L3 Technologies [LLL] on Thursday said it swung to a profit and increased sales in its fourth quarter on the back of its Electronic Systems segment, which benefited from gains across the portfolio.
The company also raised earnings and sales guidance in 2017 to account for the recent acquisition of Implant Sciences, additional sales of broadcast communications systems for the Defense Department, and lower pension expense.
Net income in the quarter was $188 million, $2.38 earnings per share (EPS), versus a loss of $60 million (36 cents EPS) a year ago, hammering consensus estimates by 27 cents EPS.
At the segment level the higher earnings were driven by a 31 percent jump in operating income at Electronic Systems due to a return allowance for L3’s EoTech business unit, improved contract performance and lower pension expense.
Profits at Aerospace Systems were down in the mid-single digits on a shift to lower margin work on intelligence, surveillance and reconnaissance projects, and up slightly at Communications Systems on improved contract performance and lower pension expense.
Sales in the quarter were up 4 percent to $3 billion from $2.9 billion, with Electronic Systems essentially accounting for all of the gain. L3 credited security product sales to the Transportation Security Administration, commercial aviation recorders, ship-go-shore and hybrid electric drive contracts, and civil aviation simulation and training devices for an international airline for the revenue boost.
For 2016 net income increased 14 percent to $647 million ($8.21 EPS) from $566 million ($3.44 EPS) while sales were flat at $10.5 billion.
In 2017 sales are expected to be between $10.6 billion and $10.8 billion, up $150 million from guidance provided last month. Earnings are now forecast to be 25 cents per share higher at between $8.40 and $8.60. Free cash flow is still expected to be $865 million.
Funded orders in the quarter were $3.6 billion and for the year $11 billion, a bookings ration that exceeded sales. Funded backlog at the end of 2016 stood at $8.9 billion, up 6 percent from $8.4 billion a year ago.
Free cash flow in the quarter as $427 million and for the year $902 million.
On Wednesday L3 said it is realigning Electronic Systems into two sectors, Electronic Systems, and Sensor Systems, effective March 1. Sensor Systems will be led by Jeff Miller, who currently heads the Integrated Sensor Systems sector, and will have $1.5 billion in sales. Electronic Systems will be led by Todd Gautier, currently president of the Precision Engagement & Training sector, and will have $2.8 billion in sales. Both executives will report to Christopher Kubasik, L3’s president and chief operating officer.
Michael Strianese, L3’s chairman and CEO, said the realignment will allow the two segments to “better pursue global market opportunities. This realignment is also expected to accelerate our organic growth and efficiency initiatives, and maximize our innovation, while increasing the value that we can provide to our customers and shareholders.”