Photographer: Chris Ratcliffe/Bloomberg

BAE Profit Beats Target as Defense Spending Starts Recovery

  • BAE's earnings per share of 40.2 pence beat November target
  • 2016 adjusted EPS forecast to increase between 5% and 10%

BAE Systems Plc reported better-than-expected 2015 profit as Europe’s biggest defense company worked through its order backlog and sales rose amid the first signs of an uptick in spending from the U.S. and Europe.

The maker of Eurofighter warplanes and Astute submarines reported underlying earnings per share of 40.2 pence, London-based BAE said in a statement Thursday. The company had said in November that the figure would be unchanged from 38 pence in 2014 after initially targeting a “marginally higher” number. The figure also exceeded the 37.8 pence average of 20 analyst estimates compiled by Bloomberg. 

BAE’s earnings growth sets the company up for the prospects of a recovery in U.S. and European military spending, which had slumped due to the financial crash. Likewise, aerial campaigns linked to the wars in Syria and Yemen are buoying service revenue. Still, the lower price of crude could begin to crimp spending of countries dependent on oil revenue.

“The group is well placed to continue to generate attractive returns” as defense budgets recover and cyber security and commercial electronics units grow, Chief Executive Officer Ian King said in the statement.

Profit Forecast

The British manufacturer forecast 2016 earnings per share to rise by 5 percent to 10 percent from last year’s adjusted figure of 36.6 pence, which excludes tax-related gains. Sales this year will probably be buoyed by support functions for BAE’s Typhoon fighter jet in the Middle East, as Saudi Arabia engages in wars in Syria and Yemen. BAE shares rose 0.8 percent to 503.5 pence at 10:09 a.m. in London.

Bolstered by the Eurofighter program, revenue last year rose 7.6 percent to 17.9 billion pounds ($25.6 billion), after an 8.5 percent decline in 2014. The company’s order backlog fell to 36.8 billion pounds from 40.5 billion pounds a year ago. BAE said the decline wasn’t a concern amid the prospects for new deals.

BAE’s U.S. business, in particular, is poised for a jump in sales after President Barrack Obama agreed to boost defense spending caps by $33 billion in 2016 and $23 billion in 2017. Some of that is set to benefit BAE’s business supplying artillery and armored vehicles for the U.S. Army, which had dropped following the withdrawal of ground forces in Iraq and Afghanistan.

“We don’t see anything other than upward movement” in demand for land-based systems in the U.S., Chief Financial Officer Peter Lynas said on a call with reporters.

CEO Change

BAE on Monday named Charles Woodburn as its new chief operating officer. Currently CEO of oilfield exploration and testing specialist Expro International Group Ltd., he’s expected to take over from King after spending at least a year learning about the business.

“We’re not changing the responsibilities of anybody in the team or in fact myself,” King, 59, said on the call, adding that there was no official timetable for when Woodburn would take over. “I’m very active, very motivated, and the board is very motivated that I keep this role and keep it going.”

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