23 Jan 23. Defense firms set to post higher sales, McCarthy’s election clouds outlook. Defense companies are expected to post higher fourth-quarter sales, according to analysts, bolstered by easing supply chain bottlenecks and increased defense outlays as the Pentagon and its allies step up spending to aid Ukraine in its conflict against Russia.
However, Republican Kevin McCarthy’s election as the speaker of the U.S. House of Representatives and his promise to curb spending have clouded the near-term outlook for weapon makers, analysts have said.
A slew of analysts has cut price targets on defense contractors since the beginning of the year, with some flagging a risk to defense outlay after House Republicans won a thin majority in the mid-term elections.
Goldman Sachs’ Noah Poponak in a note about the defense budget over the past few years said, “mathematically maintaining a high growth rate is hard, and declining slightly is easy”.
“U.S. fiscal policy could increasingly become a downward pressure given the significant increase in the deficit post-pandemic and recent political developments with increased pressure,” Poponak said, adding that “there are geopolitical upward pressures” as well.
THE CONTEXT
Defense stocks have benefited from higher outlay on weapons by the United States and its allies due to the Ukraine war, but companies have struggled with supply snags, higher costs and labor shortages.
A cut to the defense budget would negatively impact prime defense contractors such as Lockheed Martin Corp (LMT.N), Raytheon Technologies Corp, General Dynamics Corp (GD.N) and Northrop Grumman Corp (NOC.N), which rely on the government for a huge chunk of their revenue.
“Defense Q4’s look solid but DoD budget debate overhang” is a headwind, Cowen analyst Cai von Rumohr said.
Lockheed and Raytheon kick off fourth-quarter earnings on Jan. 24, with General Dynamics and Northrop set to report later in the week.
THE FUNDAMENTALS
** Lockheed is set to report quarterly revenue of $18.27bn and a profit of $7.37 per share, according to Refinitiv data.
** Raytheon is expected to post quarterly revenue of $18.15bn and a profit of 92 cents a share.
** General Dynamics is estimated to report quarterly revenue of $10.69bn and a profit of $3.55 per share.
** Northrop is expected to report quarterly revenue of $9.66bn and a profit of $6.58 per share.
WALL STREET SENTIMENT
** Analysts’ average rating on Lockheed shares is “Hold”. Median 12-month price target is $495.
** Analysts’ average rating on Raytheon shares is “Buy”. Median 12-month price target is $107.
** Analysts’ average rating on General Dynamics shares is “Buy”. Median 12-month price target is $285.
** Analysts’ average rating on Northrop shares is “Buy”. Median 12-month price target is $566. (Source: Reuters)
Boeing
25 Jan 23. Boeing reports loss, but first positive free cash flow since 2018. Boeing Co (BA.N) losses widened for 2022 on weakness in its defense unit as it warned of further supply chain issues, but the U.S. planemaker reported its first yearly positive cash flow since 2018.
The U.S. planemaker missed Wall Street expectations on revenue and earnings per share in the final quarter of the year. Boeing shares, which have risen by more than 70% since September, fell 1% Wednesday.
Boeing Chief Executive Dave Calhoun told analysts the planemaker still faces “a difficult, difficult supply chain and while average deliveries met our objectives, we continue to face a few too many stoppages in our lines … So those stoppages, while they are coming down, are not where they need to be.”
Chief Financial Officer Brian West said the company was increasing its abnormal accounting estimate by about $600m as it expects 787 production to remain lower for “a bit longer than expected due to a supplier constraint,” but still expects to raise its production rate to five per month later this year.
Boeing affirmed plans to deliver up to 450 737 MAX narrowbody aircraft and 70 to 80 widebody 787 Dreamliners in 2023. The company reiterated it expects to generate $3bn to $5bn in free cash flow in 2023.
Those numbers do not include the much-anticipated restart of Boeing jetliner deliveries to China. Calhoun declined to comment on when Chinese airlines could begin accepting aircraft from Boeing.
“Within China, they need the MAX to fly to satisfy those demands,” said Calhoun, who called the potential opening of the Chinese market a “serious bump” for the entire aviation industry.
Boeing previously expressed interest in remarketing a portion of the Chinese 737 MAX planes, but Calhoun said Wednesday Boeing would “pause” its efforts “so that we can discern what China wants to do.”
China Southern Airlines (600029.SS) began flying the 737 MAX earlier this month after an almost four-year pause. About 138 of the 200 737 MAX planes in storage are meant for Chinese customers. The supply chain issues come as Boeing is working to stabilize and ramp up production.
‘SIGNIFICANT PROGRESS’
Third Bridge analyst Peter McNally said Boeing in 2022 was “showing some significant progress in key areas, although the reported financial results were mixed.”
Boeing said net losses rose to $5bn for all of 2022 from $4.3bn in 2021, while losses from operations rose to $3.5bn in 2022 from $2.9bn.
Boeing generated $3.1bn in free cash flow in the final quarter of 2022. It had forecast about $2.5bn in free cash flow for the fourth quarter. Boeing reported $2.3bn for all of 2022.
Boeing reported fourth-quarter revenue of $20bn, up from $14.79bn in 2022, and a loss per share of $1.75. Boeing had been expected to report $20.38bn in revenue in the quarter and a gain of 26 cents a share, according to Refinitiv data.
While supply chain bottlenecks could continue to be a struggle for the aerospace industry at large, McNally pointed out that jetliner demand from airlines remains strong and Boeing has demonstrated an improved ability to ramp up deliveries.
“We haven’t had a hiccup in some time in the supply chain and deliveries are directionally improving, and they affirmed the (delivery) guidance,” he said. “As of right now … I don’t really have a good reason to doubt their ability to hit these numbers because customer demand is there.”
Last month, Boeing won approval from Congress to lift a deadline imposing a new safety standard for modern cockpit alerts for two new versions of 737 MAX aircraft. Without a waiver, the planemaker had said the MAX 7 and MAX 10 airplanes were at risk.
Calhoun said he thinks the MAX 7 will have its first flights this year and the MAX 10 “probably” next year. Congress said Boeing must retrofit existing MAX airplanes with safety enhancements as part of that waiver. West said the provision to account for retrofits costs was “small.” (Source: Reuters)
25 Jan 23. Boeing Reports Fourth-Quarter Results.
Fourth Quarter 2022
- Generated $3.5bn of operating cash flow and $3.1bn of free cash flow (non-GAAP); cash and marketable securities of $17.2bn
- Certification efforts continue on 737-7 and 737-10
- Delivered 152 commercial airplanes and recorded 376 net orders
Full Year 2022
- Generated $3.5bn of operating cash flow and $2.3bn of free cash flow (non-GAAP)
- Delivered 480 commercial airplanes and recorded 808 net orders
- Total company backlog grew to $404bn; including over 4,500 commercial airplanes
The Boeing Company [NYSE: BA] recorded fourth-quarter revenue of $20.0 bn, GAAP loss per share of ($1.06), and core loss per share (non-GAAP)* of ($1.75). Boeing also generated $3.5bn of operating cash flow and $3.1bn of free cash flow (non-GAAP). Results improved on commercial volume and performance.
“We had a solid fourth quarter, and 2022 proved to be an important year in our recovery,” said Dave Calhoun, Boeing President and Chief Executive Officer. “Demand across our portfolio is strong, and we remain focused on driving stability in our operations and within the supply chain to meet our commitments in 2023 and beyond. We are investing in our business, innovating and prioritizing safety, quality and transparency in all that we do. While challenges remain, we are well positioned and are on the right path to restoring our operational and financial strength.”
Cash and investments in marketable securities increased to $17.2 bn, compared to $14.3bn at the beginning of the quarter, primarily driven by cash from operations. The company has access to credit facilities of $12.0bn, which remain undrawn.
Total company backlog at quarter-end was $404bn.
Segment Results
Commercial Airplanes
Commercial Airplanes fourth-quarter revenue increased to $9.2bn driven by higher 737 and 787 deliveries, partially offset by 787 customer considerations. Operating margin of (6.8) percent also reflects abnormal costs and period expenses, including research and development.
The 737 program is stabilizing production rate at 31 per month with plans to ramp production to approximately 50 per month in the 2025/2026 timeframe. Additionally, the 787 program continues at a low production rate with plans to ramp production to five per month in late 2023 and to 10 per month in the 2025/2026 timeframe.
During the quarter, the company secured net orders for 376 aircraft, including an order from United Airlines for 100 737 MAX and 100 787 airplanes. Commercial Airplanes delivered 152 airplanes during the quarter and backlog included over 4,500 airplanes valued at $330bn.
Defense, Space & Security
Defense, Space & Security fourth-quarter revenue was $6.2bn. Fourth-quarter operating margin of 1.8 percent reflects the continued operational impact of labor instability and supply chain disruption.
Defense, Space & Security delivered 45 aircraft and three satellites, including the first P-8A Poseidon to New Zealand. Also in the quarter, the Boeing-built Space Launch System core stage powered the first Artemis I mission to the moon and the T-7A program completed engine testing.
During the quarter, Defense, Space & Security captured awards from Japan for two KC-46A Tankers and from the Egyptian Air Force for 12 CH-47F Chinook helicopters. Backlog at Defense, Space & Security was $54bn, of which 28 percent represents orders from customers outside the U.S.
Global Services
Global Services fourth-quarter revenue of $4.6bn and operating margin of 13.9 percent reflect higher commercial volume, partially offset by lower government volume. During the quarter, Global Services finalized the U.S. Air Force F-15 depot support order and opened the Germany Distribution Center to serve 6,000+ customers with chemicals and specialty materials.
At quarter-end, Boeing Capital’s net portfolio balance was $1.5bn. The increase in loss from other unallocated items and eliminations was driven by timing of allocations, share based compensation and deferred compensation expense. The change in other income was primarily due to increased interest rates driving increased investment income. The fourth quarter effective tax rate primarily reflects tax expense driven by an increase in the valuation allowance.
General Dynamics
25 Jan 23. General Dynamics forecasts weak 2023 as supply, labor challenges persist. U.S. defense contractor General Dynamics Corp (GD.N) on Wednesday forecast lower-than-expected 2023 results, as the industry struggles with labor and supply shortages, though strong demand for weapons helped it beat quarterly estimates.
An “abnormally high retirement” of workers has impacted General Dynamics’ electric boat unit, which assembles nuclear-powered submarines, company executives said on an investor call.
General Dynamics said it was working with the U.S. Navy to mitigate the effect of worker shortages, which plagued the defense industry in 2022. Shares of the company fell 4% in early trade amid broader market declines.
“We think the challenge here is the production ramp at Electric Boat,” J.P. Morgan analyst Seth Seifman said.
The company forecast 2023 revenue of $41.2bn to $41.3bn, below expectations of $41.98bn, and profit between $12.6 to $12.65 per share, compared with estimates of $13.91, as per Refinitiv data.
Rival Lockheed Martin Corp (LMT.N) also forecast annual profit below Street expectations on Tuesday, hurt by supply bottlenecks and higher costs. According to industry experts, Republican Kevin McCarthy’s election as the U.S. House Speaker has clouded near-term prospects for defense contractors. Meanwhile, GD’s unit that makes Gulfstream jets reported a 4% fall in fourth-quarter revenue.
However, the impact was offset by a strong performance in its combat systems unit that makes Abrams tanks and other land warfare systems.
U.S. defense contractors have benefited from the United States and its allies ramping up their defense spend and supporting Ukraine with bns of dollar in military aid after Russia invaded the country last year.
“We’re seeing demand signals resulting from the war in Ukraine, but we’ve only just begun to see that manifest in our backlog,” General Dynamics Chief Executive Phebe Novakovic said.
The company’s fourth-quarter net earnings rose to $3.58 per share and revenue to $10.85bn, beating expectations of a profit of $3.54 per share on $10.69bn in sales. (Source: Reuters)
25 Jan 23. General Dynamics Reports Fourth-Quarter and Full-Year 2022 Financial Results. General Dynamics (NYSE: GD) today reported quarterly net earnings of $992m, up 4.2% from the year-ago quarter, or $3.58 diluted earnings per share (EPS), up 5.6% from the year-ago quarter. Revenue of $10.9bn was up 5.4% over the year-ago quarter.
For the full year, net earnings were $3.4bn, up 4.1% from 2021, or $12.19 per diluted share, up 5.5% from 2021. Full-year revenue was $39.4bn, a 2.4% increase from 2021. Operating margin was 11.3% for the quarter and 10.7% for the full year.
“We enjoyed a strong fourth quarter, capping a good 2022,” said Phebe N. Novakovic, chairman and chief executive officer. “We had good backlog growth, with robust demand at Gulfstream. Operating performance was solid, led by excellent execution at Combat Systems. We also had another very strong cash year.”
Cash
Net cash provided by operating activities in the quarter totaled $669m. For the year, net cash provided by operating activities totaled a record-high $4.6bn, or 135% of net earnings. During the year, the company reduced debt by $1bn, invested $1.1bn in capital expenditures, paid $1.4bn in dividends, and used $1.2bn to repurchase shares, ending 2022 with $1.2bn in cash and equivalents on hand.
Backlog
Orders remained strong across the company with a consolidated book-to-bill ratio, defined as orders divided by revenue, of 1.2-to-1 for the quarter and 1.1-to-1 for the year. Backlog of $91.1bn was the highest in the company’s history. In addition to backlog, estimated potential contract value, representing management’s estimate of additional value in unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised options, was $36.6bn at year end. Total estimated contract value, the sum of all backlog components, was $127.7bn at the end of the year.
In the Aerospace segment, backlog grew in the quarter to $19.5bn, up 19.8% from the year-ago quarter. Aerospace book-to-bill was 1.2-to-1 for the quarter and 1.5-to-1 for the year.
Significant awards in the quarter for the three defense segments included $5.1bn from the U.S. Navy for Columbia-class submarine advance procurement, advance construction, submarine industrial base development, maintenance and support, and options totaling $585m of additional potential contract value; an IDIQ contract from the U.S. Army with a maximum potential value of $580m to develop and field adversarial electronic warfare threat systems and capabilities in support of the Army’s test and training communities; $535m from the Navy for lead yard support, development studies and design efforts related to Virginia-class submarines, and options totaling $320m of additional potential contract value; $320m to upgrade Ulan tracked vehicles for Austria; $260m for various munitions and ordnance; and $525m for several key classified contracts and options.
Lockheed Martin
24 Jan 23. Lockheed Martin profit outlook disappoints as supply, labor squeeze persists. U.S. weapons maker Lockheed Martin Corp (LMT.N) on Tuesday forecast annual profit below Street expectations, hurt by lingering supply bottlenecks and higher costs, though a generous defense budget helped it beat fourth-quarter estimates. The defense contractor said it expected a profit of $26.60 to $26.90 per share in 2023. The average analysts’ estimate has been $26.96, according to Refinitiv. Shares were little changed in pre-market trading, up 1% to $446.69.
“We signaled way ahead of time that 2023 was going to be kind of a steady state year from a revenue perspective,” Lockheed Chief Executive Jim Taiclet said in an interview, adding that he aimed to grow free cash flow per share by 5% in 2023.
Supply chain snags brought on by the pandemic have squeezed margins at defense suppliers, although those constraints are now easing even as the companies continue to grapple with labor shortages. Analysts have warned that defense spending could slow in 2023 after it reached peak levels as the United States and its allies bulked up budgets following Russia’s invasion of Ukraine last year. The election of Kevin McCarthy as the U.S. House speaker and his promise to curb spending has also raised concerns about the near-term outlook for defense companies such as Lockheed, Raytheon Technologies Corp (RTX.N) and Northrop Grumman Corp (NOC.N), which derive much of their revenues from the U.S. government.
Lockheed forecast 2023 revenue between $65bn and $66bn, compared with market estimates of $65.74bn. Net sales at the aeronautics unit – Lockheed Martin’s largest, which makes the F-35 – jumped 7% to $7.64bn in the fourth quarter, but the segment’s operating margin shrank to 10.7% from 11.5% a year earlier. Bethesda, Maryland-based Lockheed Martin posted adjusted net income of $7.79 per share for the three months ended Dec. 31, compared with analysts’ estimate of $7.39 per share. It reported fourth-quarter net sales of $18.99bn, above expectations of $18.27bn. (Source: Reuters)
24 Jan 23. Lockheed Martin Reports Fourth Quarter and Full Year 2022 Financial Results
- Net sales of $19.0bn in the fourth quarter and $66.0bn in 2022
- Net earnings of $1.9bn, or $7.40 per share, inclusive of non-operational charges of $129m ($101m, or $0.39 per share, after-tax) in the fourth quarter
- Net earnings of $5.7bn, or $21.66 per share, inclusive of non-operational charges of $1.9bn ($1.5bn, or $5.57 per share, after-tax) in 2022
- Cash from operations of $1.9bn in the fourth quarter and $7.8bn in 2022; free cash flow of $1.2bn in the fourth quarter and $6.1bn in 2022
- Returned $5.0bn of cash to shareholders through share repurchases and dividends in the fourth quarter, and $10.9bn in 2022
- Increased backlog 11% to $150bn compared to fourth quarter 2021
- 2023 financial outlook provided
Lockheed Martin Corporation [NYSE: LMT] today reported fourth quarter 2022 net sales of $19.0bn, compared to $17.7bn in the fourth quarter of 2021. Net earnings in the fourth quarter of 2022 were $1.9bn, or $7.40 per share, compared to $2.0bn, or $7.47 per share, in the fourth quarter of 2021. Net earnings for the fourth quarter of 2022 include certain non-operational items of $129m, or $0.39 per share, compared to $(92)m, or $(0.25) per share in the fourth quarter of 2021. Cash from operations was $1.9bn in the fourth quarter of 2022, compared to $4.3bn in the fourth quarter of 2021. Free cash flow was $1.2bn in the fourth quarter of 2022, compared to $3.7bn in the fourth quarter of 2021.
Net sales in 2022 were $66.0bn, compared to $67.0bn in 2021. Net earnings in 2022 were $5.7bn, or $21.66 per share, compared to $6.3bn, or $22.76 per share, in 2021. Net earnings for 2022 include certain non-operational items of $1.9bn, or $5.57 per share, compared to $1.4bn, or $3.99 per share in 2021. Cash from operations in 2022 was $7.8bn, compared to $9.2bn in 2021. Free cash flow in 2022 was $6.1 bn, compared to $7.7bn in 2021.
“Lockheed Martin’s stronger than expected finish to the year demonstrated the company’s reliability and resiliency to meet commitments in challenging environments, while leading the industry’s critical security advancements for our nation and allies,” said Chairman, President and CEO James Taiclet. “Our ongoing expansion of 21st Century capabilities and commercial partnerships are delivering deterrence solutions and value enhancing growth opportunities across our businesses. As we track toward our objective of growth resumption in 2024, we will continue to execute our dynamic and disciplined capital allocation program, by reinvesting in our business and pursuing growth opportunities, and returning capital to shareholders. We remain confident in our plans to enable our customers to stay ahead of ready and to deliver sustainable economic value.”
During the fourth quarter of 2022, the company recorded charges totaling $100m ($79m, or $0.31 per share, after-tax) that relate to actions at its Rotary and Mission Systems (RMS) business segment, which include severance costs for reduction of positions and asset impairment charges. After a strategic review of RMS, these actions will improve the efficiency of its operations, better align the organization and cost structure with changing economic conditions, and changes in program lifecycles.
Severance and other charges for the quarter and year ended Dec. 31, 2022 include $100m ($79m, or $0.31 per share, after-tax)
related to certain actions at the company’s RMS business segment, which included severance costs for the planned reduction of certain
positions and asset impairment charges. Severance and other charges for the year ended Dec. 31, 2021 include $36m ($28m, or
$0.10 per share, after-tax) for actions at the company’s RMS business segment recognized in the first quarter of 2021.
2023 Financial Outlook
The company’s current 2023 financial outlook does not include any future gains or losses related to changes in valuations of the company’s net assets and liabilities for deferred compensation plans or mark-to-market investments. The outlook assumes continued accelerated payments to suppliers, with a focus on small and at-risk businesses. In addition, the outlook reflects no significant reduction in customer budgets or changes in priorities, continued support and funding of the company’s programs, and a statutory tax rate of 21%. It also includes known impacts to the company and broader defense supply chain from the COVID-19 pandemic based on the company’s understanding at the time of this news release and its experience to date.
Cash Flows and Capital Deployment Activities
Cash from operations in the fourth quarter of 2022 was $1.9bn. Capital expenditures were $693m, resulting in free cash flow of $1.2bn. The decrease in operating and free cash flows in the fourth quarter of 2022 was primarily due to timing of production and billing cycles impacting contract assets (primarily F-35).
Cash from operations in 2022 was $7.8bn. Capital expenditures were $1.7bn, resulting in free cash flow of $6.1bn in 2022. The decrease in operating and free cash flows in 2022 was primarily due to timing of production and billing cycles impacting contract assets and receivables, timing of liquidation of inventories (primarily TLS and Sikorsky helicopter programs in the company’s RMS business segment), and higher federal tax payments (including $610m in payments attributable to the elimination in 2022 of the option to deduct R&D expenses immediately), all of which were partially offset by the deferral of cash payments for accounts payable (primarily Aeronautics).
The company’s cash activities in the quarter and year end Dec. 31, 2022, included the following:
- paying cash dividends of $766m and $3.0bn during the quarter and year ended Dec. 31, 2022;
- paying $4.2bn to repurchase 7.2m shares, and $7.9bn to repurchase 18.4m shares (excluding, in each period, shares to be received upon final settlement of the fourth quarter 2022 accelerated share repurchase agreement (ASR) in the first half of 2023) during the quarter and year ended Dec. 31, 2022;
- receiving $3.9bn and $6.2bn of net proceeds from the issuance of debt during the quarter and year ended Dec. 31, 2022; and
- repayment of $2.3bn of long-term debt during the year ended Dec. 31, 2022.
Segment Results
The company 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 company’s business segments and reconciles these amounts to the company’s consolidated financial results.
Net sales and operating profit of our business segments exclude intersegment sales, cost of sales, and profit as these activities are eliminated in consolidation and not included in management’s evaluation of performance of each segment. Business segment operating profit includes our 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 our business segments.
Business segment operating profit excludes the FAS/CAS pension operating adjustment, 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 divestitures, and other miscellaneous corporate activities. Excluded items are included in the reconciling item “Unallocated items” between operating profit from our business segments and our consolidated operating profit.
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 company’s segment sales, operating profit and operating margin may be impacted favorably or unfavorably by changes in profit booking rates on the company’s contracts. Increases in profit booking rates, typically referred to as favorable profit adjustments, 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 and are typically referred to as unfavorable profit adjustments. Increases or decreases in profit booking rates are recognized in the current period and reflect the inception-to-date effect of such changes.
The company’s consolidated net favorable profit booking rate adjustments represented approximately 25% of total segment operating profit in both the quarter and year ended Dec. 31, 2022, as compared to 29% and 28% in the quarter and year ended Dec. 31, 2021.
Aeronautics
Aeronautics’ net sales during the fourth quarter of 2022 increased $508m, or 7%, compared to the same period in 2021. Net sales increased by approximately $275m for the F-35 program due to higher volume on production contracts that was partially offset by lower volume on sustainment contracts; about $75m for the C-130 program due to higher volume on production contracts; approximately $65m on classified contracts due to higher volume that was partially offset by both an unfavorable profit adjustment of $20m on a classified program and lower net favorable profit adjustments; and about $55m for the F-16 program due to higher volume on production contracts.
Aeronautics’ operating profit during the fourth quarter of 2022 was comparable to the same period in 2021. Operating profit decreased approximately $55m on classified contracts primarily due to lower net favorable profit adjustments and an unfavorable profit adjustment of $20m on a classified program that were both partially offset by higher volume. This decrease was offset by an increase of approximately $45m for the F-35 program due to higher volume and net favorable profit adjustments on production contracts. Net favorable profit booking rate adjustments were $45m lower in the fourth quarter of 2022 compared to the same period in 2021.
Aeronautics’ net sales in 2022 increased $239m, or 1%, compared to 2021. Net sales increased by approximately $375m on classified contracts primarily due to higher volume; about $80m for the F-22 program due to higher net favorable profit adjustments; and approximately $55m for the F-16 program due to higher volume on production contracts that was partially offset by lower volume on sustainment contracts and unfavorable profit adjustments on a production contract and modernization contracts. These increases were partially offset by a decrease of about $310m for the F-35 program due to lower volume and favorable profit adjustments on sustainment and production contracts that were partially offset by higher volume on development contracts.
Aeronautics’ operating profit in 2022 increased $67m, or 2%, compared to 2021. Operating profit increased approximately $145m on classified contracts primarily due to lower unfavorable profit adjustments on a classified program ($45m in 2022 compared to $225m in 2021) that were partially offset by lower favorable profit adjustments; and about $100m for the F-22 program due to higher net favorable profit adjustments. These increases were partially offset by lower operating profit of approximately $110m for the F-16 program due to unfavorable profit adjustments in 2022 on a production contract and modernization contracts; and about $80m for the F-35 program due to lower net favorable profit adjustments on production and sustainment contracts and volume on sustainment contracts. Net favorable profit booking rate adjustments were $30m higher in 2022 compared to 2021.
Missiles and Fire Control
MFC’s net sales during the fourth quarter of 2022 increased $68m, or 2%, compared to the same period in 2021. The increase was primarily attributable to higher net sales of approximately $115m for tactical and strike missile programs due to higher volume (Precision Strike Missile (PrSM) and Guided Multiple Launch Rocket Systems (GMLRS®)). This increase was partially offset by a decrease of about $50m for integrated air and missile defense programs due to lower volume (THAAD).
MFC’s operating profit during the fourth quarter of 2022 increased $13m, or 3%, compared to the same period in 2021. The increase was primarily attributable to higher operating profit of approximately $15m for tactical and strike missile programs due to higher net favorable profit adjustments on an international tactical and strike missile program that were partially offset by an unfavorable profit adjustment of about $25m on an air-to-ground missile program. Net favorable profit booking rate adjustments were $10m higher in the fourth quarter of 2022 compared to the same period in 2021.
MFC’s net sales in 2022 decreased $376m, or 3%, compared to 2021. The decrease was primarily attributable to lower net sales of approximately $280m for sensors and global sustainment programs due to lower volume on SOF GLSS as a result of changes in mission requirements and lower volume on Sniper Advanced Targeting Pod (SNIPER®); and about $60m for integrated air and missile defense programs due to lower volume (THAAD) and lower net favorable profit adjustments (PAC-3) that were partially offset by higher volume (PAC-3). Net sales for tactical and strike missile programs were comparable as higher volume (PrSM) was offset by lower volume (air dominance weapon systems).
MFC’s operating profit in 2022 decreased $13m, or 1%, compared to 2021. The decrease was primarily attributable to lower operating profit of approximately $85 m for integrated air and missile defense programs due to lower net favorable profit adjustments for the PAC-3 program and an unfavorable profit adjustment of about $40m on an air and missile defense development program. This decrease was partially offset by an increase of about $50m for tactical and strike missile programs due to contract mix and higher net favorable profit adjustments (an international tactical and strike missile program and HIMARS®) that were partially offset by an unfavorable profit adjustment of about $25m on an air-to-ground missile program. There also were unfavorable profit adjustments of approximately $25m on an energy program in 2021 that did not recur in 2022. Operating profit for sensors and global sustainment programs was comparable as both contract mix and the net effect of favorable profit adjustments on an international program in 2022 were offset by the closeout activities related to the Warrior program in 2021 that did not recur in 2022. Net favorable profit booking rate adjustments were $45m lower in 2022 compared to 2021.
Rotary and Mission Systems
RMS’ net sales during the fourth quarter of 2022 increased $343m, or 8%, compared to the same period in 2021. The increase was primarily attributable to higher net sales of approximately $260m for integrated warfare systems and sensors (IWSS) programs due to higher volume (Aegis, TPY-4 and TPQ-53); and about $130m for Sikorsky helicopter programs due to higher production volume (CH-53K and Combat Rescue Helicopter (CRH)) that was partially offset by lower production volume (Black Hawk). These increases were partially offset by a decrease of approximately $65m for various C6ISR programs due to lower volume.
RMS’ operating profit during the fourth quarter of 2022 increased $60m, or 13%, compared to the same period in 2021. The increase was primarily attributable to approximately $25m for Sikorsky helicopter programs due to higher net favorable profit adjustments (Seahawk) and production volume (CH-53K) that were partially offset by lower production volume (Black Hawk); about $25m for IWSS programs due to higher net favorable profit adjustments (Littoral Combat Ship (LCS); and approximately $20m for TLS programs due to higher net favorable profit adjustments. Net favorable profit booking rate adjustments were $30m higher in the fourth quarter of 2022 compared to the same period in 2021.
RMS’ net sales in 2022 decreased $641m, or 4%, compared to 2021. The decrease was primarily attributable to lower net sales of approximately $280m for TLS programs primarily due to the delivery of an international pilot training system in the first quarter of 2021 that did not recur in 2022; about $205m for various C6ISR programs due to lower volume; and approximately $170m for Sikorsky helicopter programs due to lower production volume (Black Hawk) that was partially offset by higher production volume (CH-53K).
RMS’ operating profit in 2022 decreased $125m, or 7%, compared to 2021. The decrease was primarily attributable to approximately $70m for Sikorsky helicopter programs due to lower production volume and net favorable profit adjustments (Black Hawk) that were partially offset by higher net favorable profit adjustments (CRH); about $50m for various C6ISR programs due to lower net favorable profit adjustments; and approximately $15m for IWSS programs due to lower net favorable profit adjustments (TPQ-53 and Aegis) that were partially offset by $30m of unfavorable profit adjustments on a ground-based radar program in 2021 that did not recur in 2022. These decreases were partially offset by an increase of approximately $35m for TLS programs due to higher net favorable profit adjustments that were partially offset by lower volume due to the delivery of an international pilot training system in the first quarter of 2021 that did not recur in 2022. Net favorable profit booking rate adjustments were $65m lower in 2022 compared to 2021.
Space
Space’s net sales during the fourth quarter of 2022 increased $343m, or 12%, compared to the same period in 2021. The increase was primarily attributable to higher net sales of approximately $210m for national security space programs due to higher development volume (classified programs); about $110m for strategic and missile defense programs due to higher development volume (Next Generation Interceptor (NGI)); and approximately $40m for commercial civil space programs due to higher volume (Orion).
Space’s operating profit during the fourth quarter of 2022 decreased $77m, or 25%, compared to the same period in 2021. The decrease was primarily attributable to approximately $40m for national security space programs primarily due to lower net favorable profit adjustments (classified programs) and higher net unfavorable profit adjustments of $25m on a ground solutions program; about $15m due to lower equity earnings from the corporation’s investment in United Launch Alliance (ULA) due to lower launch volume; and approximately $10m for strategic and missile defense programs due to lower net favorable profit adjustments (Fleet Ballistic Missile (FBM)). Net favorable profit booking rate adjustments were $80m lower in the fourth quarter of 2022 compared to the same period in 2021.
Space’s net sales in 2022 decreased $282m, or 2%, compared to 2021. The decrease was primarily attributable to lower net sales of approximately $885m due to the renationalization of the AWE program on June 30, 2021, which was no longer included in the company’s financial results beginning in the third quarter of 2021; and about $125m for commercial civil space programs due to lower volume (Orion). These decreases were partially offset by higher net sales of about $495m for strategic and missile defense programs due to higher development volume (NGI); and about $245 m for national security space programs due to higher development volume (classified programs).
Space’s operating profit in 2022 decreased $89m, or 8%, compared to 2021. The decrease was primarily attributable to approximately $85m for national security space programs primarily due to lower net favorable profit adjustments (classified programs and SBIRS) that were partially offset by lower net unfavorable profit adjustments of $25m on a ground solutions program; and about $40m for commercial civil space programs due to lower net favorable profit adjustments (Human Lander System (HLS)) and lower volume (Orion). These decreases were partially offset by higher equity earnings of approximately $35m from the company’s investment in ULA due to higher launch volume and launch mix; and about $20m for strategic and missile defense programs due to higher net favorable profit adjustments (primarily NGI). Operating profit for the AWE program was comparable as its operating profit in 2021 was mostly offset by accelerated amortization expense for intangible assets as a result of the renationalization. Net favorable profit booking rate adjustments were $150m lower in 2022 compared to 2021.
Total equity earnings (primarily ULA) represented approximately $15m, or 6%, and $100m, or 10%, of Space’s operating profit during the quarter and year ended Dec. 31, 2022, compared to approximately $30m, or 10%, and $65m, or 6%, in the quarter and year ended Dec. 31, 2021.
Income Taxes
The company’s effective income tax rate was 12.7% and 14.2% for the quarter and year ended Dec. 31, 2022, compared to 17.7% and 16.4% in the quarter and year ended Dec. 31, 2021. The rate for the quarter ended Dec. 31, 2022 was lower than the rate for the quarter ended Dec. 31, 2021 primarily due to increased tax deductions for foreign derived intangible income and research and development tax credits. The rate for the year ended Dec. 31, 2022 was lower than the rate for the year ended Dec. 31, 2021 primarily due to increased research and development tax credits. The rates for all periods benefited from tax deductions for foreign derived intangible income, dividends paid to the company’s defined contribution plans with an employee stock ownership plan feature, and employee equity awards.
Northrop Grumman
26 Jan 23. Northrop Grumman Reports Fourth Quarter and Full-Year 2022 Financial Results.
- Q4 Sales increase 16 percent to $10.0bn
- 2022 Sales of $36.6bn; 2022 Organic Sales increase 3 percent
- Q4 Diluted EPS of $13.46 including per share MTM benefit of $5.96; Q4 Transaction; Adjusted EPS1 increase 25 percent to $7.50
- 2022 Diluted EPS of $31.47; 2022 Transaction-Adjusted EPS1 of $25.54
- 2022 Net cash provided by operating activities of $2.9bn; 2022 Transaction-Adjusted Free Cash Flow1 of $1.6bn
- 2022 Book to Bill of 1.07
- Guidance reflects improved expectations for 2023 Sales of $38.0 to $38.4bn, and strong multi-year Cash Flow Outlook with over 20 percent CAGR through 2025
Northrop Grumman Corporation (NYSE: NOC) reported fourth quarter 2022 sales increased 16 percent to $10.0bn, as compared with $8.6bn in the fourth quarter of 2021. Sales increased 3 percent to $36.6bn in 2022, as compared with $35.7bn in 2021. Fourth quarter 2022 sales reflect strong demand, the timing of material receipts and continued improvement in labor availability trends. Fourth quarter 2022 net earnings were $2.1bn, including a $922m after-tax mark-tomarket pension and OPB (“MTM”) benefit. Fourth quarter 2022 transaction-adjusted net earnings1 were $1.2bn, or $7.50 per diluted share. 2022 net earnings were $4.9bn, or $31.47 per diluted share, and include the noted MTM benefit. 2022 transaction-adjusted net earnings1 were $4.0bn, or $25.54 per diluted share, and reflect an $85m, or $0.55 per diluted share, reduction for negative returns on marketable securities related to our non-qualified benefit plans and other non-operating assets.
“The Northrop Grumman team continues to deliver strong financial and operating performance, further positioning our company for near and long-term growth. We’re providing differentiated solutions for our customers’ highest priority missions, driving a strong global demand signal for our products and maintaining a healthy backlog,” said Kathy Warden, chair, chief executive officer and president. Given our proven ability to competitively win, hire and perform, we’re raising our sales outlook for 2023 and expect to deliver strong multi-year cash flow growth. We are focused on executing our strategy, investing in the capabilities and capacity our customers need, and returning a significant portion of our growing cash flows to our shareholders.”
Transaction-adjusted Net Earnings and EPS 2022 net earnings reflect a MTM benefit of $922m, net of tax. 2021 net earnings reflect a MTM benefit of $1.8bn, net of tax, and a gain on the sale of the company’s IT services business. Excluding the gain on sale of the business, associated federal and state income tax expenses, transaction costs and the make-whole premium for early debt redemption, as well as the impact of the MTM benefit and related tax impacts, 2022 transaction-adjusted net earnings decreased 4 percent and transaction-adjusted EPS1 was comparable with the prior year. Net earnings during 2022 and the fourth quarter of 2021 were not impacted by the sale of the company’s IT services business and do not include any transaction-related adjustments. Transaction-adjusted net earnings1 and transaction-adjusted EPS1 are measures the company uses to compare performance to prior periods and for EPS guidance. Lower total pension benefits, including MTM and non-MTM impacts, reduced fourth quarter 2022 diluted EPS by $5.48 and 2022 diluted EPS by $6.19 as compared with the prior year periods. See Schedule 6 at the end of this release for further information.
Sales
Fourth quarter 2022 sales increased $1.4bn, or 16 percent, due to higher sales volume at all four sectors. Fourth quarter 2022 sales reflect strong demand, the timing of material receipts and continued improvement in labor availability trends. 2022 sales increased $935m and 2022 organic sales increased $1.1bn, or 3 percent, due to higher sales at Space Systems and Mission Systems, partially offset by lower sales at Aeronautics Systems and Defense Systems. 2022 sales reflect strong demand, the timing of material receipts and improving trends in labor availability during the second half of the year. Operating Income and Margin Rate Fourth quarter 2022 operating income increased $164m, or 22 percent, primarily due higher sales and a higher operating margin rate. Fourth quarter 2022 operating margin rate increased to 9.0 percent primarily due to lower unallocated corporate expense, driven by a lower MTM-related deferred state tax expense, and a higher segment operating margin rate, partially offset by an $80m reduction in the FAS/CAS operating adjustment. 2022 operating income decreased $2.1bn, or 36 percent, primarily due to a $2.0 bn pre-tax gain on sale and $192m of unallocated corporate expenses recognized in the prior year associated with the IT services divestiture. Operating income also decreased due to a $330m reduction in the FAS/CAS operating adjustment, which more than offset higher segment operating income and lower non-divestiture-related unallocated corporate expense. 2022 operating margin rate declined to 9.8 percent from 15.8 percent reflecting the items above. Segment Operating Income and Margin Rate Fourth quarter 2022 segment operating income increased $166m, or 17 percent primarily due to higher sales. Fourth quarter 2022 segment operating margin rate increased to 11.3 percent from 11.2 percent due to a higher operating margin rate at Aeronautics Systems, which more than offset lower operating margin rates at the other sectors.
2022 segment operating income increased $36m, or 1 percent, due to higher operating income at Mission Systems, Space Systems and Aeronautics Systems, partially offset by lower operating income at Defense Systems due, in part, to the impact of the IT services divestiture. 2021 segment operating income included $20m from the IT services business, as well as a benefit of approximately $100m due to the impact of lower overhead rates on the company’s fixed price contracts. Segment operating margin rate decreased to 11.6 percent from 11.8 percent principally due to lower net EAC adjustments due, in part, to macroeconomic impacts, including inflationary pressures and supply chain challenges. Federal and Foreign Income Taxes The fourth quarter 2022 effective tax rate (ETR) decreased to 15.2 percent from 19.0 percent principally due to an $86m benefit resulting from the resolution of the IRS examination of certain legacy Orbital ATK tax returns. The 2022 ETR decreased to 16.1 percent from 21.6 percent primarily due to the $86m benefit described above, as well as additional federal income taxes in the prior year resulting from the IT services divestiture. The company’s 2022 MTM benefit increased the 2022 ETR by 1.2 percentage points; however, the 2021 MTM benefit did not significantly impact the 2021 ETR. Cash Flows Fourth quarter 2022 net cash provided by operating activities increased $809m and fourth quarter 2022 transaction-adjusted free cash flow1 increased $768m principally due to improved trade working capital. 2022 cash provided by operating activities decreased $666m principally due to lower CAS pension recoveries and changes in trade working capital, including approximately $900m of federal tax payments related to Section 174 tax legislation. The prior year included $785m of tax payments related to the IT services divestiture. 2022 transaction-adjusted free cash flow decreased $1.4bn principally due to lower CAS pension recoveries and changes in trade working capital, including the approximately $900m of federal tax payments related to Section 174. Awards and Backlog Fourth quarter and year to date 2022 net awards totaled $9.1bn and $39.3bn, respectively, and backlog totaled $78.7bn. Significant fourth quarter 2022 new awards include $3.2bn for restricted programs (primarily at Aeronautics Systems, Space Systems and Mission Systems), $0.7bn for F-35 and $0.4bn for Integrated Air and Missile Defense Battle Command System (IBCS). Significant 2022 new awards include $10.6bn for restricted programs (principally at Aeronautics Systems, Mission Systems and Space Systems), $5.3bn for F-35, $2.1bn for GEM63 solid rocket boosters, largely related to Amazon’s Project Kuiper, $1.5bn for the Space Development Agency (SDA) Tranche 1 Transport and Tracking Layer programs, $1.3bn for Commercial Resupply Services (CRS) missions and $1.3bn for Ground-based Midcourse Defense (GMD).
Segment Operating Results
AERONAUTICS SYSTEMS
Sales
Fourth quarter 2022 sales increased $126m, or 5 percent, due to higher volume in Manned Aircraft, partially offset by lower volume in Autonomous Systems. Manned Aircraft sales reflect $101m of higher F-35 sales and higher volume on restricted programs, including the impact of higher net EAC adjustments. These increases were partially offset by lower volume on the Joint Surveillance and Target Attack Radar System (JSTARS) program as it nears completion. Autonomous Systems sales principally reflect lower volume on the Global Hawk program. 2022 sales decreased $728m, or 6 percent, due to lower volume in both Manned Aircraft and Autonomous Systems, including restricted programs, a $180m decrease on the Global Hawk program, a $159m decrease on the E-2 program and a $119m decrease on the JSTARS program as it nears completion.
Operating Income
Fourth quarter 2022 operating income increased $69m, or 31 percent, due to a higher operating margin rate and higher sales. Operating margin rate increased to 10.5 percent from 8.4 percent primarily due to higher net EAC adjustments, including a $66m positive adjustment on the engineering, manufacturing and development (EMD) phase of the B-21 program largely related to an increase in the amount of performance incentives we expect to earn. The prior year operating margin rate reflects a $93m unfavorable EAC adjustment on F-35 and a $21m benefit associated with favorable overhead rate performance.
2022 operating income increased $23m, or 2 percent, due to a higher operating margin rate, partially offset by lower sales. 2022 operating margin rate increased to 10.6 percent from 9.7 percent primarily due to higher net favorable EAC adjustments and a $38m gain on a property sale. Higher net favorable EAC adjustments reflect $133m of positive adjustments on the EMD phase of the B-21 program, partially offset by lower net EAC adjustments associated with other restricted work, as well as $135m of unfavorable EAC adjustments on F-35 in the prior year. The prior year operating margin rate also reflects a $21m benefit associated with favorable overhead rate performance.
DEFENSE SYSTEMS
Sales
Fourth quarter 2022 sales increased $279m, or 20 percent, primarily due to the timing of material receipts on several programs. Sales increased $115m on the IBCS program principally due to supplier ramp-up for low-rate initial production. Sales also increased due to higher volume on the Special Ammunition and Weapon Systems (SAWS) program. 2022 sales decreased $197m, or 3 percent, due, in part, to a $106m reduction in sales related to the IT services divestiture. 2022 organic sales decreased $91m, or 2 percent, principally due to a $154m decrease from lower scope on an international training program, completion of a Joint Services support program and wind-down of the UKAWACS and JSTARS programs, partially offset by a $144m increase from ramp-up on the IBCS program, as well as higher volume on the SAWS and NATO Alliance Ground Surveillance InService Support (NATO AGS ISS) programs. Operating Income Fourth quarter 2022 operating income increased $16m, or 10 percent, primarily due to higher sales, partially offset by a lower operating margin rate. Operating margin rate decreased to 11.0 percent from 12.1 percent primarily due to the write-down of an unconsolidated joint venture investment and lower net favorable EAC adjustments. 2022 operating income decreased $32m, or 5 percent, due, in part, to a $14m reduction in operating income related to the IT services divestiture, as well as lower sales. Operating margin rate was comparable with the prior year.
MISSION SYSTEMS
Sales
Fourth quarter 2022 sales increased $406m, or 16 percent, primarily due to the timing of material receipts and improved labor availability. Higher sales include restricted sales growth in the Networked Information Solutions business area, $115m of higher volume on airborne radar programs, and higher volume on the Surface Electronic Warfare Improvement Program (SEWIP). 2022 sales increased $262m, or 3 percent, and includes a $42m reduction in sales related to the IT services divestiture. 2022 organic sales increased $304m, or 3 percent, primarily due to higher restricted sales in the Networked Information Solutions business area, $107m of higher volume on airborne radar programs and a $107m increase on SEWIP. These increases were partially offset by a $231m decrease on Navigation, Targeting and Survivability programs and a $118m decrease on the Joint Counter RadioControlled Improvised Explosive Device Electronic Warfare (JCREW) program.
Operating Income
Fourth quarter 2022 operating income increased $50m, or 12 percent, due to higher sales, partially offset by a lower operating margin rate. Operating margin rate decreased to 15.4 percent from 15.9 percent principally due to lower net EAC adjustments, largely in the Maritime/ Land Systems & Sensors and Airborne Multifunction Sensors business areas, partially offset by improved performance on restricted programs at Networked Information Solutions. 2022 operating income increased $39m, or 2 percent, due to higher sales. Operating margin rate was comparable with the prior year and reflects a $33m benefit recognized in connection with a contract-related legal matter, partially offset by the previously described overhead rate benefit to fixed price contracts in the prior year.
SPACE SYSTEMS
Sales
Fourth quarter 2022 sales increased $620m, or 23 percent, due to higher sales in both business areas. Launch & Strategic Missiles sales increased primarily due to ramp-up on development programs, including a $128m increase on the Ground Based Strategic Deterrent (GBSD) program and a $93m increase on the Next Generation Interceptor (NGI) program, as well as higher volume on the GEM63 program in support of Amazon’s Project Kuiper. Sales in the Space business area were driven by a $112m increase due to ramp-up on the SDA Tranche 1 Transport and Tracking Layer programs awarded earlier this year, as well as higher volume on restricted programs and CRS missions. 2022 sales and organic sales increased $1.7bn, or 16 percent, due to higher sales in both business areas. Launch & Strategic Missiles sales increased primarily due to ramp-up on development programs, including a $454m increase on GBSD and a $449m increase on NGI, as well as higher volume on the GEM63 program in support of Amazon’s Project Kuiper. Sales in the Space business area were driven by a $320m increase due to ramp-up on the SDA Tranche 1 Transport and Tracking Layer programs, higher volume on restricted programs and a $134m increase in sales on CRS, partially offset by a $149m decrease in sales for the James Webb Space Telescope after its successful launch in December 2021.
Operating Income
Fourth quarter 2022 operating income increased $41m, or 16 percent, due to higher sales, partially offset by a lower operating margin rate. Operating margin rate decreased to 9.1 percent from 9.6 percent primarily due to lower net EAC adjustments and a $45m writedown of commercial inventory, partially offset by a $96m gain recognized in connection with a land exchange transaction. 2022 operating income increased $37m, or 3 percent, due to higher sales, partially offset by a lower operating margin rate. Operating margin rate decreased to 9.4 percent from 10.6 percent primarily due to lower net EAC adjustments and the noted write-down of commercial inventory, partially offset by the land exchange gain described above.
Guidance
Financial guidance, as well as outlook, trends, expectations and other forward looking statements provided by the company for 2023 and beyond, reflect the company’s judgment based on the information available to the company at the time of this release. The company’s financial guidance and outlook for 2023 and beyond reflect what the company currently anticipates will be the impacts on the company from, among other factors, the global macroeconomic, health, security, and political/budget environments, including the impacts from inflationary pressures and labor and supply chain challenges; the COVID-19 pandemic; changes in the threat environment; changes in government budget, appropriations and procurement priorities and processes; a potential extended continuing resolution and/or prolonged breach of the debt ceiling or government shutdown; changes in the regulatory environment; and changes in support for our programs. However, the company cannot predict how these factors will evolve or what impacts they will have, and there can be no assurance that the company’s current expectations or underlying assumptions are correct. These factors can affect the company’s ability to achieve guidance or meet expectations.
Raytheon
24 Jan 23. Aerospace major Raytheon beats profit estimates on strong travel demand. Stinger missile maker Raytheon Technologies Corp (RTX.N) on Tuesday beat analysts’ estimates for fourth-quarter profit, as the aerospace and defense company fed off strong travel demand across the globe that boosted demand for its jet engines, parts and services. Strong travel demand and supply chain disruptions have forced airlines to fly older planes for a longer period, boosting demand for high-margin after-market services at companies such as Raytheon, which counts Boeing Co (BA.N) and Airbus SE (AIR.PA) among its customers.
Raytheon reported an adjusted net income of $1.27 per share in the quarter ended Dec. 31, above analysts’ average estimate of $1.24 per share, according to Refinitiv data.
“As I look back 12 months ago, we set some expectations. And I would say the commercial aerospace recovery was right in line with the high end of those expectations,” Neil Mitchell, the company’s chief financial officer, said in an interview, but in 2023 he expects headwinds from taxes and pensions.
Raytheon’s shares were up slightly in early trading to $96.59.
The company expects to see about $2bn worth of labor and material inflation in 2023, Mitchell told Wall Street analysts on a post-earnings conference call. He added that in the year the company expects a 20% boost in commercial aftermarket revenue across its aerospace business.
The maker of Tomahawk missiles forecast 2023 adjusted profit in the range of $4.90 to $5.05 per share, compared with analysts’ average estimate of $5.03 per share.
The Arlington, Virginia-based company’s avionics unit, Collins Aerospace, reported a 14.6% increase in its quarterly sales and a 60.7% jump in operating profit in the reported quarter.
Net sales were up 6.2% at $18.09bn, but missed analysts’ average estimate of $18.15bn.
The defense industry, even though hit by supply chain snarls, has gained from geopolitical tensions since Russia’s invasion of Ukraine 11 months ago, pushing countries to ramp up defense budgets.
Raytheon’s missiles and defense unit’s sales were up 6.2% to $4.1 bn in the fourth quarter.
The company expects share repurchases of $3 bn in 2023 and said it will realign its portfolio to three business segments including Collins Aerospace, Pratt & Whitney and Raytheon, down from four segments. (Source: Reuters)
24 Jan 23. Raytheon Technologies Reports 2022 Results, Announces 2023 Outlook and Plan to Realign into Three Business Segments. RTX expects continued sales and earnings growth in 2023; will more fully leverage scale with streamlined business operations
Raytheon Technologies Corporation (NYSE: RTX) reported fourth quarter 2022 results and announced its 2023 outlook and plan to realign its business units into three segments.
Fourth quarter 2022
- Sales of $18.1bn
- GAAP EPS from continuing operations of $0.96, which included $0.31 of acquisition accounting adjustments and net significant and/or non-recurring charges
- Adjusted EPS of $1.27
- Operating cash flow from continuing operations of $4.6bn; Free cash flow of $3.8bn
- Achieved approximately $130m of incremental RTX gross cost synergies
- Company backlog of $175bn; including defense backlog of $69bn
- Repurchased $408m of RTX shares
Full year 2022
- Sales of $67.1bn
- GAAP EPS of $3.51
- Adjusted EPS of $4.78
- Operating cash flow from continuing operations of $7.2bn; Free cash flow of $4.9bn
- Achieved approximately $405m of incremental RTX gross cost synergies
- Repurchased $2.8bn of RTX shares
Outlook for full year 2023
- Sales of $72.0 – $73.0bn
- Adjusted EPS of $4.90 – $5.05
- Free cash flow of approximately $4.8bn
- Share repurchase of $3.0bn of RTX shares
“Raytheon Technologies delivered solid full-year results with strong free cash flow that exceeded our expectations,” said Raytheon Technologies Chairman and CEO Greg Hayes. “We effectively supported the rapid commercial aerospace recovery and delivered critical platforms and advanced technologies for customers to meet their increasingly complex needs, while achieving $86bn in new awards in 2022 and ending the year with a total backlog of $175bn. Our portfolio is well positioned to capture growing demand and we expect to deliver sales growth and margin expansion, along with strong free cash flow generation, in 2023. We are deploying capital investments to bring new technologies to market and accelerate productivity improvement, all while remaining committed to returning at least $20bn to our shareowners post-merger through early 2024.”
Portfolio Realignment
On track to surpass all merger-related goals, the company plans to strengthen its market position and generate additional revenue and technology synergies by realigning its business units. Christopher Calio, whose role has been expanded to President and Chief Operating Officer of Raytheon Technologies, effective March 1, will oversee the business transformation initiative.
“In 2023 we will further align our market-leading franchises with customer needs to drive operational agility and excellence,” said Christopher Calio, Chief Operating Officer, Raytheon Technologies. “By more fully leveraging our scale, we will deliver enhanced customer solutions and unlock cost savings opportunities with improved resource allocation and a streamlined footprint.”
The three focused business segments will be Collins Aerospace, Pratt & Whitney, and Raytheon. The company plans to implement the reorganization during the second half of 2023 and will provide additional updates on its progress over the coming months.
Additionally, the company announced that Roy Azevedo, President of Raytheon Intelligence & Space (RIS), will retire from his role and serve as an advisor to Christopher Calio, Chief Operating Officer, to help with the transformation.
Fourth quarter 2022
Raytheon Technologies reported fourth quarter sales of $18.1bn, up 6 percent over the prior year. GAAP EPS from continuing operations of $0.96 was up 109 percent versus the prior year and included $0.31 of acquisition accounting adjustments and net significant and/or non-recurring charges. Adjusted EPS of $1.27 was up 18 percent versus the prior year. Both GAAP and Adjusted EPS included about 6 cents of a tax benefit associated with legal entity and operational reorganizations.
The company recorded net income from continuing operations attributable to common shareowners in the fourth quarter of $1.4bn, up 108 percent versus the prior year which included $446m of acquisition accounting adjustments and net significant and/or non-recurring charges. Adjusted net income was $1.9bn, up 16 percent versus prior year. Operating cash flow from continuing operations in the fourth quarter was $4.6bn. Capital expenditures were $855m, resulting in free cash flow of $3.8bn.
Backlog and Bookings
Backlog at the end of the fourth quarter was $175bn, of which $106bn was from commercial aerospace and $69bn was from defense.
Notable defense bookings during the quarter included:
- $1.0bn to manufacture and deliver Guidance Enhanced Missile (GEM-T) for an international customer at Raytheon Missiles & Defense (RMD)
- $1.0bn of classified bookings at Raytheon Intelligence & Space (RIS)
- $698m for National Advanced Surface-to-Air Missile System (NASAMS) for Ukraine at RMD
- $638m for F135 production at Pratt & Whitney
- $512m for F135 sustainment at Pratt & Whitney
- $415m for Evolved Seasparrow Missile (ESSM) production for the U.S. Navy and international customers at RMD
- $405m for maintenance and support of a Surveillance Radar Program (SRP) for an international customer at RMD
- $317m for AIM-9X Sidewinder production lot 23 for the U.S. Air Force and international customers at RMD
- $247m for MIR replenishment for an international customer at RMD
- $210m for F117 sustainment at Pratt & Whitney
Segment Results
The company’s reportable segments are Collins Aerospace, Pratt & Whitney, Raytheon Intelligence & Space (RIS) and Raytheon Missiles & Defense (RMD).
Collins Aerospace
Collins Aerospace had fourth quarter 2022 sales of $5,662m, up 15 percent versus the prior year. The increase in sales was driven by a 21 percent increase in commercial aftermarket, a 20 percent increase in commercial OE and a 5 percent increase in military. The increase in commercial sales was driven primarily by the recovery of commercial air traffic, which resulted in higher flight hours, aircraft fleet utilization, and narrowbody deliveries.
Collins Aerospace recorded operating profit of $741m, up 61 percent versus the prior year. The increase in operating profit was primarily driven by drop through on higher commercial aftermarket volume and lower R&D expense, which more than offset higher SG&A expense. Adjusted operating profit of $743m in the quarter was up 58 percent versus the prior year.
Pratt & Whitney
Pratt & Whitney had fourth quarter sales of $5,652m, up 10 percent versus the prior year. The increase in sales was driven by a 37 percent increase in commercial OE and an 11 percent increase in commercial aftermarket which more than offset a 2 percent decrease in military sales. The increase in commercial sales was primarily due to favorable OE engine volume and mix, and higher shop visits and related spare part sales. The decrease in military sales was driven primarily by lower military legacy aftermarket sales.
Pratt & Whitney recorded operating profit of $306m, up 127 percent versus the prior year. The increase in operating profit was primarily driven by drop through on higher commercial aftermarket sales, which included a favorable customer contract adjustment, and was partially offset by higher SG&A and R&D expense. Pratt & Whitney recorded adjusted operating profit of $321m in the quarter, up 98 percent versus the prior year.
Raytheon Intelligence & Space
RIS had fourth quarter 2022 sales of $3,544m, down 8 percent versus the prior year. The decrease in sales was driven by the impact of the prior year Global Training and Services divestiture. Excluding the impact of acquisitions and divestitures and FX, sales were down 5 percent versus prior year driven by Command, Control and Communications, Cyber, Training and Services, and Sensing and Effects.
RIS recorded operating profit of $278m, down 56 percent versus the prior year. The decrease in operating profit was driven in part by the impact of the prior year Global Training and Services divestiture and the related gain on sale, as well as unfavorable mix, lower net program efficiencies and lower volume. On an adjusted basis, operating profit was down 31 percent versus the prior year.
RMD had fourth quarter 2022 sales of $4,100m, up 6 percent versus prior year. The increase in sales was primarily driven by higher net sales in Naval Power including SPY-6, Strategic Missile Defense including NGI, and Advanced Technology programs.
RMD recorded operating profit of $376m, down 23 percent versus the prior year. The decrease in operating profit was driven primarily by unfavorable program mix and lower net program efficiencies, and a charge associated with a divestiture, partially offset by higher volume. RMD recorded adjusted operating profit of $418m, down 14 percent versus the prior year.
Textron
25 Jan 23. Textron posts quarterly revenue beat on strong business jet demand. Cessna jet maker Textron Inc (TXT.N) reported a better-than-expected revenue on Wednesday, as a pandemic-driven demand for private jets shows little signs of cooling. The spread of the COVID-19 pandemic drove up demand for private plane travel from the ultra rich, boosting results at business jet makers in North America.
Textron reported a fourth-quarter revenue of $3.64bn, compared with analysts’ average estimate of $3.61bn, as per Refinitiv data.
Revenue at Textron Aviation, the company’s biggest unit, came in at $1.6bn in the quarter ended Dec. 31, up $223m, on higher prices and sales volume.
The business jet maker also forecast an adjusted profit per share of $5 to $5.20 for 2023. Analysts expect a profit of $4.51 apiece. It was not immediately clear if the figures were comparable. Textron forecast a 2023 revenue of about $14.0bn, up from $12.9 bn in the year-ago period.
(Source: Reuters)
25 Jan 23. Textron Inc. (NYSE: TXT) today reported fourth quarter 2022 income.
- EPS from continuing operations of $1.07, up $0.14 from the fourth quarter of 2021
- Full-year manufacturing net cash from continuing operating activities of $1.5bn
- Aviation backlog of $6.4bn at year-end 2022, up $2.3 bn from year-end 2021
- 2023 full-year EPS outlook of $4.40 to $4.60, full year adjusted EPS non-GAAP outlook of $5.00 to $5.20
Textron Inc. (NYSE: TXT) today reported fourth quarter 2022 income from continuing operations of $1.07 per share, compared with $0.93, or $0.94 per share of adjusted income from continuing operations, a non-GAAP measure that is defined and reconciled to GAAP in an attachment to this release, in the fourth quarter of 2021.
Full year 2022 income from continuing operations was $4.01 per share up from $3.30 in 2021.
“2022 was a strong year at Textron with solid revenue growth, order flow and execution at Aviation, new program awards at Systems, higher revenues and operating profit at Industrial and the contract award for the U.S. Army’s Future Long Range Assault Aircraft program at Bell,” said Textron Chairman and CEO Scott C. Donnelly.
Cash Flow
Net cash provided by operating activities of continuing operations of the manufacturing group for the full year was $1.5bn. Manufacturing cash flow before pension contributions, a non-GAAP measure that is defined and reconciled to GAAP in an attachment to this release, totaled $1.2bn for the full year, up $29m from 2021. In the quarter, Textron returned $228 m to shareholders through share repurchases. Full year 2022 share repurchases totaled $867m.
Outlook
For 2023, Textron will begin reporting earnings per share on an adjusted basis to exclude LIFO inventory provision and intangible amortization expense, both non-cash items, effective with the first quarter 2023 financial results. Textron is forecasting 2023 revenues of approximately $14.0bn, up from $12.9bn. Textron expects full-year 2023 GAAP earnings per share from continuing operations will be in the range of $4.40 to $4.60, or $5.00 to $5.20 on an adjusted basis as described above, which is reconciled to GAAP in an attachment to this release.
The company is estimating net cash provided by operating activities of continuing operations of the manufacturing group will be between $1.3bn and $1.4bn and manufacturing cash flow before pension contributions, a non-GAAP measure, will be between $0.9bn and $1.0bn, with planned pension contributions of about $50m.
“The 2023 outlook reflects higher revenues, increased profit and operating margin expansion with a continuation of our growth strategy of ongoing investments in new products and programs to drive increases in long-term shareholder value,” Donnelly concluded.
Fourth Quarter Segment Results
Textron Aviation
Revenues at Textron Aviation of $1.6bn were up $223m from the fourth quarter of 2021, reflecting higher volume and mix of $154m and higher pricing of $69m. The increase in volume and mix was largely due to higher Citation jet and defense volume. Textron Aviation delivered 52 jets in the quarter, up from 46 last year, and 47 commercial turboprops, up from 43 last year.
Segment profit was $169m in the fourth quarter, up $32m from a year ago, reflecting a favorable impact from pricing, net of inflation of $29m and higher volume and mix as described above, partially offset by an unfavorable impact of $16m from performance. Performance includes unfavorable manufacturing performance, largely related to inefficiencies from supply chain disruptions and increased staffing associated with higher production, partially offset by lower selling and administrative costs. Textron Aviation backlog at the end of the fourth quarter was $6.4bn.
Bell
Bell revenues were $816m, down $42m from last year’s fourth quarter, reflecting lower military revenues primarily in the H-1 program due to lower aircraft and spares volume, partially offset by higher commercial revenues. Bell delivered 71 commercial helicopters in the quarter, up from 59 last year.
Segment profit of $71m was down $17m from a year ago, primarily reflecting lower volume and mix, partially offset by a favorable impact from performance. Bell backlog at the end of the fourth quarter was $4.8bn.
Textron Systems
Revenues at Textron Systems were $314m, compared to $313m in last year’s fourth quarter. Segment profit of $40m was down $5m from a year ago. Textron Systems’ backlog at the end of the fourth quarter was $2.1bn.
Industrial
Industrial revenues were $907m, up $126m from last year’s fourth quarter, reflecting higher volume and mix of $95m, and a $59m favorable impact from pricing, largely in the Specialized Vehicles product line, partially offset by an unfavorable impact of $28m from foreign exchange rate fluctuations.
Segment profit of $42m was up $4m from the fourth quarter of 2021, primarily due to higher volume and mix, partially offset by an unfavorable impact from performance.
Textron eAviation
Textron eAviation segment revenues were $6m and segment loss was $10m in the fourth quarter of 2022, which reflected the operating results of Pipistrel along with research and development costs for initiatives related to the development of sustainable aviation solutions.
Finance
Finance segment revenues were $11m, and profit was $5m in the fourth quarter of 2022.