"BAE Systems confirmed its forecasts that sales and earnings would continue to grow this year as governments rush to secure military hardware amid geopolitical tensions.
The U.K. arms maker said on Thursday that its performance so far this year was in line with expectations, with military spending remaining high in its key markets.
Chief Executive Charles Woodburn said the group expected sales growth, margin expansion and cash generation in the coming years.
BAE Systems makes combat vehicles, ammunition, missile launchers and artillery systems, including the M777 howitzer that Ukraine has employed widely in its fight against Russia. The group also provides cybersecurity services, electronic warfare and night vision systems, surveillance and reconnaissance sensors.
The group is forecasting a 10% to 12% increase in sales this year from the GBP 25.28 billion, equivalent to $31.59 billion, it reported for 2023, while free cash flow should exceed GBP 1.3 billion.
Like many of its European rivals, BAE has witnessed sustained growth since the outset of the Russia-Ukraine conflict.
The company's share price surged to GBP 13.82 from roughly GBP 6.00 in the days prior to Ukraine events, giving it a market value of nearly GBP 41.94 billion, according to FactSet.
Members of the North Atlantic Treaty Organization are turning to arms manufacturers to replenish their stockpiles after diverting military equipment to Ukraine.
In March, BAE Systems received two U.S. Army contracts: one valued at $754 million to produce armored multipurpose vehicles, and another of up to $318 million for technical and support services for M109 Self-Propelled Howitzers.
In April, the U.K. Ministry of Defence awarded BAE a contract to maintain and repair L119 Light Guns that it had donated to Ukraine.
The U.S. recently passed a long-delayed foreign-aid package sending ammunition and military equipment to Ukraine, while the U.K. committed 2.5% of gross domestic product to defense by the end of the decade, moves that BAE said should build order momentum.
Underlying earnings before interest and taxes -- the group's preferred measure of profitability -- are expected to grow 11% to 13% from last year's GBP 2.68 billion. Underlying earnings per share, another closely watched metric by analysts and investors, are projected to rise 6% to 8% from 63.2 pence.
BAE expects capital expenditure to rise this year, with a focus on maritime, munitions and combat vehicle production capacity." [1]
These defense industry gains are highly volatile. As soon as peace inevitably takes hold, other priorities take over, and defense industry profits die as well.
1. Business News: BAE Backs Outlook as Defense Spending Is High. Orru, Mauro. Wall Street Journal, Eastern edition; New York, N.Y.. 10 May 2024: B.3.
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