Cost Growth Weighs Down Com Dev Outlook

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PARIS — Canadian satellite component builder Com Dev International on Aug. 26 warned investors that it faces continued cost-growth problems on several U.S. and Canadian government satellite programs and that it is further reducing its revenue and profit forecast for the year.

It will be the fourth consecutive quarter that Cambridge, Ontario-based Com Dev has had to confront unexpected cost growth in contracts for government customers. In an Aug. 26 statement, Com Dev Chief Executive John Keating said he is confident the company has taken “appropriate steps to fully address the expected costs on these five programs, so they won’t continue to generate negative gross margins.”

Com Dev said in January that it expected revenue for its 2010 fiscal year, which ends Oct. 31, to increase by 10 percent or more over 2009’s 240.4 million Canadian dollars ($222 million) given the continued boom in the commercial satellite market, for which Com Dev makes on-board payload components. The gross profit margin, the company said, would be consistent with the 25.7 percent in 2008 and 27 percent in 2009.

Commercial satellite work accounts for the majority of Com Dev’s revenue, with civil government and military satellite programs contributing a combined 40 percent to 45 percent.

But in June, Com Dev revised its forecast downward, saying 2010 growth would be “minimal,” in part because of the U.S. dollar’s weakness against the Canadian dollar, and because of continued cost growth on fixed-price contracts for government customers in the United States and Canada. Gross margins, the company said, would be in the low to mid-20 percent range.

In the Aug. 26 warning, Com Dev said revenue for the year is now expected to decline by about 5 percent compared to 2009, for some of the same reasons. The gross profit margin will be 16 percent.

In his June conference call with investors, Keating said one program run by Com Dev USA of El Segundo, Calif., had proved much more costly to complete because Com Dev had been given inaccurate engineering designs by the company that had previously done the work. Keating did not identify the program or the company in question.

In Canada, Com Dev is building components for NASA’s James Webb Space Telescope, and here too costs have climbed beyond previous estimates, although Com Dev officials have said they still expect that program to be profitable.

Com Dev’s short-term revenue picture also has been hurt by delays in the launch of two small satellites for the company’s exactEarth subsidiary, which is developing a global maritime vessel identification system for coastal authorities using satellites in low Earth orbit. Government maritime agencies are reluctant to sign on for trials of the service before the satellites are launched, Keating said in his June remarks. Both are scheduled for launch, on separate rockets, later this year.