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L-3 (LLL) Down 13.2% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for L3 Technologies (LLL). Shares have lost about 13.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is L-3 due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

L3 Technologies Beats on Q2 Earnings, Hikes '18 View

L3 Technologies reported second-quarter 2018 adjusted earnings of $2.47 per share from continuing operations, which surpassed the Zacks Consensus Estimate of $2.30 by 7.4%.

Excluding one-time items, the company reported GAAP earnings of $2.33, down 3% from the year-ago quarter's figure of $2.39.

Total Revenues

In the quarter under review, total revenues came in at $2.58 billion, outpacing the Zacks Consensus Estimate of $2.48 billion. The top line also improved 8.3% year over year.

Organic sales to the U.S. government rose 10%, while that to international and commercial customers improved 3%. Overall, organic sales were up 4%.

Orders & Margin

Funded orders in second-quarter totaled $2.8 billion, reflecting a 32% rise compared with last year's number. Funded backlog was $8.8 billion as of Jun 29, 2018, up 4% from $8.5 billion as of Jan 1, 2018.

Operating margin expanded 10 basis points (bps) to 12.4% in the reported quarter.

Segmental Performance

Electronic Systems: Net sales at the segment improved 6% to $812 million from the prior-year figure of $767 million driven by significant organic sales growth.

Operating income summed $113 million compared with the year-ago figure of $103 million. Also, operating margin expanded 50 bps to 13.9%.

Aerospace Systems: The segment recorded net sales of $741 million in the second quarter, up annually by 9%. The upside can be attributed to procurement of one U.S. Air Force (USAF) Compass Call Recap aircraft to begin missionization.

While operating income increased to $61 million from $56 million, operating margin remained flat at 8.3%.

Communication Systems: Net sales at the segment rose 1% to $554 million, courtesy of higher volume on power devices for commercial and military satellites.

While operating income decreased 46% to $45 million, operating margin contracted 720 bps to 8.1%.

Sensor Systems: Net sales at the segment improved 22% to $476 million driven by higher organic sales.

Operating income improved 6% to $54 million, while operating margin contracted 180 bps to 11.3%.

Financial Position

As of Jun 29, 2018, L3 Technologies had $1,366 million in cash and cash equivalents compared with $662 million as of Dec 31, 2017.

Long-term debt as of Jun 29, 2018, was $3,319 million compared with $3,330 million as of Dec 31, 2017.

Net cash flow from operating activities amounted to $178 million at the end of second-quarter 2018 compared with the year-ago quarter's cash inflow of $315 million. Capital expenditures totaled $255 million which came in line with the year-ago quarter's level.

2018 View

L3 Technologies raised its 2018 guidance. The company now expects adjusted earnings to be in the range of $9.80-$10.00 per share compared with $9.40-$9.60 guided earlier. Moreover, revenues are anticipated to be in the band of $10,000-$10,200 million compared with $9,850-$10,050 million projected previously.

Additionally, it raised the company's expectation of 2018 cash from operations to $1,155 million from $1,170 million, while expectation for free cash flow was upped to $915 million from $900 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -5.39% due to these changes.

VGM Scores

Currently, L-3 has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, L-3 has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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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 Nasdaq, Inc.


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

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