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Resilience Continues As US Majors Report Results By Julian Nettlefold

 

30 Jan 20. The results posted by the US majors this week marks continued progress in orderbooks and profitability following continued world demand for arms and the growth of the US Budget in particular. The only damper was Boeing which logged its first annual loss in more than two decades following the huge write-offs for the 737 Max debacle.

Boeing

General Dynamics

Lockheed Martin

Northrop Grumman

Raytheon

Textron

United Technologies

 

 

Boeing

29 Jan 20. Boeing Reports Fourth-Quarter Results

Fourth Quarter 2019

  • Financial results continue to be significantly impacted by the 737 MAX grounding
  • Revenue of $17.9bn, GAAP loss per share of ($1.79) and core (non-GAAP)* loss per share of ($2.33)

Full-Year 2019

  • Revenue of $76.6bn, GAAP loss per share of ($1.12) and core (non-GAAP)* loss per share of ($3.47)
  • Operating cash flow of ($2.4)bn; cash and marketable securities of $10.0bn
  • Total backlog of $463bn, including over 5,400 commercial airplanes

The Boeing Company [NYSE: BA] reported fourth-quarter revenue of $17.9bn, GAAP loss per share of ($1.79) and core loss per share (non-GAAP)* of ($2.33), primarily reflecting the impacts of the 737 MAX grounding . Boeing recorded operating cash flow of ($2.2)bn and paid $1.2bn of dividends.

“We recognize we have a lot of work to do,” said Boeing President and Chief Executive Officer David Calhoun. “We are focused on returning the 737 MAX to service safely and restoring the long-standing trust that the Boeing brand represents with the flying public. We are committed to transparency and excellence in everything we do.  Safety will underwrite every decision, every action and every step we take as we move forward. Fortunately, the strength of our overall Boeing portfolio of businesses provides the financial liquidity to follow a thorough and disciplined recovery process.”

Operating cash flow was ($2.2)bn in the quarter, primarily reflecting the impact of the 737 MAX grounding as well as timing of receipts and expenditures. During the quarter, the comp

Cash and investments in marketable securities totaled $10.0bn, compared to $10.9 bn at the beginning of the quarter. Debt was $27.3bn, up from $24.7bn at the beginning of the quarter primarily due to increased commercial paper borrowings.

Total company backlog at quarter-end was $463bn and included net orders for the quarter of $13bn.

Segment Results

Commercial Airplanes

Commercial Airplanes fourth-quarter revenue was $7.5bn and fourth-quarter operating margin decreased to (38.1) percent reflecting lower 737 deliveries and an additional pre-tax charge of $2.6bn related to estimated potential concessions and other considerations to customers related to the 737 MAX grounding. The estimated costs to produce 737 aircraft included in the accounting quantity increased by $2.6bn during the quarter, primarily to reflect updated production and delivery assumptions. In addition, the suspension of 737 MAX production and a gradual resumption of production at low production rates will result in approximately $4bn of abnormal production costs that will be expensed as incurred, primarily in 2020.

Commercial Airplanes delivered 79 airplanes during the quarter, including 45 787’s, and captured orders for 30 737 MAX aircraft at the Dubai Air Show and 2 777 freighters for Lufthansa. The 787 program also booked 36 net orders in the quarter. As previously announced, the 787 production rate will be reduced from the current rate of 14 airplanes per month to 12 airplanes per month in late 2020. Based on the current environment and near-term market outlook, the production rate is expected to be further adjusted to 10 airplanes per month in early 2021, and return to 12 airplanes per month in 2023. The first flight of the 777X was completed on January 25, and first delivery is targeted for 2021.

Commercial Airplanes backlog included over 5,400 airplanes valued at $377bn.

Defense, Space & Security

Defense, Space & Security fourth-quarter revenue decreased to $6.0bn primarily driven by lower volume across the portfolio as well as the impact of a Commercial Crew charge. Fourth-quarter operating margin decreased to 0.5 percent due to a $410m pre-tax Commercial Crew charge primarily to provision for an additional uncrewed mission for the Commercial Crew program, performance and mix. NASA is evaluating the data received during the December 2019 mission to determine if another uncrewed mission is required.

During the quarter, Defense, Space & Security received an award for 10 Space Launch System core stages and up to 8 Exploration Upper Stages. Defense, Space & Security also received contracts for the remanufacture of 47 AH-64E Apache helicopters for three countries and to upgrade the NATO Airborne Warning & Control System fleet. Significant milestones achieved during the quarter included the delivery of the first modified MV-22 Osprey to the U.S. Marine Corps and delivery of the first P-8A Poseidon aircraft to the United Kingdom Royal Air Force. Defense, Space & Security also conducted a Commercial Crew spacecraft uncrewed Orbital Flight Test.

Backlog at Defense, Space & Security was $64bn, of which 29 percent represents orders from customers outside the U.S.

Global Services

Global Services fourth-quarter revenue was $4.6bn, primarily driven by lower commercial services volume. Fourth-quarter operating margin decreased to 14.7 percent primarily due to a charge related to the retirement of the Aviall brand and mix of products and services, partially offset by a gain on divestiture.

During the quarter, Global Services was awarded V-22 support contracts for Japan and the U.S. and AH-64 and CH-47 global support for the U.S. Army. Global Services signed a multi-year Landing Gear Exchange services agreement with LATAM Airlines Group and a 5-year digital navigation renewal agreement with Saudi Arabian Airlines. Global Services also expanded its digital offerings by launching ForeFlight Dispatch and signed a contract with Flexjet to be the inaugural customer.

At quarter-end, Boeing Capital’s net portfolio balance was $2.3bn. Revenue in other unallocated items and eliminations decreased primarily due to the timing of eliminations for intercompany aircraft deliveries. The change in earnings from other unallocated items and eliminations is primarily due to higher deferred compensation expense and increased enterprise research and development investment. Interest and debt expense increased due to higher debt balances. The fourth quarter 2019 effective tax rate reflects a $371m tax benefit related to the settlement of state tax audits as well as the impact of pre-tax losses.

 

 

 

 

General Dynamics

29 Jan 20. General Dynamics Reports Fourth-Quarter and Full-Year 2019 Financial Results

  • Fourth-quarter net earnings of $1bn, up 12.2%
  • Fourth-quarter diluted EPS of $3.51, up 14.3%
  • Fourth-quarter operating margin of 12.3%, up 50 basis points
  • Full-year diluted EPS from continuing operations of $11.98, up 6.8%
  • Backlog grew 28.1% to record-high $86.9bn, for book-to-bill of 1.5-to-1 for the year

General Dynamics (NYSE: GD) today reported quarterly net earnings of $1bn on $10.8bn in revenue. Full-year earnings from continuing operations were $3.5 bn on revenue of $39.4 bn. Full-year revenue and operating earnings grew in all five segments.

Fourth-quarter’s net earnings grew 12.2% over fourth-quarter 2018. On a per share basis, diluted earnings per share (EPS) were $3.51, a 14.3% increase over the year-ago quarter. For the year, diluted EPS from continuing operations were $11.98, a 6.8% increase from 2018.

“We continue to improve performance and focus on lines of business that will deliver value for our customers and sustained superior results for our shareholders,” said Phebe N. Novakovic, chairman and chief executive officer. “Our fourth-quarter and full-year performance, coupled with strong order intake, leaves us well positioned to create enduring value.”

SEGMENT HIGHLIGHTS

Aerospace

Aerospace revenue was $2.9bn for the quarter, up 8.4% over the year-ago quarter, for full-year revenue of $9.8bn. Operating earnings were $480 m for the quarter, up 25.7% over the year-ago quarter, and $1.5 bn for the year. Operating margin was 16.4% for the quarter, up 230 basis points over the year-ago quarter, and 15.6% for the year. Backlog grew during the fourth quarter to $13.3bn, up 17.4% from the end of 2018. Book-to-bill was 1.7-to-1 for the quarter and 1.2-to-1 for the year. Gulfstream received FAA type and production certification of its G600 in the second quarter and deliveries began in the third quarter. In the fourth quarter, Gulfstream unveiled the G700 and announced the first orders for the new aircraft, scheduled to begin customer deliveries in 2022.

Combat Systems

Combat Systems reported fourth-quarter revenue of $2bn, up 13.1% over the year-ago quarter, for full-year revenue of $7 bn. Operating earnings were $284m, up 8.8% over the year-ago quarter, for full-year operating earnings of $996m. Operating margin was 14.4% for the quarter and 14.2% for the year. The segment was selected in 2019 to produce light armored vehicles for the Canadian Army. It continues to develop new platforms to meet future customer needs, including Mobile Protected Firepower and new variants of the Stryker.

Information Technology

Information Technology reported fourth-quarter revenue of $2bn and $8.4bn for the year. Operating earnings were $172m for the fourth quarter and $628 m for the year. Operating margin was 8.5% for the quarter, up 40 basis points over the year-ago quarter, and 7.5% for the year. Total backlog was $9.1bn, up 14.7% from the end of 2018. Total estimated contract value, which includes management’s estimate of value in unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised options, was $28.1bn, up 12.4% from the end of 2018. Book-to-bill was 1-to-1 for the quarter and 1.1-to-1 for the year.

Mission Systems

Mission Systems reported fourth-quarter revenue of $1.3bn, up 2.5% from the year-ago quarter, for full-year revenue of $4.9 bn. Operating earnings were $188m for the quarter, up 3.9% from the year-ago quarter, and $683m for the year. Operating margin was 14.7% for the quarter, up 20 basis points from the year-ago quarter, and 13.8% for the year. Backlog was $5.4bn. Book-to-bill was 1-to-1 for the year. Significant awards included a contract from the U.S. Navy to modernize ground stations for satellite communications systems with a maximum potential value of $730m.

Marine Systems

Marine Systems reported quarterly revenue of $2.6bn, up 11.7% from the year-ago quarter, for full-year revenue of $9.2 bn. Operating earnings were $199m for the quarter and $785m for the year. Operating margin was 7.8% for the quarter and 8.5% for the year. The award in the fourth quarter of a $22.2bn contract for Virginia-class submarines expanded the segment’s backlog to $44.2bn, up 66.1% from the end of 2018. Book-to-bill was 8.1-to-1 for the quarter and 2.9-to-1 for the year.

Lockheed Martin

 

 

 

 

28 Jan 20. Lockheed Martin Reports Fourth Quarter and Full Year 2019 Results

– Net sales of $15.9bn in the fourth quarter and $59.8bn in 2019

– Net earnings of $1.5bn, or $5.29 per share, in the fourth quarter and $6.2bn, or $21.95 per share, in 2019

– Cash from operations of $1.5bn in the fourth quarter and $7.3 bn in 2019, after discretionary pension contributions of $1.0bn

– Achieved record backlog of $144.0bn at the end of 2019

– 2020 financial outlook provided

Lockheed Martin Corporation (NYSE: LMT) today reported fourth quarter 2019 net sales of $15.9bn, compared to $14.4 bn in the fourth quarter of 2018. Net earnings in the fourth quarter of 2019 was $1.5bn, or $5.29 per share, compared to $1.3bn, or $4.39 per share, in the fourth quarter of 2018. Cash from operations in the fourth quarter of 2019 was $1.5bn, after discretionary pension contributions of $1.0bn, compared to cash from operations of $2.2bn in the fourth quarter of 2018.

Net sales in 2019 was $59.8bn, compared to $53.8bn in 2018. Net earnings in 2019 was $6.2 bn, or $21.95 per share, compared to $5.0bn, or $17.59 per share, in 2018. Cash from operations in 2019 was $7.3bn, after discretionary pension contributions of $1.0bn, compared to cash from operations of $3.1bn in 2018, after annual pension contributions of $5.0bn.

“The corporation delivered outstanding performance throughout 2019, achieving exceptional sales growth, strong earnings, cash from operations, and a record backlog,” said Lockheed Martin Chairman, President and CEO Marillyn Hewson. “As we look ahead to 2020, we remain focused on providing innovative global solutions for our customers, investing for growth across our portfolio, and generating long-term value for our shareholders.”

2020 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 typical practice not to incorporate adjustments into its financial outlook for proposed acquisitions, divestitures, joint ventures, changes in law, or new accounting standards until such items have been consummated, enacted or adopted. For additional factors that may impact the corporation’s actual results, refer to the “Forward-Looking Statements” section in this news release.

The corporation expects the 2020 net FAS/CAS pension benefit to be approximately $2.1bn based on a 3.25 percent discount rate (a 100 basis point decrease from the end of 2018), an approximate 21 percent return on plan assets in 2019, a 7.0 percent expected long-term rate of return on plan assets in future years (unchanged from the end of 2018), and the revised longevity assumptions released during the fourth quarter of 2019 by the Society of Actuaries. As a result of the $1.0bn in contributions to its qualified defined benefit pension plans in 2019, the corporation does not expect to make contributions to its qualified defined benefit pension plans in 2020.

The corporation projects FAS pension income in 2020, compared to FAS pension expense in 2019, as a result of completing the planned freeze of its salaried pension plans effective Jan. 1, 2020 that was previously announced on July 1, 2014. The corporation’s FAS pension expense is comprised of service cost, interest cost, expected return on plan assets, amortization of prior service credit, and amortization of actuarial losses. The service cost and amortization of actuarial losses components of FAS pension expense are significantly lower due to the freeze. As a result, the expected return on plan assets and amortization of prior service credit exceed all other FAS pension expense components in 2020. For additional information regarding the corporation’s FAS pension expense or income and CAS pension cost, see the corporation’s Annual Report on Form 10-K for the year ended Dec. 31, 2018.

Cash Activities

The corporation’s cash activities in the quarter and year ended Dec. 31, 2019 consisted of the following:

  • repurchasing 1.3 m shares for $490m and 3.5m shares for $1.2bn during the quarter and year ended Dec. 31, 2019, compared to 2.2 m shares for $666m and 4.7m shares for $1.5bn during the quarter and year ended Dec. 31, 2018;
  • paying cash dividends of $675m and $2.6bn during the quarter and year ended Dec. 31, 2019, compared to $622m and $2.3bn during the quarter and year ended Dec. 31, 2018;
  • making discretionary pension contributions of $1.0bn during the quarter and year ended Dec. 31, 2019, compared to making no pension contributions for the quarter ended Dec. 31, 2018 and $5.0bn in pension contributions during the year ended Dec. 31, 2018;
  • repayments of $900m of long-term debt upon scheduled maturity during the quarter and year ended Dec. 31, 2019; compared to repayments of $750m of long-term debt during the quarter and year ended Dec. 31, 2018; and
  • making capital expenditures of $643m and $1.5bn during the quarter and year ended Dec. 31, 2019, compared to $459m and $1.3bn during the quarter and year ended Dec. 31, 2018.

Segment Results

The corporation operates in four business segments organized based on the nature of products and services offered: Aeronautics, Missiles and Fire Control (MFC), Rotary and Mission Systems (RMS) and Space. The following table presents summary operating results of the corporation’s business segments and reconciles these amounts to the corporation’s consolidated financial results.

Net sales and operating profit of the corporation’s business segments exclude intersegment sales, cost of sales, and profit as these activities are eliminated in consolidation. Operating profit of the corporation’s business segments includes the corporation’s share of earnings or losses from equity method investees as the operating activities of the investees are closely aligned with the operations of its business segments.

Operating profit of the corporation’s business segments also excludes the FAS/CAS operating adjustment described below, a portion of corporate costs not considered allowable or allocable to contracts with the U.S. Government under the applicable U.S. Government cost accounting standards (CAS) or federal acquisition regulations (FAR), and other items not considered part of management’s evaluation of segment operating performance such as a portion of management and administration costs, legal fees and settlements, environmental costs, stock-based compensation expense, retiree benefits, significant severance actions, significant asset impairments, gains or losses from significant divestitures, and other miscellaneous corporate activities.

The corporation recovers CAS pension cost through the pricing of its products and services on U.S. Government contracts and, therefore, recognizes CAS pension cost in each of its business segments’ net sales and cost of sales. The corporation’s consolidated financial statements must present pension and other postretirement benefit plan expense calculated in accordance with U.S. generally accepted accounting principles (referred to as FAS expense). The operating portion of the net FAS/CAS pension adjustment represents the difference between the service cost component of FAS pension expense and CAS pension cost. The non-service FAS pension expense component is included in other non‑operating expense on the corporation’s consolidated statements of earnings. The net FAS/CAS pension adjustment increases or decreases CAS pension cost to equal total FAS pension expense (both service and non-service).

Changes in net sales and operating profit generally are expressed in terms of volume. Changes in volume refer to increases or decreases in sales or operating profit resulting from varying production activity levels, deliveries or service levels on individual contracts. Volume changes in segment operating profit are typically based on the current profit booking rate for a particular contract. In addition, comparability of the corporation’s segment sales, operating profit and operating margin may be impacted favorably or unfavorably by changes in profit booking rates on the corporation’s contracts for which it recognizes revenue over time using the percentage-of-completion cost-to-cost method to measure progress towards completion. Increases in profit booking rates, typically referred to as risk retirements, usually relate to revisions in the estimated total costs to fulfill the performance obligations that reflect improved conditions on a particular contract. Conversely, conditions on a particular contract may deteriorate, resulting in an increase in the estimated total costs to fulfill the performance obligations and a reduction in the profit booking rate. Increases or decreases in profit booking rates are recognized in the current period and reflect the inception-to-date effect of such changes.

Segment operating profit and margin may also be impacted favorably or unfavorably by other items, which may or may not impact sales. Favorable items may include the positive resolution of contractual matters, cost recoveries on severance and restructuring charges, insurance recoveries and gains on sales of assets. Unfavorable items may include the adverse resolution of contractual matters; restructuring charges, except for significant severance actions which are excluded from segment operating results; reserves for disputes; certain asset impairments; and losses on sales of certain assets.

The corporation’s consolidated net adjustments not related to volume, including net profit booking rate adjustments, represented approximately 25 percent and 28 percent of total segment operating profit in the quarter and year ended Dec. 31, 2019 as compared to 29 percent and 32 percent in the quarter and year ended Dec. 31, 2018.

Aeronautics

Aeronautics’ net sales in the fourth quarter of 2019 increased $500m, or 9 percent, compared to the same period in 2018. The increase was primarily attributable to higher net sales of approximately $390m for the F-35 program due to increased volume on sustainment and development contracts; and about $100m for higher volume on classified programs.

Aeronautics’ operating profit in the fourth quarter of 2019 increased $53m, or 8 percent, compared to the same period in 2018. Operating profit increased approximately $70 m for the F-35 program due to higher volume and risk retirements on sustainment and development contracts and higher risk retirements on production contracts. Adjustments not related to volume, including net profit booking rate adjustments, were comparable in the fourth quarter of 2019 compared to the same period in 2018.

Aeronautics’ net sales in 2019 increased $2.5bn, or 12 percent, compared to 2018. The increase was primarily attributable to higher net sales of approximately $2.0bn for the F-35 program due to increased volume on production, sustainment and development contracts; and about $350m for higher volume on classified programs.

Aeronautics’ operating profit in 2019 increased $249m, or 11 percent, compared to 2018. Operating profit increased approximately $210m for the F-35 program due to increased volume on production, sustainment and development contracts; and about $50m for the F-16 program due to higher risk retirements on sustainment contracts. These increases were partially offset by a decrease of $20m on the F-22 program due to lower risk retirements.  Adjustments not related to volume, including net profit booking rate adjustments, were $25m lower in 2019 compared to 2018.

Missiles and Fire Control

MFC’s net sales in the fourth quarter of 2019 increased $342m, or 14 percent, compared to the same period in 2018. The increase was primarily attributable to higher net sales of approximately $250m for tactical and strike missile programs due to increased volume (primarily precision fires and new hypersonic development programs); about $85m for integrated air and missile defense programs due to increased volume (primarily Patriot Advanced Capability-3 (PAC-3) and Terminal High Altitude Area Defense (THAAD)); and about $50m for sensors and global sustainment programs due to higher volume (primarily Special Operations Forces Global Logistics Support Services (SOF GLSS)). These increases were partially offset by a decrease of $35m as a result of lower volume on energy programs and the divestiture of the Distributed Energy Solutions business in November 2019.

MFC’s operating profit in the fourth quarter of 2019 decreased $28m, or 7 percent, compared to the same period in 2018. Operating profit decreased approximately $25m for sensors and global sustainment programs due to lower risk retirements (primarily Low Altitude Navigation and Targeting Infrared for Night (LANTIRN®) and Sniper Advanced Targeting Pod (SNIPER®)).  Operating profit on tactical and strike missile programs was comparable as higher volume (primarily precision fires) was offset by lower risk retirements (primarily Javelin). Adjustments not related to volume, including net profit booking rate adjustments, were $55m lower in the fourth quarter of 2019 compared to the same period in 2018.

MFC’s net sales in 2019 increased $1.7bn, or 20 percent, compared to 2018. The increase was primarily attributable to higher net sales of approximately $940m for tactical and strike missile programs due to increased volume (primarily precision fires, new hypersonic development programs, and classified development programs); about $465m for integrated air and missile defense programs due to increased volume (primarily PAC-3 and THAAD); and about $300 m for sensors and global sustainment programs due to increased volume (primarily SOF GLSS and Apache).

MFC’s operating profit in 2019 increased $193m, or 15 percent, compared to 2018. Operating profit increased approximately $100m for integrated air and missile defense programs due to higher volume and higher risk retirements (primarily PAC-3 and THAAD); and about $60m for tactical and strike missile programs due to higher volume (primarily precision fires), partially offset by lower risk retirements (primarily Hellfire and Javelin). Operating profit on sensors and global sustainment programs was comparable as higher volume (primarily Apache and SOF GLSS) was offset by lower risk retirements (primarily LANTIRN and SNIPER), after a net decrease in charges of $55 m on international military programs. Adjustments not related to volume, including net profit booking rate adjustments, were $30m lower in 2019 compared to 2018.

Rotary and Mission Systems

RMS’ net sales in the fourth quarter of 2019 increased $276m, or 8 percent, compared to the same period in 2018. The increase was primarily attributable to higher net sales of approximately $160m for training and logistics (TLS) programs due to higher volume (primarily an army sustainment program); about $110m for C6ISR (command, control, communications, computers, cyber, combat systems, intelligence, surveillance, and reconnaissance) programs due to higher volume (primarily undersea combat systems programs); and about $45m for integrated warfare systems and sensors (IWSS) programs due to higher volume (primarily Littoral Combat Ship (LCS) and Aegis). These increases were partially offset by a decrease of approximately $40m for Sikorsky helicopter programs due to lower volume (primarily mission systems programs).

RMS’ operating profit in the fourth quarter of 2019 increased $64m, or 22 percent, compared to the same period in 2018. Operating profit increased approximately $70m for Sikorsky helicopter programs due to better cost performance across the portfolio, customer mix, and higher risk retirements; and about $20 m for IWSS primarily due to reserves recorded for performance matters on two programs in the fourth quarter of 2018.  These increases were partially offset by a $20m decrease for C6ISR due to lower risk retirements (primarily undersea combat systems programs).  Operating profit on TLS programs was comparable as increased volume was offset by lower risk retirements.  Adjustments not related to volume, including net profit booking rate adjustments, were $20m lower during the fourth quarter of 2019 compared to the same period in 2018.

RMS’ net sales in 2019 increased $878m, or 6 percent, compared to 2018. The increase was primarily attributable to higher net sales of approximately $535m for IWSS programs due to higher volume (primarily LCS, radar surveillance systems programs, Multi Mission Surface Combatant (MMSC), and Aegis); about $290m for various TLS programs due to higher volume (primarily an army sustainment program); and about $200m for various C6ISR programs due to higher volume (primarily undersea combat systems and cyber solutions programs). These increases were partially offset by a decrease of approximately $145m for Sikorsky helicopter programs due to lower volume (primarily Black Hawk production, mission systems programs, and commercial aircraft).

RMS’ operating profit in 2019 increased $119m, or 9 percent, compared to 2018. Operating profit increased approximately $105m for Sikorsky helicopter programs primarily due to better cost performance across the portfolio, customer mix, and higher risk retirements; and about $55m for IWSS programs due to higher volume (primarily radar surveillance systems programs, LCS, and Aegis), after $50m in charges in the first quarter of 2019 for a ground-based radar program. These increases were partially offset by a decrease of $50m for TLS programs due to $80 m in charges primarily recorded in the second quarter of 2019 for an army sustainment program partially offset by lower charges on various other programs. Adjustments not related to volume, including net profit booking rate adjustments, were $65m lower in 2019 compared to 2018.

Space

Space’s net sales in the fourth quarter of 2019 increased $349m, or 14 percent, compared to the same period in 2018. The increase was primarily attributable to higher net sales of approximately $190 m for strategic and missile defense programs due to higher volume (primarily new hypersonic development programs); and about $160m for government satellite programs due to higher volume (primarily Next Generation Overhead Persistent Infrared (Next Gen OPIR), Global Positioning System (GPS) III and government satellite services).

Space’s operating profit in the fourth quarter of 2019 increased $36m, or 16 percent, compared to the same period in 2018. Operating profit increased approximately $40 m for government satellite programs due to higher risk retirements (primarily Advanced Extremely High Frequency (AEHF)) and higher volume (primarily Next Gen OPIR and GPS III); and about $25m for strategic and missile defense programs due to higher volume and risk retirements (primarily fleet ballistic missile programs).  These increases were partially offset by a decrease of $25m due to lower equity earnings at United Launch Alliance (ULA). Adjustments not related to volume, including net profit booking rate adjustments, were $35m higher in the fourth quarter of 2019 compared to the same period in 2018.

Space’s net sales in 2019 increased $1.1bn, or 11 percent, compared to 2018. The increase was primarily attributable to higher net sales of approximately $690 m for government satellite programs due to higher volume (primarily Next Gen OPIR, GPS III and government satellite services); and about $355 m for strategic and missile defense programs due to higher volume (primarily new hypersonic development programs).

Space’s operating profit in 2019 increased $136m, or 13 percent, compared to 2018. Operating profit increased approximately $125m for government satellite programs due to higher risk retirements (primarily AEHF) and higher volume (primarily GPS III and government satellite services); and about $45m for commercial satellite programs, which reflect a lower amount of charges recorded for performance matters. These increases were partially offset by a decrease of approximately $65m due to lower equity earnings for ULA.  Operating profit on strategic and missile defense programs was comparable as higher volume (primarily hypersonic development programs) was offset by lower risk retirements (primarily missile defense programs). Adjustments not related to volume, including net profit booking rate adjustments, were $120m higher in 2019 compared to 2018.

Total equity earnings recognized by Space (primarily ULA) represented approximately $5m, or 2 percent, and approximately $145m, or 12 percent, of this business segment’s operating profit during the quarter and year ended Dec. 31, 2019, compared to approximately $30m, or 13 percent and approximately $210m, or 20 percent, during the quarter and year ended Dec. 31, 2018.

Income Taxes

The corporation’s effective income tax rate was 18.2 percent and 14.0 percent in the quarter and year ended Dec. 31, 2019, compared to 15.5 percent and 13.6 percent in the quarter and year ended Dec. 31, 2018. The rate for the quarter ended Dec. 31, 2019 is higher than the rate for the quarter ended Dec. 31, 2018 primarily due to less tax deductions for foreign derived intangible income and research and development tax credits. The rate for the year ended Dec. 31, 2019 benefited from additional tax deductions for the prior year, primarily attributable to foreign derived intangible income treatment based on proposed tax regulations released on March 4, 2019. The rate for the year ended Dec. 31, 2018 benefited from additional tax deductions for the prior year, primarily attributable to true-ups to the net one-time charges related to the Tax Cuts and Jobs Act enacted on Dec. 22, 2017.  The rates for the years ended Dec. 31, 2019 and Dec. 31, 2018 benefited from the corporation’s changes in tax accounting method, recorded discretely in the third quarter of each year, reflecting a 2012 Court of Federal Claims decision, which held that the tax basis in certain assets should be increased and realized upon the assets’ disposition. The rates for all periods also benefited from tax deductions for foreign derived intangible income, the research and development tax credit, tax deductions for employee equity awards, and tax deductions for dividends paid to the corporation’s defined contribution plans with an employee stock ownership plan feature.

Northrop Grumman

 

 

 

30 Jan 20. Northrop Grumman Fourth Quarter and Full-Year 2019 Financial Results

• 2019 Net Awards Total $45.2bn

• Total Backlog Increases 21 percent to $64.8bn; 2019 Book-to-bill 1.3

• Q4 Sales Increase 7 Percent to $8.7bn; 2019 Sales Increase 12 Percent to $33.8bn

• Q4 EPS of $(2.43); Q4 Mark-to-Market (MTM)-adjusted EPS1 of $5.61;

• 2019 EPS of $13.22; 2019 MTM-adjusted EPS1 of $21.21 versus Guidance of $20.10 to $20.35

• 2019 Cash from Operations of $4.3bn; 2019 Free Cash Flow1 of $3.0 Bn

• Expects 2020 Sales of $35.3 to $35.8bn, MTM-adjusted EPS1 of $22.75 to $23.15 and Free Cash Flow1 of $3.15 to $3.45bn

Northrop Grumman Corporation (NYSE: NOC) reported fourth quarter 2019 sales increased 7 percent to $8.7bn, and 2019 sales increased 12 percent to $33.8bn. The company adopted the mark-to-market method of accounting for its pension and other postretirement benefits as of Dec. 31, 2018. Under this method the company recorded a $1.4bn after-tax MTM expense, which resulted in a fourth quarter 2019 net loss of $409m and 2019 net earnings of $2.2bn. Excluding this expense, MTMadjusted fourth quarter 2019 net earnings1 increased 12 percent to $949m, or $5.61 per share, and 2019 MTM-adjusted net earnings1 totaled $3.6bn, or $21.21 per share.

“Northrop Grumman delivered strong results in 2019, and we continue to create sustained value for our shareholders and customers through an unwavering focus on performance, innovation and agility,” said Kathy Warden, chairman, chief executive officer and president. “With our diverse portfolio, we are positioned to meet our customers’ current and emerging needs.”

MTM-adjusted Earnings and EPS Net earnings for both the fourth quarter and 2019 were reduced by a $1.4 bn after-tax MTM expense. Excluding this expense, fourth quarter 2019 MTM-adjusted net earnings1 increased 12 percent and 2019 MTM-adjusted net earnings1 decreased 3 percent. MTMadjusted earnings1 and EPS1 are the measures the company uses to compare performance to prior periods and for EPS guidance.

Sales

Fourth quarter 2019 sales increased $565m, or 7 percent, principally due to higher sales at Aerospace Systems, Mission Systems and Innovation Systems. 2019 sales increased $3.7bn reflecting a full year of sales from Innovation Systems as well as higher sales at Aerospace Systems and Mission Systems, partially offset by lower sales at Technology Services. Operating Income and Margin Rate Fourth quarter 2019 operating income increased 20 percent primarily due to lower unallocated corporate expense and higher segment operating income, partially offset by a decrease in the net FAS (service)/CAS pension adjustment. Fourth quarter 2019 unallocated corporate expense includes an $89m benefit for the favorable resolution of a cost accounting matter. Operating margin rate increased to 13.0 percent. 2019 operating income increased 5 percent, primarily due to a $462m increase in segment operating income, reflecting a full year of Innovation Systems operating income.

This was partially offset by a lower net FAS (service)/CAS pension adjustment and higher unallocated corporate expense. 2018 unallocated corporate expense included a $223m benefit for the finalization of certain prior year cost claims. Operating margin rate declined to 11.7 percent largely due to the pension and unallocated items noted above. Segment Operating Income and Margin Rate Fourth quarter 2019 segment operating income increased 10 percent, principally due to higher segment operating income at Mission Systems, Aerospace Systems and Innovation Systems. 2019 segment operating margin rate increased to 11.7 percent principally due to higher operating margin rates at Mission Systems and Innovation Systems. 2019 segment operating income increased $462m, or 13 percent, reflecting a full year of Innovation Systems operating income as well as higher operating income at the other three sectors. Segment operating margin rate of 11.6 percent was comparable to the prior year. Federal and Foreign Income Taxes The fourth quarter 2019 effective tax rate increased to 28.1 percent from 11.7 percent in the fourth quarter of 2018. MTM expense increased the fourth quarter 2019 effective tax rate by 10.7 percentage points and decreased the fourth quarter 2018 effective tax rate by 5.7 percentage points.

The 2019 effective tax rate decreased to 11.8 percent from 13.7 percent in 2018. MTM expense reduced the 2019 effective tax rate by 3.7 percentage points and the 2018 effective tax rate by 1.1 percentage points. 2019 Cash Flow Highlights 2019 cash provided by operating activities increased $470m principally due to improved trade working capital and lower pension contributions. The company made a $120m pre-tax discretionary contribution to its pension plans in the fourth quarter of 2019 and made pre-tax discretionary contributions of $280m to its pension plans in 2018. After capital spending of $1.3bn, 2019 free cash flow1 increased $455m to $3.0bn.

Awards and Backlog Fourth quarter 2019 net awards totaled $9.3bn, and for 2019 totaled $45.2bn. Total backlog increased to $64.8bn as of December 31, 2019. Significant new awards in the fourth quarter include $915m in connection with an international training program, $721m for restricted space programs, $302m for the Joint STARS program, $252m for Triton lowrate initial production and $216 m for Scalable Agile Beam Radar (SABR).

Segment Operating Results

AEROSPACE SYSTEMS

Fourth quarter and 2019 sales increased $321m, or 10 percent, and $766m, or 6 percent, respectively, due in large part to higher volume on restricted programs. In addition, manned aircraft sales reflect a higher rate of production activity on the F-35 program and higher volume on the E-2 program. Space sales reflect higher volume on Next Gen OPIR. Autonomous Systems sales include higher Global Hawk volume and lower NATO AGS volume as that program nears completion. Operating Income Fourth quarter 2019 operating income increased 9 percent due to higher sales, and operating margin rate of 10.4 percent was comparable to the prior year period. 2019 operating income increased 2 percent, due to higher sales. 2019 operating margin rate decreased to 10.3 percent from 10.8 percent principally due to lower net favorable EAC adjustments.

INNOVATION SYSTEMS

Fourth quarter 2019 sales increased $138m, or 9 percent due to higher sales in all three business areas. Space Systems sales increased due to higher volume on national security satellite systems. Flight Systems sales reflect higher volume on propulsion systems. Defense Systems sales increased due to higher volume on tactical missiles and subsystems.

2019 sales increased $541m, or 10 percent, compared with 2018 pro forma sales of $5.6bn, due to higher sales in all three business areas. Flight Systems sales reflect higher volume on military aerospace structures and launch vehicles. Space Systems sales reflect higher volume on national security satellite systems. Defense Systems sales increased due to higher volume on tactical missiles and subsystems, including the AARGM-ER and Guided Multiple Launch Rocket System programs. Operating Income Fourth quarter 2019 operating income increased 20 percent due to higher sales and a higher operating margin rate. Operating margin rate increased to 10.7 percent primarily due to improved performance at Flight Systems and Space Systems. 2019 operating income totaled $671m and operating margin rate was 11.0 percent. Year to date results benefited from favorable negotiations on certain contracts.

MISSION SYSTEMS

Fourth quarter 2019 sales increased $179m, or 6 percent due to higher sales in all three business areas. Advanced Capabilities sales increased primarily due to higher volume on the Poland IBCS program as well as restricted and marine systems programs. Cyber and ISR sales reflect higher volume on space and restricted programs. Sensors and Processing sales increased principally due to higher volume on airborne radar programs, partially offset by lower volume on electronic warfare and communications programs. 2019 sales increased $554m, or 5 percent, due to higher sales in all three business areas. Advanced Capabilities sales increased principally due to higher volume on restricted and marine systems programs. Sensors and Processing sales increased principally due to higher volume on airborne radar and restricted programs, partially offset by lower volume on communications programs. Cyber and ISR sales increased principally due to higher volume on space and restricted programs. Operating Income Fourth quarter 2019 operating income increased 13 percent due to higher sales and a higher operating margin rate. Operating margin rate increased to 14.0 percent from 13.1 percent due to a $20m gain on a property sale and improved performance on Advanced Capabilities programs. 2019 operating income increased $119m, or 8 percent, due to higher sales and a higher operating margin rate. Operating margin rate increased to 13.4 percent from 13.0 percent primarily due to improved performance on Advanced Capabilities and Sensors and Processing programs, partially offset by lower performance on Cyber and ISR programs.

TECHNOLOGY SERVICES

Fourth quarter 2019 sales decreased $43m, or 4 percent primarily due to program completions. Global Services sales declined principally due to the 2018 completion of a state and local services contract. Lower Global Logistics and Modernization sales reflect reduced volume on manned aircraft programs, partially offset by higher volume on autonomous platforms and systems. 2019 sales decreased $187m, or 4 percent, primarily due to program completions across the sector. Global Services sales declined principally due to the 2018 completions of a state and local services contract and the JRDC program, partially offset by higher volume on a civil program. Global Logistics and Modernization sales declined primarily due to the 2018 completion of the KC-10 program, partially offset by higher volume on electronic systems sustainment programs. Operating Income Fourth quarter 2019 operating income decreased 8 percent and operating margin rate decreased to 10.4 percent compared with 10.8 percent in the prior year period, primarily due to a benefit recognized in 2018 for the close-out of a state and local services contract. 2019 operating income increased 3 percent, and operating margin rate increased to 11.1 percent from 10.3 percent primarily due to improved performance in both business areas, including a favorable adjustment on a Global Logistics and Modernization sustainment program.

Raytheon

 

 

30 Jan 20. Raytheon Reports Strong Fourth Quarter and Full-Year 2019 Results

– Record bookings of $12.1bn in the quarter and $36.3bn for the year; strong book-to-bill ratio of 1.54 in the quarter and 1.25 for the year

– Record backlog of $48.8bn, up 15 percent year-over-year

– Fourth quarter net sales of $7.8bn, up 6.5 percent; full-year net sales of $29.2bn, up 7.8 percent

– Fourth quarter EPS from continuing operations of $3.16; full-year EPS from continuing operations of $11.92

– Strong operating cash flow from continuing operations of $2.8bn in the quarter and a record $4.5bn for the year

– Raytheon and United Technologies merger of equals targeted to close early in the second quarter of 2020

Raytheon Company (NYSE: RTN) today announced net sales for the fourth quarter 2019 of $7.8 bn, up 6.5 percent compared to $7.4bn in the fourth quarter 2018. Fourth quarter 2019 EPS from continuing operations was $3.16 compared to $2.93 in the fourth quarter 2018. The increase in the fourth quarter 2019 EPS from continuing operations was primarily driven by operational improvements.

Net sales in 2019 were $29.2bn, up 7.8 percent compared to $27.1bn in 2018. Full-year 2019 EPS from continuing operations was $11.92 compared to $10.15 for the full-year 2018.

The previously announced merger with United Technologies is targeted to close early in the second quarter of 2020, subject to the satisfaction of customary closing conditions, including receipt of required regulatory approvals, as well as completion by United Technologies of the separation of its Otis and Carrier businesses.

“Raytheon had a very successful year in 2019, delivering record bookings, backlog, sales and operating cash flow,” said Thomas A. Kennedy, Raytheon Chairman and CEO. “Our results reflect the continued hard work and dedication of the Raytheon team and position us well for the future.

“Integration planning for the merger with United Technologies is progressing well, with the integration team developing detailed execution plans to capture revenue and cost synergies rapidly and ensure seamless operations post close. Our goal is to close the merger early in the second quarter of 2020.”

The company generated strong operating cash flow for both the fourth quarter and full-year 2019. Operating cash flow from continuing operations was $2.8bn for the fourth quarter 2019 and $4.5bn for the full-year 2019, and was better than the company’s prior guidance primarily due to improved working capital. Operating cash flow from continuing operations was $2.4bn for the fourth quarter 2018. Operating cash flow from continuing operations was $3.4bn for the full-year 2018, after making a $1.25 bn pretax discretionary pension contribution in the third quarter 2018.

The company had record bookings of $12.1 bn in the fourth quarter 2019, resulting in a book-to-bill ratio of 1.54. Fourth quarter 2018 bookings were $8.4 bn. Full-year 2019 bookings were a record $36.3 bn, resulting in a book-to-bill ratio of 1.25. Full-year 2018 bookings were $32.2 bn.

In addition, as previously announced, in the fourth quarter 2019, Raytheon was selected by the U.S. Army to develop the Lower Tier Air and Missile Defense Sensor (LTAMDS).

Backlog at the end of 2019 was a record $48.8 bn, an increase of $6.3 bn or 15 percent compared to the end of 2018.

The company’s reportable segments are: Integrated Defense Systems (IDS); Intelligence, Information and Services (IIS); Missile Systems (MS); Space and Airborne Systems (SAS); and Forcepoint™.

Integrated Defense Systems (IDS)

Integrated Defense Systems (IDS) had fourth quarter 2019 net sales of $1,981m, up 18 percent compared to $1,684m in the fourth quarter 2018. IDS had full-year 2019 net sales of $6,927m compared to $6,180m in 2018. The increase in net sales for both the quarter and the full-year was primarily driven by higher net sales on an international air and missile defense system program awarded in the third quarter 2019 and an international missile defense radar program.

IDS recorded $307m of operating income in the fourth quarter 2019 compared to $247m in the fourth quarter 2018. The increase in operating income for the quarter was primarily driven by higher volume and higher net program efficiencies. IDS recorded $1,111m of operating income in 2019 compared to $1,023m in 2018. The increase in operating income for the full-year was primarily driven by higher volume.

During the quarter, IDS booked $1.1bn on two direct commercial contracts to provide advanced Patriot® air and missile defense capability to existing international customers; $365 m on the Air and Missile Defense Radar (AMDR) program for the U.S. Navy; $144 m on the Army Navy/Transportable Radar Surveillance-Model 2 (AN/TPY-2) radar program for the Kingdom of Saudi Arabia (KSA); $134 m to provide Consolidated Contractor Logistics Support (CCLS) for the Missile Defense Agency (MDA); and $118 m on the Aegis weapon system for the U.S. Navy and international customers.

Intelligence, Information and Services (IIS)

Intelligence, Information and Services (IIS) had fourth quarter 2019 net sales of $1,742m, up 2 percent compared to $1,711m in the fourth quarter 2018. IIS had full-year 2019 net sales of $7,151m compared to $6,722m in 2018. The increase in net sales for the full-year was primarily driven by higher net sales on classified programs in both cyber and space.

IIS recorded $149 m of operating income in the fourth quarter 2019 compared to $144m in the fourth quarter 2018. IIS recorded $658 m of operating income in 2019 compared to $538m in 2018. The increase in operating income for the full-year was primarily driven by higher net program efficiencies, higher volume, and a change in mix and other performance, including $48m of gains discussed in previous quarters.

During the quarter, IIS booked $623m on a number of classified programs. IIS also booked $206m on the Development, Operations and Maintenance (DOMino) Cyber program for the Department of Homeland Security (DHS).

Missile Systems (MS)

Missile Systems (MS) had fourth quarter 2019 net sales of $2,345m, up 1 percent compared to $2,317m in the fourth quarter 2018. MS had full-year 2019 net sales of $8,726m compared to $8,298m in 2018. The increase in net sales for the full-year was primarily due to higher net sales on classified programs.

MS recorded $297m of operating income in the fourth quarter 2019 compared to $273m in the fourth quarter 2018. The increase in operating income for the quarter was primarily driven by a favorable change in program mix and higher net program efficiencies. MS recorded $959m of operating income in 2019 compared to $973m in 2018. The decrease in operating income for the full-year was primarily due to lower net program efficiencies, partially offset by higher volume.

During the quarter, MS booked $1,033m for Standard Missile-6 (SM-6®) for the U.S. Navy; $893 m for Standard Missile-3 (SM-3®) for the MDA and an international customer; $795m for Advanced Medium-Range Air-to-Air Missiles (AMRAAM®) for the U.S. Air Force, U.S. Navy, and international customers; $290 m for Paveway™ for the U.S. Air Force and international customers; $155 m for Evolved Seasparrow Missile (ESSM®) for the U.S. Navy and international customers; and $109 m for Miniature Air Launched Decoy (MALD®) for the U.S. Navy. MS also booked $1,570 m on a number of classified contracts.

Space and Airborne Systems (SAS)

Space and Airborne Systems (SAS) had fourth quarter 2019 net sales of $2,018m, up 7 percent compared to $1,880m in the fourth quarter 2018. SAS had full-year 2019 net sales of $7,427m compared to $6,748m in 2018. The increase in net sales for both the quarter and the full-year was primarily driven by higher net sales on classified programs, the Next Generation Overhead Persistent Infrared (Next Gen OPIR) program, and tactical communication systems programs.

SAS recorded $278m of operating income in the fourth quarter 2019 compared to $262m in the fourth quarter 2018. SAS recorded $991 m of operating income in 2019 compared to $884m in 2018. The increase in operating income for both the quarter and the full-year was primarily due to higher volume and, as expected, included a $21m gain from the sale of real estate.

During the quarter, SAS booked $398m on the Next Generation Jammer (NGJ) program for the U.S. Navy; $239m for airborne radars for the U.S. Navy; and $120m for the Multi-Spectral Targeting System (MTS) for various U.S. government customers. SAS also booked $172m on a number of classified contracts.

Forcepoint™.

Forcepoint had fourth quarter 2019 net sales of $177m, up 3 percent compared to $172m in the fourth quarter 2018. Forcepoint had full-year 2019 net sales of $658 m compared to $634m in 2018.

Forcepoint recorded $6 m of operating income in the fourth quarter 2019 compared to $2m in the fourth quarter 2018. Forcepoint recorded $8 m of operating income in 2019 compared to $5m in 2018.

During the fourth quarter 2019, Raytheon acquired Vista Equity Partners’ interest in Forcepoint for $588m. Forcepoint is now wholly owned by Raytheon.

Textron

 

 

 

29 Jan 20. Textron Inc. (NYSE: TXT) today reported fourth quarter 2019 net income of $0.87 per share. Adjusted net income, a non-GAAP measure that is defined and reconciled to GAAP in an attachment to this release, was $1.11 per share for the fourth quarter of 2019, compared to $1.15 per share in the fourth quarter of 2018. Adjusted net income for 2019 excludes $72m of pre-tax special charges ($0.24 per share, after-tax) recorded in the fourth quarter, primarily related to restructuring activities announced in December 2019.

  • Revenue growth of $285m, up 7.6% from prior year
  • The new Citation Longitude enters service with 13 aircraft deliveries in the quarter
  • EPS of $0.87; adjusted EPS of $1.11, excluding fourth quarter special charges
  • 2020 full-year EPS outlook of $3.50 – $3.70

Full-year 2019 net income was $3.50 per share. Full-year 2019 adjusted net income, a non-GAAP measure, was $3.74 per share, up from $3.34 in 2018.

“Textron Aviation saw double digit revenue growth in the quarter driven largely by initial deliveries of our new Citation Longitude, reflecting our continued investment in new products,” said Textron Chairman and CEO Scott C. Donnelly. “We also saw growth from strong commercial volume at Bell.”

Cash Flow

Net cash provided by operating activities of continuing operations of the manufacturing group for the full year was $960m, compared to $1,127m last year. Manufacturing cash flow before pension contributions, a non-GAAP measure that is defined and reconciled to GAAP in an attachment to this release, was $642 m compared to $784m last year.

For the full year, Textron returned $503 m to shareholders through share repurchases.

Outlook

Textron is forecasting 2020 revenues of approximately $14bn, up from $13.6bn. Textron expects full-year 2020 earnings per share will be in the range of $3.50 to $3.70.

The company is estimating net cash provided by operating activities of continuing operations of the manufacturing group will be between $1,010m and $1,110m and manufacturing cash flow before pension contributions (a non-GAAP measure) will be between $700 m and $800 m, with planned pension contributions of about $50m.

Fourth Quarter Segment Results

Textron Aviation

Revenues at Textron Aviation of $1.7bn were up 11%, primarily due to higher volume and mix, largely reflecting the Longitude’s entry into service.

Textron Aviation delivered 71 jets, up from 63 last year, and 59 commercial turboprops, down from 67 last year.

Segment profit was $134m in the fourth quarter, down from $170m a year ago, primarily due to the mix of products sold and an unfavorable impact from inflation, net of pricing.

Textron Aviation backlog at the end of the fourth quarter was $1.7bn.

Bell

Bell revenues were $961m, up 16% from $827m last year, primarily on higher commercial volume.

Bell delivered 76 commercial helicopters in the quarter, up from 46 last year.

Segment profit of $118m was up $10m, largely on the higher commercial volume.

Bell backlog at the end of the fourth quarter was $6.9bn.

Textron Systems

Revenues at Textron Systems were $399m, up 16% from $345m last year, primarily due to higher volume.

Segment profit of $33m was down from $37m last year, due to unfavorable performance, partially offset by higher volume and mix.

Textron Systems’ backlog at the end of the fourth quarter was $1.2bn.

Industrial

Industrial revenues were $927m, a decrease of $81m from last year, largely related to lower volume and mix primarily at Textron Specialized Vehicles, principally reflecting a shift in the timing of snow sales to the third quarter of 2019.

Segment profit was down $29m from the fourth quarter of 2018, largely due to volume and mix at Kautex and the lower volume at Textron Specialized Vehicles, partially offset by favorable performance.

United Technologies

 

 

 

 

28 Jan 20. United Technologies Reports 2019 Results

  • Reports record sales, adjusted earnings per share and free cash flow in 2019; Announces 2020 outlook for Pratt & Whitney and Collins Aerospace

Fourth Quarter 2019

  • Sales of $19.6bn, up 8 percent versus prior year, including 1 percent organic growth
  • GAAP EPS of $1.32, up 59 percent versus prior year
  • Adjusted EPS of $1.94, down 1 percent versus prior year

Full Year 2019

  • Sales of $77.0bn, up 16 percent versus prior year including 5 percent organic growth
  • GAAP EPS of $6.41, down 1 percent versus prior year
  • Adjusted EPS of $8.26, up 9 percent versus prior year

United Technologies Corp. (NYSE: UTX) reported fourth quarter and full year 2019 results and announced its 2020 outlook for Pratt & Whitney and Collins Aerospace Systems.

“United Technologies delivered record sales, adjusted earnings per share and free cash flow in 2019 on continued aerospace strength and a return to profit growth at Otis,” said UTC Chairman and Chief Executive Officer Gregory Hayes. “Organic sales grew 5 percent and adjusted earnings and free cash flow exceeded the high end of the ranges we expected. In a year of unprecedented change, our 2019 financial performance is a testament to our focus on our customers and the hard work and dedication of the 240,000 employees across UTC.”

Hayes continued, “Operational separation activities for Otis and Carrier are substantially complete, and we are executing the final steps required to spin both businesses as independent companies early in the second quarter. We also remain excited about the transformational merger of UTC’s aerospace businesses with Raytheon to create Raytheon Technologies, which will be the premier aerospace and defense systems and services provider. Our goal is to have the merger ready to close concurrent with the portfolio separation.” 

Fourth Quarter 2019

Fourth quarter sales of $19.6 bn were up 8 percent over the prior year, including 1 point of organic sales growth and 8 points of net acquisition benefit, offset by 1 point of foreign exchange headwind. GAAP EPS of $1.32 was up 59 percent versus the prior year and included 46 cents of net nonrecurring charges and 16 cents of restructuring charges. Adjusted EPS of $1.94 was down 1 percent versus the prior year.

Net income in the quarter was $1.1 bn, up 67 percent versus the prior year and included $540m of net nonrecurring charges. Cash flow from operations was $2.8bn and capital expenditures were $897m, resulting in free cash flow of $1.9bn.

Collins Aerospace commercial aftermarket sales were up 42 percent and up 9 percent organically. On a pro forma basis, Collins Aerospace commercial aftermarket sales were up 11 percent including Rockwell Collins. Pratt & Whitney commercial aftermarket sales were flat, following 11 percent growth in 2018. Equipment orders at Carrier were down 4 percent organically. Otis new equipment orders were up 3 percent at constant currency in the quarter and flat on a rolling twelve month basis.

Full Year 2019 

Full year sales of $77.0 bn were up 16 percent over the prior year, including 5 points of organic sales growth and 12 points of net acquisition benefit, offset by 1 point of foreign exchange headwind. Full year GAAP EPS of $6.41 was down 1 percent versus the prior year and included $1.85 of net restructuring charges and other significant items, including $1.46 of one-time portfolio separation costs. Adjusted EPS of $8.26 was up 9 percent versus the prior year.

Net income for the year was $5.5bn, up 5 percent versus the prior year. Cash flow from operations was $8.9bn and capital expenditures were $2.3 bn, resulting in free cash flow of $6.6bn, including approximately $400 m of one-time portfolio separation cash costs.

In 2019, the Pratt & Whitney GTF engine achieved over 4.6 m cumulative revenue flight hours and ended the year with 47 operators benefiting from reduced fuel burn, emissions and noise. Collins Aerospace continued to deliver strong performance and achieved approximately $300m in cost synergies during the year, remaining on track to deliver at least $600m in cost synergies by year four. Otis completed one of the largest and most complex modernization projects to date at the Empire State Building, including the installation of a custom-made Gen2 glass elevator. Carrier continued its commitment to innovation, launching more than 100 new products for the fifth year in a row.

Outlook for 2020

Given the upcoming portfolio actions, the outlook for sales, adjusted EPS and free cash flow for Raytheon Technologies will be provided after the merger closes.

The outlooks for Carrier and Otis will be provided in conjunction with their upcoming pre-spin investor meetings scheduled for February 10th and 11th, respectively.

For Pratt & Whitney and Collins Aerospace, we provide the following 2020 outlook*:

  • Pratt & Whitney sales up mid single digit versus 2019;
  • Pratt & Whitney adjusted operating profit up $225 to $275m versus 2019;
  • Collins Aerospace sales down low single digit versus 2019, including an estimated 5 point headwind resulting from the suspension of 737 MAX production, lower ADS-B mandate sales and the expected impact of divestitures associated with the Raytheon merger;
  • Collins Aerospace adjusted operating profit down $275 to $325m versus 2019, including an estimated headwind of approximately $550 to $600m resulting from the 737 MAX, lower ADS-B mandate profit and the expected impact of divestitures associated with the Raytheon merger.
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