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Strong Showing From U.S. Majors

Most US Majors reported earnings well in advance of expectations. Reuters reported that all the majors are expected to gain from an increase in defence spending under President Donald Trump’s administration. The U.S. Defense Department expects to spend some $391bn over 15 years to develop and buy 2,456 of the supersonic warplanes.

Boeing

General Dynamics

Honeywell

Lockheed Martin

Northrop Grumman

Raytheon

Textron

United Technologies

Boeing

30 Jan 18. Boeing forecasts sharp rise in profit, jet output in 2018. Boeing Co (BA.N) on Wednesday forecast full-year profit well above Wall Street estimates as it looks forward to its busiest year ever for plane deliveries, sending its shares up more than 5 percent.

The world’s biggest planemaker said it aims to ship between 810 and 815 commercial aircraft in 2018, as much as 6.8 percent more than the industry-record 763 jets it delivered in 2017, putting it ahead of European rival Airbus (AIR.PA).

Both companies are speeding up production at their factories to chip away at the large backlog of orders for new jetliners, created over the past few years as airlines want new, fuel-efficient planes to cope with a surge in demand for air travel.

Helped by the hunger for new jets, Boeing forecast core profit would rise to $13.80 to $14.00 a share in 2018, ahead of analysts’ average estimate of $11.96, according to Thomson Reuters I/B/E/S.

For the fourth quarter ended Dec. 31, Boeing’s core earnings nearly doubled to $4.80 per share from $2.47 a year earlier, buoyed by rising plane output and a gain from changes to the U.S. tax law.

SETTING THE TABLE

Boeing also forecast at least $12.8bn in free cash flow this year, encouraging Wall Street analysts, who generally view the company’s early targets as conservative.

“Actual results could ultimately be higher,” Seth Seifman, an analyst at JPMorgan, said in a note to clients. “As a result, we expect the stock to outperform despite its recent run now that management has set the table for a solid 2018.”

By raising production while holding down costs, Boeing and Airbus generate more profit and cash. Despite the rising output, their order backlogs have kept growing. Boeing said its total backlog, which includes military aircraft and other products, rose to $488bn at year-end, compared with $474bn at the end of the third quarter.

Boeing’s core earnings for the latest quarter included a one-time tax gain of $1.74 a share due to the lower U.S. corporate tax rate signed into law last month reducing its deferred tax liabilities in the future.

Excluding the gain, Boeing reported earnings of $3.06 a share. On that basis, Wall Street had been expecting $2.89 a share.

(Source: Reuters)

Boeing Reports Record 2017 Results and Provides 2018 Guidance

Fourth-Quarter 2017

* Record operating earnings of $3.0bn with operating cash flow of $2.9bn on strong performance

* GAAP EPS of $5.18 and core EPS (non-GAAP)* of $4.80 on strong deliveries, performance and tax reform

Full-Year 2017

* Record operating cash flow of $13.3bn; repurchased 46.1 m shares for $9.2bn

* Revenue of $93.4bn reflecting a record 763 commercial deliveries

* Backlog remains robust at $488bn, including a record 5,864 commercial aircraft

* Cash and marketable securities of $10.0bn provide strong liquidity

Outlook for 2018

* Operating cash flow expected to increase to approximately $15.0bn

* Revenue guidance of between $96.0 and $98.0bn reflects commercial deliveries of between 810 and 815

* 2018 GAAP EPS of between $15.90 and $16.10; core EPS (non-GAAP)* of between $13.80 and $14.00

The Boeing Company [NYSE: BA] reported fourth-quarter revenue of $25.4bn with GAAP earnings per share of $5.18 and core earnings per share (non-GAAP)* of $4.80 reflecting record deliveries and strong performance, as well as favorable tax reform of $1.74 per share.

Revenue was $93.4bn for the full year reflecting deliveries mix with GAAP earnings per share of $13.43 and core earnings per share (non-GAAP)* of $12.04 reflecting strong execution and favorable tax reform.

“Across Boeing our teams delivered a record year of financial and operational performance as they focused on disciplined execution of production and development programs, growing services, and delivering value to customers,” said Boeing Chairman, President and Chief Executive Officer Dennis Muilenburg. “That performance enables increased investments in our people and our business, and greater cash return to shareholders.”

“In 2017 we delivered the first 737 MAX airplanes, launched the 737 MAX 10 and completed the 787-10 first flight, all while delivering more commercial airplanes than ever before. We flew the first KC-46 Tanker to be delivered to the U.S. Air Force, were awarded an initial contract for the Ground Based Strategic Deterrent program, and a contract to provide 36 F-15 fighters to Qatar. We launched Boeing Global Services during the year, to deliver greater lifecycle value, and achieved growth that outpaced the market.”

“We actively positioned for future markets and growth by developing new products and services, investing to build vertical capabilities, launching the HorizonX innovation organization and bringing in new capabilities, including the acquisition of Aurora Flight Sciences. Looking forward, our team remains focused on winning through innovation, driving growth and productivity and extending our position as the world’s leading aerospace company – delivering the best value to our customers, our employees and our shareholders.”

 

Operating cash flow in the quarter of $2.9bn was driven by strong operating performance . During the quarter, the company repurchased 6.7 m shares for $1.7bn and paid $0.8bn in dividends. For the full year, the company repurchased 46.1m shares for $9.2bn and paid $3.4bn in dividends. Based on strong cash generation and confidence in the company’s outlook, the board of directors in December increased the quarterly dividend per share by 20 percent and replaced the existing share repurchase program with a new $18bn authorization. Share repurchases under the new authorization are expected to be made over the next 24 to 30 months.

Cash and investments in marketable securities totaled $10.0bn, unchanged from the beginning of the quarter. Debt was $11.1bn compared to $10.8bn at the beginning of the quarter.

Total company backlog at quarter-end was $488bn, up from $474bn at the beginning of the quarter, and included net orders for the quarter of $40bn.

Segment Results

Commercial Airplanes

Commercial Airplanes fourth-quarter revenue increased to $15.5bn on higher planned delivery volume and mix. Fourth-quarter operating margin increased to 11.5 percent, reflecting strong execution.

During the quarter, Commercial Airplanes delivered a record 209 airplanes and the 787 program rolled out the first 787-10 airplane expected to deliver to launch customer Singapore Airlines. The 737 program delivered 44 MAX airplanes during the quarter and has captured over 4,300 orders since launch for the 737 MAX, including a recent order from flydubai for 175 airplanes. Development on the 777X is on track as production began on the first 777X flight test airplane this quarter.

Commercial Airplanes booked 414 net orders during the quarter. Backlog remains robust with over 5,800 airplanes valued at $421bn.

Defense, Space & Security

Defense, Space & Security fourth-quarter revenue increased to $5.5bn primarily on higher weapons deliveries, and fourth-quarter operating margin was 10.0 percent. During the quarter, Defense, Space & Security signed a contract with the U.S. Air Force to provide 36 advanced F-15 fighter aircraft to Qatar. The KC-46 Tanker program received a contract to provide the first international KC-46 Tanker to Japan and received FAA certification for the 767-2C aircraft, verifying that the fundamental design of the KC-46 Tanker is safe and reliable. Additionally, we continued to make progress on the Commercial Crew program as we successfully completed Design Certification Review, which is a requirement prior to docking with the International Space Station.

Backlog at Defense, Space & Security was $50bn, of which 40 percent represents orders from international customers.

Global Services

Global Services fourth-quarter revenue increased to $4.0bn, reflecting growth across our portfolio. Fourth-quarter operating margin was 15.4 percent reflecting commercial parts mix.

During the quarter, Global Services was awarded a contract for F-15 Qatar Sustainment, signed an agreement with All Nippon for the 787 landing gear exchange program, and India selected BGS for P-8I Poseidon training. Global Services began flight testing on the first 737-800 Boeing Converted Freighter and received an order from GECAS for seven conversions. We continued to expand our digital solutions as a key enabler for growth, with our portfolio reaching around $1bn of annual revenue in the quarter.

Additional Financial Information

At quarter-end, Boeing Capital’s net portfolio balance was $3.0bn. Total pension expense for the fourth quarter was $105m, down from $434m in the same period of the prior year. Revenue in other unallocated items and eliminations increased primarily due to timing of eliminations of intercompany aircraft deliveries, including those accounted for under operating lease. Earnings attributed to other unallocated items and eliminations decreased primarily due to higher deferred compensation. The effective tax rate for the fourth quarter reflects the Tax Cuts and Jobs Act enacted into law in December 2017, which reduced income tax expense by $1,051m and increased fourth-quarter earnings per share by $1.74, primarily due to the remeasurement of our net U.S. deferred tax liabilities to reflect the reduction in the federal tax rate from 35% to 21%.

Outlook

The Company is adopting two new accounting standards, as previously planned, in the first quarter of 2018, the revenue recognition standard (ASC 606) and the pension and postretirement accounting changes (ASC 715).

General Dynamics

 

 

24 Jan 18. General Dynamics Reports Fourth-Quarter, Full-Year 2017 Results

* Revenue up 8.1% in the fourth quarter

* Operating earnings up 34.6% to $1.03bn in the fourth quarter

* A $119m one-time, non-cash decrement to earnings in the fourth quarter from tax reform, primarily a provision that reduces the value of a future deferred tax asset

* Fourth-quarter diluted EPS expanded 11.1% to $2.10; adjusted EPS, excluding the impact of tax reform, was $2.50, up 32.3%

* Full-year diluted EPS expanded 10.6% to $9.56; adjusted EPS, excluding the impact of tax reform, was $9.95, up 15.2%

* Cash from operations was $3.9bn for the year and free cash flow was $3.5bn

General Dynamics (NYSE: GD) today reported fourth-quarter 2017 earnings from continuing operations of $636m, a 9.7 percent increase over fourth-quarter 2016, on revenue of $8.3bn. Diluted earnings per share (EPS) from continuing operations was up 11.1 percent to $2.10 compared to $1.89 in the year-ago quarter. Absent a one-time, non-cash decrement to earnings from the 2017 Tax Cuts and Jobs Act, earnings from continuing operations were $755m, up 30.2 percent and diluted EPS from continuing operations was $2.50, a 32.3 percent increase.

Full-year Results

Full-year earnings from continuing operations were $2.9bn, an 8.7 percent increase from 2016 on revenue of $31bn. Diluted EPS from continuing operations was up 10.6 percent to $9.56 compared to full-year 2016. Excluding the impact of tax reform, full-year earnings from continuing operations were $3bn, up 13.1 percent, and diluted EPS from continuing operations was $9.95, a 15.2 percent increase.

“General Dynamics delivered strong results in 2017, with growth in revenue, earnings, margins and EPS,” said Phebe Novakovic, chairman and chief executive officer of General Dynamics. “We are investing for the future and executing on our robust backlog. We see continued demand for our products, with backlog growth in 2017 in our defense business and strong order intake across the Gulfstream portfolio.”

 

Margin

Company-wide operating margin was 12.5 percent for the fourth quarter, 250 basis points higher than the fourth-quarter 2016 margin. For the full year, operating margin was 13.5 percent, 130 basis points higher than the 2016 full-year margin. Margins improved in all four segments in both the fourth quarter and full year.

Segment Highlights

Aerospace

The Aerospace group reported 2017 full-year revenue of $8.13bn, operating earnings of $1.59bn and operating margin of 19.6 percent. Compared to 2016, revenue was up 4 percent, earnings were up 13.2 percent and margin was up 160 basis points. The group had solid order activity in 2017, with especially strong order intake in the fourth quarter across the Gulfstream portfolio.

Combat Systems

Combat Systems reported 2017 full-year revenue of $5.95bn, operating earnings of $937m and operating margin of 15.8 percent. Compared to 2016, revenue was up 7.6 percent, earnings were up 12.8 percent and margin was up 80 basis points, with continued strong program and operating performance. The group received multiple significant contracts in 2017, including awards to modernize Abrams tanks for the U.S. Army and its allies and several orders across our European vehicle business.

Information Systems and Technology

Information Systems and Technology reported 2017 full-year revenue of $8.89bn, operating earnings of $1.01bn and operating margin of 11.4 percent. Compared to 2016, revenue was down 2.8 percent, earnings were up 7.4 percent and margin was up 110 basis points. The group had a book-to-bill ratio (orders divided by revenue) higher than one-to-one in 2017 driven by continued strong demand for its products and services.

Marine Systems

Marine Systems reported 2017 full-year revenue of $8bn, operating earnings of $685m and operating margin of 8.6 percent. Compared to 2016, revenue was steady, earnings were up 15.1 percent and margin was up 120 basis points. The group continues to execute on its considerable backlog and received multiple significant contracts in 2017 including the design and prototype development for the U.S. Navy’s Columbia-class submarine.

Cash

Net cash provided by operating activities for the full year totaled $3.9bn, compared to $2.2bn in 2016. Free cash flow from operations, defined as net cash provided by operating activities less capital expenditures, was $3.5bn for the year.

Backlog

General Dynamics’ total backlog at the end of 2017 was $63.2bn. There was strong demand in the quarter across the company’s portfolio. The estimated potential contract value, representing management’s estimate of value in unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised options, was $24.8bn. Total potential contract value, the sum of all backlog components, was $88bn at the end of the year.

Honeywell

 

 

 

26 Jan 18. Honeywell raises 2018 profit forecast on tax benefit. U.S. industrial conglomerate Honeywell International Inc (HON.N) reported a better-than-expected quarterly profit on Friday and raised its 2018 earnings forecast, citing lower tax rates. The company’s quarterly results were driven by strength across its four major divisions, including aerospace, its biggest business by revenue.

Sales in the unit, which makes engines for aircraft made by Bombardier Inc (BBDb.TO), Textron Inc (TXT.N) and General Dynamics Corp (GD.N), rose 6.4 percent to $3.90bn in the fourth quarter ended Dec. 31.

Much of the growth in the aerospace business was driven by its commercial aviation aftermarket division as a rise in travel demand boosted sales of spare parts and services to the airline industry.

Honeywell is also benefiting from increased demand from oil and gas customers in the wake of stabilizing oil prices.

Sales in Honeywell’s performance materials and technologies unit, which makes catalysts and adsorbents used in petroleum refining, rose 12.4 percent to $2.85bn in the quarter.

However, a $3.8bn tax provision pushed the company to book a net loss of $2.41bn, or $3.18 per share, in the latest quarter. Excluding the tax provision, Honeywell earned $1.85 per share, compared with analysts’ expectations of $1.84, according to Thomson Reuters I/B/E/S.

Revenue rose 8.6 percent to $10.84bn, topping estimates of $10.75bn. Honeywell raised its 2018 earnings forecast range to $7.75 to $8.00 per share, compared with $7.55 to $7.80 per share estimated previously.  (Source: Reuters)

Honeywell (NYSE: HON) today announced financial results for the fourth quarter and full year of 2017, and raised its 2018 earnings2 guidance by 20 cents to a new range of $7.75 – $8.00 to reflect an expected lower tax rate due to the U.S. Tax Cuts and Jobs Act of 2017.

“Honeywell delivered a strong fourth quarter, capping an exceptional year for the company,” said Darius Adamczyk, president and chief executive officer of Honeywell. “Fourth-quarter sales grew six percent organically, leading to full-year organic sales growth of four percent, driven by robust growth in Aerospace aftermarket, UOP, Advanced Materials, and Intelligrated. We leveraged HOS Gold to drive outstanding growth and expand segment margins by 70 basis points for the year. Earnings per share3were $1.85 in the fourth quarter and $7.11 for the full year, up 10 percent year over year, excluding the fourth-quarter charge related to U.S. tax reform and other items, as a result of our strong focus on growth and productivity. Our businesses achieved exceptional free cash flow, with 123 percent conversion in the fourth quarter and 90 percent conversion for the full year, exceeding the high end of our guidance for 2017.

“While delivering outstanding 2017 results, we also made significant investments in our future, including funding more than $350 m in restructuring projects,” Adamczyk continued. “We generated significant value for our shareowners in 2017 through a 12 percent increase in our dividend; $2.9bn in share repurchases, including $1.6bn in the fourth quarter; and the closing of three acquisitions. Our financial performance and aggressive capital deployment led to a total shareowner return of 35 percent, well ahead of the S&P’s total shareowner return of 22 percent and the median return of our multi-industry peers of 24 percent.

“Honeywell’s transformation to a software-industrial leader is well underway, and in 2018, we expect to complete the spin-offs of our Homes and Global Distribution business, and our Transportation Systems business, which will position Honeywell for future growth and margin expansion. After the spins, these businesses will be better positioned to maximize shareowner value through focused strategic decision making and capital allocation tailored for their end markets,” Adamczyk said.

“I am confident in Honeywell’s future, and our ability to continue to deliver for our shareowners and our employees. Our strong performance in 2017, together with the enactment of new U.S. tax legislation, has enabled us to increase our 401(k) match in the U.S. This is a sustained, annual benefit that will provide a more secure retirement for our employees. We believe that enhancing this benefit is extremely valuable and important to our employees over the long term,” Adamczyk concluded.

The Company recorded a provisional charge of $3.8bn in the fourth quarter to reflect the estimated impacts of the U.S. Tax Cuts and Jobs Act of 2017, including the U.S. tax on deemed repatriated earnings of non-U.S. subsidiaries, the writedown of net U.S. deferred tax liabilities at lower enacted corporate tax rates, and the effects of the implementation of the territorial tax system. The impacts of the legislation may differ from this estimate, possibly materially (and the amount of the provisional charge may accordingly be adjusted over the course of 2018), due to changes in interpretations and assumptions the Company has made, guidance that may be issued, and actions the Company may take as a result of the tax legislation. Honeywell has been a strong supporter of this legislation and is encouraged by the significantly enhanced capital mobility, lower U.S. corporate income tax rates, and more appealing investment environment in the U.S., which the legislation enables.

Honeywell updated its 2018 guidance to reflect 2017 results and the anticipated impact of the U.S. tax reform. The company now expects that its 2018 effective tax rate will be between 22 percent and 23 percent. Full-year earnings per share4 are now expected to be between $7.75 and $8.00, up 9 percent to 13 percent.

Fourth-Quarter Performance

Honeywell sales for the fourth quarter were up six percent on an organic basis and up nine percent on a reported basis. The difference between reported and organic sales relates to the impact of foreign currency translation.

Aerospace sales for the fourth quarter were up five percent on an organic basis driven by growth in the commercial aftermarket and U.S. defense, and demand for light vehicle gas and commercial vehicle turbochargers in Transportation Systems. Segment margin expanded 270 bps to 22.9 percent, primarily driven by higher Commercial Aftermarket volumes, productivity net of inflation, lower year-over-year customer incentives, and commercial excellence.

Home and Building Technologies sales for the fourth quarter were up three percent on an organic basis driven bycontinued demand in Products for fire and building offerings in Europe, as well as continued strength in Global Distribution and robust growth in China. Segment margin contracted 40 bps to 17.6 percent, driven by lower Security volumes and investments for growth, partially offset by commercial excellence.

Performance Materials and Technologies sales for the fourth quarter were up nine percent on an organic basis driven by strong growth across all businesses. UOP grew 12 percent on an organic basis driven by robust gas processing, catalyst, and equipment growth, and Advanced Materials grew 19 percent on an organic basis driven by continued demand for Solstice® low-global-warming products. Short-cycle demand in Process Solutions was strong as well. Segment margin contracted 180 bps to 21.3 percent, primarily driven by an unplanned plant outage and a different year-over-year mix impact of catalyst sales combined with stronger equipment volumes in UOP versus our guidance, partly offset by productivity net of inflation and commercial excellence.

Safety and Productivity Solutions sales for the fourth quarter were up 12 percent on an organic basis driven by double-digit organic sales growth at Intelligrated; higher volumes in industrial safety products, sensing controls, and voice-enabled workflow solutions; and strong Retail demand. Segment margin expanded 140 bps to 15.7 percent, primarily driven by higher volumes and productivity net of inflation. (Source: PRNewswire)

Lockheed Martin

 

 

 

Lockheed Martin Reports Fourth Quarter and Full Year 2017 Results

– Net sales of $15.1bn in the fourth quarter and $51.0bn in 2017

– Net loss from continuing operations of $715m, or $2.50 per share, in the fourth quarter, inclusive of a one-time charge related to tax reform

– Net earnings from continuing operations of $1.9bn, or $6.64 per share in 2017, inclusive of a one-time charge related to tax reform

– Adjusted earnings per share from continuing operations of $4.30 in the fourth quarter and $13.33 in 2017, excluding a net $1.9bn one-time charge related to tax reform

– Generated cash from operations of $1.5bn in the fourth quarter and $6.5bn in 2017

– Backlog of approximately $100bn at the end of 2017

– 2018 financial outlook provided

29 Jan 18.  Lockheed Martin revenue beats, profit to rise in 2018. Lockheed Martin Corp (LMT.N) reported fourth-quarter revenue on Monday that beat Wall Street estimates, helped by higher sales from the F-35 fighter jet programme, while also forecasting a rise in earnings in 2018.

The U.S. defence contractor took a $1.9bn (1.34bn pounds) charge in the fourth quarter ended Dec. 31, mainly due to the change in U.S. tax law.

Excluding a deferred non-cash gain of $122m or 43 cents per share, and the tax charges, Thomson Reuters I/B/E/S calculations showed Lockheed earned $3.87 per share versus analysts estimate of $4.07 per share.

Lockheed gave an adjusted figure for earnings from continuing operations of $4.30 per share.

Net sales rose to $15.14bn from $13.75bn a year earlier, beating Wall Street estimates of $14.72bn.

Adjusted for new accounting standards from Jan. 1, Lockheed said it expects 2018 net sales in the range of $50.00bn-$51.50bn and earnings per share of $15.20-$15.50.

Lockheed, like its peers in the United States, is expected to gain from an increase in defence spending under President Donald Trump’s administration. The U.S. Defense Department expects to spend some $391bn over 15 years to develop and buy 2,456 of the supersonic warplanes. Lockheed said sales in its aeronautics business, its biggest, grew 11.8 percent to $6.05 bn. (Source: Reuters)

29 Jan 18. Lockheed Martin (NYSE: LMT) today reported fourth quarter 2017 net sales of $15.1bn, compared to $13.8bn in the fourth quarter of 2016. Net loss from continuing operations in the fourth quarter of 2017 was $715m, or $2.50 per share, compared to net earnings from continuing operations of $959m, or $3.25 per share, in the fourth quarter of 2016. The net loss from continuing operations in the fourth quarter of 2017 included a net one-time charge of $1.9 bn ($6.80 per share), substantially all of which was non-cash, primarily related to the estimated impacts of the Tax Cuts and Jobs Act (the “Tax Act”). Excluding the estimated impacts of the Tax Act, adjusted earnings from continuing operations were $1.2bn, or $4.30 per share, in the fourth quarter of 2017 compared with $959 m, or $3.25 per share, in the fourth quarter of 2016. Cash from operations in the fourth quarter of 2017 was $1.5bn, compared to $729 m in the fourth quarter of 2016.

Net sales in 2017 were $51.0bn, compared to $47.2bn in 2016. Net earnings from continuing operations in 2017 were $1.9bn, or $6.64 per share, compared to $3.8bn, or $12.38 per share, in 2016. Earnings from continuing operations in 2017 included a net one-time charge of $1.9bn ($6.69 per share), substantially all of which was non-cash, primarily related to the estimated impacts of the Tax Act. Excluding the estimated impacts of the Tax Act, adjusted earnings from continuing operations were $3.9bn, or $13.33 per share, in 2017 compared with $3.8bn, or $12.38 per share, in 2016. Cash from operations in 2017 was $6.5bn, compared to cash from operations in 2016 of $5.2bn.

“We delivered outstanding performance as we completed 2017, which enabled us to end the year with strong sales growth, $6.5bn of cash from operations and a backlog of nearly $100bn, while also returning over $4.0bn to our shareholders,” said Marillyn Hewson, Chairman, President and CEO. “Looking ahead to 2018, we remain focused on meeting commitments to customers, pursuing new business growth opportunities, investing in innovative solutions to prepare for the future, and returning value to our shareholders.”

2018 Financial Outlook

The corporation expects the net 2018 FAS/CAS pension benefit to be approximately $1.0bn assuming a 3.625 percent discount rate (a 50 basis point decrease from the end of 2016), an approximately 13.00 percent return on plan assets in 2017 (a 550 basis point increase from the expected rate of return at the end of 2016), a 7.50 percent expected long-term rate of return on plan assets in future years, and the revised longevity assumptions released during the fourth quarter of 2017 by the Society of Actuaries. The corporation will make contributions of $5.0bn to its qualified defined benefit pension plans in 2018, including required and discretionary contributions. As a result of these contributions, the corporation does not anticipate any material qualified defined benefit funding will be required until 2021. As a result of adopting ASU No. 2017-07 for our qualified defined benefit pension plans, the corporation expects to present a FAS/CAS pension benefit of approximately $1.0bn in other unallocated net, in cost of sales. The corporation also expects to present a reclassification of non-service FAS net periodic benefit costs for all postretirement benefit plans (including the qualified defined benefit pension plans) of $870 m of non-service pension expense from other unallocated net in cost of sales to other non-operating expense, net.

Cash Deployment Activities

The corporation’s cash deployment activities in the quarter and year ended Dec. 31, 2017 consisted of the following:

* repurchasing 1.6 m shares for $501m and 7.1m shares for $2.0bn during the quarter and year ended Dec. 31, 2017, compared to 3.2m shares for $816m and 8.9m shares for $2.1bn during the quarter and year ended Dec. 31, 2016;

* paying cash dividends of $572m and $2.2bn during the quarter and year ended Dec. 31, 2017, compared to $530m and $2.0bn during the quarter and year ended Dec. 31, 2016;

* no long-term debt repayments during the year ended Dec. 31, 2017 compared to repayments of $952m of long-term debt upon scheduled maturity during the year ended Dec. 31, 2016; and

* making capital expenditures of $507 m and $1.2bn during the quarter and year ended Dec. 31, 2017, compared to $436m and $1.1bn during the quarter and year ended Dec. 31, 2016.

Internal Controls

As previously reported, during the fourth quarter of 2016 the corporation determined that Sikorsky’s internal control over financial reporting was ineffective and therefore concluded that a material weakness existed in Lockheed Martin’s internal control over financial reporting as of Dec. 31, 2016. Over the course of 2017, the corporation systematically improved controls at Sikorsky in order to remediate the material weakness. During the fourth quarter of 2017, the corporation successfully completed testing of the improved controls and, in its Annual Report on Form 10-K for the year ended Dec. 31, 2017, the corporation will report that it has remediated the material weakness and that management has determined that Lockheed Martin’s internal control over financial reporting was effective as of Dec. 31, 2017. There were no material errors in the corporation’s financial results or balances and there was no restatement of prior period financial statements and no change in previously released financial results as a result of the material weakness in internal control over financial reporting.

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. During the fourth quarter of 2017, the corporation changed the name of its Space Systems business segment to Space. This was a change of name only and had no impact on the programs comprised in each business segment.

Operating profit of the business segments includes the corporation’s share of earnings or losses from equity method investees as the operating activities of the equity method investees are closely aligned with the operations of the corporation’s business segments. United Launch Alliance (ULA), the results of which are included in the Space business segment, is the corporation’s primary equity method investee. Operating profit of the corporation’s business segments excludes the FAS/CAS pension adjustment, which represents the difference between total pension expense recorded in accordance with U.S. generally accepted accounting principles (FAS) and pension costs recoverable on U.S. Government contracts as determined in accordance with U.S. Government Cost Accounting Standards (CAS); expense for stock-based compensation; the effects of items not considered part of management’s evaluation of segment operating performance, such as charges related to significant severance actions and certain asset impairments; gains or losses from divestitures; the effects of certain legal settlements; corporate costs not allocated to the corporation’s business segments; and other miscellaneous corporate activities.

Changes in net sales and operating profit generally are expressed in terms of volume. Changes in volume refer to increases or decreases in sales or operating profit resulting from varying production activity levels, deliveries or service levels on individual contracts. Volume changes in segment operating profit are typically based on the current profit booking rate for a particular contract.

In addition, comparability of the corporation’s segment sales, operating profit and operating margin may be impacted favorably or unfavorably by changes in profit booking rates on the corporation’s contracts accounted for using the percentage-of-completion method of accounting. Increases in the profit booking rates, typically referred to as risk retirements, usually relate to revisions in the estimated total costs that reflect improved conditions on a particular contract. Conversely, conditions on a particular contract may deteriorate resulting in an increase in the estimated total costs to complete and a reduction in the profit booking rate. Increases or decreases in profit booking rates are recognized in the current period and reflect the inception-to-date effect of such changes. Segment operating profit and margin may also be impacted favorably or unfavorably by other items. Favorable items may include the positive resolution of contractual matters, cost recoveries on restructuring charges, insurance recoveries and gains on sales of assets. Unfavorable items may include the adverse resolution of contractual matters; restructuring charges, except for significant severance actions which are excluded from segment operating results; reserves for disputes; certain asset impairments; and losses on sales of assets.

The corporation’s consolidated net profit adjustments not related to volume, including net profit booking rate adjustments and reserves, represented approximately 27 percent and 30 percent of total segment operating profit for the quarter and year ended Dec. 31, 2017, compared to approximately 26 percent and 28 percent for the quarter and year ended Dec. 31, 2016.

Aeronautics

Aeronautics’ net sales in the fourth quarter of 2017 increased $639m, or 12 percent, compared to the same period in 2016. The increase was attributable to higher net sales of approximately $570m for the F-35 program primarily due to increased production volume and about $150m for the C-130 program due to increased aircraft deliveries (10 aircraft delivered in 2017 compared to eight in 2016). These increases were partially offset by a decrease of approximately $85m for the C-5 program due to fewer aircraft deliveries (two aircraft delivered in 2017 compared to three in 2016).

Aeronautics’ operating profit in the fourth quarter of 2017 increased $109m, or 20 percent, compared to the same period in 2016. Operating profit increased approximately $75m for the F-35 program due to increased aircraft production volume and higher risk retirements; and about $15m for the C-130 program due to increased aircraft deliveries and pricing mix. Operating profit for the C-5 program was comparable in the fourth quarter of 2017 and 2016. Adjustments not related to volume, including net profit booking rate adjustments, were about $60m higher in the fourth quarter of 2017 compared to the same period in 2016.

Aeronautics’ net sales in 2017 increased $2.4bn, or 13 percent, compared to 2016. The increase was primarily attributable to higher net sales of approximately $2.0bn for the F-35 program due to increased volume on production and sustainment; about $260m for the C-130 program due to increased deliveries (26 aircraft delivered in 2017 compared to 24 in 2016) and due to aircraft configuration mix, partially offset by lower volume for sustainment programs; and about $55 m for the F-16 program due to higher volume on aircraft modernization programs, partially offset by lower deliveries (eight aircraft delivered in 2017 compared to 12 in 2016). These increases were partially offset by a decrease of approximately $155m for the C-5 program due to lower deliveries (seven aircraft delivered in 2017 compared to nine in 2016).

Aeronautics’ operating profit in 2017 increased $277m, or 15 percent, compared to 2016. Operating profit increased approximately $290m for the F-35 program due to increased volume on aircraft production and sustainment activities and higher risk retirements and about $85m for the F-16 program due to higher risk retirements and higher volume on aircraft modernization programs, partially offset by lower deliveries. These increases were partially offset by a decrease of about $30 m due to lower equity earnings from an investee; about $25m for the C-130 program primarily due to lower volume and the timing of expenses for sustainment programs; and approximately $45m for other aeronautics programs primarily due to lower risk retirements and the establishment of a reserve recorded in the first quarter of 2017. Adjustments not related to volume, including net profit booking rate adjustments, were about $175m higher in 2017 compared to 2016.

Missiles and Fire Control

MFC’s net sales in the fourth quarter of 2017 increased $536m, or 31 percent, compared to the same period in 2016. The increase was primarily attributable to higher net sales of approximately $255m for air and missile defense programs due to increased deliveries (primarily Patriot Advanced Capability-3 (PAC-3)); about $155m for tactical missile programs due to increased deliveries (primarily Precision Fires) and due to increased deliveries and product configuration mix (Joint Air-to-Surface Standoff Missile (JASSM)); and about $90m for fire control programs due to increased deliveries (primarily LANTIRN® and SNIPER®).

MFC’s operating profit in the fourth quarter of 2017 increased $41m, or 16 percent, compared to the same period in 2016. Operating profit increased approximately $45m for air and missile defense programs due to higher risk retirements (primarily Terminal High Altitude Area Defense (THAAD)) and increased deliveries (primarily PAC-3). Operating profit for tactical missiles and fire control programs was comparable in the fourth quarter of 2017 and 2016 with increased deliveries (primarily LANTIRN® and SNIPER®) and a charge recorded in 2016 for a contractual matter that did not recur in 2017 being offset by lower risk retirements (primarily Apache and Precision Fires). Adjustments not related to volume, including net profit booking rate adjustments, were about $10m lower in the fourth quarter of 2017 compared to the same period in 2016.

MFC’s net sales in 2017 increased $604m, or 9 percent, compared to 2016. The increase was attributable to higher net sales of approximately $250m for tactical missile programs due to product configuration mix and increased deliveries (JASSM) and due to increased deliveries for various other programs; about $210m for air and missile defense programs due to contract mix on certain programs (primarily PAC-3) and increased volume on certain programs (primarily THAAD); and about $110m for fire control programs due to increased deliveries (primarily LANTIRN® and SNIPER®).

MFC’s operating profit in 2017 increased $35m, or 3 percent, compared to 2016. Operating profit increased about $70m for air and missile defense programs due to increased volume (primarily THAAD), contract mix (primarily PAC-3), a reserve recorded in fiscal year 2016 for a contractual matter that did not recur in 2017, partially offset by lower risk retirements; and about $30m for fire control programs due to increased deliveries (primarily LANTIRN® and SNIPER®). These increases were partially offset by a decrease of approximately $65m for tactical missile programs due to lower risk retirements (primarily JASSM and Hellfire) and the establishment of a reserve on a program. Adjustments not related to volume, including net profit booking rate adjustments, were about $80 m lower in 2017 compared to 2016.

Rotary and Mission Systems

RMS’ net sales in the fourth quarter of 2017 increased $542m, or 14 percent, compared to the same period in 2016. The increase was primarily attributable to an increase of approximately $445m in higher sales for Sikorsky helicopter programs primarily due to aircraft mix and increased deliveries; and an increase of about $65m for training and logistics services programs due to higher volume.

RMS’ operating profit in the fourth quarter of 2017 increased $71m, or 31 percent, compared to the same period in 2016. Operating profit increased approximately $60m for Sikorsky helicopter programs due to aircraft mix and increased deliveries. Adjustments not related to volume, including net profit booking rate adjustments, were about $20m lower in the fourth quarter of 2017 compared to the same period in 2016.

RMS’ net sales in 2017 increased $753m, or 6 percent, compared to 2016. The increase was primarily attributable to approximately $680m for Sikorsky helicopter programs due to certain adjustments recorded in 2016 required to account for the acquisition and higher volume on certain helicopter programs; and about $160m for training and logistics services programs due to higher volume. These increases were partially offset by a decrease of about $50m for integrated warfare systems and sensors (IWSS) programs due to lower volume.

RMS’ operating profit in 2017 was comparable with 2016. Operating profit increased about $105m for Sikorsky helicopter programs due to certain adjustments recorded in 2016 required to account for the acquisition. This increase was offset by a decrease of $100m for C4ISR & Undersea Systems & Sensors (C4USS) programs due to a net $95m increase for charges for performance matters on the EADGE-T contract and $20m for IWSS programs primarily due to a performance matter on the Vertical Launching System (VLS) program, partially offset by higher risk retirements (primarily Littoral Combat Ship (LCS)). Adjustments not related to volume, including net profit booking rate adjustments, were about $55m lower in 2017 compared to 2016.

Space

Space’s net sales in the fourth quarter of 2017 decreased $332m, or 12 percent, compared to the same period in 2016. The decrease was primarily attributable to approximately $300m for space transportation programs due a reduction in launch-related events.

Space’s operating profit in the fourth quarter of 2017 decreased $24m, or 9 percent, compared to the same period in 2016. Operating profit decreased approximately $45m for lower equity earnings from ULA and about $30m for space transportation programs due to a reduction in launch-related events. These decreases were partially offset by an increase of $20m for government satellite programs (primarily Global Positioning System (GPS)) due to higher risk retirements and about $30m for commercial satellite programs due to lower charges recorded in the fourth quarter of 2017 for performance matters on certain programs than were recorded in the comparable period of 2016. Adjustments not related to volume, including net profit booking rate adjustments and changes in reserves, were about $45m higher in the fourth quarter of 2017 compared to the same period in 2016.

Space’s net sales in 2017 increased $64m, or 1 percent, compared to 2016. The increase was attributable to approximately $810 m due to a full year of net sales from AWE in 2017 compared to four months of sales in 2016, which the corporation began consolidating during the third quarter of 2016. This increase was partially offset by a decrease of approximately $300m for space transportation programs due a reduction in launch-related events; about $255m for government satellite programs (primarily Advanced Extremely High Frequency (AEHF) and Space Based Infrared System (SBIRS)) due to lower volume; and approximately $190m across other programs (including the Orion program) due to lower volume.

Space’s operating profit in 2017 decreased $296m, or 23 percent, compared to 2016. Operating profit decreased about $127m due to the pre-tax gain recorded in 2016 related to the consolidation of AWE; about $95m for lower equity earnings from ULA; about $30m for space transportation programs due a reduction in launch-related events; a net decrease of about $25m related to charges recorded in 2017 for performance matters on certain commercial satellite programs; and about $25 m for government satellite programs (primarily SBIRS and AEHF) due to a charge for performance matters and lower volume. Adjustments not related to volume, including net profit booking rate adjustments and changes in reserves, were about $20 m higher in 2017 compared to 2016.

Total equity earnings recognized by Space (primarily ULA) represented approximately $35m, or 15 percent and approximately $205m, or 21 percent, of this business segment’s operating profit during the quarter and the year ended Dec. 31, 2017, compared to approximately $85m, or 33 percent and approximately $325m, or 25 percent, during the quarter and the year ended Dec. 31, 2016.

Income Taxes

The corporation’s effective income tax rate from continuing operations was 142.3 percent and 63.4 percent in the quarter and year ended Dec. 31, 2017, compared to 23.6 percent and 23.2 percent in the quarter and year ended Dec. 31, 2016. During the quarter ended Dec. 31, 2017, the corporation recorded a net one-time charge of $1.9bn ($6.80 per share in the fourth quarter and $6.69 per share in 2017), substantially all of which was non-cash, primarily related to enactment of the Tax Act which resulted in the re-measurement of certain net deferred tax assets using the lower U.S. corporate income tax rate (approximately $1.8bn), a deemed repatriation tax (approximately $43m), and a reduction in the U.S. manufacturing benefit (approximately $81m) as a result of the corporation’s decision to accelerate contributions to its pension fund in 2018. Excluding the net one-time charge, the corporation’s effective income tax rate from continuing operations was 27.5 percent and 26.5 percent in the quarter and year ended Dec. 31, 2017.

The rates for all periods benefited from the research and development tax credit and tax deductions for dividends paid to the corporation’s defined contribution plans with an employee stock ownership plan feature. The rates for the quarter and year ended Dec. 31, 2016 also benefited from tax deductions for U.S. manufacturing activities. For the year ended Dec. 31, 2017, the rate impact of the U.S. manufacturing benefit was insignificant. The rate in the year ended Dec. 31, 2016 also benefited from the nontaxable gain recorded in connection with the increase in AWE ownership.

The net one-time charge related to the Tax Act is based on the corporation’s current estimates. The final impact of the Tax Act may differ materially due to factors such as further refinement of the corporation’s calculations, changes in interpretations and assumptions that the corporation has made, additional guidance that may be issued by the U.S. Government, and actions the corporation may take, among other items.

Divestiture and Acquisition

On Aug. 16, 2016, the corporation divested its former IS&GS business, which merged with Leidos Holdings, Inc. (Leidos) in a Reverse Morris Trust transaction (the Transaction). As part of the transaction, the corporation also completed an exchange offer that resulted in a reduction of Lockheed Martin common stock outstanding by approximately 9.4m shares (approximately three percent). Additionally, Lockheed Martin received a one-time special cash payment of $1.8bn, which is reported under financing activities in the consolidated statements of cash flows. The corporation recognized an initial $1.2bn gain in net earnings from discontinued operations as a result of the Transaction. In the fourth quarter of 2017 the corporation recognized an additional gain on discontinued operations of $73 m, which reflects certain post-closing adjustments, including certain tax adjustments and the final determination of net working capital.

On Aug. 24, 2016, the corporation increased its ownership interest in the AWE joint venture from 33 percent to 51 percent at which time it began consolidating AWE. Consequently, the corporation’s operating results for the year ended 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, prior to Aug. 24, 2016, the date the corporation obtained control, it recorded 33 percent of AWE’s net earnings in the corporation’s operating results and subsequent to Aug. 24, 2016, it recognized 100 percent of AWE’s sales and 51 percent of its operating profit.

Additionally, in the year ended 2016, the corporation recorded a net gain of $104m associated with obtaining control of AWE, which consisted of a $127m pre tax gain recognized in the operating results of our Space business segment and $23m of deferred tax liabilities recorded at our corporate office.

Northrop Grumman

 

  • Q4 Sales Increase 4 percent to $6.6bn; 2017 Sales Increase 5 percent to $25.8bn
  • Q4 EPS of $1.01; 2017 EPS of $11.47
  • Q4 EPS of $2.82; 2017 EPS of $13.28, Each Excluding Tax Reform and Related Discretionary Pension Contribution Impacts1
  • Company Made $500m Pre-tax Discretionary Pension Contribution in Q4 2017 • 2017 Cash from Operations of $2.6bn; 2017 Cash from Operations of $2.9bn Before Aftertax Discretionary Pension Contribution1
  • 2017 Free Cash Flow1 of $1.7bn; 2017 Free Cash Flow of $2.0bn Before After-tax Discretionary Pension Contribution1
  • Company Expects 2018 Sales of Approximately $27bn and 2018 EPS of $15.00 to $15.25

25 Jan 18. Northrop Grumman Corporation (NYSE: NOC) reported fourth quarter 2017 sales increased 4 percent to $6.6bn from $6.4bn in the fourth quarter of 2016. For 2017, sales increased 5 percent to $25.8bn from $24.5bn in 2016. Fourth quarter 2017 net earnings totaled $178m, or $1.01 per share, compared with $525m, or $2.96 per share, in the prior year period. For 2017, net earnings totaled $2.0bn compared with $2.2bn in 2016. Fourth quarter and full-year 2017 net earnings were reduced by higher tax expense resulting from the enactment of the Tax Cuts and Jobs Act (the “2017 Tax Act”) and the company’s related $500m discretionary pre-tax pension contribution, which together reduced net earnings by $317m, or $1.81 per share, in both periods, primarily related to the write-down of deferred tax assets.

“Our strong financial results reflect our continued focus on delivering top performance for our shareholders, customers and employees. All three of our businesses generated excellent results that contributed to this year’s strong sales, operating profit and cash flow. Looking ahead, we continue to invest in our businesses and our employees, as we strengthen the foundation for long-term profitable growth,” said Wes Bush, chairman and chief executive officer.

1 Non-GAAP metric – defined at the end of this earnings release.

Fourth quarter 2017 sales increased 4 percent, due to higher sales in Mission Systems and Aerospace Systems. Fourth quarter operating income and margin rate totaled $767m and 11.6 percent, compared with $831m and 13.0 percent in the prior year period. The decline in operating income is primarily due to higher unallocated corporate expenses and lower segment operating income, partially offset by higher net FAS/CAS pension adjustment. The $80m increase in unallocated corporate expenses includes $20m of transaction costs related to the pending acquisition of Orbital ATK, as well as $23m of deferred state tax expense principally related to the company’s discretionary pension contribution.

 

Lower segment operating income and operating margin rate are primarily due to changes in contract mix at Aerospace Systems and Mission Systems. For 2017, sales increased 5 percent due to higher sales in Aerospace Systems and Mission Systems, and operating income increased 3 percent. 2017 operating income reflects increases in sales, net FAS/CAS pension adjustment and segment operating income, partially offset by higher unallocated corporate expenses. Unallocated corporate expenses increased $197m and include $47m for transaction costs related to the pending Orbital ATK acquisition and $41m of deferred state tax expense and state tax adjustments associated with the filing of the company’s prior year federal tax return. In addition, the prior year included benefits totaling $60m for state tax refunds and prior year overhead claim recoveries.

Fourth quarter and full year 2017 interest expense each increased by $59m. In October 2017, the company issued $8.25bn of debt to finance its pending acquisition of Orbital ATK. Fourth quarter Other, net increased $59m due to a $24 m increase in interest income on short-term investments and a gain on the sale of an investment. For 2017, Other, net increased $79m, due to gains on the sale of two investments and a $29m increase in interest income on short-term investments.

The company’s fourth quarter effective tax rate increased to 74.0 percent from 29.8 percent in the prior year period. For 2017, the company’s effective tax rate increased to 33.9 percent from 24.7 percent in 2016. The higher effective tax rates for both periods reflect an additional $300m of tax expense principally due to a write-down of net deferred tax assets related to the 2017 Tax Act, which, among other things, reduced the federal statutory tax rate to 21 percent from 35 percent beginning in 2018.

 

Fourth quarter 2017 cash provided by operating activities totaled $1.6bn compared with $1.5bn in the prior year period. Fourth quarter cash provided by operating activities before after-tax discretionary pension contribution1 totaled $1.9bn compared with $1.5bn in the prior year period. Fourth quarter 2017 free cash flow1 totaled $1.3bn after capital expenditures of $278m. Fourth quarter free cash flow before after-tax discretionary pension contribution1 totaled $1.7bn compared with $1.2bn in the prior year period.

For 2017, cash provided by operating activities totaled $2.6bn, and cash provided by operating activities before after-tax discretionary pension contribution was $2.9bn. For 2017, free cash flow totaled $1.7bn after capital expenditures of $928m and free cash flow before after-tax discretionary pension contribution1 totaled $2.0bn.

2017 investing and financing activities include the following:

Investing

  • $928m for capital expenditures

Financing

  • $8.25bn debt issued to finance the pending Orbital ATK acquisition
  • $689m for dividends
  • $393m for repurchase of common stock

Aerospace Systems

 

Aerospace Systems fourth quarter 2017 sales increased 5 percent, due to growth in Manned Aircraft and Autonomous Systems, partially offset by lower Space sales. The Manned Aircraft sales increase is primarily due to higher volume for restricted activities, as well as higher F/A-18 and F-35 sales, partially offset by lower E-2D volume. The Autonomous Systems sales increase includes higher volume for several programs, including Fire Scout and Triton, partially offset by lower volume on the Global Hawk program.

Lower Space sales are primarily due to lower volume for the James Webb Space Telescope. For 2017, sales increased 10 percent due to growth in Manned Aircraft, Autonomous Systems and Space. Higher Manned Aircraft sales were primarily due to an increase in restricted activities. Higher Autonomous Systems sales reflect higher volume for several programs, including Triton, partially offset by lower volume on NATO AGS. Higher Space sales were primarily due to increases in restricted activities, partially offset by declines in the James Webb Space Telescope and Advanced EHF programs.

Aerospace Systems fourth quarter 2017 operating income decreased 9 percent, and operating margin rate declined to 9.9 percent. Fourth quarter 2016 operating income benefited from a $45m gain on a property sale.

Excluding this gain, fourth quarter 2017 operating performance was comparable to the prior year period.

For 2017, Aerospace Systems operating income increased 2 percent primarily due to higher sales. Operating margin rate declined to 10.5 percent principally due to changes in contract mix on Manned Aircraft programs as well as the prior year period’s property sale gain.

Mission Systems

Mission Systems fourth quarter 2017 sales increased 6 percent primarily due to higher volume for Sensors and Processing and Advanced Capabilities programs, partially offset by lower Cyber and ISR volume. Sensors and Processing sales increased principally due to higher volume on F-35 sensors, electrooptical/infrared (EO/IR) self-protection and targeting programs, communications programs and the scalable agile beam radar (SABR) program.

Advanced Capabilities sales increased primarily due to higher volume on air and missile defense programs. Cyber and ISR sales decreased primarily due to lower volume on ISR and restricted programs. For 2017, sales increased 4 percent due to higher Sensors and Processing volume, partially offset by lower Cyber and ISR volume. Sensors and Processing sales increased principally due to higher volume on F-35 sensors, EO/IR self-protection and targeting programs, communications programs, and the SABR program. These increases were partially offset by lower volume on international ground-based radar programs.

Cyber and ISR sales decreased due to lower volume on ISR and restricted programs. Mission Systems fourth quarter 2017 operating income decreased 7 percent and operating margin rate decreased to 12.0 percent primarily due to contract mix changes and lower performance in Sensors and Processing and Cyber & ISR, partially offset by improved performance in Advanced Capabilities. For 2017, operating income increased 1 percent, primarily due to higher sales. Operating margin rate decreased to 12.8 percent from 13.2 percent primarily due to lower performance and changes in contract mix on Sensors and Processing and Cyber and ISR programs, partially offset by improved performance on Advanced Capabilities programs.

Technology Services

Technology Services fourth quarter 2017 sales decreased 1 percent primarily due to lower volume for System Modernization and Services and Advanced Defense Services, partially offset by higher volume for Global Logistics and Modernization.

For 2017, Technology Services sales decreased 2 percent, primarily due to lower volume on System Modernization and Services programs, partially offset by higher volume on Global Logistics and Modernization programs. System Modernization and Services sales decreased principally due to the completion of several programs. Global Logistics and Modernization sales increased primarily due to higher intercompany volume and increased volume on the UKAWACS and Hunter programs, partially offset by lower volume on the KC-10 program as that contract nears completion. Technology Services fourth quarter 2017 operating income increased 1 percent and operating margin rate increased to 10.5 percent, primarily due to improved performance. For 2017, operating income increased 2 percent, and operating margin rate increased to 11.0 percent from 10.6 percent primarily due to improved performance across the sector. 2018 Guidance 2018 financial guidance reflects the company’s judgment based on the information available to the company at the time of this release.

The government budget and appropriations processes can impact our customers, programs and financial results. Extended continuing resolutions, a prolonged government shutdown and/or breach of the debt ceiling, as well as government budgets and appropriations, can impact the company’s ability to achieve 2018 guidance. While the company currently expects its previously announced acquisition of Orbital ATK will close in the first half of this year, 2018 guidance does not reflect the pending acquisition. Additionally, 2018 guidance reflects only six months of interest on the $8.25bn of debt issued in October 2017 to finance the acquisition. After the close of the acquisition, the company will update its financial guidance to reflect the acquisition.

Effective January 1, 2018, the company adopted Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers, and Accounting Standards Update (ASU) No. 2017-07, Compensation Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, using the full retrospective method for each.

Raytheon

 

 

25 Jan 18. Raytheon Reports Strong Fourth Quarter and Full-Year 2017 Results

– Strong bookings of $8.5bn in the quarter and $27.7bn for the year; book-to-bill ratio of 1.26 in the quarter and 1.09 for the year

– Fourth quarter net sales of $6.8bn, up 8.0 percent; full-year net sales of $25.3bn, up 5.1 percent for the year

– Strong operating cash flow from continuing operations of $1.6bn in the quarter and $2.7bn for the year, after a $1.0bn pretax discretionary pension plan contribution in the fourth quarter, which was not in prior guidance

– Fourth quarter EPS from continuing operations of $1.35 and full-year EPS from continuing operations of $6.94; both periods included an unfavorable $0.59 impact from the enactment of the Tax Cuts and Jobs Act of 2017 and $0.09 impact from the discretionary pension contribution

25 Jan 18. Raytheon Company (NYSE: RTN) today announced net sales for the fourth quarter 2017 of $6.8bn, up 8.0 percent compared to $6.3bn in the fourth quarter 2016. Fourth quarter 2017 EPS from continuing operations was $1.35 compared to $1.87 in the fourth quarter 2016. Fourth quarter and full-year 2017 included an unfavorable $0.59 provisional tax-related impact due to the enactment of the Tax Cuts and Jobs Act of 2017.

In addition, the company made a $1.0bn pretax discretionary pension plan contribution in the fourth quarter 2017, which had an unfavorable tax-related EPS impact of $0.09 and was not included in the company’s prior guidance. The company made a $500 m pretax discretionary pension plan contribution in the fourth quarter 2016, which had an unfavorable tax-related EPS impact of $0.04.

Net sales in 2017 were $25.3bn, up 5.1 percent compared to $24.1bn in 2016. Full-year 2017 EPS from continuing operations was $6.94 compared to $7.55 for the full-year 2016.

“Raytheon delivered record sales and strong cash flow in 2017 reflecting the continued hard work and dedication of the Raytheon team,” said Thomas A. Kennedy, Raytheon Chairman and CEO. “Bookings strength across our broad portfolio of proven technology solutions positions the company well for the future.”

The company generated strong operating cash flow for both the fourth quarter and full-year. Operating cash flow from continuing operations for the fourth quarter 2017 and full-year 2017 was $1.6bn and $2.7bn, respectively, after making the $1.0bn pretax discretionary cash contribution to the company’s pension plans.  Operating cash flow from continuing operations for the fourth quarter 2016 and full-year 2016 was $1.1bn and $2.9bn, respectively, after making the $500m pretax discretionary pension contribution. Operating cash flow in the fourth quarter and full-year 2017, excluding the $1.0bn pretax discretionary pension contribution, was better than the company’s prior guidance primarily due to favorable collections.

In the fourth quarter 2017, the company repurchased 0.5m shares of common stock for $100m. For the full-year 2017, the company repurchased 4.9m shares of common stock for $800m. Also, as previously announced in November 2017, the company’s Board of Directors authorized the repurchase of up to an additional $2.0bn of the company’s outstanding common stock.

The company had bookings of $8.5bn in the fourth quarter 2017, resulting in a book-to-bill ratio of 1.26. Fourth quarter 2016 bookings were $7.6 bn. Full-year 2017 bookings were $27.7bn, resulting in a book-to-bill ratio of 1.09. Full-year 2016 bookings were $27.8bn.

Backlog at the end of 2017 was $38.2bn, an increase of approximately $1.5bn or 4 percent compared to the end of 2016.

Outlook

The company has provided its financial outlook for 2018. Charts containing additional information on the company’s 2018 outlook are available on the company’s website.

Effective January 1, 2018, the company adopted the new retirement benefit standard, which moves certain components of FAS pension and postretirement benefit expense from operating to non-operating income. The adoption of this standard increases operating income due to the removal of all components of FAS expense other than service cost, and decreases non-operating income by the same amount with no impact to net income. The standard does not impact our CAS expense, which is recorded in the results of each segment. As a result, our FAS/CAS Adjustment will be split into: FAS/CAS Operating Adjustment; and Other Pension Expense within non-operating.

Segment Results

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 fourth quarter 2017 net sales of $1,553m, up 6 percent compared to $1,460m in the fourth quarter 2016. IDS had full-year 2017 net sales of $5,804m compared to $5,529 m in 2016. The increase in net sales for both the quarter and the full-year was primarily driven by higher net sales on an international early warning radar program.

IDS recorded $247m of operating income in the fourth quarter 2017 compared to $238m in the fourth quarter 2016. The increase in operating income for the quarter was primarily driven by higher volume and a favorable change in program mix. IDS recorded $935m of operating income in 2017 compared to $971m in 2016. The change in operating income for the full-year was primarily driven by a favorable change in program mix, higher net program efficiencies and higher volume, which was more than offset by the $158m tax-free gain from the ThalesRaytheonSystems (TRS) transaction in the second quarter 2016.

During the quarter, IDS booked $304m on an Early Warning Surveillance Radar System (EWSRS) support program for an international customer; $280m to provide Consolidated Contractor Logistics Support (CCLS) for the Missile Defense Agency (MDA); $264m to provide advanced Patriot Air and Missile Defense system capabilities for international customers; and $81 m on the Army Navy/Transportable Radar Surveillance-Model 2 (AN/TPY-2) radar sustainment program for the MDA.

Shortly after the quarter close, as previously announced, IDS received a direct commercial contract worth more than $1.5bn to provide Patriot Air and Missile Defense system capability to a member of the 14-nation Patriot partnership.

Intelligence, Information and Services

Intelligence, Information and Services

(IIS) had fourth quarter 2017 net sales of $1,572m, up 4 percent compared to $1,516m in the fourth quarter 2016. The increase in net sales for the quarter was primarily driven by higher net sales on a U.S. Air Force program and classified programs. IIS had full-year 2017 net sales of $6,177m compared to $6,169m in 2016.

IIS recorded $117m of operating income in the fourth quarter 2017 compared to $120m in the fourth quarter 2016. IIS recorded $455 m of operating income in 2017 compared to $467m in 2016.

During the quarter, IIS booked $244m on domestic and foreign training programs in support of Warfighter FOCUS activities; $233m to upgrade the Phalanx® Closed-In Weapon System (CIWS) for the Royal Canadian Navy; $98m on the Development, Operations and Maintenance (DOMino) Cyber program for the Department of Homeland Security (DHS); $97m on the Standard Terminal Automation Replacement System (STARS) program for the Federal Aviation Administration (FAA); and $77m to support the Naval Communication Station, Harold E. Holt facility for Australia. IIS also booked $410m on a number of classified contracts.

Missile Systems

Missile Systems (MS) had fourth quarter 2017 net sales of $2,185m, up 15 percent compared to $1,897m in the fourth quarter 2016. The increase in net sales for the quarter was primarily driven by higher net sales on the Advanced Medium-Range Air-to-Air Missiles (AMRAAM®), Standard Missile-3 (SM-3®) and Paveway™ programs. MS had full-year 2017 net sales of $7,787 m compared to $7,096m in 2016. The increase in net sales for the full-year was primarily driven by higher net sales on the Paveway, SM-3 and Standard Missile-2 (SM-2) programs.

MS recorded $278m of operating income in the fourth quarter 2017 compared to $261m in the fourth quarter 2016. MS recorded $1,010m of operating income in 2017 compared to $921m in 2016. The increase in operating income for both the quarter and the full-year was primarily due to higher volume in 2017.

During the quarter, MS booked $1,132m for Paveway; $696 m for AMRAAM; $423 m for the Joint Standoff Weapon (JSOW®); $269m for Tomahawk; $109m for Phalanx CIWS; $107m for SM-3; $80m for the Mobile Range program; and $77m for Horizontal Technology Integration (HTI) forward-looking infrared kits. MS also booked $310m on a number of classified contracts.

Space and Airborne Systems

Space and Airborne Systems (SAS) had fourth quarter 2017 net sales of $1,670m, up 4 percent compared to $1,600m in the fourth quarter 2016. The increase in net sales for the quarter was primarily due to higher net sales on airborne radar programs. SAS had full-year 2017 net sales of $6,430m compared to $6,182m in 2016. The increase in net sales for the full-year was primarily due to higher net sales on an electronic warfare systems program and a domestic classified program.

SAS recorded $242m of operating income in the fourth quarter 2017 compared to $221 m in the fourth quarter 2016. SAS recorded $862m of operating income in 2017 compared to $808m in 2016. The change in operating income for the quarter and full-year was primarily driven by higher volume in 2017 and a favorable change in program mix.

During the quarter, SAS booked $411m on a number of classified contracts.

Forcepoint

Forcepoint had fourth quarter 2017 net sales of $156m compared to $143m in the fourth quarter 2016. Forcepoint had full-year 2017 net sales of $608m compared to $586m in 2016.

Forcepoint recorded a loss of $8 m in the fourth quarter 2017 compared to operating income of $21m in the fourth quarter 2016. Forcepoint recorded $33m of operating income in 2017 compared to $90m in 2016. The decrease in operating income for both the quarter and the full-year was primarily driven by higher selling and marketing costs.

Textron 

 

 

 

 

31 Jan 18. Textron Inc. (NYSE: TXT) today announced financial results for the fourth quarter and full year of 2017, and provided guidance for its 2018 financial outlook.

Net earnings for the quarter were reduced by a provisional tax charge of $1.00 per share resulting from the enactment of the Tax Cuts and Jobs Act (“the Tax Act”), and $0.14 per share of restructuring charges. With these items that were disclosed in an 8-K filing earlier this month, the company reported a loss from continuing operations of $0.40 per share in the quarter, compared to income from continuing operations of $0.78 per share in the fourth quarter of 2016. Adjusted income from continuing operations, a non-GAAP measure that is defined and reconciled to GAAP in an attachment to this release, was $0.74per share for the fourth quarter of 2017 compared to $0.80 per share in the fourth quarter of 2016.

Revenues in the quarter were $4.0bn, up 5.0 percent from the fourth quarter of 2016. Textron segment profit in the quarter was $360m, down $31m from the fourth quarter of 2016.

For the full year, net earnings were reduced by a provisional tax charge of $0.99 per share resulting from the Tax Act, and $0.32per share of restructuring charges. Including these items, full-year income from continuing operations was $1.14 per share compared to $3.09 per share last year. Full-year adjusted income from continuing operations, the non-GAAP measure, was $2.45 per share, compared to $2.62 in 2016.

Cash Flow

Net cash provided by operating activities of continuing operations of the manufacturing group for the full year was $947m, compared to $988 m last year. Manufacturing cash flow before pension contributions, a non-GAAP measure that is defined and reconciled to GAAP in an attachment to this release, was $889m compared to $573m last year.

“We delivered strong cash performance throughout the year and returned $603 m to shareholders through share repurchases and dividends,” said Textron Chairman and CEO Scott C. Donnelly.

Outlook

Textron is forecasting 2018 revenues of approximately $14.6bn, up 3.0 percent from the prior year. Textron expects full-year 2018 earnings per share from continuing operations will be in the range of $2.95 to $3.15. The company will benefit from the Tax Act and expects an effective tax rate of 22.5% for 2018.

The company is estimating net cash provided by operating activities of continuing operations of the manufacturing group will be between $1,170m and $1,270m and manufacturing cash flow before pension contributions (the non-GAAP measure) will be between $700 and $800m, with planned pension contributions of about $55m.

Donnelly continued, “Our outlook reflects the continuation of our strategy around growth through new product investments and acquisitions to drive increases in long-term shareholder value. In 2018, we expect these investments to drive increasing organic sales along with margin expansion and strong cash generation.”

Fourth Quarter Segment Results

Textron Aviation

Revenues at Textron Aviation of $1.4bn were down 3 percent, primarily due to lower military volume.

Textron Aviation delivered 58 new Citation jets, flat with last year, 31 King Air turboprops up from 28 in last year’s fourth quarter, and 2 Beechcraft T-6 trainers, down from 8 last year.

Segment profit was $120m in the fourth quarter, down from $135m a year ago, primarily due to higher research and development expense.

Textron Aviation backlog at the end of the fourth quarter was $1.2bn, up $15m from the end of the third quarter.

Bell

Bell revenues were $983m, up 11 percent on higher military volumes, partially offset by lower commercial volumes. Segment profit of $114m was down $12m despite the increase in revenues, primarily related to a change in commercial mix. Bell backlog at the end of the fourth quarter was $4.6bn, down $407m from the end of the third quarter.

Textron Systems

Revenues at Textron Systems were $489m, down from $532m last year largely on lower volume at Weapons and Sensors. Segment profit of $37m was down from $53m, primarily reflecting the lower volume at Weapons and Sensors. Textron Systems’ backlog at the end of the fourth quarter was $1.4bn, down $67m from the end of the third quarter.

Industrial

Industrial revenues were $1.1bn, up 20 percent largely related to Arctic Cat.

Segment profit was up $10m from the fourth quarter of 2016 due to favorable performance.

Finance

Finance segment revenues decreased $3m and segment profit increased $2m.

United Technologies

 

 

 

24 Jan 18. United Tech beats revenue estimates, forecasts higher 2018 profit. U.S. manufacturer United Technologies Corp (UTX.N) reported better-than-expected fourth-quarter revenue on Wednesday and forecast higher profit for the full year, benefiting from higher sales of parts and maintenance for commercial jets.

The maker of Otis Elevators and Pratt & Whitney aircraft engines said it expected 2018 adjusted earnings in the range of $6.85 to $7.10 per share, up 3 percent to 6.8 percent from a year earlier.

The company forecast 2018 sales of $62.5bn to $64.0bn, slightly above the mid-point of analysts’ average estimate of $63.08bn, according to Thomson Reuters I/B/E/S.

Net sales for the fourth quarter rose to $15.68bn from $14.66bn a year earlier, topping Wall Street’s expectation of $15.40bn.

United Technologies is spending more money to speed up production of its fuel saving GTF engines that power Airbus’ newest narrow-body jet, the A320neo, and Bombardier’s CSeries aircraft.

The company’s income from continuing operations attributable to common share owners fell to $397m, or 50 cents per share in the fourth quarter ended Dec. 31, from $1.01bn, or $1.26 per share, a year earlier.

The latest quarter included a 90-cent charge related to changes in the U.S. tax law. On an adjusted basis, United Tech earned $1.60 per share.

Net sales rose to $15.68bn from $14.66bn a year earlier.

Analysts on average had expected quarterly earnings of $1.56 per share and revenue of $15.40bn. (Source: Reuters)

24 Jan 18. United Technologies Reports 2017 Results Above Company Expectations, Announces 2018 Outlook

* UTC delivers strongest organic sales growth in three years;

* 2017 sales, adjusted EPS and free cash flow above company expectations;

* Expects accelerating sales, earnings and free cash flow growth in 2018

* Fourth Quarter 2017

* Sales of $15.7bn, up 7 percent versus prior year including 5 percent organic growth

* GAAP EPS of $0.50 including a $0.90 charge for tax law changes

* Adjusted EPS of $1.60, up 3 percent versus prior year

* Full Year 2017

* Sales of $59.8bn, up 5 percent versus prior year including 4 percent organic growth

* GAAP EPS of $5.70 including a $0.90 charge for tax law changes

United Technologies Corp. (NYSE: UTX) reported fourth quarter and full year 2017 results above expectations and expects continued growth in 2018.

“UTC had a strong finish to 2017,” said Hayes.  “Sales, adjusted EPS and free cash flow were all above the top end of our expectations. Our focus on innovation, execution and cost reduction led to our best year of organic sales growth since 2014, with all businesses contributing. We gained share in our commercial businesses and continued to execute on our growing aerospace backlog.  UTC also announced the transformative Rockwell Collins acquisition which will create a premier aerospace supplier. As a result of this proposed transaction, together with the investments in our businesses and in our digital strategies, we are positioned well for years to come.”

Hayes continued, “In 2018, we expect accelerating organic sales and adjusted earnings per share growth along with strong cash generation.”

Fourth Quarter 2017

Fourth quarter sales of $15.7bn were up 7 percent over the prior year including 5 points of organic sales growth and 2 points of foreign exchange. GAAP EPS was $0.50 (down from $1.26 in the fourth quarter of 2016) and included 90 cents for a charge related to tax law changes and 20 cents of net restructuring and other significant items. Associated with the tax law change is an estimated, cumulative net cash payment of $1.5bn to be paid through 2026. Adjusted EPS of $1.60 was up 3 percent versus the prior year.

Each of United Technologies’ businesses grew sales in the fourth quarter. Commercial aftermarket sales were up 25 percent at Pratt & Whitney, and up 10 percent at UTC Aerospace Systems. Otis new equipment orders increased 1 percent versus the prior year at constant currency, with solid growth in the U.S. and Europe and continued pricing pressure in China. Equipment orders at UTC Climate, Controls & Security increased 9 percent organically.

Full Year 2017

Full year sales of $59.8bn were up 5 percent versus the prior year with 4 points of organic sales growth and 1 point of net acquisitions impact. Full year 2017 GAAP EPS of $5.70 was down 7 percent versus prior year. 2017 results included 90 cents for the fourth quarter tax charge and 5 cents of net restructuring and other significant items, as compared with 48 cents in 2016. Adjusted EPS of $6.65increased 1 percent year over year. Net income for the year was $4.6bn, down 10 percent versus the prior year. Cash flow from operations for the year was $5.6bn and capital expenditures were $2.0bn.

In 2017, United Technologies invested in digital initiatives to drive operational efficiency and generate long-term value for its customers. Investments included the United Technologies Digital Accelerator, new digital solutions within UTC Climate, Controls & Security, and new tools for more than 15,000 Otis technicians worldwide. Pratt & Whitney’s Geared Turbofan™ Engine was selected to power Delta Air Lines’ order of 100 A321neo aircraft. Additionally, the proposed acquisition of Rockwell Collins, announced in 2017, will lead to a new era of innovative aerospace products and solutions for UTC’s customers.

Outlook for 2018

UTC provides the following 2018 outlook (excluding the impact of the proposed Rockwell Collins acquisition):

* Adjusted EPS of $6.85 to $7.10*;

* Total sales of $62.5 to $64.0bn, including organic sales growth of 4 to 6 percent*;

* Free cash flow in the range of $4.5 to $5.0bn.*

“Our outlook demonstrates how our strategic investments are paying off,” said Hayes. “We are innovating for growth and expect all of our businesses to grow sales and earnings in 2018.”

 

 

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