Elbit Systems: Record orders, cash flow still negative

Defense company Elbit Systems (TASE: ESLT; Nasdaq: ESLT) continues to break records with its order backlog, which totaled NIS 20.4 billion at the end of the first quarter, $2.6 billion (14.6%) more than at the end of 2023, This is $4.6 billion (29%) more than at the end of the first quarter of 2023. Elbit received orders worth $4 billion in the first quarter, most of them from abroad.

The positive trend was evident in the revenue line, which increased by 11.5% compared to the corresponding quarter to reach 1.55 billion shekels, and in the final result, with the net profit attributable to shareholders increasing by 18.7% compared to the corresponding quarter to reach $73.7. $1 million, or $80.7 million on a non-GAAP basis.

However, cash flow from normal operations remained negative, even if it improved from the corresponding quarter, at negative $6.4 million, compared to negative $73 million.

“The company is experiencing unprecedented growth,” Elbit Systems CEO Bezhalel Machlis said today. “Our backlog grew by 29% compared to the corresponding quarter, we received many orders during the quarter, the vast majority of them from abroad, and we continued to receive orders in the second quarter – just last week, we reported orders from abroad.” Israel and abroad worth one billion dollars.

“The business potential is very large, in the tens of billions of dollars, and it will continue to grow. If we said in the past that we could reach revenues of $7 billion in 2026, in my view we will reach this goal early. We also continue to adhere to the goal The 10% operating margin (in the first quarter the margin was 7.8% on a non-GAAP, S.H.V. basis) which was established as part of the strategy is an opportunity to say a big thank you to the employees at Elbit who are working around the clock under great pressure.”

Will the backlog continue to increase or was the bulk of orders in the first quarter?

Matchless: “I estimate that the growth in the order backlog will continue. It's not an exact science, but last week we reported orders worth $1 billion.”

Why is growth not reaching cash flow and why is cash flow from operations negative?

Elbit CFO, Dr. Kobi Kagan: “Compared to the first quarter of last year, we have definitely seen an improvement. Accounting cash flow is close to zero, to be balanced. The quarter was marked by growth in working capital. Due to delays in the supply chain, we are focusing on “Our ability to accelerate exports, that is the main explanation.”

According to Kagan and Machlis, unlike last year, there were no delays in payments from the Ministry of Defense in the first quarter, and at the end of the quarter the Ministry had fulfilled all its obligations to the company.

Despite the growth, the company's stock price returned to what it was before the war. In Canada, protests erupted against one of Elbit's shareholders, the Bank of Nova Scotia, which sold a large portion of its holdings. What do you hear from foreign investors?

“First of all, it is true that there have been protests in Canada and pressure on the bank, but on the other hand, it is important to say that I run a company, not a stock, and it is difficult to argue with the company’s results: it is growing, profitable and developing, and it will continue to develop.” And growth in Israel and around the world. My experience tells me that you have to look at the long term, so while it is realistic, looking at the short term, that someone might sell, and that might cause temporary stress, it is impossible to argue with the growth of the company. And I think that will find expression in the stock. Overall, the financials are good, and we are making a very significant operational effort to make decisions and execute orders, in Israel and around the world.”

Elbit Systems is controlled by Federmann Enterprises and has a market capitalization of $8.8 billion. Its share price is currently down 1.2% in Tel Aviv.

Published by Globes, Israel Business News – en.globes.co.il – on May 28, 2024.

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