McAleese & Associates: BAE’s US Electronic Systems Sector Posted 14% Growth in 2018 Sales

A report by consulting firm McAleese & Associates says BAE Systems’ U.S. electronic systems sector saw its 2018 sales rise 14 percent to $5.3B with 15.3 percent sector operating margin and operating profit of $809M.

Jim McAleese, founder and principal at McAleese & Associates and a 2019 Wash100 winner, wrote BAE’s U.S. arm attributed the figures to the F-35 electronic warfare program, the U.S. Navy’s Advanced Precision Kill Weapon System and increasing classified activity.

The U.S. electronic systems sector’s 2018 capital expenditure reached $200M and the company plans to invest a similar amount into the segment in 2019.

The U.K.-based contractor recorded a 25 percent growth in 2018 backlog to $65B driven by several programs such as the U.S. Marine Corps’ Amphibious Combat Vehicle 1.1 program and the U.S. Army’s Mobile Protected Firepower initiative.

BAE’s U.S. platforms and services business posted $4B in 2018 sales, up 5 percent from previous year.

Jerry DeMuro, president and CEO of BAE’s U.S. arm, responded to a question about combat vehicles within the platforms and services business during the company’s earnings call Thursday, according to the report.

“I have been asked before, when we will hit double-digit [margin]. I think it is still a couple of years away for us. … Most people are aware of the M109 Paladin being behind schedule, but there are about a half dozen other programs. I think we are hitting the quality statistics that we want. We are delivering defect-free vehicles on a regular basis now. … We are a couple of years from that [double-digit operating margin target],” said DeMuro, a 2019 Wash100 winner.

McAleese noted the defense contractor expects the final defense funding for fiscal 2020 to be at least $733B.

“In terms of the U.S. budget, our planning assumptions are basically somewhere above the [$716B] floor that was established in 2019, adjusted for inflation…[W]e think that the pressure of the 2020 elections also provides a lot of leverage for a [2020-2021 BBA] two-year agreement under the budget-caps,” DeMuro noted.