Contracts Drive Higher Revenue, Profit Margins at Orbital

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  Space News Business

Contracts Drive Higher Revenue, Profit Margins at Orbital

By PETER B. de SELDING
Space News Staff Writer
posted: 31 July 2007
03:40 pm ET





PARIS —


Orbital Sciences Corp.’s recent success in winning commercial satellite orders has carried the additional benefit of bringing higher-margin contracts into the company’s factory, Orbital Sciences Chairman David W. Thompson said.

The Dulles, Va.-based company expects that for all of 2007, its satellite manufacturing business will have a 7 percent operating profit margin, a figure that Thompson said should rise as the newer contracts move through the plant.

“We have started to see the influence of these [newer] commercial geostationary satellites,” Thompson said July 18 during a conference call with investors. “Recent awards have carried high single-digit or low double-digit margins, and as they make their weight felt, our overall margins will increase.” Orbital Sciences has won five commercial telecommunications satellite orders so far in 2007 and the company is optimistic about




capturing a sixth before the end of the year.

The biggest order is from SES of Luxembourg, whose U.S.-based SES Americom division booked an order for two satellites, with an option for three more. SES officials have said they are almost certain to exercise the options in the contract as Americom replaces its current in-orbit fleet.

Thompson said the SES order is valued at $400 million including the options and is Orbital’s biggest-ever satellite contract.

Commercial satellites and the ramp-up of Orbital work on NASA’s Orion crew transportation vehicle were key components in Orbital’s sharply increased revenue, operating-income and net profit figures, which were reported July 18.

Orbital said that for the six months ending June 30, revenues were up 29 percent compared to the same period in 2006, to $501.5 million. Operating income, at $39.1 million, increased by 19 percent. Net income increased by 35 percent, to $25.3 million.

The company raised its forecast of full-year revenue to between $975 million and $1 billion and left its predicted operating profit margin unchanged at between 8.25 and 8.75 percent.

The figures would have been even better had it not been for a second-quarter charge against earnings caused by a recall of satellite reaction wheels on the part of an Orbital supplier, and an unspecified anomaly aboard a telecommunications satellite that will delay its launch by three months.

Orbital Sciences President J.R. Thompson said the reaction-wheel recall had caused “some disruption” at Orbital’s already busy satellite production plant in Dulles, but that “no substantial launch delays are expected.”

Orbital Sciences spokesman Barron Beneski said the problem with the Horizons




-2 satellite co-owned by satellite-fleet operators Intelsat and JSat Corp. was unrelated to the reaction-wheel issue. He declined to specify the nature of the problem.

Orbital Sciences now plans to replace the Horizons-2 satellite with the Optus D2 satellite, which is scheduled to be launched in




September




aboard a European Ariane 5 vehicle. Optus D2 is owned by SingTel Optus of Australia. The same rocket




also is scheduled to carry the Orbital-built Intelsat 11 satellite, owned by Intelsat of Washington.



“The reaction-wheel issue is now fully understood between us and our supplier and is behind us,” Beneski said. He said Horizons-2 would be ready for a December launch aboard an Ariane 5 rocket, replacing




Optus D2 that had been scheduled for that slot.



Orbital Sciences has 12 commercial telecommunications satellites under construction at the Dulles plant, a workload that Thompson said has obliged the company to add a second shift to the daily work schedule.

In the conference call, David W. Thompson provided further details on the company’s plans to develop a medium-class launch vehicle over the next three years.

The new rocket, named Taurus 2, will generate $150 million to $200 million in annual revenues from




three to four launches per year from 2012 onwards, with a first launch planned in 2010, Thompson said.

Orbital Sciences plans to invest “somewhat less” in the Taurus 2 rocket in the next three years than it has spent in the past three years buying back its own stock, he said. Orbital has spent $118 million on stock repurchases since 2004.