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Steady Showing By US Majors

27 Apr 16. The reporting season for US and European Defence Companies kicked off last week with steady figures across the board.

Boeing

boeing27 Apr 16. Boeing Reports First-Quarter Results and Reaffirms 2016 Guidance.

The Boeing Company [NYSE: BA] reported first-quarter revenue increased 2 percent to $22.6bn. Core earnings per share (Non-GAAP) of $1.74 reflect solid core operating performance that offset a $156m after-tax charge ($0.24 per share) on the KC-46 Tanker program to maintain schedule with concurrency between late-stage development testing and the transition to initial production. GAAP earnings per share was $1.83. The company’s full year guidance is reaffirmed, primarily driven by improved performance.

“Higher year-over-year deliveries of military aircraft and continued solid operating performance on core production programs drove revenue growth and strong cash flow for Boeing in the first quarter,” said Chairman, President and Chief Executive Officer Dennis Muilenburg. “This performance enabled our ongoing investments in new product innovation and in our people, and the return of significant cash to shareholders through stock repurchases and dividends.”  

“Overall, we are pleased with our performance trends and our outlook for the year remains positive. On the tanker program, we are making the investments necessary to meet our customer commitments, deliver the initial production aircraft on schedule, and transition the program into full production,” said Muilenburg.

“Our teams are focused intensely on delivering on our existing commitments including the production ramp-up associated with our large and diverse backlog, accelerating progress on quality, safety and productivity improvements company wide, returning greater value to shareholders through profitable growth, and investing in the future as we enter our second century in business.”

Cash and investments in marketable securities totaled $8.4bn, down from $12.1bn at the beginning of the quarter, primarily due to share repurchases and the timing of cash flows. Debt was $10.0bn, unchanged from the beginning of the quarter.

Total company backlog at quarter-end was $480bn, down from $489bn at the beginning of the quarter, and included net orders for the quarter of $13bn.

Segment Results

Commercial Airplanes

Commercial Airplanes first-quarter revenue decreased to $14.4bn on lower delivery volume. First-quarter operating margin was 7.2 percent, reflecting the $162m pre-tax charge on the KC-46 Tanker program, higher R&D, mix and a $70m pre-tax charge on the 747 program. During the quarter, the company completed first flight of the 737 MAX. The 737 program has captured nearly 3,100 orders for the 737 MAX since launch. Also during the quarter, the company began major assembly of the 787-10 ahead of schedule and launched the Next-Generation 737 freighter conversion program. Commercial Airplanes booked 121 net orders during the quarter. Backlog remains strong with over 5,700 airplanes valued at $424bn.

Defense, Space & Security

Defense, Space & Security’s first-quarter revenue was $8.0bn. First quarter operating margin was 10.3 percent, reflecting the $81m pre-tax charge recorded at BMA on the KC-46 Tanker program partially offset by strong performance on production programs.

Boeing Military Aircraft (BMA) first-quarter revenue increased to $3.7bn, reflecting higher F-15 and C-17 deliveries. Operating margin was 9.1 percent, reflecting the KC-46 Tanker program charge partially offset by delivery mix. All four planned KC-46 test aircraft are now flying, and during the first quarter the KC-46 demonstrated its refueling capabilities with multiple other aircraft types. Also during the quarter, BMA was awarded a contract from the U.S. Navy for 20 P-8A Poseidon aircraft and a contract from the U.S. Army for 117 Apache helicopters.

Network & Space Systems (N&SS) first-quarter revenue was $1.7bn. Operating margin was 8.5 percent, reflecting timing on United Launch Alliance launches. During the quarter, N&SS successfully launched the first of six Boeing-built Intelsat Epic satellites.

Global Services & Support (GS&S) first-quarter revenue increased to $2.6bn, reflecting higher volume in Aircraft Modernization & Sustainment and Training Systems. Operating margin was 13.3 percent, reflecting program mix. During the quarter, GS&S was awarded a NATO contract for C-17 training.

Backlog at Defense, Space & Security was $56bn, of which 37 percent represents orders from international customers.

Additional Financial Information

At quarter-end, Boeing Capital’s net portfolio balance was $3.2bn, down from the beginning of the quarter. Unallocated items and eliminations first quarter revenue reflects the payoff of two aircraft previously financed by Boeing Capital. Total pension expense for the first quarter was $629m, down from $785m in the same period of the prior year. Other unallocated items and eliminations decreased from the same period in the prior year primarily due to lower deferred compensation expense.

Outlook

The company’s 2016 financial and delivery guidance is reaffirmed and reflects continued solid performance across the company.

General Dynamics

gdlogo27 Apr 16. General Dynamics (NYSE: GD) reported first-quarter 2016 earnings from continuing operations of $730 m, a 2 percent increase over first-quarter 2015, on revenue of $7.7 bn. Diluted earnings per share from continuing operations were $2.34 compared to $2.14 in the year-ago quarter, a 9.3 percent increase.

“General Dynamics delivered a strong first quarter, with all four groups contributing to our outstanding operating performance,” said Phebe N. Novakovic, chairman and chief executive officer of General Dynamics. “We generated positive operating leverage and achieved the sixth straight quarter with operating earnings of more than one billion dollars.”

Margin

Company-wide operating margin for the first quarter of 2016 was 13.6 percent, a 40 basis-point increase when compared to 13.2 percent in first-quarter 2015. Three of the company’s four business groups expanded margins over the year-ago period.

Cash

Net cash provided by operating activities in the quarter totaled $439m. Free cash flow from operations, defined as net cash provided by operating activities less capital expenditures, was $374m.

Capital Deployment

The company repurchased 7.8m of its outstanding shares in the first quarter. In addition, in March, the board of directors increased the company’s quarterly dividend by 10.1 percent to $0.76 per share, representing the company’s 19th consecutive annual dividend increase.

Backlog

General Dynamics’ total backlog at the end of first-quarter 2016 was $64.7bn. There was order activity across the Gulfstream product portfolio and strong demand for defense products, which resulted in a book-to-bill ratio (orders divided by revenue) of one-to-one in the Combat Systems group and greater than one-to-one in the Information Systems and Technology group. The estimated potential contract value, representing management’s estimate of value in unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised options, was $24.5bn. Total potential contract value, the sum of all backlog components, was $89.2bn at the end of the quarter.

Honeywell

honeywell22 Apr 16. Honeywell (NYSE: HON) announced its results for the first quarter of 2016.

Honeywell announced first quarter 2016 sales of $9.5bn and earnings per share (EPS) up 9% to $1.53.  Core organic sales grew 1% and segment margin improved 20 bps excluding the impact of Mergers & Acquisitions (M&A).  The Company repurchased over $1bn shares and deployed ~$1bn to acquisitions in the quarter. Honeywell also raised its 2016 EPS guidance to $6.55 – $6.70, Up 7% – 10%.

“Honeywell had a strong start to 2016, delivering on our sales and earnings commitments in the first quarter,” said Honeywell Chairman and CEO, Dave Cote. “Earnings per share increased 9% on continued execution across the portfolio. Core organic sales were up 1%, above the high-end of our guidance, driven by acceleration in Commercial Aftermarket and Transportation Systems within Aerospace, continued growth in our residential, commercial, and China businesses within ACS, and higher sales in Process Solutions and Fluorine Products in PMT. We announced and closed three acquisitions within ACS and acquired the remaining 30% interest in UOP Russell, which further strengthens our Great Positions in Good Industries. We also opportunistically repurchased over $1bn of shares during the quarter, and funded approximately Q1’16 $40m in new restructuring projects. As a result of the first quarter performance, we are raising the low end of our full-year earnings guidance range to $6.55-$6.70, up 7%-10%, and remain committed to our fullyear core organic sales growth and free cash flow outlook.”

“Looking ahead, our message and our planning will not change. We will support growth where there are opportunities to drive outperformance, be cautious in our sales planning, plan costs and spending conservatively, and continue to support the seed planting for new products, services, geographies, and process improvements that allow us to perform well now and in the future,” concluded Cote.

Segment Performance

Aerospace   

* Sales for the first quarter were up 3% on a reported and core organic basis.  Core organic sales growth was driven by higher repair and overhaul activities, new platform launches and higher global turbo penetration on passenger vehicles, and strong shipments to Business and General Aviation (BGA) and Air Transport and Regional (ATR) OEMs.

* Segment profit was up 6% and segment margin expanded 70 bps to 21.5%, driven by productivity net of inflation, and commercial excellence, partially offset by continued investments for growth including higher OEM incentives, and the dilutive impact of acquisitions. Excluding the impact of acquisitions, segment margin expanded 90 bps.

Automation and Control Solutions   

* Sales for the first quarter were up 4% on a core organic basis and up 13% reported primarily driven by sales from the Elster acquisition partially offset by the unfavorable impact of foreign currency.  Energy, Safety & Security (ESS) sales were flat on a core organic basis (up 16% reported) driven by continued growth in Security and Fire (HSF) on a global basis and further penetration of High Growth Regions (HGR), particularly in China, offset by lower volume in Sensing & Productivity Solutions (S&PS).  Building Solutions & Distribution (BSD) sales increased 11% on a core organic basis (up 5% reported) driven by continued strength in Americas Distribution and growth in project installation and services in Building Solutions (HBS).

* Segment profit was up 3% and segment margin contracted (140) bps to 14.4% driven by the unfavorable impact of acquisitions. Excluding the impact of acquisitions, segment margin expanded 10 bps driven by productivity, net of inflation, benefits of previously funded restructuring projects, and commercial excellence, partially offset by the unfavorable impact of project installation, services, and distribution sales on margin, and continued investments for growth.

Performance Materials and Technologies           

* Sales for the first quarter were down (8%) on a core organic basis and down (9%) reported driven by the unfavorable impact of foreign currency and lower raw materials pass-through pricing in Resins & Chemicals, partially offset by the favorable impact of acquisitions.  The decrease in core organic sales was primarily driven by lower UOP gas processing, catalyst, and equipment sales as anticipated, partially offset by higher projects and services sales in HPS and higher volume in Fluorine Products.

* Segment profit was down (12%) and segment margins contracted (90) bps to 20.6%, driven by the unfavorable impact of lower UOP catalyst shipments and acquisitions, partially offset by the benefits of previously funded restructuring, commercial excellence, and the impact of raw materials pass-through pricing in Resins & Chemicals.  Excluding the impact of acquisitions, segment margin contracted (70) bps.

Lockheed Martin

locklogo
26 Apr 16. Lockheed Martin (NYSE: LMT)  reported first quarter 2016 net sales of $11.7bn, compared to $10.1bn in the first quarter of 2015. Net earnings in the first quarter of 2016 were $794m, or $2.58 per share, compared to $878m, or $2.74 per share, in the first quarter of 2015. Cash from operations in the first quarter of 2016 was $1.6bn, compared to $1.0bn in the first quarter of 2015.

First quarter 2016 net earnings included special charges for workforce reductions at the Corporation’s Aeronautics and Information Systems & Global Solutions (IS&GS) business segments of $99 m, which decreased net earnings $64m, or $0.21 per share.

“We achieved strong operational and financial results this quarter and took actions to further strengthen our competitive and strategic position in the market,” said Lockheed Martin Chairman, President and CEO Marillyn Hewson. “We’re confident that these actions will increase value for both our customers and stockholders.”

Summary Financial Results

The following table and other sections of this news release contain forward-looking statements, which are based on the Corporation’s current expectations. Actual results may differ materially from those projected. It is the Corporation’s practice not to incorporate adjustments into its financial outlook for proposed acquisitions, divestitures, ventures, changes in law and restructuring activities until such items have been consummated or enacted.

Cash Deployment Activities

The Corporation’s cash deployment activities in the first quarter of 2016 consisted of the following:

* repurchasing 2.4 m shares for $501m, compared to 3.0m shares for $604m in the first quarter of 2015;

* paying cash dividends of $533m, compared to $498m in the first quarter of 2015; and

* making capital expenditures of $151m, compared to $118m in the first quarter of 2015.

Segment Results

We operate in five business segments: Aeronautics, IS&GS, Missiles and Fire Control (MFC), Mission Systems and Training (MST) and Space Systems.  We organize our business segments based on the nature of the products and services offered. During the fourth quarter of 2015, we realigned certain programs among our business segments in connection with a strategic review of our government information technology (IT) and technical services businesses. The amounts, discussion and presentation of our business segments for all periods presented in these consolidated financial statements have been reclassified to reflect the program realignment. Additionally, the results of our MST business segment include the operations of Sikorsky since its November 6, 2015 acquisition date.  Accordingly, the results of Sikorsky operations are included in our business segment results of operations for the quarter ended March 27, 2016 but not for the quarter ended March 29, 2015.

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 U.S. generally accepted accounting principles (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. Volume changes in segment operating profit are typically based on the current profit booking rate for a particular contract.

In addition, comparability of the Corporation’s segment sales, operating profit and operating margin may be impacted favorably or unfavorably by changes in profit booking rates on the Corporation’s contracts 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 margin may also be impacted favorably or unfavorably by other items. Favorable items may include the positive resolution of contractual matters, cost recoveries on restructuring charges, insurance recoveries and gains on sales of assets. Unfavorable items may include the adverse resolution of contractual matters; restructuring charges, except for significant severance actions which are excluded from segment operating results; reserves for disputes; asset impairments; and losses on sales of assets. Segment operating profit and items such as risk retirements, reductions of profit booking rates or other matters are presented net of state income taxes. The following table presents summary operating results of the Corporation’s five business segments and reconciles these amounts to the Corporation’s consolidated financial results.

The Corporation’s consolidated net adjustments not related to volume, including net profit booking rate adjustments and other matters, represented approximately 33 percent of total segment operating profit in the first quarter of 2016, compared to approximately 38 percent in the first quarter of 2015.

Aeronautics

Aeronautics’ net sales in the first quarter of 2016 increased $665m, or 21 percent, compared to the same period in 2015. The increase was primarily attributable to higher net sales of approximately $400m for the F-35 program due to increased volume on aircraft production and sustainment activities; approximately $190 m for the C-130 program due to increased deliveries (six aircraft delivered in the first quarter of 2016 compared to four delivered in the same period in 2015), contract mix and sustainment activities; and approximately $80 m for the C-5 program due to increased deliveries (two aircraft delivered in the first quarter of 2016 compared to one delivered in the same period in 2015).

Aeronautics’ operating profit in the first quarter of 2016 increased $49m, or 13 percent, compared to the same period in 2015. Operating profit increased approximately $30m for the F-35 program due to increased volume and sustainment activities; and approximately $10m for the C-130 program as a result of increased deliveries. Adjustments not related to volume, including net profit booking rate adjustments, in the first quarter of 2016 were comparable to the same period in 2015.

Information Systems & Global Solutions

IS&GS’ net sales in the first quarter of 2016 decreased $56m, or 4 percent, compared to the same period in 2015. The decrease was attributable to lower net sales of approximately $65m as a result of the wind-down or completion of certain programs to provide IT solutions to U.S. defense and intelligence agencies (including the U.S. Army Corps of Engineers (ACE) IT program); 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.

IS&GS’ operating profit in the first quarter of 2016 decreased $36m, or 25 percent, compared to the same period in 2015. The decrease was attributable to lower operating profit of approximately $25m due to development issues on a large international data center migration and consolidation program, caused by unanticipated challenges in application remediation and data center migration activities; and about $10m due to the wind-down or completion of certain programs to provide IT solutions to U.S. defense and intelligence agencies (including ACE IT). Adjustments not related to volume, including net profit booking rate adjustments, were $30m lower in the first quarter of 2016 compared to the same period in 2015.

Missiles and Fire Control

MFC’s net sales in the first quarter of 2016 increased $51m, or 4 percent, compared to the same period in 2015. The increase was attributable to higher net sales of approximately $80 m for fire control programs due to increased deliveries (including LANTIRN® and SNIPER®); and approximately $50m for tactical missiles programs due to increased deliveries (primarily Hellfire). These increases were partially offset by decreases in net sales of approximately $90 m for air and missile defense programs (primarily Patriot Advanced Capability-3 (PAC-3) due to fewer deliveries and Terminal High Altitude Area Defense due to lower volume).

MFC’s operating profit in the first quarter of 2016 decreased $65m, or 23 percent, compared to the same period in 2015. The decrease was attributable to lower operating profit of approximately $45m for air and missile defense programs as a result of lower risk retirements and fewer deliveries (primarily PAC-3); and approximately $15m for fire control programs, primarily due to lower risk retirements (Apache). Adjustments not related to volume, including net profit booking rate adjustments, were approximately $80 m lower in the first quarter of 2016 compared to the same period in 2015.

Mission Systems and Training

MST’s net sales in the first quarter of 2016 increased $1.0bn, or 52 percent, compared to the same period in 2015. The increase was primarily attributable to net sales of approximately $990m from Sikorsky, net of adjustments required to account for the acquisition of this business which occurred in the fourth quarter of 2015.

MST’s operating profit in the first quarter of 2016 increased $49m, or 27 percent, compared to the same period in 2015. The increase was attributable to higher operating profit of approximately $60m from undersea systems programs due primarily to a reserve in the first quarter of 2015 for performance matters on an international program; approximately $30m for integrated warfare systems and sensors programs due primarily to increased risk retirements (including Halifax Class Modernization); and approximately $30m from training and logistics programs due primarily to higher risk retirements resulting from the favorable resolution of contract matters. These increases were partially offset by an operating loss of approximately $60m from Sikorsky due primarily to intangible amortization and adjustments required to account for the acquisition of this business which occurred in the fourth quarter of 2015. Adjustments not related to volume, including net profit booking rate adjustments and other matters, were approximately $90m higher in the first quarter of 2016 compared to the same period in 2015.

Space Systems

Space Systems’ net sales in the first quarter of 2016 decreased $94m, or 4 percent, compared to the same period in 2015. The decrease was attributable to lower net sales of approximately $130m for government satellite programs due to decreased volume (primarily Space Based Infrared System and Advanced Extremely High Frequency). This decrease was partially offset by higher net sales of approximately $40m for the Orion program due to increased volume.

Space Systems’ operating profit in the first quarter of 2016 decreased $80m, or 25 percent, compared to the same period in 2015. The decrease was attributable to lower operating profit of approximately $55m for various government satellite and other programs due to decreased volume and risk retirements; and approximately $25m due to decreased equity earnings in joint ventures. Adjustments not related to volume, including net profit booking rate adjustments and other matters, were approximately $60m lower in the first quarter of 2016 compared to the same period in 2015.

Total equity earnings recognized by Space Systems (primarily ULA) represented approximately $50 m, or 20 percent, of this business segment’s operating profit in the first quarter of 2016, compared to approximately $75m, or 23 percent, in the first quarter of 2015.

Income Taxes

The Corporation’s effective income tax rate was 29.9 percent in the first quarter of 2016, compared to 30.6 percent in the first quarter of 2015. 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 rate in the first quarter of 2016 benefited from the research and development tax credit, which was permanently extended and reinstated in the fourth quarter of 2015.

Northrop Grumman

northlog27 Apr 16. Northrop Grumman Corporation (NYSE: NOC) reported first quarter 2016 net earnings increased 15 percent to $556 m, or $3.03 per diluted share, from $484m, or $2.41 per diluted share in the first quarter of 2015. In the first quarter of 2016 the company adopted an accounting standard update regarding treatment of share-based compensation, which resulted in a tax benefit of $80m, or $0.44 per diluted share. First quarter 2016 diluted earnings per share are based on 183.4m weighted average shares outstanding compared with 200.5m shares in the prior year period, an 8.5 percent decline. The company repurchased 1.5m shares of its common stock in the first quarter of 2016. As of March 31, 2016, approximately $4.0bn remained on the company’s share repurchase authorization.

“Our first quarter operational results support our outlook for 2016. We are positioned to achieve profitable growth over the long term. Congratulations to our entire team for another quarter of solid performance,” said Wes Bush, chairman, chief executive officer and president.

First quarter 2016 segment operating income decreased to $701m, and segment operating margin rate decreased 50 basis points to 11.8 percent primarily due to lower operating income for Aerospace Systems than in the prior year period. Operating income decreased 5 percent and operating margin rate decreased 70 basis points to 12.4 percent. Lower operating income reflects the decline in segment operating income and a lower net FAS/CAS pension adjustment than in the prior year period. During the first quarter of 2016, the company’s total backlog increased and reflects higher backlog at Aerospace Systems and Mission Systems and a modest decline in backlog at Technology Services. The company recorded various awards during the quarter, including a portion of the B-21 Long-Range Strike Bomber program.

2016 Guidance

The company’s 2016 financial guidance is based on the spending levels provided for in the Bipartisan Budget Act of 2015 and the Consolidated Appropriations Act of 2016. The guidance assumes no disruption or cancellation of any of our significant programs and no disruption or shutdown of government operations. Guidance for 2016 also assumes adequate appropriations and funding for the company’s programs in the first quarter of the U.S. government’s fiscal year 2017. 2016

Aerospace Systems 

Aerospace Systems first quarter 2016 sales increased 3 percent due to higher volume for manned aircraft and autonomous systems programs. Manned aircraft sales rose due to production ramp-up on the E-2D program and higher F-35 deliveries, partially offset by lower volume for the B-2 program and fewer F/A-18 deliveries. Autonomous systems sales rose due to higher volume on the Global Hawk and Triton programs, partially offset by lower volume on NATO Alliance Ground Surveillance. Space sales were comparable to the prior year period. Aerospace Systems first quarter 2016 operating income decreased 8 percent and operating margin rate decreased to 11.1 percent. Operating income and margin rate decreased due to lower margins on several manned aircraft programs, principally due to the timing of risk reductions, which more than offset higher sales.

Mission Systems

Mission Systems first quarter 2016 sales decreased 1 percent due to lower volume for cyber and ISR programs, partially offset by higher volume for sensors and processing programs and advanced capabilities programs. Lower sales for cyber and ISR programs is primarily due to lower volume on the Counter Narcoterrorism Technology program and lower volume for restricted programs. Higher sales in sensors and processing reflect higher volume for fixed wing avionics and C4ISR programs, as well as production ramp-up on the G/ATOR program. These increases were partially offset by lower volume for international programs. Higher sales for advanced capabilities programs reflect ramp-up on several navigation and maritime programs, including the SEWIP (Surface Electronic Warfare Improvement Program) Block III. Mission Systems first quarter 2016 operating income increased 3 percent and operating margin rate was 13.1 percent. Higher operating income and margin rate reflect higher margins on advanced capabilities programs, partially offset by lower margins on cyber and ISR programs. Technology Services

Technology Services first quarter 2016 sales decreased 4 percent primarily due to lower volume for Global Logistics and Modernization (GLM) and Advanced Defense Services (ADS) programs. GLM sales decreased mainly due to ramp-down activities on the Intercontinental Ballistic Missile (ICBM) program and lower volume for restricted programs. ADS sales declined primarily due to program completions in 2015, partially offset by ramp-up on the Passenger Systems Program Directorate program and higher volume on the Saudi Arabian Ministry of National Guard Training Support program. Technology Services first quarter 2016 operating income decreased $7 m due to lower sales, and operating margin rate was comparable to the prior year period at 10.4 percent.

Raytheon

RAYTHEON27 Apr 16. Raytheon Reports Solid First Quarter. Raytheon Company (NYSE: RTN) announced net sales for the first quarter 2016 of $5.8bn, up 9 percent compared to $5.3bn in the first quarter 2015.

First quarter 2016 EPS from continuing operations was $1.43 compared to $1.78 in the first quarter 2015. First quarter 2016 EPS from continuing operations included, as expected, an $0.08 unfavorable impact associated with acquisition accounting adjustments related to Forcepoint™, partially offset by a tax benefit of $0.05 from adopting the new accounting standard for stock compensation, which was not in the Company’s prior financial outlook. First quarter 2016 EPS from continuing operations included a favorable FAS/CAS Adjustment of $0.23 compared to a favorable FAS/CAS Adjustment of $0.10 in the first quarter 2015. In addition, first quarter 2015 EPS from continuing operations included a$0.42 favorable impact for the eBorders settlement with the U.K. Home Office.

Raytheon had a good start to 2016 with bookings, sales, EPS and cash flow ahead of our expectations in the quarter,” said Thomas A. Kennedy, Raytheon Chairman and CEO. “Demand from our global customers continues to be strong, with particular strength in bookings from domestic as well as the Middle East and North Africa region.”

Operating cash flow from continuing operations for the first quarter 2016 was $325m compared to $55m for the first quarter 2015. The increase in operating cash flow from continuing operations in the first quarter 2016 was primarily due to the timing of collections and tax payments.

The Company had bookings of $6.2bn in the first quarter 2016, resulting in a book-to-bill ratio of 1.08 in the quarter. First quarter 2015 bookings were $4.5bn.

In the first quarter 2016, the Company repurchased 3.2m shares of common stock for $400m. In addition, as previously announced, the Company’s Board of Directors voted to increase the Company’s annual dividend rate by 9.3 percent from $2.68 to $2.93 per share, the twelfth consecutive annual dividend increase.

The Company ended the first quarter 2016 with $2.7bn of net debt. Net debt is defined as total debt less cash and cash equivalents and short-term investments.

Backlog at the end of the first quarter 2016 was $34.8bn, an increase of approximately $2.3bn compared to the end of the first quarter 2015. Funded backlog was $26.2bn, an increase of approximately $2.4bn compared to the end of the first quarter 2015.

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 Forcepoint.

As previously reported, effective January 1, 2016, the Company reclassified, for all business segments, acquisition accounting adjustments such that they are no longer reported within the business segments and are instead reported in separate deferred revenue adjustment and amortization of acquired intangibles line items. In addition, as previously reported, effective January 1, 2016, the Company reorganized the IDS and IIS business segments. The business results that follow reflect the above changes.

Integrated Defense Systems (IDS)

Integrated Defense Systems (IDS) had first quarter 2016 net sales of $1,337m, up 2 percent compared to $1,307m in the first quarter 2015. The increase in net sales for the quarter was primarily driven by higher sales on certain international Patriot programs.

IDS recorded $147m of operating income in the first quarter 2016 compared to $183m in the first quarter 2015. The change in operating income for the quarter was primarily driven by a $36m unfavorable program adjustment. This program is included in one of the Company’s joint ventures. As such, approximately 50 percent of the unfavorable impact is reversed on the Company’s income statement on the net loss attributable to noncontrolling interest line. The adjustment is related to costs to replace or repair defective shelters built by one of our subcontractors on an international command and control program in the first quarter 2016.  The company is pursuing recovery of these costs.

During the quarter, IDS booked $191m to provide Patriot engineering services support for U.S. and international customers and $84 m to provide advanced Patriot air and missile defense capability for the U.S. Army. IDS also booked $198m on a classified program.

Intelligence, Information and Services (IIS)

Intelligence, Information and Services (IIS) had first quarter 2016 net sales of $1,493m, up 2 percent compared to $1,461m in the first quarter 2015. The increase in net sales for the quarter was primarily driven by higher sales on cybersecurity and special missions programs.

IIS recorded $100 m of operating income in the first quarter 2016 compared to $295m in the first quarter 2015. First quarter 2015 operating income included the favorable$181m impact of the eBorders settlement.

During the quarter, IIS booked $301 m for a U.S. Air Force program. IIS also booked $555m on a number of classified contracts.

 Missile Systems (MS)

Missile Systems (MS) had first quarter 2016 net sales of $1,720 m, up 17 percent compared to $1,473m in the first quarter 2015. The increase in net sales for the quarter was primarily driven by higher sales on the Paveway™ and Advanced Medium-Range Air-to-Air Missile (AMRAAM®) programs.

MS recorded $192m of operating income in the first quarter 2016 compared to $207m in the first quarter 2015. The decrease in operating income for the quarter was primarily driven by higher net program efficiencies and a favorable resolution of a contractual issue in the first quarter 2015, as well as an unfavorable change on incentive fees on a missile defense program in the first quarter 2016. This was partially offset by higher volume and a favorable change in program mix in the first quarter 2016.

During the quarter, MS booked $646m for AMRAAM for the U.S. Air Force, U.S. Navy and international customers. MS also booked $272m for Standard Missile-6 (SM-6™) for the U.S. Navy and $225m for Paveway for the U.S. Air Force and international customers.

 Space and Airborne Systems (SAS)

Space and Airborne Systems (SAS) had first quarter 2016 net sales of $1,450m, up 7 percent compared to $1,358m in the first quarter 2015. The increase in net sales for the quarter was primarily driven by higher sales on classified programs, including an international program.

SAS recorded $173m of operating income in the first quarter 2016 compared to $182m in the first quarter 2015. The change in operating income for the quarter was primarily due to a change in program mix.

During the quarter, SAS booked over $650 m on an international classified contract and $553m on the Joint Polar Satellite System (JPSS) program for NASA. SAS also booked $470m on a number of domestic classified contracts.

Shortly after the quarter close, SAS received a $1.0bn award on the Next Generation Jammer (NGJ) program for the U.S. Navy.

Forcepoint had first quarter 2016 net sales of $136m compared to $24m in the first quarter 2015. Forcepoint recorded $14m of operating income in the first quarter 2016. The increase in net sales and operating income for the quarter was primarily due to the acquisitions of Websense in May 2015 and Stonesoft in January 2016.

Textron

textron20 Apr 16. Textron Reports First Quarter 2016 Income from Continuing Operations of $0.55 per Share, up 19.6%; Reaffirms 2016 Financial Outlook

Textron Inc. (TXT) reported first quarter 2016 income from continuing operations of $0.55 per share, up 19.6 percent from $0.46 per share in the first quarter of 2015.

Revenues in the quarter were $3.2bn, up 4.2 percent from the first quarter of 2015. Textron segment profit in the quarter was $280m, up $21 m from the first quarter of 2015. First quarter manufacturing cash flow before pension contributions reflected a use of cash of $222 m compared to a use of cash of $125 m during last year’s first quarter.

“Increased revenues reflected growth at Industrial, Aviation and Systems, with relatively flat revenues at Bell, consistent with our expectations,” said Textron Chairman and CEO Scott C. Donnelly. “Operationally, we achieved margin improvements at each of our manufacturing segments.”

Outlook

Textron confirmed its 2016 earnings per share from continuing operations guidance of $2.60 to $2.80 and its expectation for cash flow from continuing operations of the manufacturing group before pension contributions of $600 to $700m with planned pension contributions of about $60m.

Donnelly continued, “Generally, demand in our end markets has been consistent with what we were expecting. We continue to believe that we will be able to generate solid overall growth in revenue, earnings and cash this year.”

First Quarter Segment Results

Textron Aviation

Revenues at Textron Aviation were up $40m, primarily due to higher jet volume.

Textron Aviation delivered 34 new jets and 26 King Air turboprops in the quarter, compared to 33 jets and 25 King Airs in last year’s first quarter.

Textron Aviation recorded a segment profit of $73m in the first quarter compared to $67m a year ago.

Textron Aviation backlog at the end of the first quarter was $1.0bn, down $47 m from the end of the fourth quarter.

Bell

Bell revenues were up $1m, as Bell delivered 6 V-22’s in the quarter, flat with last year’s first quarter, 10 H-1’s compared to 4 H-1’s last year and 30 commercial helicopters, compared to 35 units last year.

Segment profit was up $6 m, primarily due to improved performance.

Bell backlog at the end of the first quarter was $5.3bn, up $60m from the end of the fourth quarter.

Textron Systems

Revenues at Textron Systems increased $9m, primarily due to higher volume in the Unmanned Systems product line, while segment profit was up $1m. (Source: Yahoo!/BUSINESS WIRE)

UTC

UTC27 Apr 16. United Technologies Corp. (NYSE:UTX)  reported first quarter 2016 results.  All results in this release reflect continuing operations unless otherwise noted.

First quarter Adjusted EPS of $1.47 was up 2 percent versus the prior year.  GAAP EPS for the first quarter was $1.42 per share, which included $0.05 of restructuring charges.  Sales of $13.4bn were flat year-over-year as 2 points of organic growth in the quarter was offset by 2 points of unfavorable foreign exchange.

“We are off to a solid start in 2016,” said UTC President and Chief Executive Officer Gregory Hayes. “UTC delivered strong operational performance in the first quarter with organic sales growth of 2 percent.  We are also making progress on our strategic priorities, particularly our ability to invest in innovation as we continue to focus on structural cost reduction.”

Cash flow from operations for the quarter was $795 m and capital expenditures were $286m.  Free cash flow of 43 percent to net income was pressured by inventory build in support of the aerospace production ramp and included a payment of $237 m, the first of four annual payments related to the Canadian government settlement that was booked in the fourth quarter of 2015.  For 2016, UTC continues to anticipate free cash flow in the range of 90 to 100 percent of net income attributable to common shareowners.

Otis new equipment orders in the quarter increased 1 percent over the prior year at constant currency, and grew 6 percent excluding China.  Equipment orders at UTC Climate, Controls & Security decreased by 8 percent, primarily driven by a difficult compare in the refrigeration business.  At Pratt & Whitney, commercial aftermarket sales were up 19 percent, and up 1 percent at UTC Aerospace Systems.

“Notwithstanding a slow-growth global macro environment, we remain confident in our full-year 2016 EPS outlook of $6.30 to $6.60 per share,” Hayes added.  “As we look to the future, our focused portfolio of industry leading franchises is well-positioned to deliver on our commitments and create significant long-term shareowner value.”

UTC reiterated its 2016 outlook and continues to anticipate:

* Adjusted EPS of $6.30 to $6.60 on sales of $56 bn to $58bn;

* Organic sales growth of 1% to 3%;

* Free cash flow in the range of 90 to 100 percent of net income attributable to common shareowners;

* Share repurchases of $3bn in 2016, beyond the repurchases that will be completed in 2016 under the previously announced $6bn accelerated share repurchase program; and

* A $1bn to $2bn placeholder for acquisitions.

United Technologies Corp., based in Farmington, Connecticut, provides high technology systems and services to the building and aerospace industries. Additional information, including a webcast, is available on the Internet at http://www.utc.com. To learn more about UTC, visit the website or follow the company on Twitter: @UTC

Use of Non-GAAP Financial Measures

Adjusted EPS, adjusted segment margins and free cash flow are non-GAAP financial measures that are used in UTC’s financial press releases and webcasts.  A reconciliation of these non-GAAP measures to the corresponding amounts prepared in accordance with generally accepted accounting principles (GAAP) is included in the tables to this press release.

Adjusted EPS and adjusted segment margin reflect continuing operations, excluding restructuring costs and other significant items of a non-recurring and/or non-operational nature (often referred to as “other significant items”).  Management believes Adjusted EPS and adjusted segment margin are both useful in providing period to period comparisons of the results of the Company’s operational performance.  The tables attached to this press release provide additional information as to the items and amounts that have been excluded from Adjusted EPS and adjusted segment margin.

Free cash flow represents cash flow from operations less capital expenditures.  Management believes free cash flow provides a relevant measure of liquidity and a useful basis for assessing UTC’s ability to fund its activities, including the financing of acquisitions, debt service, repurchases of the Company’s Common Stock and distribution of earnings to shareowners.

When we provide our expectations for Adjusted EPS and/or free cash flow on a forward-looking basis, the closest corresponding GAAP measures (expected EPS from continuing operations and expected cash flow from operations) and a reconciliation of the differences between the non-GAAP expectation and the corresponding GAAP measure generally are not available (except as otherwise indicated) without unreasonable effort due to potentially high variability, complexity and low visibility as to the items that would be excluded from the GAAP measure in the relevant future period.  The variability of the excluded items may have a significant, and potentially unpredictable, impact on our future GAAP results.

Adjusted EPS, adjusted segment margins and free cash flow should not be considered in isolation or as substitutes for analysis of the Company’s results as reported under GAAP.  Other companies may calculate adjusted EPS, adjusted segment margins and free cash flow differently than the Company does, limiting the usefulness of those measures for comparisons with such other companies.

 

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