This year’s annual Teal Defense and Aerospace Companies Overview shows how the U.S. aerospace and defense industry are continuing to recover from the worldwide recession. Revenues continued to grow, up 3.5 percent, but the strongest change was in measures of profitability. Operating income, operating margin and net income all improved. Our analysis focuses on 15 companies, which were chosen to provide a representative sample of defense, commercial aerospace and space businesses.
For these 15 companies, revenues are continuing to increase, reaching a combined $343 billion for the 15 companies included in the Teal Group’s annual survey. The 3.5 percent revenue increase in 2011 was up from the 1.5 percent in 2010 and well ahead of the 0.9 percent decline in 2008. CACI and Harris stood out as the revenue leaders with a 14 percent increase. That was followed by Honeywell which regis-tered a 9 percent rise in revenues.
Even as sales have increased, reliance on U.S. government sales has begun to declined. With heavy spending on the wars in Iraq and Afghanistan, that reliance reached a high of 57.9 percent in 2009. Since then, it has been in decline, reaching 55.8 percent in 2011.
A total of $665 billion in backlog bodes well for future sales although now the booming market for com-mercial airliners dominates backlog growth. With the companies’ high dependence on government sales, a commercial increase is important to restore balanced growth within the group. With the prospect of defense spending cuts due to large U.S. fiscal deficits, commercial growth becomes all the more important. However, the current deep recession has meant that backlog is not as meaning¬ful as it was in the past.
In a worrisome sign for the companies, their combined backlog was stagnant in 2011 after a six percent decline the previous year. After peaking at $697 billion in 2008, backlog slid six percent to $658 billion in 2009. In 2010, it held almost at the previous year's level with a year end total of $655 billion. Harris led in increasing backlog with a 19 percent increase. Northrop Grumman fared the worst with a 29 percent decline, the result of its divestiture of its shipbuilding business. In a sign of possible problems in the defense as well as commercial markets, three of the five of the largest US defense companies saw their backlogs decline.
Profitability for the 15 leading defense and aerospace companies rose strongly after a weak 2008 and 2009. Operating income for the group in 2011 increased by 14 percent to $35.7 billion. That built on a 13 percent increase the previous year. Boeing did markedly better with a $5.8 billion profit in 2011, up from a $1.3 billion profit in 2009.
The latest increase is on top of years of increased earnings. Many defense companies have dramatically increased their earnings. Lockheed Martin, Northrop Grumman and Rockwell Collins’ profits are more than double the level of 2003. Harris Corp’s profits increased eightfold.
Operating profit margins increased by 11 percent to 9.1 percent. Rockwell Collins and Harris Corp. led the group in operating margins, reporting 17.96 percent and 16.4 percent respectively. Rockwell Collins earns high margins on both its civil and military business by applying commercial practices to defense. Harris which was an industry leader until this year has developed radio technology on its own to be able to sell it to the military on a commercial basis, enabling it to reap higher margins than the prime contractors.
Teal Group offers online access to all our products through the web. Contact our Sales Staff to obtain a user ID and password for online access. Instructions for accessing the Online Demo are found below. You will only have access to the Online Demo product. You will need Adobe Acrobat Reader to read the reports on the online access site.
To inquire about online access and site licenses please contact Mr. Tim Storey.