made. As we announced, we expect another major acquisition now in the processes and waiting for approval at the end of the third quarter or the beginning of the fourth quarter - acquiring the night vision activity of Harris, a very significant acquisition."
In most of the main geographic regions in which Elbit Systems operates, it posted revenue growth in the first half of the year. "Successes were in all of the sectors. Elbit Systems' entry into markets signals a partnership with long-term customers," Machlis declared.
Building up R&D at IMI
Machlis said that he was satisfied with the tens of millions of dollars in overseas orders for IMI's products, and that 28% of the company's sales were to the US, which he said was "an indication of the attractiveness of our portfolio." Machlis mentioned a series of products launched in recent months, including a pilot's helmet for helicopters and an intelligence system based on artificial intelligence. "We are continuing to invest a great deal of money in R&D and innovation," Machlis said.
At the same time, the proportion of expenses going to R&D fell from 8.5% in the first half of 2018 to 7.4% in the first half of 2019 (despite an absolute increase in expenses). According to CFO Joseph Gaspar, the reason is that the rate of investment at IMI was lower than at Elbit Systems. "Slowly, in an orderly way, we will bring them to a higher level of investments, and return to the usual numbers. Elbit Systems customarily invests over 9% and 8-8.5% of net turnover in R&D," Gaspar says.
Elbit Systems had operating cash flow of minus $91.5 million in the first half of the year, and had $192 million in cash and cash equivalents at the end of the second quarter. "There is great fluctuation between quarters in cash flow, which is made up towards the end of the year. In a more general view of cash flow, significant financial activities were conducted to improve the cash balance," Gaspar explained. He mentioned in this context the company's financing round during the quarter, in which $185 million was raised at $13 per share, compared with the current share price of $152, and the recognition of $350 million from vacating IMI sites.
Referring to Elbit Systems' record share price, Machlis said, "The company is a good one, and this is the result."
Published by Globes, Israel business news - en.globes.co.il - on August 15, 2019
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