L-3 Communications [LLL] on Tuesday said it expects sales to be down about 3 percent next year while per share earnings are expected to be higher on an increase in operating income and a lower share count.
L-3 announced the guidance during its annual investor day and in conjunction with the announcement that it is selling its National Security Solutions segment to CACI International [CACI] for $550 million in cash as part of an ongoing portfolio reshaping in favor of its defense electronics, communications, and intelligence, surveillance and reconnaissance businesses.
Sales in 2016, excluding the NSS segment, which will be reported as discontinued operations beginning in the fourth quarter of 2015, are projected to be between $10 billion and $10.2 billion, down 3 percent from the midpoint of the L-3’s guidance for 2015. Sales this year are pegged at between $10.3 billion and $10.4 billion, which would be down 5 percent from 2014.
The Defense Department and other federal agencies are expected to account for 72 percent of the overall sales mix. Of DoD sales, the Air Force is expected to account for 30 percent of L-3’s business, the Army 17 percent, the Navy 15 percent, and other agencies 7 percent.
Organic growth is expected to be down 1.5 percent in 2016 due to a projected 15 percent decline in international sales. Sales to the government and DoD are expected to be flat while commercial revenue is expected to be up 7 percent. Overall in 2016, international and commercial revenue is expected to make up 14 percent respectively of L-3’s sales.
Earnings per share in 2016 are expected to be between $6.90 and $7.10, up 6 percent from the midpoint of 2015 guidance. Segment operating margin is expected to be up 90 basis points to 9.5 percent and segment operating income up 7 percent to $955 million.
Free cash flow is expected to be $810 million in 2016, unchanged from this year.