Israeli defense electronics company Elbit Systems Ltd. (Nasdaq: ESLT; TASE: ESLT) today published its second-quarter results. The company reported a 9% increase in revenue to $892 million and a 47% rise in net profit attributable to its shareholders to $92 million. Elbit Systems' net profit was positively affected by $45.4 million recognized due to a change in holdings. The holdings in question are in Cyberbit, a cyber company, and Beyeonics Surgical, a medical devices company. Both of them began on the basis of Elbit Systems' military technologies, for which they developed civilian applications.
Third parties invested in both of these companies in the second quarter, which accounted for the increase in Elbit Systems' profits. On a non-GAAP basis, excluding various accounting items, including the change in holdings, the net profit attributable to shareholders fell 16.4% to $57.5 million. In the first half of 2018, Elbit Systems' revenue totaled $1.7 billion, 9.1% more than in the corresponding period in 2017. The company's net profit in the first half of the year grew 30.8% to $142 million, but fell 6.6% to $112 million on a non-GAAP basis. The company's orders backlog totaled $8.1 billion at the end of the second quarter.
Elbit Systems' cash flow from current activity was negative $1.1 million in the first half of 2018, at the end of which it had $219 million in cash. The company expects to complete its acquisition of IMI Systems Ltd. (IMI) from the state soon for NIS 1.8 billion, with NIS 100 million to be added to price if the company meets certain targets.
Machlis: Organic growth in sales
"We are pleased with the second quarter year over year revenue growth of 9%, while maintaining the 10% year over year growth in our backlog," said Elbit Systems president and CEO Bezhalel Machlis. "Furthermore, our strategy of enhancing organic growth with synergistic acquisitions continues. The results of this quarter for the first time include those of Universal Avionics Systems Corporation, a company we acquired that is active in the field of commercial avionics."
Machlis cited a number of positive factors in the second quarter, including the investments in Cyberbit and Beyeonics, about which he said, "This quarter, in particular, we see the fruits of our prior investment in Cyberbit. In line with our strategy of partnering with strategic investors to aid in the development of our commercial businesses, we had this quarter a $30 million external investment in Cyberbit. We believe that Cyberbit will further develop its business together with our new partner."
Separating Elbit Systems' results into spheres of activity, sales grew in almost every area in the first half of the year, headed by land-based systems in which sales grew 21.7% to $357 million and in miscellaneous (mainly non-military engineering and production services), where sales were up 18.4% to $11.5 million. Sales in electro-optics fell 8.7% to $155 million. Machlis said that this decline was seasonal and the company is now seeing an increase in demand in this area as well.
Concerning consolidation of in the defense industry market, Machlis commented, "In the end, the global industry is a market with few players. It's a market of giants that requires huge investments in R&D and marketing. It takes a great deal of time from when you start development until systems are sold. That is why there is global consolidation. The US leads the trend and the number of companies is decreasing, while the size of the companies is increasing.
"In the US, there are companies with sales in the tens of billions of dollars. Including IMI Systems, we will have $4 billion in sales, but from a global perspective, we aren't a big company; we're a medium-sized one. At the same time, what is special about Elbit Systems and constitutes an advantage for us is that we have a very broad portfolio. In the US, the market is so big that one line of products can support a company's growth. In Israel, the market is small and because of the situation, Elbit Systems has a very large number of product lines. This gives us stability and an ability to control our fate, because we control all elements of the solution."
Elbit Systems' share price is down 4% in trading on the TASE today. The company, controlled by Michael Federmann, has a $5.3 billion market cap.
Published by Globes [online], Israel business news - www.globes-online.com - on August 16, 2018
© Copyright of Globes Publisher Itonut (1983) Ltd. 2018