Herley Industries, Inc. says it’s well-positioned for post-Iraq future
Herley Industries, Inc. (Nasdaq: HRLY), a maker of military communications equipment, is well-positioned to deal with anticipated U.S. defense budget cuts in a “post-Iraq” environment, executives said on a Friday morning earnings conference call.
“On an overall basis, we believe that Herley is very well situated for the future. Our reasoning is based on our broad diversification of products and programs,” CEO Myron Levy said on the call. “The major programs currently in production at our facilities are the backbone of our defense posture in a post-Iraq world.”
No single program represents more than 10% of Herley’s future business, Levy said. Almost one-third of Herley’s revenue comes internationally from programs in South Korea, Japan, India, Egypt, Germany, Turkey, Taiwan and Israel, he said.
“This puts Herley in a very strong position in the future, protected against shockwaves in the U.S. defense business,” Levy said. “The one-third of our international business in our backlog probably represents one-third of our future profitability because we typically derive higher margins on our international business.”
In the next two to three months, the Trident missile program could start to generate $15 million in yearly revenue and the program could be around for 20 years, Levy said.
An ongoing class action lawsuit by shareholders against Herley over fraud will go to trial in January. The lawsuit alleges that Hurley defrauded investors. During the summer of 2006, Lee Blatt, Herley’s former chairman, was indicted on charges related to excessive profits improperly made through Department of Defense contracts. If in a worst case scenario the company is found guily, Levy said Herley would have to maintain its current administrative agreement with the government. If the company is acquitted, Levy said the administrative agreement will be eliminated.
“You’ve got to remember something - Herley is a very important contractor to the U.S. government and the defense of the United States. It could take the government four to five years to replace Herley if they had to,” Levy said. “At the end of the day, we might have to pay a fine but, so be it.”
After Thursday’s closing bell, the Lancaster-Penn.-based company reported $3.9 million in net income, or $0.27 a share, for the third quarter ended April 29, up from $1.7 million, or $0.11 per share, in the year-ago period. Herley recorded $44.4 million in third-quarter sales, compared with $45.6 million a year earlier. Herley’s results beat analysts’ expectations of a $0.22 profit per share.
Also on the call, Levy said:
• A Trident D5 missile test using Herley’s equipment was “totally successful”
The E-18G Growler beginning production will be part of the U.S. defense for the next 20 years.
• The company is “hoping to receive a counter [Improvised Explosive Devices] order in the very near future.”
• Herley’s EW Simulation Technology unit is running at “breakeven at best, but next quarter we might have good things to announce”
