On October 23rd Reuters reported that Production woes plague earnings for Boeing, RTX and Spirit Aero. After a succession of production snafus, investors will question whether U.S. aerospace’s “problem children” – Boeing (BA.N), RTX (RTX.N) and Spirit AeroSystems (SPR.N) – can stem financial losses and hit year-end targets.
All three companies are expected to report losses in their third-quarter results as they struggle to resolve manufacturing defects on their most profitable aircraft and engine products.
RTX engine subsidiary Pratt & Whitney disclosed in September it will take a $3 bn charge in the quarter after planning to replace components containing contaminated metal powder on as many as 700 Geared Turbofan (GTF) engines.
Meanwhile, Boeing and Spirit, a supplier for the U.S. planemaker and European rival Airbus (AIR.PA), are contending with a lapse involving misdrilled holes on Boeing’s 737 MAX. Boeing expanded inspections this month.
Vertical Research Partners analyst Rob Stallard called the companies the sector’s “problem children.”
RTX, the first to release results on Tuesday, will face continued scrutiny about the GTF engine issue.
Analysts are concerned shop visits could drag on longer than expected or that a higher volume of engines – or additional engine types – could be affected, triggering higher compensation to customers.
“Some of these customer concessions might come in the form of free services, which are likely staggered and may drag out the cash recognition,” Bank of America analyst Ron Epstein said.
Boeing investors will fixate on 2023 free cash-flow generation, which the planemaker projected would finish between $3 bn and $5 bn. It reports results on Wednesday.
The target may no longer be achievable if Boeing can no longer meet its goal of delivering 400 737s this year.
“It was already looking like it was going to be a struggle to hit that 2023 guidance. It’s more of a struggle now, even at the low end,” Vertical’s Stallard said.
Spirit, which reports Nov. 1, has already revealed preliminary results as part of a new price agreement with Boeing.
But the earnings call will be a test for newly-named interim CEO Patrick Shanahan, a former Boeing executive and Spirit board member known for fixing tough operational problems.
“The appointment of Pat shows one thing: the criticality of the situation at Spirit right now,” said Michel Merluzeau, director of aerospace analysis at AIR consultancy group.
Investors will be looking for details on how Shanahan plans to restore the embattled supplier’s balance sheet and get aircraft production back on track, he said. (Source: Reuters)
Boeing
27 Oct 23. Boeing struggles to steer defense unit in another year of billion-dollar losses. Boeing’s (BA.N) defense business is proving harder to turn around than executives initially predicted, with supplier errors and high manufacturing costs contributing to $1.7 billion in losses this year on programs like the next Air Force One and NASA’s Starliner capsule.
Despite absorbing $4.4 billion in losses in 2022 – which executives said would lower the risk of future cost overruns – the unit has seen little improvement this year.
Excluding last year, losses on Boeing’s defense programs in 2023 exceed those from all years since 2014, according to a Reuters review of Boeing’s regulatory filings.
Boeing is unique among its defense contractor peers, as companies like Lockheed Martin (LMT.N), General Dynamics (GD.N) and RTX (RTX.N) are seeing higher revenues due to demand from the war in Ukraine.
Unlike those companies, however, Boeing is locked into handful of contracts that force the planemaker to take a loss when technology development goes over budget.
The defense unit’s losses this year include $933 million in charges in the third quarter, mostly comprising a $482-million loss building two Air Force One planes and a $315-million charge on an unidentified satellite program that had not previously lost money.
Boeing’s executives said they are putting in place new training and deploying resources to suppliers to ensure the unit moves from negative margins to high-single digit margins by 2025-2026, when its most troubled programs are slated to be past flight testing and on more stable footing.
“We’re driving lean manufacturing, program management rigor and cost productivity consistently across the division,” Chief Financial Officer Brian West said during a Wednesday earnings call. Boeing declined to comment beyond executives’ comments on the call.
Byron Callan, a defense analyst with Capital Alpha Partners, said Boeing’s 2025-2026 timeline to get to positive margins is feasible but questioned why it took the company years to institute programs to improve execution.
“Someone really dropped the ball on all of this,” he said.
Boeing shares have lost 6% this year, compared with the broad-market S&P 500’s 9% gain.
FIXED PRICE CONTRACTS
Analysts also say there is little Boeing can do to offset the financial burden of its long list of fixed-price development contracts with customers like the U.S. Defense Department and NASA, which lock the planemaker into paying all costs above an agreed-upon threshold.
These deals, which make up 15% of Boeing’s defense program revenue, were reached before Boeing’s commercial airplanes business was decimated by the MAX crisis and before the pandemic and high inflation caused costs to spike for materials and labor. Other headaches include a recent manufacturing snafu where a supplier improperly coated KC-46 fuel tanks.
The losses suggest Boeing lacks a true understanding of costs as each new charge “is an upward revision to cost expectations, versus only three months prior,” said Seth Seifman of JP Morgan, in a Wednesday note to investors. “Even after excluding charges, BDS (Boeing Defense Space and Security) still did not generate a real profit.”
Boeing has been adamant it won’t enter into new fixed-price contracts for the development stage of weapons because the unpredictability associated with designing and testing a new product often brings unforeseen costs.
However, the company’s current fixed-price development efforts, which include the U.S. Air Force’s KC-46 refueling tanker and T-7 training jet, new Air Force One planes, the Navy’s MQ-25 tanker drone, and NASA’s Starliner have all continued to run over budget this year.
The latest charge for Air Force One brought total losses to $2.4 billion on a $3.9 billion contract to develop two planes. The program’s current schedule calls for the first jet to be delivered by September 2027.
West also noted $136 million in additional losses taken during the quarter, including a $71-million charge for the MQ-25 program.
While KC-46 appears to be stabilizing and T-7 will eventually make a profit, there’s “not much you can do” for costly, low-volume programs like Air Force One or MQ-25, said Richard Aboulafia of AeroDynamic Advisory.
A better bet, and one Boeing’s defense segment is aggressively pursuing, is inking future contracts for next-generation fighter jets and cutting-edge drones.
“It’s a target-rich environment,” Aboulafia said.
(Source: Reuters)
25 Oct 23. Boeing Reports Third Quarter Results.
Third Quarter 2023
* Reaffirm guidance: $4.5-$6.5bn of operating cash flow and $3.0-$5.0 bn of free cash flow (non-GAAP)
* Still expect to deliver 70-80 787 and now expect to deliver 375-400 737 airplanes
* Now transitioning 787 to five per month; plan to complete 737 production transition to 38 per month by year-end
* Revenue of $18.1 bn reflecting 105 commercial deliveries
* Total company backlog of $469 bn, including over 5,100 commercial airplanes
The Boeing Company [NYSE: BA] recorded third quarter revenue of $18.1bn, GAAP loss per share of ($2.70) and core loss per share (non-GAAP)* of ($3.26). Third quarter results were impacted by unfavorable defense performance and lower 737 deliveries. Boeing reported operating cash flow of $0.0 bn and free cash flow of ($0.3)bn (non-GAAP).
“We continue to progress in our recovery and despite near-term challenges, we remain on track to meet the financial goals we set for this year and for the long term,” said Dave Calhoun, Boeing president and chief executive officer. “We are focused on driving stability in our supply chain and improving operational performance as we steadily increase production rates to meet strong demand. The important work we’re doing to add rigor around our quality systems and build a culture of transparently bringing forward any issue, no matter the size, can bring short-term challenges – but it is how we set ourselves on the right course for our long-term future. Leading with safety, quality and transparency, we will continue to restore our operational and financial strength.”
*Non-GAAP measure; complete definitions of Boeing’s non-GAAP measures are on page 5, “Non-GAAP Measures Disclosures.”
Operating cash flow was $0.0 bn in the quarter reflecting less favorable receipt timing, including the absence of a prior year tax refund (Table 2).
Segment Results
Commercial Airplanes
Commercial Airplanes third quarter revenue increased to $7.9bn driven by higher 787 deliveries. Operating margin of (8.6) percent also reflects lower 737 deliveries as well as abnormal costs and period expenses, including research and development.
On the 737 program, during the quarter a supplier non-conformance was identified on the aft pressure bulkhead section of certain 737 airplanes. This is not an immediate safety of flight issue and the in-service fleet can continue operating safely. Near-term deliveries and production will be impacted as the program performs necessary inspections and rework, and the company now expects to deliver 375-400 airplanes this year. On production, suppliers are continuing with planned rate increases, and the company expects to complete the final assembly transition to 38 per month by year-end, with plans to increase to 50 per month in the 2025/2026 timeframe. The estimated cost associated with performing the rework is immaterial and included in third quarter results.
The 787 program is now transitioning production to five per month and plans to increase to 10 per month in the 2025/2026 timeframe. The program still expects to deliver 70-80 airplanes this year.
During the quarter, Commercial Airplanes booked 398 net orders, including 150 737 MAX 10 airplanes for Ryanair, 50 787 airplanes for United Airlines, and 39 787 airplanes for Saudi Arabian Airlines. Commercial Airplanes delivered 105 airplanes during the quarter and backlog included over 5,100 airplanes valued at $392bn.
Defense, Space & Security
During the quarter, Defense, Space & Security delivered the first T-7A Red Hawk to the U.S. Air Force and captured an award from the U.S. Army for 21 AH-64E Apaches. Backlog at Defense, Space & Security was $58bn, of which 29 percent represents orders from customers outside the U.S.
Global Services
During the quarter, Global Services delivered the 150th 737-800 Boeing Converted Freighter, received an order from the U.S. Navy for P-8 trainer upgrades and signed a digital maintenance solution agreement with Philippine Airlines for Airplane Health Management.
General Dynamics
25 Oct 23. Military equipment for Ukraine helps fuel General Dynamics’ profit. U.S. defense contractor General Dynamics’ (GD.N) third-quarter results beat Wall Street estimates on Wednesday, as demand for artillery and armored vehicles, driven in part by a need to restock supplies sent to Ukraine, helped offset higher costs.
The company benefited from Pentagon spending on replacing equipment that has been sent to Ukraine, like 155 millimeter artillery replacements, which have been essential to Ukraine’s ground strategy in repelling the Russian invasion.
Other weapons systems like combat vehicles such as Stryker as well as Abrams tanks have also been have sent to Ukraine and are slated to be backfilled.
Shares of the Reston, Virginia-based company rose 4.4% after it reported profit for the quarter of $3.04 per share, ahead of analyst estimates of $2.91, and a 6% rise in revenue to $10.57 bn, also beating estimates, according to LSEG data.
Artillery has “been a big pressure point up to now with Ukraine, one that we’ve been doing everything we can to support our (U.S.) Army customer,” Jason Aiken, General Dynamics’ chief financial officer, said.
Output has jumped from 14,000 rounds per month to 20,000, he added.
The company’s book-to-bill ratio, a comparison of orders received to units shipped and billed, was 1.4 to 1.
However, sales at the company’s aerospace unit, which makes Gulfstream business jets, slumped 13.4% as supply chain challenges made it harder to deliver planes.
Gulfstream made good on last quarter’s promise to deliver 27 jets, but that was much lower than the 35 jets delivered during the same period a year ago. So far this year 72 of the business jets have been delivered.
On a post earnings call with investors, Aiken said the company expected 135 to 137 deliveries in 2023, down from 139-140 in July.
A certification of G700 business jets will be essential for the company to make its deliveries.
“This could still be possible given 40 G700s are built and awaiting certification, and guidance (from management) of 19 G700s” to be built in the fourth quarter, Jefferies analyst Sheila Kahyaoglu wrote in a note on Wednesday.
“All in, including G700, we anticipate in excess of 60 deliveries in the (fourth) quarter, assuming we’re granted FAA certification before the end of the year,” Aiken said.
General Dynamics joined peer defense contractors Lockheed Martin (LMT.N) and RTX (RTX.N) in reporting better-than-expected quarterly results.
(Source: Google/Reuters)
25 Oct 23. General Dynamics Reports Third-Quarter 2023 Financial Results.
* Revenue $10.6bn, up 6% year over year
* Net earnings $836m, diluted EPS $3.04
* $1.3bn net cash provided by operating activities
* Record-high $95.6bn backlog, 1.4-to-1 book-to-bill
General Dynamics (NYSE: GD) today reported third-quarter 2023 net earnings of $836m on revenue of $10.6bn. Diluted earnings per share (EPS) were $3.04.
“We continue to see strong demand and steady revenue growth across the business, resulting in significant growth in backlog,” said Phebe N. Novakovic, chairman and chief executive officer. “Both operating earnings and net earnings increased over last quarter, and cash from operations was a highlight.
Cash
Net cash provided by operating activities in the quarter totaled $1.3bn, or 158% of net earnings. After $227m in capital expenditures, the company generated free cash flow from operations of $1.1bn, or 131% of net earnings. During the quarter, the company repaid $500m in fixed-rate notes, paid $363 m in dividends, and used $56m to repurchase shares.
Backlog
Orders remained strong across the company with a consolidated book-to-bill ratio, defined as orders divided by revenue, of 1.4-to-1 for the quarter, with particular strength in the Marine Systems and Aerospace segments. Company-wide backlog of $95.6bn was the highest in the company’s history. Estimated potential contract value, which represents management’s estimate of additional value in unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised options, was $37.3bn. Total estimated contract value, the sum of all backlog components, was $132.9bn at the end of the quarter.
Aerospace received $2.9bn in new orders during the quarter, growing backlog to $20.1bn.
Significant awards in the quarter for the three defense segments included a U.S. Navy contract for an undisclosed amount for construction of three Flight III Arleigh Burke-class guided-missile destroyers; $1.5bn in contracts for Virginia-class submarine lead yard services, development studies and design efforts, as well as spare parts for maintenance availabilities; $140m, with a maximum potential value of $1.3bn, for Columbia-class submarine advanced nuclear plant studies (ANPS); $1.1bn, with maximum potential value up to $1.9bn, for munitions, ordnance, and the establishment of additional production capacity; a Department of Homeland Security contract with maximum potential value of $710m to continue infrastructure modernization of its St. Elizabeth’s campus in Washington, D.C.; and $365m, with maximum potential value of $775m, for several key contracts for classified customers.
Lockheed Martin
17 Oct 23. Lockheed beats estimates on sustained weapons demand amid geopolitical tensions.
U.S. defense contractor Lockheed Martin (LMT.N) shares are up 2%after reporting better-than-expected third-quarter revenue and profit on Tuesday, as geopolitical tensions fueled sustained demand for its military equipment.
During pre-market trading Lockheed shares were down as much as 2.1% due to weak sales in the unit that makes the F-35 fighter jet, but reversed in early trading in New York to $450.52 per share, up 2%.
The war in Ukraine has prompted restocking arms and ammunition such as shoulder-fired missiles, artillery and other weaponry, providing U.S. defense companies with lucrative Pentagon contracts.
Lockheed’s weapons, such as the guided multiple launch rocket system and Javelin anti-tank missiles, made in conjunction with defense company RTX (RTX.N), have proven critical to Ukraine’s war efforts.
However, Lockheed is still hindered by pandemic-related labor and supply chain disruptions that continue to affect business lines like the aeronautics business which makes the advanced F-35 fighter jet.
“We are still paced by a few key items,” Lockheed’s Chief Operating Officer Frank St. John told Reuters in an interview, such as “processor assemblies, solid-rocket motors, castings and forgings”, though they have seen progress in this last quarter.
As a result, sales at its aeronautics unit, the largest by size, saw a 5.2% decline in the third quarter.
The company last month cut its full-year F-35 jet delivery target on supplier delays but reaffirmed its 2023 financial goals on Tuesday.
Revenue at the Missiles and Fire Control unit, which makes the High Mobility Artillery Rocket System, was $2.94 bn, up 3.8% from a year earlier.
Bethesda, Maryland-based Lockheed posted a net income of $6.73 per share for the quarter ended Sept. 24, beating estimates of $6.67 per share.
Quarterly net sales rose around 1.78% to $16.88bn, beating Wall Street estimates of $16.74 bn, according to LSEG data.
(Source: Reuters)
Lockheed Martin Reports Third Quarter 2023 Financial Results
* Net sales of $16.9bn, an increase of 2% year-over-year
* Net earnings of $1.7bn, or $6.73 per share
* Cash from operations of $2.9bn and free cash flow of $2.5bn
* $2.5 bn of cash returned to shareholders through dividends and share repurchases
* Increased share repurchase authority by $6.0bn to a total authorization of $13.0bn
* Increased quarterly dividend to $3.15 per share
* Reaffirms 2023 financial outlook
Lockheed Martin Corporation (NYSE: LMT) today reported third quarter 2023 net sales of $16.9bn, compared to $16.6bn in the third quarter of 2022. Net earnings in the third quarter of 2023 were $1.7 bn, or $6.73 per share, compared to $1.8bn, or $6.71 per share, in the third quarter of 2022. Cash from operations was $2.9bn in the third quarter of 2023, compared to $3.1bn in the third quarter of 2022. Free cash flow was $2.5 bn in the third quarter of 2023, compared to $2.7bn in the third quarter of 2022.
“Our third quarter results were at or above our expectations across the board, generating $2.5bn of free cash flow, with nearly 100% returned to shareholders through dividends and share repurchases.” said Lockheed Martin Chairman, President and CEO Jim Taiclet. “Our backlog remains robust at $156bn as both domestic and international orders were strong. Moreover, our 21st Century Security strategy is resulting in new business successes, including the award of the transformational AIR6500 integrated air and missile defense program by the Australian Defence Force, which will serve as a blueprint for future joint all-domain operations worldwide. Looking ahead, we’ll continue to pursue our strategy of building capacity, efficiency and resilience into our production operations, driving advanced digital technologies to enhance integrated deterrence through collaboration with our customers and tech and aerospace industry partners, and expanding our international business and operations. This strategy is designed to drive growth in our traditional platforms and systems, augmented with digital service revenues over time, which in turn will support our dynamic capital allocation process to reward shareholders.”
Cash Flows and Capital Deployment Activities
Cash from operations in the third quarter of 2023 was $2.9bn and capital expenditures were $364m, resulting in free cash flow of $2.5bn. The decrease in operating and free cash flows in the third quarter of 2023 compared to the same period in 2022 was primarily due to changes in inventory and customer advances due to timing.
The company’s cash activities in the third quarter of 2023, included the following:
* paying cash dividends of $747m;
* paying $1,750m to repurchase 4.0 m shares; and
* making a scheduled repayment of $115m of long-term debt.
As previously announced on October 6, 2023, the company’s board authorized the repurchase of its common stock up to an additional $6.0 bn, increasing the total authorization for potential future common stock repurchases to $13.0 bn. The stock repurchase program does not have an expiration date and may be amended or terminated by the board of directors at any time. The amount of shares ultimately purchased and the timing of purchases are at the discretion of management and subject to compliance with applicable law and regulation.
On October 6, 2023, the company authorized a fourth quarter dividend payment of $3.15 per share, representing an increase of $0.15 per share over the prior quarterly dividend payment.
Segment Results
The company operates in four business segments organized based on the nature of products and services offered: Aeronautics, Missiles and Fire Control (MFC), Rotary and Mission Systems (RMS) and Space.
The company’s consolidated net favorable profit booking rate adjustments represented approximately 19% and 24% of total segment operating profit in the quarters ended September 24, 2023 and September 25, 2022.
Aeronautics
Aeronautics’ net sales in the third quarter of 2023 decreased $372m, or 5%, compared to the same period in 2022. The decrease was primarily attributable to lower net sales of $525 m for the F-35 program due to lower volume on production contracts and the recognition in the third quarter 2022 of $325m of sales deferred from the second quarter of 2022 until additional contractual authorization and funding was received on the Lot 15 contract. This decrease was partially offset by higher net sales of $125m on classified programs due to higher volume.
Aeronautics’ operating profit in the third quarter of 2023 decreased $88m, or 12%, compared to the same period in 2022. The decrease was primarily attributable to lower operating profit of $115m for the F-35 program due to lower volume and lower favorable profit adjustments on production contracts and the recognition of sales and associated operating profit in the third quarter of 2022 on the Lot 15 contract as described above. This decrease was partially offset by higher operating profit of $50 m on classified programs due to higher net favorable profit adjustments in 2023 and the absence in 2023 of unfavorable profit adjustments recorded in the third quarter of 2022. Total net profit booking rate adjustments were $80 m lower in the third quarter of 2023 compared to the same period in 2022.
Missiles and Fire Control
MFC’s net sales in the third quarter of 2023 increased $108m, or 4%, compared to the same period in 2022. The increase was primarily attributable to higher net sales of $125m for tactical and strike missile programs due to higher volume (Guided Multiple Launch Rocket Systems (GMLRS) and High Mobility Artillery Rocket System (HIMARS)). These increases were partially offset by lower net sales of $60m for integrated air and missile defense programs due to lower volume (Patriot Advanced Capability-3 (PAC-3)).
MFC’s operating profit in the third quarter of 2023 increased $15m, or 4%, compared to the same period in 2022. The increase was primarily attributable to higher operating profit of $10m for sensors and global sustainment programs due to higher net favorable profit adjustments (Apache). Operating profit for integrated air and missile defense programs was comparable to the same period in 2022 due to lower favorable profit adjustments (PAC-3) in 2023 offset by the absence in 2023 of a $40m unfavorable profit adjustment on the Advanced Radar Threat System Variant 2 (ARTS-V2) program in the third quarter of 2022. Total net profit booking rate adjustments were $15 m higher in the third quarter of 2023 compared to the same period in 2022.
Rotary and Mission Systems
RMS’ net sales in the third quarter of 2023 increased $340m, or 9%, compared to the same period in 2022. The increase was primarily attributable to higher net sales of $235m for integrated warfare systems and sensors (IWSS) programs due to new program ramp up (Defense of Guam, Indirect Fire Protection Capability High Energy Laser (IFPC-HEL) and TPY-4 programs) and higher volume (Aegis); and higher net sales of $60m on C6ISR (command, control, communications, computers, cyber, combat systems, intelligence, surveillance, and reconnaissance) programs due to higher volume.
RMS’ operating profit in the third quarter of 2023 increased $10m, or 2%, compared to the same period in 2022. The increase was primarily attributable to higher operating profit of $50m for IWSS programs due to higher favorable profit adjustments (Littoral Combat Ship (LCS)) and new program ramp up (Defense of Guam, IFPC-HEL and TPY-4 programs). This increase was partially offset by lower operating profit of $35m for Sikorsky helicopter programs due to lower favorable profit adjustments (Combat Rescue Helicopter (CRH) and Black Hawk). Total net profit booking rate adjustments were $25m lower in the third quarter of 2023 compared to the same period in 2022.
Space
Space’s net sales in the third quarter of 2023 increased $219m, or 8%, compared to the same period in 2022. The increase was primarily attributable to higher net sales of $135m for strategic and missile defense programs due to higher volume (Next Generation Interceptor (NGI) development and Fleet Ballistic Missile (FBM)); higher net sales of $45m for national security space programs due to higher volume (Global Positioning System (GPS) III); and higher net sales of $40 m for commercial civil space programs due to higher volume (Orion).
Space’s operating profit in the third quarter of 2023 decreased $45m, or 15%, compared to the same period in 2022. The decrease was primarily attributable to $35m of lower equity earnings from ULA due to lower launch volume. Total net profit booking rate adjustments were $30 m lower in the third quarter of 2023 compared to the same period in 2022.
Total equity earnings (primarily ULA) represented approximately $15m, or 6% of Space’s operating profit during the quarter ended Sept. 24, 2023, compared to approximately $50m, or 16% during the quarter ended Sept. 25, 2022.
Income Taxes
The company’s effective income tax rate was 13.8% and 15.3% for the quarters ended Sept. 24, 2023 and Sept. 25, 2022. The rate for the third quarter of 2023 was lower than the third quarter of 2022 primarily due to additional research and development tax credits for prior years. The rates for all periods benefited from research and development tax credits, tax deductions for foreign derived intangible income and dividends paid to the company’s defined contribution plans with an employee stock ownership plan feature.
Northrop Grumman Corporation
26 Oct 23. Northrop Grumman lifts 2023 revenue outlook on weapons demand. U.S. defense company Northrop Grumman (NOC.N) on Thursday raised its annual revenue target for the second time this year after its third-quarter earnings beat analysts’ estimates helped by strong weapons demand.
The tense geopolitical landscape has created a strong global appetite for U.S. weaponry, with nations actively engaged in negotiations and striking deals to acquire arms and looking to speed up ongoing contracts. Increased defense spending by the U.S. and its allies benefited Northrop’s topline.
Northrop’s award volume in the reported quarter was $15bn and the book-to-bill ratio, a comparison of orders received to units shipped and billed, was 1.53 to 1.
Sales in the company’s Defense Systems segment rose 6%, helped by high demand for its ammunition and rocket motors used in guided multiple-launch rocket systems, which played a crucial role in supporting Ukraine’s defense efforts against Russian forces.
Ramp up of development programs, primarily the Ground-Based Strategic Deterrent (GBSD), which aims to replace the aging ICBM system and its nuclear cruise missiles boosted sales at Northrop’s Space Systems division by 11% to $3.51bn.
The company’s aeronautic systems business, which houses the high-profile B21 Raider jet program, posted a 9% rise in sales.
Northrop now expects 2023 revenue to be $39bn, from its earlier projected range between $38.4bn and $38.8bn.
Overall profit in the third quarter was $937m, or $6.18 per diluted share, compared with $915m, or $5.89 per diluted share, a year earlier.
Analysts were expecting a profit of $5.81 per share, according to LSEG data.
Quarterly sales jumped 9% to $9.78bn, ahead of estimates of $9.58 bn.
Northrop joined other defense contractors Lockheed Martin (LMT.N), RTX (RTX.N), and General Dynamics (GD.N) in reporting better-than-expected quarterly results.
Northrop’s shares were up about 1% at $488 before the bell.
(Source: Reuters)
26 Oct 23.
Northrop Grumman Corporation (NYSE: NOC) reported third quarter 2023 sales increased 9 percent to $9.8bn, as compared with $9.0bn in the third quarter of 2022. Third quarter 2023 sales reflect continued strong demand for our products and services. Third quarter 2023 net earnings totaled $937m, or $6.18 per diluted share, as compared with $915 m, or $5.89 per diluted share, in the third quarter of 2022. Net earnings were reduced by $156 m, or $1.00 per diluted share, as a result of lower net FAS/CAS pension income, and net earnings were increased by $67m, or $0.44 per diluted share, as a result of the sale of a minority interest in an Australian business.
“We had another strong quarter with solid performance on our programs, a new record backlog, and growth across all four of our businesses,” said Kathy Warden, chair, chief executive officer and president. “Based on our year-to-date results and increasing demand for our products, we are raising our 2023 sales guidance. We are also providing an initial 2024 outlook that reflects our expectation for solid revenue, operating income and free cash flow growth.”
Third quarter 2023 sales increased $804m, or 9 percent, due to higher sales at all four sectors. Third quarter 2023 sales reflect continued strong demand for our products and services. Operating Income and Margin Rate Third quarter 2023 operating income increased $172m, or 20 percent, due to higher segment operating income, lower unallocated corporate expense and a reduction in the FAS/ CAS operating adjustment. Third quarter 2023 operating margin rate increased to 10.4 percent principally due to the lower unallocated corporate expense and FAS/CAS operating adjustment.
Segment Operating Income and Margin Rate Third quarter 2023 segment operating income increased $82m, or 8 percent, primarily due to higher sales. Third quarter 2023 segment operating margin rate was comparable with the prior year period. Federal and Foreign Income Taxes The third quarter 2023 ETR of 16.2 percent was comparable with the prior year period and reflects an increase in research credits, partially offset by higher interest expense on unrecognized tax benefits.
Net Earnings and Diluted EPS Third quarter 2023 net earnings increased $22m, or 2 percent, primarily due to $172m of higher operating income and a $97m gain recognized upon the sale of our minority investment in an Australian business, partially offset by a $244m reduction in the non-operating FAS pension benefit.
Third quarter 2023 diluted earnings per share increased 5 percent, reflecting a 2 percent increase in net earnings and a 2 percent reduction in weightedaverage diluted shares outstanding.
Cash Flows Third quarter 2023 net cash provided by operating activities decreased $107 m principally due to increased cash collections in the prior year period resulting from billing delays at the end of the second quarter of 2022.
Third quarter 2023 adjusted free cash flow decreased $270m due to lower cash provided by operating activities, a reduction in proceeds from the sale of equipment to a customer and higher capital expenditures.
Awards and Backlog
Third quarter and year to date 2023 net awards totaled $15.0bn and $33.9bn, respectively, and backlog totaled $83.9bn. Significant third quarter new awards include $3.6 bn for restricted programs (primarily at Space Systems, Aeronautics Systems, and Mission Systems), $1.3bn for E-2, $0.7bn for Space Development Agency (SDA) Tranche 2 Transport Layer and $0.5bn for Guided Multiple Launch Rocket System (GMLRS).
Segment Results
AERONAUTICS SYSTEMS
Three Months Ended September 30
Sales
Third quarter 2023 sales increased $229m, or 9 percent, primarily due to higher volume in Manned Aircraft. Higher sales on restricted programs and E-2 were partially offset by lower volume on F/A-18 largely due to post Multi-Year Procurement 4 (MYP4) contract award timing. Operating Income Third quarter 2023 operating income increased $21 m, or 8 percent, primarily due to higher sales. Operating margin rate was comparable with the prior year period.
DEFENSE SYSTEMS
Three Months Ended September 30
Sales
Third quarter 2023 sales increased $76m, or 6 percent, primarily due to higher volume in Battle Management & Missile Systems, which was driven by several programs, including Integrated Air and Missile Defense Battle Command System (IBCS), ammunition programs, GMLRS, and Hypersonic Attack Cruise Missile (HACM). Operating Income Third quarter 2023 operating income increased $24m, or 15 percent, due to a higher operating margin rate and higher sales. Operating margin rate increased to 12.8 percent from 11.7 percent primarily due to higher net EAC adjustments at Battle Management & Missile Systems.
MISSION SYSTEMS
Three Months Ended September 30
Sales
Third quarter 2023 sales increased $172m, or 7 percent, primarily due to higher restricted sales in the Networked Information Solutions business area, as well as higher volume on marine systems programs, partially offset by lower volume on the Ground/Air Task Oriented Radar (G/ATOR) program largely driven by material receipts and full-rate production (FRP) 5 contract award timing.
Operating Income
Third quarter 2023 operating income increased $18m, or 5 percent, due to higher sales, partially offset by a lower operating margin rate. Operating margin rate decreased to 14.7 percent from 15.0 percent primarily due to changes in contract mix toward more cost-type content.
SPACE SYSTEMS
Three Months Ended September 30
Sales
Third quarter 2023 sales increased $343m, or 11 percent, due to higher sales in both business areas. Launch & Strategic Missiles sales increased primarily due to ramp-up on development programs, including the Ground Based Strategic Deterrent (GBSD), and Next Generation Interceptor (NGI), as well as higher volume on the Space Launch System (SLS) booster program. Sales in the Space business area were driven by higher volume on restricted programs and the Next-Generation Overhead Persistent Infrared Polar (NextGen Polar) program, partially offset by lower sales on the HALO program. Operating Income Third quarter 2023 operating income increased $22m, or 8 percent, due to higher sales, partially offset by a lower operating margin rate. Operating margin rate decreased to 8.9 percent from 9.2 percent primarily due to lower net EAC adjustments, partially offset by a $16m benefit from insurance recoveries in our commercial space business.
RTX
24 Oct 23. RTX beats Q3 estimates, approves $10bn share repurchase. RTX reported better-than-expected quarterly earnings on Tuesday, as a strong performance at its Collins Aerospace business offset the impact from a major quality crisis at engine-making unit Pratt and Whitney.
The company also approved a $10bn share repurchase program that will be funded through short and long-term debt.
Shares of the aerospace major were up 6.3% in early trade.
RTX said in July it had found microscopic contaminants in powdered metal, used to manufacture high-pressure turbine discs that are part of the engine’s core, the presence of which could lead to cracks.
RTX had at the time said 200 Geared Turbofan (GTF) engines would require “accelerated inspection” with 60 days to fix each engine with a contamination issue. However, two months later, it expanded the scope of inspections and said it would need to pull up to 700 engines off aircraft for lengthy quality inspections.
The powdered metal issue has forced RTX to shorten the expected life of certain parts for the PW1500 and PW1900 engines, which will cause “some incremental” groundings of Airbus A220s and Embraer E2 aircraft in the first half of 2024.
RTX also expects to accelerate the removal and inspection of 100 V2500 engines, which power A320ceo aircraft, over the next four years.
Despite other engine types impacted by the metal contaminant issue, Chief Financial Officer Neil Mitchill told Reuters in an interview on Tuesday that “we do not see a significant incremental financial or operational impact.”
Maintenance shop output remains the biggest risk for executing the GTF inspection plan, executives said. RTX expects to have 16 repair facilities by end of 2023 after bringing six facilities online.
The company is also ramping up production of high pressure turbine and compressor disks to replace potentially contaminated ones, and plans to be manufacturing at full rate by second-quarter 2024.
Pratt and Whitney, a subsidiary of RTX, booked a $2.48bn operating loss in the reported quarter related to engine recalls and compensations to airlines. But profit at RTX’s Collins Aerospace unit, which makes avionics and aerospace components, rose 22% to $903m. RTX reported an overall third-quarter adjusted profit of $1.25 per share, beating Wall Street estimates of $1.21, according to LSEG data.
Adjusted revenue rose 12% to $18.9 bn, ahead of analysts expectations of $18.59bn.
Despite the GTF-related losses, RTX raised its outlook for 2023, forecasting free cash flow of $4.8 bn compared with its previous prediction of $4.3 bn. The company now expects reported sales of $68.5 bn, up from about $67.5 bn, and adjusted sales of $74bn, up from $73bn.
Adjusted earnings per share – previously projected to be $4.95 to $5.05 – are now expected to be between $4.98 and $5.02.
The Arlington, Virginia-based company also entered into an agreement to sell its Cybersecurity, Intelligence and Services business within its Raytheon segment for around $1.3bn.
Private equity firm Blackstone (BX.N) was the purchaser of the business, two sources familiar with deal said on condition of anonymity. Blackstone did not immediately return a request for comment. (Source: Reuters)
RTX Reports Q3 2023 Results
RTX delivers strong commercial aftermarket growth; announces $10 bn accelerated share repurchase program; updates 2023 outlook.
RTX (NYSE: RTX) reported third quarter 2023 results.
Third quarter 2023
* Reported sales of $13.5 bn, down 21 percent versus prior year, reflecting the impact of the previously disclosed Pratt powder metal matter
* Adjusted sales* of $19.0 bn, up 12 percent versus prior year
* GAAP EPS from continuing operations was a loss of $0.68, which reflects $1.53 charge from the Pratt powder metal matter and $0.40 of acquisition accounting adjustments and other net significant and/or non-recurring charges
* Adjusted EPS* of $1.25, up 3 percent versus prior year
* Operating cash flow from continuing operations of $3.3bn; Free cash flow* of $2.8bn
* Company backlog of $190 bn; including $11 bn of commercial and $75 bn of defense
* Repurchased $1.4bn of RTX shares
Updates outlook for full year 2023
* Reported sales of approximately $68.5bn, up from $67.5 – $68.5bn
* Adjusted sales* of approximately $74.0bn, up from $73.0 – $74.0bn
* Adjusted EPS* of $4.98 – $5.02 from $4.95 – $5.05
* Free cash flow* of approximately $4.8 bn, up from approximately $4.3bn
* Share repurchase spending of approximately $12.8 bn of RTX shares, up from $3.0bn
“We have made significant progress on our assessment of the Pratt & Whitney powder metal manufacturing matter and expect the financial impact to be in line with the previously disclosed charge,” said RTX Chairman and CEO Greg Hayes. “We are now focused on executing on our fleet management plans and are working relentlessly to mitigate further disruption to our customers. We do not expect any significant future incremental impact as a result of these fleet management plans. The historic demand across our commercial aerospace and defense businesses drove 12 percent organic sales* growth during the third quarter and led to another record backlog of $190 bn. We are on track to deliver on our updated financial commitments for 2023 including our increased sales and free cash flow* outlook, as well as the tightened range for adjusted EPS* of $4.98 to $5.02 per share. Our industry leading franchises in Collins Aerospace, Pratt & Whitney, and Raytheon, position RTX to deliver significant long-term value for our shareowners. Today, RTX shares are an attractive investment opportunity and we are immediately proceeding with a $10 bn accelerated share repurchase program and increasing our capital return commitment through 2025 to $36 – $37bn.”
The company also announced today that it has entered into a definitive agreement to sell its Cybersecurity, Intelligence and Services business within its Raytheon segment. The sale price is approximately $1.3bn and is subject to regulatory approvals and other customary closing conditions.
Accelerated Share Repurchase Program
* The RTX board of directors has approved a $10bn accelerated share repurchase program commencing almost immediately
* This will result in an increase to RTX’s post-merger shareowner capital return commitment to $36 – $37 bn through 2025, up from the prior range of $33 – $35bn
* The program will be funded through a combination of short and long-term debt, with deleveraging to begin in 2024 in part supported by proceeds from the previously announced dispositions including Collins’ actuation and flight control business in July, as well as Raytheon’s Cybersecurity, Intelligence and Services business.
Third quarter 2023
RTX reported third quarter sales of $13.5bn, down 21 percent over the prior year, which included a $5.4 bn charge related to the previously disclosed Pratt powder metal matter. On an adjusted basis, sales* were $19.0bn, up 12 percent over the prior year. GAAP EPS from continuing operations was a loss of $0.68, down versus the prior year, and included a $1.53 charge related to the Pratt powder metal matter, $0.28 of acquisition accounting adjustments, $0.05 of restructuring, and $0.07 related to other net significant and/or non-recurring charges. Adjusted EPS* of $1.25 was up 3 percent versus the prior year.
The company recorded a net loss from continuing operations attributable to common shareowners in the third quarter of $984m, down versus the prior year which included the after-tax impact of $2.2 bn related to the previously disclosed Pratt powder metal matter, $406 m of acquisition accounting adjustments, $80 m of restructuring charges, and $96 m of other net significant and/or non-recurring charges. Adjusted net income* was $1.8 bn, up 2 percent versus prior year.
Operating cash flow from continuing operations in the third quarter was $3.3bn. Capital expenditures were $564 m, resulting in free cash flow* of $2.8bn.
Notable defense bookings during the quarter included:
* $1.9bn of classified bookings at Raytheon
* $1.1bn for F135 sustainment at Pratt & Whitney
* $616m for F135 production at Pratt & Whitney
* $412m for Next Gen Short Range Interceptor development at Raytheon
* $383m for HAWK and Patriot sustainment at Raytheon
* $368m for TOW production at Raytheon
* $297m for Ukraine NASAMS production at Raytheon
* $277m for Excalibur production at Raytheon
Segment Results
Beginning in Q3 2023, we are operating in three business segments: Collins Aerospace, Pratt & Whitney, and Raytheon. Segment information included below is reflective of the new structure and prior period information has been recast to conform to our current period presentation.
Collins Aerospace
Collins Aerospace had third quarter 2023 reported sales of $6,629m, up 16 percent versus the prior year. The increase in sales was driven by a 30 percent increase in commercial aftermarket and a 27 percent increase in commercial OE, which was partially offset by a 1 percent decrease in military. The increase in commercial sales was driven primarily by strong demand across commercial aerospace end markets, which resulted in higher flight hours and higher OE production rates. The decrease in military sales was driven primarily due to the timing of deliveries.
Collins Aerospace recorded operating profit of $903m, up 22 percent versus the prior year. The increase in operating profit was primarily driven by drop through on higher commercial aftermarket and OE volume, partially offset by higher production costs, unfavorable military mix, and higher SG&A. Q3 2023 operating profit included a $57m charge related to a litigation matter and $83m related to restructuring and other significant and/or non-recurring items. On an adjusted basis, operating profit* of $1,043m was up 38 percent versus the prior year.
Pratt & Whitney
Pratt & Whitney had third quarter 2023 reported sales of $926 m, down 83 percent versus the prior year. Q3 2023 sales included the impact of a charge related to the powder metal matter of $5,401m. The remaining change was driven by a 25 percent increase in commercial OE, a 21 percent increase in commercial aftermarket, and a 7 percent increase in military sales. The increase in commercial sales was primarily due to higher volume and content, and favorable mix across commercial aftermarket, as well as favorable OE volume and mix in Large Commercial Engines.
The increase in military sales was driven by higher F135 development and sustainment volume. Adjusted sales* of $6,327m, were up 18 percent versus the prior year.
Pratt & Whitney recorded an operating loss of $2,482m, down $2,798m versus the prior year. Q3 2023 operating loss included the impact of a charge related to the powder metal matter of $2,888 m. Excluding the impact of the powder metal matter and other significant and/or non-recurring items, Pratt & Whitney recorded adjusted operating profit* of $413m in the third quarter of 2023, up 30 percent versus the prior year. The increase in adjusted operating profit* was primarily driven by drop through on higher commercial aftermarket sales which was partially offset by higher commercial OE volume, higher production costs, unfavorable military mix, and higher R&D expenses.
Raytheon
Raytheon had third quarter 2023 reported sales of $6,472 m, up 3 percent versus prior year. The increase in sales was primarily driven by higher volume in Naval Power, including AIM-9X, and Advanced Technology classified programs.
Raytheon recorded operating profit of $560m, down 18 percent versus the prior year. The decrease in operating profit was driven by higher volume on lower margin programs and lower net program efficiencies, including additional headwind on certain fixed price development programs. Raytheon recorded adjusted operating profit* of $570m, down 18 percent versus the prior year.
26 Oct 23. Textron raises profit forecast on private jets demand, but supply chain a challenge. Textron (TXT.N) on Thursday beat analyst estimates for quarterly profit on sustained orders for its private jets, but supply chain problems continue to weigh on deliveries.
The parent of Cessna business jets also raised its full-year adjusted earnings forecast and expects full-year adjusted profit per share of between $5.45 and $5.55, above its previous expectation of $5.20 to $5.30.
Shares of the owner of Bell Helicopters rose 1.8% in early market trading.
Demand for business jets remains resilient, with planemakers raising prices to counter costs, after more wealthy travelers sought to fly privately during the pandemic due to public health fears. Economic headwinds and higher interest rates, however, remain concerns for future orders.
Overall quarterly revenue of $3.34bn missed analysts’ estimate of $3.48bn, as per LSEG data.
Textron Aviation delivered 39 jets, fewer than two analysts expected, during the three months ending Sept. 30.
Textron, which expects to deliver in the neighborhood of 175 to 180 private jets for the full year, anticipates higher deliveries in 2024 when supply chain problems should improve.
Textron CEO Scott Donnelly told analysts he is already seeing improvements with fewer parts overall arriving late, but delays remain a problem.
“If you’re missing parts for (an) aircraft,.. you still can’t deliver that aircraft,” he said on a call.
Orders at the aviation unit, Textron’s most profitable business, rose 12%, marking the strongest order quarter of the year, the company said on Thursday.
In September, Textron and NetJets signed an agreement, which analysts value at about $30 bn, giving the private jet firm owned by Berkshire Hathaway (BRKa.N) the option to buy up to 1,500 additional Cessna Citation business jets over the next 15 years.
Revenue at Textron Aviation rose 14.7% to $1.34bn.
On an adjusted basis, the company earned $1.49 per share, higher than the estimate of $1.29. (Source: Reuters)
26 Oct 23. Textron Inc. (NYSE: TXT) today reported third quarter 2023 income from continuing operations of $1.35 per share, as compared to $1.06 per share in the third quarter of 2022. Adjusted income from continuing operations, a non-GAAP measure that is defined and reconciled to GAAP in an attachment to this release, was $1.49 per share for the third quarter of 2023, compared to $1.15 per share in the third quarter of 2022.
“In the quarter, we saw higher overall revenues and net operating profit driven by growth at Aviation, Industrial and Systems,” said Textron Chairman and CEO, Scott C. Donnelly. “At Aviation, we saw our strongest order quarter of the year with a 12% increase over the third quarter of 2022.”
Cash Flow
Net cash provided by operating activities of the manufacturing group for the third quarter was $270m, compared to $356m last year. Manufacturing cash flow before pension contributions, a non-GAAP measure that is defined and reconciled to GAAP in an attachment to this release, totaled $205m for the third quarter, compared to $292m last year.
In the quarter, Textron returned $235m to shareholders through share repurchases. Year to date, Textron has returned $885m to shareholders through share repurchases.
Outlook
Textron now expects 2023 adjusted earnings per share from continuing operations to be in a range of $5.45 to $5.55, up from our previous outlook of $5.20 to $5.30. Textron reiterated its expectation for manufacturing cash flow before pension contributions of $0.9 bn to $1.0 bn, with planned pension contributions of about $50 m.
Third Quarter Segment Results
Textron Aviation
Textron Aviation’s revenues were $1.3bn, up $171m from last year’s third quarter, reflecting higher volume and mix of $89 m and higher pricing of $82m.
Textron Aviation delivered 39 jets in the quarter, flat with last year, and 38 commercial turboprops, up from 33 in last year’s third quarter.
Segment profit was $160m in the third quarter, up $29m from a year ago, largely due to favorable pricing, net of inflation, of $39m and a $23m favorable impact from higher volume and mix, partially offset by an unfavorable impact from performance of $33m, largely related to supply chain and labor inefficiencies.
Textron Aviation backlog at the end of the third quarter was $7.4bn.
Bell
Bell revenues in the quarter were $754m, flat with the third quarter of 2022, with lower commercial helicopter volume, largely reflecting supply chain constraints, partially offset by higher military volume.
Bell delivered 23 commercial helicopters in the quarter, down from 49 last year.
Segment profit of $77m was up $3m from last year’s third quarter, primarily due to a favorable impact from performance of $23m, largely reflecting lower research and development costs, partially offset by lower volume and mix of $16m.
Bell backlog at the end of the third quarter was $5.2bn.
Textron Systems
Revenues at Textron Systems were $309m, up $17m from last year’s third quarter, largely reflecting higher volume.
Segment profit of $41m was up $10m, compared with the third quarter of 2022, primarily due to a favorable impact from performance of $8m.
Textron Systems’ backlog at the end of the third quarter was $2.0bn.
Industrial
Industrial revenues were $922m, up $73m from last year’s third quarter, largely due to higher volume and mix of $45m at both product lines and an $18m favorable impact from pricing, principally in the Specialized Vehicles product line.
Segment profit of $51m was up $15m from the third quarter of 2022, largely due to a favorable impact from pricing, net of inflation, of $15m, principally in the Specialized Vehicles product line, and higher volume and mix of $8m, partially offset by an unfavorable impact of $10m from performance.
Textron eAviation
Textron eAviation segment revenues were $7m and segment loss was $19m in the third quarter of 2023, primarily related to research and development costs.
Finance
Finance segment revenues were $13m, and profit was $22m,up $15 m from last year’s third quarter largely due to a recovery of amounts that were previously written off related to one customer relationship. (Source: BUSINESS WIRE)