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US Majors Report Results In Line With Expectations

US Majors Report Results In Line With Expectations

25 Jul 18. The reporting season in the US kicked off with few surprises form the majors, although Boring took a big $426m hit on the KC-46 tanker program and Northrop incurred higher charges from the Orbital ATK acquisition, whilst Lockheed took a £64m hit on the UK Warrior WCSP Programme.

Boeing,  General Dynamics, Lockheed Martin, Northrop Grumman, Raytheon

Boeing

 

 

25 Jul 18. Boeing Reports Strong Second-Quarter; Generated Robust Cash; Raises Revenue Guidance. Boeing raises profit guidance after strong Q2. The company upgraded earnings expectations for the year. Boeing raised its full-year profit guidance on Wednesday as it announced strong second-quarter earnings. It now expects to make $97bn-$99bn this year, up $1bn on previous guidance. The Chicago-based company reported core earnings per share for the quarter ended June 30 of $3.73, well above the market consensus figure of $3.25 and ahead of the prior year figure of $2.87. The company secured $29bn in new orders in the quarter, said chief executive Dennis Muilenburg. Boeing also beat market expectations with revenues of $24.3bn, above the market forecast of $24bn and last year’s figure of $23.1bn. This reflected 194 commercial aircraft deliveries and higher defence and services volumes. For the first half of the year, revenue was up 6 per cent to $47.6bn and earnings per share was up 46 per cent to $7.88. Net earnings climbed to $4.67bn, from $3.33bn in the same period in 2017. Commercial aeroplanes revenue was flat at $14.5bn, though up 3 per cent in the half. Revenue for defence, space and security grew 9 per cent to $5.6bn, but earnings in that division fell 15 per cent, “primarily reflecting KC-46 Tanker cost growth of $111m”. Boeing also booked 239 net orders for commercial aeroplanes during the quarter. Mr Muilenburg said: “Continued services growth, increasing defence volume and strong performance of our commercial business, as well as our positive market outlook, give us the confidence to raise our revenue and commercial aeroplanes margin guidance for the year.” (Source: FT.com)

  • Revenue increased to $24.3bn reflecting 194 commercial deliveries and higher defense and services volume
  • GAAP EPS of $3.73 and core EPS (non-GAAP)* of $3.33 on solid execution across the company
  • Strong operating cash flow of $4.7bn; repurchased 8.6 m shares for $3.0 bn
  • Backlog grew to $488 bn, including nearly 5,900 commercial airplanes
  • Cash and marketable securities of $9.8 bn provide strong liquidity
  • Raised revenue and updated segment margin guidance
Table 1. Summary Financial Results Second Quarter First Half
(Dollars in Ms, except per share data) 2018 2017 Change 2018 2017 Change
Revenues $24,258 $23,051 5% $47,640 $45,012 6%
GAAP
Earnings From Operations $2,710 $2,530 7% $5,585 $4,736 18%
Operating Margin 11.2% 11.0% 0.2 Pts 11.7% 10.5% 1.2 Pts
Net Earnings $2,196 $1,749 26% $4,673 $3,328 40%
Earnings Per Share $3.73 $2.87 30% $7.88 $5.41 46%
Operating Cash Flow $4,680 $4,949 (5)% $7,816 $7,047 11%
Non-GAAP*
Core Operating Earnings $2,393 $2,173 10% $4,903 $4,033 22%
Core Operating Margin 9.9% 9.4% 0.5 Pts 10.3% 9.0% 1.3 Pts
Core Earnings Per Share $3.33 $2.49 34% $6.97 $4.67 49%
* Non-GAAP measures. Complete definitions of Boeing’s non-GAAP measures are on page 7, “Non-GAAP Measures Disclosures.”     

The Boeing Company [NYSE: BA] reported second-quarter revenue of $24.3 bn reflecting higher commercial deliveries and mix, defense volume and services growth (Table 1). GAAP earnings per share increased to $3.73 and core earnings per share (non-GAAP)* increased to $3.33 reflecting solid execution across the company. Results also reflect a charge related to the previously announced Spirit litigation outcome ($0.21 per share). Boeing delivered strong operating cash flow of $4.7bn, repurchased $3.0bn of shares, and paid $1.0 bn of dividends.

The company’s revenue guidance increased $1 bn to between $97.0 and $99.0bn, driven by defense volume and services growth. Commercial Airplanes margin guidance is increased to greater than 11.5% on strong performance and Defense, Space & Security margin guidance was adjusted to reflect the impact of cost growth on the KC-46 Tanker program.

“We are seeing the results of our One Boeing approach as our teams work together across the Boeing enterprise to deliver value to our customers and grow our business.  In the quarter, we generated improved revenue and earnings, delivered strong cash and captured $27bn in new orders,” said Boeing Chairman, President and Chief Executive Officer Dennis Muilenburg. “We celebrated the first anniversary of the launch of Boeing Global Services and the one-year revenue service anniversary of the 737 MAX. We booked 239 net commercial airplane orders in the quarter, which included 59 787s – further demonstrating the value this airplane family brings to our customers. Solid progress continued on the 777X program with the first two test aircraft currently being built in the factory. We finalized the production contract for 28 F/A-18 Super Hornets for Kuwait, completed production of the 100th P-8 Poseidon, and conducted two successful tests for the U.S. Air Force’s Minuteman III. Our services business delivered the first 737 Boeing Converted Freighter and secured performance based logistics contracts to support rotorcraft in the Netherlands. Additionally, customers continued to recognize the value of our digital solutions with Etihad Airways signing a contract to implement our crew management solutions. Continued services growth, increasing defense volume and strong performance of our commercial business, as well as our positive market outlook, give us the confidence to raise our revenue and Commercial Airplanes margin guidance for the year. We remain focused on execution, driving innovation, continuing to develop and maintain the best team and talent in the industry, and increasing value for our customers, shareholders, employees and other stakeholders.”

Table 2. Cash Flow Second Quarter First Half
(Ms) 2018 2017 2018 2017
Operating Cash Flow $4,680 $4,949 $7,816 $7,047
Less Additions to Property, Plant & Equipment ($376) ($439) ($770) ($905)
Free Cash Flow* $4,304 $4,510 $7,046 $6,142
* Non-GAAP measures. Complete definitions of Boeing’s non-GAAP measures are on page 7, “Non-GAAP Measures Disclosures.”

Operating cash flow in the quarter of $4.7bn reflects planned higher commercial airplane production rates, strong operating performance, and timing of receipts and expenditures (Table 2). During the quarter, the company repurchased 8.6m shares for $3.0bn, leaving $12.0bn remaining under the current repurchase authorization which is expected to be completed over approximately the next 18 to 24 months. The company also paid $1.0bn in dividends in the quarter, reflecting a 20 percent increase in dividends per share compared to the same period of the prior year.

Table 3. Cash, Marketable Securities and Debt Balances Quarter-End
(Bns) Q2 18 Q1 18
Cash $8.1 $9.2
Marketable Securities1 $1.7 $0.7
Total $9.8 $9.9
Debt Balances:
The Boeing Company, net of intercompany loans to BCC $9.6 $10.0
Boeing Capital, including intercompany loans $2.5 $2.5
Total Consolidated Debt $12.1 $12.5
1 Marketable securities consists primarily of time deposits due within one year classified as “short-term investments.”

Cash and investments in marketable securities totaled $9.8bn, compared to $9.9bn at the beginning of the quarter (Table 3). Debt was $12.1bn, down from $12.5bn at the beginning of the quarter due to repayment of debt.

Total company backlog at quarter-end was $488bn, up from $486bn at the beginning of the quarter, and included net orders for the quarter of $27bn.

Segment Results

Commercial Airplanes

Table 4. Commercial Airplanes Second Quarter First Half
(Dollars in Ms) 2018 2017 Change 2018 2017 Change
Commercial Airplanes Deliveries 194 183 6% 378 352 7%
Revenues $14,481 $14,280 1% $28,133 $27,233 3%
Earnings from Operations $1,644 $1,282 28% $3,152 $2,152 46%
Operating Margin 11.4% 9.0% 2.4 Pts 11.2% 7.9% 3.3 Pts

Commercial Airplanes second-quarter revenue was $14.5bn reflecting higher deliveries and mix (Table 4). Second-quarter operating margin increased to 11.4 percent, reflecting strong operating performance on production programs, including a higher 787 margin, partially offset by a charge of $307 m related to cost growth on the KC-46 Tanker program. This cost growth was primarily due to higher estimated costs of incorporating changes into six flight test and two early build aircraft as well as additional costs as we progress through late stage testing and the certification process. We continue to make steady progress towards final certification for KC-46 Tanker and recently completed all flight tests required to deliver the first aircraft, which is expected to be in October this year as now agreed upon with the U.S. Air Force.

During the quarter, Commercial Airplanes delivered 194 airplanes, including delivery of the first 737 MAX airplanes to Jet Airways, Ethiopian Airlines, and Xiamen Airlines. The 737 MAX program celebrated the one year anniversary of entering revenue flight service and continues to be well received in the market with over 4,600 orders since its launch. The 777X program remains on track for delivery in 2020 as the first two test airplanes moved into the low-rate initial production line.

Commercial Airplanes booked 239 net orders during the quarter, including 91 widebodies. Backlog remains robust with nearly 5,900 airplanes valued at $416 bn.

Defense, Space & Security

Table 5. Defense, Space & Security Second Quarter First Half
(Dollars in Ms) 2018 2017 Change 2018 2017 Change
Revenues $5,593 $5,142 9% $11,355 $10,254 11%
Earnings from Operations $521 $614 (15)% $1,170 $1,163 1%
Operating Margin 9.3% 11.9% (2.6) Pts 10.3% 11.3% (1.0) Pts

Defense, Space & Security second-quarter revenue increased to $5.6bn driven by F/A-18 and weapons volume (Table 5). Second-quarter operating margin was 9.3 percent, primarily reflecting KC-46 Tanker cost growth of $111m, partially offset by solid execution and favorable mix.

During the quarter, Defense, Space & Security finalized a production contract for 28 F/A-18 Super Hornets for Kuwait, received contracts for 18 additional F/A-18 Super Hornets and 3 P-8 Poseidon aircraft for the U.S Navy, and was awarded a multi-year contract for 58 V-22 Osprey aircraft. Significant milestones during the quarter included induction of the first F/A-18 aircraft into the Service Life Modification program, two successful tests for the U.S. Air Force’s Minuteman III, and the completion of the 100th P-8 Poseidon aircraft. On the commercial satellites side, we successfully completed O3b mPOWER preliminary design review with SES.

Backlog at Defense, Space & Security was $52bn, of which 35 percent represents orders from international customers.

Global Services

Table 6. Global Services Second Quarter First Half
(Dollars in Ms) 2018 2017 Change 2018 2017 Change
Revenues $4,090 $3,552 15% $8,033 $7,205 11%
Earnings from Operations $603 $569 6% $1,247 $1,192 5%
Operating Margin 14.7% 16.0% (1.3) Pts 15.5% 16.5% (1.0) Pts

Global Services second-quarter revenue increased to $4.1bn, reflecting growth across the portfolio (Table 6). Second-quarter operating margin was 14.7 percent reflecting product and services mix.

During the quarter, Global Services was awarded an F/A-18 depot maintenance contract for the U.S. Navy and Marine Corps and secured rotorcraft performance based logistics contracts for the Netherlands. Global Services also contracted to implement crew management solutions at Etihad Airways and captured a Global Fleet Care contract for Primera Air’s 737 fleet. Global Services also entered into an agreement to acquire KLX Aerospace which will broaden our range of offerings and increase customer value, and agreed to a strategic partnership with Safran for auxiliary power units as we strengthen Boeing’s vertical capabilities and expand our services portfolio.

General Dynamics

 

 

 

  • Revenue up 19.7% to $9.2 bn
  • Net earnings up 4.9% to $786 m
  • Diluted EPS up 6.9% to $2.62, including $0.20 charge for CSRA transaction costs
  • Robust demand drives Gulfstream to a book-to-bill greater than one-to-one

26 Jul 18. General Dynamics (NYSE: GD) today reported second-quarter 2018 net earnings of $786m, a 4.9 percent increase over second-quarter 2017. Revenue increased by 19.7 percent to $9.2 bn due to strong defense volumes and the acquisition of CSRA. On an organic basis, the defense businesses generated a 7.1 percent revenue increase.

Diluted earnings per share (EPS) was $2.62 compared to $2.45 in the year-ago quarter, a 6.9 percent increase. In the quarter, the company incurred one-time charges totaling $0.20 per share related to the acquisition of CSRA. Absent the charge, EPS would have been 15.1 percent higher than second-quarter 2017.

“General Dynamics delivered solid operating results and accomplished a number of key strategic objectives across the portfolio,” said Phebe N. Novakovic, chairman and chief executive officer. “We closed on the CSRA acquisition, building on our core GDIT business to create a leading government IT services provider, and integration of the business is well underway. Our Combat and Marine segments continue to have reliable growth with strong operating performance. And the FAA certified the G500 and we look forward to delivering this newest Gulfstream aircraft to our customers in fourth-quarter 2018.”

Margin

Company-wide operating margin for the second quarter of 2018 was 11.8 percent, including one-time transaction costs and incremental intangible asset amortization associated with the CSRA acquisition. This is compared to 13.9 percent in second-quarter 2017.

Cash

Net cash provided by operating activities in the quarter totaled $787m, compared to $477m from the year-ago quarter. Free cash flow from operations, defined as net cash provided by operating activities less capital expenditures, was $612 m.

Capital Deployment

The company repurchased 0.9 m of its outstanding shares for $179m in the second quarter. Year-to-date, the company has repurchased 2.1 m outstanding shares for $436m.

Backlog

General Dynamics’ total backlog at the end of second-quarter 2018 was $66.3 bn. The estimated potential contract value, representing management’s estimate of value in unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised options, was $32.7bn. Total potential contract value, the sum of all backlog components, was $99bn at the end of the quarter.

Gulfstream unit orders were 21 percent higher than the year-ago quarter, with large-cabin orders accounting for approximately 75 percent of the demand.

Total backlog for the defense businesses was up 7.7 percent from the end of first-quarter 2018, due to the CSRA acquisition and strong order activity across the segments. On an organic basis, Information Technology achieved a book-to-bill ratio greater than one-to-one, and the book-to-bill ratio in Mission Systems was one-to-one. Significant awards in the quarter include $615m from the Centers for Medicare & Medicaid Services for contact-center services, $440m from the U.S. Army to upgrade Abrams main battle tanks, $260m from the Army to upgrade Stryker vehicles, $225 m from the U.S. Navy for Block V Virginia-class submarines, $150 m from the Army for the production of Hydra-70 rockets and $125m from the Navy for Common Missile Compartment work.

Lockheed Martin

 

 



23 Jul 18. Lockheed Martin raises full-year guidance. Lockheed Martin upgraded its earnings outlook for 2018 after reporting a second-quarter profit that cruised past analysts’ expectations. Revenue at the Maryland-based aerospace and defence company rose 6.6 per cent from a year ago to $13.4bn in the three months ended June, comfortably surpassing the mean forecast of $12.7bn from analysts in a Thomson Reuters poll. Net earnings of $1.2bn, or $4.05 a share, were up by almost one-third from a year earlier and ahead of market estimates for $3.82 a share. Marillyn Hewson, chief executive, said the “strong” results in the second quarter allowed the company “to increase our financial guidance for sales, profit, earnings per share and cash from operations” for 2018. The company now expects to generate earnings of between $16.75 to $17.05 a diluted share, up from its April outlook of $15.80 to $16.10, on revenue of between $51.6bn to $53.1bn, up from $50.3bn to $51.85bn previously. Analysts had forecast earnings of $15.81 a share on $51.3bn in sales. For the June quarter, Lockheed’s missiles and fire control business saw the highest sales growth, of 16.9 per cent to $2.1bn, which was more than twice the pace of that seen in the company’s main aeronautics unit, which saw sales rise 8.1 per cent to $5.3bn. The space business was the only one to see sales shrink from a year ago. Operating profit was up by the most in the company’s rotary and mission systems division, which encompasses helicopters, undersea warfare and missile defence among other things, rising about 26 per cent to $341m. Its missiles and fire control and space units also saw double-digit rises in operating profit.   (Source: FT.com)

24 Jul 18. Lockheed Martin Reports Second Quarter 2018 Results.

– Net sales of $13.4bn

– Net earnings of $1.2bn, or $4.05 per share

– Achieved backlog of $105bn

– Increases 2018 financial outlook for all metrics

Lockheed Martin (NYSE: LMT) today reported second quarter 2018 net sales of $13.4bn, compared to $12.6 bn in the second quarter of 2017. Net earnings in the second quarter of 2018 was $1.2bn, or $4.05 per share, compared to $955m, or $3.28 per share, in the second quarter of 2017. Net earnings in the second quarter of 2018 include special charges for severance and restructuring activities of $96m, which reduced net earnings by $76m, or $0.26 per share. Cash used for operations in the second quarter of 2018 was $(72)m after pension contributions of $2.0bn, compared to cash from operations of $1.5bn in the second quarter of 2017, with no pension contributions.

“The corporation achieved strong results in the second quarter, allowing us to increase our financial guidance for sales, profit, earnings per share and cash from operations,” said Lockheed Martin Chairman, President and CEO Marillyn Hewson. “Our team remains dedicated to performing with excellence, providing affordable and innovative solutions for our customers, and generating outstanding value for our shareholders.”

Adoption of New Accounting Standards

As previously reported, effective Jan. 1, 2018, the corporation adopted Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, as amended (commonly referred to as ASC 606), which changed the way the corporation recognizes revenue for certain contracts. In addition, effective Jan. 1, 2018, the corporation adopted ASU 2017-07, Compensation-Retirement Benefits, which changed the income statement presentation of certain components of pension and other postretirement benefit plan expense. The financial results for all periods presented in this news release have been adjusted to reflect the new methods of accounting.

Summary Financial Results

The following table presents the corporation’s summary financial results.

(in ms, except per share data) Quarters Ended Six Months Ended
June 24,
2018
June 25,
2017
June 24,
2018
June 25,
2017
Net sales $ 13,398 $ 12,563 $ 25,033 $ 23,775
Business segment operating profit1 $ 1,466 $ 1,347 $ 2,776 $ 2,438
Unallocated items
   FAS/CAS operating adjustment 451 404 902 807
   Special item – severance and
restructuring charges2
(96) (96)
   Other, net (26) (35) (62) (127)
Total unallocated items 329 369 744 680
Consolidated operating profit $ 1,795 $ 1,716 $ 3,520 $ 3,118
Net earnings2 $ 1,163 $ 955 $ 2,320 $ 1,744
Diluted earnings per share2 $ 4.05 $ 3.28 $ 8.07 $ 5.97
Cash (used for) generated from
operations3
$ (72) $ 1,544 $ 560 $ 3,210
1 Business segment operating profit is a non-GAAP measure. See the Non-GAAP Financial Measures section of this news release for more information.
2 Unallocated items for the second quarter and the first six months of 2018 includes severance and restructuring charges totaling $96m ($76m,
or $0.26 per share, after tax) associated with planned workforce reductions and the consolidation of certain operations at the corporation’s Rotary and
Mission Systems (RMS) business segment.
3 Cash from operations in the second quarter and first six months of 2018 is after pension contributions of $2.0bn and $3.5bn, respectively.

 

2018 Financial Outlook

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

(in millions, except per share data) Current Update April Outlook
Net sales $51,600 – $53,100 $50,350 – $51,850
Business segment operating profit $5,575 – $5,725 $5,315 – $5,465
Net FAS/CAS pension adjustment1 ~$1,010 ~$1,010
Diluted earnings per share $16.75 – $17.05 $15.80 – $16.10
Cash from operations ≥ $3,300 ≥ $3,000
1 Consistent with the corporation’s historical presentation, the net FAS/CAS pension adjustment is presented as a single amount and includes expected 2018 U.S. Government cost accounting standards (CAS) pension cost of approximately $2.4bn and expected financial accounting standards (FAS) pension expense of approximately $1.4bn. CAS pension cost and the service cost component of FAS pension expense will be included in operating profit as part of cost of sales. The non-service cost component of FAS pension expense will be included in non-operating expense on the corporation’s consolidated statement of earnings. For additional detail on the corporation’s FAS/CAS pension adjustment see the supplemental table included on page 19 of this news release.

 

Cash Deployment Activities

The corporation’s cash deployment activities in the second quarter of 2018 consisted of the following:

  • making contributions to its pension trust of $2.0bn, compared to no contributions in the second quarter of 2017;
  • repurchasing 1.0 m shares for $310m, compared to 1.9 m shares for $500m in the second quarter of 2017;
  • paying cash dividends of $570m, compared to $525m in the second quarter of 2017; and
  • making capital expenditures of $264m, compared to $278 m in the second quarter of 2017.

Segment Results

The corporation operates in four business segments organized based on the nature of products and services offered: Aeronautics, Missiles and Fire Control (MFC), RMS and Space. The following table presents summary operating results of the corporation’s business segments and reconciles these amounts to the corporation’s consolidated financial results.

(in ms) Quarters Ended Six Months Ended
June 24,
2018
June 25,
2017
June 24,
2018
June 25,
2017
Net sales
Aeronautics $ 5,321 $ 4,922 $ 9,719 $ 9,042
Missiles and Fire Control 2,085 1,784 3,762 3,333
Rotary and Mission Systems 3,566 3,414 6,789 6,541
Space 2,426 2,443 4,763 4,859
Total net sales $ 13,398 $ 12,563 $ 25,033 $ 23,775
Operating profit
Aeronautics $ 572 $ 567 $ 1,046 $ 1,006
Missiles and Fire Control 279 253 540 487
Rotary and Mission Systems 341 271 652 399
Space 274 256 538 546
Total business segment operating profit 1,466 1,347 2,776 2,438
Unallocated items
   FAS/CAS operating adjustment 451 404 902 807
   Special item – severance and restructuring
charges
(96) (96)
   Other, net (26) (35) (62) (127)
Total unallocated items 329 369 744 680
Total consolidated operating profit $ 1,795 $ 1,716 $ 3,520 $ 3,118

 

Net sales of the business segments exclude intersegment sales as these activities are eliminated in consolidation. Operating profit of the business segments includes the corporation’s share of earnings or losses from equity method investees as the operating activities of the equity method investees are closely aligned with the operations of the corporation’s business segments. In addition, operating profit of the corporation’s business segments includes total pension costs recoverable on U.S. Government contracts as determined in accordance with CAS.

Operating profit of the business segments excludes the FAS/CAS operating adjustment, which represents the difference between the service cost component of pension expense recorded in accordance with FAS and CAS pension cost; the FAS non-service cost component for all postretirement benefit plans, which is recorded in other non-operating expense, net; 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. 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 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 a period of time using the percentage-of-completion cost-to-cost method to measure progress towards completion. Increases in the 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, cost recoveries on severance and 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.

The corporation’s consolidated net adjustments not related to volume, including net profit booking rate adjustments, represented approximately 32 percent of total segment operating profit in the second quarter of 2018, compared to approximately 38 percent in the second quarter of 2017.

Aeronautics

(in ms) Quarters Ended Six Months Ended
June 24,
2018
June 25,
2017
June 24,
2018
June 25,
2017
Net sales $ 5,321 $ 4,922 $ 9,719 $ 9,042
Operating profit $ 572 $ 567 $ 1,046 $ 1,006
Operating margin 10.7 % 11.5 % 10.8 % 11.1 %

 

Aeronautics’ net sales in the second quarter of 2018 increased $399m, or 8 percent, compared to the same period in 2017. The increase was primarily attributable to higher net sales of approximately $370m for the F-35 program due to increased production volume, partially offset by lower volume on development activities; and about $50m for the F-22 program due to increased sustainment volume. These increases were partially offset by a decrease of approximately $70 m for the C-5 program due to lower production volume as the current modernization program nears completion.

Aeronautics’ operating profit in the second quarter of 2018 increased $5m, or 1 percent, compared to the same period in 2017. Operating profit increased approximately $65m for the F-35 program primarily due to increased volume on higher margin production contracts and new development activities, and better performance on sustainment. This increase was partially offset by a decrease of approximately $40m for the C-5 program due to lower risk retirements and lower production volume; and about $20m for the C-130 program due to lower volume and timing on sustainment programs. Adjustments not related to volume, including net profit booking rate adjustments, were $50 m lower in the second quarter of 2018 compared to the same period in 2017.

Missiles and Fire Control

(in ms) Quarters Ended Six Months Ended
June 24,
2018
June 25,
2017
June 24,
2018
June 25,
2017
Net sales $ 2,085 $ 1,784 $ 3,762 $ 3,333
Operating profit $ 279 $ 253 $ 540 $ 487
Operating margin 13.4 % 14.2 % 14.4 % 14.6 %

 

MFC’s net sales in the second quarter of 2018 increased $301 m, or 17 percent, compared to the same period in 2017. The increase was primarily attributable to higher net sales of approximately $95m for increased volume on classified programs; about $80 m for air and missile defense programs due to increased volume (primarily Terminal High Altitude Area Defense (THAAD) and Patriot Advanced Capability-3 (PAC-3)); about $70m for sensors and global sustainment programs due to increased volume (primarily LANTIRN® and SNIPER®); and about $45m for tactical missiles programs due to increased volume (primarily Precision Fires).

MFC’s operating profit in the second quarter of 2018 increased $26m, or 10 percent, compared to the same period in 2017. Operating profit increased approximately $35m for sensors and global sustainment programs due to increased risk retirements and higher volume (primarily LANTIRN® and SNIPER®); and about $35m for air and missile defense programs due to increased risk retirements and higher volume (primarily THAAD and PAC-3). These increases were partially offset by a decrease of $50 m for tactical missile programs primarily due to a charge recorded in the second quarter of 2018 of approximately $65m for performance matters on the Warrior Capability Sustainment Program, which relates to designing, developing and installing an upgraded turret. Adjustments not related to volume, including net profit booking rate adjustments, were comparable in the second quarter of 2018 to the same period in 2017.

Rotary and Mission Systems

(in ms) Quarters Ended Six Months Ended
June 24,
2018
June 25,
2017
June 24,
2018
June 25,
2017
Net sales $ 3,566 $ 3,414 $ 6,789 $ 6,541
Operating profit $ 341 $ 271 $ 652 $ 399
Operating margin 9.6 % 7.9 % 9.6 % 6.1 %

 

RMS’ net sales in the second quarter of 2018 increased $152 m, or 4 percent, compared to the same period in 2017. The increase was primarily attributable to higher net sales of approximately $180m for integrated warfare systems and sensors (IWSS) programs due to higher volume (primarily radar surveillance systems programs and Aegis); and about $105 m for C6ISR (command, control, communications, computers, cyber, combat systems, intelligence, surveillance, and reconnaissance) programs due to higher volume on various programs. These increases were partially offset by a decrease in net sales of approximately $105m for Sikorsky helicopter programs. Sikorsky helicopter sales reflect lower volume for Black Hawk helicopters, partially offset by higher volume for CH-53K King Stallion helicopters.

RMS’ operating profit in the second quarter of 2018 increased $70m, or 26 percent, compared to the same period in 2017. Operating profit increased approximately $40m for IWSS programs due to increased risk retirements and higher volume (primarily radar surveillance systems programs and Aegis); and about $30m for C6ISR programs due to favorable cost performance and higher volume on various programs. Operating profit increased about $10m for Sikorsky helicopter programs due to favorable cost performance across the Sikorsky portfolio and better performance on the Multi-Year IX contract, which more than offset lower volume on the Multi-Year VIII contract. Adjustments not related to volume, including net profit booking rate adjustments, were about $20m lower in the second quarter of 2018 compared to the same period in 2017.

Space

(in ms) Quarters Ended Six Months Ended
June 24,
2018
June 25,
2017
June 24,
2018
June 25,
2017
Net sales $ 2,426 $ 2,443 $ 4,763 $ 4,859
Operating profit $ 274 $ 256 $ 538 $ 546
Operating margin 11.3 % 10.5 % 11.3 % 11.2 %

 

Space’s net sales in the second quarter of 2018 decreased $17m, or 1 percent, compared to the same period in 2017. The decrease was primarily attributable to lower net sales of approximately $60m for government satellite programs due to lower volume (primarily Advanced Extremely High Frequency systems (AEHF)); and about $20m for commercial satellite programs due to lower volume. These decreases were partially offset by an increase of approximately $65m for strategic and missile defense programs due to higher volume (primarily AWE Management Limited (AWE)).

Space’s operating profit in the second quarter of 2018 increased $18m, or 7 percent, compared to the same period in 2017. Operating profit increased approximately $25m for strategic and missile defense programs due to increased risk retirements (primarily Fleet Ballistic Missiles); and about $25m for commercial satellite programs, which reflect a lower amount of charges recorded for performance matters on certain programs. These increases were partially offset by a decrease of approximately $30m for government satellite programs due to lower risk retirements and lower volume (primarily AEHF). Adjustments not related to volume, including net profit booking rate adjustments, were about $15m higher in the second quarter of 2018, compared to the same period in 2017.

Total equity earnings recognized by Space (primarily ULA) represented approximately $50m, or 18 percent, of Space’s operating profit in the second quarter of 2018, compared to approximately $45m, or 18 percent, in the second quarter of 2017.

Income Taxes

The corporation’s effective income tax rate was 18.1 percent in the second quarter of 2018, compared to 28.8 percent in the second quarter of 2017. The lower rate for the second quarter of 2018 is primarily due to the reduction of the federal statutory rate from 35% to 21% as a result of the Tax Cuts and Jobs Act (the Tax Act) enacted in December 2017. The rates for both periods benefited from tax deductions for 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 for the second quarter of 2018 benefited from the Tax Act’s deduction for foreign derived intangible income. The rate for the second quarter of 2017 also benefited from tax deductions for U.S. manufacturing activities, which the Tax Act repealed for years after 2017.

Northrop Grumman

 

 

Northrop Grumman Reports First Quarter 2018 Financial Results

  • Q1 Sales Increase 5 Percent to $6.7bn
  • Q1 EPS Increase 14 Percent to $4.21
  • 2018 EPS Guidance Increased to $15.40 to $15.6525 Jul 18. Orbital deal costs weigh on US defence group. The $9.2bn acquisition of Orbital, a specialised aviation and space contractor, boosted sales at Northrop Grumman by around $400m in the three weeks after the deal closed, the US defence contractor said on Wednesday, but costs from the deal weighed on profits. Second-quarter sales across the combined group climbed by 10 per cent from the same time a year earlier, Northrop said, reaching $7.1bn in the three months to the end of June. That included sales of $400m for Orbital — now rebranded as “Innovation Systems” — for the period between June 7 and June 30. For the latest quarter, net earnings rose 24 per cent to $689m — $3.93 a share. While net profits included earnings from Innovation Systems since the deal closed, Northrop said they were “more than offset by a full quarter of net interest expense related to the acquisition and deal-related costs”. The acquisition, which was announced last September, formed part of a wave of consolidation in the aerospace sector as companies have sought scale. US defence stocks were significant beneficiaries in the wake of the election of Donald Trump as president, but Northrop’s shares have faltered since the start of 2018, up just 3 per cent year-to-date and down by nearly 5 per cent over the past three months, despite regular upgrades to its earnings guidance. On Wednesday Northrop also once again lifted its estimate for full-year diluted earnings per share, which are now expected to be in the range of $16.60 to $16.85, up from $16.20 to $16.45 at the time the Orbital deal closed in June. The company also said its effective tax rate would be “mid 16 per cent” rather than around 17 per cent, and free cash flow would be at the top half of its previously guided range. Operating income from its units also climbed, but by only 3 per cent. Higher sales were partially offset by slimmer margins in Northrop’s mission systems and technology services business, the company said, and lacked the benefit of a $54m claim related to costs incurred in earlier years that flattered the comparative. Including the effects of general corporate expenses — including £23m of one-off deal costs and the amortisation of $21m of acquired intangible assets — group operating income and margin fell to $832m and 11.6 per cent respectively, from $873m and 13.5 per cent a year earlier. “With this quarter’s addition of Innovation Systems to our portfolio, along with robust internal investment, we continue to strengthen our foundation for long-term profitable growth,” Northrop chairman and chief executive Wes Bush said. (Source: FT.com)

25 Jul 18. Northrop Grumman Corporation (NYSE: NOC) reported first quarter 2018 sales increased 5 percent to $6.7 bn from $6.4 bn in the first quarter of 2017. First quarter 2018 net earnings increased 14 percent to $739 m, or $4.21 per diluted share, compared with $650 m, or $3.69 per diluted share, in the prior year period.

“Our strong first quarter financial results reflect our continued focus on delivering long-term profitable growth for our shareholders, customers and employees. All three of our businesses generated solid results. Based on our first quarter results we are raising our guidance for earnings per share,” said Wes Bush, chairman and chief executive officer.

Table 1 — Consolidated Operating Results Highlights

($ in ms, except per share amounts) First Quarter
2018 2017
Sales $ 6,735 $ 6,410
Segment operating income1 762 741
Segment operating margin rate1 11.3% 11.6%
Net FAS (service)/CAS pension adjustment 127 154
Unallocated corporate expenses and other

Operating income

(35) (33)
854 862
Operating margin rate 12.7% 13.4%
Interest expense (143) (75)
Net FAS (non-service) pension benefit (expense) 120 (18)
Other, net

Earnings before income taxes

40 19
871 788
Federal and foreign income tax expense (132) (138)
Effective income tax rate

Net earnings

15.2% 17.5%
$ 739 $ 650
Diluted EPS 4.21 3.69
Weighted average shares outstanding — Basic 174.3 174.8
Dilutive effect of share-based awards

Weighted average shares outstanding — Diluted

1.1 1.3
175.4 176.1

1 Non-GAAP measure — see definitions at the end of this earnings release.

The company’s first quarter 2018 results reflect the adoption of Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers, and Accounting Standards Update (ASU) No.

2017-07, Compensation Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic

Pension Cost and Net Periodic Postretirement Benefit Cost, using the full retrospective method. Schedules 4 and 5 at the end of this release present comparable prior period consolidated and segment financial information recast to reflect the adoption of these standards.

First quarter 2018 sales increased 5 percent, due to higher sales in Aerospace Systems and Mission Systems, partially offset by lower sales at Technology Services. First quarter segment operating income increased 3 percent due to higher sales. Segment operating margin rate declined to 11.3 percent due to a lower margin rate at Aerospace Systems. First quarter operating income and margin rate declined to $854m and 12.7 percent, respectively, compared with $862m and 13.4 percent in the prior year period, primarily due to a $27m decrease in net FAS (service)/CAS pension adjustment, partially offset by a $21m increase in segment operating income.

First quarter interest expense increased $68 m. Other, net increased $21m due to a $31m increase in interest income. These changes reflect the company’s issuance in October 2017 of $8.25bn of debt to finance its pending acquisition of Orbital ATK.

The company’s first quarter effective tax rate declined to 15.2 percent from 17.5 percent in the prior year period. The lower tax rate reflects the benefit of the Tax Cuts and Jobs Act of 2017, which reduced the federal statutory tax rate to 21 percent from 35 percent. First quarter 2018 tax benefits for research credits were comparable to the prior year period, and excess tax benefits related to employee share-based compensation totaled $26m in the first quarter of 2018 compared with $47m in the first quarter of 2017. The first quarter of 2017 also benefited from several other discrete items.

Table 2 — Cash Flow Highlights

($ ms) First Quarter
2018           2017
Net cash used in operating activities $ (237) $ (439)
Less: capital expenditures

Free cash flow1

(305) (216)
$ (542) $ (655)

1 Non-GAAP measure — see definitions at the end of this earnings release.

First quarter 2018 cash used in operating activities totaled $237m compared with $439m used in the prior year period. After capital expenditures of $305m, first quarter 2018 free cash flow1 was a use of $542m.

Table 3 — Segment Operating Results

First Quarter

($ ms)                                                                                                             2018            2017

Change
Sales

Aerospace Systems                                                                                   $     3,280

$ 2,984 10%
Mission Systems                                                                                              2,883 2,800 3%
Technology Services                                                                                       1,144 1,190 (4%)
Intersegment eliminations                                                                                 (572) (564)
6,735 6,410 5%
Segment operating income1

Aerospace Systems                                                                                             341

323 6%
Mission Systems                                                                                                 371 359 3%
Technology Services                                                                                          122 129 (5%)
Intersegment eliminations                                                                                   (72) (70)
Segment operating income1, 2                                                                                                   762 741 3%
Segment operating margin rate1                                                                                                11.3% 11.6% (30) bps
  • Non-GAAP measure — see definitions at the end of this earnings release.
  • Refer to Table 1 for reconciliation to operating income.

Aerospace Systems

First Quarter

($ in ms)                                                                                                        2018            2017

Change
Sales                                                                                                          $     3,280    $     2,984 10%
Operating income                                                                                               341 323 6%
Operating margin rate                                                                                      10.4% 10.8%

Aerospace Systems first quarter 2018 sales increased 10 percent, principally due to higher Manned Aircraft sales. Higher volume for restricted activities and the F-35 and E-2D programs were the primary drivers of increased Manned Aircraft volume. Autonomous Systems and Space Systems sales were slightly higher than the prior year period. Autonomous Systems sales included higher volume on the Fire Scout and Triton programs, partially offset by lower Global Hawk volume. Space sales included higher restricted and Ground Based Strategic Deterrent volume, partially offset by lower intercompany, James Webb Space Telescope and Advanced Extremely High Frequency payload volume.

Aerospace Systems first quarter 2018 operating income increased 6 percent due to higher sales, and operating margin rate declined to 10.4 percent primarily due to a non-programmatic benefit recognized during the first quarter of 2017 and higher volume on early phase development programs in 2018.

Mission Systems

First Quarter

($ in ms)                                                                                                        2018            2017

Change
Sales                                                                                                          $     2,883    $     2,800 3%
Operating income                                                                                               371 359 3%
Operating margin rate                                                                                      12.9% 12.8%

Mission Systems first quarter 2018 sales increased 3 percent principally due to higher volume for

Sensors and Processing programs, partially offset by lower volume for Cyber and ISR programs. Higher Sensors and Processing sales are primarily due to higher volume on electro-optical/infrared self-protection and targeting programs, F-35 sensors, and restricted programs. Lower volume for Cyber and ISR reflects lower volume on restricted ISR activities. Advanced Capabilities sales were comparable to the prior year period.

Mission Systems first quarter 2018 operating income increased 3 percent, consistent with higher sales, and operating margin rate was comparable to the prior year period.

Technology Services

First Quarter

($ in ms)                                                                                                        2018            2017

Change
Sales                                                                                                          $     1,144    $     1,190 (4%)
Operating income                                                                                               122 129 (5%)
Operating margin rate                                                                                      10.7% 10.8%

Technology Services first quarter 2018 sales decreased 4 percent due to the completion in 2017 of several programs in System Modernization and Services and Advanced Defense Services. These declines were partially offset by higher volume on several Global Logistics and Modernization programs, including the Special Electronic Mission Aircraft program.

Technology Services first quarter 2018 operating income decreased 5 percent and operating margin rate was comparable to the prior year period.

2018 Guidance

2018 financial guidance reflects the company’s judgment based on the information available to the company at the time of this release. The government budget and appropriations processes can impact our customers, programs and financial results. Government budgets, appropriations, including the timing of appropriations, and the occurrence of continuing resolutions and government shutdowns can impact the company’s ability to achieve 2018 guidance.

While the company currently expects its previously announced acquisition of Orbital ATK will close in the first half of this year, 2018 guidance does not reflect the pending acquisition. Additionally, 2018 guidance reflects only six months of interest on the $8.25bn of debt issued in October 2017 to finance the acquisition. After the close of the acquisition, the company will update its financial guidance to reflect the acquisition.

 

2018 Guidance
($ in ms, except per share amounts)                                 As of 1/25/18               As of 4/25/18

Sales                                                                                      ~27,000                       ~27,000

Segment operating margin %1                                                     Low – mid 11%          Low – mid 11%

Total net FAS/CAS pension adjustment2                                           ~940                            ~960

Unallocated corporate expenses                                              ~250                            ~250

Operating margin %                                                                ~12%                          ~12%

Net interest expense3                                                                                     ~390                            ~390

Effective tax rate %                                                               ~19.5%                         ~18%

Diluted EPS                                                                   15.00     15.25        15.40     15.65

Capital expenditures ~1,000 ~1,000 Free cash flow1 2,000 2,300 2,000 2,300

1                      Non-GAAP measure – see definitions at the end of this earnings release.

2                      Total Net FAS/CAS pension adjustment is presented as a single amount consistent with our historical presentation, andincludes expected 2018 CAS pension cost of $875 m and FAS pension benefit of $85 m. In accordance with ASU No. 2017-07, $400 m of FAS (service-related) pension cost is reflected in operating income and $485 m of FAS (nonservice) pension benefit is reflected below operating income. CAS pension cost continues to be recorded in operating income. See Schedule 4 for further information.

3                      Net Interest Expense (interest expense net of interest income) includes six months of net interest expense for $8.25 bn debt issued in October 2017 to finance the pending Orbital ATK acquisition, as well as a full year of estimated net interest expense for the company’s remaining debt. Interest expense is presented as a single line item on the income statement and interest income is included in Other, net on the income statement.

 

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME

(Unaudited)

Three Months Ended

March 31

$ in ms, except per share amounts 2018 2017
Sales Product $ 4,289 $ 3,997
Service 2,446 2,413
Total sales 6,735 6,410
Operating costs and expenses

Product

3,265 2,983
Service 1,905 1,867
General and administrative expenses 711 698
Operating income 854 862
Other income (expense)

Interest expense

(143) (75)
Net FAS (non-service) pension benefit (expense) 120 (18)
Other, net 40 19
Earnings before income taxes 871 788
Federal and foreign income tax expense 132 138
Net earnings $ 739 $ 650
Basic earnings per share $ 4.24 $ 3.72
Weighted-average common shares outstanding, in ms 174.3 174.8
Diluted earnings per share $ 4.21 $ 3.69
Weighted-average diluted shares outstanding, in ms 175.4 176.1
Net earnings (from above) $ 739 $ 650
Other comprehensive income

Change in unamortized benefit plan costs, net of tax

86 99
Change in cumulative translation adjustment (2) 4
Other, net (1) 2
Other comprehensive income, net of tax 83 105
Comprehensive income $ 822 $ 755

 

NORTHROP GRUMMAN CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Unaudited)

March 31,         December 31,

$ in ms                                                                                                                 2018                   2017

Assets

Cash and cash equivalents

$ 10,369 $ 11,225
Accounts receivable, net 1,241 1,054
Unbilled receivables, net 3,869 3,465
Inventoried costs, net 435 398
Prepaid expenses and other current assets 243 445
Total current assets 16,157 16,587
Property, plant and equipment, net of accumulated depreciation of $5,119 for 2018 and $5,066 for 2017 4,285 4,225
Goodwill 12,455 12,455
Deferred tax assets 474 447
Other non-current assets 1,424 1,414
Total assets $ 34,795 $ 35,128
Liabilities

Trade accounts payable

$ 1,395 $ 1,661
Accrued employee compensation 1,204 1,382
Advance payments and amounts in excess of costs incurred 1,479 1,761
Other current liabilities 2,337 2,288
Total current liabilities 6,415 7,092
Long-term debt, net of current portion of $868 for 2018 and $867 for 2017 14,392 14,399
Pension and other post-retirement benefit plan liabilities 5,362 5,511
Other non-current liabilities 946 994
Total liabilities 27,115 27,996
Shareholders’ equity

Preferred stock, $1 par value; 10,000,000 shares authorized; no shares issued and outstanding

Common stock, $1 par value; 800,000,000 shares authorized; issued and outstanding: 2018—174,382,256 and 2017—174,085,619 174 174
Paid-in capital 44
Retained earnings 13,205 11,632
Accumulated other comprehensive loss (5,699) (4,718)
Total shareholders’ equity 7,680 7,132
Total liabilities and shareholders’ equity $ 34,795 $ 35,128

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Three Months Ended

March 31

$ in ms 2018 2017
Operating activities

Net earnings

$ 739 $ 650
Adjustments to reconcile to net cash used in operating activities:

Depreciation and amortization

122 104
Stock-based compensation 19 17
Deferred income taxes (55) (9)
Changes in assets and liabilities:

Accounts receivable, net

(187) (317)
Unbilled receivables, net (404) (665)
Inventoried costs, net (37) (27)
Prepaid expenses and other assets 13 (53)
Accounts payable and other liabilities (590) (357)
Income taxes payable, net 197 152
Retiree benefits (56) 86
Other, net 2 (20)
Net cash used in operating activities (237) (439)
Investing activities Capital expenditures (305) (216)
Other, net (2) 2
Net cash used in investing activities (307) (214)
Financing activities Common stock repurchases (229)
Cash dividends paid (198) (166)
Payments of employee taxes withheld from share-based awards (79) (90)
Net (payments to) proceeds from credit facilities (14)
Other, net (21)
Net cash used in financing activities (312) (485)
Decrease in cash and cash equivalents (856) (1,138)
Cash and cash equivalents, beginning of year 11,225 2,541
Cash and cash equivalents, end of period $ 10,369 $ 1,403

PRELIMINARY PRO FORMA FINANCIAL INFORMATION CONSOLIDATED OPERATING RESULTS HIGHLIGHTS  (Unaudited)

Effective January 1, 2018, we adopted Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers, and Accounting Standards Update (ASU) No. 2017-07, Compensation Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, using the full retrospective method. The adoption of these standards is reflected in our recast consolidated operating results highlights for each of the periods presented below.

2016                                   2017                                   2017

Total                      Three Months Ended                      Total

$ in ms, except per share amounts                    Year       Mar 31      Jun 30      Sep 30      Dec 31        Year

AS REPORTED

Sales

$ 24,508 $ 6,267 $ 6,375 $ 6,527 $ 6,634 $ 25,803
Segment operating income1 2,935 726 753 759 721 2,959
Segment operating margin rate1 12.0% 11.6% 11.8% 11.6% 10.9% 11.5%
Net FAS/CAS pension adjustment 316 136 137 172 149 594
Unallocated corporate expenses and other

Operating income

(58) (30) (35) (86) (103) (254)
3,193 832 855 845 767 3,299
Operating margin rate 13.0% 13.3% 13.4% 12.9% 11.6% 12.8%
Interest expense (301) (75) (76) (73) (136) (360)
Other, net

Earnings before income taxes

31 16 28 13 53 110
2,923 773 807 785 684 3,049
Federal and foreign income tax expense (723) (133) (255) (140) (506) (1,034)
Effective income tax rate 24.7% 17.2% 31.6% 17.8% 74.0% 33.9%
Net earnings                                                  $  2,200 $ 640 $ 552 $ 645 $ 178 $    2,015
Diluted EPS                                                      12.19 3.63 3.15 3.68 1.01 11.47
Weighted average shares outstanding — Diluted                                                                          180.5

AS RECAST TO REFLECT ASC TOPICS 606 AND 715

176.1 175.5 175.3 175.5 175.6
Sales                                                             $ 24,706 $ 6,410 $ 6,473 $ 6,569 $ 6,552 $ 26,004
Segment operating income1                                        2,864 741 759 756 647 2,903
Segment operating margin rate1                                11.6% 11.6% 11.7% 11.5% 9.9% 11.2%
  Net FAS (service)/CAS pension adjustment     457 154 154 170 160 638
  Unallocated corporate expenses and other        (52) (33) (40) (89) (103) (265)
3,269 862 873 837 704 3,276
13.2% 13.4% 13.5% 12.7% 10.7% 12.6%
(301) (75) (76) (73) (136) (360)
(141) (18) (17) 2 (11) (44)
28 19 32 16 57 124
2,855 788 812 782 614 2,996
(699) (138) (257) (139) (467) (1,001)
24.5% 17.5% 31.7% 17.8% 76.1% 33.4%

Operating income

Operating margin rate

Interest expense

Net FAS (non-service) pension (expense) benefit Other, net

Earnings before income taxes

Federal and foreign income tax expense

Effective income tax rate

Net earnings $ 2,156 $ 650 $ 555 $ 643 $ 147 $ 1,995
Diluted EPS 11.94 3.69 3.16 3.67 0.84 11.36
Weighted average shares outstanding — Diluted 180.5 176.1 175.5 175.3 175.5 175.6

1 Non-GAAP measure — see definitions at the end of this earnings release.

PRELIMINARY PRO FORMA FINANCIAL INFORMATION SEGMENT OPERATING RESULTS (Unaudited)

Effective January 1, 2018, we adopted Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers, using the full retrospective method. The adoption of ASC 606 is reflected in our recast segment operating results for each of the periods presented below.

2016                                   2017                                   2017

Total                      Three Months Ended                      Total

$ in ms                                                               Year       Mar 31      Jun 30      Sep 30      Dec 31        Year

AS REPORTED

Sales

Aerospace Systems

$ 10,828 $ 2,898 $ 2,970 $ 3,082 $ 3,005 $ 11,955
Mission Systems 10,928 2,739 2,781 2,837 3,025 11,382
Technology Services 4,825 1,194 1,175 1,183 1,198 4,750
Intersegment eliminations (2,073) (564) (551) (575) (594) (2,284)
  Total 24,508 6,267 6,375 6,527 6,634 25,803
Segment operating income1

Aerospace Systems

1,236 312 315 334 298 1,259
Mission Systems 1,445 353 374 363 363 1,453
Technology Services 512 131 134 133 126 524
Intersegment eliminations (258) (70) (70) (71) (66) (277)
  Total $ 2,935 $ 726 $ 753 $ 759 $ 721 $ 2,959
AS RECAST TO REFLECT ASC TOPIC 606

Sales

Aerospace Systems

$ 10,853 $ 2,984 $ 3,003 $ 3,125 $ 3,019 $ 12,131
Mission Systems 11,161 2,800 2,859 2,836 2,975 11,470
Technology Services 4,765 1,190 1,162 1,183 1,152 4,687
Intersegment eliminations (2,073) (564) (551) (575) (594) (2,284)
  Total 24,706 6,410 6,473 6,569 6,552 26,004
Segment operating income1

Aerospace Systems

1,198 323 320 344 302 1,289
Mission Systems 1,468 359 384 359 340 1,442
Technology Services 456 129 125 124 71 449
Intersegment eliminations (258) (70) (70) (71) (66) (277)

  Total                                                            $    2,864   $      741   $      759   $      756   $      647   $   2,903

1 Non-GAAP measure — see definitions at the end of this earnings release.

Northrop Grumman Reports First Quarter 2018 Financial Results                                                              13

Non-GAAP Financial Measures Disclosure: This earnings release contains non-GAAP (accounting principles generally accepted in the United States of America) financial measures, as defined by SEC (Securities and Exchange Commission) Regulation G and indicated by a footnote in the text of the release. Definitions for the non-GAAP measures are provided below and reconciliations are provided in the body of the release. References to a “Table” in the definitions below relate to tables in the body of the release. Other companies may define these measures differently or may utilize different non-GAAP measures.

Segment operating income: Total earnings from our three segments, including allocated pension expense recognized under CAS, and excluding unallocated corporate items and FAS pension expense. This measure may be useful to investors and other users of our financial statements as a supplemental measure in evaluating the financial performance and operational trends of our sectors. This measure should not be considered in isolation or as an alternative to operating results presented in accordance with GAAP. Segment operating income is reconciled in Table 1.

Segment operating margin rate: Segment operating income as defined above, and reconciled in Table 1, divided by sales. This measure may be useful to investors and other users of our financial statements as a supplemental measure in evaluating the financial performance and operational trends of our sectors. This measure should not be considered in isolation or as an alternative to operating results presented in accordance with GAAP.

Free cash flow: Net cash used in operating activities less capital expenditures. We use free cash flow as a key factor in our planning for, and consideration of, acquisitions, stock repurchases and the payment of dividends. This measure may be useful to investors and other users of our financial statements as a supplemental measure of our cash performance, but should not be considered in isolation, as a measure of residual cash flow available for discretionary purposes, or as an alternative to operating cash flows presented in accordance with GAAP. Free cash flow is reconciled in Table 2.

Raytheon

Raytheon Reports Strong Second Quarter 2018 Results

– Strong bookings of $8.7 bn; book-to-bill ratio of 1.31

– Net sales of $6.6 bn, up 5.5 percent

– EPS from continuing operations of $2.78, up 47.1 percent

– Operating cash flow from continuing operations of $1.2bn

– Updated full-year 2018 guidance

26 Jul 18. Raytheon Company (NYSE: RTN) today announced net sales for the second quarter 2018 of $6.6bn, up 5.5 percent compared to $6.3bn in the second quarter 2017. Second quarter 2018 EPS from continuing operations was $2.78 compared to $1.89 in the second quarter 2017. The increase in the second quarter 2018 EPS from continuing operations was primarily driven by lower taxes associated with tax reform, and the impact of a $1.25bn pretax discretionary pension contribution that the company will make by September 15, 2018, using cash on hand. This discretionary contribution had a favorable tax-related EPS impact of $0.33 in the second quarter 2018 and was not included in the prior guidance.

“Raytheon delivered strong bookings, sales growth, EPS and cash generation in the second quarter,” said Thomas A. Kennedy, Raytheon Chairman and CEO. “The strength of our bookings and record backlog demonstrate the company is well positioned for future growth.”

Operating cash flow from continuing operations for the second quarter 2018 was $1,156m compared to $782m for the second quarter 2017. The increase in operating cash flow from continuing operations in the second quarter 2018 was primarily due to favorable collections and lower net cash taxes. In the second quarter 2018, the company repurchased 1.9 m shares of common stock for $400m. Year-to-date 2018, the company repurchased 3.8 m shares of common stock for $800m. The company had bookings of $8.7bn in the second quarter 2018, resulting in a book-to-to bill ratio of 1.31. Second quarter 2017 bookings were $6.5bn.

Summary Financial Results
2nd Quarter % Six Months %
($ in ms, except per share data) 2018 2017 Change 2018 2017 Change
Bookings $ 8,694 $ 6,532 33.1% $ 15,005 $ 12,220 22.8%
Net Sales $ 6,625 $ 6,281 5.5% $ 12,892 $ 12,281 5.0%
Income from Continuing Operations attributable to
    Raytheon Company $ 799 $ 553 44.5% $ 1,433 $ 1,056 35.7%
EPS from Continuing Operations $ 2.78 $ 1.89 47.1% $ 4.98 $ 3.62 37.6%
Operating Cash Flow from Continuing Operations $ 1,156 $ 782 $ 1,439 $ 741
Workdays in Fiscal Reporting Calendar 64 64 128 128

Backlog at the end of the second quarter 2018 was a record $39.9bn, an increase of approximately $3.7bn or 10.3 percent compared to the end of the second quarter 2017.

Backlog
 Period Ending
($ in ms) Q2 2018 Q2 2017 2017
Backlog $ 39,881 $ 36,168 $ 38,210

Outlook

The company has updated its financial outlook for 2018 for operating performance, pension, tax-related and other items. In addition to the impact of the discretionary pension plan contribution discussed above, some of the company’s pension plans purchased a group annuity contract on July 17, 2018 to transfer $923m of outstanding pension benefit obligations related to certain U.S. retirees and beneficiaries of the company’s previously discontinued operations. In connection with this transaction, the company will recognize an unfavorable non-cash, non-operating pension settlement charge of $288m pretax, $228m after tax, in the third quarter 2018 primarily related to the accelerated recognition of actuarial losses in those plans. This will have an estimated unfavorable EPS impact of $0.79 in the third quarter and full-year 2018, and was not included in the prior guidance.

The company also decreased its effective tax rate to reflect the discretionary pension plan contribution and the pension plan annuity transaction discussed above, as well as other tax improvements.

Charts containing additional information on the company’s 2018 outlook are available on the company’s website.

2018 Financial Outlook
Current Prior (4/26/18)
Net Sales ($B) 26.7 – 27.2* 26.5 – 27.0
Deferred Revenue Adjustment ($M) (10) (10)
Amortization of Acquired Intangibles ($M) (118) (118)
FAS/CAS Operating Adjustment ($M) 1,416 1,416
Retirement Benefits Non-service Expense, non-operating ($M)1 (1,246)* (958)
Interest Expense, net ($M)  (180) – (185)  (180) – (185)
Diluted Shares (M) ~287* 287 – 289
Effective Tax Rate2  ~10.5%*  ~18.0%
EPS from Continuing Operations1, 3 $9.77 – $9.97* $9.70 – $9.90
Operating Cash Flow from Continuing Operations ($B)3  2.6 – 3.0*  3.6 – 4.0
*Denotes change from prior guidance
1Some of the company’s pension plans purchased a group annuity contract to transfer $923 m of outstanding pension benefit obligations related to certain U.S. retirees and beneficiaries of the company’s previously discontinued operations. This transaction closed on July 17, 2018. In connection with this transaction, the company will recognize an unfavorable non-cash, non-operating pension settlement charge of $288m pretax, $228m after tax, in the third quarter 2018 primarily related to the accelerated recognition of actuarial losses in those plans. This will have an estimated unfavorable EPS impact of $0.79 in the third quarter and full-year 2018. The outlook above reflects this change.
2The company decreased its effective tax rate to reflect a) the discretionary pension plan contribution, which had a favorable impact to the 2018 effective tax rate of 310 bps, b) the pension plan annuity transaction, which had a favorable impact to the 2018 effective tax rate of 30 bps, and c) other tax improvements, which had a favorable impact to the 2018 effective tax rate of 410 bps. The outlook above reflects this change.
3The company will make a $1.25bn pretax discretionary pension plan contribution by September 15, 2018. As a result, the company recorded a $95m net tax benefit in the second quarter of 2018, which had a favorable EPS impact of $0.33. In addition, the company expects to have a net unfavorable impact to 2018 operating cash flow from continuing operations of approximately $1.0bn, consisting of approximately $250 m of lower cash taxes in the second quarter of 2018 and $1.25bn for the discretionary pension plan contribution in the third quarter 2018. The outlook above reflects this change.

Segment Results

The company’s reportable segments are: Integrated Defense Systems (IDS); Intelligence, Information and Services (IIS); Missile Systems (MS); Space and Airborne Systems (SAS); and Forcepoint™.

Integrated Defense Systems
2nd Quarter Six Months
($ in ms) 2018 2017 % Change 2018 2017 % Change
Net Sales $ 1,514 $ 1,462 4% $ 3,003 $ 2,860 5%
Operating Income $ 262 $ 245 7% $ 535 $ 457 17%
Operating Margin 17.3% 16.8% 17.8% 16.0%

Integrated Defense Systems (IDS) had second quarter 2018 net sales of $1,514m, up 4 percent compared to $1,462m in the second quarter 2017. The increase in net sales for the quarter was primarily driven by higher net sales from an international Patriot® program awarded in the first quarter 2018.

IDS recorded $262m of operating income in the second quarter 2018 compared to $245m in the second quarter 2017. The increase in operating income for the quarter was primarily driven by a favorable change in program mix and higher net program efficiencies.

During the quarter, IDS booked $329m to provide advanced Patriot air and missile defense capabilities for Romania; $274m for the Collins class submarine program for the Royal Australian Navy; $148m on the Air and Missile Defense Radar (AMDR) program for the U.S. Navy; $95m on the Multi-Function RF System (MFRFS) program for the U.S. Army; and $83m for the Barracuda mine neutralization system for the U.S. Navy.

Intelligence, Information and Services
2nd Quarter Six Months
($ in ms) 2018 2017 % Change 2018 2017 % Change
Net Sales $ 1,687 $ 1,555 8% $ 3,269 $ 3,062 7%
Operating Income $ 128 $ 115 11% $ 245 $ 226 8%
Operating Margin 7.6% 7.4% 7.5% 7.4%

Intelligence, Information and Services (IIS) had second quarter 2018 net sales of $1,687m, up 8 percent compared to $1,555m in the second quarter 2017. The increase in net sales for the quarter was primarily driven by higher net sales on classified programs, the Development, Operations and Maintenance (DOMino) cyber program, and the Air and Space Operations Center Weapon System (AOC WS) program.

IIS recorded $128m of operating income in the second quarter 2018 compared to $115 m in the second quarter 2017. The increase in operating income for the quarter was primarily driven by a favorable change in program mix.

During the quarter, IIS booked $802m on a number of classified contracts. IIS also booked $298 m on domestic and foreign training programs in support of Warfighter FOCUS activities.

Missile Systems
2nd Quarter Six Months
($ in ms) 2018 2017 % Change 2018 2017 % Change
Net Sales $ 2,051 $ 1,901 8% $ 3,899 $ 3,657 7%
Operating Income $ 231 $ 236 (2)% $ 443 $ 452 (2)%
Operating Margin 11.3% 12.4% 11.4% 12.4%

Missile Systems (MS) had second quarter 2018 net sales of $2,051m, up 8 percent compared to $1,901m in the second quarter 2017. The increase in net sales for the quarter was primarily driven by higher net sales on classified programs.

MS recorded $231m of operating income in the second quarter 2018 compared to $236m in the second quarter 2017. The decrease in operating margin for the quarter was primarily due to a change in mix.

During the quarter, MS booked $933m for Standard Missile-3 (SM-3®); $237m for Rolling Airframe Missile (RAM®); $205m for Tube-launched, Optically-tracked, Wireless-guided (TOW®) missiles; $167m for Tomahawk; $109m for Miniature Air Launched Decoy (MALD®); $99m for Excalibur®; and $78m for Evolved Seasparrow Missiles (ESSM®). MS also booked $707m on a number of classified contracts.

Space and Airborne Systems
2nd Quarter Six Months
($ in ms) 2018 2017 % Change 2018 2017 % Change
Net Sales $ 1,605 $ 1,608 $ 3,173 $ 3,163
Operating Income $ 206 $ 218 (6)% $ 399 $ 408 (2)%
Operating Margin 12.8% 13.6% 12.6% 12.9%

Space and Airborne Systems (SAS) had second quarter 2018 net sales of $1,605m compared to $1,608m in the second quarter 2017.

SAS recorded $206m of operating income in the second quarter 2018 compared to $218m in the second quarter 2017. The decrease in operating income for the quarter was primarily due to a change in program mix and other performance.

During the quarter, SAS booked $1,121m on a number of classified contracts.

Forcepoint
2nd Quarter Six Months
($ in ms) 2018 2017 % Change 2018 2017 % Change
Net Sales $ 148 $ 138 7% $ 289 $ 282 2%
Operating Income (Loss) $ (8) $ 2 NM $ (15) $ 18 NM
Operating Margin (5.4)% 1.4% (5.2)% 6.4%
NM = Not Meaningful

Forcepoint had second quarter 2018 net sales of $148m, up 7 percent compared to $138m in the second quarter 2017.

Forcepoint recorded a loss of $8m in the second quarter 2018 compared to operating income of $2m in the second quarter 2017. As expected, the decrease in operating income for the quarter was primarily driven by higher operating costs.

During the quarter, Forcepoint had bookings of $148m compared to $115m in the second quarter 2017, an increase of 29 percent.

 

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