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Aerospace and defense company BWX (NYSE:BWXT) beat analysts' expectations in Q2 CY2024, with revenue up 11.3% year on year to $681.5 million. On the other hand, the company's full-year revenue guidance of $2.6 billion at the midpoint came in 1.1% below analysts' estimates. It made a non-GAAP profit of $0.82 per share, improving from its profit of $0.65 per share in the same quarter last year.
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BWX (BWXT) Q2 CY2024 Highlights:
- Revenue: $681.5 million vs analyst estimates of $639.2 million (6.6% beat)
- EPS (non-GAAP): $0.82 vs analyst estimates of $0.74 (10.7% beat)
- The company reconfirmed its revenue guidance for the full year of $2.6 billion at the midpoint
- EPS (non-GAAP) guidance for the full year is $3.15 at the midpoint, roughly in line with what analysts were expecting
- EBITDA guidance for the full year is $500 million at the midpoint, below analyst estimates of $503.9 million
- Gross Margin (GAAP): 24.7%, up from 23% in the same quarter last year
- Adjusted EBITDA Margin: 17.7%, in line with the same quarter last year
- Free Cash Flow of $35.49 million, up from $2.6 million in the previous quarter
- Market Capitalization: $8.63 billion
Defense ContractorsDefense contractors typically require technical expertise and government clearance. Companies in this sector can also enjoy long-term contracts with government bodies, leading to more predictable revenues. Combined, these factors create high barriers to entry and can lead to limited competition. Lately, geopolitical tensions–whether it be Russia’s invasion of Ukraine or China’s aggression towards Taiwan–highlight the need for defense spending. On the other hand, demand for these products can ebb and flow with defense budgets and even who is president, as different administrations can have vastly different ideas of how to allocate federal funds.
Sales GrowthA company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one tends to grow for years. Thankfully, BWX's 7.7% annualized revenue growth over the last five years was decent. This shows it was successful in expanding, a useful starting point for our analysis.
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. BWX's annualized revenue growth of 9.3% over the last two years is above its five-year trend, suggesting its demand recently accelerated.
We can better understand the company's revenue dynamics by analyzing its most important segments, Government Operations and Commercial Operations, which are 79.4% and 20.8% of revenue. Over the last two years, BWX's Government Operations revenue (public sector sales) averaged 9.2% year-on-year growth while its Commercial Operations revenue (private sector sales) averaged 9.7% growth.
This quarter, BWX reported robust year-on-year revenue growth of 11.3%, and its $681.5 million of revenue exceeded Wall Street's estimates by 6.6%. Looking ahead, Wall Street expects sales to grow 3.3% over the next 12 months, a deceleration from this quarter.
Operating MarginOperating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. It's also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
BWX has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 16.1%.
Looking at the trend in its profitability, BWX's annual operating margin decreased by 2.2 percentage points over the last five years. Even though its margin is still high, shareholders will want to see BWX become more profitable in the future.
This quarter, BWX generated an operating profit margin of 14.5%, in line with the same quarter last year. This indicates the company's overall cost structure has been relatively stable.
EPSWe track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.
BWX's unimpressive 7.5% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.
Like with revenue, we also analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. BWX's flat two-year EPS performance was subpar and lower than its 9.3% two-year revenue growth.
In Q2, BWX reported EPS at $0.82, up from $0.65 in the same quarter last year. This print easily cleared analysts' estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects BWX's EPS of $3.26 in the last year to stay about the same.
Key Takeaways from BWX's Q2 ResultsWe were impressed by how significantly BWX blew past analysts' revenue expectations this quarter. We were also glad its Commercial Operations revenue topped Wall Street's estimates. On the other hand, its full-year revenue guidance was underwhelming. Overall, we think this was a strong quarter that should satisfy shareholders. The stock traded up 3.3% to $95.50 immediately following the results.
