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BAE Systems (LSE:BA.) continues to have a bumpy ride, with its share price continuing the recent downward trend. Around February, when it peaked at nearly 340p, shares were going at 286.60p today on the LSE, down from yesterday’s close of 292.40.
What’s Going On?
- Despite reporting results for the last quarter that are consistent with management expectations, the roup continues to project a cautious, if not moderately bleak outlook for the year ahead. Sales growth is expected to have any significant impact in an increasingly difficult market.
- The company has been plagued by several issues, not the least of which is a holdup in their sale of Eurofighter Typhoons to Saudi Arabia, a contract worth £4.5 billion in total. Having already delivered 24 of the 72 fighters contracted, delivery of the remainder is stalled while the entities are renegotiating the contract. Whilst the renegotiation may result in an increase of the number of jets to be delivered and the amount of total revenue generated, the shareholders’ biggest concern may well be that at the present no planes are being delivered and no income is being generated.
- The company suffered major disappointments earlier this year when it lost major opportunities to supply 126 Eurofighters to India and another 42 to Japan. The loss of the expansion to the Asian markets, coupled with the delay in the Saudi contract leaves Oman and the UAE as BAE’s largest potential customers. Their requirements, if they were to select BAE as their provider, would be significantly less than what the company had been hoping for overall.
- The political scene continues to be a major concern to BAE as the UK, the US, and other countries continue to argue within their legislative bodies over budgetary negotiations. In particular, if the US Congress does not get a budget passed by January, the company could be looking at an additional revenue loss of up to $500 billion over the next ten years as a result of reductions in the US defence budget.
- On the employment scene, employees and shareholders remain concerned as they have witnessed the loss of 3,000 jobs at BAE last year, 15,000 in the previous two years, and the potential of more cuts if speculation that the company may close some of its UK shipyards is true.
- The company also announced yesterday that it is divesting its US based Safari-land subsidiary for $114 million to a newly-formed private equity group. The Safariland division employs 1,700 people in the manufacturing of personal protection equipment for law enforcement as well as armored equipment for the military. This follows the sales of the BAE Systems Safety Products and Schroth Safety Products GmbH entities in March. Those sales generated £20 million cash. 2011 sales volume from those companies was £25 million.
- The resignation of Robert Murphy, Executive Vice President of Product Sectors, was also announced in the Interim Management Statement.
Company Spotlight
BAE Sytems, the UK’s largest defence contractor, is a global defence and security company providing air, land, and naval forces products and services, including advanced electronics, security, information technology solutions, and support services. The company employs over 100,000 people.
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