JERUSALEM (Reuters) - Buoyant military spending in Latin America and Asia is filling the order books of Israeli defense electronics firm Elbit Systems Ltd (ESLT.TA), helping it ride out a budget squeeze in the United States and Europe.
Posting high-than-expected earnings on Tuesday, President and Chief Executive Joseph Ackerman said the second quarter had continued a trend of increased revenue from the Latin American and Asia-Pacific regions which now account for a third of sales.
“I believe that our focus on these regions will enable us to continue to grow, even against the background of tightening budgets in Europe and the United States,” said Ackerman, who will retire in April after 16 years in the post to be replaced by executive vice president Bezhalel Machlis.
Elbit, Israel’s largest publicly traded defense firm, specializes in electronics, intelligence technology such as unmanned air vehicles, command and control and training systems - specialisms that are proving attractive to some emerging economies.
Analysts said sales should grow modestly for all of 2012, led by new products in areas such as unmanned air vehicles, electro-optics and lasers. The company is also targeting cyber warfare as a growth area.
“South American and Asian markets will continue to grow and Elbit will bid on significant deals in India, Australia and Brazil,” said Tsahi Avraham, an analyst at Clal Finance.
“Winning some of these deals could impact ... growth in a significant way, since it will be added to traditional activity in Israel and the United States,” Avraham added, though he lowered his price target for Elbit’s Nasdaq-listed stock to $38 from $44.
Avraham added that the group had succeeded in maintaining stability even as its profitability was eroded in a poor global economy and shrinking defense budgets.
Elbit’s Nasdaq shares (ESLT.O) were up 1.1 percent at $31.76 in morning trading after closing unchanged in Tel Aviv.
Elbit said it earned 90 cents per diluted share in the second quarter, identical to a year earlier but above a Reuters consensus of 82 cents a share. Revenue of $676.4 million was down from $691.6 million and missed expectations of $688 million.
The company’s backlog of orders edged up to $5.47 billion from $5.45 billion at the end of March. Some 76 percent of the backlog was made up of orders from outside Israel, while 73 percent was for the second half of 2012 or 2013.
Excluding one-time items, Elbit earned $1.14 a share, down from $1.16 a year ago.
“Elbit is a good company in a transforming industry,” said RBC Capital Markets analyst Daniel Meron, who rates Elbit as “sector perform” and believes the stock may appeal to investors with a long-term perspective, given its “favorable risk/reward potential and healthy regional and business exposure.”
Elbit will pay a second-quarter dividend of 30 cents a share, the same as for the first quarter.
Editing by Jason Neely and David Holmes