Raytheon Company (RTN)

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Raytheon (RTN)

Q3 2012 Earnings Call

October 25, 2012 9:00 am ET

Executives

Todd B. Ernst - Former Vice President of Investor Relations

William H. Swanson - Chairman, Chief Executive Officer and Chairman of Executive Committee

David C. Wajsgras - Chief Financial Officer and Senior Vice President

Analysts

Joseph B. Nadol - JP Morgan Chase & Co, Research Division

Carter Copeland - Barclays Capital, Research Division

Jason M. Gursky - Citigroup Inc, Research Division

Douglas S. Harned - Sanford C. Bernstein & Co., LLC., Research Division

Yair Reiner - Oppenheimer & Co. Inc., Research Division

Robert Stallard - RBC Capital Markets, LLC, Research Division

Howard A. Rubel - Jefferies & Company, Inc., Research Division

William R. Loomis - Stifel, Nicolaus & Co., Inc., Research Division

Samuel J. Pearlstein - Wells Fargo Securities, LLC, Research Division

Peter J. Arment - Sterne Agee & Leach Inc., Research Division

Myles A. Walton - Deutsche Bank AG, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Raytheon Third Quarter 2012 Earnings Conference Call. My name is Chanel, and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Mr. Todd Ernst, Vice President of Investor Relations. Please proceed.

Todd B. Ernst

Thank you, Chanel. Good morning, everyone. Thank you for joining us today on our third quarter conference call. The results we announce this morning, the audio feed of this call and the slides we'll reference are available on our website at raytheon.com. Following this morning's call, an archive of both the audio replay and a printable version of the slides will be available in the Investor Relations section of our website.

With me today are Bill Swanson, our Chairman and Chief Executive Officer; and Dave Wajsgras, our Chief Financial Officer. We'll start with some brief remarks by Bill and Dave and then move on to questions.

Before I turn the call over to Bill, I would like to caution you regarding our forward-looking statements. Any matters discussed today that are not historical facts, particularly comments regarding the company's future plans, objectives and expected performance, constitute forward-looking statements. These statements are based on a wide range of assumptions that the company believes are reasonable, but are subject to a range of uncertainties and risks that are summarized at the end of our earnings release and are discussed in detail in our SEC filings.

With that, I'll turn the call over to Bill.

William H. Swanson

Thank you, Todd. Good morning, everyone. We're pleased to report another solid quarter. Our operating margin, EPS and cash flow were above expectation. Overall, the businesses executed well in the quarter. We remain focused on reducing our costs, improving our productivity and delivering innovative, affordable solutions to our global customers. As we said on the last call, we expected bookings to ramp up in the last half of the year, and our third quarter orders came in strong at $7.3 billion. Notable awards included more than $1.2 billion for the Standard Missile-3, which follows on 2 successful intercepts that we had in the second quarter. Our classified book-to-bill was approximately 1.2 and has been above 1 every quarter this year. We also received significant awards for domestic and international training.

In addition, I'd like to highlight one of Raytheon's core market areas, C3I or command, control, communications and intelligence. Within this area, we're a leading provider of strategic communication terminals. We currently are providing the Navy Multiband Terminal or NMT for the Navy, as well as the Secure Mobile Anti-Jam Reliable Tactical Terminal, also known as SMART-T to the U.S. Army. Adding to our success in this area, during the quarter, we are awarded a $70 million competitive development contract for the FAB-T program. This is a significant effort, and it enhances our secure communications position within the U.S. Air Force as well. FAB-T will allow communications between military aircraft, ground sites and the new higher data rate satellites, and like the systems for the Navy and the Army, it will allow secure protected communications for our customers' most sensitive missions. Also, during the quarter, the Air Force awarded us a steady contract to help define the next generation of tactical protected SATCOM systems. These wins, plus our existing franchise, positions us well for the future.

Our international pipeline is strong, with Kuwait Patriot completing the congressional approval process in late August, and we expect to book an award by the end of the year. Other international opportunities are proceeding through the process, including a large precision munitions award, a C4I system, a Rolling Airframe Missile, and just -- these are just a few among many others that we are pursuing in the fourth quarter.

Over the past years, we've pursued a strategy of growing our international business, and I'm encouraged and pleased by the increasing number of international opportunities for the company. At the same time, as we know, the timing of international awards is always a factor. It's the nature of the business. The bottom line is, for 2012, combining our strong domestic orders and our substantial international opportunities. We remain confident about achieving the $25 billion plus or minus $500 million booking objective we set in January of this year.

At the end of the third quarter, congress passed a continuing resolution for the fiscal 2013 defense budget that runs through the end of March next year. They've become a way of life, essentially in this fiscal environment. This one is a little different in that it extends past the January 2 sequestration implementation date.

Read the rest of this transcript for free on seekingalpha.com