Raytheon [RTN] on Thursday reported solid financial results in its second quarter with higher earnings and sales and record orders as strong operating performance was somewhat masked by overall corporate results.
All five of the company’s operating segments posted increased sales and its four core segments delivered higher operating income while the fifth, the Forcepoint commercial cyber security segment, narrowed its losses.
Work on classified and international programs helped fuel the gains.
Net income rose 2 percent to $817 million, $2.92 earnings per share (EPS), from $800 million ($2.78 EPS) a year ago, well above analysts’ projections of $2.64 EPS. A higher tax rate weighed on the earnings results, as did unplanned expenses that clipped $23 million (6 cents EPS) from the bottom-line related to the pending merger with United Technologies Corp. [UTX] that was announced in June.
Income at the operating segments rose 10 percent to $858 million with the Intelligence, Information and Services (IIS), Space and Airborne Systems, and Missile Systems segments the main drivers followed by Integrated Defense Systems. Segment operating margin rose 30 basis points to 12 percent.
Sales increased 8 percent to $7.2 billion from $6.6 billion a year ago. Classified programs, including in missiles, cyber and space, international Patriot and tactical radar, the High-speed Anti-Radiation Missile, Phalanx close-in weapon system, and Next Generation Overhead Persistent Infrared satellite program all drove the topline increase.
Raytheon nabbed $9.5 billion in orders, a record for the company that propelled backlog to a record $43.1 billion. Backlog a year ago stood at $42.4 billion. International bookings represent 43 percent of the orders and 38 percent of the backlog is from international customers as well, Anthony “Toby” O’Brien, Raytheon’s chief financial officer, said on the company’s earnings call.
Thomas Kennedy, Raytheon’s chairman and CEO, said on the call that its competitive win rates are now around 70 percent versus 50 percent a few years ago and that the outlook for its businesses is strong for the next “five years, 10 years and beyond.” The company remains optimistic about the U.S. and international defense markets, he said, pointing to continued growth in the Pentagon’s modernization accounts and strong demand from international customers amid a “dynamic and unpredictable geopolitical environment.”
The second quarter results beat the company’s own internal plans, and combined with expectations for the rest of 2019 led Raytheon to increase its guidance for the year. Sales are forecast to be between $28.8 billion and $29.3 billion, a $200 million increase from the prior outlook with the gain coming from U.S. orders at IIS, O’Brien said.
The company raised its earnings guidance a dime to between $11.50 and $11.70 EPS on improved operations, lower interest expense and non-operating income. The increase in the earnings outlook is partially offset by the merger-related expenses, which are pegged at $40 million (11 cents EPS) for the full year, and a higher share count as Raytheon’s planned sale to UTC prohibits further stock repurchases.
Operating cash flow is also expected to be $100 million above previous guidance, with the new range between $4 billion and $4.2 billion. Raytheon also increased its outlook for bookings this year, with orders now seen tallying between $31 billion and $32 billion, up $1.5 billion from earlier projections due to increased demand from domestic customers.
Raytheon said that its pending acquisition by UTC that was announced on June 9 remains on track to close in the first half of 2020.