Harris Corp. [HRS] on Tuesday reported a big jump in its third quarter earnings and sales, which were driven by the acquisition of Exelis last year.
Net income rose 33 percent to $168 million, $1.34 earnings per share (EPS), from $126 million ($1.20 EPS) a year ago. Excluding results from discontinued operations and $12 million in costs associated with the acquisition of Exelis in the fourth quarter a year ago, adjusted income from continuing operations was $182 million ($1.45 EPS), which beat consensus estimates by six pennies a share.
Sales in the quarter climbed 58 percent to $1.9 billion from $1.2 billion a year ago largely due to the Exelis deal. Organic revenue was down 3 percent with declines at the Communication Systems and Critical Networks segments more than offsetting increases at Electronic Systems, and Space and Intelligence Systems.
Revenue from the company’s Public Safety business, which is part of Communications Systems, was up 15 percent in the quarter although bookings in the business were one-half of sales, demonstrating continued “choppiness” here, Rahul Ghai, Harris’ chief financial officer, said on the earnings call.
Harris pegged its adjusted earnings guidance from continuing operations at $5.70 EPS for the fiscal year, the low end of the prior range, due to lower tactical radio sales from the Middle East and a Defense Department radio opportunity that slipped into next year, William Brown, the company’s chairman, president and CEO, said on the call.
The company also provided updated sales guidance of about $7.5 billion for the year, down between $100 million and $180 million from the prior outlook. Brown said the revised revenue outlook stems from lower expectations for legacy tactical revenue in the Communications Segment on declines with international and DoD customers.
The lower expectations are due to a “combination of fiscal pressures and funding priorities, both in country and with the U.S. government, as well as a slow FMS (Foreign Military Sales) approval process [that] have shifted opportunities to the right,” Brown said. The DoD opportunity is for the Mobile User Object System tactical satellite communications system, one of the international opportunities is in Iraq and the other in a Middle East country the company can’t name, he said, noting that the funding for unnamed country has been “reprioritized,” although the country is working with Harris on other projects that could be funded in the first half of FY ’17.
Orders in the quarter were strong at more than 2.1 billion, driven by demand at Space and Intelligence Systems, Electronic Systems, and Critical Networks. For the year, orders are expected to be equal to or close to sales, Ghai said.
Brown said that Harris remains on track to hit its annual cost savings targets of between $140 million and $150 million as a result of acquiring and integrating Exelis into the company. He also said that there are sales synergies between the two companies and that Harris appointed its long-time tactical radio business executive to Head of Global Business Development, “with an eye towards how do we grow in major markets around the world where the opportunities might be a little bit outside the horizon or between businesses or might involve bringing together, strapping together some technology from Exelis with Harris.” The company is already beginning to see opportunities here, he added.