Leidos on Tuesday posted higher sales and earnings in its second quarter, driven by two acquisitions earlier this year and a payment related to patent infringement, more than offsetting higher than expected negative impacts from the ongoing COVID-19 pandemic.
Net income increased 13% to $153 million, $1.06 earnings per share (EPS), from $136 million ($0.93 EPS). Adjusted earnings, which exclude acquisition, integration and restructuring costs, asset impairment charges, and the gain or loss on the sale of a business, were $1.55 EPS, well above consensus estimates of $1.11.
During the quarter, Leidos recorded an $81 million net gain from a payment by VirnetX Inc., related to a favorable claim by VirnetX against Apple Inc. that included patents from Science Applications International Corp. [SAIC] and were retained by Leidos after it was spun-off from SAIC.
At the operating level, Leidos’ Civil and Defense Solutions Groups both posted higher earnings that were more than offset by a steep decline at the Health Group, which suffered more than the other groups from COVID-19-related impacts. Operating margin increased 80 basis points to 8.5%. Still, the top lines for all three segments were dented by the coronavirus, which in turn crimped operating income.
Sales in the quarter were up 7% to $2.9 billion from $2.7 billion a year ago, driven by the acquisition in January of Dynetics and then in the spring by the acquisition of the security detection and automation businesses of L3Harris Technologies.
Leidos said sales and adjusted income in the quarter were $132 million and $68 million lower, respectively, due to COVID.
Organic growth was down 3%.
Leidos partners with Centerra in Mission Support Alliance, the current support services contractor for the Department of Energy’s Hanford Site in Washington state. The two companies joined with Parsons in Hanford Mission Integration Solutions, which last December won a $4 billion, 10-year contract for work ranging from emergency services to operating utilities. That award withstood a protest to the Government Accountability Office by another bidder, and the Leidos team is now readying to transition to operations.
