BAE Warns Of 15% Profit Drop In H1, Sees ‘Stronger Performance’ In H2

BAE Systems (BAESF) warned on Thursday that it expects first-half profit this year to be about 15% lower than during the same period last year, as the coronavirus pandemic curtailed demand for commercial products and disrupted its operations.

The U.K. defense company attributed the decline primarily to higher costs and reduced volumes in higher-margin commercial products such as electronic systems for airplanes. BAE said that the pandemic has impacted the business in the second quarter, with sites in the air and maritime sectors and its US commercial avionics business being most affected. Many of these operations now have well over 90% of employees working, the company added.

Looking ahead to the second half of the year, the producer of warships and fighter jets expects to return to “full operational tempo” and post a stronger performance assuming no significant new coronavirus-related disruptions arise. Furthermore, order intake is in line with original expectations for the year, BAE said.

“Productivity levels in June have improved within our defence businesses (which account for around 90% of the group’s revenues),” the company said in a statement. “The liquidity of the group remains strong.”

Despite some impacts from the pandemic disruptions, operating business cashflow in the half-year remains broadly in line with expectations, BAE said.

After deferring the decision on its 2019 final dividend payment in April, BAE said that its board will provide an update at its half-year results presentation next month.

Shares in BAE dropped 4.2% to $6.04 in U.S. trading on Wednesday and are now down 18% so far this year. However, analysts have a bullish outlook on the stock. The $8.28 average price target implies 37% upside potential in the shares in the coming 12 months. (See BAE stock analysis on TipRanks).

The stock scores 6 Buy ratings and has 1 Hold rating, which together add up to a Strong Buy consensus from analysts.