Almost 80% of the companies in the Aerospace and Defense space have released their financial numbers for the Q4 reporting cycle (as of Feb 1, 2017). Notably, 87.5% posted an earnings beat in the quarter, with several defense biggies making it to the headlines on the back of a stellar performance.

However, despite the better-than-expected results from a majority of the defense behemoths, along with a moderate flow of funds from the Pentagon, the major indices for the Aerospace-Defense industry failed to record significant growth during the last five sessions. While the S&P 500 Aerospace & Defense (industry) Index dropped 0.1%, the Dow Jones U.S. Aerospace & Defense Index was up a mere 1.3%.

The unimpressive performance may have been induced by criticism that U.S. allies have been facing from President Donald Trump, who believes that these ‘free rider nations’ are not paying their fair share of mutual defense costs.

Among last week’s highlights, defense giants General Dynamics Corp. (GD Quick QuoteGD - Free Report) , Spirit AeroSystems Holdings, Inc. (SPR Quick QuoteSPR - Free Report) , and Honeywell International Inc. (HON Quick QuoteHON - Free Report) reported quarterly figures. Meanwhile, The Boeing Company (BA Quick QuoteBA - Free Report) and Lockheed Martin Corp. (LMT Quick QuoteLMT - Free Report) stole the spotlight with a few notable awards from the Pentagon.

(Read Defense Stock Roundup for Jan 27, 2017 here)

Recap of the Week’s Most Important Stories

1. Defense behemoth General Dynamics reported fourth-quarter 2016 earnings from continuing operations of $2.62 per share, beating the Zacks Consensus Estimate by 3.2%. Reported earnings were also up 9.2% year over year.

On the other hand, total revenue of $8,233 million missed the Zacks Consensus Estimate by 0.3% but was up slightly from $8,229 million in the year-ago quarter.

The company recorded a total backlog of $59.8 billion, down 17.4% year over year. Funded backlog at the quarter end was down 4.7% to $49.4 billion. As of Dec 31, 2016, the company’s cash flow from operating activities was around $2,198 million, compared with $2,607 million in the year-ago period. (Read more: General Dynamics Tops Q4 Earnings, Revenues up Y/Y)

2. Spirit AeroSystems posted fourth-quarter 2016 adjusted earnings of 89 cents per share, which missed the Zacks Consensus Estimate by 12.7%. Earnings also fell 6.3% year over year.

Total revenue of $1.57 billion in the fourth quarter missed the Zacks Consensus Estimate of $1.62 billion by 3.1%. Revenues were also down 2% year over year. Backlog at the end of the reported quarter was $47 billion, registering sequential growth of $1 billion.

Cash flow from operating activities decreased significantly to $716.9 million in 2016 from $1,289.7 million a year ago. The company expects to generate earnings per share in the range of $4.60–$4.85 on revenues in the band of $6.8−$6.9 billion during 2017. (Read more: Spirit AeroSystems Q4 Earnings Miss, Backlog Rises)

3. Industrial goods manufacturer Honeywell’s quarterly adjusted earnings per share (EPS) came in at $1.74, in line with the Zacks Consensus Estimate. However, the earnings figure improved from $1.53 in the year-ago quarter.

Fourth-quarter revenues amounted to $9,985 million, nearly flat with the year-ago quarter level of $9,982 million. However, revenues missed the Zacks Consensus Estimate of $10,152 million.

Net cash from operating activities for the three months ended Dec 31, 2016 was $2,042 million, compared with $1,963 million in the prior-year period. Honeywell expects tepid demand for its business jets and mobile scanners in 2017 due to sluggish global growth, volatility in crude oil prices and a tempered Chinese economy. (Read more: Honeywell Posts In-Line Q4 Earnings, Reaffirms View)

4. Aerospace giant Boeing recently secured a modification contract from the U.S. Air Force for the production of KC-46 Lot 3. Valued at $2.1 billion, the contract was awarded by the Air Force Life Cycle Management Center, Wright-Patterson Air Force Base, OH.

Per the contract, Boeing will provide 15 KC-46 aircraft, data, two spare engines and five wing refueling pod kits. Work for this deal is scheduled to be completed by Jul 30, 2019.

Wide-bodied KC-46 Pegasus is a multirole tanker that can refuel all U.S., allied and coalition military aircraft compatible with international aerial refueling procedures, according to the company. (Read more: Boeing Secures $2.1B Air Force Contract for KC-46 Aircraft)

Meanwhile, Boeing’s Defense, Space & Security has won a contract from the Air Force to provide engineering support services. Valued at $983 million, this deal was awarded by the Air Force Life Cycle Management Center, Tinker Air Force Base, OK.

Per the contract, Boeing will provide engineering services and support for recurring and non-recurring activities related to the VC-25, E-4B, C-32A, C-40B/C, E-8C and NT-43 aircraft. Work related to this agreement is scheduled to be completed by Jan 31, 2027. (Read more: Boeing Wins $983M Air Force Contract for Support Services)

5. Pentagon’s largest contractor Lockheed Martin recently clinched a modification contract from the Missile Defense Agency to provide support services and develop the Terminal High Altitude Area Defense (“THAAD”) element. Valued at $345.6 million, this deal was awarded by the Missile Defense Agency, Huntsville, AL.

With this modification, the total maximum value of the contract reached $1.34 billion from the previous level of $995.2 million. Per the modification, Lockheed Martin will exercise an option for additional incremental development, provide support for flight and ground test programs, and offer responsive support to warfighter necessities to uphold the Ballistic Missile Defense System during the acquisition life cycle.

THAAD is the only missile defense system with the operational flexibility to intercept both within and outside the Earth’s atmospheres for providing versatile capability to the warfighter. (Read more: Lockheed Martin Wins Missile Defense Deal for THAAD)

Last Week’s Performance

The major defense stocks put up a mixed show over the past five trading sessions. While Raytheon Company , General Dynamics and Northrop Grumman Corporation (NOC Quick QuoteNOC - Free Report) recorded a gain, other sector behemoths like Lockheed Martin and Boeing put up a weak show.

Over the past six months, however, all the industry majors have delivered a stellar performance, except Lockheed Martin. Notably, Boeing gained the maximum at 23.09%, followed by General Dynamics.

The following table shows the price movement of the major defense players over the past five trading days and the last six months.

What’s Next in the Sector?

Lockheed Martin and Raytheon will attend the Cowen and Company 38th Annual Aerospace/Defense & Industrials Conference on Feb 8.

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