24 Oct 19. The US Majors kicked off the reporting season with strong results in defense but in civil aerospace Boeing reported a huge hit due to the 737 MAX and GD for Buisjet sales.
Boeing
General Dynamics
Lockheed Martin Corporation
Northrop Grumman
Raytheon
Boeing
Boeing
23 Oct 19. Boeing Reports Third-Quarter Results.
- Continue to engage global regulators and customers on safe return to service of the 737 MAX
- Revenue of $20.0bn reflecting lower 737 deliveries and higher defense and services volume
- GAAP EPS of $2.05 and core EPS (non-GAAP)* of $1.45 per share
- Operating cash flow of ($2.4) bn; paid $1.2bn of dividends
- Total backlog of $470 bn, including nearly 5,500 commercial airplanes
- Cash and marketable securities of $10.9bn provide strong liquidity
| Table 1. Summary Financial Results | Third Quarter | Nine Months | ||||||||||
| (Dollars in Ms, except per share data) | 2019 | 2018 | Change | 2019 | 2018 | Change | ||||||
| Revenues | $19,980 | $25,146 | (21)% | $58,648 | $72,786 | (19)% | ||||||
| GAAP | ||||||||||||
| Earnings From Operations | $1,259 | $2,227 | (43)% | $229 | $7,812 | (97)% | ||||||
| Operating Margin | 6.3% | 8.9% | (2.6) Pts | 0.4% | 10.7% | (10.3) Pts | ||||||
| Net Earnings | $1,167 | $2,363 | (51)% | $374 | $7,036 | (95)% | ||||||
| Earnings Per Share | $2.05 | $4.07 | (50)% | $0.66 | $11.95 | (94)% | ||||||
| Operating Cash Flow | ($2,424) | $4,559 | NM | ($226) | $12,375 | NM | ||||||
| Non-GAAP* | ||||||||||||
| Core Operating Earnings/(Loss) | $895 | $1,890 | (53)% | ($864) | $6,793 | NM | ||||||
| Core Operating Margin | 4.5% | 7.5% | (3.0) Pts | (1.5)% | 9.3% | (10.8) Pts | ||||||
| Core Earnings/(Loss) Per Share | $1.45 | $3.58 | (59)% | ($1.13) | $10.55 | NM | ||||||
| *Non-GAAP measure; complete definitions of Boeing’s non-GAAP measures are on page 6, “Non-GAAP Measures Disclosures” |
The Boeing Company [NYSE: BA] reported third-quarter revenue of $20.0bn, GAAP earnings per share of $2.05 and core earnings per share (non-GAAP)* of $1.45, reflecting lower 737 deliveries partially offset by higher defense and services volume (Table 1). Boeing recorded operating cash flow of ($2.4)bn and paid $1.2bn of dividends.
Boeing has developed software and training updates for the 737 MAX and continues to work with the FAA and global civil aviation authorities to complete remaining steps toward certification and readiness for return to service. These regulatory authorities will determine the timing and conditions of return to service in each relevant jurisdiction. For purposes of the third-quarter results, the company has assumed that regulatory approval of the 737 MAX return to service begins in the fourth quarter of 2019 and that it will gradually increase the 737 production rate from 42 per month to 57 per month by late 2020.
“Our top priority remains the safe return to service of the 737 MAX, and we’re making steady progress,” said Boeing President and Chief Executive Officer Dennis Muilenburg. “We’ve also taken action to further sharpen our company’s focus on product and services safety, and we continue to deliver on customer commitments and capture new opportunities with our values of safety, quality and integrity always at the forefront.”
| Table 2. Cash Flow | Third Quarter | Nine Months | ||||||
| (Ms) | 2019 | 2018 | 2019 | 2018 | ||||
| Operating Cash Flow | ($2,424) | $4,559 | ($226) | $12,375 | ||||
| Less Additions to Property, Plant & Equipment | ($465) | ($457) | ($1,387) | ($1,227) | ||||
| Free Cash Flow* | ($2,889) | $4,102 | ($1,613) | $11,148 | ||||
| *Non-GAAP measure; complete definitions of Boeing’s non-GAAP measures are on page 6, “Non-GAAP Measures Disclosures.” |
Operating cash flow was ($2.4)bn in the quarter, primarily reflecting lower 737 delivery and advance payments as well as timing of receipts and expenditures (Table 2). During the quarter, the company paid $1.2 bn of dividends, reflecting a 20 percent increase in dividends per share compared to the same period of the prior year.
| Table 3. Cash, Marketable Securities and Debt Balances | Quarter-End | |||
| (Bns) | Q3 19 | Q2 19 | ||
| Cash | $9.8 | $9.2 | ||
| Marketable Securities1 | $1.1 | $0.4 | ||
| Total | $10.9 | $9.6 | ||
| Debt Balances: | ||||
| The Boeing Company, net of intercompany loans to BCC | $22.8 | $17.3 | ||
| Boeing Capital, including intercompany loans | $1.9 | $1.9 | ||
| Total Consolidated Debt | $24.7 | $19.2 | ||
| 1 Marketable securities consists primarily of time deposits due within one year classified as “short-term investments.” |
Cash and investments in marketable securities totaled $10.9bn, compared to $9.6bn at the beginning of the quarter (Table 3). Debt was $24.7bn, up from $19.2 bn at the beginning of the quarter primarily due to the issuance of new debt.
Total company backlog at quarter-end was $470bn and included net orders of $16bn.
Segment Results
Commercial Airplanes
| Table 4. Commercial Airplanes | Third Quarter | Nine Months | |||||||||
| (Dollars in Ms) | 2019 | 2018 | Change | 2019 | 2018 | Change | |||||
| Commercial Airplanes Deliveries | 62 | 190 | (67)% | 301 | 568 | (47)% | |||||
| Revenues | $8,249 | $14,071 | (41)% | $24,793 | $40,968 | (39)% | |||||
| (Loss)/Earnings from Operations | ($40) | $2,033 | NM | ($3,813) | $5,230 | NM | |||||
| Operating Margin | (0.5)% | 14.4% | (14.9) Pts | (15.4)% | 12.8% | NM |
Commercial Airplanes third-quarter revenue was $8.2bn reflecting lower 737 deliveries (Table 4). Third-quarter operating margin decreased to (0.5) percent reflecting lower 737 deliveries partially offset by a higher margin on the 787 program. During the quarter estimated costs to produce 737 aircraft included in the accounting quantity increased by $0.9 bn primarily to reflect current assumptions regarding timing of return to service and the timing of planned production rate increases. There was no significant change to estimated potential concessions and other considerations to customers related to the 737 MAX grounding.
Commercial Airplanes delivered 62 airplanes during the quarter. Given the current global trade environment, the 787 production rate will be reduced to 12 airplanes per month for approximately two years beginning in late 2020. The 777X program is progressing through pre-flight testing and remains on track for first flight in early 2020. The company is now targeting early 2021 for first delivery of the 777X.
Commercial Airplanes booked net orders worth $5 bn during the quarter, including orders for twenty 787 airplanes for Korean Air, eight 787 airplanes for Air New Zealand, and six 777 freighters for China Airlines. Commercial Airplanes backlog included nearly 5,500 airplanes valued at $387bn.
Defense, Space & Security
| Table 5. Defense, Space & Security | Third Quarter | Nine Months | |||||||||
| (Dollars in Ms) | 2019 | 2018 | Change | 2019 | 2018 | Change | |||||
| Revenues | $7,042 | $6,937 | 2% | $20,265 | $19,518 | 4% | |||||
| Earnings/(Loss) from Operations | $755 | ($247) | NM | $2,577 | $886 | 191% | |||||
| Operating Margin | 10.7% | (3.6)% | 14.3 Pts | 12.7% | 4.5% | 8.2 Pts |
Defense, Space & Security third-quarter revenue increased to $7.0bn primarily driven by higher volume on satellites, weapons, and T-7A Red Hawk (formerly T-X Trainer), partially offset by lower volume on F-15 (Table 5). Third-quarter operating margin increased to 10.7 percent primarily due to the absence of third quarter 2018 charges and improved performance.
During the quarter, Defense, Space & Security received contracts for the fifth production lot for 15 KC-46A Tanker aircraft for the U.S. Air Force and nine AH-64E Apache helicopters for the U.S. Army. Significant milestones achieved during the quarter included completion of the first test flight of the MQ-25 unmanned aerial refueler, first flight of the inaugural P-8A Poseidon aircraft for the United Kingdom Royal Air Force, and final assembly of the Space Launch System core stage structure. Defense, Space & Security also performed the 100th test flight of the T-7A Red Hawk.
Backlog at Defense, Space & Security was $62 bn, of which 30 percent represents orders from customers outside the U.S.
Global Services
| Table 6. Global Services | Third Quarter | Nine Months | |||||||||
| (Dollars in Ms) | 2019 | 2018 | Change | 2019 | 2018 | Change | |||||
| Revenues | $4,658 | $4,101 | 14% | $13,820 | $12,148 | 14% | |||||
| Earnings from Operations | $673 | $548 | 23% | $2,013 | $1,799 | 12% | |||||
| Operating Margin | 14.4% | 13.4% | 1.0 Pts | 14.6% | 14.8% | (0.2) Pts |
Global Services third-quarter revenue increased to $4.7bn, primarily driven by the acquisition of Boeing Distribution Services, Inc. (formerly KLX) and higher government services volume (Table 6). Third-quarter operating margin increased to 14.4 percent primarily due to improved performance.
During the quarter, Global Services was awarded contracts with the U.S. Air Force for F-15 training to Qatar, A-10 Thunderbolt II re-winging, and KC-46A Tanker Lot 5 services. Global Services also signed an agreement with IndiGo for digital solutions and delivered the first SpiceXpress 737-800 Boeing Converted Freighter following India certification.
Additional Financial Information
| Table 7. Additional Financial Information | Third Quarter | Nine Months | |||||
| (Dollars in Ms) | 2019 | 2018 | 2019 | 2018 | |||
| Revenues | |||||||
| Boeing Capital | $66 | $77 | $207 | $214 | |||
| Unallocated items, eliminations and other | ($35) | ($40) | ($437) | ($62) | |||
| Earnings from Operations | |||||||
| Boeing Capital | $29 | $27 | $86 | $71 | |||
| FAS/CAS service cost adjustment | $364 | $337 | $1,093 | $1,019 | |||
| Other unallocated items and eliminations | ($522) | ($471) | ($1,727) | ($1,193) | |||
| Other income, net | $121 | $12 | $334 | $63 | |||
| Interest and debt expense | ($203) | ($106) | ($480) | ($317) | |||
| Effective tax rate | 0.8% | (10.8)% | (350.6)% | 6.9% |
At quarter-end, Boeing Capital’s net portfolio balance was $2.2bn. The change in earnings from other unallocated items and eliminations is primarily due to increased enterprise research and development investment. Interest and debt expense increased due to higher debt balances. The effective tax rate for the third quarter increased from the same period in the prior year primarily due to a $412 m benefit related to a 2013-2014 tax settlement that was recorded in the third quarter of 2018, partially offset by larger 2019 tax rate benefits resulting from lower pre-tax earnings.
General Dynamics
General Dynamics Reports Third-Quarter 2019 Results
- Revenue of $9.8bn, up 7.3% year-over-year
- Operating earnings of $1.2bn, up 7.1% year-over-year
- Diluted earnings per share from continuing operations of $3.14, up 8.7% year-over-year
- First Gulfstream G600 deliveries
23 Oct 19. General Dynamics (NYSE: GD) today reported third-quarter 2019 revenue of $9.8bn, operating earnings of $1.2 bn, net earnings from continuing operations of $913 m and diluted earnings per share from continuing operations of $3.14, up 25 cents from the year-ago quarter.
“Margins advanced nicely in the quarter due to Gulfstream’s continuing ability to efficiently transition its production to new models, coupled with solid operating performance at the defense businesses,” said Phebe N. Novakovic, chairman and chief executive officer. “Our continued focus on operating excellence and driving cost efficiencies, coupled with new business opportunities, should enable us to build on these results.”
Operating Performance
Operating margin was 12.5 percent in the quarter, up 110 basis points sequentially. Customer deliveries of the Gulfstream G600 began in August, less than two months after receiving FAA type and production certificates.
Cash
Net cash provided by operating activities in the quarter totaled $1.1bn. Free cash flow from operations, defined as net cash provided by operating activities less capital expenditures, was $847m.
Capital Deployment
The company paid $295m in dividends and repaid approximately $450 m of its outstanding commercial paper in the third quarter. Capital expenditures totaled $244 m, up $76 m from the year-ago quarter, driven by continued strategic investments in Marine Systems.
Backlog
Total backlog at the end of third-quarter 2019 was $67.4bn. Estimated potential contract value, representing management’s estimate of value in unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised options, was $35.6bn. Total estimated contract value, the sum of all backlog components, was $103bn.
Orders
Order activity remained strong across the aerospace and defense portfolios, with a book-to-bill of 1-to-1 on 7.3 percent year-over- year revenue growth. Significant awards in the defense portfolios in the quarter included $1.3bn from the Canadian government for production of armored combat support vehicles; $1.1bn from the U.S. Navy for design and construction of two Expeditionary Sea Base auxiliary support ships and a $550m option for an additional ship; $390m from the Navy for Advanced Nuclear Plant Studies in support of the Columbia-class submarine program; $155 m from the U.S. Army for various munitions and ordnance; $325m to provide program management and engineering services to the Cybersecurity and Infrastructure Security Agency’s emergency communications infrastructure; and $265m from the Army for computing and communications equipment under the Common Hardware Systems-5 (CHS-5) program.
Lockheed Martin Corporation
Lockheed Martin Corporation
Lockheed Martin Reports Third Quarter 2019 Results
– Net sales of $15.2 bn
– Net earnings of $1.6bn, or $5.66 per share
– Generated cash from operations of $2.5bn
– Achieved record backlog of $137.4bn
– Increased quarterly dividend rate to $2.40 per share
– Increased share repurchase authority by $1.0 bn
– Updates 2019 financial outlook and provides 2020 financial trends
22 Oct 19. Lockheed Martin Corporation (NYSE: LMT) today reported third quarter 2019 net sales of $15.2bn, compared to $14.3bn in the third quarter of 2018. Net earnings in the third quarter of 2019 were $1.6bn, or $5.66 per share, compared to $1.5bn, or $5.14 per share, in the third quarter of 2018. Cash from operations in the third quarter of 2019 was $2.5bn, compared to cash from operations of $361m after pension contributions of $1.5bn in the third quarter of 2018.
“The corporation achieved another quarter of strong growth and outstanding operational performance,” said Lockheed Martin Chairman, President and CEO Marillyn Hewson. “As we look ahead to 2020, we remain focused on providing innovative solutions for our customers, investing for long-term growth, and generating value for our shareholders.”
2020 Financial Trends
The corporation expects its 2020 net sales to increase to approximately $62.0bn. Total business segment operating margin in 2020 is expected to be in the 10.5 percent to 10.8 percent range and cash from operations is expected to be greater than or equal to $7.2bn, net of $500 m of pension contributions. The preliminary outlook for 2020 assumes there is no impact from U.S. Government actions related to Turkey and the U.S. Government continues to support and fund the corporation’s key programs. Changes in circumstances may require the corporation to revise its assumptions, which could materially change the corporation’s current estimate of 2020 net sales, operating margin and cash flows.
The corporation currently expects a total net FAS/CAS pension benefit of approximately $2.1bn in 2020. This estimate assumes a 3.25 percent discount rate (a 100 basis point decrease from the end of 2018), a 15.00 percent return on plan assets in 2019, and a 7.00 percent expected long-term rate of return on plan assets in future years, among other assumptions. A change of plus or minus 25 basis points to the assumed discount rate, with all other assumptions held constant, would result in an incremental increase or decrease of approximately $15m to the estimated net 2020 FAS/CAS pension benefit. The impact of changes in the discount rate is significantly less than in prior years (i.e., $15m for 2020 compared to $120m for 2019) due to the expected completion of the planned freeze of the corporation’s salaried pension plans that was previously announced on July 1, 2014, which is discussed in further detail below. A change of 100 basis points to the return on plan assets in 2019, with all other assumptions held constant, would impact the net 2020 FAS/CAS pension benefit by approximately $15m. As noted above, the corporation expects to make contributions of approximately $500 m to its qualified defined benefit pension plans in 2020 and anticipates recovering approximately $2.2bn of CAS pension cost. The corporation will complete the annual remeasurement of its postretirement benefit plans and update its estimated 2020 FAS/CAS pension adjustment on Dec. 31, 2019. The final assumptions and actual investment return for 2019 may differ materially from those discussed above.
As previously announced on July 1, 2014, the corporation will complete the final step of the planned freeze of its qualified and nonqualified defined benefit pension plans for salaried employees effective Jan. 1, 2020. The service-based component of the formula used to determine retirement benefits will be frozen such that participants will no longer earn further credited service for any period after Dec. 31, 2019. As a result of these changes, the plans will be fully frozen effective Jan. 1, 2020. Retirees already collecting benefits and former employees with a vested benefit will not be affected by the change. Current employees also will retain all benefits already earned in their pension plan to date.
Cash Activities
The corporation’s cash activities in the third quarter of 2019 included the following:
- paying cash dividends of $621m, compared to $569m in the third quarter of 2018;
- repurchasing 0.6 m shares for $210m, compared to 0.6m shares for $216m in the third quarter of 2018;
- making capital expenditures of $308m, compared to $339m in the third quarter of 2018;
- no net proceeds from or repayments of commercial paper, compared to net proceeds of $490m in the third quarter of 2018; and
- making no pension contributions, compared to pension contributions of $1.5bn in the third quarter of 2018.
As previously reported on Sept. 26, 2019, the corporation increased its quarterly dividend by $0.20 per share, to $2.40 per share, beginning with the dividend payment in the fourth quarter of 2019. The corporation also increased its share repurchase authority by $1.0bn with $3.3bn in total remaining authorization for future repurchases of common stock under the program as of Sept. 29, 2019.
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. The following table presents summary operating results of the corporation’s business segments and reconciles these amounts to the corporation’s consolidated financial results.
| (in ms) | Quarters Ended | Nine Months Ended | ||||||||||||||||
| Sept. 29, 2019 |
Sept. 30, 2018 |
Sept. 29, 2019 |
Sept. 30, 2018 |
|||||||||||||||
| Net sales | ||||||||||||||||||
| Aeronautics | $ | 6,178 | $ | 5,642 | $ | 17,312 | $ | 15,361 | ||||||||||
| Missiles and Fire Control | 2,601 | 2,273 | 7,362 | 6,035 | ||||||||||||||
| Rotary and Mission Systems | 3,709 | 3,848 | 11,239 | 10,637 | ||||||||||||||
| Space | 2,683 | 2,555 | 8,021 | 7,318 | ||||||||||||||
| Total net sales | $ | 15,171 | $ | 14,318 | $ | 43,934 | $ | 39,351 | ||||||||||
| Operating profit | ||||||||||||||||||
| Aeronautics | $ | 665 | $ | 600 | $ | 1,842 | $ | 1,646 | ||||||||||
| Missiles and Fire Control | 349 | 332 | 1,093 | 872 | ||||||||||||||
| Rotary and Mission Systems | 342 | 361 | 1,068 | 1,013 | ||||||||||||||
| Space | 309 | 293 | 931 | 831 | ||||||||||||||
| Total business segment operating profit | 1,665 | 1,586 | 4,934 | 4,362 | ||||||||||||||
| Unallocated items | ||||||||||||||||||
| FAS/CAS operating adjustment | 513 | 451 | 1,537 | 1,353 | ||||||||||||||
| Severance and restructuring charges | — | — | — | (96) | ||||||||||||||
| Other, net | (73) | (74) | (75) | (136) | ||||||||||||||
| Total unallocated items | 440 | 377 | 1,462 | 1,121 | ||||||||||||||
| Total consolidated operating profit | $ | 2,105 | $ | 1,963 | $ | 6,396 | $ | 5,483 | ||||||||||
Net sales and operating profit of the corporation’s business segments exclude intersegment sales, cost of sales, and profit as these activities are eliminated in consolidation. Operating profit of the corporation’s business segments includes the corporation’s share of earnings or losses from equity method investees as the operating activities of the investees are closely aligned with the operations of its business segments.
Operating profit of the corporation’s business segments also excludes the FAS/CAS operating adjustment described below, a portion of corporate costs not considered allowable or allocable to contracts with the U.S. Government under the applicable U.S. government cost accounting standards (CAS) or federal acquisition regulations (FAR), and other items not considered part of management’s evaluation of segment operating performance such as a portion of management and administration costs, legal fees and settlements, environmental costs, stock-based compensation expense, retiree benefits, significant severance actions, significant asset impairments, gains or losses from significant divestitures, and other miscellaneous corporate activities.
The corporation recovers CAS pension cost through the pricing of its products and services on U.S. Government contracts and, therefore, recognizes CAS pension cost in each of its business segment’s net sales and cost of sales. The corporation’s consolidated financial statements must present pension and other postretirement benefit plan expense calculated in accordance with U.S. generally accepted accounting principles (referred to as FAS pension expense). The operating portion of the net FAS/CAS pension adjustment represents the difference between the service cost component of FAS pension expense and CAS pension cost. The non-service FAS pension cost component is included in other non‑operating expense, net on the corporation’s consolidated statements of earnings. The net FAS/CAS pension adjustment increases or decreases CAS pension cost to equal total FAS pension expense (both service and non-service).
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 for which it recognizes revenue over time using the percentage-of-completion cost-to-cost method to measure progress towards completion. Increases in profit booking rates, typically referred to as risk retirements, usually relate to revisions in the estimated total costs to fulfill the performance obligations 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 fulfill the performance obligations 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, which may or may not impact sales. Favorable items may include the positive resolution of contractual matters, cost recoveries on severance and 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 certain assets.
The corporation’s consolidated net adjustments not related to volume, including net profit booking rate adjustments, represented approximately 29 percent of total segment operating profit in the third quarter of 2019 as compared to 34 percent in the third quarter of 2018.
Aeronautics
| (in millions) | Quarters Ended | Nine Months Ended | ||||||||||||||||
| Sept. 29, 2019 |
Sept. 30, 2018 |
Sept. 29, 2019 |
Sept. 30, 2018 |
|||||||||||||||
| Net sales | $ | 6,178 | $ | 5,642 | $ | 17,312 | $ | 15,361 | ||||||||||
| Operating profit | $ | 665 | $ | 600 | $ | 1,842 | $ | 1,646 | ||||||||||
| Operating margin | 10.8 | % | 10.6 | % | 10.6 | % | 10.7 | % |
Aeronautics’ net sales in the third quarter of 2019 increased $536m, or 10 percent, compared to the same period in 2018. The increase was primarily attributable to higher net sales of approximately $480m for the F-35 program due to increased volume on production, development and sustainment contracts and about $80 m for classified development programs due to higher volume.
Aeronautics’ operating profit in the third quarter of 2019 increased $65m, or 11 percent, compared to the same period in 2018. Operating profit increased approximately $35m for the F-16 program due to higher risk retirements on sustainment contracts, and about $20m for the F-35 program due to increased volume on production, development, and sustainment contracts, partially offset by lower risk retirements. Adjustments not related to volume, including net profit booking rate adjustments and other matters, were comparable during the third quarter of 2019 compared to the same period in 2018.
Missiles and Fire Control
| (in millions) | Quarters Ended | Nine Months Ended | ||||||||||||||||
| Sept. 29, 2019 |
Sept. 30, 2018 |
Sept. 29, 2019 |
Sept. 30, 2018 |
|||||||||||||||
| Net sales | $ | 2,601 | $ | 2,273 | $ | 7,362 | $ | 6,035 | ||||||||||
| Operating profit | $ | 349 | $ | 332 | $ | 1,093 | $ | 872 | ||||||||||
| Operating margin | 13.4 | % | 14.6 | % | 14.8 | % | 14.4 | % |
MFC’s net sales in the third quarter of 2019 increased $328m, or 14 percent, compared to the same period in 2018. The increase was primarily attributable to higher net sales of approximately $200 m for tactical and strike missile programs due to increased volume (primarily precision fires and new hypersonic development programs); and about $120m for integrated air and missile defense programs due to increased volume (primarily Patriot Advanced Capability-3 (PAC-3) and Terminal High Altitude Area Defense (THAAD)).
MFC’s operating profit in the third quarter of 2019 increased $17m, or 5 percent, compared to the same period in 2018. Operating profit increased approximately $45m due to higher risk retirements on energy programs and about $15 m for integrated air and missile defense programs due to higher risk retirements and higher volume (primarily THAAD and PAC-3), partially offset by charges for performance matters on an air and missile defense development program. These increases were partially offset by a decrease of approximately $40m for sensors and global sustainment programs due to lower risk retirements (primarily Low Altitude Navigation and Targeting Infrared for Night (LANTIRN®) and Sniper Advanced Targeting Pod (SNIPER®)). Adjustments not related to volume, including net profit booking rate adjustments and other matters, were $30 m lower in the third quarter of 2019 compared to the same period in 2018.
Rotary and Mission Systems
| (in millions) | Quarters Ended | Nine Months Ended | ||||||||||||||||
| Sept. 29, 2019 |
Sept. 30, 2018 |
Sept. 29, 2019 |
Sept. 30, 2018 |
|||||||||||||||
| Net sales | $ | 3,709 | $ | 3,848 | $ | 11,239 | $ | 10,637 | ||||||||||
| Operating profit | $ | 342 | $ | 361 | $ | 1,068 | $ | 1,013 | ||||||||||
| Operating margin | 9.2 | % | 9.4 | % | 9.5 | % | 9.5 | % |
RMS’ net sales in the third quarter of 2019 decreased $139m, or 4 percent, compared to the same period in 2018. The decrease was primarily attributable to lower net sales of approximately $160 m for Sikorsky helicopter programs due to lower volume (primarily Black Hawk production and mission systems programs). This decrease was partially offset by an increase of approximately $40m for various C6ISR (command, control, communications, computers, cyber, combat systems, intelligence, surveillance, and reconnaissance) programs due to higher volume.
RMS’ operating profit in the third quarter of 2019 decreased $19m, or 5 percent, compared to the same period in 2018. Operating profit decreased approximately $50 m for integrated warfare systems and sensors (IWSS) programs due to lower risk retirements (primarily Radar Surveillance Systems programs). This decrease was partially offset by an increase of about $20m for Sikorsky helicopter programs due to risk retirements on commercial after-market programs and better cost performance across the portfolio; and about $10 m for training and logistics solutions (TLS) programs due to lower program charges. Adjustments not related to volume, including net profit booking rate adjustments and other matters, were about $35m lower in the third quarter of 2019 compared to the same period in 2018.
Space
| (in ms) | Quarters Ended | Nine Months Ended | ||||||||||||||||
| Sept. 29, 2019 |
Sept. 30, 2018 |
Sept. 29, 2019 |
Sept. 30, 2018 |
|||||||||||||||
| Net sales | $ | 2,683 | $ | 2,555 | $ | 8,021 | $ | 7,318 | ||||||||||
| Operating profit | $ | 309 | $ | 293 | $ | 931 | $ | 831 | ||||||||||
| Operating margin | 11.5 | % | 11.5 | % | 11.6 | % | 11.4 | % |
Space’s net sales in the third quarter of 2019 increased $128m, or 5 percent, compared to the same period in 2018. The increase was primarily attributable to higher net sales of approximately $100m for government satellite programs due to higher volume (primarily Next Generation Overhead Persistent Infrared (Next Gen OPIR) and Global Positioning System (GPS) III) and about $95m for strategic and missile defense programs due to higher volume (primarily new hypersonic development programs). These increases were partially offset by a decrease of $35m due to lower volume on the Orion program and a decrease of $25m due to lower volume on commercial satellite programs.
Space’s operating profit in the third quarter of 2019 increased $16m, or 5 percent, compared to the same period in 2018. Operating profit increased approximately $10m due to higher equity earnings for ULA and $10m for commercial satellite programs, which reflect a lower amount of charges recorded for performance matters. These increases were partially offset by a decrease of approximately $10m for government satellite programs due to lower risk retirements. Adjustments not related to volume, including net profit booking rate adjustments and other matters, were comparable in the third quarter of 2019, to the same period in 2018.
Total equity earnings recognized by Space (primarily ULA) represented approximately $55m, or 18 percent of Space’s operating profit in the third quarter of 2019, compared to approximately $45m, or 15 percent in the third quarter of 2018.
Income Taxes
The corporation’s effective income tax rate was 9.7 percent in the third quarter of 2019, compared to 6.5 percent in the third quarter of 2018. The rate for the third quarter of 2019 benefited from $62m, or $0.22 per share, of additional tax deductions for the prior year, primarily attributable to foreign derived intangible income treatment based on proposed tax regulations released on March 4, 2019 and our change in tax accounting method, reflecting a 2012 Court of Federal Claims decision, which held that the tax basis in certain assets should be increased and realized upon the assets’ disposition. The rate for the third quarter of 2018 benefited from $148m, or $0.52 per share, of additional tax deductions for the prior year, primarily attributable to true-ups to the net one-time charges related to the Tax Cuts and Jobs Act enacted on December 22, 2017 and additional tax deductions from the corporation’s change in tax accounting method reflecting the 2012 Court of Federal Claims decision. The rates for both periods benefited from tax deductions for dividends paid to the corporation’s defined contribution plans with an employee stock ownership plan feature, tax deductions for foreign derived intangible income, tax deductions for employee equity awards, and the research and development tax credit.
Use of Non-GAAP Financial Measures
This news release contains the following non-generally accepted accounting principles (non-GAAP) financial measures (as defined by U.S. Securities and Exchange Commission (SEC) Regulation G). While the corporation believes that these non-GAAP financial measures may be useful in evaluating the financial performance of Lockheed Martin Corporation, this information should be considered supplemental and is not a substitute for financial information prepared in accordance with GAAP. In addition, the corporation’s definitions for non-GAAP financial measures may differ from similarly titled measures used by other companies or analysts.
Business segment operating profit represents the total earnings from the corporation’s business segments before unallocated income and expense. This measure is used by the corporation’s senior management in evaluating the performance of its business segments and is a performance goal in the corporation’s annual incentive plan. Business segment operating margin is calculated by dividing business segment operating profit by sales. The table below reconciles the non-GAAP measure business segment operating profit with the most directly comparable GAAP financial measure, consolidated operating profit included in the corporation’s 2019 financial outlook.
| (in millions) | 2019 Financial Outlook | |||||
| Current Update | July Outlook | |||||
| Business segment operating profit (non-GAAP) | ~$6,425 | $6,325 – $6,475 | ||||
| FAS/CAS operating adjustment1 | ~2,050 | ~2,050 | ||||
| Other, net | ~(125) | ~(115) | ||||
| Consolidated operating profit (GAAP) | ~$8,350 | $8,260 – $8,410 | ||||
| 1 | Refer to the supplemental table “Other Financial and Operating Information” included in this news release for a detail of the FAS/CAS operating adjustment, which excludes $575 m of expected non-service FAS cost that will be recorded in other non-operating expense, net. |
Northrop Grumman
24 Oct 19. Northrop Grumman Third Quarter 2019 Financial Results
• Net Awards Total $10.1bn; Book-to-Bill of 1.2
• Backlog Increases to $65.0 Bn • Sales Increase 5 Percent to $8.5bn; Higher Sales at All Four Sectors
• EPS of $5.49
• Cash from Operations Totals $1.1bn; Free Cash FlowTotals $882m
• 2019 MTM-adjusted EPS Guidance Increased to $20.10 to $20.35
• 2019 Free Cash Flow1 Guidance Updated to $2.7 to $3.0bn
Northrop Grumman Corporation (NYSE: NOC) reported third quarter 2019 sales increased 5 percent to $8.5bn from $8.1bn in the third quarter of 2018. Third quarter 2019 net earnings totaled $933m, or $5.49 per share, compared with $1.2 bn, or $7.11 per share in the third quarter of 2018. Last year’s results included a $1.01 per share benefit for the settlement of cost claims, as well as $0.47 per share more for pension-related items than in the current period.
“Northrop Grumman delivered solid third quarter results, and we continued to grow the business with higher sales at all four sectors,” said Kathy Warden, chairman, chief executive officer and president. “We are aligning our business for the future, expanding our backlog and delivering on our customers’ highest priorities to create sustained value for our shareholders.”
Sales
Third quarter 2019 sales increased $390m, or 5 percent, due to higher sales at all four sectors. Operating Income and Margin Rate Third quarter 2019 operating income decreased $221m and operating margin rate declined to 11.2 percent primarily due to higher unallocated corporate expense, a decrease in the net FAS (service)/ CAS pension adjustment and lower segment operating income.
Third quarter 2018 unallocated corporate expense included a $223m benefit recognized for the finalization of certain prior year cost claims.
Segment Operating Income and Margin Rate
Third quarter 2019 segment operating income decreased $39m, or 4 percent, primarily due to lower segment operating income at Aerospace Systems, partially offset by higher operating income at Technology Services.
Segment operating margin rate decreased to 11.1 percent principally due to a lower operating margin rate at Aerospace Systems. Federal and Foreign Income Taxes The third quarter 2019 effective tax rate increased to 11.6 percent from 8.8 percent in the third quarter of 2018. The company’s effective tax rate for the third quarter of 2019 includes benefits of $89m for research credits and $17m for foreign derived intangible income. Operating Cash Flows Third quarter 2019 cash provided by operating activities increased $327m to $1.1bn principally due to lower voluntary pension contributions and improved trade working capital, partially offset by lower net earnings. In last year’s third quarter, the company made a $250m voluntary pretax pension contribution. After capital expenditures of $257m, third quarter 2019 free cash flow1 was $882m. Awards and Backlog Third quarter and year to date 2019 net awards totaled $10.1bn and $35.9bn, respectively, and backlog increased to $65.0bn as of September 30, 2019. Significant new awards in the third quarter include $1.4 bn to deliver an additional nine E-2D Advanced Hawkeye aircraft and related equipment to Japan, $608 m for space restricted programs, $504 m for the F-35 program, $481m for the Triton program and $312m for targets and countermeasures used to test the Ballistic Missile Defense System. 1 Non-GAAP measure — see definitions at the end of this earnings release.
Segment Operating Results
AEROSPACE SYSTEMS
Sales
Third quarter 2019 sales increased 5 percent, due to higher sales in all three business areas. Manned aircraft sales reflect higher volume on the E-2 program and a higher rate of F-35 production activity, partially offset by lower B-2 sales.
Space sales reflect higher volume on Next Generation Overhead Persistent Infrared (Next Gen OPIR) programs. Autonomous Systems sales increased due to higher volume on multiple programs, including Global Hawk, partially offset by lower NATO AGS volume as that program nears completion. Operating Income Third quarter 2019 operating income declined to $324m and operating margin rate decreased to 9.4 percent principally due to lower net favorable EAC adjustments. This reflects the timing of favorable adjustments as well as unfavorable adjustments for the B-2 Defensive Management System Modernization program and delays in production for certain commercial space components.
INNOVATION SYSTEMS
Sales
Third quarter 2019 sales increased 12 percent due to higher sales in all three business areas. Space Systems sales reflect higher volume on national security satellite systems. Defense Systems sales increased primarily due to higher volume on precision munitions and armament products, as well as tactical missiles and subsystems, including the Advanced Anti-Radiation Guided Missile-Extended Range (AARGM-ER) program.
Flight Systems sales reflect higher volume on military and commercial aerospace structures. Operating Income Third quarter 2019 operating income increased 2 percent primarily due to higher sales, partially offset by a lower operating margin rate of 10.4 percent. The prior period operating margin rate reflects favorable indirect rate performance and recovery of an insurance claim.
MISSION SYSTEMS
Sales
Third quarter 2019 sales increased 4 percent due to higher sales in all three business areas. Advanced Capabilities sales increased primarily due to higher volume on marine systems. Cyber and ISR sales reflect higher volume on space and restricted programs. Sensors and Processing sales increased principally due to higher volume on airborne radar and electronic warfare programs, partially offset by lower volume from targeting pods. Operating Income Third quarter 2019 operating income was comparable to the prior year and operating margin rate was 13.1 percent compared with 13.7 percent in the prior year period. The primary driver of the margin rate change was a higher level of indirect rate benefits in the third quarter of 2018. Third quarter 2019 results reflect continued strong performance at Sensors and Processing, improved performance at Advanced Capabilities, and lower performance on Cyber and ISR programs.
TECHNOLOGY SERVICES
Sales
Third quarter 2019 sales increased 3 percent due to higher sales in both business areas. Global Logistics and Modernization sales increased primarily due to higher sales on electronic systems sustainment programs, partially offset by lower volume on autonomous systems support programs. Global Services sales increased principally due to higher volume on defense services programs and a civil program, partially offset by the completion of a state and local services contract in 2018. Operating Income Third quarter 2019 operating income increased 23 percent and operating margin rate increased to 12.7 percent due to improved performance in both business areas, including a favorable adjustment on a Global Logistics and Modernization sustainment program.
Raytheon
Raytheon Reports Strong Third Quarter 2019 Results
– Bookings of $9.4bn; book-to-bill ratio of 1.27
– Record net sales of $7.4bn, up 9.4 percent
– EPS from continuing operations of $3.08, up 36.9 percent
– Operating cash flow from continuing operations of $1.3bn
– Increased full-year 2019 guidance for sales, operating income and EPS
– Raytheon and United Technologies shareholders overwhelmingly approved merger of equals; expected close remains on track for first half of 2020
24 Oct 19. Raytheon Company (NYSE: RTN) today announced net sales for the third quarter 2019 of $7.4bn, up 9.4 percent compared to $6.8bn in the third quarter 2018. Third quarter 2019 EPS from continuing operations was $3.08 compared to $2.25 in the third quarter 2018. The increase in the third quarter 2019 EPS from continuing operations was primarily driven by operational improvements and the unfavorable $0.80 per share impact in the third quarter 2018 related to the pension plan annuity transaction.
As previously announced, on October 11, 2019 at their respective special meetings, Raytheon and United Technologies shareholders overwhelmingly approved all of the proposals necessary to complete the merger of equals transaction. The expected close of the merger remains on track for the first half of 2020, subject to the satisfaction of customary closing conditions, including receipt of required regulatory approvals, as well as completion by United Technologies of the separation of its Otis and Carrier businesses.
“Raytheon delivered strong bookings, sales growth, EPS and cash generation in the third quarter,” said Thomas A. Kennedy, Raytheon Chairman and CEO. “Bookings strength across our broad portfolio of proven technology solutions positions the company well for future growth.
“I am pleased that the shareholders of Raytheon and United Technologies voted in favor of our powerful strategic combination. The vote reflects a significant milestone on our path to unite two world-class companies with complementary technologies.”
Operating cash flow from continuing operations for the third quarter 2019 was an inflow of $1,278m compared to an outflow of $444m for the third quarter 2018. The increase in operating cash flow from continuing operations in the third quarter 2019 was primarily due to the $1.25bn pretax discretionary pension plan contribution in the third quarter 2018 and the timing of collections in the third quarter 2019. Operating cash flow from continuing operations for the third quarter 2019 was better than the company’s prior guidance.
The company had bookings of $9.4bn in the third quarter 2019, resulting in a book-to-bill ratio of 1.27. Third quarter 2018 bookings were $8.7bn.
Backlog at the end of the third quarter 2019 was a record $44.6 bn, an increase of $3.0bn or 7 percent compared to the end of the third quarter 2018.
The company has increased its financial outlook for 2019. Charts containing additional information on the company’s 2019 outlook are available on the company’s website.
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 (IDS)
Integrated Defense Systems (IDS) had third quarter 2019 net sales of $1,755m, up 18 percent compared to $1,493m in the third quarter 2018. The increase in net sales for the quarter was primarily driven by higher net sales on an international air and missile defense system program awarded in the third quarter 2019.
IDS recorded $282m of operating income in the third quarter 2019 compared to $241m in the third quarter 2018. The increase in operating income for the quarter was primarily driven by higher volume.
During the quarter, as previously announced, IDS booked $1.8bn on a direct commercial contract to provide National Advanced Surface-to-Air Missile System (NASAMS™) to the State of Qatar. IDS also booked $355m to provide technical and logistics support for the Hawk and Patriot® air and missile defense program for the Kingdom of Saudi Arabia and $105m to provide advanced Patriot air and missile defense capability for Germany.
After the quarter close, as previously announced, IDS was selected by the U.S. Army to develop the Lower Tier Air and Missile Defense Sensor (LTAMDS).
Intelligence, Information and Services (IIS)
Intelligence, Information and Services (IIS) had third quarter 2019 net sales of $1,855m, up 6 percent compared to $1,742m in the third quarter 2018. The increase in net sales for the quarter was primarily driven by higher net sales on classified programs in both cyber and space.
IIS recorded $161m of operating income in the third quarter 2019 compared to $149m in the third quarter 2018. The increase in operating income for the quarter was primarily driven by higher volume and a gain on an investment.
During the quarter, IIS booked $582m on a number of classified programs. IIS also booked $148m on domestic and foreign training programs in support of Warfighter FOCUS activities; $133 m to perform operations and sustainment for the U.S. Air Force’s Launch and Test Range System (LTRS); and $117m on the Air and Space Operations Center Weapon System (AOC WS) program for the U.S. Air Force.
Missile Systems (MS)
Missile Systems (MS) had third quarter 2019 net sales of $2,165m, up 4 percent compared to $2,082m in the third quarter 2018. The increase in net sales for the quarter was primarily due to higher net sales on classified programs.
MS recorded $219 m of operating income in the third quarter 2019 compared to $257m in the third quarter 2018. The decrease in operating income for the quarter was primarily due to lower net program efficiencies.
During the quarter, MS booked $421m for Phalanx® for the U.S. Navy, U.S. Army and international customers; $391 m for Tomahawk for the U.S. Navy and an international customer; $221m for Evolved Seasparrow Missile (ESSM®) for the U.S. Navy and international customers; $101 m for Paveway™ for the U.S. Air Force and international customers; and $92m for Commander’s Independent Thermal Viewers (CITV) for the U.S. Army. MS also booked $655m on a number of classified contracts.
Missile Systems (MS)
Missile Systems (MS) had third quarter 2019 net sales of $2,165m, up 4 percent compared to $2,082m in the third quarter 2018. The increase in net sales for the quarter was primarily due to higher net sales on classified programs.
MS recorded $219 m of operating income in the third quarter 2019 compared to $257m in the third quarter 2018. The decrease in operating income for the quarter was primarily due to lower net program efficiencies.
During the quarter, MS booked $421m for Phalanx® for the U.S. Navy, U.S. Army and international customers; $391 m for Tomahawk for the U.S. Navy and an international customer; $221m for Evolved Seasparrow Missile (ESSM®) for the U.S. Navy and international customers; $101 m for Paveway™ for the U.S. Air Force and international customers; and $92m for Commander’s Independent Thermal Viewers (CITV) for the U.S. Army. MS also booked $655m on a number of classified contracts.
Space and Airborne Systems (SAS)
Space and Airborne Systems (SAS) had third quarter 2019 net sales of $1,939m, up 14 percent compared to $1,695m in the third quarter 2018. The increase in net sales for the quarter included higher net sales on classified programs, protected communication systems programs, and the Next Generation Overhead Persistent Infrared (Next Gen OPIR) program.
SAS recorded $272m of operating income in the third quarter 2019 compared to $223m in the third quarter 2018. The increase in operating income for the quarter was primarily due to higher volume and a favorable change in mix.
During the quarter, SAS booked $175m on the Global Aircrew Strategic Network Terminal (Global ASNT) program for the U.S. Air Force; $136m for radar components for South Korea; $88m on the Family of Advanced Beyond-Line-of-Sight Terminals (FAB-T) program for the U.S. Air Force; and $78 m on the Next Generation Jammer (NGJ) program for the U.S. Navy. SAS also booked $583 m on a number of classified contracts.
Forcepoint
Forcepoint had third quarter 2019 net sales of $167m compared to $173m in the third quarter 2018.
Forcepoint recorded $14m of operating income in the third quarter 2019 compared to $18m in the third quarter 2018.