Kratos Defense & Security Solutions Earnings: Here’s Why Investors are Happy Now

Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) delivered a profit and beat Wall Street’s expectations, AND beat the revenue expectation. The revenue beat is a positive sign to shareholders seeking high growth out of the company. Shares are up 2.14%.

Kratos Defense & Security Solutions, Inc. Earnings Cheat Sheet

Results: Adjusted Earnings Per Share increased to $0.02 in the quarter versus EPS of $-0.41 in the year-earlier quarter.

Revenue: Rose 7.01% to $235.2 million from the year-earlier quarter.

Actual vs. Wall St. Expectations: Kratos Defense & Security Solutions, Inc. reported adjusted EPS income of $0.02 per share. By that measure, the company beat the mean analyst estimate of $-0.15. It beat the average revenue estimate of $231.2 million.

Quoting Management: Eric DeMarco, Kratos’ President & CEO, said, “The Company remains on track with our 2013 business plan in spite of a continuing Sequestration and an incredibly challenging environment. Importantly, to date Kratos has had no significant programs or contracts cancelled due to the U.S. Federal government budgetary issues or DoD budget cuts, though we have had a number of expected contract awards delayed and pushed out. In June, we made the strategic decision to further increase our 2013 internal investment in the unmanned aerial system and drone area related to a specific customer platform, with this customer being one of the most important to our entire Company and long-term strategy.” Mr. DeMarco continued, “Operationally, we are aggressively managing all other discretionary costs in the Company, we expect our Public Safety & Security business to continue to organically grow, and we expect PSS’ second half of 2013 EBITDA margins to increase over the first half of this year. From a capital structure standpoint, we are beginning to prepare the documents necessary for the refinancing of our senior notes, and our expectation based on recent market conditions is that we can reduce the annual interest rate on our debt by at least 200 basis points, significantly increasing Kratos’ Free Cash Flow, which we plan to use for further delevering of our balance sheet.”

Key Stats (on next page)…

Revenue decreased 6.96% from $252.8 million in the previous quarter. EPS increased to $0.02 in the quarter versus EPS of $-0.18 in the previous quarter.

Looking Forward: Analysts have a more negative outlook for the company’s next-quarter performance. Over the past three months, the average estimate for next quarter’s earnings has fallen from a profit of $0.01 to a loss $0.03. For the current year, the average estimate has moved down from a loss of $0.04 to a loss of $0.32 over the last ninety days.

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(Company fundamentals provided by Xignite Financials. Email any earnings discrepancies to earnings [at]