Elbit Systems, a prominent player in the Israeli defense sector, faces continuing financial challenges, despite achieving a record backlog of orders against the backdrop of growing demand from the Israeli army in light of the ongoing war in the Gaza Strip.
At the end of the first quarter, its backlog had risen to NIS 20.4 billion ($5.50 billion), a significant year-over-year increase of 29%. However, this growth is in stark contrast to its ongoing struggle to manage cash flow, according to the Israeli newspaper Globes.
The company supplies hundreds of products to the Israeli Ministry of Defense that it uses in its war on the Strip, which the company’s CEO, Bezalel Maclis, said includes simulators, unmanned aerial vehicles, artillery, ammunition, control and communications systems, and others, according to Reuters.
Increase revenues amid financial pressures
While Elbit announced an 11.5% increase in revenues to reach 1.55 billion shekels ($420 million), and an 18.7% increase in net profits to ($73.7 million) for this quarter, these positive developments were overshadowed by the situation. Negative cash flow is worrying, according to the same source.
The company reported negative cash flow from normal operations of $6.4 million, showing only a marginal improvement from the negative figure of $73 million a year earlier, Globes said.
Management point of view
The company’s CEO talked about the unprecedented amount of demand the company received, but the financial celebration was dampened by negative cash flow.
For his part, the company’s CFO, Kobi Kagan, shed light on the reasons behind the financial slowdown in an interview with Globes, pointing to an increase in “working capital” and delays in the supply chain, which necessitated a focus on accelerating exports.
Kagan explained, “This quarter was characterized by growth in working capital. Because of the delays in the supply chain, we have concentrated the ability to accelerate exports, and this is the main explanation,” according to what the newspaper reported.
Investor confidence is diminishing
The newspaper says that, despite the operational successes achieved by Elbit, its performance in the market tells a different story.
The company’s stock price remained stagnant, returning to levels seen before the recent geopolitical tensions.
This recession was affected – according to the newspaper – by external pressures, including protests in Canada against the Canadian Bank of Nova Scotia, the major shareholder in Elbit, due to the continuing war on the Gaza Strip, which led to the bank being stripped of a large portion of its ownership.
McLeese acknowledged – according to the newspaper – the impact of short-term market reactions on investors’ perceptions, which indicates a disconnect between the company’s operating performance and the valuation of its shares.
