The Second Quarter Results season kicked off this week with most of the majors reporting Results in line with expectations although UTC reported a drop in earnings due to a falloff in sales in China.
The Lockheed bid for Sikorsky created a major review for the Company with disposals lined up whilst Boeing announced a write-off for the KC-46 Tanker contract. Raytheon announced better than expected Results, whilst Northrop and GD will be reporting on July 29th.
The Boeing Company
23 Jul 15. The Boeing Company [NYSE: BA] reported second-quarter revenue increased 11 percent to $24.5bn on record commercial deliveries. Second quarter 2015 results included the previously announced $536m after-tax charge ($0.77 per share) on the KC-46 Tanker program reflecting higher estimated costs. Core earnings per share (non-GAAP)* guidance for 2015 has been adjusted to between $7.70 and $7.90 per share, from $8.20 and $8.40, to reflect the impact of the second quarter 2015 KC-46 Tanker charge ($0.77 per share), partially offset by strong performance ($0.27 per share). GAAP earnings per share has been adjusted to between $7.60 and $7.80, from $8.10 and $8.30.
“Record commercial airplane deliveries to customers worldwide drove solid revenue growth, and the strength of our overall portfolio and diligent focus produced significant operating cash flow during the quarter,” said Boeing President and Chief Executive Officer Dennis Muilenburg. “Strong operating performance across our commercial and defense production programs partially offset the tanker charge and enabled us to maintain our commitments to return cash to our shareholders and invest in innovation and our people.”
“Overall, our outlook for the second half of the year remains positive. On the tanker program, we are investing the necessary resources to keep this vitally important program on schedule for our customer. We have a clear understanding of the work to be done and we are confident that the long-term financial value of the program will reward our additional investment.”
“With our sustained focus on productivity and growth, we will continue to profitably deliver on our large and diverse backlog, capture new orders, and deliver increasing value to all of our stakeholders.”
Operating cash flow in the quarter was $3.3bn, reflecting commercial airplane production rates and strong operating performance. During the quarter, the company repurchased 14m shares for $2.0bn, leaving $7.5bn remaining under the current repurchase authorization which is expected to be completed over approximately the next two years. The company also paid $0.6bn in dividends in the quarter, reflecting an approximately 25 percent increase in dividends per share compared to the same period of the prior year.
Cash and investments in marketable securities totaled $9.6bn and debt totaled $9.0bn, both unchanged from the beginning of the quarter.
Total company backlog at quarter-end was $489bn, down from $495bn at the beginning of the quarter, and included net orders for the quarter of $18bn.
Segment Results
Commercial Airplanes
Commercial Airplanes second-quarter revenue increased 18 percent to $16.9bn on higher delivery volume and mix. Second-quarter operating margin was 7.1 percent, reflecting the previously announced $513m pre-tax charge on the KC-46 Tanker program and the dilutive impact of higher 787 and 747 deliveries partially offset by strong performance on production programs.
During the quarter, Commercial Airplanes captured orders for 116 737 MAX airplanes. The 737 program has won over 2,800 firm orders for the 737 MAX since launch. Also during the quarter, the company started assembly of the first 737 MAX airplane and the 787-10 program completed its Critical Design Review which indicated the program’s design is sound and development is on schedule.
Commercial Airplanes booked 171 net orders during the quarter. Backlog remains strong with nearly 5,700 airplanes valued at $431bn.
Defense, Space & Security
Defense, Space & Security’s second-quarter revenue was $7.5bn. Second quarter operating margin was 7.2 percent, reflecting the previously announced $322m pre-tax charge recorded at BMA on the KC-46 Tanker program partially offset by strong performance on production programs and mix.
Boeing Military Aircraft (BMA) second-quarter revenue was $3.5bn, reflecting planned timing of deliveries and mix. Operating margin was 3.5 percent, reflecting the KC-46 Tanker program charge partially offset by strong performance on production programs. During the quarter, BMA was awarded contracts for six C-17 Globemaster III airlifters.
Network & Space Systems (N&SS) second-quarter revenue was $1.9bn and operating margin was unchanged at 7.8 percent. During the quarter, NASA awarded Boeing the first ever commercial contract for a human spaceflight mission as part of the existing Commercial Crew contract.
Global Services & Support (GS&S) second-quarter revenue was $2.1bn, reflecting lower volume in Aircraft Modernization and Sustainment. Operating margin increased to 12.8 percent on improved program mix. During the quarter, GS&S was awarded an F-15 international services contract extension.
Backlog at Defense, Space & Security was $58bn, of which 39 percent represents orders from international customers.
Additional Financial Information
At quarter-end, Boeing Capital’s net portfolio balance was $3.3bn, down from $3.4bn at the beginning of the quarter. Total pension expense for the second quarter was $523m, down from $693m in the same period of the prior year. Other unallocated items and eliminations totaled $50m at quarter end, down from $174m in the same period of the prior year, primarily due to lower elimination of intercompany profit and deferred compensation expense. The company’s effective income tax rate was 31.6 percent at quarter end, up from 3.7 percent in the same period of the prior year. The second quarter 2014 effective income tax rate included $524m in tax benefits.
Outlook
The company’s 2015 financial and delivery guidance reflects the impact of the KC-46 Tanker charge and continued strong performance across the company.
Honeywell
17 Jul 15. Honeywell (NYSE: HON) announced its results for the second quarter of 2015:
“Honeywell had a terrific second quarter capping off a strong first half of 2015,” said Honeywell Chairman and CEO Dave Cote. “We delivered 3% core organic sales growth and had another quarter of double-digit earnings growth when normalized for tax. We saw growth acceleration in both the short- and long-cycle businesses within Aerospace, continued growth in our commercial and industrial businesses within ACS, and higher volume across our Advanced Materials portfolio, particularly in Fluorine Products. We saw margin expansion in each segment, with a significant portion from gross margin, as our new products, process focus, disciplined cost management, and restructuring continue to distinguish Honeywell’s performance. We remain committed to seed planting and process improvements throughout our portfolio. Once again we proactively funded repositioning actions that will improve our cost position and drive the efficiencies necessary for winning in a slow growth global economy. Our great first half performance gives us confidence to again raise the low end of our full-year EPS guidance range by $0.05 to $6.05-$6.15, and we remain committed to our full-year core organic sales growth and free cash flow estimates. We believe that our balanced portfolio of short- and long-cycle businesses, penetration in High Growth Regions, and the deployment of our key process initiatives will continue to drive results this year and over the long term.”
Second Quarter Segment Performance
Aerospace
* Sales for the second quarter were up 3% on a core organic basis, and were down 5% reported driven by the Friction Materials divestiture and the unfavorable impact of foreign currency in Transportation Systems. Commercial OE sales were up 6% on a reported and core organic basis driven by strong Business and General Aviation (BGA) engine shipments. Commercial Aftermarket sales were up 3% on a core organic basis (2% reported) driven by continued growth in repair and overhaul activities and Air Transport and Regional (ATR) spares growth, partially offset by a decline in RMU (Retrofit, Modifications, and Upgrades) sales in BGA. Defense & Space sales increased 1% on a core organic basis (flat reported) driven by strong international growth, partially offset by lower sales to the U.S. government. Transportation Systems sales were up 5% on a core organic basis driven by new platform launches and higher gas turbo penetration globally. TS sales were down 25% reported due to the Friction Materials divestiture and the unfavorable impact of foreign currency.
* Segment profit was up 2% and segment margins expanded 140 bps to 20.3%, driven by commercial excellence, the favorable impact of the Friction Materials divestiture, foreign currency hedges, and productivity net of inflation, partially offset by the margin impact of higher OE shipments.
Automation and Control Solutions
* Sales for the second quarter were up 4% on a core organic basis and down 1% reported driven by the unfavorable impact of foreign currency. Energy, Safety, and Security (ESS) sales increased 5% on a core organic basis (flat reported) driven primarily by continued growth in Scanning & Mobility, Security, and Fire Safety. Building Solutions & Distribution (BSD) sales increased 3% on a core organic basis (down 4% reported) driven by continued strength in Americas Distribution.
* Segment profit was up 6% and segment margins expanded 120 bps to 16.0% driven by productivity net of inflation and higher volume, partially offset by continued investments for growth.
Performance Materials and Technologies
* Sales were down 1% on a core organic basis and down 9% reported driven by the unfavorable impact of foreign currency and raw materials pricing in Resins & Chemicals. The decrease in core organic sales was primarily driven by lower volume in UOP and HPS associated with delays in customer projects and lower UOP catalyst shipments, partially offset by higher volume across Advanced Materials, particularly in Fluorine Products.
* Segment profit was up 7% and segment margins increased 330 bps to 21.3%, driven by productivity net of inflation, commercial excellence, and the impact of raw materials pricing in Resins & Chemicals.
Lockheed Martin
20 Jul 15. Lockheed Martin (NYSE: LMT) reported second quarter 2015 net sales of $11.6bn, compared to $11.3bn in the second quarter of 2014. Net earnings in the second quarter of 2015 were $929m, or $2.94 per share, compared to $889m, or $2.76 per share, in the second quarter of 2014. Cash from operations in the second quarter of 2015 was $1.3bn, compared to $977m in the second quarter of 2014.
“Solid operational and program execution in the second quarter allowed us to increase our financial guidance for profit and earnings per share,” said Lockheed Martin chairman, president and CEO Marillyn Hewson. “Separately, we announced two portfolio shaping initiatives today, the acquisition of Sikorsky Aircraft and a strategic review of our IT services business in IS&GS and our technical services business in MFC. We look forward to welcoming Sikorsky to the Lockheed Martin team and determining the best path to long-term growth for the business under review.”
Strategic Actions
Acquisition of Sikorsky Aircraft
On July 20, 2015, the Corporation announced that it entered into a definitive agreement to acquire Sikorsky Aircraft (Sikorsky), a global company engaged in the design, manufacture and support of military and commercial helicopters, for $9.0bn of cash, subject to certain adjustments. The Corporation expects to fund the acquisition with a combination of new debt issuances and available cash. The Corporation and United Technologies Corporation have agreed to make a joint election under Section 338(h)(10) of the Internal Revenue Code, which treats the transaction as an asset purchase for tax purposes. This election generates a cash tax benefit with an estimated net present value of $1.9bn for the Corporation and its shareholders. The acquisition is subject to customary closing conditions, including regulatory approval, and is expected to close in the fourth quarter of 2015 or the first quarter of 2016. Once the acquisition is complete, the Corporation plans to align Sikorsky under its Mission Systems and Training business segment. The Corporation’s financial results will not include Sikorsky’s results until the acquisition is closed.
Strategic Review of Government IT and Technical Services Businesses
On July 20, 2015, the Corporation also announced that it will conduct a strategic review of the government IT infrastructure services business within its IS&GS business segment and the technical services business within its MFC business segment. The programs to be reviewed represent approximately $6.0bn in estimated 2015 annual sales and approximately 17,000 employees. The Corporation expects the strategic review will result in a spin-off to its shareholders or sale of these businesses. The IS&GS programs that are not included in the strategic review are mostly focused on defense and intelligence customers and will be realigned into the Corporation’s other business segments following completion of the review. The Corporation expects to complete the strategic review in 2015. While the Corporation performs its strategic review, it will maintain the current operating and reporting structure and will continue to report the financial results of the government IT infrastructure services and technical services businesses in its continuing operations.
The Corporation operates in five business segments: Aeronautics, Information Systems & Global Solutions (IS&GS), Missiles and Fire Control (MFC), Mission Systems and Training (MST) and Space Systems. The Corporation organizes its business segments based on the nature of the products and services offered.
Operating profit of the business segments includes the Corporation’s share of earnings or losses from equity method investees as the operating activities of the equity method investees are closely aligned with the operations of the Corporation’s business segments. United Launch Alliance (ULA), which is part of the Space Systems business segment, is the Corporation’s primary equity method investee. Operating profit of the Corporation’s business segments excludes the FAS/CAS pension adjustment, which represents the difference between total pension expense recorded in accordance with GAAP (FAS) and pension costs recoverable on U.S. Government contracts as determined in accordance with U.S. Government Cost Accounting Standards (CAS); expense for stock-based compensation; the effects of items not considered part of management’s evaluation of segment operating performance, such as charges related to significant severance actions and goodwill impairments; gains or losses from divestitures; the effects of certain legal settlements; corporate costs not allocated to the Corporation’s business segments; and other miscellaneous corporate activities.
Changes in net sales and operating profit generally are expressed in terms of volume. Changes in volume refer to increases or decreases in sales or operating profit resulting from varying production activity levels, deliveries or service levels on individual contracts. Changes in volume also include the effect of fluctuations in contract profit booking rates that have occurred in reporting periods other than those presented in the comparative segment results. Volume changes in segment operating profit are typically based on the current profit booking rate for a particular contract.
In addition, comparability of the Corporation’s segment sales, operating profit and operating margins may be impacted favorably or unfavorably by changes in profit booking rates on the Corporation’s contracts accounted for using the percentage-of-completion method of accounting. Increases in the profit booking rates, typically referred to as risk retirements, usually relate to revisions in the estimated total costs that reflect improved conditions on a particular contract. Conversely, conditions on a particular contract may deteriorate resulting in an increase in the estimated total costs to complete and a reduction in the profit booking rate. Increases or decreases in profit booking rates are recognized in the current period and reflect the inception-to-date effect of such changes. Segment operating profit and margins may also be impacted favorably or unfavorably by other items. Favorable items may include the positive resolution of contractual matters, cost recoveries on restructuring charges, insurance recoveries and gains on sales of assets. Unfavorable items may include the adverse resolution of contractual matters; restructuring charges, except for significant severance actions which are excluded from segment operating results; reserves for disputes; asset impairments; and losses on sales of assets. Segment operating profit and items such as risk retirements, reductions of profit booking rates or other matters are presented net of state income taxes.
Corporation’s five business segments
Aeronautics
Aeronautics’ net sales for the second quarter of 2015 increased $276m, or 7 percent, compared to the same period in 2014. The increase was attributable to higher net sales of about $280m for F-35 production contracts due to increased volume on aircraft production and sustainment activities; and approximately $150m for the C-5 program due to increased aircraft deliveries (four aircraft delivered during the second quarter of 2015 compared to two delivered during the same period in 2014). The increases were partially offset by lower net sales of approximately $90 m for the C-130 program due to lower sustainment activities and aircraft contract mix; and about $45m for the F-22 program due to decreased sustainment activities. Net sales for F-35 development contracts were comparable.
Aeronautics’ operating profit for the second quarter of 2015 decreased $9m, or 2 percent, compared to the same period in 2014. Operating profit decreased by approximately $55m for the C-130 program due to lower risk retirements and aircraft contract mix; and approximately $15m for the F-22 program due to decreased risk retirements and lower sustainment activities. These decreases were partially offset by higher operating profit of approximately $30m for the F-16 program due to increased risk retirements; and about $30m for F-35 production contracts due to higher risk retirements and volume. Adjustments not related to volume, including net profit booking rate adjustments, were $30m higher for the second quarter of 2015 compared to the same period in 2014.
The decline in operating margin for the second quarter of 2015 reflects the change in Aeronautics’ program mix, as sales for programs that yield lower operating profit margins were a larger portion of total net sales (primarily F-35 and C-5 programs).
Information Systems & Global Solutions
IS&GS’ net sales decreased $43m, or 2 percent, for the second quarter of 2015 compared to the same period in 2014. The decrease was attributable to lower net sales of approximately $160 m due to decreased volume as a result of in-theater force reductions (including Persistent Threat Detection System), lower customer funding levels (primarily command and control programs), and increased competition coupled with the fragmentation of existing large contracts into multiple smaller contracts that are awarded primarily on the basis of price when re-competed (including CMS-CITIC). The decreases were partially offset by higher net sales of approximately $60m for businesses acquired in the second half of 2014; and about $55m due to increased volume on recently awarded programs.
IS&GS’ operating profit for the second quarter of 2015 decreased $15m, or 9 percent, compared to the same period in 2014. The decrease was primarily attributable to the activities mentioned above for net sales. Adjustments not related to volume, including net profit booking rate adjustments, for the second quarter of 2015 were comparable to the same period in 2014.
Missiles and Fire Control
MFC’s net sales for the second quarter of 2015 decreased $114m, or 6 percent, compared to the same period in 2014. The decrease was attributable to lower net sales of approximately $115 m for air and missile defense programs due to fewer deliveries (including Patriot Advanced Capability-3 (PAC-3)) and reduced development activities (primarily Medium Extended Air Defense System (MEADS)).
MFC’s operating profit for the second quarter of 2015 decreased $42m, or 12 percent, compared to the same period in 2014. The decrease was attributable to lower operating profit of approximately $30m for fire control programs due to lower risk retirements and volume (including Apache), and about $25 m for air and missile defense programs due to lower risk retirements (primarily PAC-3). Adjustments not related to volume, including net profit booking rate adjustments, were approximately $40m lower for the second quarter of 2015 compared to the same period in 2014.
Mission Systems and Training
MST’s net sales for the second quarter of 2015 increased $37m, or 2 percent, compared to the same period in 2014. Net sales increased by approximately $90m for integrated warfare systems and sensors programs due to the start of new programs (primarily Space Fence) and higher volume (including Aegis). These increases were partially offset by lower net sales of approximately $75m for ship and aviation systems programs primarily due to decreased volume (including Merlin Capability Sustainment Program).
MST’s operating profit for the second quarter of 2015 increased $49m, or 26 percent, compared to the same period in 2014. The increase was primarily attributable to higher operating profit of approximately $50m due to reserves recorded in 2014 on certain training and logistics solutions programs that were not repeated in 2015; about $20m for integrated warfare systems and sensors programs due to increased risk retirements (primarily Halifax Class Modernization); partially offset by lower operating profit of approximately $20m for ship and aviation systems programs due to lower risk retirements and volume (including naval launchers). Adjustments not related to volume, including net profit booking rate adjustments and other matters, were approximately $50 m higher for the second quarter of 2015 compared to the same period in 2014.
Space Systems
Space Systems’ net sales for the second quarter of 2015 increased $181m, or 10 percent, compared to the same period in 2014. The increase was attributable to higher net sales of approximately $105m for the Orion program due to increased volume; and about $80m for businesses acquired in the second half of 2014.
Space Systems’ operating profit for the second quarter of 2015 increased $11m, or 4 percent, compared to the same period in 2014. The increase was attributable to higher operating profit of approximately $55m for government satellite programs due to increased risk retirements (primarily Mobile User Objective System) and Space Based Infrared System). The increases were partially offset by lower operating profit of approximately $40 m primarily due to lower equity earnings for joint ventures. Adjustments not related to volume, including net profit booking rate adjustments and other matters, were approximately $75m higher for the second quarter of 2015 compared to the same period in 2014.
Total equity earnings recognized by Space Systems (primarily ULA) represented approximately $40m, or 15 percent, of this business segment’s operating profit for the second quarter of 2015, compared to approximately $80m, or 32 percent, in the second quarter of 2014.
Income Taxes
The Corporation’s effective income tax rate was 30.8 percent for the second quarter of 2015, compared to 33.7 percent for the second quarter of 2014. The rates for both periods benefited from tax deductions for U.S. manufacturing activities and for dividends paid to the Corporation’s defined contribution plans with an employee stock ownership plan feature. The effective rate for the second quarter of 2015 was lower primarily due to tax reserve adjustments recorded in the second quarter of 2014. The effective rates during both periods did not include a benefit from the U.S. research and development tax credit because the credit had expired.
Raytheon Company
23 July 15. Raytheon Company (NYSE: RTN) announced net sales for the second quarter 2015 were $5.8bn compared to $5.7bn in the second quarter 2014. Second quarter 2015 EPS from continuing operations was $1.65 compared to $1.59 in the second quarter 2014. Second quarter 2015 EPS from continuing operations included a favorable FAS/CAS Adjustment of $0.10 compared to a favorable FAS/CAS Adjustment of $0.18 in the second quarter 2014. In addition, second quarter 2015 EPS from continuing operations included, as expected, a $0.29 favorable impact from a tax settlement. It also included a $0.09 unfavorable impact associated with Raytheon|Websense acquisition accounting adjustments and acquisition related costs discussed in further detail below.
The Company had bookings of $7.6bn in the second quarter 2015, resulting in a book-to-bill ratio of 1.30. In the second quarter 2014, bookings were $6.8 bn. Year-to-date 2015 bookings were $12.1bn, resulting in a book-to-bill ratio of 1.08. Year-to-date 2014 bookings were $11.1bn.
“Our strategy to position the company for global growth is delivering results, which are reflected in the strong bookings and sales growth in the second quarter, as well as our improved growth outlook for 2015,” said Thomas A. Kennedy, Raytheon Chairman and CEO. “Additionally, we continue to pursue a balanced capital deployment strategy to create value for our customers and shareholders.”
Operating cash flow from continuing operations for the second quarter 2015 was $376m compared to $153m for the second quarter 2014. The increase in operating cash flow from continuing operations in the second quarter 2015 was primarily due to the timing of required pension contributions and the collection of the eBorders settlement with the U.K. Home Office, which was resolved in the first quarter 2015, partially offset by higher cash taxes.
Summary Financial Results
In the second quarter 2015, the Company repurchased 1.9m shares of common stock for $200 m. Year-to-date 2015, the Company repurchased 4.6m shares of common stock for $500m. The Company now expects its share repurchases in 2015 to be $1.0bn, an increase of $250m from its original expectation.
The Company ended the second quarter 2015 with $2.8bn of net debt. Net debt is defined as total debt less cash and cash equivalents and short-term investments.
As previously announced, on May 29, 2015, the Company and Vista Equity Partners completed a transaction creating a new joint venture company that combines Websense, Inc. (Websense), formerly a Vista Equity portfolio company, and Raytheon Cyber Products, formerly part of Raytheon’s Intelligence, Information and Services business. The newly formed commercial cybersecurity company, which is 80.3 percent owned by Raytheon and 19.7 percent by Vista Equity Partners, is known on an interim basis as Raytheon|Websense.
Second quarter 2015 results include Websense restructuring costs, and items related to the Raytheon|Websense transaction which are excluded from segment operating performance since management does not consider those items in evaluating the segment.
Raytheon|Websense Acquisition Accounting Adjustments and Acquisition
Backlog
Backlog at the end of the second quarter 2015 was $34.5bn, an increase of approximately $1.5bn compared to the second quarter 2014. Funded backlog was $25.3bn, an increase of approximately $1.8bn compared to the second quarter 2014.
Outlook
The Company has updated its financial outlook for 2015 to reflect improved operating performance to date compared to prior guidance and the impact of the Raytheon|Websense transaction. Charts containing additional information on the Company’s 2015 outlook are available on the Company’s website at www.raytheon.com/ir.
Segment Results
The Company’s reportable segments are: Integrated Defense Systems (IDS); Intelligence, Information and Services (IIS); Missile Systems (MS); Space and Airborne Systems (SAS); and Raytheon|Websense (RW).
Integrated Defense Systems
Integrated Defense Systems (IDS) had second quarter 2015 net sales of $1,698m compared to $1,549m in the second quarter 2014. The increase in net sales was primarily driven by higher sales on international Patriot programs, including the recognition of previously deferred precontract costs and program activity in the quarter.
IDS recorded $215m of operating income in the second quarter 2015 compared to $219m in the second quarter 2014. The change in operating margin in the second quarter 2015 was primarily due to a change in program mix.
Included in operating income in the second quarter 2015 was an adjustment of $33m to eliminate all remaining estimated incentive fees related to the Air Warfare Destroyer (AWD) program due to the shipbuilder extending the planned schedule and related increase in costs to complete its portion of the program. Included in operating income in the second quarter 2014 was an adjustment of $38m from a decrease in estimated incentive fees on the AWD program driven by an increase in expected costs by the shipbuilder to complete its portion of the program.
During the quarter, IDS booked $2.0bn to provide advanced Patriot air and missile defense capability for the Kingdom of Saudi Arabia. IDS also booked $132m to provide satellite communication ground terminals for an international customer and $77m on the NextGen Weather Processor (NWP) program for the Federal Aviation Administration (FAA).
Intelligence, Information and Services1
Intelligence, Information and Services (IIS) had second quarter 2015 net sales of $1,496m compared to $1,493m in the second quarter 2014.
IIS recorded $108m of operating income in the second quarter 2015 compared to $123m in the second quarter 2014. The change in operating income was primarily due to program mix.
During the quarter, IIS booked $387 m on domestic training programs and $151m on foreign training programs in support of Warfighter FOCUS activities. IIS also booked $376 m on a number of classified contracts.
Missile Systems
Missile Systems (MS) had second quarter 2015 net sales of $1,559m compared to $1,539m in the second quarter 2014. MS recorded $183m of operating income in the second quarter 2015 compared to $190m in the second quarter 2014. The change in operating margin was primarily due to higher net program efficiencies in the second quarter 2014. During the quarter, MS booked $529m for Standard Missile-3 (SM-3®) for the Missile Defense Agency (MDA), $511m on Evolved SeaSparrow Missile (ESSM) for the U.S. Navy and international customers, $363m for Paveway™ for international customers, and $143m for Standard Missile-6 (SM-6™) for the U.S. Navy. MS also booked $99m on a classified program.
Space and Airborne Systems
Space and Airborne Systems (SAS) had second quarter 2015 net sales of $1,416m compared to $1,505m in the second quarter 2014. The change in net sales was primarily due to lower sales on international tactical radar systems programs. SAS recorded $186m of operating income in the second quarter 2015 compared to $202m in the second quarter 2014. The change in operating income was primarily due to lower volume in the second quarter 2015 combined with higher net program efficiencies in the second quarter 2014. During the quarter, SAS booked $153m on a multimission radar program for the U.S. Navy and an international customer, $99m on an Active Electronically Scanned Array (AESA) radar Performance Based Logistics (PBL) contract for an international customer, and $82m to provide communication subsystems for the U.S. Navy and an international customer. SAS also booked $250m on a number of classified contracts.
Raytheon|Websense1
Raytheon|Websense (RW) is a new joint venture company that was created on May 29, 2015 through the combination of Websense, Inc. and Raytheon Cyber Products (RCP), formerly part of Raytheon’s Intelligence, Information and Services business. The RW segment results have been presented to reflect RCP results for all periods and Websense results after the acquisition date. RW had second quarter 2015 net sales of $57m compared to $28m in the second quarter 2014. RW recorded a loss of $1m in the second quarter 2015 compared to $3m of operating income in the second quarter 2014. The second quarter 2015 operating loss reflects higher RCP research and development and selling and marketing expenses to develop and launch new commercial products compared to second quarter 2014, as well as approximately $5m of restructuring costs associated with the combination of Websense and RCP.
United Technologies Corp.
21 Jul 15. United Technologies Corp. (NYSE: UTX) reported second quarter earnings per share of $1.73 and net income attributable to common shareowners of $1.5bn, down 6 percent and 8 percent respectively versus the prior year. Results for the current quarter include unfavorable one-time items and restructuring charges of $0.08 per share. Net favorable one-time items offset restructuring costs in the second quarter of last year. Excluding these items in both quarters, earnings per share of $1.81 decreased 2 percent year over year. Foreign currency had an unfavorable impact of $0.06.
Sales of $16.3bn decreased by 5 percent, reflecting the impact of adverse foreign exchange (4 points) and absence of the prior year Sikorsky Canadian Maritime Helicopter Program adjustment (5 points), which were partially offset by the benefit of organic growth (3 points) and acquisitions (1 point) in 2015. Second quarter segment operating profit increased 21 percent over the prior year quarter. Adjusted for restructuring costs and net one-time items, segment operating profit was down 3 percent.
“Through the first half of the year, the businesses delivered 3 percent organic sales growth in what continues to be a slow growth global economy. This solid growth contributed to a 6 percent increase in EPS on a constant currency basis, excluding the impact of gains and restructuring,” said Gregory Hayes, UTC President and Chief Executive Officer. “Continued strength in the U.S. dollar has had a significant adverse impact on our results this year.”
Otis new equipment orders in the quarter increased 5 percent over the prior year at constant currency, with growth in the Americas and in EMEA offset by a 10 percent orders decline in China. At UTC Climate, Controls & Security, equipment orders increased 4 percent, with growth in U.S. residential HVAC and Transicold offset by a 15 percent orders decline in China. Commercial aerospace aftermarket sales were up 1 percent at Pratt & Whitney and flat at UTC Aerospace Systems on an organic basis. Provisioning and repair sales at UTC Aerospace Systems were down in the quarter, but those declines were partially offset by high single digit growth in spare parts sales.
“With six months of trends behind us, it is now clear the commercial aftermarket at UTC Aerospace Systems will be significantly below our expectations for the year,” Hayes added. “This, along with continuing softness in Otis Europe and a slowing China, led us to reassess our 2015 outlook for UTC Aerospace Systems and Otis. We now expect 2015 operating profit at UTC Aerospace Systems to be down $25 to $75m and at Otis to be down $25 to $75m at constant currency. Including the adverse impact of FX, we expect profit at Otis to be down $300 to $350m compared to prior year.”
“While this revised forecast is disappointing, we remain confident in our long term outlook for the business. We have industry leading franchises, strong recurring revenue streams and have focused our portfolio on attractive end markets. We will accelerate aggressive cost reduction across the businesses and look for additional structural cost actions that can drive earnings growth well into the future. We will also look to deploy additional capital to share repurchase and M&A,” Hayes continued.
As announced yesterday, UTC has reached an agreement to sell Sikorsky to Lockheed Martin for $9bn, subject to regulatory approvals and customary closing conditions. As a result, Sikorsky will be reported in discontinued operations beginning in the third quarter. The company now expects full year EPS of $6.45 to $6.60 from operations including Sikorsky, but excluding an expected gain related to its sale. Expectations from continuing operations are now $6.15 to $6.30. This is down from the previous expectations of $6.55 to $6.85and $6.35 to $6.55, respectively. Sales expectations from continuing operations have also been revised to $57 to $58bn from the prior expectation of $58 to $59 bn. The revised expectations reflect approximately 3 percent organic sales growth.
Cash flow from operations was $1.5bn and capital expenditures were $358 m in the quarter. UTC continues to assume a $1bn placeholder for full year acquisition spend and expects cash flow from operations less capital expenditures in the range of 90 to 100 percent of net income from continuing operations attributable to common shareowners for 2015.
United Technologies Corp., based in Hartford, Connecticut, provides high technology systems and services to the building and aerospace industries.