The Rising Influence of Rising Affluence

[DewDiligence]

Cubic Reports FY2Q11 Results

[CUB derives 70% of sales from defense and 30% from urban mass transit. FY2Q11 sales were $334M, +26% YoY, +17% QoQ, with especially strong growth in the defense segments. FY2Q11 GAAP EPS was $0.75, +15% YoY, +1% QoQ. The only blemish in these results, which caused a small sell-off in the stock, is that the backlog declined slightly from the prior quarter (see details below).

CUB does issue sales or EPS guidance; at the annualized EPS rate in FY2Q11, the P/E for FY2011 (ending 9/30/11) is 18x. Please see the prologue of #msg-53598437 for the reason I think CUB is a good stock and a beneficiary of The Global Demographic Tailwind. (And be sure to read #msg-53690679 if you have not done so already!)]

http://finance.yahoo.com/news/Cubic-Corp-NYSE-CUB-Reports-iw-3724613741.html?x=0&.v=1

›May 5, 2011, 6:00 am EDT

SAN DIEGO, CA--(Marketwire - 05/05/11) - Cubic Corporation (NYSE:CUB) today reported higher earnings on higher sales for the quarter ended March 31, 2011. Sales for the second fiscal quarter increased 26 percent to $334.0 million compared to $264.5 million last year, and net income attributable to Cubic shareholders increased by 15 percent to $19.9 million or 75 cents per share this year from $17.4 million or 65 cents per share last year.

Operating income increased 7 percent in the second quarter to $28.0 million this year from $26.1 million last year. Cash flow from operations was $28.1 million in the quarter.

Six-month Results

For the six months ended March 31, 2011, sales increased 20 percent to $618.4 million from $515.2 million last year. Net income attributable to Cubic shareholders increased 28 percent to $39.9 million for the six-month period, or $1.49 per share, compared to last year's net income of $31.1 million, or $1.16 per share. Operating income for the first six months increased 19 percent to $55.2 million this year from $46.5 million in 2010. Cash flow from operations was $44.2 million in the six-month period.

Transportation Systems Segment

Cubic Transportation Systems (CTS) sales increased from $91.2 million in the second quarter last year to $96.8 million this year and increased from $165.5 million for the six-month period last year to $186.2 million this year. Sales increased from work on contracts in Australia and the U.K.

Operating income from CTS in the second quarter was $13.2 million compared to $15.1 million last year. Last year's second quarter results had included a contract modification on a contract in Europe that added $1.6 million to operating income, in addition to higher margins than usual on one contract in North America. For the first half of the year, operating income improved from $26.1 million last year to $28.3 million this year.

Defense Systems Segment

Sales from Cubic Defense Systems (CDS) increased to $103.7 million from $63.4 million in last year's second quarter. Sales were higher from air and ground combat training systems and small arms training systems. Operating income from CDS more than doubled to $11.1 million compared to $5.3 million last year resulting from higher sales and improved margins in the training systems business.

For the first half of the year CDS sales increased from $139.0 million last year to $199.5 million this year due to increased sales from the training systems business. Operating income increased from $12.0 million last year to $19.4 million in the first six months of this year due to increased sales and improved margins in the training systems business.

Mission Support Services Segment

Mission Support Services (MSS) sales increased to $133.1 million from $109.4 million in last year's second quarter. The acquisition of Abraxas Corporation (Abraxas) in December 2010 added $14.2 million to sales for the quarter. Sales were also higher from homeland security related contracts and in support of operations in Afghanistan, but were lower from training and education contracts due to delays in contract awards, and services insourcing. Operating income from MSS was $5.1 million compared to $7.1 million last year. Abraxas incurred an operating loss of $0.7 million in the quarter, after deducting $2.6 million of intangible asset amortization. In addition, the decreased sales from training and education contracts contributed to lower operating income.

For the first half of the year, MSS sales increased from $209.6 million to $231.9 million. Operating income decreased from $11.1 million last year to $10.2 million in the first six months of this year. The year to date operating loss of Abraxas was $1.5 million, which included amortization of intangible assets of $2.9 million since the acquisition, as well as acquisition costs of $0.7 million that were incurred in the first quarter.

Backlog

Total backlog was $2.692 billion at March 31, 2011 compared to $2.486 billion at September 30, 2010 [but is down from $2.84B at 12/31/10]. Abraxas added $92.9 million to total backlog as of March 31, 2011.

Financial Condition

The company continues to maintain a strong liquidity position, ending the period with $293.3 million in cash and short-term investments, and total debt of only $16.3 million.

Cubic Corporation is the parent company of three major business segments: Defense Systems, Mission Support Services and Transportation Systems. Cubic Defense Systems is a leading provider of realistic combat training systems, cyber technologies, asset tracking solutions and defense electronics. Mission Support Services is a leading provider of training, operations, maintenance, technical and other support services. Cubic Transportation Systems is the world's leading provider of automated fare collection systems and services for public transit authorities. For more information about Cubic, see the company's Web site at www.cubic.com.‹