Leidos views civilian presence as 'aligned' to Trump priorities

Leidos' blockbuster merger last year with Lockheed Martin Information Systems and Global Solutions business had twin goals: much greater scale and a more diverse customer mix.

The combined company's civil and commercial revenue grew to 45 percent from the 28-percent share in legacy Leidos, according to a January investor presentation. IS&GS generated roughly 60 percent of its $5 billion in sales from civil and commercial customers.

In its first quarter results released on Thursday, Leidos CEO Roger Krone said that half of total sales come from defense and intelligence customers, the civil group is at nearly one-third and health captures the remaining share.

This notable civil bent, Chief Financial Officer Jim Reagan acknowledged in the earnings call with analysts, is the one area Leidos “gets the most questions from investors on related to proposed budgets and stated administration priorities” that include large spending cuts to civilian agencies President Donald Trump proposed in his March budget blueprint.

On a holistic level, Leidos sees the “policy positions indicated thus far should have minimal impact in areas exposed to civil budgets,” Reagan said.

This echoes the sentiment ManTech International expressed in that company's first quarter earnings call after markets closed Wednesday. ManTech told investors its civilian portfolio that represented 6.7 percent of its sales last year should not see significant impacts from spending cuts.

A delayed fiscal year 2017 appropriations bill expected to pass Congress this week contains none of the $18 billion in civilian spending cuts President Donald Trump had sought during negotiations with lawmakers.

The $54 billion in cuts Trump sought in his blueprint, or “skinny budget,” are areas Reagan described to investors as “more immaterial.”

Those “immaterial” cuts Reagan described include the double-digit reductions to agencies such as the State Department, Environmental Protection Agency, Coast Guard, Commerce Department and Federal Emergency Management Agency.

The Homeland Security Department that contains both the Coast Guard and FEMA is area of “emphasis and priority on increased spending,” Krone said. DHS would get a 6.8 percent increase to $44.1 billion in fiscal 2018 under the proposed blueprint.

Where Leidos is “strong in civil are places aligned to administration priorities,” according to Reagan, who cited the company's work with the Federal Aviation Administration as one example.

The company holds a large $2.8 billion contract with the FAA dubbed En Route Automation Modernization to help automatically process and generate data for air traffic controllers. Leidos inherited that contract from IS&GS.

Other areas Reagan described in that “aligned” category include infrastructure work, which Trump has sought higher spending for to the tune of almost $1 trillion in a spending package proposal.

Two other examples Reagan offered as in alignment with administration priorities included the Centers for Medicare and Medicaid Services, which was not mentioned in the budget blueprint, and the Social Security Administration that would keep its current $9.3 billion funding level in fiscal 2018 under Trump's proposal.