Gains stir hope of sale for United Industrial

BUSINESS DIGEST

August 02, 2006|By ALLISON CONNOLLY | ALLISON CONNOLLY,SUN REPORTER

Hunt Valley-based United Industrial Corp.'s bread and butter is in unmanned aerial vehicles that patrol the skies over Iraq for the U.S. Army.

But it was the company's struggling energy unit - a business it's been trying to sell for years - that delivered a big gain in the second quarter, renewing hopes that it might finally find a buyer.

Thanks to spiking energy prices, second-quarter net sales at Detroit Stoker Co., which makes alternative fuel products such as coal and wood-burning stokers, jumped 42.1 percent to $11.8 million. Operating income soared 265.4 percent to $3.3 million, up from $900,000 from the second quarter of 2005.

"When natural gas prices spiked last year, we saw a short-term uptick in orders," said United Industrial's president and chief executive officer, Frederick Strader, during a conference call with analysts yesterday. "You're seeing some of that impact now."

United Industrial has had some "activity" regarding a possible sale for some time, Strader said, but nothing has materialized.

"I would like to see it be divested because then it will be a pure-play defense company," said analyst Michael French of Kaufman Bros. LP in New York, which makes a market in the stock but doesn't own any shares. "It's kind of a distraction."

By comparison, net sales at the company's defense subsidiary, AAI Corp., grew 23.1 percent during the second quarter to $137.4 million, up from $111.6 million a year ago. Operating income at the subsidiary rose 15.3 percent to $13.5 million, compared with $11.7 million a year ago.

Overall, United Industrial's second-quarter net income from continuing operations was $10.6 million, or 74 cents per diluted share, compared with $8.3 million, or 60 cents a share, during the comparable period last year. Net sales grew 24.4 percent to $149.2 million, compared with $119.9 million for the year-ago period.

United Industrial's stock rose sharply yesterday after earnings were announced, closing at $47.45 a share, up $2.46.

During the quarter, AAI received an $87.2 million contract from the Army for nine Shadow 200 tactical unmanned aircraft systems, bringing the total orders to date to 65. So far, 49 have been delivered, Strader said.

The company also purchased the Australian drone manufacturer, Aerosonde Pty Ltd. and Aerosonde North America Inc.

French, the Kaufman analyst, and analyst Michael Lewis of BB&T Capital Markets, an investment bank that seeks business from United Industrial, believe the company will continue to benefit from war spending despite a multibillion budget shortfall.

Lewis said UAVs would be more likely to stay on the battlefield if troop levels were decreased, because the aircraft can safely conduct surveillance and reconnaissance.

"That type of funding is more insulated," he said.

allison.connolly@baltsun.com

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