BAE Systems beats forecasts but flat earnings guidance disappoints

BAE's sales increased 3% to £19.6bn in 2017, with underlying earnings before interest, tax, depreciation and amortisation of 7% to £2.03bn and underlying earnings per share up 8% to 43.5p. Guidance had been for EPS growth of 5-10% and the average of analyst forecast had pointed to 42.5p from EBITDA of £2bn.

Net cash flow from operating activities increased by £668m to £1.9bn but the FTSE 100 group's total dividend was increased 2% to 21.8p, which was felt to be a touch light by some analysts, but the pension deficit was slashed to £3.9bn from £6.1bn.

Order intake fell to £20.26bn from £22.44bn and order backlog was down to £41.2bn from £42.0bn.

Highlighted deals included £333m of orders for the US-based Electronic Systems business on the F-35 Lightning II programme, "growing demand" and £222m of orders for the Advanced Precision Kill Weapon System laser-guided rockets, plus six orders totalling £133m for full-motion video intelligence, surveillance and reconnaissance analysis support to the US intelligence community.

Chief executive Charles Woodburn, who in October announced 2,000 job cuts as it lowers production rates for the Typhoon and Hawk jet fighters, said: "We start 2018 with a streamlined organisation and a strong focus on programme execution, technology and enhanced competitiveness, providing a solid foundation for medium-term growth.

"With an improving outlook for defence budgets in a number of our markets, we are well placed to generate good returns for shareholders."

Despite the cost-cutting, Woodburn expects the 2018 calendar year will only manage to keep underlying earnings per share flat in line with last year.

For Electronic Systems, high single-digit sales growth is expected in 2018 driven by a number of electronic warfare contracts with some 70% of projected sales in the 2017 closing order backlog.