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Earnings Beat at Raytheon, View Up - Analyst Blog

Posted
10/24/2013 5:00:00 PM
By: Zacks.com
Referenced Stocks:BA;GD;LMT;MS;SAS

Raytheon Company ( RTN ) reported third quarter 2013 earnings from continuing operations of $1.51 per share, beating the Zacks Consensus Estimate of $1.33 by 13.5%. However, earnings were on par with the year-ago profit level. The better-than-expected results were driven by strong program execution.

Operational Performance

The company's top line at $5,842 million registered a 3.4% fall year over year. The reported number, however, surpassed the Zacks Consensus Estimate of $5,813 million.

New bookings in the third quarter were $5.7 billion and the total backlog at the end of the reported period was $32.2 billion, down 7.9% year over year.

Research and development expenses were down 9.4% year over year to $164 million. Total operating expenses were $5,085 million, down 3.3% year over year. Operating income during the quarter was $757 million, down 3.7% year over year.

Segment Performance

Integrated Defense Systems (IDS): Segment revenue decreased 0.4% year over year to $1,603 million due to lower sales.

However, international programs boosted operating income by 2.9% year over year to $286 million.

Intelligence, Information and Services (IIS): Segment revenue was down 3.3% year over year to $1,496 million due to lower volume on classified and training programs.  Nonetheless, operating income in the reported quarter was up 6.3% to $134 million backed by improved program execution.

Missile Systems (MS): Segment revenue decreased 2.5% year over year to $1,635 million. Weak net sales were a function of lower sales on U.S. Army sensor programs. Operating income also dropped 13.3% year over year to $202 million.

Space and Airborne Systems (SAS): Revenue in the quarter declined 7.3% year over year to $1,556 million. The decline in revenue was due to lower sales volume on classified programs. Operating income also dropped 5.1% year over year to $224 million due to lower volumes.

Financial Update

Raytheon ended the reported period with cash and cash equivalents of $2,942 million versus $3,188 million as of Dec 31, 2012. Long-term debt was $4,733 million, up slightly from the debt level of $4,731 million as of Dec. 31, 2012.

Raytheon's capital expenditure of $60 million in the reported quarter was down $7 million from the year-ago quarter.

In the third quarter, Raytheon repurchased 2.9 million shares of common stock for $225 million as per its share repurchase program. Year to date, Raytheon repurchased 10.5 million shares of common stock for $675 million.

Guidance

Raytheon boosted its 2013 sales guidance to the range of $23.6-$23.8 billion from its prior expectation of $23.5-$23.7 billion. The company raised its adjusted earnings per share guidance to a range of $6.10 to $6.20 from $6.00 to $6.10 earlier.

The defense major also hiked its operating cash flow from continuing operations forecast to the range of $2.2 billion to $2.4 billion for full-year 2013 from its earlier forecast of $2.1-$2.3 billion.

At the Peers

Raytheon is one of the top five defense contractors to report third quarter earnings this quarter.

The world's largest stand-alone defense contractor, Lockheed Martin Corp. ( LMT ) posted third quarter 2013 earnings of $2.57 per share, comfortably surpassing the Zacks Consensus Estimate of $2.26 by 13.7%. Earnings in the reported quarter also surged almost 16.3% from the year-ago profit level of $2.21 per share. The upcast in earnings was mainly attributable to strong operational performance.

Northrop Grumman Corp. ( NOC ) reported third quarter 2013 adjusted earnings per share of $1.97, easily surpassing the Zacks Consensus Estimate of $1.81. Also, earnings were above the year-ago figure by 13.9%.

General Dynamics Corp 's (GD) third quarter 2013 operating earnings of $1.84 per share surpassed the Zacks Consensus Estimate of $1.68 by 9.5%. Earnings were also ahead of the year-ago figure of $1.70, backed by robust aerospace activity.

Finally, The Boeing Company 's ( BA ) adjusted third quarter 2013 earnings came in at $1.80 per share, beating the Zacks Consensus Estimate of $1.54 by 16.9% as well as the year-ago profit of $1.55 by 16.1%.

Our Take

Raytheon is a well-positioned large-cap defense player. The company is currently pursuing cost-containment measures and is consolidating its business to ward off the U.S. defense budget pressure. The company is identifying additional opportunities to save costs by streamlining its product portfolio and reducing fixed costs. These initiatives will enable the company to improve its margins, going forward.

Zacks Rank

Raytheon and Lockheed currently hold a Zacks Rank #2 (Buy), while Northrop Grumman sports a Zacks Rank #1 (Strong Buy). Boeing and General Dynamics carry a Zacks Rank #3 (Hold).



BOEING CO (BA): Free Stock Analysis Report

LOCKHEED MARTIN (LMT): Free Stock Analysis Report

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RAYTHEON CO (RTN): Free Stock Analysis Report

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