Positive Second Quarter Results From US Majors
By Julian Nettlefold
The Second Quarter Reporting Season kicked off with all the US Majors showing positive results buoyed by increased sales to Ukraine. Most of the Results beat expectations, the only negative sentiment was at RTX .Unrelated to the company’s second quarter earnings results, Pratt & Whitney has determined that a rare condition in powder metal used to manufacture certain engine parts will require accelerated fleet inspection. This does not impact engines currently being produced. As a result, the business anticipates that a significant portion of the PW1100G-JM engine fleet, which powers the A320neo, will require accelerated removals and inspections within the next nine to twelve months, including approximately 200 accelerated removals by mid-September of this year. The business is working to minimize operational impacts and support its customers.
Boeing
26 Jul 23. Boeing Reports Second Quarter Results.
Second Quarter 2023
* Transitioning 737 production to 38 per month; increased 787 production to four per month
* Revenue increased to $19.8bn primarily reflecting 136 commercial deliveries
* Operating cash flow of $2.9bn and free cash flow of $2.6bn (non-GAAP); cash and marketable securities of $13.8bn
* Total company backlog of $440bn, including over 4,800 commercial airplanes
* Reaffirm guidance: $4.5-$6.5bn of operating cash flow and $3.0-$5.0bn of free cash flow (non-GAAP)The Boeing Company [NYSE: BA] recorded second quarter revenue of $19.8bn, GAAP loss per share of ($0.25) and core loss per share (non-GAAP)* of ($0.82). Second quarter results reflect higher commercial volume and lower defense margins. Boeing generated operating cash flow of $2.9bn and free cash flow of $2.6bn (non-GAAP).
“We had a solid second quarter with improved deliveries and strong free cash flow generation. We are well positioned to meet the operational and financial goals we set for this year and for the long term,” said Dave Calhoun, Boeing president and chief executive officer. “While we have more work ahead, we are making progress in our recovery and driving stability in our factories and the supply chain to meet our customer commitments. With demand strong, we’re steadily increasing our production rates across key programs and growing investments in our people, products and technologies.”
Operating cash flow was $2.9bn in the quarter reflecting higher commercial deliveries and favorable receipt timing.
Cash and investments in marketable securities totaled $13.8bn, compared to $14.8bn at the beginning of the quarter (Table 3). Debt was $52.3bn, down from $55.4bn at the beginning of the quarter due to the pay down of maturing debt. The company maintains access to credit facilities of $12.0bn, which remain undrawn. Total company backlog at quarter end was $440bn.
Segment Results
Commercial Airplanes
Commercial Airplanes second quarter revenue increased to $8.8bn driven by higher 787 deliveries. Operating margin of (4.3) percent also reflects abnormal costs and period expenses, including research and development. The 737 program is transitioning production to 38 per month and plans to reach 50 per month in the 2025/2026 timeframe. The program still expects to deliver 400-450 airplanes this year. The 787 program increased production to four per month with plans to ramp to five per month in late 2023 and 10 per month in the 2025/2026 timeframe. The program still expects to deliver 70-80 airplanes this year. During the quarter, Commercial Airplanes booked 460 net orders, including 220 for Air India and 39 for Riyadh Air, and secured a commitment from Ryanair for up to 300 737 MAX airplanes. Commercial Airplanes delivered 136 airplanes during the quarter and backlog included over 4,800 airplanes valued at $363bn.
Defense, Space & Security
Defense, Space & Security second quarter revenue was $6.2bn. Second quarter operating margin was (8.5) percent, primarily driven by losses on certain fixed-price development programs, as well as continued operational impacts of labor instability and supply chain disruption on other programs. The Commercial Crew program recorded a $257m loss primarily due to the impacts of the previously announced launch delay. The T-7A program recorded a $189m loss primarily due to higher estimated costs on production contracts. The MQ-25 program also recorded a $68m loss primarily due to schedule delays on the Engineering and Manufacturing Development contract. During the quarter, Defense, Space & Security completed the U.S. Air Force first flight of the T-7A Red Hawk, began construction on the Advanced Coatings Center in St. Louis and captured an award from the U.S. Army for 19 CH-47 Chinooks. Backlog at Defense, Space & Security was $58bn, of which 31 percent represents orders from customers outside the U.S.
Global Services
Global Services second quarter revenue of $4.7bn and operating margin of 18.0 percent reflect higher commercial volume and favorable mix.
During the quarter, Global Services announced expansion in Poland with a new parts distribution site, collaboration with CAE to enhance and expand training solutions and Japan Airlines adopted Boeing Insight Accelerator for its 787 fleet.
General Dynamics
26 Jul 23. General Dynamics Reports Second-Quarter 2023 Financial Results
- Revenue of $10.2bn, up 10.5% year-over-year, with growth in all four segments
- Net earnings $744m, diluted EPS $2.70
- Record-high backlog of $91.4bn, 1.2-to-1 book-to-bill
General Dynamics Corporation (NYSE: GD) today reported second-quarter 2023 net earnings of $744m on revenue of $10.2bn. Diluted earnings per share (EPS) were $2.70.
“Our businesses demonstrated solid momentum despite continued supply chain headwinds in several units, achieving the highest-ever revenue for a mid-year quarter, record-high backlog and very strong cash flow,” said Phebe N. Novakovic, chairman and chief executive officer. “We are well positioned to continue to perform for the remainder of the year.”
Cash
Net cash provided by operating activities in the quarter totaled $731m. For the first half of the year, net cash provided by operating activities totaled $2.2bn, or 149% of net earnings. During the quarter, the company repaid $750m in fixed-rate notes, invested $212m in capital expenditures, paid $360m in dividends, and used $288m to repurchase shares, ending the quarter with $1.2bn in cash and cash equivalents on hand. In the previous 12 months, the company reduced total debt by $1.7bn.
Backlog
Good order activity across the segments yielded a consolidated book-to-bill ratio, defined as orders divided by revenue, of 1.2-to-1 for the quarter. The company ended the quarter with record-high backlog of $91.4bn, a 4.3% increase from the year-ago quarter. Estimated potential contract value, representing management’s estimate of additional value in unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised options, was $38 bn. Total estimated contract value, the sum of all backlog components, was $129.3bn at the end of the quarter.
The Aerospace segment booked $2.5bn in new orders, driven by strong demand for Gulfstream aircraft.
Significant awards in the quarter for the three defense segments included $340m from the U.S. Army for various munitions and ordnance with maximum potential value of $1.4bn; $1.1bn from the U.S. Navy for long-lead materials and advance construction for Block V Virginia-class submarines; $735m from the Navy for construction of an additional John Lewis-class (T-AO-205) fleet replenishment oiler; $695m from the Army to design, build and test prototype XM30 Mechanized Infantry Combat Vehicles, with additional option value of $75m; $710m from the Army to upgrade Stryker vehicles to the double-V-hull A1 configuration; and $435m for several key contracts for classified customers, with additional options and potential contract value of $935m.
Lockheed Martin
18 Jul 23. Lockheed Martin raises full-year forecast on strong weapons demand. U.S. weapons maker Lockheed Martin (LMT.N) on Tuesday raised its annual profit and sales outlook on strong demand for military equipment stoked by ongoing geopolitical uncertainties. Defense companies in the U.S. have been successful in translating demand for air defense systems, missiles and other weapons into orders, triggered by the war in Ukraine and increasing tension in U.S.-China relations. Lockheed’s weapons, such the guided multiple launch rocket system and Javelin anti-tank missiles, made in conjunction with aerospace and defense firm RTX (RTX.N), have been used by Ukraine in its fight against Russia’s full-scale invasion. However, Lockheed’s F-35 jets face delays in delivery to the Pentagon due to software upgrades, according to media reports. The advanced jet is Lockheed’s largest program, after having generated 27% of total consolidated net sales and 66% of aeronautics’ net sales in 2022. Quarterly sales at Lockheed’s aeronautics unit, its largest, rose 17.3% from a year earlier to $6.88 bn. Last year’s second quarter was hit by the end of some federal funding and supply chain constraints stemming from the pandemic. The world’s largest defense contractor now expects profit to be between $27 and $27.20 per share in 2023, compared with the previous guidance of $26.60 to $26.90 per share. It expects full-year net sales to be between $66.25bn and $66.75bn, up from its earlier forecast of $65 bn to $66bn. Bethesda, Maryland-based Lockheed posted a net income of $6.63 per share for the second quarter, above Wall Street estimates of $6.45 per share, according to Refinitiv data. On an adjusted basis, profit was $6.73 per share. Quarterly net sales rose 8.1% to $16.69bn, beating expectations of $15.92bn. (Source: Reuters)
18 Jul 23. Lockheed Martin Reports Second Quarter 2023 Financial Results.
* Net sales of $16.7bn, an increase of 8% year-over-year
* Net earnings of $1.7bn, or $6.63 per share
* Cash from operations of $1.1bn and free cash flow of $0.8 bn
* $1.5 bn of cash returned to shareholders through dividends and share repurchases
* Record backlog of $158.0bn
* 2023 outlook increased for sales, segment operating profit and earnings per share
Lockheed Martin Corporation [NYSE: LMT] today reported second quarter 2023 net sales of $16.7 bn, compared to $15.4 bn in the second quarter of 2022. Net earnings in the second quarter of 2023 were $1.7bn, or $6.63 per share, compared to $309m, or $1.16 per share, in the second quarter of 2022. Cash from operations was $1.1bn in the second quarter of 2023, compared to $1.3bn in the second quarter of 2022. Free cash flow was $771m in the second quarter of 2023, compared to $1.0bn in the second quarter of 2022.
“Lockheed Martin delivered strong financial results in the second quarter, with a record backlog of $158 bn and 8% sales growth year-over-year,” said Lockheed Martin Chairman, President and CEO Jim Taiclet. “Orders highlights included F-35 Lot 17 and significant awards to ramp-up PAC-3, GMLRS, and other major programs, positioning us well for the future. We continued our dynamic and disciplined capital allocation in the quarter, with nearly two times free cash flow returned to shareholders. Given the strength of our year-to-date results and ongoing demand for our signature programs and advanced technologies, we are raising our full year sales and earnings per share outlooks for 2023. We are confident in our return to growth and ability to reward our shareholders over the long run with reliable free cash flow per share expansion and cash deployment. Along the way, we will continue developing and investing in our 21st Century Security vision to strengthen the resilience and responsiveness of the U.S. defense production system, elevate deterrence through the acceleration of digital technologies into critical missions with our commercial industry partners, and deepen our industrial relationships with allies and partner nations for production and sustainment operations.”
Cash Flows and Capital Deployment Activities
Cash from operations in the second quarter of 2023 was $1.1bn and capital expenditures were $329m, resulting in free cash flow of $771m. The decrease in operating and free cash flows in the second quarter of 2023 compared to the same period in 2022 was primarily due to the timing of federal tax payments.
The company’s cash activities in the second quarter of 2023, included the following:
* paying cash dividends of $758m;
* paying $750m to repurchase 1.6m shares (including 0.1m shares received upon settlement of an accelerated share repurchase agreement (ASR) in the third quarter 2023; and
* receiving net proceeds of $1,975m from a debt issuance of senior unsecured notes, consisting of $500m aggregate principal amount of 4.45% Notes due May 15, 2028, $850m aggregate principal amount of 4.75% Notes due February 15, 2034, and $650m aggregate principal amount of 5.20% Notes due February 15, 2055.
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 result. 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, intangible asset amortization expense, 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 20% and 26% of total segment operating profit in the quarters ended June 25, 2023 and June 26, 2022.
Aeronautics
Aeronautics’ net sales in the second quarter of 2023 increased $1.0 bn, or 17%, compared to the same period in 2022. The increase was primarily attributable to higher net sales of $735m for the F-35 program due to higher volume on production contracts partially driven by lower volume in the second quarter of 2022 due to the impact of the delays in receiving additional contractual authorization and funding under the Lots 15-17 contract and higher volume on sustainment contracts; higher net sales of $100m on classified programs due to higher volume; and higher net sales of $90m for the C-130 program due to higher volume on sustainment contracts.
Aeronautics’ operating profit in the second quarter of 2023 increased $105m, or 17%, compared to the same period in 2022. The increase was primarily attributable to higher operating profit of $75m for the F-35 program due to higher volume on production contracts; and higher operating profit of $20m on classified programs due to lower unfavorable profit adjustments. Total net profit booking rate adjustments in the second quarter of 2023 were comparable to the same period in 2022.
Missiles and Fire Control
MFC’s net sales in the second quarter of 2023 were comparable to the same period in 2022. Higher net sales of $20m for tactical and strike missile programs due to higher volume (Precision Strike Missile (PrSM)) was offset by lower net sales of $20m for integrated air and missile defense programs due to lower volume (Terminal High Altitude Area Defense (THAAD)).
MFC’s operating profit in the second quarter of 2023 decreased $47m, or 11%, compared to the same period in 2022. The decrease was primarily attributable to lower operating profit of $25m for sensors and global sustainment programs due to lower net favorable profit adjustments (Sniper Advanced Targeting Pod (SNIPER®) and Infrared Search and Track (IRST21®)); and lower operating profit of $20m for tactical and strike missile programs due to lower net favorable profit adjustments (High Mobility Artillery Rocket System (HIMARS) and Joint Air-to-Surface Standoff Missile (JASSM)). Total net profit booking rate adjustments were $55m lower in the second quarter of 2023 compared to the same period in 2022.
Rotary and Mission Systems
RMS’ net sales in the second quarter of 2023 decreased $115m, or 3%, Rotary and Mission Systems. RMS’ net sales in the second quarter of 2023 decreased $11m, or 3%, compared to the same period in 2022. The decrease was primarily attributable to lower net sales of $145m for Sikorsky helicopter programs due to lower production volume (Black Hawk). This decrease was partially offset by higher net sales of $60m for integrated warfare systems and sensors (IWSS) programs due to higher volume (Aegis, Defense of Guam, and TPY-4 programs). RMS’ operating profit in the second quarter of 2023 decreased $7m, or 2%, compared to the same period in 2022. The decrease was primarily attributable to lower operating profit of $60m for Sikorsky helicopter programs due to an unfavorable profit adjustment of $100m on the Canadian Maritime Helicopter Program (CMHP) as a result of increased costs and lower than planned revenues and lower production volume (Black Hawk), partially offset by higher equity earnings and higher net favorable profit adjustments (Seahawk). This decrease was partially offset by higher operating profit of $75m for IWSS programs primarily due to a favorable profit adjustment of $65m as a result of a positive resolution of a contractual matter on an international surveillance and control program. Additionally, the decreases in net profit booking rate adjustments and volume as described above were partially offset by contract mix. Total net profit booking rate adjustments were $40m lower in the second quarter of 2023 compared to the same period in 2022.
Space
Space’s net sales in the second quarter of 2023 increased $341m, or 12%, compared to the same period in 2022. The increase was primarily attributable to higher net sales of $15m for strategic and missile defense programs due to higher development volume (Next Generation Interceptor (NGI)); higher net sales of $120m for national security space programs due to higher development volume (classified and Transport Layer programs); and higher net sales of $65m for commercial civil space programs due to higher volume (Orion).
Space’s operating profit in the second quarter of 2023 increased $41 m, or 15%, compared to the same period in 2022. The increase was primarily attributable to higher operating profit of $25m for commercial civil space programs due to higher net favorable profit adjustments and higher volume (Orion); and higher operating profit of $15m for higher equity earnings from the company’s investment in United Launch Alliance (ULA) due to launch mix. Total net profit booking rate adjustments in the second quarter of 2023 were comparable to the same period in 2022. Total equity earnings (primarily ULA) represented approximately $20m, or 6%, of Space’s operating profit in the second quarter of 2023, compared to approximately $5m, or 2%, in the second quarter of 2022.
Income Taxes
The company’s effective income tax rate was 16.2% and 6.4% for the quarters ended June 25, 2023 and June 26, 2022. The rate for the second quarter of 2022 was lower than the second quarter of 2023 primarily due to lower earnings before income taxes resulting from a noncash, non-operating pension settlement charge of $1.5bn, which reduced the tax expense by approximately $314m. The rates for all periods benefited from research and development tax credits, tax deductions for foreign derived intangible income, and dividends paid to our defined contribution plans with an employee stock ownership plan feature.
Northrop Grumman
27 Jul 23. Northrop Grumman lifts annual forecasts, passes on fighter jet competition. Northrop Grumman (NOC.N) raised its full-year profit and revenue forecasts on Thursday, but shares slid when the company said it would not compete as a prime contractor for the U.S. Air Forces’ sixth-generation fighter jet.
Shares were down 4.2% during trading in New York.
Northrop, Lockheed Martin Corp (LMT.N) and Boeing Co (BA.N) were expected to compete as prime contractors for the Next Generation Air Dominance (NGAD) program, which will replace Lockheed’s F-22 Raptor with a fighter built to battle alongside drones.
“We have notified the U.S. Air Force that we’re not planning to respond to the NGAD RFP as a prime,” Northrop Chief Executive Kathy Warden told investors on a post earnings conference call.
Despite side-stepping the new fighter jet competition Northrop said the war in Ukraine and tensions in the Indo-Pacific have compelled countries in these regions to ramp up their military spending.
“There is strong demand across Europe,” Dave Keffer Northrop’s CFO told Reuters in an interview. “We had eight potential new customers come in for a demonstration of our IBCS capabilities – our integrated battle management system – that has been in very high demand.”
Munitions and missile defenses were two other high-demand areas Keffer highlighted.
European demand for U.S. weaponry is soaring, but instead of big-ticket items like jets and tanks, shopping lists are focused on cheaper, less-sophisticated items such as shoulder-fired missiles, artillery, and drones that have proven critical to Ukraine’s war efforts.
Northrop’s aeronautic systems business, which houses its new B21 Raider jet program, posted a 2% rise in sales at $2.60 billion in the second quarter.
Sales in its space system business, which makes satellites and payloads, jumped 17% to $3.49 billion, helped by a surge in investment for space exploration projects.
Northrop raised the lower end of its annual profit forecast from $22.25 per share. It now expects 2023 profit to be in the range of $22.45 to $22.85 per share.
The company also raised its annual sales outlook to between $38.4 billion and $38.8 billion, compared with its previous projection of $38 billion to $38.4 billion.
Its net earnings came in at $812 million, or $5.34 per share, in the three months ended June 30, compared with $6.06 a year earlier.
Northrop’s overall sales in the quarter rose 9% to $9.57 billion. (Source: Reuters)
27 Jul 23. Northrop Grumman Reports Second Quarter 2023 Financial Results.
- Net Awards of $10.9 bn; book to bill of 1.14
- Sales increased 9 percent to $9.6bn
- Diluted earnings per share of $5.34
- Operating cash flow of $919m
- Company increases 2023 sales guidance by $400m and low end of EPS guidance range by $0.20
Northrop Grumman Corporation (NYSE: NOC) reported second quarter 2023 sales increased 9 percent to $9.6bn, as compared with $8.8bn in the second quarter of 2022. Second quarter 2023 sales reflect continued strong demand and improving labor availability and supplier deliveries. Second quarter 2023 net earnings totaled $812m, or $5.34 per diluted share, as compared with $946m, or $6.06 per diluted share, in the second quarter of 2022. Net earnings were reduced by $160m, or $1.01 per diluted share, as a result of lower net FAS/CAS pension income.
“Strong global demand for our products, increased supply chain deliveries and our continued success in hiring and retaining talent drove second quarter growth of nine percent,” said Kathy Warden, chair, chief executive officer and president. “With backlog more than double annual sales and a robust U.S. and international outlook for our programs, we have increased our full year sales guidance by $400 m. We are driving affordability measures to partially offset the impacts of inflation for our customers and we expect margins to expand as macroeconomic headwinds stabilize and we shift our portfolio to more production and international volume.”
Sales
Second quarter 2023 sales increased $775m, or 9 percent, due to higher sales at all four sectors. Second quarter 2023 sales reflect continued strong demand and improving labor availability and supplier deliveries. Operating Income and Margin Rate Second quarter 2023 operating income increased $13m, or 1 percent, due to a reduction in the FAS/CAS operating adjustment, partially offset by lower segment operating income.
Second quarter 2023 operating margin rate declined to 10.1 percent due to a lower segment operating margin rate, partially offset by the lower FAS/CAS operating adjustment.
Segment Operating Income and Margin Rate Second quarter 2023 segment operating income decreased $21m, or 2 percent. Higher sales were more than offset by a lower segment operating margin rate, which reflects a $36 m unfavorable estimate-at-completion (EAC) adjustment on the Habitation and Logistics Outpost (HALO) program at Space Systems.
In addition, the prior year period includes a $38m gain on a property sale at Aeronautics Systems and a $33m benefit recognized in connection with a contract-related legal matter at Mission Systems. Federal and Foreign Income Taxes
The second quarter 2023 effective tax rate (ETR) of 17.7 percent was comparable with the prior year period and reflects higher interest expense on unrecognized tax benefits, offset by favorable returns on tax-exempt marketable securities.
Net Earnings and Diluted EPS Second quarter 2023 net earnings decreased $134m, or 14 percent, primarily due to a $244m reduction in the non-operating FAS pension benefit, partially offset by a $51m increase in returns on marketable securities related to our non-qualified benefit plans, higher operating income, higher interest income on short-term investments and lower income tax expense. Second quarter 2023 diluted earnings per share decreased 12 percent, reflecting a 14 percent decrease in net earnings and a 2 percent reduction in weighted-average diluted shares outstanding.
Cash Flows
Second quarter 2023 net cash provided by operating activities was $919m compared to net cash used in operating activities of $197m in the prior year period and reflects improved trade working capital largely driven by increased billings and cash collections.
Second quarter 2023 adjusted free cash flow increased $1.1bn due to higher net cash provided by operating activities, partially offset by an increase in capital expenditures. Awards and Backlog Second quarter and year to date 2023 net awards totaled $10.9bn and $18.9bn, respectively, and backlog totaled $78.8bn.
Significant second quarter new awards include $5.4bn for restricted programs (primarily at Space Systems, Aeronautics Systems and Mission Systems), $0.6bn for F-35 (primarily at Aeronautics Systems and Mission Systems), $0.3bn for the Missile Defense Agency’s Ballistic Missile Defense System Overhead Persistent Infrared Architecture (BOA) and $0.3bn for Virginia-Class submarines.
Segment Operating Results
AERONAUTICS SYSTEMS
Three Months Ended June 30
Sales
Second quarter 2023 sales increased $61 m, or 2 percent, due to higher volume in both Manned Aircraft and Autonomous Systems. Higher sales on restricted programs were partially offset by lower volume on E-2 and F/A-18, as well as the Joint Surveillance and Target Attack Radar System (JSTARS) program as it nears completion. Operating Income Second quarter 2023 operating income increased $20m, or 8 percent, due to higher sales and a higher operating margin rate.
Operating margin rate increased to 10.7 percent from 10.2 percent primarily due to higher net favorable EAC adjustments on restricted work, partially offset by a $38m gain on a property sale in the prior year.
DEFENSE SYSTEMS
Three Months Ended June 30
Sales
Second quarter 2023 sales increased $126m, or 10 percent, due to higher volume in both business areas. Battle Management & Missile Systems sales increased primarily due to higher volume on ammunition programs and the Integrated Air and Missile Defense Battle Command System (IBCS), Hypersonic Attack Cruise Missile (HACM) and advanced fuze programs. Mission Readiness sales increased principally due to higher volume on the NATO Alliance Ground Surveillance In-Service Support (NATO AGS ISS) program and an international training program. Operating Income Second quarter 2023 operating income decreased $2m, or 1 percent, due to a lower operating margin rate, which more than offset higher sales. Operating margin rate decreased to 11.7 percent from 13.0 percent primarily due to lower net EAC adjustments.
MISSION SYSTEMS
Three Months Ended June 30
Sales
Second quarter 2023 sales increased $125m, or 5 percent, primarily due to higher restricted sales in the Networked Information Solutions business area, as well as higher volume on marine systems programs and the Surface Electronic Warfare Improvement Program (SEWIP). These increases were partially offset by lower volume on the Ground/Air Task Oriented Radar (G/ATOR) program. Operating Income Second quarter 2023 operating income decreased $12m, or 3 percent, due to a lower operating margin rate, which more than offset higher sales.
Operating margin rate decreased to 15.2 percent from 16.4 percent primarily due to a prior year $33m benefit recognized in connection with a contract-related legal matter, as well as changes in contract mix toward more cost-type content.
SPACE SYSTEMS
Three Months Ended June 30
Sales
Second quarter 2023 sales increased $509m, or 17 percent, due to higher volume in both business areas. Launch & Strategic Missiles sales increased primarily due to ramp-up on development programs, including a $156m increase on the Ground Based Strategic Deterrent (GBSD) program and higher volume on the Next Generation Interceptor (NGI) and Ground-based Midcourse Defense Weapon Systems (GWS) programs. Sales in the Space business area increased primarily due to higher volume on restricted programs, the NextGeneration Overhead Persistent Infrared Polar (NextGen Polar) program and the Space Development Agency (SDA) Tranche 1 Tracking Layer program. These increases were partially offset by lower volume for Commercial Resupply Services (CRS) missions. Operating Income Second quarter 2023 operating income decreased $27m, or 9 percent, due to a lower operating margin rate, which more than offset higher sales. Operating margin rate decreased to 8.1 percent from 10.4 percent primarily due to lower net EAC adjustments, including a $36m unfavorable EAC adjustment on the HALO program largely due to cost growth stemming from evolving Lunar Gateway architecture and mission requirements combined with macroeconomic challenges, and a $15m write-down of commercial inventory.
RTX
25 Jul 23. RTX Reports Q2 2023 Results.
RTX sales up 12 percent on growth across all segments; Guides higher on 2023 sales, tightens adjusted EPS* outlook and revises cash outlook; Agreement reached to divest Collins’ actuation and flight control business
Second quarter 2023
* Sales of $18.3bn, up 12 percent versus prior year including 13 percent organic growth*
* GAAP EPS from continuing operations of $0.90, up 2 percent versus prior year, which included $0.39 of acquisition accounting adjustments and net significant and/or non-recurring charges
* Adjusted EPS* of $1.29, up 11 percent versus prior year
* Operating cash flow from continuing operations of $719m; Free cash flow* of $193m
* Company backlog of $185 bn; including $73bn of defense and $112bn of commercial
* Realized $70m of incremental RTX gross cost synergies; achieving previous $1.5bn target
* Repurchased $596 m of RTX shares
Updates outlook for full year 2023
* Sales of $73.0 – $74.0bn, up from $72.0 – $73.0bn
* Adjusted EPS* of $4.95 – $5.05, up from $4.90 – $5.05
* Free cash flow* of approximately $4.3bn, down from approximately $4.8bn
* Confirms share repurchase of $3.0bn of RTX shares
“Accelerating demand in global commercial aerospace and strong defense spending allowed us to deliver 12 percent sales growth and increased operating profit year-over-year, with top-line growth across all RTX business units,” said RTX Chairman and CEO Greg Hayes. “Based on the strong performance year-to-date and strong end-markets, we are raising our full year sales outlook and tightening our adjusted EPS* outlook. However, we are lowering our free cash flow* outlook to reflect the impact of an issue that has recently come to light, which will require Pratt & Whitney to remove certain engines from service for inspection earlier than expected. The continued safe operation of our fleet will always remain our number one priority.”
Second quarter 2023
RTX reported second quarter sales of $18.3bn, up 12 percent over the prior year. GAAP EPS from continuing operations of $0.90 was up 2 percent versus the prior year and included $0.39 of acquisition accounting adjustments and net significant and/or non-recurring charges. This included $0.26 of acquisition accounting adjustments, an $0.08 charge related to an airline customer insolvency, $0.04 of restructuring and $0.01 related to segment and portfolio transformation costs. Adjusted EPS* of $1.29 was up 11 percent versus the prior year.
The company recorded net income from continuing operations attributable to common shareowners in the second quarter of $1.3bn, up 2 percent versus the prior year, which included $568m of acquisition accounting adjustments and net significant and/or non-recurring charges. Adjusted net income* was $1.9bn, up 10 percent versus prior year. Operating cash flow from continuing operations in the second quarter was $719m. Capital expenditures were $526m, resulting in free cash flow* of $193m.
Pratt & Whitney Fleet Update
Unrelated to the company’s second quarter earnings results, Pratt & Whitney has determined that a rare condition in powder metal used to manufacture certain engine parts will require accelerated fleet inspection. This does not impact engines currently being produced.
As a result, the business anticipates that a significant portion of the PW1100G-JM engine fleet, which powers the A320neo, will require accelerated removals and inspections within the next nine to twelve months, including approximately 200 accelerated removals by mid-September of this year. The business is working to minimize operational impacts and support its customers.
Summary Financial Results – Continuing Operations Attributable to Common Shareowners
Backlog and Bookings
Backlog at the end of the second quarter was $185 bn, of which $112bn was from commercial aerospace and $73bn was from defense.
Notable defense bookings during the quarter included:
* $2.0bn for F135 production at Pratt & Whitney
* $1.5bn for F117 sustainment at Pratt & Whitney
* $1.2bn for AMRAAM production at Raytheon Missiles & Defense (RMD)
* $1.1bn of classified bookings at Raytheon Intelligence & Space (RIS)
* $322m for a diverse set of cyber defense services for federal and civil customers at RIS
* $294m of classified bookings at RMD
* $265m for Javelin production at RMD
* $251m for AIM-9X production at RMD
* $237m for CLEAVAR counter UAS production at RMD
Segment Results
The company’s reportable segments are Collins Aerospace, Pratt & Whitney, Raytheon Intelligence & Space (RIS), and Raytheon Missiles & Defense (RMD). Future quarters will reflect the business unit realignment.
Collins Aerospace
Collins Aerospace had second quarter 2023 sales of $5,850m, up 17 percent versus the prior year. The increase in sales was driven by a 29 percent increase in commercial aftermarket, a 14 percent increase in commercial OE, and a 5 percent increase in military. The increase in commercial sales was driven primarily by strong demand across commercial aerospace end markets, which resulted in higher flight hours and higher OE production rates. The increase in military sales was driven primarily by higher development volume.
Collins Aerospace recorded operating profit of $821 m, up 50 percent versus the prior year. The increase in operating profit was primarily driven by higher sales volume and favorable mix, partially offset by higher production costs, as well as higher R&D and SG&A expenses. On an adjusted basis, operating profit* of $837 m was up 36 percent versus the prior year. Q2 2022 included a charge of $69 m associated with the disposition of two non-core businesses.
Pratt & Whitney
Pratt & Whitney had second quarter 2023 sales of $5,701m, up 15 percent versus the prior year. The increase in sales was driven by a 26 percent increase in commercial aftermarket and a 22 percent increase in commercial OE, which was partially offset by a 3 percent decrease in military sales. The increase in commercial sales was primarily due to higher shop visit volume and content, as well as higher engine deliveries and favorable mix across both Large Commercial Engines and Pratt & Whitney Canada. The decline in military sales was driven by the absence of the benefit of an F135 production contract award in Q2 2022, which was partially offset by higher F135 sustainment volume in Q2 2023.
Pratt & Whitney recorded operating profit of $230m, down 24 percent versus the prior year. Q2 2023 operating profit included the impact of a charge related to a customer insolvency of $181m. Excluding the impact of the customer insolvency, and other significant and/or non-recurring items, Pratt & Whitney recorded adjusted operating profit* of $436m in the second quarter of 2023, up 44 percent versus the prior year. The increase in operating profit was primarily driven by drop through on higher commercial aftermarket sales and favorable large commercial OE mix, which partially offset higher production costs and higher R&D expenses.
Raytheon Intelligence & Space
RIS had second quarter 2023 sales of $3,655m, up 2 percent versus the prior year driven by higher sales from Sensing and Effects and Cyber and Services programs, which was partially offset by lower sales from Command, Control and Communications programs.
RIS recorded operating profit of $291m, down 8 percent versus the prior year. The decrease in operating profit was driven by unfavorable mix and higher operating expenses, which more than offset improved productivity and drop through on higher volume. On an adjusted basis, operating profit* was down 6 percent versus the prior year.
Raytheon Missiles & Defense
RMD had second quarter 2023 sales of $4,000m, up 12 percent versus prior year. The increase in sales was primarily driven by higher volume in Air Power, Advanced Technology and Land Warfare & Air Defense programs.
RMD recorded operating profit of $415m, up 19 percent versus the prior year. The increase in operating profit was driven by favorable net program efficiencies and drop through on higher volume, which was partially offset by unfavorable mix resulting from early stage production programs. RMD recorded adjusted operating profit* of $427m, up 23 percent versus the prior year.
28 Jul 23. Textron Reports Second Quarter 2023 Results; Raises Full-Year EPS Outlook.
- EPS of $1.30; adjusted EPS of $1.46, up 32% from a year ago
- Net cash from operating activities of $314m in the second quarter of 2023
- $273m returned to shareholders through share repurchases in the second quarter
- Full-year adjusted EPS outlook raised to $5.20 – $5.30
Textron Inc. (NYSE: TXT) today reported second quarter 2023 income from continuing operations of $1.30 per share, as compared to $1.00 per share in the second quarter of 2022. Adjusted income from continuing operations, a non-GAAP measure that is defined and reconciled to GAAP in an attachment to this release, was $1.46 per share for the second quarter of 2023, compared to $1.11 per share in the second quarter of 2022.
“During the second quarter, revenue grew 8.6% year over year with higher revenues in all our segments,” said Textron Chairman and CEO, Scott C. Donnelly. “Operationally, execution was strong across our segments with a segment profit margin of 10.3% in the second quarter of 2023, up 140 basis points from last year’s second quarter.”
Cash Flow
Net cash provided by operating activities of the manufacturing group for the second quarter was $314m, compared to $364m last year. Manufacturing cash flow before pension contributions, a non-GAAP measure that is defined and reconciled to GAAP in an attachment to this release, totaled $242m for the second quarter, compared to $309 m last year.
In the quarter, Textron returned $273m to shareholders through share repurchases. Year to date, Textron has returned $650m to shareholders through share repurchases.
Share Repurchase Program
On July 24, 2023, Textron’s Board of Directors approved a new authorization for the repurchase of up to 35m shares, under which the company intends to purchase shares to offset the impact of dilution from stock-based compensation and benefit plans and for opportunistic capital management purposes.
Outlook
Textron now expects 2023 adjusted earnings per share from continuing operations to be in a range of $5.20 to $5.30, up from our previous outlook of $5.00 to $5.20. Textron reiterated its expectation for cash flow from continuing operations of the manufacturing group before pension contributions of $0.9bn to $1.0bn with planned pension contributions of about $50m.
Second Quarter Segment Results
Textron Aviation
Textron Aviation’s revenues were $1.4bn, up $78m from last year’s second quarter, reflecting higher pricing of $95m, partially offset by lower volume and mix.
Textron Aviation delivered 44 jets in the quarter, down from 48 last year, and 37 commercial turboprops, up from 35 in last year’s second quarter.
Segment profit was $171m in the second quarter, up $22m from a year ago, largely due to favorable pricing, net of inflation, of $52m, partially offset by an unfavorable impact from performance of $23m. Performance included unfavorable manufacturing performance, largely related to supply chain and labor inefficiencies.
Textron Aviation backlog at the end of the second quarter was $6.8 bn.
Bell
Bell revenues in the quarter were $701m, up $14m from the second quarter of 2022, due to higher pricing of $2 m, partially offset by lower military volume of $7m.
Bell delivered 35 commercial helicopters in the quarter, up from 34 last year.
Segment profit of $65m was up $11m from last year’s second quarter, due to a favorable impact from performance of $13m, largely reflecting lower research and development costs, and a favorable impact from pricing, net of inflation, of $9m, partially offset by lower volume and mix.
Bell backlog at the end of the second quarter was $5.6bn.
Textron Systems
Revenues at Textron Systems were $306m, up $13m from last year’s second quarter, largely reflecting higher volume.
Segment profit of $37m was down $1m, compared with the second quarter of 2022.
Textron Systems’ backlog at the end of the second quarter was $1.9bn.
Industrial
Industrial revenues were $1.0bn, up $155m from last year’s second quarter, largely due to higher volume and mix at both Kautex and Textron Specialized Vehicles of $121m and a $37 m favorable impact from pricing.
Segment profit of $79 m was up $42 m from the second quarter of 2022, primarily due to higher volume and mix of $32 m, and a favorable impact from pricing, net of inflation, of $17 m, principally at Kautex, partially offset by an unfavorable impact of $10 m from performance.
Textron eAviation
Textron eAviation segment revenues were $11m and segment loss was $12m in the second quarter of 2023, primarily related to research and development costs.
Finance
Finance segment revenues were $18m, and profit was $12m.
(Source: BUSINESS WIRE)