November 14, 2017 / 11:14 AM / a year ago

UPDATE 1-Israel's Elbit Systems Q3 profit up as defence budgets grow

(Adds CEO comments, details, share reaction)

By Tova Cohen

TEL AVIV, Nov 14 (Reuters) - Israeli defence electronics firm Elbit Systems reported higher third-quarter profit on Tuesday and forecast continued revenue and profit growth based on its expanding backlog of orders.

The maker of drones, pilot helmet displays and cyber security systems said it earned $1.57 per diluted share excluding one-time items in the three-month period, up from $1.46 a year earlier. Revenue rose to $800.7 million from $780.8 million.

Elbit’s order backlog climbed to a record $7.64 billion at the end of September from $6.84 billion a year earlier. Orders from abroad accounted for 73 percent of the backlog.

“The fact that our backlog grew by 12 percent and the fact that we see growing demand for our products and systems is a very good indication for continuation of growth in revenues and profits,” Chief Executive Bezhalel Machlis told Reuters.

“Combining that with improving efficiencies, I have no doubt that the company will continue to grow in all parameters.”

He said a process begun a few years ago to reduce duplications, combine business units and centralise procurement activities is bearing fruit by increasing profit margins.

The backlog has been boosted by ongoing increases in defence budgets, “which we have been able to capitalize on in many of our target markets”, Machlis said.

Budgets have increased in the United States, Elbit’s biggest market, as well as in Europe, where “there is demand to find solutions for terrorist threats”.

Tensions around North and South Korea as well as China have boosted defence demand in Asia, while countries such as India see defence spending as a way to grow their economy.

The market in Latin America has stagnated, mainly due to falling oil and gas prices, though there is some recent improvement in this region, Machlis said.

Elbit’s land systems activities in particular posted strong growth in the quarter, with revenue jumping to $121 million from $31.8 million.

For many years the United States, with its “no boots on the ground” policy, focused on its air force and navy, but budgets are now growing for ground operations. In addition to advanced artillery defences and tank upgrades, Elbit provides border surveillance systems for homeland security.

Elbit’s shares were down 0.6 percent at midday in Tel Aviv. Its Nasdaq shares have surged 42 percent since the start of 2017 to $144.

Elbit declared a dividend of 44 cents for the third quarter, unchanged from the second quarter. (Editing by Steven Scheer and Hugh Lawson)

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