Elbit CEO: Some investors bowed to political pressure

Demand for defense technology products Elbit Systems Ltd. (NASDAQ: ESLT; level:ESLTThis can be seen in the order backlog, revenue and profit growth. Elbit ended the second quarter of 2024 with an order backlog of $21.1 billion, up 31% from the same quarter in 2023. Revenue in the second quarter was $1.6 billion, up 11.8% from the same quarter while revenue in the first half of 2024 was $3.2 billion, up similarly from the first half of last year.

Geopolitical tensions in various parts of the world (Middle East, Russia and Ukraine, concerns about China) have led to countries increasing their defense budgets, benefiting defense companies. Elbit’s revenue increase is spread across all regions in which it operates, although orders from the Israeli Ministry of Defense saw the company’s sales in Israel rise from 17.6% of total revenue in the first half of 2023 to 28.2% in the first half of 2024. Elbit’s sales in Israel increased by 79% in the first half of 2024 to $896 million.

Elbit reported GAAP net income of $78.4 million in the second quarter of 2024, an increase of 26% compared to the same quarter of 2023. Non-accounting net income was $92.7 million in the second quarter of 2024, an increase of 26% compared to the same quarter of 2023.

Elbit Systems CEO: New drone factory to open in Q4

“The continued high demand for our products and solutions reinforces our position as industry leaders,” said Bezalel Machlis, CEO of Elbit Systems. “Our long-term investments in technology and R&D in collaboration with our key customers, and the expansion of our manufacturing capabilities, enable us to fulfill our commitments to our customers, drive continued growth and focus on the company’s profitability, in line with our strategic objectives.”

Machlis told Globes that while Elbit had previously said it would reach $7 billion in sales in 2026, it now believes it will reach that target next year. “The company is very successful, the growth is great, the operational effort is great — people are working hard, some of our sites are working three shifts and we are investing a lot in new production sites, such as a new drone factory that will open in the fourth quarter,” he said.

How far are you expanding your production capacity? Do you lack the capacity to meet today’s demand?

“If we had more production capacity, we would be selling more today. We will soon increase production capacity, through the activity in Ramat Beka (near Beersheba), which will gradually begin to open in the fourth quarter, which is important and dramatic, and there is also the drone factory that will open. These are new infrastructures that we are building. Today, we are making the most of what we have by adding shifts, and we have hired thousands of people in operations and engineering. We are investing not only in Israel, but also in England, Germany, the United States and other places, and we have welcomed many new employees, in order to create a long-term platform.”

Is hiring employees easier today than it was in previous years?

“We hire people in Israel and around the world. Hiring in Israel at least is relatively easy, because people feel very important in doing things at Elbit, contributing to the defense system and the IDF in dealing with challenges. We contribute directly to the success of the IDF in battle. Another thing – in the field of engineering, the current state of investment in startups in Israel creates a situation that makes it easier for us to hire people in this sector.”

Elbit, which is controlled by Michael Federman’s Federman Enterprises (44%), is traded on the Nasdaq and the Tel Aviv Stock Exchange (TASE) with a market capitalization of $8.8 billion. While the defense major’s shares are up 13% year-to-date and 21% over the past year (according to Fidelity data based on S&P sector indices), Elbit’s share price has fallen 10% and 7%, respectively, over those two periods.

How do you explain the weakness of the stock?

“You have to realize that the war also affected us negatively. Some investors, fortunately a few of them, faced political pressure of some kind and decided to sell, for example the Canadian fund that sold a large number of shares and pushed the share price down. In the end, I think this trend has stopped. The company’s results speak for themselves, and those who invest in Elbit invest for the long term and believe in increasing sales, receivables and profits. From a strategic point of view, we are moving forward to continue growing in these parameters, and growth is not a one-time event, but a trend.”

The Canadian investor that sold a significant stake in Elbit in early 2024 was the Bank of Nova Scotia, which held a 2.5% stake at the end of the first quarter of 2024, down from 4.2% at the end of last year. This came in the wake of protests and petitions against the bank over its holdings in Elbit Systems. Globes found that the Bank of Nova Scotia reduced its stake in Elbit to 1.4% during the second quarter of 2024.

This article was published in Globes, Israeli Business News – en.globes.co.il – on August 14, 2024.

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