Alliant Techsystems Management Discusses Q3 2014 Results - Earnings Call Transcript

Jan.30.14 | About: Orbital ATK, (OA)

Alliant Techsystems (ATK) Q3 2014 Earnings Call January 30, 2014 9:00 AM ET

Executives

Michael Pici

Mark W. DeYoung - Chief Executive Officer, President and Director

Neal S. Cohen - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Analysts

Steven Cahall - RBC Capital Markets, LLC, Research Division

Ryan Eldridge - Barclays Capital, Research Division

Greg Konrad - Jefferies LLC, Research Division

Lucy Guo - Cowen and Company, LLC, Research Division

Christopher Sands - JP Morgan Chase & Co, Research Division

Michael F. Ciarmoli - KeyBanc Capital Markets Inc., Research Division

Herbert A. Hardt - Monness, Crespi, Hardt & Co., Inc., Research Division

Operator

Good day, everyone, and welcome to the ATK Third Quarter Fiscal Year '14 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the call over to Michael Pici, Investor Relations. Please go ahead, sir.

Michael Pici

Thank you, Audra. Good morning, and thank you for joining us for our Third Quarter Fiscal Year 2014 Earnings Call. With me this morning are Mark DeYoung, ATK's President and Chief Executive Officer; and Neal Cohen, Executive Vice President and Chief Financial Officer.

Before we begin, I'd like to remind everyone that during today's call, we will be making several forward-looking statements, and we make these statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act.

These forward-looking statements reflect our best estimates and assumptions based on our understanding of information known to us today. These forward-looking statements are subject to the risks and uncertainties that face ATK and the industries in which we operate. We encourage you to review today's press release and ATK's SEC filings for more information on these risk factors and uncertainties.

Please also note that we have posted presentation materials on our website at atk.com, which supplement our comments this morning and include a reconciliation of non-GAAP financial measures.

With that said, I'll turn the call over to you, Mark.

Mark W. DeYoung

Okay, Mike, thank you very much. Good morning, everyone. A pleasure to have you join us this morning. I'm happy to share with you our financial and operating results for our third quarter. Year-over-year ATK sales increased 14%, operating profit increased 37% and earnings per share increased 27%.

Today, the company also increased our full year FY '14 guidance for sales, EPS and free cash flow. And as you saw this morning, the Board of Directors approved a 23% increase in the quarterly cash dividend, bringing it to $0.32 per share, and also extended our share repurchase program through March of 2015.

Moving to Congress. Congress passed the final budget agreement, which provided some FY '14 sequestration relief and resulted in a flatline spending for Defense. The agreement also provides additional sequestration relief for FY '15 for Defense. Congress also approved a top line budget for NASA of $17.6 billion, which is flat compared to the FY '13 and in line with the President's budget.

At the program level, Congress funded the Space Launch System, or what we call SLS, and issued supportive language to maintain funding profiles in the planned FY '17 first launch of that system, so we're pleased with that. As you know, the President is expected to release his budget recommendations for FY '15 in early March.

Our performance this year across the company is the result of a disciplined business model focused on execution excellence, wise capital deployment and creating leadership positions in our core markets.

During the quarter, we completed our acquisition of Bushnell and immediately began implementing a very detailed and rigorous integration plan. We also are on path to completing the successful integration of Savage into the ATK Sporting Group.

The company recorded several program accomplishments and secured very strategic wins in the quarter and I'll talk about a few of those.

The Aerospace Group won 2 significant orders in commercial aerostructures. As you know, we targeted composite aerostructures as a long-term growth market. We continue to gain positions on some of the world's key platforms in that market.

Expanding on this core capability, Boeing has awarded ATK with a contract to manufacture composite components for the 787 Dreamliner. The components support both the production of both the 787-9 and the 787-10 aircraft.

Additionally, we were able to finalize an agreement with Airbus to prepare to manufacture and supply our composite stringers and frames on the -1000 variant of the A350. This adds scope of work that we are already under and providing parts on the A350-900 program, and we're on schedule with solid deliveries on that program, having completed the build of about 27 ship sets.

The group also received additional orders on the Trident D5 missile, and we continue to build on our international opportunities for the F-35.

We've demonstrated full deployment of a large MegaFlex solar array to further NASA's development of a high-power system for future robotic and manned exploration missions. And jointly, with NASA, we successfully completed 2 key avionics tests of the SLS system's solid rocket boosters.

Now looking to Defense Group, we showcased our ability to weaponize aircraft at the recent Dubai Airshow. The MC-27J multi-mission gunship received significant interest at the show, and the Italian Air Force committed to be the first customer for the aircraft equipped with our unique Roll-On/Roll-Off gun and fire-control pallets.

Also in the quarter, our new warhead for GMLRS achieved 100% success during a flight test.

And we completed our first full quarter of operating the Lake City Army Ammunition Plant under our new contract with the U.S. Army.

Now I'll turn to the Sporting Group. I just recently returned from the National Shooting Sports Foundation SHOT Show, which saw record attendance of 67,000 participants. The SHOT Show provided ATK an opportunity to present our integrated branding approach and marketing approach for our recent acquisitions of Bushnell and Savage, as well as our other brands. With our newly acquired capabilities in outdoor accessories and firearms, we'll continue to lead in our markets with products that meet emerging needs, and our development of horsepower is going to allow us to generate game-changing products and technologies in the future.

Also in the quarter, BLACKHAWK! celebrated its 20th anniversary. This brand continues to grow and received several top recognitions associated with the show. The U.S. Army selected BLACKHAWK! SERPA Tactical Holster for its Improved Modular Tactical Holster Program. With this award, the SERPA Holster is now the holster of choice for the U.S. Army, the Army Military Police, the U.S. Marine Corps, the German Army and other law enforcement and military agencies, both domestic and international.

To conclude, ATK continues to deliver on our vision, which we've been communicating to you, and continuing to deliver on our business objectives. I'm pleased with our progress in successfully integrating the newly acquired businesses within the Sporting Group. We continue to deliver innovation and highly engineered solutions and products for our customers. Our leadership focus and disciplined approach to operations and program execution continues to produce solid bottom line improvements, and our capital deployment approach continues to deliver growth and value to our shareholders.

I'll now turn the call over to Neal, who will go through more detail on the financial performance for the quarter and our outlook for the remainder of FY '14. And then following Neal's comments, he and I will take your questions. Neal?

Neal S. Cohen

Thanks, Mark, and good morning, everyone. In the third quarter, the company recorded strong financial performance. Orders through the quarter were $1.3 billion compared to $1.4 billion in the prior year period. The decrease in order was driven by decreases in the Sporting and Defense Groups, offset by an increase in the Aerospace Group. The book-to-bill ratio for the quarter was approximately 1.0.

We finished the quarter with a backlog of $7.6 billion, which is up from $6.7 billion in the prior year period. The year-over-year increase is primarily driven by strategic orders in the Aerospace Group.

Third quarter backlog is down from the second quarter backlog, reflecting expected normalization in Sporting Group orders.

In the period, year-over-year sales were up 14% to $1.2 billion. This increase was driven by increased sales in the Sporting and the Aerospace Groups, partially offset by a sales decline in the Defense Group. As we discuss non-GAAP numbers during the call, please refer to the reconciliation tables in our web slides.

Operating profit of $146 million in the quarter increased approximately $39 million from the prior year period. Adjusted operating profit was $158 million compared to $103 million in the prior year. This increase in adjusted operating profit was driven by higher sales and profits in the Sporting Group, partially offset by a decrease in profit in the Aerospace Group.

Net income for the quarter increased 27% to $80 million compared to $63 million in the prior period. Adjusted net income was $93 million compared to $61 million in the prior period.

In the third quarter, fully diluted EPS was $2.46 per share compared to $1.93 in the prior year. Adjusted EPS was $2.87 compared to $1.84 in the prior year. This increase in net income and EPS is due to higher operating profit, which we noted above, partially offset by higher interest expense.

The tax rate for the quarter was 32.7% compared to 31.9% in the prior year. This primarily reflects nondeductible acquisition-related costs and lower benefits from the Domestic Manufacturing Deduction, partially offset by a favorable true-up of prior year taxes and an extension of the federal R&D tax credit in 2013.

Interest expense in the quarter was $29 million, up from $14 million in the prior year, reflecting higher average debt levels, and the write-off of $6 million of deferred financing cost as the result of the previously announced debt refinancing.

Year-to-date free cash flow was $142 million, up from $57 million in the prior period. This increase reflects the impact of reduction in pension contribution of $100 million year-over-year, the absence of the LUU flare settlement payment in the prior year and decreased tax payments, offset by increased working capital primarily due to the timing of payments and collection of significant receivables in the prior year.

Capital expenditures were $81 million compared to $61 million in the prior year. This increase was primarily driven by capital expenditures in the Defense Group due to the new contract in the Small Caliber Systems division and capital expenditures as part of the Savage acquisition.

The company secured strategic wins across the company. And as Mark highlighted, we continue to demonstrate strong performance on key programs. This was reflected in the overall financial performance of the groups.

Starting with our Aerospace Group, third quarter sales were up 4% to $318 million compared to $305 million in the prior period. This reflects increased sales in the Space Systems Operations and Aerospace Structures divisions, partially offset by lower sales in Space Components division.

Operating profit decreased 11% to $33 million compared to $37 million in the prior period. This decrease was partially driven by the absence of an award fee in the group's propulsion business that was recorded in the prior year period.

In the Defense Group, third quarter sales decreased 10% to $455 million compared to $508 million in the prior year. This decrease was driven by reduced sales in the Armament Systems and Small Caliber Systems division as programs neared completion and the impacts from federal budget reduction.

Operating profit for the quarter was flat at $53 million. This is due to reduced sales volume, offset by a variety of operational improvements.

In the Sporting Group, third quarter sales increased by 78% to $524 million compared to $294 million in the prior period. Sales for the group accounted for 43% of total company sales and included the recently acquired businesses of Savage and Bushnell and a 31% organic sales growth rate. Note that in the quarter, sales for Savage were $54 million and sales for Bushnell were $85 million.

Operating profit for the quarter increased by 168% to $81 million compared to $30 million in the prior year period. This increase in operating profit includes Savage and Bushnell and strong organic sales and profit growth in the business.

Operating profit from Savage and Bushnell was $13 million and $3 million, respectively. Third quarter operating profit for Bushnell also includes inventory step-up and transition costs and excludes transaction costs.

During the third quarter, the company repurchased $4 million in shares, bringing the total value of shares repurchased to $112 million at the end of the quarter.

Yesterday, ATK's Board of Directors extended our existing share repurchase program through March 31, 2015. This allows us the option to offset the potential dilution of any shares that could be issued in connection with the potential retirement of the convertible notes in August 2014.

The board also took action to increase the quarterly cash dividend by 23% to $0.32 per share. This reflects the strong performance in the third quarter and the year-to-date and our positive outlook for the business.

Looking ahead, we increased our FY '14 guidance for sales, EPS and free cash flow. Full year FY '14 sales guidance is now in the range of $4.73 billion to $4.78 billion, up from the previous guidance of $4.68 billion to $4.73 billion. This increase reflects improved operating performance in the Sporting Group. We expect full year interest expense of approximately $80 million, reflecting the refinancing of existing debt, including an approximate $6 million write-off of unamortized financing costs and the financing of the Bushnell acquisition. We expect the full year tax rate will be approximately 33.5%, down from the previous guidance of 34.5%. The company expects full year FY '14 EPS guidance in the range of $9.50 to $9.80, up from the previous range of $9.10 to $9.40. The increase in EPS guidance reflects improved sales in the Sporting Group and lower expected tax rate.

We expect our FY '14 free cash flow to be in the range of $215 million to $235 million, up from the previous guidance of $210 million to $230 million.

Thank you for joining the call today. Before I turn over -- turn the call over to questions, I'd like to summarize by saying we're pleased with the company's strong financial performance in the third quarter, including a 14% year-over-year increase in sales, a 36% year-over-year increase in operating profit and a 27% increase in earnings per share.

We're pleased to raise the dividend. We continue to see strength in our Sporting business. We have focused and detailed integration plans for our newly acquired Savage and Bushnell businesses, and the company continues to deliver strong results through ongoing commitment to execution excellence, PES and balanced capital deployment, which returns value to our shareholders.

With that, Mark and I are ready to answer your questions.

Question-and-Answer Session

Operator

[Operator Instructions] We'll take our first question from Steven Cahall at Royal Bank of Canada.

Steven Cahall - RBC Capital Markets, LLC, Research Division

The first question, just on the backlog at Sporting. I know sometimes you've given us a sense of how far it goes out. Could you maybe give us a sense also of how far it goes out at the moment?

Mark W. DeYoung

Sure. So in terms of sporting backlog, we still have many, many months of backlog, which I think is the same term that I used last time we chatted. We have seen some reductions in Sporting backlog as we have told you in the past. The order flow that had gone into Sporting was unlikely to be fully executed. We felt that customers had placed multiple orders as they hurried to get in line for ammunition deliveries. I believe that, that was true. We mentioned that now for, I think, almost a year and we begin to see some softening now with some order cancellations in Sporting for what we believe were duplicate orders.

Steven Cahall - RBC Capital Markets, LLC, Research Division

Okay, great. And then just as a follow-up. I think pretty soon, at least in the first half of this year, we start to lap some price increases in ammunition. What are your thoughts on the market's capacity to handle any additional increase in pricing?

Mark W. DeYoung

Yes. So our last price increase was instituted in April, we mentioned that. And we mentioned on the last call that for the majority of that price increase has held in the market so we were pleased about that. Right now, I wouldn't want to get into nor would I like to forecast whether we will do additional price increases. That will be dependent upon the market conditions we see at the time. What I can tell you is that there is still strong demand for ammunition products. I had a report yesterday of a fistfight in a sporting goods store as people tried to get rimfire ammunition off the shelf. So there is still a demand and customers are still very anxious to get product. And so we're seeing strong demand for rimfire. We're seeing continued strong demand and short supply for pistol ammunition. However, we are seeing some softening for 5.56, .223 type ammunition in the market. So we'll manage the price on the products based upon the demand and based upon our competitive position as we go forward.

Operator

We'll take our next question from Carter Copeland at Barclays.

Ryan Eldridge - Barclays Capital, Research Division

This is Ryan Eldridge on for Carter. Mark, I wanted to ask about capital expenditures at Sporting. How should we be thinking about the trajectory of that spend, what it involves, and also, over time, how margins in that segment might benefit from the improved efficiencies that the CapEx is offering within your factories, even in the event of a slowdown in volumes?

Mark W. DeYoung

You bet. so we have invested consistently with what we think is very wise capital investment in the Sporting Group. And that investment, as I've mentioned before, has largely been on modernizing our factories under our factories of the future strategy, making more efficient processes through capital investment and new equipment and new control systems for that equipment. So we will continue to focus on our factory of the future strategy to drive efficiency improvement and support margins in the factory. With the acquisition of Bushnell and Savage, we have made some capital investments in Savage associated with some facility efforts that they had in mind to improve the layout of their factory, and we will execute that here this year. I believe that, as we mentioned in the past, we commented that Bushnell is not a CapEx-intensive business so I don't think you'll see any significant kind of swings or investments required as a result of the acquisition. So I think for the most part, it's going to be -- stay the course on CapEx in those businesses. And again, as we do that, we're very focused on the right kinds of capacities to support the right kinds of product demand, as well as our factory of the future strategy to drive efficiency improvement with these CapEx investments.

Operator

And we'll go next to Greg Konrad at Jefferies.

Greg Konrad - Jefferies LLC, Research Division

For the past couple of quarters, you kind of flagged a lower margin on the Lake City contract as we enter the new contract in the second half of the year. But when you look at the margins this quarter, they held in there quite well. Any initial thoughts as you kind of enter that new contract in this quarter?

Mark W. DeYoung

Yes. There's an event that went on, which really helped support the margins in the quarter. So it's a good question. So at Lake City, we took over and began operating the new contract in the third quarter. We completed our first full quarter operating the new contract in this quarter we're reporting on today. As we mentioned to you in our last call, that there was an element of the prior contract, which is the M855A1 round, which is the new round for the military. That production quantity from the old contract was actually extended into the new contract period. And we built a substantial amount of that ammunition in the third quarter at a higher margin under the old contract terms. So that actually assisted us in maintaining some of the higher margins that we were happy to be able to report from the third quarter out of Small Caliber Systems.

Greg Konrad - Jefferies LLC, Research Division

And then just a quick follow-up to that. When I look at other intercompany revenues and you continue to have quite a jump in that number, I'm assuming most of that's commercial ammunition out of Lake City. Just wondering how that helps overhead absorption on the new contract.

Mark W. DeYoung

No, that's absolutely correct. We've mentioned in the past, I think over the last year, that our new contract at the Lake City Army Ammunition Plant allows for commercial use. As you mentioned, that allows for overhead absorption in the factory that benefits the military and the taxpayer on reducing the cost of DoD-procured ammunition. So we've been executing that strategy. With the demand in the sporting market, we've been able to use some of the capacity that the government has in their facility to support sporting ammunition and that is driving that increase in that growth.

Operator

We'll go next to Gautam Khanna at Cowen and Company.

Lucy Guo - Cowen and Company, LLC, Research Division

This is Lucy Guo calling in for Gautam. First, was there any major EACs in any of the segments -- adjustments, EAC adjustments?

Mark W. DeYoung

No, we had no major EAC adjustments in the segments last quarter at all.

Lucy Guo - Cowen and Company, LLC, Research Division

Okay. And then secondly, is your -- have you seen the uptick in any order cancellations in Sporting?

Mark W. DeYoung

Yes. As I mentioned when I discussed the backlog comment a little bit, there has been some softening at certain product categories, primarily in what we call 5.56 and .223 ammunition. And so we have seen the beginning of softening there and we saw some order cancellations, which we believe were duplicate orders in our backlog position.

Neal S. Cohen

Yes. And just to add to that, we've been expecting that and we've been sharing, as Mark said, we've been sharing that expectation. And even in spite of some of those cancellations, our backlog is still up 13% year-over-year, so still strong growth in the backlog position consistent with our expectations of growing -- continuing to grow the business. So -- and -- so if you look at that reduction in orders or backlog, still seeing a 13% year-over-year growth.

Lucy Guo - Cowen and Company, LLC, Research Division

Would you characterize the order cancellations you've seen so far kind of in line with where you expected them to be?

Mark W. DeYoung

Yes, I think so. Again, it was very difficult. I remember on a prior call, I was asked by an analyst about how much visibility -- I think it was last quarter I was asked how much visibility do we have into the backlog position in terms of duplication of orders, orders that may have been put in to hold the place in line. My answer to that last quarter was that we don't have visibility into that. We just receive those orders from a variety of customers, and we have to assume that they want the product. So we do not have a lot of visibility into how those orders are built and what our customers are thinking when they place those orders. So it's difficult to say how much of the order cancellation was duplicate orders, but I believe the majority of the cancellation we have seen was likely attributable to people who had simply over-ordered.

Lucy Guo - Cowen and Company, LLC, Research Division

That's helpful. And then lastly, just on -- there's been some news out there saying that gunmakers are pulling out of California, especially in handguns, due to the microstamping requirement. How -- what's the approach that Savage is taking on this?

Mark W. DeYoung

Yes. So you might be referring to a recent statement where Smith & Wesson said they would no longer sell their handguns in California because of the microstamping legislation passed by the state.

Lucy Guo - Cowen and Company, LLC, Research Division

Smith & Wesson and Ruger.

Mark W. DeYoung

Okay, all right. So I just wanted to make sure. So I'm aware of that. As we have reported in the past, Savage does not manufacture and we do not have any handguns in our portfolio, so we're not impacted by the microstamping issue on handguns at all. All of the products which we manufacture are long guns in both sporting shotguns, security shotguns and the rimfire and centerfire rifles. So that is not an impact to us.

Operator

We'll move next to Joe Nadol at JPMorgan.

Christopher Sands - JP Morgan Chase & Co, Research Division

It's actually Chris Sands on for Joe. Was hoping you could provide some more color on the trends and the different pieces of Sporting margin. The organic ammo margin seems like it's up near 17%. I know, Mark, you mentioned demand remains strong, but how sustainable is that in the near term? And then, where do you see it going in the longer term?

Mark W. DeYoung

Yes. So the Sporting Group, obviously, is still firing on all cylinders. We're still running very, very hard. I think that team has done a nice job, being able to capitalize upon the positive market trends that we have seen. I recently saw some numbers which were issued by our competitors. We continue to outpace our competitors in terms of both margin and revenue growth, in my opinion, fairly substantially. So I think we're doing the right things in the market to continue to grow our market share, as well as to continue to drive revenue and margin growth. Going forward, it is inevitable that the sporting market will normalize at some point. I'm not sure we all know what normal means because we have installed millions of additional platforms in terms of new guns sold to new shooters and enthusiasts. And our assumption is that with all of those new firearms in the market, they will eat and consume our ammunition products and our accessory products will be sold to support them. So it's a bit of a difficult question. I don't have a clear crystal ball on what the new normal will be. I do suspect that we will see some go-forward mix shift and we will see some go-forward pricing shifts, which may put some pressure on those kinds of peak margins.

Christopher Sands - JP Morgan Chase & Co, Research Division

But not a sense for how much pressure that might be just yet?

Mark W. DeYoung

I don't think anybody knows just yet where -- what normal means or when we'll see that. So far, the thing I can tell you, again, is we have strong demand for pistol ammunition, which is high volume. We have very strong demand for rimfire ammunition, which is one of our higher volumes. We have solid demand for most of our products on the accessories and ammunition side. Remember, we have lots of products. So right now, I just don't have enough information to accurately predict what's about to happen in that market.

Christopher Sands - JP Morgan Chase & Co, Research Division

Right. On the Bushnell piece, you mentioned the margin in the quarter excluded the transaction cost but it included the transition cost. Can you maybe give us a sense for how much that was and when you expect Bushnell to be kind of up and running at a normalized margin rate?

Neal S. Cohen

Yes, we're not going to break that number out, and we're going to continue to communicate and give you good visibility in the Bushnell results. As Mark said, we've got a very focused, very rigorous integration plan, much like with Savage. We're very early into the process there. The team is working very hard in driving that integration plan. I think it's a little early to tell you about sort of what -- when that -- when those results will sort of go back to sort of long-term levels because we're working through the integration and the costs associated with that. We'll continue to give you good visibility every quarter. So we'll be able to track that and we'll continue to drive that. I think -- but I think it's going to be -- I think it's going to be into fiscal -- it's going to be well into fiscal '15.

Christopher Sands - JP Morgan Chase & Co, Research Division

Okay. And then just the last few. Savage was very strong, around 24%, this quarter. So any thoughts on whether that's sustainable or were there some onetime things benefiting margin this quarter?

Mark W. DeYoung

No real onetime events at Savage at all. It's just excellent performance by an excellent company. So again, we're very pleased with our acquisition of Savage and with their focus on efficiency improvement and on margins. There is a strong demand for -- there has been a strong demand for rifles and that continues to be solid demand for us. There has been some softening in some of the order flow volume for Savage following that Christmas season in December and January. We've seen some softening. There is some seasonality in the Savage business around centerfire rifles, which are largely fall goods; rimfire rifles, which are largely spring and summer goods. We'll track that. And if we get more visibility on real trends there, we'll report that to you.

Christopher Sands - JP Morgan Chase & Co, Research Division

Okay, great. And then just one last one. Could you size the aerostructures business now? And -- or maybe if you're not willing to do that, at least give us a feel for the growth potential there when everything is up to rate?

Mark W. DeYoung

Yes. The growth potential, I think, is obviously very exciting. If you look at Airbus right now, we've ramped up to a 2 rate. So we are still well down at the lower end of what will eventually be a rate, which could be as high as a 12 rate. So if that gives you some indication, we're at a 2 and we could go to a 12 on Airbus under the current schedule. On the M400 program, we have completed 4 aircraft there so we're in the early stages of that. Obviously, the 787 win we just announced will bolster future growth as we support both versions of the 787 Dreamliner, so we're excited about that. Our work with Rolls on our engine containment cowls and our work with GE goes very well. So that business is positioned for substantial future growth. Also, our long-term receivable on investments which we made in that business, begin to turn the corner for us here in a few years and we'll be cash positive here in a few years. We're excited about what that will mean for the business and our ability for future investment as well. So the one characterization about that, I can say, is the team is doing a great job. We've been very successful in winning new business in that space as we just announced with the 787. And the business is performing to our expectations, and it has great growth potential and cash generation potential in the future.

Operator

[Operator Instructions] We'll go next to Michael Ciarmoli at KeyBanc Capital Markets.

Michael F. Ciarmoli - KeyBanc Capital Markets Inc., Research Division

Maybe just to stay on the theme of aerostructures. Mark, can you maybe give us an update? You've got these recent wins with the 787. Can you give us an updated ship set content, if you're willing to share that information?

Mark W. DeYoung

Yes, I wish I could. I wish I could tell you a lot more about our recent Airbus contract and I wish I could tell you a lot more about the 787 contract, but our customer has asked that we restrict communications on some of those programs. So I would like to, but we've been asked not to. So I'm a little bit restricted there. They are significant orders. The financial value of those orders is significant. They'll be obviously over a significant duration. And if we have an opportunity to talk more about those and our customer gets more comfortable with allowing us to do that, I'd be happy to.

Michael F. Ciarmoli - KeyBanc Capital Markets Inc., Research Division

Okay, that's fair. Can you give us a sense of how you're taking this market share? I mean, is this a function of Boeing's partnering for success? I mean, are you guys coming in with better pricing? I mean, you've got the new facility. Can you give us a sense in terms of how that's helping to win these contracts and even maybe where you are in terms of capacity and utilization in that facility?

Mark W. DeYoung

Sure. So I do think that in Boeing, in particular, they were partnering for success, looking for ways to strengthen their supply chain. On the 787, I think that our success on other aircraft programs, our ability to demonstrate innovation and excellence in these highly engineered structures was very helpful for us. And I think that Boeing is a great company and will be a great customer and has been a great customer of this company in the past on satellite programs and military aircraft. Understood the capability ATK was able to bring to the party. We clearly could compete on price. And so I think it was a combination of all the things you mentioned and our track record of success that allowed us to get that program. The second part of your question, if you'd like me to answer that, was on capacity in the new facility. We built that facility, as you may recall, a few years ago in a very efficient way. We were able to get a brownfield development, and we were able to expand some of the floor space that we needed for commercial growth, as well as our existing aerostructures business for Military Aircraft like the F-35 and others. And so we're optimizing that space. I would suggest that we probably have additional expansion floor space capability, particularly in our ACCE facility, of about 25%.

Michael F. Ciarmoli - KeyBanc Capital Markets Inc., Research Division

Okay, that's helpful. And then just the last one for me. I don't know if you'll be willing to share this, but the 31% organic growth in Sporting, can you parse that out? I mean, was the majority of that tied to ammunition? I know you mentioned some nice wins and performance in BLACKHAWK! but was the bulk of that ammunition?

Mark W. DeYoung

Yes.

Operator

And we'll go next to Herb Hardt at Monness.

Herbert A. Hardt - Monness, Crespi, Hardt & Co., Inc., Research Division

I think before the Bushnell acquisition, you had roughly 10% of your sales in overseas. There was no update that I saw in the release. Is there anything to be looking forward to there?

Mark W. DeYoung

Yes, we're still running roughly around that 10% international sales. That's been a number we had targeted and we had targeted an opportunity to significantly increase that number over the next few years. We do have some interesting leads, I think, on the international front. We also have a disappointment there, Herb. So one of the disappointments was the Australian tender, which was in place to win and manage 2 Australian munitions plants. It appears that tender has been pulled back by the Ministry of Defense for review. That has the potential to impact a slip in that international pursuit, which could be as much as a year. So a little bit of a disappointment there. As you recall, we were down-selected as one of the final 3 bidders and competitors for that international ammunition base. So that's a disappointment. On the other hand, our gunship business is going very well. Our progress on the Jordan light gunship is on track. Testing has been very successful so far on that. I mentioned the Dubai Airshow, where we highlighted the MC-27J aircraft and our weaponization of that aircraft with Roll-On/Roll-Off pallets that was very well received, so we're pleased to that. The AARGM missile sales to Italy and to Australia, PGK to Australia, F35 opportunities internationally are beginning to materialize. So I would, I guess, mention to you that we're still probably in that range of 10%, and some of these pursuits we're pursuing appear to be opportunities for next year now.

Operator

And we'll take our next question from Steven Cahall, Royal Bank of Canada.

Steven Cahall - RBC Capital Markets, LLC, Research Division

Just a couple of quick follow-ups. The first one is, it looks like the NASA budget came in, perhaps surprisingly, a bit of expectations. I mean, what's your view on that and the specific programs that you're on? Do you see some plus up there from what you had in your '15 plan?

Mark W. DeYoung

No. I think what we see on NASA is stability. We've mentioned this now for about the last 2 years. We had some real challenges, obviously, with NASA following shuttle, the Ares program questions, cancellation of Constellation. And many of you who have followed us for a few years will remember it was just a few years ago where many of these questions led off with NASA. That has stabilized over the last 3 years. This budget was in line with our expectations for the program. The SLS budget is in line with our expectations for the program. We believe that has continued strong bipartisan support and that was manifest in the budget. So I think we're in really good shape on the program and content that we have.

Steven Cahall - RBC Capital Markets, LLC, Research Division

Okay. And then just a final one. On capacity at Sporting, I mean, if we started thinking about growth, organic growth for next year, you talked a bit about pricing, very fair. About when are you going to tell us about that as you make your decision on pricing. But if we think about volume, I know you've put some incremental CapEx into your existing footprint, I think, some lathes and other equipment. It sounds like you have some incremental capacity at the Lake City as well. Can you give any sense of what your volume growth potentially is in the Commercial Ammunition segment?

Mark W. DeYoung

I'll try and answer your question, but I may answer it a little bit differently than you specifically asked. So let me give you the answer I can give you on that. As I mentioned, this is a very competitive business so I don't like to talk about volume numbers by caliber, those kind of things, because we prefer not to have that in such a competitive marketplace. But what I can tell you is we are bringing capital online for pistol ammunition expansion, which we authorized the procurement of several months ago in anticipation that pistol would remain a high-demand category, also based upon all of the new handgun platforms, which have been sold to all of the new shooters. So we're pleased that, that is beginning to come online now. We'll see benefits in our next fiscal year from additional volume capacity on pistol ammunition. Also, with the capacity at Lake City, we looked to optimize that capacity to the benefit of the government and to the benefit of our commercial sales. So there is additional capacity there. We've identified that capacity. Now it's going to be based on demand. So one of the configurations of ammunition where demand has begun to soften is some of that Lake City product. So we will monitor that and decide how to use that capacity or if we need that remaining capacity at Lake City. The other thing is our operations people in the Sporting Group have done a tremendous job on ensuring that our PES initiatives for productive and efficient production capabilities has helped our SKU rationalization strategy to build fewer SKUs but more of them has helped. So I do think we have some headroom to generate additional ammunition growth, but there's no doubt we're beginning to cap out some of the organic capacity we have.

Operator

And we'll go next to Michael Ciarmoli at KeyBanc Capital Markets.

Michael F. Ciarmoli - KeyBanc Capital Markets Inc., Research Division

Mark, just to stay on the budget topics. Anything -- looking at the Army ammunition budget for fiscal '14, it looks like that's come down to about $1.4 billion, and certainly, it looks to be trending back down to prewar levels. You were just talking about Lake City capacity. I mean, pre-war, I think you guys were doing 350 million, 500 million rounds. I mean, how do you view that contract trending as maybe troop levels and OPTEMPO continue to decline?

Mark W. DeYoung

Yes, so there's a couple of variables in there that you have to consider from the government's perspective. So back pre-9/11 -- so I'll even go back that far. So if you go back pre-9/11, that's about 350 million rounds, was the production run rate at Lake City. Then 9/11 occurred and we began a pretty consistent ramp-up and that ramp-up led us to about 1.4 billion rounds produced last year or the year before. As we've told you in the past, about 80% of that munition production capability gets expended in support of force structure training. And then the other thing I would mention is there's also a minimum sustaining rate that the Army has asked for industry to provide and support to them of how do they maintain an industrial base that is modernized and ready with surge capability. So all those factors, I think, play into trying to set the stage for how we look at this. So with that in mind, our order volume at Lake City is consistent with what we expected. We had said that we thought that in the coming year under the new contract, we would see about a $200 million decline in demand and in orders and that is what has materialized. We mentioned last quarter that our order going forward was about $400 million worth and that was in line with our expectations of going from $600 million to $400 million. So I think we're on line with that. I think that because the military has switched and the Army, in particular, has switched from the M855 to the M855A1, that's a little bit of another wrinkle where they're looking to provide more and more of that A1 ammunition. So that will sustain some demand because they're shifting their product type both in inventory and in training and in the field. So with all of that in mind, it's a bit of a complex question to be able to answer. But I think we will have reasonable sustainment of volumes similar to where we are right now going forward. And we'll just monitor that based upon how we see the budget with the Army and demand and force structure and keep you abreast of that, but that's how we see it.

Operator

And at this time, we have no further questions. I'll turn the conference back over to management for any closing remarks.

Michael Pici

Well, thank you very much. We appreciate all of you joining our call today. We're incredibly pleased with the performance of our groups and our leadership teams and our employees across the company. We appreciate your interest in the company and look forward to reporting to you our year-end results the next time we talk. Thank you very much. Have a good day.

Operator

And that does conclude today's conference. Again, thank you for your participation.

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