03 Aug 20. Second quarter results from the US Majors show a remarked resilience to the CIVID-19 outbreak with continued growth in orders and some allowance for COVID-19 costs for those ‘defense only’ companies. Sales and profitability came under pressure in all areas but the balance sheet strength present in all these companies lessened the impact of the virus. The story is in stark contrast to those majors, Boeing and Raytheon with major busines in the civil aviation segment where large allowances in terms of employment, production rates, charges related to asset impairments and severance costs been made with a forecast of the industry returning to normality in 20203 at the earliest.
28 Jul 20. Boeing Reports Second-Quarter Results.
- Financial results continue to be significantly impacted by COVID-19 and the 737 MAX grounding
- Revenue of $11.8bn, GAAP loss per share of ($4.20) and core (non-GAAP)* loss per share of ($4.79)
- Operating cash flow of ($5.3)bn; cash and marketable securities of $32.4bn
- Total backlog of $409bn, including more than 4,500 commercial airplanes
The Boeing Company [NYSE: BA] reported second-quarter revenue of $11.8bn, GAAP loss per share of ($4.20) and core loss per share (non-GAAP)* of ($4.79), primarily reflecting the impacts of COVID-19 and the 737 MAX grounding . Boeing recorded operating cash flow of ($5.3)bn.
“We remained focused on the health of our employees and communities while proactively taking action to navigate the unprecedented commercial market impacts from the COVID-19 pandemic,” said Boeing President and Chief Executive Officer Dave Calhoun. “We’re working closely with our customers, suppliers and global partners to manage the challenges to our industry, bridge to recovery and rebuild to be stronger on the other side.”
In the second quarter, Boeing restarted production operations across key sites following temporary pauses to protect its workforce and introduce rigorous new health and safety procedures. Despite the challenges, Boeing continued to deliver across key commercial, defense, space and services programs. The company also resumed early stages of production on the 737 program with a focus on safety, quality and operational excellence. Following the lead of global regulators, Boeing made steady progress toward the safe return to service of the 737, including completion of FAA certification flight tests.
To align to the sharp reduction in commercial market demand in light of COVID-19, the company is taking several actions including further adjusting commercial airplane production rates and reducing employment levels.
“The diversity of our balanced portfolio and our government services, defense and space programs provide some critical stability for us in the near-term as we take tough but necessary steps to adapt for new market realities,” Calhoun said. “We are taking the right action to ensure we’re well positioned for the future by strengthening our culture, improving transparency, rebuilding trust and transforming our business to become a better, more sustainable Boeing. Air travel has always proven to be resilient – and so has Boeing.”
Operating cash flow was ($5.3)bn in the quarter, primarily reflecting lower commercial deliveries and services volume due to COVID-19 and the 737 MAX grounding, as well as timing of receipts and expenditures .
Cash and investments in marketable securities increased to $32.4bn, compared to $15.5bn at the beginning of the quarter, driven by the issuance of new debt. Debt was $61.4 bn, up from $38.9bn at the beginning of the quarter due to the issuance of new debt, partially offset by repayment of maturing debt.
Total company backlog at quarter-end was $409bn.
Commercial Airplanes second-quarter revenue and operating margin decreased reflecting lower delivery volume, partially offset by a lower 737 MAX customer consideration charge of $551 m in the quarter compared to a $5.6 bn charge in the same period last year. Second-quarter operating margin was also negatively impacted by $712m of abnormal production costs related to the 737 program, $468 m of severance expense and $133m of abnormal production costs from the temporary suspension of operations in response to COVID-19.
The 737 program resumed early stages of production in May and expects to continue to produce at low rates for the remainder of 2020. The COVID-19 pandemic has significantly impacted air travel and reduced near-term demand, resulting in lower production and delivery rate assumptions. Commercial Airplanes expects to gradually increase the 737 production rate to 31 per month by the beginning of 2022, with further gradual increases to correspond with market demand. Estimated potential concessions and other considerations to customers related to the 737 MAX grounding increased by $551m in the quarter. There was no material change to estimated abnormal production costs.
Commercial Airplanes has further updated its production rate assumptions this quarter to reflect impacts of COVID-19 on its demand outlook, and will continue to assess them on an ongoing basis. The 787 production rate will be reduced to 6 per month in 2021. The 777/777X combined production rate will be gradually reduced to 2 per month in 2021, with 777X first delivery targeted for 2022. At this time, production rate assumptions have not changed on the 767 and 747 programs.
Commercial Airplanes delivered 20 airplanes during the quarter, and backlog included over 4,500 airplanes valued at $326bn.
Defense, Space & Security
Defense, Space & Security second-quarter revenue was $6.6 bn, reflecting COVID-19 impact on derivative aircraft programs, partially offset by higher volume across the remainder of the portfolio . Second-quarter operating margin decreased to 9.1 percent primarily due to a gain on sale of property in the second quarter of 2019 and a $151m KC-46A Tanker charge primarily driven by additional fixed cost allocation resulting from lower commercial airplane production volume due to COVID-19.
During the quarter, Defense, Space & Security received an award for three additional MQ-25 unmanned aerial refueling aircraft for the U.S. Navy, as well as contracts for Cruise Missile Systems for the U.S. Navy and a contract for 24 AH-64E Apache helicopters for the Kingdom of Morocco. Defense, Space & Security completed Critical Design Review for the T-7A advanced trainer, achieved first flight and delivery of the F/A-18 U.S. Navy Block III Super Hornet, and achieved first flight of the F-15 Qatar Advanced aircraft. Defense, Space & Security also delivered the 100th U.S. Navy P-8A Poseidon, the 400th V-22 Osprey, and the 2,500th AH-64 Apache.
Backlog at Defense, Space & Security was $64bn, of which 31 percent represents orders from customers outside the U.S.
Global Services second-quarter revenue decreased to $3.5bn, driven by lower commercial services volume due to COVID-19, partially offset by higher government services volume. Second-quarter operating margin decreased to (19.3) percent primarily due to lower commercial services volume, less favorable mix of products and services, and $923m of charges related to asset impairments and severance costs as a result of the COVID-19 market environment.
During the quarter, Global Services was awarded a contract modification for P-8A integrated logistics support for the U.S. Navy. Global Services captured an order for four 767-300 freighter conversions for DHL and was awarded a contract for F-15 pre-delivery training support for the Qatar Emiri Air Force. Global Services also delivered the first F/A-18 Super Hornet test aircraft modified for the U.S. Navy Blue Angels.
Additional Financial Information
At quarter-end, Boeing Capital’s net portfolio balance was $2.1bn. Revenue from other unallocated items and eliminations increased primarily due to reserves related to cost accounting litigation recorded in the second quarter of 2019. Interest and debt expense increased due to higher debt balances. The second quarter effective tax rate reflects tax benefits related to the 5 year net operating loss carryback provision in the Coronavirus Aid, Relief, and Economic Security (CARES) Act as well as the impact of pre-tax losses.
29 Jul 20. General Dynamics Reports Second-Quarter 2020 Results
General Dynamics (NYSE: GD) reported second-quarter 2020 net earnings of $625m on revenue of $9.3bn. Diluted earnings per share (EPS) were $2.18.
“We have continued to operate throughout the COVID-19 pandemic, meeting our customers’ needs while keeping our people as safe as possible,” said Phebe N. Novakovic, chairman and chief executive officer. “We are focused on the basics of early and aggressive cost management, performance and cash conversion as we manage through this period.”
The company delivered 32 aircraft during the quarter, up from 23 last quarter, despite continued pandemic-related challenges to making international deliveries.
Net cash provided by operating activities in the quarter totaled $843m, $552m better than the year-ago quarter. Free cash flow from operations, defined as net cash provided by operating activities less capital expenditures, was $622m, 100% of net earnings. The company ended the quarter with $2.3bn of cash on hand, $1.6bn more than at the end of second-quarter 2019.
Total backlog at the end of second-quarter 2020 was $82.7bn, 22% higher than the year-ago quarter. Estimated potential contract value, representing management’s estimate of value in unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised options, was $49.6 bn. Total estimated contract value, the sum of all backlog components, was $132.2bn at the end of the quarter, approximately 30% more than the year-ago quarter.
Significant awards in the quarter included a contract to construct the first two Columbia-class submarines which will be worth $11.5bn when funding is received from Congress; $320m to upgrade Stryker vehicles to the double-V-hull A1 configuration; $215m from the U.S. Army to produce Hydra-70 rockets; $175m from the Army for computing and communications equipment under the Common Hardware Systems-5 program; $160m in separate contracts from the U.S. Navy to provide missile components for the Aegis Ballistic Missile Defense program and gun systems for the F-35 Joint Strike Fighter; $130 m from the Centers for Medicare and Medicaid Services for several contracts, including support of the agency’s Healthcare Integrated General Ledger Accounting System (HIGLAS) application; and $125m for several key contracts to provide intelligence services to classified customers.
24 Jul 20. Honeywell Reports EPS Of $1.53, Adjusted EPS Of $1.26; Delivers $1.5bn Of Operating Cash Flow.
– Delivered $500m of Cost Savings in the Quarter; Funded Over $250m of Repositioning to Drive Further Savings in Second Half and 2021
– Generated $1.5bn of Operating Cash Flow, $1.3bn of Free Cash Flow, Adjusted Conversion(1) of 140%; Further Strengthened Balance Sheet
– Reported Record High Orders and Backlog in Safety and Productivity Solutions Driven by Triple-Digit Growth in Intelligrated and Personal Protective Equipment
– Launched Numerous Innovative Healthy Offerings to Address COVID-19-Related Customer Needs
Honeywell (NYSE: HON) announced results for the second quarter of 2020, which were significantly impacted by the COVID-19 pandemic and oil price volatility. The company reported a second-quarter sales decline of 19%, down 18% organic, operating margin contraction of 550 basis points, and segment margin contraction of 280 basis points, with adjusted
“The second quarter was a challenging one, but we executed on the three things that will enable us to weather this downturn: aggressively managing cost, driving sales growth where demand is strong, and investing in exciting new technologies that, through careful attention to customer and end-user needs, will help keep people safe when they get back to the workplace, back to play, back to travel, and back to life,” said Darius Adamczyk, chairman and chief executive officer of Honeywell.
“In terms of cost management, we delivered $500m in savings from the first phase of cost actions we announced earlier this year, and we funded over $250m of repositioning in the quarter. In addition, we developed a second phase of cost actions that, when combined with our previously announced plan, will generate $1.4bn to $1.6bn of cost savings during 2020. We further enhanced our financial flexibility this quarter by issuing $3bn of bonds at attractive rates, reducing our term loan from $6bn to $3bn, and fully drawing the remaining balance. We ended the quarter with $15.1bn of cash and short-term investments on hand and an overfunded pension plan,” Adamczyk said.
“We also remain focused on driving sales growth in areas that have not been as impacted by the current downturn. In the second quarter, our businesses serving the defense, warehouse automation, and personal protective equipment industries exhibited outstanding performance. Orders for Intelligrated were $1.2bn in the quarter, up triple-digits year-over-year, positioning the business for continued growth. We committed approximately $250m of incremental growth capital expenditures compared to our previous allocated budget for new projects to accelerate our investments in personal protective equipment, Intelligrated, and other growth areas,” Adamczyk continued. “With an exceptional, diverse portfolio of technologies that improve safety and help our customers to be more efficient, Honeywell is uniquely equipped to support our customers in the post-COVID world. We are actively investing in and introducing new solutions, such as an efficient and effective ultraviolet light cleaner for aircraft, temperature and PPE compliance monitoring solutions, technologies that can help building owners comply with new hygiene and social distancing policies, and a new pharmaceutical packaging system for bottles and vials that preserves shelf-life and drug efficacy. Our focus on sales, cost, and optimizing working capital, combined with our diverse portfolio and strong balance sheet, will enable Honeywell to adapt to and execute through the downturn. I am confident we will emerge well-positioned for the economic recovery to come,” concluded Adamczyk.
Due to the evolving nature of the COVID-19 pandemic and related supply chain and market disruptions, Honeywell previously announced that it has suspended providing full financial guidance until the economic impact of COVID-19 stabilizes. The company expects ongoing top-line challenges due to the current market conditions, particularly in the aerospace and oil and gas sectors.
Honeywell sales for the second quarter were down 19% on a reported basis and down 18% on an organic basis. The difference between reported and organic sales primarily relates to the impact of foreign currency translation.
Aerospace sales for the second quarter were down 27% on an organic basis driven by lower commercial aftermarket demand due to steep declines in flight hours, reduced volumes in commercial original equipment, and the 737 MAX impact in air transport original equipment, partially offset by continued strength in the Defense and Space business. Segment margin contracted 510 basis points to 20.8% driven by lower volumes and sales mix.
Honeywell Building Technologies sales for the second quarter were down 17% on an organic basis driven by lower demand for security, building management, and fire products, and delays in Building Solutions projects in key verticals. Segment margin expanded 50 basis points to 21.2%. Margin performance was driven by commercial excellence and productivity actions.
Performance Materials and Technologies sales for the second quarter were down 17% on an organic basis driven by volume declines in products, including thermal solutions and smart energy, in Process Solutions; lower gas processing projects, catalyst shipments, and licensing due to softness in the oil and gas sector in UOP; and lower automotive refrigerant volumes in Advanced Materials, partially offset by strength in specialty products. Segment margin contracted 460 basis points to 18.9% driven by the impact of lower sales volumes, partially offset by productivity actions.
Safety and Productivity Solutions sales for the second quarter were up 1% on an organic basis driven by double-digit Intelligrated growth and demand for respiratory personal protective equipment, partially offset by lower short-cycle sales volumes in sensing and IoT, productivity products, and gas sensing. Record high bookings of $0.7 bn in PPE and $1.2 bn in Intelligrated drove orders growth up approximately 90% year-over-year. Backlog was up over 100% year-over-year, including an all-time high Intelligrated backlog of over $2 bn. Segment margin expanded 150 basis points to 13.8% driven by productivity, net of inflation, and commercial excellence. (Source: PR Newswire)
21 Jul 20. Lockheed Martin Reports Second Quarter 2020 Results.
– Net sales of $16.2bn
– Net earnings of $1.6bn, or $5.79 per share
– Generated cash from operations of $2.2bn
– Achieved record backlog of $150.3bn
– Increases 2020 outlook for all financial metrics
Lockheed Martin Corporation (NYSE: LMT) reported second quarter 2020 net sales of $16.2 bn, compared to $14.4bn in the second quarter of 2019. Net earnings in the second quarter of 2020 were $1.6bn, or $5.79 per share, compared to $1.4bn, or $5.00 per share, in the second quarter of 2019. Cash from operations in the second quarter of 2020 was $2.2bn, compared to cash from operations of $1.7bn in the second quarter of 2019.
“I’m pleased to see continued strong operational and financial results this quarter as we remain focused on performing with excellence for our customers while protecting the well-being of our employees and keeping our supply chain strong during this global pandemic,” said James Taiclet, Lockheed Martin president and CEO. “Our dedicated Lockheed Martin team, and strong portfolio, coupled with supportive governmental actions have positioned us to deliver vital national security solutions for our country and international partners, and long-term value for our shareholders.”
Second quarter 2020 net earnings include a non-cash impairment charge of $128m ($96m, or $0.34 per share, after tax) for an investment in a joint venture that the corporation has entered into an agreement to sell.
The global outbreak of the coronavirus disease 2019 (COVID-19) was declared a pandemic by the World Health Organization and a national emergency by the U.S. Government in March 2020 and has negatively affected the U.S. and global economies, disrupted global supply chains, resulted in significant travel and transport restrictions, including mandated closures and orders to “shelter-in-place” and quarantine restrictions, and created significant disruption of the financial markets. Lockheed Martin has taken measures to protect the health and safety of its employees, work with its customers and suppliers to minimize disruptions and support its community in addressing the challenges posed by this ongoing global pandemic. The pandemic has presented unprecedented business challenges, and the corporation has experienced impacts in each business area related to COVID-19, primarily in increased coronavirus-related costs, delays in supplier deliveries, impacts of travel restrictions, access to some locations, and the impacts of remote work and adjusted work schedules. Despite these challenges, the corporation and U.S. Government’s proactive efforts, especially with regard to the supply chain, helped to partially mitigate the disruptions caused by COVID-19 on the corporation’s operations in the second quarter. In addition, favorable contract award timing and strong performance more than offset the impacts of COVID-19 on the corporation’s financial results in the first half of 2020. Given the results year-to-date and expectations for the remainder of 2020, the corporation is updating its 2020 guidance for net sales, segment operating profit, earnings per share and cash from operations to reflect the recent performance across all four business areas. However, the ultimate impact of COVID-19 on the corporation’s financial outlook in 2020 and future periods remains uncertain. The corporation’s 2020 outlook assumes, among other things, that its production facilities continue to operate and it does not experience significant work stoppages or closures, it is able to mitigate any supply chain disruptions and these do not worsen, and it is able to recover its costs under U.S. Government contracts and government funding priorities do not change. While these are the corporation’s current assumptions for its 2020 outlook, they could change because the future impact of COVID-19 on the corporation’s operations and financial performance, including the corporation’s ability to execute programs in the expected timeframe, remains uncertain and will depend on future developments, including the duration and spread of the pandemic and related actions taken by the U.S. government, state and local government officials, and international governments to prevent and manage disease spread, all of which are uncertain and cannot be predicted.
The corporation’s cash activities in the second quarter of 2020 included the following:
- paying cash dividends of $671m, compared to $622m in the second quarter of 2019;
- repurchasing 0.7 m shares for $259m; compared to repurchasing 0.6 m shares for $219 m in the second quarter of 2019. In the second quarter of 2020 the corporation also received and retired an additional 0.4 m shares upon settlement of the accelerated share repurchase agreement entered into in the first quarter of 2020 for no additional consideration;
- making capital expenditures of $343m, compared to $249m in the second quarter of 2019;
- no net proceeds from or repayments of commercial paper, compared to making net repayments of $400 m in the second quarter of 2019.
In May 2020, the corporation received net proceeds of $1.13bn from a $1.15bn debt issuance of senior unsecured notes, consisting of $400m aggregate principal amount of 1.85% Notes due 2030 and $750 m aggregate principal amount of 2.80% Notes due 2050. In June 2020, the corporation used the net proceeds from the May 2020 debt offering plus cash on hand to redeem $750m of the outstanding $1.25bn in aggregate principal amount of the 2.50% Notes due 2020, and $400 m of the outstanding $900m in aggregate principal amount of the 3.35% Notes due 2021. As a result of these transactions, as of June 28, 2020, the corporation’s debt balance remained unchanged.
The corporation operates in four business segments organized based on the nature of products and services offered: Aeronautics, Missiles and Fire Control (MFC), Rotary and Mission Systems (RMS) and Space.
Net sales and operating profit of the corporation’s business segments exclude intersegment sales, cost of sales, and profit as these activities are eliminated in consolidation. Operating profit of the corporation’s business segments includes the corporation’s share of earnings or losses from equity method investees as the operating activities of the investees are closely aligned with the operations of its business segments.
Operating profit of the corporation’s business segments also excludes the FAS/CAS operating adjustment described below, a portion of corporate costs not considered allowable or allocable to contracts with the U.S. Government under the applicable U.S. Government cost accounting standards (CAS) or federal acquisition regulations (FAR), and other items not considered part of management’s evaluation of segment operating performance such as a portion of management and administration costs, legal fees and settlements, environmental costs, stock-based compensation expense, retiree benefits, significant severance actions, significant asset impairments, gains or losses from significant divestitures, and other miscellaneous corporate activities.
The corporation recovers CAS pension cost through the pricing of its products and services on U.S. Government contracts and, therefore, recognizes CAS pension cost in each of its business segments’ net sales and cost of sales. The corporation’s consolidated financial statements must present pension and other postretirement benefit plan expense calculated in accordance with U.S. generally accepted accounting principles (referred to as FAS expense). The operating portion of the net FAS/CAS pension adjustment represents the difference between the service cost component of FAS pension expense and CAS pension cost. The non-service FAS pension expense component is included in other non-operating expense on the corporation’s consolidated statements of earnings. The net FAS/CAS pension adjustment increases or decreases CAS pension cost to equal total FAS pension expense (both service and non-service).
Changes in net sales and operating profit generally are expressed in terms of volume. Changes in volume refer to increases or decreases in sales or operating profit resulting from varying production activity levels, deliveries or service levels on individual contracts. Volume changes in segment operating profit are typically based on the current profit booking rate for a particular contract. In addition, comparability of the corporation’s segment sales, operating profit and operating margin may be impacted favorably or unfavorably by changes in profit booking rates on the corporation’s contracts for which it recognizes revenue over time using the percentage-of-completion cost-to-cost method to measure progress towards completion. Increases in profit booking rates, typically referred to as risk retirements, usually relate to revisions in the estimated total costs to fulfill the performance obligations that reflect improved conditions on a particular contract. Conversely, conditions on a particular contract may deteriorate, resulting in an increase in the estimated total costs to fulfill the performance obligations and a reduction in the profit booking rate. Increases or decreases in profit booking rates are recognized in the current period and reflect the inception-to-date effect of such changes.
Segment operating profit and margin may also be impacted favorably or unfavorably by other items, which may or may not impact sales. Favorable items may include the positive resolution of contractual matters, insurance recoveries and gains on sales of assets. Unfavorable items may include the adverse resolution of contractual matters; restructuring charges, except for significant severance actions which are excluded from segment operating results; reserves for disputes; certain asset impairments; and losses on sales of certain assets.
The corporation’s consolidated net adjustments not related to volume, including net profit booking rate adjustments, represented approximately 27 percent of total segment operating profit for both second quarter of 2020 and second quarter of 2019.
Aeronautics’ net sales in the second quarter of 2020 increased $953m, or 17 percent, compared to the same period in 2019. The increase was primarily attributable to higher net sales of approximately $700m for the F-35 program due to increased volume on production, development, and sustainment contracts; and about $125m for higher volume on classified development contracts.
Aeronautics’ operating profit in the second quarter of 2020 increased $147m, or 25 percent, compared to the same period in 2019. Operating profit increased approximately $130m for the F-35 program due to higher volume and risk retirements on production, sustainment, and development contracts. Adjustments not related to volume, including net profit booking rate adjustments, were $75 m higher in the second quarter of 2020 compared to the same period in 2019.
Missiles and Fire Control
MFC’s net sales in the second quarter of 2020 increased $390m, or 16 percent, compared to the same period in 2019. The increase was primarily attributable to higher net sales of approximately $295 m for integrated air and missile defense programs due to increased volume (primarily Patriot Advanced Capability-3 (PAC-3) and Terminal High Altitude Area Defense (THAAD)); and about $150m for tactical and strike missile programs due to increased volume (primarily Guided Multiple Launch Rocket Systems (GMLRS) and High-Mobility Artillery Rocket Systems (HIMARS)). These increases were partially offset by a decrease of $25m as a result of lower volume on energy programs due to the divestiture of the Distributed Energy Solutions business in November 2019.
MFC’s operating profit in the second quarter of 2020 increased $43m, or 13 percent, compared to the same period in 2019. Operating profit increased approximately $30m for integrated air and missile defense programs due to increased volume on international contracts (primarily PAC-3 and THAAD); about $20m for tactical and strike missile programs due to higher risk retirements on classified programs; and about $10m for energy programs due to higher risk retirements. These increases were partially offset by a decrease of $15m for sensors and global sustainment programs due to lower risk retirements across the portfolio partially offset by net lower current period charges of $10m for performance matters on an international military program. Adjustments not related to volume, including net profit booking rate adjustments, in the second quarter of 2020 were comparable to the same period in 2019.
Rotary and Mission Systems
RMS’ net sales in the second quarter of 2020 increased $271m, or 7 percent, compared to the same period in 2019. Net sales increased approximately $240m for Sikorsky helicopter programs due to higher volume primarily on Seahawk production programs and VH-92A production contracts.
RMS’ operating profit in the second quarter of 2020 increased $82 m, or 24 percent, compared to the same period in 2019. Operating profit increased approximately $80m for training and logistics solutions (TLS) programs due to a $60m charge for an army sustainment program in 2019 not repeated in 2020 and $45m for Sikorsky helicopter programs due to higher volume and risk retirements on VH-92A production contracts. These increases were offset by a $25m decrease for integrated warfare systems and sensors (IWSS) programs due to lower risk retirements (primarily Radar Surveillance Systems and Aegis) and a $15m decrease for C6ISR (command, control, communications, computers, cyber, combat systems, intelligence, surveillance, and reconnaissance) programs due to lower risk retirements (primarily undersea combat systems programs). Adjustments not related to volume, including net profit booking rate adjustments, were $35m higher in the second quarter of 2020 compared to the same period in 2019.
Space’s net sales in the second quarter of 2020 increased $179m, or 7 percent, compared to the same period in 2019. The increase was primarily attributable to higher net sales of approximately $90m for government satellite programs due to higher volume (primarily Next Generation Overhead Persistent Infrared (Next Gen OPIR)); and about $85 m for strategic and missile defense programs due to higher volume (primarily hypersonic development programs).
Space’s operating profit in the second quarter of 2020 decreased $36m, or 13 percent, compared to the same period in 2019. Operating profit decreased approximately $35 m for government satellite programs due to lower risk retirements (primarily Advanced Extremely High Frequency (AEHF)). Adjustments not related to volume, including net profit booking rate adjustments, were $45m lower in the second quarter of 2020, compared to the same period in 2019.
Total equity earnings recognized by Space from equity method investments (primarily ULA) represented approximately $10m, or 4 percent of Space’s operating profit in the second quarter of 2020, compared to approximately $15m, or 5 percent in the second quarter of 2019.
The corporation’s effective income tax rate was 17.1 percent in the second quarter of 2020, compared to 15.6 percent in the second quarter of 2019. The higher rate for the second quarter of 2020 is primarily due to a decrease in tax deductions for foreign derived intangible income. The rates for both periods benefited from the research and development tax credit, tax deductions for foreign derived intangible income, dividends paid to the corporation’s defined contribution plans with an employee stock ownership plan feature, and tax deductions for employee equity awards.
31 Jul 20. Northrop Grumman Reports Second Quarter 2020 Financial Results
• Net Awards Total $14.8bn; 1.7 Book to Bill
• Total Backlog Increases to $70.0bn
• Sales Increase 5 Percent to $8.9bn
• EPS Increase 19 Percent to $6.01
• Cash from Operations Increases 45 Percent to $2.3bn
• Free Cash Flow1 Increases 53 Percent to $2.1bn
• 2020 Guidance Raised; Company Now Expects Sales of $35.3 to $35.6bn,
MTM adjusted EPS1 of $22.00 to $22.40, and Free Cash Flow1 of $3.15 to $3.55bn
Northrop Grumman Corporation (NYSE: NOC) reported second quarter 2020 sales increased 5 percent to $8.9bn from $8.5bn in the second quarter of 2019. Second quarter 2020 net earnings increased 17 percent to $1.0bn, or $6.01 per diluted share from $861m, or $5.06 per diluted share, in the second quarter of 2019. Second quarter 2020 net earnings include $38m, or $0.23 per diluted share, of favorable returns on marketable securities related to our non-qualified benefit plans and other non-operating assets.
“Northrop Grumman delivered a strong second quarter, reflecting the resiliency and dedication of our workforce, customers and suppliers. Together, we quickly adapted to challenging conditions with new processes and safeguards,” said Kathy Warden, chairman, chief executive officer and president. “The Northrop Grumman team has remained steadfast in protecting the safety and well-being of our employees, supporting national security and delivering long-term value to our shareholders, as we continue to respond to robust customer demand and strengthen our foundation for the future.”
1 Non-GAAP measure.
Second quarter 2020 sales increased $428m, or 5 percent primarily due to higher sales at Space Systems and Aeronautics Systems. Operating Income and Margin Rate Second quarter 2020 operating income increased $48m, or 5 percent, primarily due to an increase in segment operating income and lower unallocated corporate expense. Second quarter 2020 operating margin rate of 11.2 percent was comparable to the prior year period. Segment Operating Income and Margin Rate Effective April 1, 2020, certain unallowable compensation and other costs previously included in segment operating results are now reported in Unallocated corporate expense within operating income as the company no longer considers these costs as part of management’s evaluation of segment operating performance. This change, which increased second quarter 2020 segment operating income by $1m, has been applied retrospectively and recast results are presented in Schedule 7. Second quarter 2020 segment operating income increased $38m, or 4 percent, and reflects higher segment operating income at all four sectors.
Segment operating margin rate was comparable to the prior year period and reflects lower segment operating margin rates at Space Systems and Aeronautics Systems, partially offset by a higher segment operating margin rate at Defense Systems. Federal and Foreign Income Taxes The second quarter 2020 effective tax rate of 16.5 percent was generally comparable to the prior year period.
Net Earnings and Diluted Earnings Per Share Second quarter 2020 net earnings increased $144m, or 17 percent, primarily due to a $103m increase in our FAS (non-service) pension benefit, a $4m increase in operating income and a $41m increase in Other, net, largely due to higher returns on marketable securities related to our non-qualified benefit plans, partially offset by a $31m increase in tax expense.
Operating Cash Flows Second quarter and year to date 2020 cash provided by operating activities increased $730m and $650m, respectively, principally due to improved trade working capital and higher net earnings. The improvement in trade working capital for both periods reflects CARES Act payroll tax deferrals and increased Department of Defense progress payment rates, partially offset by acceleration of payments to suppliers and pass through of increased progress payments to suppliers.
Second quarter and year-to-date free cash flow1 increased to $2.1bn and $803m, respectively, after second quarter capital spending of $269 m and year-to-date capital spending of $54m.
1 Non-GAAP measure
Awards and Backlog
Second quarter and year to date 2020 net awards totaled $14.8bn and $22.7bn, respectively, and backlog totaled $70.0bn. Significant second quarter new awards include $7.4bn for restricted programs, $1.9bn for Next Gen OPIR, $0.5bn for E-2D, $0.4bn for four commercial satellites and $0.3bn for Triton.
Segment Operating Results
Segment operating results for the three and six months ended June 30, 2019 have been recast to reflect changes in the company’s organizational structure and reportable segments effective Jan. 1, 2020.
Second quarter 2020 sales increased $204m, or 7 percent, due to higher sales in both Manned Aircraft and Autonomous Systems. Higher volume on restricted programs, E-2D and Triton were partially offset by a COVID-19-related slowdown of F-35 production activity.
Operating Income Second quarter 2020 operating income increased $11 m, or 4 percent, primarily due to higher sales. Operating margin rate decreased to 10.6 percent from 11.0 percent, principally due to lower net favorable EAC adjustments at Autonomous Systems as well as changes in contract mix at Manned Aircraft, partially offset by a $21m benefit recognized in connection with the resolution of a government accounting matter.
Second quarter 2020 sales decreased $30m, or 2 percent, due to lower volume in Battle Management & Missile Systems, partially offset by higher volume on Mission Readiness programs. Battle Management & Missile Systems sales decreased principally due to lower volume on programs nearing completion, including an international weapons program and several small caliber ammunition programs, partially offset by higher volume on the Guided Multiple Launch Rocket System (GMLRS), the Advanced Anti-Radiation Guided Missile (AARGM) program and other missile products. Mission Readiness sales increased primarily due to higher restricted volume, partially offset by lower volume on the Hunter sustainment program as it nears completion.
Operating Income Second quarter 2020 operating income increased $5m, or 2 percent, primarily due to a higher operating margin rate. Operating margin rate increased to 11.5 percent from 11.1 percent primarily due to improved performance on Mission Readiness programs.
Second quarter 2020 sales increased $42m, or 2 percent, primarily due to higher volume on Airborne Sensors & Networks programs, partially offset by lower volume on Cyber & Intelligence Mission Solutions programs. Airborne Sensors & Networks sales increased primarily due to higher airborne radar volume, including on the Multi-role Electronically Scanned Array (MESA) and Scalable Agile Beam Radar (SABR) programs. Cyber & Intelligence Mission Solutions sales decreased principally due to lower volume on an intelligence program as it nears completion. Operating Income Second quarter 2020 operating income increased $9m, or 3 percent, principally due to higher sales. Operating margin rate was comparable to the prior year period.
Second quarter 2020 sales increased $260m, or 15 percent, due to higher sales in both Space and Launch & Strategic Missiles. Space sales were driven by higher volume on restricted programs, Next Generation Overhead Persistent Infrared Radar (Next Gen OPIR) and the Arctic Satellite Broadband Mission (ASBM) program. Launch & Strategic Missiles sales reflect higher volume on hypersonics and launch vehicle programs, partially offset by lower volume on the Ground-based Midcourse Defense (GMD) program.
Operating Income Second quarter 2020 operating income increased $16m, or 8 percent, primarily due to higher sales. Operating margin rate decreased to 10.2 percent from 10.8 percent principally due to delays in production for certain commercial space components.
2020 financial guidance, as well as outlook, trends, expectations and other forward looking statements provided by the company for 2020 and beyond, reflect the company’s judgment based on the information available to the company at the time of this release. The company is increasing its 2020 financial guidance based on year-to-date performance and its most current outlook for the remainder of the year.
The company’s 2020 financial guidance reflects the impacts experienced to date from the global COVID-19 pandemic (discussed in the company’s Form 10-Qs), and what the company currently anticipates, based on what the company understands today, to be the impacts on the company for the remainder of the year. The company’s updated financial guidance assumes generally that the most significant adverse impacts from the pandemic on the company’s business, financial position, results of operations or cash flows occurred in the second quarter of 2020.
However, the company cannot predict how the pandemic will evolve or what impact it will continue to have, and there can be no assurance that the company’s underlying assumptions are correct. As discussed more fully in the company’s Form 10-Qs (for Q1 and Q2), and among other factors, disruptions to the company’s operations (or those of its customers or supply chain), additional costs, disruptions in the market, and impacts on programs or payments relating to the global COVID-19 pandemic, today and as it may evolve, can be expected to affect the company’s ability to achieve guidance or meet expectations. In addition, the government budget, appropriations and procurement processes can impact our customers, programs and financial results. These processes, including the timing of appropriations and the occurrence of an extended continuing resolution and/or prolonged government shutdown, as well as a breach of the debt ceiling, can impact the company’s ability to achieve guidance or meet expectations. 2020
28 Jul 20. Raytheon Technologies Reports Second Quarter 2020 Results.
- Sales of $14.1bn
- Adjusted sales of $14.3bn
- GAAP EPS from continuing operations of a loss of $2.56 and included $2.96 of net significant and/or non-recurring charges and acquisition accounting adjustments
- Adjusted EPS of $0.40
- Operating cash flow from continuing operations of $210m
- Free cash flow of an outflow of $248m
- Achieved ~$600m of cost reduction and ~$1bn of cash conservation actions
- Combined book-to-bill ratio of 1.20 at RIS and RMD segments
“During the quarter, we continued to deliver good performance in our defense business, while we saw challenges in commercial aerospace as expected,” said Raytheon Technologies CEO Greg Hayes. “Looking ahead, we expect the pressures in commercial aerospace to persist as OEM production levels and aftermarket activity remain low. As a result, we are taking difficult but necessary actions to strengthen the business, including achieving the previously announced cost and cash savings this year. At the same time, we continue to deliver cost synergies from the Rockwell Collins acquisition and the Raytheon merger.”
Hayes continued, “I’m proud of what our team has accomplished in support of our customers, suppliers, and communities during this difficult time. Our balance sheet remains strong and the resiliency of our defense business will help us weather this storm as we continue to capitalize on growth opportunities supported by our record backlog. I am confident that our balanced portfolio and advanced technologies will position us for long-term value creation as the global economy recovers.”
See “Use and Definitions of Non-GAAP Financial Measures” below for information regarding non-GAAP financial measures.
Raytheon Technologies reported second quarter sales of $14.1bn and adjusted sales of $14.3bn. GAAP EPS from continuing operations was a loss of $2.56 and included $2.96 of net significant and/or non-recurring charges and acquisition accounting adjustments, where $2.34 was related to charges due to the current economic environment primarily driven by the COVID-19 pandemic. Of the $2.34, $2.13 was related to an impairment of Collins Aerospace goodwill and intangibles. Other adjustments included $0.28 for acquisition accounting adjustments primarily related to intangible amortization and $0.21 for restructuring. Adjusted EPS was $0.40.
The company recorded a net loss from continuing operations in the second quarter of $3.8bn, and included $4.4bn of net significant and/or nonrecurring charges and acquisition accounting adjustments. Adjusted net income was $598m. Operating cash flow from continuing operations in the second quarter was $210m and better than expected primarily due to the timing of collections and execution on cash conservation actions. Capital expenditures were $458m, resulting in a free cash outflow of $248m. Free cash flow included $165 m of merger costs and restructuring.
Bookings and Orders
Backlog at the end of the second quarter was $158.7bn, of which $85.6bn was from commercial aerospace and a record $73.1 bn was from defense.
Notable defense bookings during the quarter included:
- $2.3bn on the Army Navy/Transportable Radar Surveillance-Model 2 (AN/TPY-2) radar program for the Kingdom of Saudi Arabia (KSA) at Raytheon Missiles & Defense (RMD)
- $1.4bn on a number of classified programs at Raytheon Intelligence & Space (RIS)
- $299m for Standard Missile-3 (SM-3®) for the Missile Defense Agency (MDA) and an international customer at RMD
In addition, during the quarter RMD was selected by the U.S. Air Force to develop the Long-Range Standoff Weapon (LRSO).
The company’s reportable segments are Collins Aerospace, Pratt & Whitney, Raytheon Intelligence & Space (RIS) and Raytheon Missiles & Defense (RMD). In connection with the merger, the company revised its segment presentation. Prior periods have been revised to reflect the current presentation.
Collins Aerospace had second quarter 2020 adjusted sales of $4,298m, down 35 percent versus the prior year. Commercial OE was down 53 percent and commercial aftermarket was down 48 percent, while military was up 10 percent. The decrease in commercial sales was driven primarily by the current economic environment which has resulted in lower flight hours, aircraft fleet utilization and commercial OEM deliveries, which was slightly offset by F-35 and defense development program growth.
Collins Aerospace recorded adjusted operating profit of $24m in the quarter, down 98 percent versus the prior year. The decrease in adjusted operating profit was driven by lower commercial aerospace OEM and aftermarket sales volume that was slightly offset by gross margin drop through on higher military volume.
Pratt & Whitney had second quarter 2020 adjusted sales of $3,607m, down 30 percent versus the prior year. Commercial OE was down 42 percent and commercial aftermarket was down 51 percent, while military was up 11 percent. The decrease in commercial sales was primarily due to a significant reduction in shop visits and related spare part sales and commercial engine deliveries principally driven by the current economic environment, which was slightly offset by F135 production volume and aftermarket growth on multiple fighter jet platforms.
Pratt & Whitney recorded an adjusted operating loss of $151m in the quarter, down 133 percent versus the prior year. The decrease in adjusted operating profit was primarily driven by lower commercial aftermarket sales volume and unfavorable mix
RIS had second quarter adjusted sales of $3,314m and recorded $311 m of adjusted operating profit in the quarter.
Raytheon Intelligence & Space(RIS)
RIS had second quarter adjusted sales of $3,314m and recorded $311m of adjusted operating profit in the quarter.
Raytheon Missiles & Defense (RMD)
RMD had second quarter adjusted sales of $3,590 m and recorded $397m of adjusted operating profit in the quarter.
- Cash flow from operations of $245m
- Bell revenue up 7% from prior year, operating margin of 14.4%
- Textron Systems revenue up 6% from prior year, operating margin of 11.3%
- Restarted manufacturing operations at Aviation and Industrial segments
30 Jul 20. Textron Inc. (NYSE: TXT) reported second quarter 2020 net loss of $0.40 per share, compared to income of $0.93 per share in the second quarter of 2019. Adjusted net income, a non-GAAP measure, was $0.13 per share for the second quarter of 2020. Adjusted net income excludes $78 m of pre-tax special charges ($0.29 per share, after-tax) related to the restructuring plan announced in June and a non-cash inventory valuation charge of $55 m ($0.24 per share, after-tax) as we ceased manufacturing at our TRU Simulation + Training Montreal facility.
“Our defense businesses performed extremely well with both revenue growth and strong operating performance in the quarter, while our commercial businesses worked diligently to reduce costs and mitigate the impacts of temporary plant closures,” said Textron Chairman and CEO Scott C. Donnelly. “The outstanding efforts of our teams in response to the challenging conditions arising from the pandemic drove strong cash performance and positive adjusted earnings in the quarter.”
Net cash provided by operating activities of the manufacturing group for the second quarter totaled $245 m, compared to $163m in last year’s second quarter. Manufacturing cash flow before pension contributions, a non-GAAP measure, totaled $215m, compared to $102m last year.
Second Quarter Segment Results
Revenues at Textron Aviation of $747m were down $376 m from the second quarter of 2019, primarily due to lower Citation jet volume of $178m, reflecting a decline in demand related to the pandemic and to a lesser extent, delays in the acceptance of aircraft related to COVID-19 travel restrictions, and lower aftermarket volume of $120m, reflecting lower aircraft utilization.
Textron Aviation delivered 23 jets, down from 46 last year, and 15 commercial turboprops, down from 34 last year.
Segment loss was $66m in the second quarter, down from $105m of profit last year, primarily due to the lower volume and mix and an unfavorable impact of $27m from performance. Performance includes $53m of idle facility costs recognized in the second quarter of 2020.
Textron Aviation backlog at the end of the second quarter was $1.4bn.
Bell revenues were $822m, up $51m or 7% from last year, primarily on higher military volume, partially offset by lower commercial volume.
Bell delivered 27 commercial helicopters in the quarter, down from 53 last year.
Segment profit of $118m was up $15m, largely on higher military volume, partially offset by an unfavorable impact from performance.
Bell backlog at the end of the second quarter was $5.8bn.
Revenues at Textron Systems were $326m, up $18m or 6% from last year, primarily due to higher volume in our Unmanned Systems product line, partially offset by lower volume in the Marine and Land Systems product line.
Segment profit of $37 m was down $12m from last year, primarily due to an unfavorable impact from performance, which included an $18m gain related to our contribution of assets to a training business formed with FlightSafety International during last year’s second quarter.
Textron Systems’ backlog at the end of the second quarter was $1.9bn.
Industrial revenues of $562m were down $447m from last year, $321m at Fuel Systems and Functional Components and $126m at Textron Specialized Vehicles, primarily due to temporary manufacturing facility closures.
Segment loss was $11m, down from $76m of profit in the second quarter of 2019, primarily related to lower volume and mix, partially offset by favorable performance which included the impact of cost reduction activities. Industrial also recognized approximately $8 m of idle facility costs in the second quarter of 2020.
Finance segment revenues were down $1m, and profit was down $2m to last year’s second quarter.