BAE Profit Falls as U.S. Costs Take Sheen Off Contract Wins

(Bloomberg) -- BAE Systems Plc earnings fell almost 10 percent in the first half as Europe's biggest defense company booked hits against its U.S. operations, offsetting gains from major contract wins.

Underlying earnings before interest, tax and amortization dropped to 874 million pounds ($1.14 billion) from 967 million pounds a year earlier, London-based BAE said in a statement Wednesday. Analysts had estimated a figure of 848 million pounds, according to data compiled by Bloomberg.

While BAE has won contracts to provide military vehicles to the U.S. army, warships to the Australian navy and fighter jets to the Qatari air force, it posted additional costs at a munitions plant in Radford, Virginia, and for the wind-down of U.S. shipbuilding programs.

The company is also working to end losses at its cyber-security arm, and faces “challenges” in U.K. naval contracts. Those include short-term performance issues with offshore patrol vessels, lower-than-expected savings on construction of a second aircraft carrier for the Royal Navy, and delivery and ramp up of the Astute and Dreadnought submarine programs.

Chief Executive Officer Charles Woodburn said BAE was maintaining its guidance for annual results in line with 2017's 42.1 pence a share in what he described as a “transition earnings year” for the group. The order backlog grew by almost one-third, which, together with progress on a new U.K. fighter program, provides “good momentum” going into the second half and beyond, he said.

Shares of BAE fell as much as 2.4 percent and were trading 1.4 percent lower at 644 pence as of 8:04 a.m. in London.

To contact the reporter on this story: Benjamin Katz in London at bkatz38@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Christopher Jasper

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