L-3 Beats on Earnings, Provides Guidance - Analyst Blog


Defense operator L-3 Communications Holdings Inc .'s ( LLL ) fourth quarter 2013 adjusted earnings of $2.17 per share beat the Zacks Consensus Estimate of $1.98 by 9.6%. However, the bottom line was down 3.5% year over year.  

L-3 Communications' 2013 adjusted earnings of $8.54 per share surpassed the Zacks Consensus Estimate of $8.36 by 2.1% and were also ahead of the year-ago figure by 6.7%.

The company ended 2013 on a strong note with earnings even surpassing the guidance of $8.25 to $8.35 per share. The strong performance was attributable to its program execution capability, cost cutting initiatives and contribution from its international and commercial business.

Total Revenue

Total revenue of $3.25 billion in the reported quarter was 2.8% higher than the Zacks Consensus Estimate of $3.16 billion. However, the top line was down 8.5% year over year.

L-3 Communications had provided 2013 revenue guidance in the range of $12.5 billion to $12.6 billion during its third quarter earnings release. Revenues in 2013 came in at $12.62 billion, marginally ahead of the guidance. The top line also surpassed the Zacks Consensus Estimate of $12.53 billion by 0.7%.

Operational Highlights

Funded orders for the reported quarter were $3 billion, down 11% year over year. Funded backlog declined 5% to $10.3 billion as of Dec 31, 2013, from $10.9 billion as of Dec 31, 2012.

The decline in total revenue impacted the operating income of the company, which declined 10.9% year over year to $0.32 billion.

Net income at the end of the quarter was $0.19 billion versus $0.21 billion in the year-ago period.

Segment Performance

C3ISR : The segment recorded net sales of $0.84 billion, down 12.5% year over year. The decline reflects lower sales for networked communication systems and ISR Systems. However, these decreases were partially offset by higher volume on ISR platforms for foreign military customers.

Electronic Systems : The segment generated net sales of $1.48 billion in the reported quarter, down 8.2% year over year. The decline in sales was due to lower DoD demand. These declines were partially offset by $29 million of higher sales primarily for Marine & Power Systems due to the timing of deliveries of commercial shipbuilding products.

Platform & Logistics Solutions : Net sales at the segment decreased 2.1% year over year to $0.61 billion. The decrease was primarily due to lower volume for U.S. Navy maritime patrol aircraft.

National Security Solutions : The segment generated net sales of $0.31 billion, a decrease of 10.7% from the year-ago level. The decrease in sales was mainly due to lower demand for a technical support contract for a U.S. government agency and for U.S. Special Operations Command information technology support services.

Financial Position

As of Dec 31, 2013, L-3 Communications had $500.0 million in cash and cash equivalents versus $349 million as of Dec 31, 2012.

Long-term debt as of Dec 31, 2013, was flat year over year at $3.63 billion.

Cash from operating activities was $1.26 billion, marginally higher than the year-ago figure of $1.23 billion.


L-3 Communications expects 2014 total revenue in the range of $11.8 billion to $12.1 billion. L-3 expects earnings per share in the range of $8.15 to $8.35.

Interest expenses for 2014 are expected to be $176 million while operating margin is pegged at 10.5%. Capital expenditure is expected to be $0.19 billion, while free cash flow is expected to be $1 billion.

Peer Comparison

The Boeing Co. 's ( BA ) fourth quarter 2013 earnings came in at $1.88 per share, beating the Zacks Consensus Estimate of $1.58 by 19.0% as well as the year-ago profit of $1.46 by 28.8%.

Lockheed Martin Corp. ( LMT ) posted fourth quarter 2013 earnings of $2.38 per share, comfortably surpassing the Zacks Consensus Estimate of $2.00 by 19.0% and the year-ago profit of $1.96 by 21.4%.

General Dynamics Corp . ( GD ) announced fourth-quarter 2013 operating earnings of $1.76 per share, in line with the Zacks Consensus Estimate. Earnings were ahead of the year-ago figure of $1.39 by 26.6%.

Our Take

L-3 Communications was able to surpass our estimates in the reported quarter as well as the full year. Revenues declined year over year in the wake of budget austerities from the DoD.

We appreciate L-3 Communications' initiatives to increase shareholder value. During 2013, the company retuned nearly $1 billion to its shareholders through dividend payments and share repurchases. We expect the company to continue with these shareholder friendly moves in 2014 given its strong free cash flow generation capability.

L-3 Communications exited 2013 with a dent in its backlog and orders, primarily due to budget cuts by the U.S. defense department. We believe the company will try to win more orders from international customers to offset the domestic decline.

L-3 Communications currently has a Zacks Rank #3 (Hold).

BOEING CO (BA): Free Stock Analysis Report

GENL DYNAMICS (GD): Free Stock Analysis Report

L-3 COMM HLDGS (LLL): Free Stock Analysis Report

LOCKHEED MARTIN (LMT): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ, Inc.

This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: BA , GD , LLL , LMT



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