March 19, 2019 / 12:53 PM / 2 months ago

UPDATE 1-Israel's Elbit sees weapons unit IMI making a profit in 2019

(Adds CEO, CFO comments from conference, details, share reaction)

By Tova Cohen

TEL AVIV, March 19 (Reuters) - Israeli defence electronics firm Elbit Systems said costs relating to the acquisition of IMI Systems sent its quarterly profit lower, but forecast that the weapons and military technology maker will start to make a profit this year.

The maker of drones, pilot helmet displays and cyber security systems said on Tuesday it earned $1.91 per diluted share in the October-December period, down from $2.01 a year earlier. Revenue rose to $1.08 billion from $1.0 billion.

In November Elbit bought IMI from the government for $500 million. It said expenses related to the deal reached $69.5 million in the quarter.

Elbit shares were down 1.7 percent in afternoon trade in Tel Aviv. They are up 8 percent so far this year after a 7 percent drop in 2018.

The acquisition will bring many synergies and puts the company in “a different league” of defence players, said CEO Bezhalel Machlis.

“Sales in 2019 will be well above $4 billion,” he told an investors’ conference. This compares with $3.7 billion for Elbit in 2018.

Elbit said IMI has been merged into its land division which will more than double its annual sales of $500 million and places it among the top five companies for land-based systems.

Chief Financial Officer Joseph Gaspar said IMI was in a difficult financial situation when Elbit bought it, lacking cash and access to credit.

Elbit provided guarantees to the banks, injected cash to liquidate loans and reached an agreement with IMI’s union to let go a few hundred workers out of about 3,000.

“The bottom line is that they now have cash to run the business,” he said.

The land division will be profitable in 2019 and within a few years is expected to match profit levels at Elbit, which has gross margins of 28-29 percent and operating margins of 9-10 percent.

“Elbit will continue to grow in 2019 in terms of revenue and profit,” Machlis said.

Elbit’s order backlog climbed to $9.4 billion at the end of December from $7.6 billion a year earlier. IMI added about $1 billion to the backlog.

At IMI only about 14 percent of sales are from exports but this is starting to change. Machlis said the company will report in the coming weeks a new export contract for guided munitions but did not provide details.

Elbit declared a dividend of 44 cents per share for the fourth quarter, the same as the third quarter. (Reporting by Tova Cohen Editing by Steven Scheer and Lousie Heavens)

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