Despite Slumping Revenues, Elbit System’s Order Backlog Continues to Grow

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Elbit Systems reported today revenues of US$603.3 million in sales for the second quarter of 2010, 18% below its reported revenues in second quarter of 2009 and 2.4% below the consecutive (Q1/2010) quarter. The company’s sales have been dropping for the past two quarters, after peaking at $732 million in the third quarter of 2009.

Orders Backlog is at Record High

On the bright side, in the first two quarters the company has increased its order backlog by $314 million, with $111 million added in the past three months, bringing the order backlog to a record level of $5.358 billion in June 30th. “We are encouraged by the renewed increase in our backlog over the past two quarters,” said President and CEO of Elbit Systems, Joseph Ackerman. “It provides us with a foundation for future growth. Elbit Systems remains well positioned strategically, operationally and financially, and the long-term prospects for the company remain promising.” Of this backlog, 61% is scheduled to be performed during the next 18 months. Approximately 71% of the backlog relates to orders outside of Israel.

Delayed Programs Hit C4I Systems

While being one of the company’s growth engines the C4I systems areas was blamed for the reduction in sales, in the second quarter the company points at its domestic and European markets as the problematic regions. In the first quarter of 2010 delays in receipt of C4I and land systems orders, and reduction in short-term projects, contributed to a decrease of 5.9% in sales, compared to the first quarter of 2009. In the second quarter the decrease in C4I sales has contributed to lower gross profit – ($186.3 compared to $211.9 million).

Joseph Ackerman, President & CEO Elbit Systems
Joseph Ackerman, President & CEO Elbit Systems

Nevertheless, C4I continues to be the company’s core strength. In March 2010 Elbit Systems has won a $298 million contract in Australia, for the supply of advanced C4I equipment for the Australian Battlegroup and Below C3 modernization program. BGC3 will enable the Australian Army to achieve a major portion of its goal of operating a ‘networked brigade‘ under an all-connected ‘network centric warfare’ type of operation. As part of the new program, communications systems will be integrated into over 1,000 vehicles and supplied to equip more than 1,500 soldiers. In June 2010, Elbit Systems was awarded a contract to supply a Latin American Army with Command, Control, Computer & Communications (C4I) systems and Electronic Warfare (EW) systems, valued at approximately $130 million. The project, to be performed over the next three years, is a part of the Army’s extensive modernization program and is designated for all echelons, from the maneuvering forces up to the command headquarters. The new, unified communications network will facilitate a real-time common operational picture of the battlefield providing the Land Forces with enhanced operational performance and situational awareness, as well as improved force protection and prevention of “friendly fire”.

A Billion Dollar Investment in R&D

“Over the past two years we have spent close to a billion dollars on R&D and business development on a gross basis, a very significant amount for any company. We believe that these investments represent a valuable asset which provides the foundation for our long-term growth and leadership in the defense electronics industry, despite the current challenges we face in the area of revenue growth.” Ackerman added. Since the beginning of 2010 Elbit Systems have invested over $110 million in R&D, reflecting increased efforts on development and adaptations of the company’s products to the market requirements.