Both Lockheed and Boeing recorded drops in defence income due to lower aircraft deliveries for the latter and general decline in US business for the former. Both companies and Raytheon increased overseas sales considerably.
Boeing
22 Apr 15. Boeing Reports Strong First-Quarter Results. The Boeing Company [NYSE: BA] reported first-quarter revenue increased 8 percent to $22.1bn on higher commercial deliveries. Core earnings per share (non-GAAP) increased 12 percent* to $1.97, reflecting strong performance across the company, and GAAP earnings per share was $1.87. The Company reaffirmed its 2015 financial and deliveries guidance.
“With disciplined execution and a sharp focus on productivity, we are meeting increasing customer commitments while profitably growing our business,” said Boeing Chairman and Chief Executive Officer Jim McNerney. “The strong operational and financial performance reinforces our ability to continue providing competitive returns for our shareholders while investing in technology and our people.”
“Our outlook for the full year remains positive as our teams work to efficiently deliver our portfolio of industry-leading aerospace products and services. We are also maximizing the expertise of our talented people across the company to accelerate development program milestones and improve affordability for our customers.”
Operating cash flow in the quarter was $0.1bn, reflecting timing of receipts and expenditures, commercial airplane production rates and strong operating performance. During the quarter, the company repurchased 17 m shares for $2.5bn, leaving $9.5bn remaining under the current repurchase authorization which is expected to be completed over approximately the next two to three years. The company also paid $0.6bn in dividends in the quarter, reflecting an approximately 25 percent increase in dividends per share compared to the same period of the prior year.
Cash and investments in marketable securities totaled $9.6bn at quarter-end , down from $13.1bn at the beginning of the year, primarily due to the share repurchases and timing of cash flows. Debt was $9.0bn, down from $9.1bn at the beginning of the year.
Total company backlog at quarter-end was $495bn, down from $502bn at the beginning of the year, and included net orders for the quarter of $15 bn.
Segment Results
Commercial Airplanes
Commercial Airplanes first-quarter revenue increased 21 percent to $15.4bn on higher delivery volume and mix. First-quarter operating margin was 10.5 percent, reflecting the dilutive impact of higher 787 deliveries.
During the quarter, Commercial Airplanes captured orders for 52 737 MAX airplanes. The 737 program has won over 2,700 firm orders for the 737 MAX since launch. Also during the quarter, the company opened a new Propulsion Systems facility at Boeing South Carolina that will initially support the 737 MAX and 777X, delivered the first Boeing South Carolina-built 787-9 Dreamliner and received 330-minute ETOPS certification on the 747-8 Intercontinental.
Commercial Airplanes booked 110 net orders during the quarter. Backlog remains strong with over 5,700 airplanes valued at $435bn.
Defense, Space & Security
Defense, Space & Security’s first-quarter revenue was $6.7bn with an operating margin of 11.1 percent (Table 5).
Boeing Military Aircraft (BMA) first-quarter revenue was $2.7bn, reflecting planned timing of deliveries and mix; operating margin was 9.5 percent. During the quarter, BMA was awarded contracts for 43 Apache helicopters.
Network & Space Systems (N&SS) first-quarter revenue was $1.7bn, reflecting lower satellites and missile defense system program volume partially offset by higher volume on the Commercial Crew program. Operating margin increased to 9.6 percent on strong performance related to our United Launch Alliance joint venture. During the quarter, the first two all-electric Boeing 702SP satellites were launched on a single rocket.
Global Services & Support (GS&S) first-quarter revenue was $2.2bn, reflecting slightly lower volume in integrated logistics. Operating margin increased to 14.1 percent on strong operating performance and program mix. During the quarter, GS&S was awarded a combat logistics support agreement with the U.S. Defense Logistics Agency.
Backlog at Defense, Space & Security was $60bn, of which 37 percent represents orders from international customers.
At quarter-end, Boeing Capital’s net portfolio balance was $3.4bn, down from $3.5bn at the beginning of the year (Table 6). Total pension expense for the first quarter was $785m, down from $1,035 m in the same period of the prior year. Unallocated pension expense in 2014 included a $334 m non-cash charge related to retirement plan changes.
Outlook
The company’s 2015 financial and delivery guidance (Table 7) is reaffirmed and reflects continued strong performance across the company.
Lockheed Martin
21 Apr 15. Lockheed Martin reports drop in drop in earnings. Lockheed Martin Corporation [NYSE: LMT] reported first quarter 2015 net sales of $10.1bn, compared to $10.7bn in the first quarter of 2014. Net earnings in the first quarter of 2015 were $878m, or $2.74 per share, compared to $933m, or $2.87 per share, in the first quarter of 2014. Cash from operations in the first quarter of 2015 was $957m, compared to cash from operations of $2.1bn in the first quarter of 2014.
“Our team continues to deliver solid performance for our customers and strong results for our shareholders,” said Marillyn Hewson, Lockheed Martin Chairman, President and CEO. “We remain focused on successfully competing in the global marketplace and delivering industry-leading affordable products and technologies to our customers.”
2015 Financial Outlook
The following table and other sections of this news release contain forward-looking statements, which are based on the Corporation’s current expectations. Actual results may differ materially from those projected. It is the Corporation’s practice not to incorporate adjustments into its financial outlook for proposed acquisitions, divestitures, ventures, changes in law and restructuring activities (including special items) until such items have been consummated or enacted. For additional factors that may impact the Corporation’s actual results, refer to the “Forward-Looking Statements” section in this news release.
Cash Activities
The Corporation’s cash deployment activities in the first quarter of 2015 consisted of the following:
* repurchasing 3.0m shares for $604m, compared to 7.0 m shares for $1.1bn in the first quarter of 2014;
* paying cash dividends of $498m, compared to $444m in the first quarter of 2014; and
* making capital expenditures of $118m, compared to $103m in the first quarter of 2014.
On Feb. 20, 2015, the Corporation issued $2.25bn of notes in a registered public offering consisting of $750m maturing in 2025 with a fixed interest rate of 2.90%, $500 m maturing in 2035 with a fixed interest rate of 3.60% and $1.0bn maturing in 2045 with a fixed interest rate of 3.80%.
Segment Results
The Corporation operates in five business segments: Aeronautics, Information Systems & Global Solutions (IS&GS), Missiles and Fire Control (MFC), Mission Systems and Training (MST) and Space Systems. The Corporation organizes its business segments based on the nature of the products and services offered.
Operating profit of the business segments includes the Corporation’s share of earnings or losses from equity method investees as the operating activities of the equity method investees are closely aligned with the operations of the Corporation’s business segments. United Launch Alliance (ULA), which is part of the Space Systems business segment, is the Corporation’s primary equity method investee. Operating profit of the Corporation’s business segments excludes the FAS/CAS pension adjustment, which represents the difference between total pension expense recorded in accordance with GAAP (FAS) and pension costs recoverable on U.S. Government contracts as determined in accordance with U.S. Government Cost Accounting Standards (CAS); expense for stock-based compensation; the effects of items not considered part of management’s evaluation of segment operating performance, such as charges related to significant severance actions and goodwill impairments; gains or losses from divestitures; the effects of certain legal settlements; corporate costs not allocated to the Corporation’s business segments; and other miscellaneous corporate activities.
Changes in net sales and operating profit generally are expressed in terms of volume. Changes in volume refer to increases or decreases in sales or operating profit resulting from varying production activity levels, deliveries or service levels on individual contracts. Changes in volume also include the effect of fluctuations in contract profit booking rates that have occurred in reporting periods other than those presented in the comparative segment results. 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 margins may be impacted favorably or unfavorably by changes in profit booking rates on the Corporation’s contracts accounted for using the percentage-of-completion method of accounting. Increases in the profit booking rates, typically referred to as risk retirements, usually relate to revisions in the estimated total costs that reflect improved conditions on a particular contract. Conversely, conditions on a particular contract may deteriorate resulting in an increase in the estimated total costs to complete and a reduction in the profit booking rate. Increases or decreases in profit booking rates are recognized in the current period and reflect the inception-to-date effect of such changes. Segment operating profit and margins may also be impacted favorably or unfavorably by other items. Favorable items may include the positive resolution of contractual matters, cost recoveries on restructuring charges, insurance recoveries and gains on sales of assets. Unfavorable items may include the adverse resolution of contractual matters; restructuring charges, except for significant severance actions which are excluded from segment operating results; reserves for disputes; asset impairments; and losses on sales of assets. Segment operating profit and items such as risk retirements, reductions of profit booking rates or other matters are presented net of state income taxes.
The Corporation’s consolidated net adjustments not related to volume, including net profit booking rate adjustments and other matters, represented approximately 38 percent of total segment operating profit for the first quarter of 2015, compared to approximately 37 percent in the first quarter of 2014.
Aeronautics
Aeronautics’ net sales for the first quarter of 2015 decreased $252m, or 7 percent, compared to the same period in 2014. The decrease was attributable to lower net sales of approximately $135m for the C-130 program due to fewer aircraft deliveries (four aircraft delivered in the first quarter of 2015, compared to five delivered in the same period in 2014) and lower sustainment activities; about $95m for the C-5 program due to fewer aircraft deliveries (one aircraft delivered in the first quarter of 2015, compared to two delivered in the same period in 2014); approximately $70 m for the F-16 program due to decreased sustainment activities and fewer aircraft deliveries (three aircraft delivered in the first quarter of 2015, compared to four delivered in the same period in 2014); about $50m for the F-22 program due to decreased sustainment activities; and approximately $50m due to lower volume on various other sustainment activities. The decreases were partially offset by higher net sales of approximately $175m for F-35 production contracts due to increased volume and sustainment activities. Net sales for F-35 development contracts were comparable.
Aeronautics’ operating profit for the first quarter of 2015 decreased $22m, or 6 percent, compared to the same period in 2014. The decrease was primarily attributable to lower operating profit of approximately $30m for the C-130 program due to fewer aircraft deliveries and lower risk retirements; and about $20m for the F-16 program due to decreased sustainment activities, lower risk retirements, and fewer aircraft deliveries. The decreases were partially offset by higher operating profit of approximately $25m for F-35 production contracts due to increased volume and risk retirements. Operating profit for F-35 development contracts was comparable. Adjustments not related to volume, including net profit booking rate adjustments, for the first quarter of 2015 were comparable to the same period in 2014.
Information Systems & Global Solutions
IS&GS’ net sales decreased $41m, or 2 percent, for the first quarter of 2015 compared to the same period in 2014. The decrease was attributable to lower net sales of approximately $160m due to decreased volume as a result of the wind-down or completion of certain programs (including Persistent Threat Detection System program) affected by in-theater force reductions, lower customer funding levels (primarily command and control programs), and the impacts of increased re-competition of existing contracts coupled with the fragmentation of large contracts into multiple smaller contracts that are awarded primarily on the basis of price (CMS-CITIC). The decreases were partially offset by higher net sales of approximately $80m for businesses acquired in 2014; and about $40m due to increased volume on recently awarded programs.
IS&GS’ operating profit for the first quarter of 2015 decreased $38m, or 22 percent, compared to the same period in 2014. The decrease was primarily attributable to lower operating profit of approximately $70 m for performance matters on an international program during the first quarter of 2015 and about $10m for the amortization of intangible assets associated with recently acquired businesses. The decreases were partially offset by higher operating profit of approximately $35m due to risk retirements on various programs and increased volume on recently awarded programs. Adjustments not related to volume, including net profit booking rate adjustments, were $25m lower for the first quarter of 2015 compared to the same period in 2014.
Missiles and Fire Control
MFC’s net sales for the first quarter of 2015 decreased $364m, or 19 percent, compared to the same period in 2014. The decrease was attributable to lower net sales of approximately $160 m for tactical missile programs due to fewer deliveries (primarily Hellfire, Joint Air-to-Surface Standoff Missile and Guided Multiple Launch Rocket System); about $115m for air and missile defense programs due to decreased deliveries (primarily Patriot Advanced Capability-3); and approximately $85m for fire control programs due to decreased deliveries (primarily LANTIRN® and Sniper®).
MFC’s operating profit for the first quarter of 2015 decreased $66m, or 18 percent, compared to the same period in 2014. The decrease was attributable to lower operating profit of approximately $50m for tactical missile programs due to fewer deliveries and lower risk retirements (primarily Hellfire); and about $25m for fire control programs due to lower risk retirements and fewer deliveries (primarily LANTIRN® and Sniper®). Adjustments not related to volume, including net profit booking rate adjustments, were approximately $25m lower for the first quarter of 2015 compared to the same period in 2014.
Mission Systems and Training
MST’s net sales for the first quarter of 2015 increased $23m, or 1 percent, compared to the same period in 2014. Net sales increased by approximately $110 m for integrated warfare systems and sensors programs due to the start of new programs (primarily Space Fence) and volume (including Aegis and radar surveillance programs); and $35m for undersea systems due to an increase in volume on various programs. The increases were mostly offset by lower net sales of approximately $120m for ship and aviation systems programs due to fewer deliveries (including MH-60) and lower volume (including Merlin Capability Sustainment Program).
MST’s operating profit for the first quarter of 2015 decreased $31m, or 12 percent, compared to the same period in 2014. The decrease was primarily attributable to lower operating profit of approximately $25m for ship and aviation systems due to decreased risk retirements (primarily naval launchers programs) and lower volume. Adjustments not related to volume, including net profit booking rate adjustments and other matters, were approximately $40m lower for the first quarter of 2015 compared to the same period in 2014.
Space Systems
Space Systems’ net sales for the first quarter of 2015 increased $95m, or 5 percent, compared to the same period in 2014. The increase was attributable to higher net sales of approximately $105m for the Orion program due to increased volume; and about $90m for businesses acquired in 2014. These increases were partially offset by lower net sales of approximately $75m for government satellite programs due to decreased volume.
Space Systems’ operating profit for the first quarter of 2015 increased $34m, or 13 percent, compared to the same period in 2014. The increase was attributable to higher operating profit of about $20m for government satellite programs due to increased risk retirements; and approximately $15m for the Orion program due to increased risk retirements and volume. Adjustments not related to volume, including net profit booking rate adjustments and other matters, were approximately $50 m higher for the first quarter of 2015 compared to the same period in 2014.
Total equity earnings recognized by Space Systems (primarily ULA) represented approximately $75m, or 26 percent, of this business segment’s operating profit for the first quarter of 2015, compared to approximately $70m, or 28 percent, in the first quarter of 2014.
Income Taxes
The Corporation’s effective income tax rate was 30.6 percent for the first quarter of 2015, compared to 30.8 percent for the first quarter of 2014. The rates for both periods benefited from tax deductions for U.S. manufacturing activities and for dividends paid to the Corporation’s defined contribution plans with an employee stock ownership plan feature. The rates included no benefit from the research and development tax credit because the credit was not part of the law and had not been reenacted during either period.
Raytheon
23 Apr 15. Raytheon Reports Solid First Quarter 2015 Results. Raytheon Company (NYSE: RTN) announced first quarter 2015 EPS from continuing operations of $1.78 compared to $1.87 in the first quarter 2014. First quarter 2015 Adjusted EPS was $1.26 per diluted share compared to $1.43 per diluted share in the first quarter 2014. First quarter 2015 Adjusted EPS excluded a $0.42 favorable impact for the previously announced eBorders settlement with the U.K. Home Office and a favorable FAS/CAS Adjustment of $0.10. First quarter 2014 Adjusted EPS excluded a $0.25 favorable tax impact from cash repatriation in the first quarter 2014 and a favorable FAS/CAS Adjustment of $0.18.
“Raytheon’s solid first quarter financial performance is a testament to the strength of our operating model. Our sales, earnings and cash flow were in line or ahead of our expectations,” said Thomas A. Kennedy, Raytheon Chairman and CEO. “We continue to position the company for the future by successfully executing our global growth strategy and investing in key discriminating technologies.”
Net sales for the first quarter 2015 were $5.3bn compared to $5.5bn in the first quarter 2014.
Operating cash flow from continuing operations for the first quarter 2015 was $55m compared to $659 m for the first quarter 2014. The change in operating cash flow from continuing operations in the first quarter 2015 was primarily due to the timing of collections.
In the first quarter 2015, the Company repurchased 2.8m shares of common stock for $300 m. In addition, as previously announced, the Company’s Board of Directors voted to increase the Company’s annual dividend rate by 10.7 percent from $2.42 to $2.68 per share, the eleventh consecutive annual dividend increase.
The Company ended the first quarter 2015 with $1.2bn of net debt. Net debt is defined as total debt less cash and cash equivalents and short-term investments.
As previously announced, on March 27, 2015, Raytheon Systems Limited (RSL) reached a settlement with the U.K. Home Office concluding the parties’ dispute regarding the U.K. Home Office’s July 2010 termination of RSL’s eBorders contract. The settlement includes a cash payment from the U.K. Home Office to RSL of £150m (approximately $226m) in exchange for the resolution of all claims and counterclaims of both parties that were related to that matter. After certain expenses and consideration of the outstanding receivables, the Company recorded $181m pretax ($131m after-tax) in operating income from the settlement in the first quarter 2015. The cash payment was received in the second quarter 2015.
Also as previously announced, the Company signed a definitive agreement with Vista Equity Partners to form a new, jointly owned entity that will combine Websense together with Raytheon Cyber Products. The new organization will leverage Raytheon’s expertise in defense-grade cybersecurity solutions with Websense’s strong commercial market position and proven ability to defend against advanced cyberattacks. The transaction is expected to close late in the second quarter 2015.
Backlog at the end of the first quarter 2015 was $32.5bn and funded backlog was $23.7bn, an increase of approximately $1.0bn compared to the first quarter 2014.
Outlook
Segment Results
The Company’s reportable segments are: Integrated Defense Systems (IDS); Intelligence, Information and Services (IIS); Missile Systems (MS); and Space and Airborne Systems (SAS).
Integrated Defense Systems (IDS) had first quarter 2015 net sales of $1,433m compared to $1,481m in the first quarter 2014. The change in net sales includes lower sales on international Patriot programs nearing completion.
IDS recorded $195m of operating income in the first quarter 2015 compared to $226m in the first quarter 2014. The change in operating income was primarily driven by international Patriot programs nearing completion.
During the quarter, IDS booked $769m to provide advanced Patriot air and missile defense capability for the Republic of Korea. IDS also booked $213 m to provide Patriot engineering services support for U.S. and international customers and $103 m on the Wide Area Augmentation System (WAAS) program for the Federal Aviation Administration (FAA).
As previously announced, shortly after the first quarter close IDS booked $2.0bn to provide advanced Patriot air and missile defense capability for the Kingdom of Saudi Arabia.
Intelligence, Information and Services (IIS) had first quarter 2015 net sales of $1,393m compared to $1,450m in the first quarter 2014. The change in net sales was primarily driven by lower volume on training programs.
IIS recorded $285m of operating income in the first quarter 2015 compared to $125 m in the first quarter 2014. The increase in operating income was primarily driven by the eBorders settlement, which contributed $181m to operating income in the first quarter 2015.
During the quarter, IIS booked $551m on a number of classified contracts.
Missile Systems (MS) had first quarter 2015 net sales of $1,473m compared to $1,574m in the first quarter 2014. The change in net sales was primarily driven by lower volume on the Tomahawk and Standard Missile-3 (SM-3®) programs.
MS recorded $207m of operating income in the first quarter 2015 compared to $208m in the first quarter 2014. First quarter 2015 operating income included the favorable resolution of a contractual issue.
During the quarter, MS booked $539m for Advanced Medium-Range Air-to-Air Missile (AMRAAM®) for the U.S. Air Force, U.S. Navy and international customers. MS also booked $231 m for Tomahawk for the U.S. Navy, $110m for Standard Missile-6 (SM-6™) for the U.S. Navy and $92 m for the Miniature Air Launched Decoy (MALD®) for the U.S. Air Force.
Space and Airborne Systems (SAS) had first quarter 2015 net sales of $1,358m compared to $1,398m in the first quarter 2014. The change in net sales included lower volume on secure communication systems programs.
SAS recorded $173 m of operating income in the first quarter 2015 compared to $190m in the first quarter 2014. The change in operating income was primarily due to higher net program efficiencies in the first quarter 2014.
During the quarter, SAS booked $210m on a number of classified contracts.