25 Oct 17. Apart from Northrop Grumman, the other US majors reported results at the lower end of expectations reflecting the Trump Administrations’ impasse to increase defence spending in Congress. Boeing took another big hit on the KC-46 Tanker program.
- Revenue of $24.3bn, including a record 202 commercial aircraft deliveries
- GAAP EPS of $3.06 and core EPS (non-GAAP)* of $2.72 on solid execution
- Strong operating cash flow of $3.4bn; repurchased 11 m shares for $2.5bn
- Backlog remains robust at $47 bn, including nearly 5,700 aircraft in commercial airplane orders
- Cash flow and EPS guidance raised; segment guidance updated
The company’s cash flow guidance is increased to $12.5bn from $12.25bn, driven by improved performance. Full year EPS guidance is increased to between $11.20 and $11.40 from $11.10 and $11.30 and core earnings per share (non-GAAP)* guidance is increased to between $9.90 and $10.10 from $9.80 and $10.00 driven by a lower-than-expected tax rate. Full year segment guidance is updated, reflecting the realignment of the company’s services businesses into Boeing Global Services (BGS).The Boeing Company [NYSE: BA] reported third-quarter revenue of $24.3bn with GAAP earnings per share of $3.06 and core earnings per share (non-GAAP)* of $2.72 reflecting strong deliveries, services and delivery mix, and overall solid execution.
“Our teams across all three business segments are driving execution with a focus on both productivity and growth, which has enabled Boeing to deliver solid third quarter financial results, grow cash flow, and raise our 2017 outlook,” said Chairman, President and Chief Executive Officer Dennis Muilenburg.
“In the third quarter we successfully launched our newest business segment, Boeing Global Services, leveraging our unique One Boeing advantages to offer complete lifecycle support across the commercial, defense and space sectors. We achieved a number of key milestones in the quarter with the delivery of a record 202 commercial airplanes, including 24 737 MAXs as we continue the smooth introduction of that airplane. On the defense side, we booked $6bn in new orders, including an initial contract award for the Ground Based Strategic Deterrent program and an award from the U.S. Navy for 14 F/A-18 Super Hornet aircraft.”
“We remain focused on accelerating productivity, quality and safety improvements across the company, executing on our future development programs, and capturing new business to ensure our continued growth.”
Operating cash flow in the quarter of $3.4bn was driven by solid operating performance and favorable timing of receipts and expenditures. During the quarter, the company repurchased 11m shares for $2.5bn, leaving $6.5bn remaining under the current repurchase authorization. The company also paid $0.9bn in dividends in the quarter, reflecting a 30 percent increase in dividends per share compared to the same period of the prior year.
Cash and investments in marketable securities totaled $10.0bn, down slightly from $10.3bn at the beginning of the quarter (Table 3). Debt was $10.8bn, unchanged from the beginning of the quarter.
Total company backlog at quarter-end was $474bn, down from $482bn at the beginning of the quarter, and included net orders for the quarter of $16bn.
Commercial Airplanes third-quarter revenue was $15.0bn on planned production rates and delivery mix. Third-quarter operating margin increased to 9.9 percent, reflecting higher 787 margins and strong operating performance on production programs, partially offset by additional cost growth of $25m on the KC-46 Tanker program due to incorporating changes into initial production aircraft as we progress through late-stage testing and the certification process.
During the quarter, Commercial Airplanes delivered a record 202 airplanes, including 24 737 MAX 8 airplanes. The production rate increased to 47 per month on the 737 program, and we confirmed plans to increase the 787 production rate to 14 per month in 2019. Development on 777X is on track as production began on the first complete wing for structural test.
Commercial Airplanes booked 117 net orders during the quarter. Backlog remains robust with nearly 5,700 airplanes valued at $412bn.
Defense, Space & Security
Defense, Space & Security (BDS) third-quarter revenue was $5.5bn on lower planned deliveries and mix. Third-quarter operating margin increased to 10.2 percent, reflecting solid performance and mix, partially offset by KC-46 Tanker cost growth of $73m.
During the quarter, BDS was awarded contracts from the U.S. Air Force for design of the new Ground-Based Strategic Deterrent defense system and preliminary design of the next presidential aircraft. The U.S. Navy awarded BDS a contract for 14 F/A-18 Super Hornets during the third quarter. Additionally, BDS was selected to design and build seven medium earth orbit satellites for SES.
Backlog at Defense, Space & Security was $46bn, of which 35 percent represents orders from international customers.
During the quarter, Global Services was awarded a contract from the Defense Logistics Agency to supply F/A-18 E/F spare parts, and a contract from the Italian Air Force to provide performance-based logistics services to support the KC-767A tanker aircraft. More than 40 commercial airline customers signed up for our digital navigation applications in the quarter. Additionally, Global Services continues to capture new commercial and government customers through expanded offerings, including those powered by Boeing AnalytX.Global Services third-quarter revenue increased to $3.6bn, primarily driven by higher commercial parts revenue, partially offset by timing of government services. Third-quarter operating margin was 14.2 percent reflecting product and services mix.
Additional Financial Information
At quarter-end, Boeing Capital’s net portfolio balance was $3.4bn. Total pension expense for the third quarter was $100m, down from $453m in the same period of the prior year. Revenue increased in other unallocated items and eliminations primarily due to timing of eliminations of intercompany aircraft deliveries, including those accounted for under operating lease. Other unallocated items and eliminations earnings decreased primarily due to timing of eliminations of intercompany aircraft deliveries, offset by higher deferred compensation. The effective tax rate for the third quarter increased to 30.0 percent primarily due to discrete tax benefits recorded in the prior year.
26 Oct 17. General Dynamics profit tops expectations, revenue falls. General Dynamics Corp (GD.N), maker of Gulfstream jets, tanks and U.S. Navy ships, reported higher-than-expected earnings on Wednesday, helped by battle tank sales even as indecision in Washington hurt revenue. A 1-percent year-over-year drop in quarterly revenue to $7.6bn missed Wall Street analyst estimates of $7.94bn, sending shares down 1.8 percent.
Lower-than-expected sales in the Information Systems and Technology unit (IS&T) to the Army hurt third-quarter results as caps on government spending hampered the Army’s decision making. “And, of course, the change in administrations slowed some execution as well,” said Chief Financial Officer Jason Aiken on a conference call with Wall Street analysts.
General Dynamics’ IS&T is the largest unit by revenue and has thousands of shorter sales-cycle service contracts which can reflect delays quickly. IS&T revenue increased by $50m, or 2.3 percent, over the second quarter, but was down 7.6 percent compared with the same quarter last year.
In July, General Dynamics’ CEO Phebe Novakovic had warned that U.S. President Donald Trump’s failure to fill dozens of senior-level positions at the Pentagon made it difficult for defense contractors to forecast business.
Aiken said by the end of 2017, IS&T will be flat versus last year.
Despite missing Wall Street’s expectations for total revenue, third-quarter 2017 results showed net earnings from continuing operations up 4.5 percent to $764 m, or $2.52 per share, up from $731 m or $2.36 per share a year ago.
Wall Street analysts expected $2.44 per share, according to Thomson Reuters I/B/E/S.
The company raised its earnings per share forecast for the year by 5 cents to a range of $9.75 to $9.80. It said this quarter’s earnings-per-share were aided by a lower-than-expected effective tax rate of 25.6 percent.
Growth in 2017 has come from international programs within the Combat Systems unit, Aiken said, including deliveries of some of the 130 Abrams battle tanks and 20 armored recovery vehicles and other equipment ordered by Saudi Arabia last year.
Combat Systems revenue jumped 13 percent versus last year. Aiken said that unit’s revenue would also increase next quarter by about 15 percent.
Revenue at General Dynamics’ Aerospace unit, which contains the Gulfstream private-jet business, was up $70m or 3.6 percent.
Lockheed Martin Corp (LMT.N), the world’s largest weapons maker, disappointed Wall Street when it reported results on Tuesday, sending the stock down 2.3 percent for the day. Though the Bethesda, Maryland-based company expected increased defense spending under Trump, it forecast only a 2-percent rise in sales in 2018.
Trump is seeking a $54bn increase in overall U.S. defense spending, a proposal that must be passed by Congress and faces skeptical lawmakers. Political gridlock in Washington could stall the process further.
General Dynamics did not make any 2018 projections on Wednesday.
The Falls Church Virginia-based defense contractor said its total order backlog at end of third-quarter 2017 was $63.9bn, up 9.2 percent from the end of the previous quarter.
The company-wide operating margin was 13.9 percent, a 60 basis-point increase. General Dynamics had also improved operating margins by 60 basis points during the prior quarter. Shares of U.S. defense companies have rallied since November on Trump’s promises during his election campaign to spend more on defense. General Dynamics shares were down $3.84 to $208.24 in afternoon trading. (Source: Reuters)
General Dynamics Reports Third-Quarter 2017 Results
General Dynamics (NYSE: GD) today reported third-quarter 2017 earnings from continuing operations of $764 m, a 4.5 percent increase over third-quarter 2016, on revenue of $7.6 bn. Diluted earnings per share from continuing operations were $2.52 compared to $2.36 in the year-ago quarter, a 6.8 percent increase.
“Our focus on operations continues to drive strong performance, exhibited this quarter by 13.9 percent operating margin and 10.1 percent return on sales,” said Phebe N. Novakovic, chairman and chief executive officer of General Dynamics. “Total backlog rose to $63.9 bn, up 9.2 percent from the second quarter, with growth in every defense segment and good order activity at Gulfstream.” Margin Company-wide operating margin for the third quarter of 2017 was 13.9 percent, a 60 basis-point increase when compared to 13.3 percent in third-quarter 2016, with expansion in the Combat Systems and Information Systems and Technology groups.”
Net cash provided by operating activities in the quarter totaled $871m, compared to $499m in the year-ago quarter. Free cash flow from operations, defined as net cash provided by operating activities less capital expenditures, was $751m. – more – Capital Deployment The company repurchased 1.2m of its outstanding shares in the third quarter. Year-to-date, the company has repurchased 5.9m outstanding shares.
Backlog General Dynamics’ total backlog at the end of third-quarter 2017 was $63.9bn, up 9.2 percent from the end of second-quarter 2017. The estimated potential contract value, representing management’s estimate of value in unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised options, was $25.7bn. Total potential contract value, the sum of all backlog components, was $89.7bn at the end of the quarter. There was order activity across the Gulfstream product portfolio and strong demand for defense products, including a book-to-bill ratio (orders divided by revenue) greater than one-to-one in each of the defense segments. Significant awards in the quarter include $5.1bn from the U.S. Navy to complete the design and prototype development of the lead Columbia-class submarine, the Navy’s award of two Arleigh Burkeclass destroyers, $615m from the U.S. Army to produce and modernize Abrams main battle tanks, $260m from the Army and U.S. Air Force for ammunition and ordnance, $175m from the Army for Stryker double-V-hull vehicles and $455m from the Centers for Medicare & Medicaid Services for contact-center services.
24 Oct 17. Lockheed Martin sales, profit miss Wall St. estimates. Lockheed Martin Corp’s (LMT.N) quarterly profit and sales missed Wall Street estimates on Tuesday and the Pentagon’s No. 1 weapons provided a tepid profit forecast for 2018, sending shares down more than two percent. Despite the first profit miss after five quarters in a row of beating estimates, Lockheed raised its full-year sales forecast, set a higher dividend and forecast sales would grow another 2 percent next year. Analysts noted that Lockheed’s 2-percent growth forecast for 2018 was conservative given the market’s expectations of higher defense spending under U.S. President Donald Trump.
During a conference call with Wall Street analysts, Bruce Tanner, Lockheed’s CFO, was upbeat about the company’s growth prospects and record $104bn orders backlog, but he was cautious about the speed of the company’s growth projections. “It just doesn’t happen overnight and especially if you will allow me to call 2018 overnight,” he said. During the quarter, operating profit from Lockheed’s Space Systems business unit halved to $218m, partly due to a non-recurring pre-tax gain that had occurred in the third quarter of 2016 as well as slightly lower sales volume in two government satellite programs. Tanner said “we expect this timing-related shortfall will be more than made up for during the fourth quarter.”
The aeronautics division, which makes the F-35 fighter jet, was the only Lockheed business unit to increase profitability from last year. Lockheed’s net earnings from operations fell 13.8 percent to $939m, or $3.24 per share, from $1.1bn, or $3.61 per share. Increased sales of $12.2bn from $11.6bn a year ago, were below Wall Street’s expectations. Analysts had expected $3.26 per share on revenue of $12.81bn, according to Thomson Reuters I/B/E/S. Still, the Bethesda, Maryland-based company increased its full-year 2017 sales forecast to $51.2bn, from $50bn, citing its continued focus on operational performance and $200 m worth of property sales.
During the quarter, Lockheed had notable wins on several large programs. The U.S. Air Force awarded one of two $900m contracts to continue development work on a replacement for the air-launched nuclear cruise missile. And the U.S. State Department approved the possible sale of a THAAD anti-missile defense system to Saudi Arabia at an estimated cost of $15bn. Lockheed said that it was in the process of hiring 1,000 engineers for programs won in 2017. Still, the company’s raised sales outlook for 2018 came with caveats as it included a drop in projected cash flow compared with 2017. The company said materials costs for the F-35 multi-year “block buy” would go up in 2018 and capital investments would be made in facilities for the Space Systems division.
The company sees 2017 ending with diluted higher earnings per share between $12.85 and $13.15, up from its previous estimate of $12.30 to $12.60 per share. In addition, Lockheed said it would raise its quarterly dividend rate by 10 percent to $2.00 per share.
Lockheed shares were down 2.7 percent at $312.15 in afternoon trading. Despite Tuesday’s drop, Lockheed shares trade near record highs and have more than tripled in the last five years. (Source: Reuters)
Lockheed Martin Reports Third Quarter 2017 Results
– Net sales of $12.2bn
– Net earnings from continuing operations of $939m, or $3.24 per share
– Generated cash from operations of $1.8bn
– Achieved record backlog of $103.6bn
– Increased quarterly dividend rate 10 percent to $2.00 per share
– Updates 2017 outlook and provides trend information for 2018
24 Oct 17. Lockheed Martin (NYSE: LMT) today reported third quarter 2017 net sales of $12.2 bn, compared to $11.6bn in the third quarter of 2016. Net earnings from continuing operations in the third quarter of 2017 were $939m, or $3.24 per share, compared to $1.1 bn, or $3.61 per share, in the third quarter of 2016. Cash from operations in the third quarter of 2017 was $1.8bn, compared to $1.3bn in the third quarter of 2016.
“Our continued focus on operational performance and meeting our delivery commitments has enabled us to increase our financial guidance and post a record backlog that supports long term growth,” said Lockheed Martin Chairman, President and CEO Marillyn Hewson. “As we look ahead to 2018, we remain focused on delivering for our customers, investing in innovative solutions, and returning value to our shareholders.”
2018 Financial Trends
Effective Jan. 1, 2018, the corporation will adopt Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers, as amended (commonly referred to as ASC 606), which will change the way the corporation recognizes revenue for certain of its customer contracts. During the third quarter of 2017, the corporation completed a preliminary assessment of the impacts of adopting ASC 606 on its 2017 financial outlook. The corporation currently estimates that the adoption of ASC 606 will reduce net sales by about 2.0 percent and have a negligible impact to business segment operating profit and earnings per share as presented in the column titled “Current Update” in the preceding table. There is no impact to cash from operations as a result of adopting ASC 606. The corporation has provided this information to help investors understand the 2018 financial trend information in the following paragraphs. Additional information regarding the impacts of adopting ASC 606 will be included in the corporation’s Quarterly Report on Form 10-Q for the period ended Sept. 24, 2017.
The corporation expects its 2018 net sales to increase by approximately 2.0 percent as compared to the 2017 outlook adjusted for adoption of ASC 606. Total business segment operating margin in 2018 is expected to be in the 10.3 percent to 10.5 percent range and cash from operations is expected to be greater than or equal to $5.0bn. The preliminary outlook for 2018 assumes the U.S. Government continues to support and fund the corporation’s key programs beyond the continuing resolution for government fiscal year 2018. Changes in circumstances may require the corporation to revise its assumptions, which could materially change its current estimate of 2018 net sales, operating margin and cash flows.
The corporation expects the net 2018 FAS/CAS pension benefit to be approximately $860 m assuming a 3.875 percent discount rate (a 25 basis point decrease from the end of 2016), a 9.00 percent return on plan assets in 2017 (a 150 basis point increase from the expected rate of return at the end of 2016), and a 7.50 percent expected long-term rate of return on plan assets in future years, among other assumptions. A change of plus or minus 25 basis points to the assumed discount rate, with all other assumptions held constant, would result in an incremental increase or decrease of approximately $115 m to the estimated net 2018 FAS/CAS pension adjustment. A change of plus or minus 100 basis points to the return on plan assets in 2017 only, with all other assumptions held constant, would increase or decrease the net 2018 FAS/CAS pension adjustment by approximately $20 m. The corporation will finalize the postretirement benefit plan assumptions and determine the 2017 actual return on plan assets on Dec. 31, 2017. The final assumptions and actual investment return for 2017 may differ materially from those discussed above. The corporation expects to make contributions of $1.6 bn to its qualified defined benefit pension plans in 2018.
Cash Deployment Activities
The corporation’s cash deployment activities in the third quarter of 2017 consisted of the following:
- repurchasing 1.6 m shares for $500m, compared to 1.2 m shares for $278m in the third quarter of 2016;
- paying cash dividends of $522m, compared to $484m in the third quarter of 2016; and
- making capital expenditures of $222m, compared to $241m in the third quarter of 2016.
On Sept. 7, 2017, the corporation issued $1.6bn of senior unsecured notes (New Notes) with a fixed interest rate of 4.09 percent maturing in Sept. 2052 in exchange for outstanding notes totaling $1.4bn with interest rates ranging from 4.70 percent to 8.50 percent maturing in 2029 to 2046. In connection with the exchange, the corporation paid a premium of $237m, substantially all of which was in the form of additional principal of the New Notes. The premium will be amortized as additional interest expense over the term of the New Notes.
As previously reported on Sept. 28, 2017, subsequent to the end of the corporation’s third quarter, it increased its share repurchase program by $2.0bn and increased its quarterly dividend rate by 10 percent, or $0.18 per share, to $2.00 per share, beginning with the dividend payment in the fourth quarter of 2017.
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 Systems.
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.Net sales of the business segments exclude intersegment sales as these activities are eliminated in consolidation. Under the equity method of accounting for nonconsolidated ventures and investments, the corporation includes its share of the operating profit related to these ventures in operating profit of the corporation’s business segments as the operating activities of equity method investees are closely aligned with the operations of the corporation’s business segments. United Launch Alliance (ULA), the results of which are included in 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 significant divestitures; the effects of certain legal settlements; corporate costs not allocated to the corporation’s business segments; and other miscellaneous corporate activities.
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 certain assets. Segment operating profit and items such as risk retirements, reductions of profit booking rates or other matters are presented net of state income taxes.
The corporation’s consolidated net adjustments not related to volume, including net profit booking rate adjustments, represented approximately 26 percent of total segment operating profit in the third quarter of 2017, compared to approximately 28 percent in the third quarter of 2016.
Aeronautics’ net sales in the third quarter of 2017 increased $58m, or 14 percent, compared to the same period in 2016. The increase was primarily attributable to higher net sales of approximately $540 m for the F-35 program due to increased volume on production and sustainment.
Aeronautics’ operating profit in the third quarter of 2017 increased $80m, or 18 percent, compared to the same period in 2016. Operating profit increased approximately $65m for the F-35 program due to increased volume on aircraft production and sustainment activities and higher risk retirements and about $55 m for the F-16 program due to higher risk retirements. These increases were partially offset by a decrease of approximately $25m for the C-5 program due to lower risk retirements and decreased deliveries (one aircraft delivered in 2017 compared to two in 2016). Adjustments not related to volume, including net profit booking rate adjustments, were about $45m higher in the third quarter of 2017 compared to the same period in 2016.
Missiles and Fire Control
MFC’s operating profit in the third quarter of 2017 decreased $19m, or 7 percent, compared to the same period in 2016. Operating profit decreased approximately $30m for tactical missile programs (primarily Precision Fires, Joint Air-to-Ground Missile (JAGM), and Hellfire) due to lower risk retirements and the establishment of a reserve on a program. Adjustments not related to volume, including net profit booking rate adjustments, were about $70 m lower in the third quarter of 2017 compared to the same period in 2016.MFC’s net sales in the third quarter of 2017 increased $56m, or 3 percent, compared to the same period in 2016. The increase was primarily attributable to higher net sales of approximately $45m for tactical missile programs (Joint Air-to-Surface Standoff Missile (JASSM)) due to product configuration mix.
Rotary and Mission Systems
RMS’ operating profit in the third quarter of 2017 was comparable with the same period in 2016. Operating profit decreased approximately $40m for cyber, ship and advanced technologies (CSAT) programs due to a performance matter on the Vertical Launching System (VLS) program; and about $20m for Sikorsky helicopter programs due to aircraft mix, partially offset by certain adjustments recorded in 2016 required to account for the acquisition. These decreases were offset by an increase of approximately $35m for training and logistics services programs due to higher volume and higher risk retirements. Adjustments not related to volume, including net profit booking rate adjustments, were about $10m higher in the third quarter of 2017 compared to the same period in 2016.RMS’ net sales in the third quarter of 2017 were comparable with the same period in 2016. An increase of approximately $95m in higher sales for training and logistics services programs due to higher volume was mostly offset by a decrease of approximately $85m for Sikorsky helicopter programs primarily due to aircraft mix, partially offset by certain adjustments recorded in 2016 required to account for the November 5, 2015 acquisition.
Space Systems’ operating profit in the third quarter of 2017 decreased $232m, or 52 percent, compared to the same period in 2016. Operating profit decreased approximately $127 m due to the pre-tax gain recorded in the third quarter of 2016 related to the consolidation of AWE, which did not recur in 2017; about $70m for government satellite programs (primarily SBIRS and AEHF) due to lower risk retirements, a charge for performance matters and lower volume; and about $20m for lower equity earnings from ULA. Adjustments not related to volume, including net profit booking rate adjustments, were about $60 m lower in the third quarter of 2017 compared to the same period in 2016.Space Systems’ net sales in the third quarter of 2017 decreased $28m, or 1 percent, compared to the same period in 2016. The decrease was primarily attributable to approximately $160m for government satellite programs (primarily Space Based Infrared Systems (SBIRS) and Advanced Extremely High Frequency (AEHF)) and about $60m across other programs (including the Orion program) with these decreases due to lower volume. These decreases were partially offset by an increase of approximately $190m due to net sales from AWE, which we began consolidating during the third quarter of 2016.
Total equity earnings recognized by Space Systems (primarily ULA) represented approximately $45m, or 21 percent, of this business segment’s operating profit in the third quarter of 2017, compared to approximately $70 m, or 16 percent, in the third quarter of 2016.
The corporation’s effective income tax rate was 25.4 percent in the third quarter of 2017, compared to 23.7 percent in the third quarter of 2016. The rates for both periods benefited from tax deductions for U.S. manufacturing activities, dividends paid to the corporation’s defined contribution plans with an employee stock ownership plan feature, tax deductions for employee equity awards, and the research and development tax credit. The rate in the quarter ended Sept. 25, 2016 also benefited from the nontaxable gain recorded in connection with the increase in AWE ownership.
Divestiture and Acquisition
On Aug. 16, 2016, the corporation divested its former IS&GS business, which merged with Leidos Holdings, Inc. (Leidos) in a Reverse Morris Trust transaction (the Transaction). As part of the transaction, the corporation also completed an exchange offer that resulted in a reduction of Lockheed Martin common stock outstanding by approximately 9.4 m shares (approximately three percent). Additionally, Lockheed Martin received a one-time special cash payment of $1.8bn, which is reported under financing activities in the consolidated statements of cash flows. The corporation recognized a $1.2bn gain in net earnings from discontinued operations as a result of the Transaction, which represents the $2.5bn fair value of the shares of Lockheed Martin common stock tendered and retired as part of the exchange offer, plus the $1.8bn one-time special cash payment, less the $3.0bn net book value of the IS&GS business segment at Aug. 16, 2016 and other adjustments of $100 m. The final gain remains subject to certain post-closing adjustments.
On Aug. 24, 2016, the corporation increased its ownership interest in the AWE joint venture from 33 percent to 51 percent at which time it began consolidating AWE. Consequently, the corporation’s operating results for the quarter ended Sept. 24, 2017 include 100 percent of AWE’s sales and 51 percent of its operating profit. Prior to increasing its ownership interest, the corporation accounted for its investment in AWE using the equity method of accounting. Under the equity method, the corporation recognized only 33 percent of AWE’s earnings or losses and no sales. Accordingly, prior to Aug. 24, 2016, the date the corporation obtained control, it recorded 33 percent of AWE’s net earnings in the corporation’s operating results and subsequent to Aug. 24, 2016, it recognized 100 percent of AWE’s sales and 51 percent of its operating profit. Additionally, in the quarter ended Sept. 25, 2016, the corporation recorded a net gain of $104 m associated with obtaining control of AWE, which consisted of a $127 m pre tax gain recognized in the operating results of our Space Systems business segment and $23 m of deferred tax liabilities recorded at our corporate office.
25 Oct 17. Northrop’s revenue beats, raises 2017 profit forecast again. U.S. defense contractor Northrop Grumman Corp (NOC.N) beat Wall Street estimates for revenue in the third quarter and raised its 2017 profit forecast for the third time as aircraft sales rose. Shares of the company rose 2.1 percent at $300.11 in premarket trading on Wednesday. The weapons maker raised its full-year profit forecast range to $12.90-$13.10 per share from $12.10-$12.40 per share and said it expected revenue of about $25.50bn, up from low-$25bn range it estimated earlier.
Sales at Northrop’s aerospace unit, which makes manned aircraft, jumped 10.8 percent to $3.08bn in the third quarter ended Sept. 30. The unit, which contributed the biggest share to Northrop’s total revenue in the third quarter, is likely to further benefit from an increased demand for F-35 fighter jets, whose center parts are made by the company. Larger rival Lockheed Martin Corp (LMT.N), the prime contractor for the F-35 program, said on Tuesday it expected sales of the jets to increase 13-15 percent in 2018, after rising 16 percent this year.
Sales at Northrop’s second-biggest business, mission systems, increased 5.2 percent to $2.84bn. The unit makes control radars for F-35s, combat avionics and a variety of defense electronics. Northrop, like its peers in the United States, is benefiting from higher demand for weapons, fighter jets and tanks amid heightened security concerns around the world.
The maker of Global Hawk surveillance planes also flagged a $90m rise in expenses, which included $27m transaction costs related to the acquisition of aerospace company Orbital ATK Inc (OA.N). Last month, Northrop Grumman said it would buy Orbital ATK for about $7.8bn in a deal that gives it greater access to lucrative government contracts and expands its arsenal of missile defense systems and space rockets. Northrop’s net income rose to $645m, or $3.68 per share, from $602m, or $3.35 per share, a year earlier. Revenue rose 6 percent to $6.53bn. Up to Monday’s close, the company’s shares had risen about 26 percent this year.
25 Oct 17. Northrop Grumman Reports Third Quarter 2017 Financial Results
Northrop Grumman Corporation (NYSE: NOC) reported third quarter 2017 sales increased 6 percent to $6.5bn from $6.2bn in the third quarter of 2016. Third quarter 2017 net earnings increased 7 percent to $645 m from $602m in the prior year period. Third quarter 2017 diluted earnings per share increased 10 percent to $3.68 from $3.35 in the third quarter of 2016. Third quarter 2017 diluted earnings per share are based on 175.3m weighted average diluted shares outstanding compared with 179.6 m in the prior year period, a 2 percent decrease.
“All three of our businesses continue to execute well. Our third quarter operational performance in combination with strategic actions, such as the agreement to acquire Orbital ATK, continues to support our strategy to drive profitable growth over the long term,” said Wes Bush, chairman, chief executive officer and president.
Third quarter 2017 sales increased 6 percent, primarily due to an 11 percent increase at Aerospace Systems. Third quarter operating income increased 2 percent primarily due to higher net FAS/CAS pension adjustment and segment operating income, partially offset by increased unallocated corporate expenses. The $90m increase in unallocated corporate expenses relative to the third quarter of 2016 includes $27m for transaction costs related to the pending acquisition of Orbital ATK, which is currently expected to close in the first half of 2018. The prior year period included a $30 m benefit recognized for state tax refunds claimed on our prior year tax returns and a $25m benefit recognized for estimated prior year overhead claim recoveries. Operating margin rate decreased 50 basis points to 12.9 percent, principally due to higher unallocated corporate expenses.
The company’s third quarter effective tax rate decreased to 17.8 percent from 21.7 percent. The lower effective tax rate in the quarter reflects a $45m increase in research credits related to the current period and the filing of the company’s 2016 tax return, and a $35m benefit recognized for additional manufacturing deductions related to prior years. Last year’s third quarter included a $42 m benefit recognized in connection with the resolution of the Internal Revenue Service (IRS) examination of the company’s 2007-2011 tax returns.
Third quarter 2017 cash provided by operating activities totaled $938 m compared to $738m provided in the third quarter of 2016. Third quarter 2017 free cash flow was $721m after capital expenditures of $217m. Year to date through September 30, 2017, cash provided by operating activities totaled $1bn and free cash flow was $356 m. Year-to-date investing and financing activities include the following: Investing • $650m for capital expenditures Financing • $515m for dividends • $393m for repurchase of common stock.
Segment Operating Results
Third Quarter Nine Months Third quarter 2017 sales increased 6 percent, principally due to an 11 percent sales increase at Aerospace Systems and a 5 percent sales increase at Mission Systems. Higher operating income at all three sectors contributed to a $28m increase in segment operating income. Aerospace Systems operating income included a $56m favorable contract adjustment largely related to performance incentives on a restricted program. Third quarter 2017 segment operating margin rate was 11.6 percent.
Aerospace Systems third quarter 2017 sales increased 11 percent primarily due to higher volume on Manned Aircraft and Space programs. The Manned Aircraft sales increase is primarily due to higher restricted volume, as well as higher F/A-18 unit volume than in the prior year period. The Space sales increase includes higher restricted volume, which was partially offset by lower volume on the James Webb Space Telescope program. Autonomous Systems sales were also higher than in the prior year period. Aerospace Systems third quarter 2017 operating income increased 7 percent, including the favorable contract adjustment described above. Operating margin rate decreased to 10.8 percent, principally due to changes in contract mix on Manned Aircraft programs.
Mission Systems third quarter 2017 sales increased 5 percent primarily due to higher volume for Sensors and Processing and Advanced Capabilities programs, partially offset by lower Cyber and ISR volume. Sensors and Processing sales increased principally due to higher volume on electro-optical/ infrared self-protection and targeting programs, F-35 sensors and the scalable agile beam radar (SABR) program. Advanced Capabilities sales increased primarily due to higher volume on air and missile defense programs. Cyber and ISR sales decreased primarily due to lower volume on ISR programs. Mission Systems third quarter 2017 operating income increased 3 percent primarily due to higher sales. Operating margin rate decreased to 12.8 percent due to lower margin rates on Cyber and ISR and Sensors and Processing programs, partially offset by improved margin rates on Advanced Capabilities programs.
Technology Services third quarter 2017 sales decreased 1 percent primarily due to lower volume for System Modernization and Services, partially offset by higher intercompany volume on restricted programs in Global Logistics and Modernization. Technology Services third quarter 2017 operating income increased 2 percent and operating margin rate increased to 11.2 percent, primarily due to improved performance.
– Bookings of $7.0 bn; backlog of $36.7 bn
– Net sales of $6.3 bn, up 4.5 percent
– EPS from continuing operations of $1.97
– Operating cash flow from continuing operations of $382 m
– Updated full-year 2017 guidance
Raytheon Company (NYSE: RTN) today announced net sales for the third quarter 2017 of $6.3bn, up 4.5 percent compared to $6.0bn in the third quarter 2016. Third quarter 2017 EPS from continuing operations was $1.97 compared to $1.84 in the third quarter 2016. The increase in the third quarter 2017 EPS from continuing operations was primarily driven by operational improvements.
“We delivered strong bookings and solid operating performance in the third quarter,” said Thomas A. Kennedy, Raytheon Chairman and CEO. “Global customer demand drove an increase in our backlog, which positions us well for continued growth in 2018.”
Operating cash flow from continuing operations for the third quarter 2017 was $382m compared to $640m for the third quarter 2016. As expected, the change in operating cash flow from continuing operations was primarily due to higher required pension contributions in the third quarter 2017, partially offset by the timing of collections.
In the third quarter 2017, the company repurchased 1.1 m shares of common stock for $200 m. Year-to-date 2017, the company repurchased 4.4 m shares of common stock for $700 m.
Bookings in the third quarter 2017 were $7.0 bn, slightly higher than the third quarter 2016. Backlog at the end of the third quarter 2017 was $36.7 bn, an increase of approximately $950 m compared to the third quarter 2016.
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
Integrated Defense Systems (IDS) had third quarter 2017 net sales of $1,391m, up 4 percent compared to $1,334m in the third quarter 2016. The increase in net sales for the quarter was primarily driven by higher net sales on an international early warning radar program awarded in the first quarter 2017.
IDS recorded $231m of operating income in the third quarter 2017 compared to $211m in the third quarter 2016. The increase in operating income for the quarter was primarily driven by higher net program efficiencies and higher volume.
|Intelligence, Information and Services
Intelligence, Information and Services (IIS) had third quarter 2017 net sales of $1,543m compared to $1,534m in the third quarter 2016.
IIS recorded $112m of operating income in the third quarter 2017 compared to $123m in the third quarter 2016. The change in operating margin was primarily due to a change in program mix and other performance.
During the quarter, IIS booked $469 m on domestic and foreign training programs in support of Warfighter FOCUS activities and $104 m to provide intelligence, surveillance and reconnaissance (ISR) support to the U.S. Air Force. IIS also booked $686 m on a number of classified contracts.
Missile Systems (MS) had third quarter 2017 net sales of $1,945m, up 10 percent compared to $1,770 m in the third quarter 2016. The increase in net sales for the quarter was primarily driven by higher net sales on the Paveway™ and Excalibur® programs.
MS recorded $280m of operating income in the third quarter 2017 compared to $235m in the third quarter 2016. The increase in operating income for the quarter was primarily driven by higher net program efficiencies and higher volume.
During the quarter, MS booked $492 m for the Redesigned Kill Vehicle (RKV) program; $348 m for Tube-launched, Optically-tracked, Wireless-guided (TOW®) missiles; $206 m for Paveway; $145 m for Tomahawk; $136 m for Excalibur; $102 m for Standard Missile-3 (SM-3®); $91 m for Javelin; and $79 m for Horizontal Technology Integration (HTI) forward-looking infrared kits. MS also booked $427 m on a number of classified contracts.
|Space and Airborne Systems
Space and Airborne Systems (SAS) had third quarter 2017 net sales of $1,597m compared to $1,590m in the third quarter 2016.
SAS recorded $212m of operating income in the third quarter 2017 compared to $215m in the third quarter 2016.
During the quarter, SAS booked approximately $200 m on classified and unclassified space programs and $84 m for radar components for the U.S. Navy and the Royal Australian Air Force. SAS also booked $435 m on a number of other classified contracts.
Forcepoint had third quarter 2017 net sales of $170m compared to $167m in the third quarter 2016.
Forcepoint recorded $23m of operating income in the third quarter 2017 compared to $41 m in the third quarter 2016. The decrease in operating income for the quarter was primarily driven by investments in sales and marketing.
24 Oct 17. United Technologies progresses on engine fixes, raises forecasts. United Technologies Corp (UTX.N) raised its full-year forecasts for the second time this year on Tuesday and said it was making progress in resolving issues with engines at its Pratt & Whitney business, allaying concerns of key aircraft customers. Quarterly sales and profit beat Street estimates despite problems with its new fuel-saving geared turbofan (GTF) engines, which caused its customers to delay deliveries of planes. United Technologies was forced to take a $196m charge in the quarter after it held back some shipments of GTF engines and offered spares to airlines, which had been facing problems with engines already in service.
Shares of United Technologies initially rose nearly 2 percent, before retreating to stand just under 1 percent. Airbus, the biggest customer of GTF engines, rose 2.4 percent to a record.
“It was unfortunate we couldn’t meet our commitments to Airbus (AIR.PA) and Bombardier (BBDb.TO), but they understood the need to keep the customers flying,” Chief Executive Greg Hayes said on a conference call.
Easing a months-long standoff over delays in supplying engines, Hayes said the company also planned to make some design changes to improve engine durability. Reuters reported on Monday that Airbus had seen evidence of progress on technical problems at Pratt & Whitney and was more confident in the pace of shipments despite losing some engines to the spares pool: a shift confirmed by United Technologies on Tuesday. United Technologies is spending more money to speed up production of its GTF engines that power Airbus’ newest narrow-body jet, the A320neo, and Bombardier’s CSeries aircraft. The company said it shipped 254 GTF engines year-to-date, and remained on track to build 350-400 GTF engines in 2017. United Technologies had delivered 138 of these engines in 2016.
Hayes also defended United Technologies’ $23bn proposal to buy Rockwell Collins (COL.N) to forge a giant new aerospace supplier after criticism from Boeing (BA.N), saying the U.S. planemaker had benefited from United Technologies’ earlier purchase of aero parts maker Goodrich.
United Technologies raised its 2017 adjusted earnings per share forecast to $6.58-$6.63 from $6.45-$6.60. The company also increased the lower end of its sales forecast range to $59.0bn from $58.5bn, but kept the top end at $59.5bn. Adjusted earnings per share fell to $1.73 in the third quarter ended Sept. 30, from $1.76, but beat analysts’ expectations of $1.69, according to Thomson Reuters I/B/E/S.
Net sales jumped about 5 percent to $15.06 bn, topping the Street estimate of $14.98 bn. (Source: Reuters)
UTC Reports Third Quarter 2017 Results, Raises 2017 Outlook
- Sales of $15.1bn, up 5 percent versus prior year including 6 percent organic sales growth
- Adjusted sales of $15.4bn, up 6 percent versus prior year
- GAAP EPS of $1.67, down 4 percent versus prior year
- Adjusted EPS of $1.73, down 2 percent versus prior year
- Increases 2017 full year adjusted EPS and low end of sales outlook
24 Oct 17. United Technologies Corp. (NYSE: UTX) today reported third quarter 2017 results. All results in this release reflect continuing operations unless otherwise noted.
“United Technologies’ sustained investments in innovation have resulted in our best quarter of organic growth since 2011,” said UTC Chairman and Chief Executive Officer Greg Hayes. “Our strong quarterly and year-to-date results reflect our continued focus on executing on our strategic priorities. Against this backdrop and with clear line of sight into the fourth quarter, we are raising our full-year outlook, and now expect adjusted EPS of $6.58 to $6.63.*”
“We also remain confident in our path forward. This quarter, we announced the proposed acquisition of Rockwell Collins, which will be transformational for UTC,” Hayes continued. “Together, our combined businesses will be well-positioned to deliver significant value to our customers and shareowners by enhancing our ability to meet the growing demand for more innovative, integrated and digital solutions.”
Third quarter reported sales of $15.1bn were up 5 percent, including 6 points of organic growth and 1 point of favorable foreign exchange, offset by 2 points of non-recurring items. GAAP EPS of $1.67 was down $0.07 (4 percent) versus the prior year and included $0.06 of restructuring and non-recurring items. Adjusted EPS of $1.73 was down 2 percent.
Net income for the quarter was $1.3bn, down 8 percent versus the prior year. Cash flow from operations was a use of cash of $29m and capital expenditures were $443m. Free cash flow was an outflow of $472m driven by a $1.9bn discretionary contribution to the domestic defined benefit pension plan. Year-to-date free cash flow is $1.9bn.
In the quarter, new equipment orders at Otis were down 4 percent at constant currency versus the prior year. Equipment orders at UTC Climate, Controls & Security increased by 2 percent organically. Commercial aftermarket sales were up 11 percent at both Pratt & Whitney and UTC Aerospace Systems.
UTC updates its 2017 outlook and now anticipates:
- Adjusted EPS of $6.58 to $6.63, up from $6.45 to $6.60*;
- Sales of $59.0 to $59.5bn, up from $58.5 to $59.5bn*;
- No further significant share repurchases or acquisitions;
- There is no change in the Company’s previously provided 2017 expectations for organic sales growth of 3 to 4 percent* or free cash flow of $3.0 to $3.5bn.*
*Note: When we provide expectations for adjusted EPS, organic sales and free cash flow on a forward-looking basis, a reconciliation of the differences between the non-GAAP expectations and the corresponding GAAP measures generally is not available without unreasonable effort.