27 Jul 16. Boeing Reports Second-Quarter Results. The Boeing Company [NYSE: BA] reported second-quarter revenue of $24.8 bn on strong commercial deliveries and services growth. GAAP loss per share of $0.37 and core loss per share (non-GAAP)* of $0.44 reflect the previously announced 787 cost reclassification ($1.33 per share) and charges on the 747 program ($1.28 per share) and the KC-46 Tanker program ($0.62 per share), partially offset by solid execution and higher volume.
“The underlying operating performance of the company remains solid with our commercial and defense teams again delivering strong revenues and operating cash flow. Actions taken during the quarter that impacted our earnings were the right, proactive steps to reduce risk and strengthen our position for the future,” said Chairman, President and Chief Executive Officer Dennis Muilenburg. “Our strong cash generation also supported our ongoing commitment to invest in product innovation and in our people, and return substantial cash to shareholders through stock repurchases and dividends.”
“As we look forward to the second half of the year, we anticipate continued strong operating performance across our production and services programs on generally healthy demand for our broad portfolio of market-leading offerings. Our commercial airplane development programs remain on track and we have successfully completed the flight testing required for customer approval of key KC-46 production milestones.Overall our t eams remain intensely focused on improving productivity and quality, building out our large and diverse backlog, investing in future growth, and delivering increasing value to all of our stakeholders.”
GAAP earnings per share guidance for 2016 has been adjusted to between $6.40 and $6.60 from $8.45 and $8.65 and core earnings per share (non-GAAP)* guidance has been adjusted to between $6.10 and $6.30 from $8.15 and $8.35 to reflect the impact of the 787 R&D reclassification and the 747 and Tanker charges, solid performance and tax benefits.
* Operating cash flow in the quarter was $3.2bn, largely reflecting commercial airplane production rates and. During the quarter, the company repurchased 15.3m shares for $2.0bn, leaving $8.5bn remaining under the current repurchase authorization which is expected to be completed over approximately the next two years.
The company also paid $691m in dividends in the quarter, reflecting an approximately 20 percent increase in dividends per share compared to the same period of the prior year.
Cash and investments in marketable securities totaled $9.3bn, up from $8.4bn at the beginning of the quarter. Debt was $11.0bn, up from the beginning of the quarter, primarily due to the issuance of new debt.
Total company backlog at quarter-end was $472bn, down from $480bn at the beginning of the quarter, and included net orders for the quarter of $17 bn.
Commercial Airplanes second-quarter revenue increased 3 percent to $17.bn on higher volume and mix. Second-quarter operating margin was negative 5.6 percent, reflecting previously announced R&D reclassification of $1,235m on the 787 program, a pre-tax charge of $1,188m on the 747 program, and a pre-tax charge of $354m on the KC-46 Tanker program. The results also reflect higher planned R&D and solid execution. Second-quarter operating margin excluding the reclassification and charges (non-GAAP)* was 10.3%.
During the quarter, the 787 program reached a 12 per month delivery rate and the company opened the new 777X Composite Wing Center in Everett. The 737 program rolled out the first two 737 MAX production airplanes and has captured over 3,200 orders for the 737 MAX since launch, including an order for 100 737 MAX 200 airplanes from Vietjet during the quarter. The 737 MAX development program is progressing smoothly and entry into service is being accelerated.
Commercial Airplanes booked 152 net orders during the quarter. Backlog remains strong with nearly 5,700 airplanes valued at $417bn.
Defense, Space & Security
Defense, Space & Security’s second-quarter revenue was $7.2bn. Second-quarter operating margin was 8.3 percent, reflecting the previously announced $219m pre-tax charge recorded at Boeing Military Aircraft on the KC-46 Tanker program.
Boeing Military Aircraft (BMA) second-quarter revenue was $3.0bn, reflecting lower planned C-17 and Chinook deliveries. Operating margin was 5.9 percent, reflecting the KC-46 Tanker charge. During the quarter, BMA was awarded contracts for 24 Apache and 12 Chinook helicopters.
Network & Space Systems (N&SS) second-quarter revenue was $1.8bn. Operating margin increased to 8.5 percent, reflecting performance and timing on United Launch Alliance launches.
Global Services & Support (GS&S) second-quarter revenue increased to $2.4bn, reflecting higher volume in Aircraft Modernization & Sustainment. Operating margin was 11.1 percent largely reflecting contract mix.
Backlog at Defense, Space & Security was $55bn, of which 37 percent represents orders from international customers.
Additional Financial Information
At quarter-end, Boeing Capital’s net portfolio balance was $3bn, down from the beginning of the quarter. Total pension expense for the second quarter was $463m, down from $523m 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 higher deferred compensation expense and elimination of intercompany profit. The effective tax rate for the second quarter was increased from the same period in the prior year primarily due to lower pre-tax income. During the quarter, the company adopted a new accounting standard for share-based compensation payments which resulted in a $54m tax benefit ($0.08 per share).
27 Jul 16. General Dynamics (NYSE: GD) today reported second-quarter 2016 diluted earnings per share of $2.44 compared to $2.27 in the year-ago quarter, a 7.5 percent increase. Net earnings were $758m, on revenue of $7.7bn.
“General Dynamics delivered unprecedented operating performance this quarter,” said Phebe N. Novakovic, chairman and chief executive officer of General Dynamics. “We are executing on our programs and focused on operations, leading to strong earnings and record-setting operating margin.”
With three of the company’s four business groups expanding margins over the year-ago period, company-wide operating margin for the second quarter of 2016 was 14 percent, a 30 basis-point increase when compared to 13.7 percent in second-quarter 2015. Excluding a $23m non-recurring gain on the sale of a business in the second quarter of 2015, margin expanded 60 basis points.
Net cash provided by operating activities in the quarter totaled $393m. Free cash flow from operations, defined as net cash provided by operating activities less capital expenditures, was $324m.
The company repurchased 1.1 m of its outstanding shares in the second quarter. Year-to-date, the company has repurchased 8.9 m outstanding shares.
General Dynamics’ total backlog at the end of second-quarter 2016 was $63.2bn. There was order activity across the Gulfstream product portfolio and continued demand for defense products, including another quarter of a book-to-bill ratio (orders divided by revenue) 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 $25.8bn. Marine Systems’ estimated potential contract value more than doubled from the prior quarter to $4.2bn, with the contract for the U.S. Navy’s next generation of oilers. Total potential contract value, the sum of all backlog components, was $89.1bn at the end of the quarter.
Given the strong performance in the first half of 2016, the company is increasing full-year EPS guidance for continuing operations from $9.20 to $9.70.
Honeywell announced second quarter 2016 sales of $10.0 bn, up 2% and earnings per share (EPS) up 10% to $1.66. The Company also announced that it is realigning its Automation and Control Solutions business segment into two new segments: Home and Building Technologies (HBT) and Safety and Productivity Solutions (SPS). Sales grew by 1% with core organic sales down by 2% and segment margin improved 10 bps.
“Honeywell grew earnings 10% in the second quarter, capping off a strong first half of 2016,” said Honeywell Chairman and CEO Dave Cote. “Sales in the quarter of $10.0bn were in-line with our expectations driven by contributions from each of our business groups. In Aerospace, we saw continued momentum in Commercial Aviation Aftermarket and Transportation Systems. ACS had strong growth in Security and Fire, Buildings Solutions and Distribution, and its China business. And, PMT saw higher sales in Process Solutions and Fluorine Products, where we continue to outperform.”
“In the second quarter, we also continued to smartly deploy capital to position our businesses for sustainable growth, to add to our Great Positions in Good Industries, and to drive shareowner value. Earlier this month, we announced the acquisition of Intelligrated, a leader in supply chain and warehouse automation technologies, for $1.5bn. This business complements our suite of transportation and logistics technologies with warehouse execution software and other technologies enabling superior efficiency in warehouse and distribution operations. We also repurchased approximately $500 m of shares during the quarter, bringing our year-to-date total to $1.6 bn, and funded $97 m in new restructuring projects.”
“As a result of our first half performance, we are raising the low-end of our full-year earnings guidance range to $6.60-$6.70, up 8%-10%. We will continue to support growth, focusing on winning in High Growth Regions, advancing our superior software capabilities, and effectively using HOS Gold to drive breakthrough initiatives and deliver high-quality products to our customers globally,” continued Cote.
“ACS is coming off a strong quarter and has established momentum in key software-driven markets where our products and services give us a competitive advantage, especially given our recent acquisitions such as Elster, Xtralis, Intelligrated, and Movilizer,” said Cote. “We have removed layers from our organizational structure and are well-positioned to implement a more focused segment reporting alignment that fits our HOS Gold approach to drive breakthrough strategies and speed up new product introduction. This new structure will also help us better serve our customers. Our success through acquisition and NPI has resulted in a much broader portfolio that has outgrown the existing ACS construct. Having two more nimble segments will promote greater customer intimacy and responsiveness. The separation into two businesses will also enable increased efficiency and speed of decision-making as well as a more comprehensive integrated suite of technologies for the respective end markets.”
19 July 16. Lockheed Martin (NYSE: LMT) today reported second quarter 2016 net sales of $12.9bn, compared to $11.6bn in the second quarter of 2015. Net earnings in the second quarter of 2016 were $1.0bn, or $3.32 per share, compared to $929 m, or $2.94 per share, in the second quarter of 2015. Cash from operations in the second quarter of 2016 was $1.5bn, compared to $1.3bn in the second quarter of 2015.
“The Corporation achieved exceptional operational and financial results in the second quarter,” said Lockheed Martin Chairman, President and CEO Marillyn Hewson. “Our strong performance enabled us to increase our financial guidance for sales, profit, earnings per share and cash from operations, and positions the company to deliver more value to our customers and shareholders.”
Summary Financial Results
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 and changes in law until such items have been consummated or enacted. Accordingly, the Corporation’s outlook for 2016 reflects a full year of operations of the Information Systems & Global Solutions (IS&GS) business as the transaction to separate and merge the IS&GS business with Leidos Holdings, Inc. is expected to close in the third quarter of 2016. The outlook for 2016 will be updated to exclude the IS&GS business when and if the transaction closes.
The Corporation may determine to fund customer programs itself pending government appropriations. If the Corporation incurs costs in excess of funds obligated on a contract, it may be at risk for reimbursement of the excess costs. In 2014 and 2015, the Corporation received customer authorization and initial funding to begin producing F-35 aircraft to be acquired under low-rate initial production (LRIP) 9 and 10 contracts, respectively. The Corporation continues to negotiate these contracts with its customer. Throughout the negotiation process, the Corporation has incurred costs in excess of funds obligated and has provided multiple notifications to its customer that current funding is insufficient to cover the production process. Despite not yet receiving additional funding, the Corporation continued work in an effort to meet the customer’s desired aircraft delivery dates. As a result, as of June 26, 2016, the Corporation has approximately $900 m of potential cash exposure and $3.0bn in termination liability exposure related to the F-35 LRIP 9 and 10 contracts. The Corporation is currently negotiating final contract terms with its customer and expects to receive additional funding by the end of 2016.
Cash Deployment Activities
The Corporation’s cash deployment activities in the second quarter of 2016 consisted of the following:
- repurchasing 2.1m shares for $501m, compared to 4.9m shares for $937 m in the second quarter of 2015;
- paying cash dividends of $501m, compared to $467m in the second quarter of 2015;
- repaying $452m of long-term notes upon scheduled maturity, compared to no repayments in the second quarter of 2015; and
- making capital expenditures of $235m, compared to $191m in the second quarter of 2015.
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. The amounts, discussion and presentation of our business segments for all periods presented in this news release 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 June 26, 2016 but not for the quarter ended June 28, 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 certain asset 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; certain asset impairments; and losses on sales of assets. 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 31 percent of total segment operating profit in the second quarter of 2016, compared to approximately 39 percent in the second quarter of 2015.
Aeronautics’ net sales in the second quarter of 2016 increased $244m, or 6 percent, compared to the same period in 2015. The increase was primarily attributable to higher net sales of approximately $390m for the F-35 program due to increased volume on aircraft production and sustainment activities. This increase was partially offset by lower net sales of approximately $180m for the C-5 program due to decreased deliveries (two aircraft delivered in the second quarter of 2016 compared to four delivered in the same period in 2015) and sustainment activities.
Aeronautics’ operating profit in the second quarter of 2016 increased $34m, or 8 percent, compared to the same period in 2015. Operating profit increased approximately $60m for the F-35 program due to increased volume and sustainment activities and higher risk retirements. This increase was partially offset by lower operating profit of approximately $25m on various programs, primarily due to lower risk retirements and decreased volume. Adjustments not related to volume, including net profit booking rate adjustments, were approximately $25m lower in the second quarter of 2016 compared to the same period in 2015.
Information Systems & Global Solutions
IS&GS’ net sales in the second quarter of 2016 decreased $71m, or 5 percent, compared to the same period in 2015. The decrease was attributable to lower net sales of approximately $50 m as a result of the 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; and approximately $20 m due to lower volume, primarily as a result of schedule delays caused by development issues on a large international data center migration and consolidation program due to unanticipated challenges in application remediation and data center migration activities.
IS&GS’ operating profit in the second quarter of 2016 increased $44m, or 41 percent, compared to the same period in 2015. The increase was primarily attributable to higher operating profit of approximately $40m due to contract close-out activities and completion of various programs and, to a lesser extent, improved program performance; and approximately $20m due to reserves recorded in the second quarter of 2015 that were not repeated in the second quarter of 2016. These increases were partially offset by lower operating profit of approximately $15m as a result of the development issues on the international data center migration and consolidation program described above. Adjustments not related to volume, including net profit booking rate adjustments, were approximately $55m higher in the second quarter of 2016 compared to the same period in 2015.
Missiles and Fire Control
MFC’s net sales in the second quarter of 2016 increased $31 m, or 2 percent, compared to the same period in 2015. The increase was attributable to higher net sales of approximately $60 m for fire control programs due to increased deliveries (including SNIPER® and Special Operations Forces Contractor Logistics Support Services (SOF CLSS)); and approximately $35 m for air and missile defense programs (primarily Patriot Advanced Capability-3 (PAC-3) due to increased deliveries). This increase was partially offset by lower net sales of approximately $45 m for tactical missiles programs due to fewer deliveries (primarily Guided Multiple Launch Rocket Systems (GMLRS)); and approximately $20 m for various other programs due to lower volume.
MFC’s operating profit in the second quarter of 2016 decreased $40 m, or 14 percent, compared to the same period in 2015. The decrease was attributable to lower operating profit of approximately $15 m for air and missile defense programs primarily due to a reserve for contractual matters, lower risk retirements and contract mix; approximately $15 m for tactical missile programs, primarily due to lower risk retirements on various programs and fewer deliveries (primarily GMLRS); and approximately $10 m for fire control programs, primarily due to lower risk retirements (Apache) and program mix. Adjustments not related to volume, including net profit booking rate adjustments, were approximately $35 m lower in the second quarter of 2016 compared to the same period in 2015.
Mission Systems and Training
MST’s net sales in the second quarter of 2016 increased $1.1 bn, or 53 percent, compared to the same period in 2015. The increase was primarily attributable to net sales of approximately $1.2 bn from Sikorsky, net of adjustments required to account for the acquisition of this business which occurred in the fourth quarter of 2015. This increase was partially offset by lower net sales of approximately $60 m for various programs, primarily due to decreased volume.
MST’s operating profit in the second quarter of 2016 decreased $60 m, or 23 percent, compared to the same period in 2015. The decrease was primarily attributable to lower operating profit of approximately $30 m from undersea systems programs, which includes a reserve for performance matters on an international program and lower risk retirements; and due to an operating loss of approximately $30 m from Sikorsky due primarily to intangible amortization and adjustments required to account for the acquisition of this business. Adjustments not related to volume, including net profit booking rate adjustments and other matters, were approximately $35m lower in the second quarter of 2016 compared to the same period in 2015.
Space Systems’ net sales in the second quarter of 2016 decreased $71 m, or 3 percent, compared to the same period in 2015. The decrease was primarily attributable to lower net sales of approximately $115 m for government satellite programs due to decreased volume (primarily Space Based Infrared System (SBIRS), Advanced Extremely High Frequency (AEHF) and Mobile User Objective System (MUOS)). This decrease was partially offset by higher net sales of approximately $40 m for strategic and defensive missile systems due to increased volume.
Space Systems’ operating profit in the second quarter of 2016 increased $46 m, or 16 percent, compared to the same period in 2015. The increase was primarily attributable to approximately $80 m of increased equity earnings in joint ventures (primarily ULA). This increase was partially offset by lower operating profit of approximately $20 m for government satellite programs due primarily to lower risk retirements (SBIRS and MUOS); and approximately $20 m for commercial satellite programs due primarily to performance matters on certain programs. Adjustments not related to volume, including net profit booking rate adjustments and other matters, were approximately $75 m lower in the second quarter of 2016 compared to the same period in 2015.
Total equity earnings recognized by Space Systems (primarily ULA) represented approximately $120m, or 35 percent, of this business segment’s operating profit in the second quarter of 2016, compared to approximately $40m, or 14 percent, in the second quarter of 2015.
The Corporation’s effective income tax rate was 27.1 percent in the second quarter of 2016, compared to 30.8 percent in the second 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 second quarter of 2016 also benefited from the research and development tax credit, which was permanently extended and reinstated in the fourth quarter of 2015, and from the additional tax benefits related to employee share-based payment awards which are now recorded as income tax benefit or expense in earnings effective with the adoption of an accounting standard update in the second quarter of 2016. The Corporation early adopted the accounting standard update during the second quarter of 2016 and was therefore required to report the impacts as though the accounting standard update had been adopted on Jan. 1, 2016. Accordingly, the Corporation recognized additional income tax benefits of $11 m and $115 m during the quarter and six months ended June 26, 2016. The adjustments for the second quarter include only the quarterly impacts, whereas the adjustments for the first six months of 2016 include the second quarter impacts and the reclassification of income tax benefits of $104 m originally recognized in additional paid-in capital in the first quarter of 2016.
27 Jul 16. Northrop Grumman Corporation (NYSE: NOC) reported second quarter 2016 sales of $6.0bn, a 2 percent increase over sales of $5.9bn in the second quarter of 2015. Second quarter 2016 net earnings totaled $517m, or $2.85 per diluted share, compared with $531m, or $2.74 per diluted share, in the second quarter of 2015. Second quarter 2016 diluted earnings per share are based on 181.5 m weighted average diluted shares outstanding compared with 193.7 m in the prior year period, a 6 percent decline. The company repurchased 1.9 m shares of its common stock in the second quarter of 2016. As of June 30, 2016, approximately $3.6bn remained on the company’s share repurchase authorization. The company increased its guidance for 2016 diluted earnings per share to a range of $10.75 to $11.00 to reflect year-to-date financial performance as well as an approximately $40m, or $0.20 per share, tax benefit to be recorded in the third quarter of 2016.
“Solid operational execution and value-creating cash deployment continue to drive our strong financial results. Our entire team continues to be focused on operational excellence as we position the company for profitable long-term growth,” said Wes Bush, chairman, chief executive officer and president. Second quarter operating income declined 2 percent and operating margin rate decreased 50 basis points to 13.3 percent. Lower operating income reflects a decline in segment operating income and lower net FAS/CAS pension adjustment than in the prior year period. Second quarter 2016 segment operating income decreased to $731 m, and segment operating margin rate decreased 40 basis points to 12.2 percent.
Second quarter segment operating income was $11 m lower than the prior year period. Segment operating margin rate declined to 12.2 percent due to lower margin rates at Aerospace Systems and Mission Systems, partially offset by a higher margin rate at Technology Services. For the second quarter of 2016, federal and foreign income tax expense increased to $213 m from $205 m in 2015; the company’s effective tax rate increased to 29.2 percent from 27.9 percent. Last year’s second quarter reflects $21m more in tax benefits for research credits due to claims filed for prior tax years.
Northrop Grumman Aerospace Systems
Aerospace Systems second quarter 2016 sales increased 4 percent due to higher volume for Manned Aircraft and Autonomous Systems programs, partially offset by lower volume for Space programs. Manned Aircraft sales rose due to higher restricted volume and higher F-35 deliveries, partially offset by fewer F/A-18 deliveries and lower volume on the B-2 program. Autonomous Systems sales rose due to higher volume on the Global Hawk and Triton programs, partially offset by lower volume due to the ramp down on the NATO Alliance Ground Surveillance program. Space sales declined due to lower volume on the Advanced Extremely High Frequency and the James Webb Space Telescope programs, partially offset by higher restricted volume. Aerospace Systems second quarter 2016 operating income decreased 2 percent and operating margin rate declined to 12.0 percent. Operating income and margin rate reflect lower margins in Manned Aircraft due to changes in contract mix and the timing of risk retirements, partially offset by improved performance on Space programs.
Mission Systems second quarter 2016 sales increased 2 percent due to higher volume for Advanced Capabilities programs, as well as Sensors and Processing programs. Higher Advanced Capabilities sales include higher restricted volume, as well as ramp-up on several navigation and maritime programs, including SEWIP Block III. Sensors and Processing sales increased due to ramp-up on the G/ATOR and JCREW programs. These increases were partially offset by lower volume on international and combat avionics programs. Mission Systems second quarter 2016 operating income increased 1 percent due to higher sales volume, and operating margin rate declined to 13.0 percent due to changes in contract mix on Sensors and Processing programs.
Second quarter 2016 EPS from continuing operations was $2.38 compared to $1.65 in the second quarter 2015. Second quarter 2016 EPS from continuing operations included a tax-free gain of $0.53 related to the ThalesRaytheonSystems (TRS) transaction, discussed further below, which had been previously forecast in the third quarter of 2016. In addition, as expected, second quarter 2016 included a tax benefit of $0.10 from the new accounting standard for stock compensation, previously adopted in the first quarter of 2016. Second quarter 2015 EPS from continuing operations included a $0.29 favorable impact from a tax settlement. Second quarter 2016 EPS from continuing operations included a favorable FAS/CAS Adjustment of $0.24 compared to a favorable FAS/CAS Adjustment of $0.10 in the second quarter 2015.
“The Company had strong second quarter operating results, with bookings, sales, operating margin, earnings per share, and cash flow all ahead of our expectations,” said Thomas A. Kennedy, Raytheon Chairman and CEO. “We begin the second half of 2016 with continued confidence in our growth outlook, and we have increased our guidance for earnings and cash flow as a result of our strong year-to-date performance.”
Operating cash flow from continuing operations for the second quarter 2016 was $746m compared to $376 m for the second quarter 2015. The increase in operating cash flow from continuing operations in the second quarter 2016 was primarily due to the timing of payments and cash taxes, as well as lower required pension contributions. The second quarter 2015 included the collection of $226 m from the eBorders settlement.
The Company had bookings of $7.1bn in the second quarter 2016, resulting in a book-to-bill ratio of 1.18 in the quarter. Second quarter 2015 bookings were $7.6bn. Year-to-date 2016 bookings were $13.3bn, resulting in a book-to-bill ratio of 1.13. Year-to-date 2015 bookings were $12.1bn.
In the second quarter 2016, the Company repurchased 1.6 m shares of common stock for $202m. Year-to-date 2016, the Company repurchased 4.8 m shares of common stock for $602m.
As previously announced, on June 29, 2016 the Company and Thales concluded the transaction to transition the stakeholder positions each company held in the TRS joint venture structure – with Raytheon acquiring 100 percent of the TRS U.S. operations and Thales acquiring 100 percent of the French operations. As a result of the transaction, Raytheon made a net cash payment to Thales in the amount of $90m and recorded a tax-free gain of $158m or $0.53 per diluted share in its second quarter financial results.
Backlog and funded backlog at the end of the second quarter 2016 was $35.3bn and $26.1bn, respectively, an increase for each of approximately $0.8bn compared to the end of the second quarter 2015.
The Company has updated its financial outlook for 2016 and increased guidance for EPS and operating cash flow from continuing operations. Charts containing additional information on the Company’s 2016 outlook are available on the Company’s website at www.raytheon.com/ir.
The Company’s reportable segments are: Integrated Defense Systems (IDS); Intelligence, Information and Services (IIS); Missile Systems (MS); Space and Airborne Systems (SAS); and Forcepoint.
Integrated Defense Systems (IDS)
Integrated Defense Systems (IDS) had second quarter 2016 net sales of $1,399m compared to $1,565m in the second quarter 2015. The change in net sales for the quarter was primarily driven by the recognition of previously deferred precontract costs on an international Patriot program in the second quarter 2015.
IDS recorded $375 m of operating income in the second quarter 2016 compared to $202 m in the second quarter 2015. The increase in operating income for the quarter was primarily driven by the TRS transaction discussed earlier, which resulted in a $158m tax-free gain in the second quarter 2016. In addition, second quarter 2015 included a $33m unfavorable impact related to the Air Warfare Destroyer (AWD) program.
During the quarter, IDS booked $487m to provide advanced Patriot air and missile defense capabilities for Kuwait. IDS also booked $354m on the Aegis weapon system for the U.S. Navy and international customers and $117m for in-service support for the Collins class submarine for the Royal Australian Navy.
Intelligence, Information and Services (IIS)
Intelligence, Information and Services (IIS) had second quarter 2016 net sales of $1,642m, up 3 percent compared to $1,594 m in the second quarter 2015. The increase in net sales for the quarter was primarily driven by higher sales on cybersecurity and special missions programs.
IIS recorded $124m of operating income in the second quarter 2016 compared to $122m in the second quarter 2015.
During the quarter, IIS booked $574m on domestic and foreign training programs in support of Warfighter FOCUS activities. IIS also booked $453m on a number of classified contracts.
Missile Systems (MS) had second quarter 2016 net sales of $1,656m, up 6 percent compared to $1,559m in the second quarter 2015. The increase in net sales for the quarter was primarily driven by higher sales on the Paveway™ program.
MS recorded $223 m of operating income in the second quarter 2016 compared to $184m in the second quarter 2015. The increase in operating income for the quarter was primarily driven by higher net program efficiencies and a favorable change in program mix in the second quarter 2016.
During the quarter, MS booked $298m for AIM-9X® Sidewinder short-range air-to-air missiles, $292m for Paveway, $230m for Standard Missile-3 (SM-3®), $118m for Evolved SeaSparrow Missiles (ESSM), and $109m for Advanced Medium-Range Air-to-Air Missiles (AMRAAM®), all for U.S. and international customers. MS also booked $186 m for the Woomera Mobile Range Upgrade program for the Royal Australian Air Force and $122m for the Miniature Air Launched Decoy (MALD®) for the U.S. Air Force.
Space and Airborne Systems (SAS)
Space and Airborne Systems (SAS) had second quarter 2016 net sales of $1,547m, up 9 percent compared to $1,416m in the second quarter 2015. The increase in net sales for the quarter was primarily driven by higher sales on classified programs.
SAS recorded $203m of operating income in the second quarter 2016 compared to $195 m in the second quarter 2015. The increase in operating income for the quarter was primarily due to improved program performance and higher volume, partially offset by a change in program mix.
During the quarter, SAS booked $992m on the Next Generation Jammer (NGJ) program for the U.S. Navy and $90m on the next-generation Multi-Spectral Targeting System (MTS) for the U.S. Air Force. SAS also booked $424m on a number of classified contracts.
Forcepoint had second quarter 2016 net sales of $138m compared to $57m in the second quarter 2015. Forcepoint recorded $7 m of operating income in the second quarter 2016 compared to a loss of $1m in the second quarter 2015. The increase in net sales and operating income for the quarter was primarily due to the acquisition of Websense in May 2015.
25 July 16. Rockwell Collins, Inc. (COL) today reported third quarter fiscal year 2016 earnings per share from continuing operations increased 23% to $1.63 compared to $1.33 in the prior year. Total sales in the third quarter of fiscal year 2016 were $1.33bn, a 3% increase from the same period in fiscal year 2015. Total segment operating margins increased 10 basis points to 21.1%.
“All of our business segments posted solid operating performance during the quarter, highlighted by a return to growth in Government Systems and 10% revenue growth in Information Management Services,” said Rockwell Collins Chairman, President, and Chief Executive Officer, Kelly Ortberg. “Directionally, fiscal 2016 continues to progress as we expected, and our restructuring actions announced in the first quarter are delivering the savings we anticipated. As a result, we are narrowing our financial guidance for the year.”
The Company narrowed the ranges for its financial outlook for fiscal year 2016 as follows:
- Total sales are now expected to be about $5.3bn (from $5.3 bn to $5.4bn).
- Earnings per share is now expected to be in the range of $5.50 to $5.55 (from $5.45 to $5.65).
- Cash flow from operations is now expected to be about $750m (from $750m to $850m).
- The full year income tax rate is now expected to be about 22.5% (from 22% to 23%).
“Lower-than-anticipated business aircraft OEM production rates and air transport aftermarket service and support sales have impacted our Commercial Systems revenue outlook,” added Ortberg. “We now expect Commercial Systems sales to be down about 1% for the year. In addition, we now forecast our cash flow from operations at the lower end of the previously guided range due to the timing of receivable collections and higher spending for pre-production engineering costs. In spite of these market challenges, our strong operational performance has allowed us to narrow our earnings per share estimate for fiscal year 2016 within the previously guided range.”
Following is a discussion of fiscal year 2016 third quarter sales and earnings for each business segment.
Commercial Systems, which provides aviation electronics systems, products and services to air transport, business and regional aircraft manufacturers and airlines worldwide, achieved 2016 third quarter results as summarized below.
- Original equipment sales decreased due to lower business aircraft OEM production rates, lower product deliveries to a Chinese regional aircraft manufacturer, and lower Airbus A330 production rates. These decreases were mostly offset by higher product deliveries in support of the Airbus A350 and Boeing 787 production ramps, favorable customer timing for airline selectable equipment, higher product deliveries for the Bombardier CSeries program, and higher customer-funded development program revenues.
- Aftermarket sales increased due to higher simulation hardware deliveries, higher inorganic sales from the acquisition of International Communications Group, and higher flight deck retrofits, partially offset by lower spares provisioning and lower cabin retrofits.
- Operating earnings and operating margin were about flat with the prior year as benefits from cost savings initiatives from previously announced restructuring plans were offset by unfavorable sales mix as lower margin customer-funded development sales increased and higher margin business jet OEM sales decreased.
Government Systems provides a broad range of electronic products, systems and services to customers including the U.S. Department of Defense, other government agencies, civil agencies, defense contractors and ministries of defense around the world.
Beginning with the first quarter of fiscal year 2016, Government Systems sales categories have been consolidated as a result of an internal reorganization and are delineated based on the underlying product technologies. The previously reported sales categories of Communication products, Surface solutions and Navigation products are now primarily consolidated into Communication and Navigation. Government Systems sales for the third quarter of fiscal year 2015 has been reclassified to the current year presentation.
Results from the third quarter of 2016 are summarized below.
- Avionics sales increased due to higher fixed-wing platform revenues and higher simulation and training sales, partially offset by lower deliveries on various rotary wing platforms.
- Communication and Navigation sales decreased due to the wind-down of an international electronic warfare program and lower international deliveries of targeting systems.
- Operating earnings and operating margin increased due to higher sales volume and cost savings initiatives from previously announced restructuring plans, partially offset by unfavorable development program adjustments.
Information Management Services
Information Management Services (IMS) provides communication services, systems integration and security solutions across the aviation, airport, rail and nuclear security markets.
- IMS sales increased due to 9% growth in aviation related sales, including GLOBALinkSM and ARINCDirectSM. In addition, non-aviation related sales increased 11% due primarily to higher airport and rail program sales.
- IMS operating earnings and operating margin increased due to incremental earnings on higher sales volume.
Corporate and Financial Highlights
The company’s effective income tax rate from continuing operations was 13.4% for the third quarter of fiscal year 2016 compared to a rate of 24.9% for the same period last year. The lower current year effective income tax rate from continuing operations was primarily due to the release of a $41 m valuation allowance related to a U.S. capital loss carryforward. This tax benefit was partially offset by favorable adjustments recorded in the prior year related to the remeasurement of certain tax positions.
Cash provided by operating activities from continuing operations was $223 m for the first nine months of fiscal year 2016, compared to $341 m in the first nine months of fiscal year 2015. The decrease in cash provided by operating activities was due primarily to unfavorable net working capital changes, partially offset by lower tax payments.
During the third quarter of 2016, the company repurchased 0.7 m shares of common stock at a total cost of $67m. The company also paid a dividend on its common stock of 33 cents per share, or $43m, in the third quarter of 2016.
Revenues in the quarter were $3.5 bn, up 8.1 percent from the second quarter of 2015. Textron segment profit in the quarter was $328 m, up $22 m from the second quarter of 2015.
“Revenues were up at Systems, Industrial and Textron Aviation despite a challenging global environment, reflecting our continued investment in new products and acquisitions,” said Textron Chairman and CEO Scott C. Donnelly.
Net cash provided by operating activities of continuing operations of the manufacturing group for the second quarter was $107m, compared to $183m in last year’s second quarter. Manufacturing cash flow before pension contributions, a non-GAAP measure which is defined and reconciled to GAAP in an attachment to this release, reflected a use of cash of $26m compared to a positive $106m cash flow during last year’s second quarter.
On July 11, 2016, the U.S. Internal Revenue Service Office of Appeals approved a final settlement for our 1998 to 2008 tax years. As a result, in the third quarter we expect to record an income tax benefit, including reversal of accrued interest, of approximately $315m, of which approximately $200m, or $0.74 per share, is attributable to continuing operations.
Textron reiterated its 2016 earnings per share from continuing operations guidance of $2.60 to $2.80, not including the estimated impact related to the tax settlement discussed above. The company also confirmed its 2016 manufacturing cash flow before pension contributions guidance of $600 – $700 m.
Donnelly continued, “We are confirming our full-year operating outlook, as we continue to believe that our new products and acquisitions will contribute to solid overall growth in revenue, earnings and cash this year.”
Second Quarter Segment Results
Revenues at Textron Aviation were up $72m, primarily due to volume and mix.
Textron Aviation delivered 45 new Citation jets and 23 King Air turboprops in the quarter, compared to 36 jets and 30 King Airs in last year’s second quarter.
Textron Aviation recorded a segment profit of $81 m in the second quarter compared to $88m a year ago. The decrease in segment profit in the second quarter was primarily due to an unfavorable impact from the mix of products sold in the period.
Textron Aviation backlog at the end of the second quarter was $1.1bn, up $122m from the end of the first quarter.
Bell revenues were down $46m, as Bell delivered 6 V-22’s in the quarter, flat with last year’s second quarter, 9 H-1’s compared to 6 H-1’s last year and 24 commercial helicopters, compared to 39 units last year.
Segment profit was down $20m, primarily due to the lower volume and mix.
Bell backlog at the end of the second quarter was $4.9bn, down $376m from the end of the first quarter.
Revenues at Textron Systems increased $165 m, primarily due to higher volumes in our Weapons and Sensors and Unmanned Systems product lines. Segment profit was up $39m, reflecting the higher volumes and mix. Textron Systems’ backlog at the end of the second quarter was $2.3bn, down $242m from the end of the first quarter.
Industrial revenues increased $77m due to higher volumes and the impact of acquisitions. Segment profit increased $13m reflecting the higher volumes.
Finance segment revenues decreased $4 m and segment profit decreased $3m.
United Technologies Corp.
Second quarter GAAP EPS of $1.71 was up 4 percent versus the prior year and included 11 cents of net restructuring and other significant non-operational items. Adjusted EPS of $1.82 was up 9 percent versus the prior year. Net income in the quarter was $1.4 bn, down 3 percent versus the prior year. Sales of $14.9 bn were up 1 percent, with 1 point of organic and 1 point of net acquisition growth offset by 1 point of unfavorable foreign exchange.
“United Technologies had a solid first half of the year with 2 percent organic sales growth, and we remain on track to meet our growth targets for 2020,” UTC President and Chief Executive Officer Gregory Hayes said. “We delivered strong cash flow, led by exceptional cash generation in the commercial businesses, even while we continued to invest in the aerospace ramp. As a result of our solid financial performance through the second quarter, we are raising the low end of our 2016 adjusted EPS outlook by 15 cents to $6.45 to $6.60 per share*, on increased sales of $57 to $58 bn.”
*Note: Expectations for EPS and organic sales are provided on an adjusted basis as the corresponding GAAP measures are not reasonably available due to uncertainty as to potentially significant items of a non-recurring and/or non-operational nature.
Cash flow from operations for the quarter was $1.8bn (125 percent of net income attributable to common shareowners) and capital expenditures were $363m. Free cash flow of $1.4bn in the quarter was 100 percent of net income attributable to common shareowners.
Otis new equipment orders in the quarter decreased 4 percent over the prior year at constant currency, and grew 3 percent excluding China. Equipment orders at UTC Climate, Controls & Security decreased by 4 percent, primarily driven by a difficult compare in the transport refrigeration business. Commercial aftermarket sales were up 20 percent at Pratt & Whitney, and up 5 percent at UTC Aerospace Systems.
“We continue to focus on our key priorities. This includes achieving critical aerospace program milestones and successfully meeting the production ramp to support our large and growing order book. We now have orders for 8,200 Geared Turbofan engines, including announced and unannounced firm and option engines,” Hayes added. “In our commercial businesses, we continue to invest in innovation and position ourselves to benefit from growing urbanization trends. With our focused portfolio of industry leading franchises, we are confident in our ability to create significant long-term value for our shareholders.”
UTC updates its 2016 outlook and now anticipates:
- Adjusted EPS of $6.45 to $6.60 up from $6.30 to $6.60**;
- Sales of $57 bn to $58 bn, up from $56bn to $58bn (year over year growth of 2% to 3%, including organic sales growth of 1% to 3%**);
- There is no change in the Company’s previously provided 2016 expectations for free cash flow, share repurchases, and the placeholder for acquisitions.
**Note: Expectations for EPS and organic sales are provided on an adjusted basis as the corresponding GAAP measures are not reasonably available due to uncertainty as to potentially significant items of a non-recurring and/or non-operational nature. (Source: Yahoo!/PRNewswire)