- The Washington Times - Monday, May 8, 2006

Shares of United Industrial Corp. fell 20 percent yesterday after the Hunt Valley defense and energy company reported its earnings had tumbled by 32 percent.

Net income for the first quarter ended March 31 fell to $8.6 million (67 cents per diluted share) from $12.6 million (84 cents) a year ago at United Industrial, which produces defense systems such as the unmanned aerial vehicles it is selling to the U.S. Army for its operations in Iraq.

Revenue climbed 28 percent to $137.6 million from $107.5 million a year ago.

Last year’s first-quarter income included a gain of 29 cents per share on sales of property, accounting for most of this quarter’s apparent decline in net income, according to Michael Lewis, a senior vice president at BB&T; Capital Markets in Vienna, Va.

Taking last year’s property sale out of the comparison, net income for the quarter was up, said Mr. Lewis, who does not own stock in the company. BB&T; has an investment banking relationship with United Industrial.

The company also said it is servicing more of its unmanned aircraft, which earns lower profit than production sales.

Pension costs were also up during the quarter, President and Chief Executive Officer Frederick M. Strader said in a conference call yesterday.

He called the first quarter of the year “very productive.”

Wall Street analysts were expecting earnings of 74 cents per share, or 5 cents more, prompting a stock sell-off.

Shares of United Industrial yesterday fell $13.81 to close at $53.99 on the New York Stock Exchange.

The sell-off led BB&T; Capital Markets to upgrade the stock’s rating from hold to buy, with a target price of $69.

“I wasn’t expecting the stock to hit the way it did,” Mr. Lewis said yesterday.

“I don’t think the outlook is any more diminished today as it was yesterday. The company is well positioned to continue to grow the defense portion of the business.”

In fact, the company’s defense business was up 29 percent during the quarter.

United Industrial defense subsidiary AAI Corp. sells and services the unmanned aircraft that are now being used in Iraq.

AAI announced yesterday it received an $87 million contract to make nine Shadow 200 unmanned aircraft systems for the U.S. Army.

The aircraft provide imagery and are piloted from remote locations.

The new contract is in addition to the 55 other systems, which include four unmanned aircraft each, that AAI has produced for the Army in seven years.

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