- The Washington Times - Monday, May 14, 2007

Shares of United Industrial Corp. reached a yearlong high yesterday after the Hunt Valley, Md., defense company posted strong first-quarter results and announced a stock-repurchase plan.

United Industrial, which manufactures unmanned aerial vehicles and training equipment for aircraft personnel, reported a 25 percent jump in revenues during the three months ended March 31 to $160.8 million, the company said last week. Net income grew 7 percent to $9.2 million (69 cents per diluted share).

Shares closed up 2 percent at $58.05 on the New York Stock Exchange yesterday.

The company’s spike in revenue was credited to increased sales of its unmanned aircraft system support to the U.S. Army as well as training devices for aircraft maintenance. United Industrial’s business centers on its flagship product, the Shadow Tactical Unmanned Air System.

Funded backlog for new orders climbed 29 percent in the first quarter to $215.7 million — an indicator that fiscal 2008 “is setting up to be a very strong year for the company,” said Michael Lewis, senior vice president and analyst with BB&T; Capital Markets.

“The real focus of this firm is on the [unmanned aerial vehicle] business, and if you look at the primary contract that they have with the U.S. Army, this contract has been one of the reasons why growth has been significant over the past few years,” said Mr. Lewis, noting the ongoing business that comes with orders of the company’s Shadow aircraft, such as service and maintenance.

Because United Industrial has been granted experimental authorization to operate its Shadow vehicles in southeastern Arizona, they likely will be used for border control and search and rescue operations, said Mr. Lewis, whose company does investment banking for United Industrial.

Frederick Strader, president and chief executive officer of the company, told analysts on a conference call that he is not sure about the prospects for supplemental funding legislation for Iraq, but adequate business is in the pipeline for the foreseeable future.

“Since this information-gathering capability is critical for the American forces deployed in Iraq and for planning future operations, we expect the business to remain strong regardless of any potential pressure on overall defense budgets,” Michael French, an analyst with Kaufman Bros., wrote in a research note.

The U.S. Marine Corps plans to purchase at least nine Shadow vehicles, Mr. Strader said.

Mr. Strader said the company is considering acquisitions, but he would not go into detail. In the last few quarters, United Industrial has divested itself of non-core businesses, such as real estate and energy, to focus on defense.

United Industrial bought back $50 million worth of shares in March and announced another $50 million plan last week.

“This alone sends a clear message to investors that management believes that [the company’s] current valuation is not reflective of their future growth opportunities,” said Mr. Lewis, who rates the company as a buy. “I think that’s why people are starting to re-examine this company.”

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