Accounting adjustments related to Raytheon’s [RTN] acquisition last year of a cyber security firm helped lower the company’s fourth quarter earnings despite a modest rise in sales, and the company provided guidance for 2016 that includes increases in sales and earnings.
Net income in the quarter was down 2 percent to $571 million, $1.89 earnings per share (EPS), from $582 million ($1.88 EPS) a year ago. A lower share count contributed to the improved per share results.
Excluding results from discontinued operations, which added four cents to per share results versus two cents a year ago, income from continuing operations was $1.85 EPS, beating consensus estimates by three pennies.
The $1.9 billion acquisition of the cyber firm Websense last year, which was consolidated with Raytheon’s Cyber Products business and recently renamed Forcepoint, knocked $48 million (8 cents EPS) from the bottom line. Less favorable pension adjustments also contributed to the slight decline in income in the fourth quarter.
Sales in the quarter increased 3 percent to $6.3 billion from $6.1 billion a year ago, with about half the gain driven by the Websense acquisition and the rest by higher revenue in the Missile Systems and Integrated Defense Systems (IDS) segments. International business increased 16 percent in the quarter.
At Missile Systems sales increased on the Paveway guided laser bomb program and IDS benefited from Australia’s Air Warfare Destroyer program and international Patriot air and missile defense programs.
Missiles Systems and the Space and Airborne Systems (SAS) segment both delivered higher operating profits, driven by higher sales and program efficiencies in the missiles business and a favorable program mix at SAS.
For all of 2015, Raytheon increased sales by 2 percent to $23.2 billion with international business up 9 percent, accounting for 31 percent of the total, a company record. Raytheon expects sales in 2016 to grow 3 to 5 percent to between $24 billion and $24.5 billion, driven by international and domestic business.
The company projects a 2 to 4 percent increase in sales to customers in the United States this year, which would mark the first domestic growth since 2009. Kennedy said the bipartisan budget deal agreed to by Congress and the Obama administration in December that increases the defense investment accounts in FY ’16 improve “visibility and predictability” for the defense industry, “which will yield positive results” for Raytheon this year and next.
Demand signals for international orders remain strong in the Middle East, Asia-Pacific region, and Europe, and the company expects bookings from foreign customers to account for 35 to 36 percent of total orders this year, Thomas Kennedy, Raytheon’s chairman and CEO, said on the company’s earnings call.
Overall bookings in 2016 are forecast between $25 billion and $26 billion. In 2015, Raytheon had $25.2 billion in orders with 34 percent coming from international customers.
International demand is for products across the Raytheon portfolio including air and missile defense, missiles, command and control, radar, precision munitions, sensors and cyber security, Kennedy said.
Net income in 2015 was $2.1 billion ($6.80 EPS), down 8 percent from a year ago. Per share earnings from continuing operations were $6.75 and the company expects earnings from continuing operations in 2016 of between $6.80 to $7.00 EPS. The earnings forecast include a lower share count and higher taxes. Consensus estimates are for $7.10 EPS this year.
Raytheon’s backlog at the end of 2015 stood at $34.7 billion, with $25.1 billion funded, versus year-end 2014 backlog of $33.6 billion, $23.1 billion of which was funded. Kennedy said that 43 percent of the 2015 backlog is international orders versus 40 percent a year ago.
Kennedy said Raytheon’s decision two years ago to approach its international business on a country-by-country basis rather than regionally is paying off. Kennedy, who just returned from a trip to the Middle East, said leaders of countries there told him that their “number one priority is to protect the sovereignty of their nation.” They also told him that “’a strong defense is a strong deterrence,’” he said, adding that demand in the region is only strengthening despite the global drop in oil prices.