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Positive Results From US Majors

26 Jul 17. U.S. defense companies lift forecasts amid growing security concerns. Top U.S. weapons makers reported better-than-expected quarterly results and raised their full-year forecasts, buoyed by higher demand for fighter jets and tanks amid heightened security concerns around the world.

General Dynamics Corp and Northrop Grumman Corp joined Lockheed Martin Corp in reporting strong profit numbers that showcased robust demand from international markets.

“The international marketplace is robust right now for us and our peers,” Northrop Chief Executive Wes Bush said on a post earnings call with analysts.

Bush said that while he expected growth rates in the Asia Pacific to remain high, given the geopolitical dynamics of the region, he sees Middle East and Europe as “quite important”.

Lockheed, the world’s largest weapons maker, smashed Wall Street estimates when it reported last week and said it expected increased defense spending under U.S. President Donald Trump to underpin its earnings this year.

Trump is seeking a $54bn increase in overall defense spending, a proposal that must be passed by Congress and faces skeptical lawmakers. A political gridlock in Washington could stall the process further.

General Dynamics Chief Executive Phebe Novakovic sounded cautious while discussing the current defense environment in Washington on a post-earnings call.

“Right now it’s a giant fur ball, and we’re going to have to work through the process and see what comes out the other side,” she said.

Shares of U.S. defense companies have rallied since November on Trump’s promises during his election campaign to spend more on defense. Northrop shares were flat in afternoon trading, while those of General Dynamics were down 4 percent.

General Dynamics, maker of Gulfstream jets, tanks and U.S. Navy ships, reported a rise in second-quarter profit and said it sees demand for Abrams tanks increasing both in U.S. and abroad.

“While we think these results were OK … they were against fairly high expectations and further marred by a downward revision in aerospace,” Vertical Research Partners analyst Robert Stallard said.

Northrop’s aerospace systems business, which makes manned aircraft and drones, reported a 14 percent rise in sales.

The company is expected to benefit from increased demand for F-35 fighter jets. Northrop supplies the center fuselage for the stealthy jets.

Lockheed’s F-35 program is the Pentagon’s costliest arms program and has been criticized by Trump and other U.S. officials for being too expensive.

The U.S. Department of Defense said on July 10 it plans to purchase 2,456 F-35 jets, up from 2,443.

Boeing Co’s military aircraft sales fell 4 percent to $6.8bn. But profit jumped 50 percent and margins widened 4.6 percentage points, helped by cost cutting. (Source: glstrade.com/Reuters)

Boeing

General Dynamics

Honeywell

Lockheed Martin

Raytheon

Textron

UTC

Boeing

26 Jul 17. Boeing Reports Strong Second-Quarter Results; Raises EPS and Cash Flow Guidance.

The Boeing Company [NYSE: BA] reported strong earnings and operating cash flow in the second quarter of 2017, driven by improved operating performance. Second-quarter GAAP earnings per share increased to $2.89 and core earnings per share (non-GAAP) increased to $2.55. Revenue was $22.7bn, reflecting planned production rates and timing of commercial and defense aircraft deliveries.

For the full year, GAAP earnings per share guidance increased to between $11.10 and $11.30 from $10.35 and $10.55 and core earnings per share (non-GAAP) guidance increased to between $9.80 and $10.00 from $9.20 and $9.40, primarily driven by improved performance across the company and a lower-than-expected tax rate. Operating cash flow guidance increased by $1.5bn to $12.25bn on solid execution and a cash tax benefit from accelerating pension funding in the third quarter of 2017. Additionally, capital expenditures guidance decreased by $300m to $2.0bn.

“Our teams are delivering better performance in every segment of the business, which is reflected in our strong second-quarter results and improved 2017 outlook,” said Chairman, President and Chief Executive Officer Dennis Muilenburg. “Our robust cash flow enabled us to return more value to shareholders, invest in future growth and in our people, including a plan to accelerate pension funding that also reduces risk and cyclicality in our business. In the second quarter, we added to our large and diverse order backlog with key wins in commercial airplanes, defense, space and services, while achieving important milestones such as delivering the first 737 MAX airplane, flying the second production-ready T-X trainer aircraft, and conducting a successful Ground-based Midcourse Defense intercept test. As we look to the second half of the year, our teams are focused on accelerating productivity, quality and safety improvements across the company, while completing key development efforts and delivering better capabilities and economics to our customers.”

Operating cash flow in the quarter of $5.0bn was driven by strong operating performance and favorable timing of receipts and expenditures. During the quarter, the company repurchased 13.6m shares for $2.5bn, leaving $9.0bn remaining under the current repurchase authorization. The company also paid $0.9bn in dividends in the quarter, reflecting a 30 percent increase in dividends per share.

Cash and investments in marketable securities totaled $10.3bn, up from $9.2bn at the beginning of the quarter. Debt was $10.8bn, unchanged from the beginning of the quarter.

Total company backlog at quarter-end was $482bn, up from $480bn at the beginning of the quarter, and included net orders for the quarter of $27bn.

Segment Results

Commercial Airplanes

Commercial Airplanes second-quarter revenue was $15.7 bn on planned production rates and timing of deliveries (Table 4). Second-quarter operating margin was 10.0 percent, reflecting solid execution.

During the quarter, Commercial Airplanes delivered the first 737 MAX 8 aircraft and announced the launch of the 737 MAX 10. Demand continues to be healthy with 571 incremental orders and commitments announced at the Paris Air Show, including 56 for widebody aircraft and 361 for the launch of the 737 MAX 10. Also at the Paris Air Show, a number of commercial service agreements were announced that provide further growth opportunity for Boeing Global Services.

Commercial Airplanes booked 183 net orders during the quarter. Backlog remains robust with more than 5,700 airplanes valued at $424bn.

Defense, Space & Security

Defense, Space & Security second-quarter revenue was $6.9bn. Second-quarter operating margin increased to 12.9 percent, reflecting increased productivity in all three segments.

Boeing Military Aircraft (BMA) second-quarter revenue was $2.9bn, reflecting lower planned C-17 deliveries, and operating margin increased to 13.2 percent on improved performance. During the quarter, BMA was awarded a contract for the remanufacture of 38 AH-64E Apache helicopters for the United Kingdom, and the second production-ready T-X aircraft completed first flight.

Network & Space Systems (N&SS) second-quarter revenue was $1.7bn, reflecting timing of satellite volume. Operating margin increased to 9.1 percent reflecting improved performance. During the quarter, N&SS was awarded a contract from the Missile Defense Agency for Redesigned Kill Vehicle Development.

Global Services & Support (GS&S) second-quarter revenue was $2.3bn, reflecting timing of contracts. Operating margin increased to 15.4 percent reflecting strong performance. During the quarter, GS&S was awarded a contract from the Defense Logistics Agency to support the F-15 fleet, which will be carried out by Boeing Global Services.

Backlog at Defense, Space & Security was $58bn, of which 37 percent represents orders from international customers.

At quarter-end, Boeing Capital’s net portfolio balance was $3.9bn. Total pension expense for the second quarter was $100m, down from $463m in the same period of the prior year. Other unallocated items and eliminations earnings decreased primarily due to timing of expense allocations. The effective tax rate for the second quarter was 28.7 percent reflecting higher-than-expected tax benefits related to share-based compensation.

Accelerated Pension Funding

In addition to the $500m pension contribution originally planned for 2017, the company will accelerate approximately four years of pension funding by making a discretionary contribution of $3.5bn of Boeing common shares in the third quarter of this year. Subsequently, the company expects to utilize its strong cash position and increase its 2017 planned share repurchases by $3.5bn to a total of approximately $10bn for the full year. It is expected that this contribution will nearly eliminate all future mandatory pension funding through 2021 based on existing assumptions for asset returns and discount rates.

“Over the past several years, we have taken meaningful actions to retire risk and reduce cyclicality, and today’s actions are another step forward,” said Greg Smith, Chief Financial Officer and Executive Vice President of Enterprise Performance & Strategy.

The company expects approximately $700m cash tax savings from the accelerated pension funding in 2017, which is reflected in the updated cash flow guidance. Boeing continues to anticipate cash flows to grow annually through the end of the decade and remains committed to returning free cash flow to shareholders.

Outlook

The company’s 2017 updated guidance reflects the impact of improved performance across the company and a lower-than-expected tax rate.

General Dynamics

26 Jul 17. General Dynamics Reports Second-Quarter. General Dynamics (NYSE: GD) today reported second-quarter 2017 diluted earnings per share (EPS) of $2.45 compared to $2.30 in the year-ago quarter, a 6.5 percent increase. Net earnings were $749m, on revenue of $7.7bn.

“General Dynamics’ strong second quarter performance reflects our focus on operations and executing on our programs,” said Phebe N. Novakovic, chairman and chief executive officer. “We are confident in our outlook for the future, built on a solid defense backlog and continued good order activity across the portfolio of Gulfstream business jets.”

Margin

With three of the company’s four business groups expanding margins over the year-ago period, company-wide operating margin for the second quarter of 2017 was 13.8 percent, a 60 basis-point increase when compared to 13.2 percent in second-quarter 2016.

Cash

Net cash provided by operating activities in the quarter totaled $477m, up 21 percent from the year-ago quarter. Free cash flow from operations, defined as net cash provided by operating activities less capital expenditures, was $386m.

Capital Deployment

The company repurchased 2.7m of its outstanding shares in the second quarter. Year-to-date, the company has repurchased 4.6 m outstanding shares.

Backlog

General Dynamics’ total backlog at the end of second-quarter 2017 was $58.6bn. There was order activity across the Gulfstream product portfolio and strong demand for defense products, including another quarter of a book-to-bill ratio (orders divided by revenue) greater than one-to-one in the Information Systems and Technology group. The estimated potential contract value, representing management’s estimate of value in unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised options, was $24.4bn. Total potential contract value, the sum of all backlog components, was $83bn at the end of the quarter.

Guidance

The company is increasing its full-year EPS guidance from $9.50 – $9.55 to $9.70 – $9.75.

Honeywell

21 Jul 17. Honeywell beats profit estimates, lifts full-year forecasts. Honeywell International Inc <HON.N> reported a better-than-expected quarterly profit, as sales in its aerospace unit and the business that caters to the energy industry were not as bad as it had feared. The company’s shares rose as much as 1.8 percent to a record high of $137.37.

Sales in Honeywell’s aerospace business, which activist investor Daniel Loeb wants to be spun off, fell about 3 percent to $3.67bn in the second quarter ended June 30, but the drop was much smaller than the company’s forecast of 5 to 7 percent. The unit, which makes jet engines and provides spare parts, repair, overhaul and maintenance services, benefited from strength in its commercial aviation after-sales business and growth in U.S. defense volumes, the company said. Honeywell is reviewing Loeb’s demand and the company is expected to announce a decision by early fall. Loeb, who runs hedge fund Third Point LLC, has said a spin off could create more than $20bn in shareholder value.

Meanwhile, Honeywell said it was looking to scale up its smaller businesses. The company may look at M&A opportunities to boost its performance materials and technologies (PMT) business and safety and productivity solutions (SPS) unit, Chief Financial Officer Thomas Szlosek told Reuters.

“Our most prominent (M&A) opportunities are in PMT and in safety and productivity solutions.”

Szlosek said the recent Intelligrated deal could be a platform to embark on a whole new path of M&A around the supply chain, logistics and freight management.

The company acquired Intelligrated Inc, which installs automated material handling equipment in fulfillment centers and warehouses that serve online retailers, for $1.5bn.

Sales in Honeywell’s PMT unit, which makes catalysts and adsorbents used for petroleum refining, dropped about 8 percent to $2.24bn in the quarter. Honeywell had forecast a decline of 10 percent to 12 percent.

The unit benefited from higher sales of Solstice low global-warming potential refrigerant products.

Honeywell also raised the low end of its 2017 earnings per share forecast by 10 cents to $7.00, keeping the high end unchanged at $7.10.

It now expects sales of $39.3bn to $40bn, up from its previous forecast of $38.6bn to $39.5bn.

Net income attributable to Honeywell increased 5.5 percent to $1.39bn, or $1.80 per share, above expectations of $1.78 per share. Revenue rose about 1 percent to $10.08bn, topping expectations of $9.89bn.

(Source: Yahoo!/Reuters)

Lockheed Martin

18 Jul 17. Lockheed Martin tops estimates on F-35 sales, raises outlook. Lockheed Martin Corp (LMT.N), the Pentagon’s No. 1 weapons supplier, on Tuesday reported better-than-expected quarterly profit and said it expects increased defense spending under U.S. President Donald Trump to underpin its earnings this year.

Lockheed’s net income rose nearly 5 percent to $942m, or $3.23 per share, in the second quarter, helping the company nudge its full-year profit forecast higher.

U.S. demand for F-35 jets has increased with the Pentagon announcing on July 10 that it would add 13 jets to its planned purchase of F-35s, but a detailed delivery schedule was not released.

Chief Executive Officer Marillyn Hewson told analysts on a conference call, “As you can see just with what’s in the budget deliberations right now, with the adds that are coming forward on the F-35 for the various services … we will still see potentially some upside.”

Hewson is aiming to win a portion of six or seven multi-billion dollar contracts that are scheduled to be awarded this year, such as the new Air Force training jet, and a renewal of an $8bn dollar logistics and maintenance contract to support U.S. special forces.

Net sales rose to $12.69bn from $11.58bn a year ago. Analysts expected $3.11 per share on revenue of $12.40bn, according to Thomson Reuters I/B/E/S.

Lockheed raised its 2017 profit forecast to $12.30 to $12.60 per share, up from its forecast of $12.15 to $12.45 last quarter, but only 5 cents higher than the outlook it gave in January.

The company also raised its 2017 sales forecast to $49.8bn to $51bn, from $49.5bn to $50.7bn.

(Source: Reuters)

Lockheed Martin Reports Second Quarter 2017 Results

– Net sales of $12.7bn

– Net earnings from continuing operations of $942m, or $3.23 per share

– Generated cash from operations of $1.5bn

– Returned $1.0bn to stockholders, inclusive of $500m in share repurchases

– Increases 2017 outlook for sales, operating profit and earnings per share

Lockheed Martin (NYSE: LMT) today reported second quarter 2017 net sales of $12.7 bn, compared to $11.6bn in the second quarter of 2016. Net earnings from continuing operations in the second quarter of 2017 were $942 m, or $3.23 per share, compared to $899 m, or $2.93 per share, in the second quarter of 2016. Cash from operations in both the second quarter of 2017 and 2016 was $1.5 bn.

“Based on the corporation’s strong results this quarter we increased our 2017 financial guidance for sales, profit, and earnings,” said Chairman, President, and CEO Marillyn Hewson. “Our team remains focused on performing with excellence for our customers and continuing to deliver growth and outstanding value to shareholders.”

Cash Deployment Activities

The corporation’s cash deployment activities in the second quarter of 2017 consisted of the following:

* repurchasing 1.9 m shares for $500m, compared to 2.1 m shares for $501m in the second quarter of 2016;

* paying cash dividends of $525m, compared to $501m in the second quarter of 2016; and

* making capital expenditures of $278m, compared to $235m in the second quarter of 2016.

Segment Results

The corporation operates in four business segments organized based on the nature of products and services offered: Aeronautics, Missiles and Fire Control (MFC), Rotary and Mission Systems (RMS) and Space Systems.

Aeronautics

Aeronautics’ net sales in the second quarter of 2017 increased $850m, or 19 percent, compared to the same period in 2016. The increase was primarily attributable to higher net sales of approximately $525m for the F-35 program due to increased volume on aircraft production and sustainment activities; and about $120m for the C-130 program due to aircraft configuration mix; and about $110m for the C-5 program primarily due to increased deliveries (three aircraft delivered in 2017 compared to two in 2016) and higher sustainment activities.

Aeronautics’ operating profit in the second quarter of 2017 increased $72m, or 15 percent, compared to the same period in 2016. Operating profit increased approximately $90m for the F-35 program due to increased volume on aircraft production and sustainment activities and higher risk retirements; and about $35m for the C-5 program due to higher risk retirements and increased deliveries. These increases were partially offset by a decrease of about $30m for the C-130 program due to the timing of expenses for sustainment programs. Adjustments not related to volume, including net profit booking rate adjustments, were about $55m higher in the second quarter of 2017 compared to the same period in 2016.

Missiles and Fire Control

MFC’s net sales in the second quarter of 2017 decreased $43m, or 3 percent, compared to the same period in 2016. The decrease was attributable to lower net sales of approximately $120m for air and missile defense programs due to lower deliveries on certain programs (primarily Patriot Advanced Capability (PAC-3)). This decrease was partially offset by an increase of approximately $100 m for tactical missile programs due to product configuration mix (primarily Joint Air-to-Surface Standoff Missile (JASSM)) and due to higher deliveries (primarily Hellfire).

MFC’s operating profit in the second quarter of 2017 increased $15m, or 6 percent, compared to the same period in 2016. Operating profit increased approximately $25m for air and missile defense programs due to the achievement of contract milestones on an international program and a reserve recorded in the second quarter of 2016 for a contractual matter that did not recur in 2017. This increase was partially offset by a decrease of approximately $10 m for tactical missiles programs primarily due to performance matters on certain programs. Adjustments not related to volume, including net profit booking rate adjustments, in the second quarter of 2017 were comparable to the same period in 2016.

Rotary and Mission Systems

RMS’ net sales in the second quarter of 2017 increased $107m, or 3 percent, compared to the same period in 2016. The increase was primarily attributable to higher net sales of approximately $105m due to certain adjustments recorded in 2016 required to account for the November 6, 2015 acquisition of Sikorsky; about $55m for C4ISR & undersea systems & sensors (C4USS) programs due to higher volume; and about $35m for Sikorsky helicopter programs due to higher commercial aircraft deliveries (three aircraft delivered in 2017 compared to none in 2016). These increases were partially offset by a decrease of approximately $90m for cyber, ships, and advanced technologies (CSAT) programs (primarily Littoral Combat Ship) due to lower volume.

RMS’ operating profit in the second quarter of 2017 increased $52m, or 26 percent, compared to the same period in 2016. Operating profit increased approximately $40m for Sikorsky helicopter programs primarily due to higher risk retirements; about $25 m for C4USS programs primarily due to a charge for performance matters on the EADGE-T contract recorded in the second quarter of 2016; and approximately $10 m due to certain adjustments recorded in 2016 required to account for the November 6, 2015 acquisition of Sikorsky. These increases were partially offset by a decrease in operating profit of approximately $20 m for CSAT programs primarily due to performance matters on certain programs and lower volume. Adjustments not related to volume, including net profit booking rate adjustments, were about $70 m higher in the second quarter of 2017 compared to the same period in 2016.

Space Systems

Space Systems’ net sales in the second quarter of 2017 increased $194m, or 9 percent, compared to the same period in 2016. The increase was attributable to approximately $275m due to net sales from AWE Management Limited (AWE), which the corporation began consolidating in the third quarter of 2016. This increase was partially offset by decreases of approximately $45m for other programs in strategic missile and defense systems and a decrease of $30m for government satellite programs (primarily Advanced Extremely High Frequency (AEHF) and Mobile User Objective Systems (MUOS)) both due to lower volume.

Space Systems’ operating profit in the second quarter of 2017 decreased $84m, or 25 percent, compared to the same period in 2016. Operating profit decreased about $70m due to lower equity earnings from ULA; and a net $40m increase in charges due to performance matters on certain commercial satellite programs. These decreases were partially offset by an increase of approximately $20m for government satellite programs due to increased risk retirements, partially offset by a decrease due to contract mix (primarily ground solutions) and lower volume (primarily AEHF and MUOS). Adjustments not related to volume, including net profit booking rate adjustments, were about $10m higher in the second quarter of 2017 compared to the same period in 2016.

Total equity earnings recognized by Space Systems (primarily ULA) represented approximately $45m or 18 percent, of this business segment’s operating profit in the second quarter of 2017 compared to approximately $120m, or 35 percent in the second quarter of 2016.

Unallocated items

On Aug. 16, 2016, the corporation completed the divestiture of its former IS&GS business. Accordingly, the operating results of IS&GS have been classified as discontinued operations in the quarter and six months ended June 26, 2016. Certain corporate overhead costs that were historically allocated to and included in the operating results of IS&GS in the quarter ended June 26, 2016 have been reclassified into “Unallocated items” and included in the results of the corporation’s continuing operations because they were not directly attributable to IS&GS and the corporation continues to incur these costs subsequent to the divestiture. The amount of corporate overhead costs previously included in the operating results of IS&GS that have been reclassified to and included in the results of the corporation’s continuing operations were $30 m in the quarter ended June 26, 2016. These costs are included in the “Other, net” line.

Additionally, the corporation retained all assets and obligations related to the pension benefits earned by former IS&GS business salaried employees through the date of divestiture. Therefore, the non-service portion of net pension costs (e.g., interest cost, actuarial gains and losses and expected return on plan assets) for these plans in the quarter ended June 26, 2016 have been reclassified from the operating results of the IS&GS business segment and reported as a reduction of the FAS/CAS pension adjustment. These net costs totaled $21m in the quarter ended June 26, 2016. These costs are included in the “FAS/CAS pension adjustment” line.

Income Taxes

The corporation’s effective income tax rate was 28.8 percent in the second quarter of 2017, compared to 25.7 percent in the second quarter of 2016. The rates for both periods benefited from tax deductions for U.S. manufacturing activities, dividends paid to the corporation’s defined contribution plans with an employee stock ownership plan feature, tax deductions for employee equity awards, and the research and development tax credit.

Acquisition and Divestiture

On Aug. 16, 2016, the corporation divested its IS&GS business. Accordingly, the operating results of the IS&GS business have been classified as discontinued operations in the quarter and six months ended June 26, 2016. However, cash from operations reported in the quarter and six months ended June 26, 2016 includes the cash generated by IS&GS of approximately $125 m and $295 m, respectively, as the corporation retained this cash as part of the divestiture. Certain items have been reclassified between “Unallocated items” in continuing operations and net earnings from discontinued operations as a result of the divestiture of IS&GS.

On Aug. 24, 2016, the corporation increased its ownership interest in the AWE venture from 33 percent to 51 percent at which time it began consolidating AWE. Consequently, the corporation’s operating results for the quarter ended June 25, 2017 include 100 percent of AWE’s sales and 51 percent of its operating profit. Prior to increasing its ownership interest, the corporation accounted for its investment in AWE using the equity method of accounting. Under the equity method, the corporation recognized only 33 percent of AWE’s earnings or losses and no sales. Accordingly, the corporation’s operating results for the quarter ended June 26, 2016 do not include any sales generated by AWE and only 33 percent of AWE’s net earnings.

Northrop Grumman

Northrop Grumman Reports Second Quarter 2017 Financial Results

Northrop Grumman Corporation (NYSE: NOC) reported second quarter 2017 sales increased 6 percent to $6.4bn from $6.0bn in the second quarter of 2016. Second quarter 2017 net earnings increased 7 percent to $552m from $517m in the prior year period.

Second quarter 2017 diluted earnings per share increased 11 percent to $3.15 from $2.85 in the second quarter of 2016. Second quarter 2017 diluted earnings per share are based on 175.5m weighted average diluted shares outstanding compared with 181.5m in the prior year period, a 3 percent decrease. “Our results represent solid operational performance from all three of our businesses and support our strategy to drive profitable growth over the long term,” said Wes Bush, chairman, chief executive officer and president.

Second quarter 2017 sales increased 6 percent, primarily due to a 14 percent sales increase in Aerospace Systems. Second quarter operating income increased 7 percent primarily due to higher net FAS/CAS pension adjustment and segment operating income, partially offset by higher unallocated corporate expenses. Operating margin rate increased 10 basis points to 13.4 percent. The company’s effective tax rate increased to 31.6 percent from 29.2 percent.

Second quarter 2017 cash provided by operating activities totaled $507m compared to $604m provided in the second quarter of 2016. Second quarter 2017 free cash flow was $290m after capital expenditures of $217m. Year to date through June 30, 2017, cash provided by operating activities totaled $68m and free cash flow was a use of $365m.

Changes in cash and cash equivalents include the following for cash from operating, investing and financing activities through June 30, 2017:

Operating

  • $68m provided by operations

Investing

  • $433m for capital expenditures

Financing

  • $367m for repurchase of common stock
  • $341m for dividends

Second quarter 2017 sales increased 6 percent, principally due to a 14 percent sales increase at Aerospace Systems. Second quarter segment operating income increased $22m, and segment operating margin rate declined to 11.8 percent, principally due to a lower operating margin rate for Aerospace Systems. Second quarter 2017 segment operating income includes $54m recognized to date in connection with a claim related to certain costs incurred in prior years (the “Cost Claim”).

Aerospace Systems

Aerospace Systems second quarter 2017 sales increased 14 percent primarily due to higher volume for Manned Aircraft programs, including restricted work and the E-2D Advanced Hawkeye. Autonomous Systems and Space sales also increased. Autonomous Systems sales reflect higher volume for several programs, including Triton, partially offset by lower NATO Alliance Ground Surveillance volume. Space sales reflect higher volume for restricted programs, partially offset by lower volume for Advanced EHF. Aerospace Systems second quarter 2017 operating income increased 1 percent. Operating margin rate decreased to 10.6 percent, principally due to changes in contract mix on Manned Aircraft programs and the timing of risk reductions on Space programs.

Mission Systems

Mission Systems second quarter 2017 sales increased 3 percent primarily due to higher Sensors and Processing volume, partially offset by lower Cyber and ISR and Advanced Capabilities volume. Sensors and Processing sales reflect higher volume on combat avionics and communications programs. Cyber and ISR sales reflect lower volume on restricted programs. Advanced Capabilities sales reflect lower volume on navigation and maritime systems programs. Mission Systems second quarter 2017 operating income increased 7 percent primarily due to $32m recognized for the Cost Claim, which was partially offset by lower performance in Advanced Capabilities primarily due to a provision for cost reduction initiatives. Operating margin rate increased to 13.4 percent.

Technology Services

Technology Services second quarter 2017 sales decreased 3 percent due to lower sales across the sector. Lower volume for System Modernization and Services and Advanced Defense programs is principally due to the completion of several programs in 2016. Global Logistics and Modernization sales reflect lower volume on the KC-10 program. Technology Services second quarter 2017 operating income increased 2 percent and operating margin rate increased to 11.4 percent.

The company’s 2017 financial guidance assumes no disruption to or cancellation of any of our significant programs and no disruption to or shutdown of government operations. Guidance for 2017 also assumes adequate and timely appropriations and funding for the company’s programs for the remainder of the year, and no breach of the debt ceiling, impacting the U.S. Government’s ability to make timely payments.

Raytheon

27 Jul 17. Raytheon Reports Strong Second Quarter 2017 Results. Raytheon Company (NYSE: RTN) today announced net sales for the second quarter 2017 of $6.3bn, up 4.2 percent compared to $6.0bn in the second quarter 2016. Second quarter 2017 EPS from continuing operations was $1.89 compared to $2.41 in the second quarter 2016. Second quarter 2017 EPS from continuing operations included a $0.09 charge associated with the early retirement of debt. Second quarter 2016 EPS from continuing operations included a tax-free gain of $0.53 related to the previously disclosed ThalesRaytheonSystems (TRS) transaction.

“Global customer demand for our advanced capabilities continues to drive growth, resulting in stronger than expected bookings, sales, EPS and operating cash flow for the quarter and supporting increased guidance for the year,” said Thomas A. Kennedy, Raytheon Chairman and CEO. “I am very proud of the Raytheon team and our continued strong operating performance as we serve the needs of our global customers and shareholders.”

Operating cash flow from continuing operations for the second quarter 2017 was $782m compared to $746m for the second quarter 2016.

Backlog at the end of the second quarter 2017 was $36.2bn, an increase of approximately $1.1bn compared to the second quarter 2016. In the second quarter 2017, the company repurchased 0.6 m shares of common stock for $100m. Year-to-date 2017, the company repurchased 3.3m shares of common stock for $500m.

As previously announced, the company repurchased $591 m of debt that was due in March and December of 2018. As a result, in the second quarter of 2017, the company recorded a non-operating charge of $25m after-tax ($39m pretax) or $0.09 per share associated with the early retirement of this debt.

Outlook

The company’s reportable segments are: Integrated Defense Systems (IDS); Intelligence, Information and Services (IIS); Missile Systems (MS); Space and Airborne Systems (SAS); and Forcepoint™.

Integrated Defense Systems

Integrated Defense Systems (IDS) had second quarter 2017 net sales of $1,462m, up 5 percent compared to $1,399m in the second quarter 2016. The increase in net sales for the quarter was primarily driven by higher net sales on an international early warning radar program awarded in the first quarter 2017.  IDS recorded $245m of operating income in the second quarter 2017 compared to $376m in the second quarter 2016. The second quarter 2016 included the tax-free gain of $158 m from the TRS transaction as previously disclosed, which had an approximate 1,130 basis points (11.3 percent) impact to IDS operating margin.

During the quarter, IDS booked $364m on the Air and Missile Defense Radar (AMDR) program for the U.S. Navy and $146m on the Multi-Function RF System (MFRFS) program for the U.S. Army. IDS also booked $178m on two international Patriot contracts.

Intelligence, Information and Services

IIS recorded $115m of operating income in the second quarter 2017 compared to $120m in the second quarter 2016.

During the quarter, IIS booked $374m on domestic and foreign training programs in support of Warfighter FOCUS activities. IIS also booked $555m on a number of classified contracts.

Missile Systems

Missile Systems (MS) had second quarter 2017 net sales of $1,901m, up 11 percent compared to $1,706m in the second quarter 2016. The increase in net sales for the quarter was primarily driven by higher net sales on the Standard Missile-2 (SM-2), Standard Missile-3 (SM-3®), and Paveway™ programs.

MS recorded $236m of operating income in the second quarter 2017 compared to $233m in the second quarter 2016. The change in operating margin was primarily due to a change in program mix.

During the quarter, MS booked $690m for Paveway, $619m for SM-2, $436 m for SM-3, $116m for the Long Range Precision Fires (LRPF) Missile system, $11 m for AIM-9X Sidewinder™ short-range air-to-air missiles, and $90m for Advanced Medium-Range Air-to-Air Missiles (AMRAAM®). MS also booked $214m on a number of classified contracts.

Space and Airborne Systems

Space and Airborne Systems (SAS) had second quarter 2017 net sales of $1,608m, up 4 percent compared to $1,547 m in the second quarter 2016. The increase in net sales for the quarter was primarily driven by higher net sales on a domestic classified program.

SAS recorded $218m of operating income in the second quarter 2017 compared to $205m in the second quarter 2016.  The increase in operating income for the quarter was primarily driven by higher volume and a favorable change in mix and other performance.

During the quarter, SAS booked $91m for radar components for the U.S. Navy. SAS also booked $137m on a number of classified contracts.

Forcepoint

Forcepoint had second quarter 2017 net sales of $138m compared to $137 m in the second quarter 2016.

Forcepoint recorded $2 m of operating income in the second quarter 2017 compared to $10 m in the second quarter 2016. The decrease in operating income for the quarter was primarily driven by planned investments in sales and marketing.

Textron

19 Jul 17. Textron Inc. (NYSE: TXT) today reported second quarter 2017 income from continuing operations of $0.57 per share or $0.60 per share of adjusted income from continuing operations, a non-GAAP measure that is defined and reconciled to GAAP in an attachment to this release, compared to $0.66 per share in the second quarter of 2016. During this year’s second quarter, the company recorded $13m of pre-tax special charges ($0.03 per share, after-tax).

Revenues in the quarter were $3.6bn, up 2.6 percent from the second quarter of 2016. Textron segment profit in the quarter was $295m, down $33m from the second quarter of 2016.

“Revenues were up in the quarter primarily driven by the Arctic Cat acquisition,” said Textron Chairman and CEO Scott C. Donnelly. “We saw strong performance at Bell and were encouraged by the continued strengthening in commercial helicopter demand.”

Cash Flow

Net cash provided by operating activities of continuing operations of the manufacturing group for the second quarter totaled $413m, compared to $107m in last year’s second quarter. Manufacturing cash flow before pension contributions, a non-GAAP measure that is defined and reconciled to GAAP in an attachment to this release, totaled $341 m compared to a use of cash of $26 m during last year’s second quarter.

Donnelly continued, “we saw strong year over year cash performance principally driven by improvements in working capital. We are continuing to invest in our businesses, while taking the opportunity to buy back shares.”

Outlook

Textron reiterated its full-year 2017 GAAP earnings per share from continuing operations guidance of $2.22 to $2.45, or $2.40 to $2.60 on an adjusted basis (non-GAAP), which is reconciled to GAAP in an attachment to this release. The company also confirmed its net cash provided by operating activities of continuing operations of the manufacturing group guidance of $1,045 m to $1,145m and manufacturing cash flow before pension contributions (the non-GAAP measure) of $650 to $750m.

Second Quarter Segment Results

Textron Aviation

Revenues at Textron Aviation were down $25 m, primarily due to lower military and commercial turboprop volume, partially offset by higher jet volume.

Textron Aviation delivered 46 new Citation jets, up from 45 jets last year, 19 King Air turboprops compared to 23 in last year’s second quarter, and 4 Beechcraft T-6 trainers, down from 11 last year.

Textron Aviation recorded a segment profit of $54m in the second quarter compared to $81m a year ago, primarily due to lower volume and mix.

Textron Aviation backlog at the end of the second quarter was $1.0bn, approximately flat from the end of the first quarter.

Bell

Bell revenues were up $21m, as Bell delivered 14 H-1’s up from 9 H-1’s last year, 4 V-22’s in the quarter, down from 6 in last year’s second quarter, and 21 commercial helicopters compared to 24 units last year.

Segment profit was up $31m primarily due to improved performance.

Bell backlog at the end of the second quarter was $5.4bn, down $234 m from the end of the first quarter.

Textron Systems

Revenues at Textron Systems decreased $10m, primarily due to lower volumes in the Weapons and Sensors and Unmanned Systems product lines partially offset by higher volumes at Marine and Land Systems.

Segment profit was down $1m, due to lower volume and mix.

Textron Systems’ backlog at the end of the second quarter was $1.6bn, down $170m from the end of the first quarter.

Industrial

Industrial revenues increased $109m largely due to the impact of the Arctic Cat acquisition.

Segment profit was down $17m due to an operating loss at Arctic Cat, which was consistent with our integration plan, and unfavorable pricing and inflation.

Finance

Finance segment revenues decreased $2 m and segment profit decreased $2m.

UTC

25 Jul 17. UTC Reports Second Quarter 2017 Results

  • Raises outlook for 2017 sales and low end of adjusted EPS and organic sales growth
  • Sales of $15.3bn, up 3 percent versus prior year including 3 percent organic sales growth
  • GAAP EPS of $1.80, up 5 percent versus prior year
  • Adjusted EPS of $1.85, up 2 percent versus prior year
  • Cash flow from operations of $2.1bn, 149 percent of net income
  • Free cash flow attributable to net income of 118 percent

United Technologies Corp. (NYSE: UTX) today reported second quarter 2017 results.  All results in this release reflect continuing operations unless otherwise noted.

“United Technologies delivered another quarter of strong results with sales up 3 percent including 3 percent organic sales growth and robust cash flow,” said UTC Chairman and Chief Executive Officer Gregory Hayes. “Our performance is in-line with our expectations as we continue to execute on our strategic priorities, including growing the business through our investments in innovative products and services, delivering on our aerospace backlog, and achieving our cost reduction goals, while maintaining a disciplined approach to capital allocation.”

“Based on our solid year-to-date performance and outlook for the remainder of 2017, we are raising the low end of our full-year adjusted EPS outlook range by 15 cents. We now expect adjusted EPS of $6.45 to $6.60.* Additionally, we are raising our sales outlook to a range of $58.5 to $59.5 bn.  This reflects organic growth expectations of 3 to 4 percent versus our prior expectation of 2 to 4 percent.* We remain confident that our portfolio of global industry leading franchises is well positioned and will continue to create long-term sustainable shareowner value.” 

Second quarter GAAP EPS of $1.80 was up 9 cents (5 percent) versus the prior year and included 5 cents of restructuring. Adjusted EPS of $1.85 was up 2 percent. Sales of $15.3bn were up 3 percent, driven by 3 points of organic growth and 1 point of net acquisition growth, partially offset by 1 point of adverse foreign exchange.

Net income for the quarter was $1.4bn, up 1 percent versus the prior year. Cash flow from operations for the quarter was $2.1bn (149 percent of net income attributable to common shareholders) and capital expenditures were $446 m. Free cash flow of $1.7bn in the quarter was 118 percent of net income attributable to common shareowners.

In the quarter, new equipment orders at Otis were flat versus the prior year and increased by 11 percent organically at UTC Climate, Controls & Security, each at constant currency.  Commercial aftermarket sales were up 4 percent at Pratt & Whitney and were up 7 percent at UTC Aerospace Systems.

UTC updates its 2017 outlook and now anticipates:

  • Adjusted EPS of $6.45 to $6.60, up from $6.30 to $6.60*;
  • Sales of $58.5bn to $59.5bn, up from $57. bn to $59bn(up 2 to 4 percent, including organic sales growth of 3 to 4 percent*);
  • There is no change in the Company’s previously provided 2017 expectations for free cash flow, share repurchases, or the placeholder for acquisitions.

*Note: When we provide expectations for adjusted EPS, organic sales and free cash flow on a forward-looking basis, a reconciliation of the differences between the non-GAAP expectations and the corresponding GAAP measures generally is not available without unreasonable effort.

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