Israel's Elbit Systems Riding Increased Spending on Drones, Cyber Defense

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Cost-cutting helped Elbit Systems lift profit above expectations and the Israeli defense electronics firm said it was well placed to ride growing global spending on cyber defense kits and surveillance equipment such as drones.

Expenditure on conventional defense hardware has slowed in recent years and Elbit, Israel's largest publicly traded defense company, said it had adapted to the changes.

"We have the right growth engines for the new requirements in the market," Bezhalel Machlis, who became chief executive in April, said on Tuesday.

Elbit bounced back from a weak first three months to post second-quarter revenue of $702.9 million from $676.4 million in the same period last year and versus forecasts of $686 million.

It raised earnings per share to a diluted $1.19, excluding one-time items, compared with $1.14 a year earlier and a forecast of 87 cents.

It said sales were boosted by gains in its airborne and command, control, communications, computers, intelligence surveillance and reconnaissance (C4ISR) systems, which include UAVs - or drones - for defense and homeland security.

"There are growing needs for sophisticated intelligence systems," Machlis told Reuters, adding that sales of its simulators and other equipment for companies and countries to combat cyber-attacks were also growing.

Elbit typically does not issue an outlook but Machlis said he was optimistic for the rest of the year and into 2014.

With public spending in many Western countries down, Elbit has been helped by growth in emerging markets such as South America and Brazil, which were particularly strong, as well as South Korea and India.

Ilanit Sherf, an analyst at the Psagot brokerage, said Elbit's results remained strong in the face of declining western markets.

She raised her price target for Elbit's Nasdaq-listed shares, which have risen over 10 percent since the beginning of the year to around $45, to $51 from $47.60. They closed at $44.20 on Monday.

Sherf maintained a "buy" rating for the shares, whose Tel Aviv-listed shares were 4 percent higher in afternoon trade.

"Global security companies continue to report good results that exceed expectations," said Dov Rosenberg, an analyst at the Clal Finance brokerage. "Defense budgets are still falling and the environment is still challenging but at the same time, this was a strong quarter that testifies to the strength of the company [Elbit]."

Elbit said its backlog of orders was $5.80 billion, from $5.78 billion at the end of March. Some 67 percent of the backlog relates to orders outside Israel.

Elbit's Hermes 900 drone.Credit: Elbit Systems

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