26 Jul 22. US defence contractors squeezed by shortages of labour and parts. Warning on fall in sales by Raytheon follows that of Lockheed despite new orders after Russia’s invasion of Ukraine. Two leading US defence contractors have reported sales pressures even as the war in Ukraine boosts demand for their weaponry, with production hamstrung by shortages of parts and labour. Raytheon, which manufactures the Stinger missile used by Ukrainian soldiers fighting Russian forces, on Tuesday reported sales in its missile and defence division fell by 11 per cent to $3.6bn in the second quarter compared to the same period of 2021. It also trimmed the division’s sales and profit outlook for the year. The announcement came a week after Lockheed Martin, which jointly produces the Javelin missile with Raytheon, lowered its revenue outlook for 2022 by $750mn750m to $65.25bn, mostly due to supply and labour pressures in its aeronautics division.
The defence industry is preparing for an influx of orders as governments increase military spending following Russia’s invasion of Ukraine. Western governments are seeking to replenish stockpiles of weapons they are providing to Kyiv while bolstering their own arsenals. The demand — including the Pentagon’s first Stinger order in two decades, for 1,300 missiles worth $662m — has collided with historic tightness in US labour markets and shortages of components such as computer chips and rocket motors. Raytheon’s missile and defence division had $4.5bn in bookings in the second quarter.
“We’re certainly not satisfied with the performance in our defence business this quarter. There is much to do. Bookings were outstanding; execution, not so much,” Raytheon chief executive Greg Hayes told analysts during an earnings call on Tuesday. “We have been, I would say, caught off guard a little bit by how much pressure there is in the supply chain,” particularly for labour, Hayes added. (Source: Google/FT.com)
27 Jul 22. Boeing Reports Second-Quarter Results.
Second Quarter 2022
- Operating cash flow of $0.1bn; continue to expect positive free cash flow for 2022
- Increased 737 production to 31 per month; working with FAA on final actions to resume 787 deliveries
- Successfully completed CST-100 Starliner uncrewed Orbital Flight Test-2 (OFT-2)
- Revenue of $16.7bn; GAAP earnings per share of $0.32 and core (non-GAAP)* loss per share of ($0.37)
“We made important progress across key programs in the second quarter and are building momentum in our turnaround,” said Dave Calhoun, Boeing President and Chief Executive Officer. “As we begin to hit key milestones, we were able to generate positive operating cash flow this quarter and remain on track to achieve positive free cash flow for 2022. While we are making meaningful progress, we have more work ahead. We will stay focused on safety, quality and transparency, as we drive stability, improve performance, and continue to invest in our future.”
Operating cash flow improved to $0.1bn in the quarter, reflecting higher commercial deliveries and timing of receipts and expenditures.
Cash and investments in marketable securities decreased to $11.4bn, compared to $12.3bn at the beginning of the quarter, primarily driven by debt repayment. The company has access to credit facilities of $14.7bn which remain undrawn.
Total company backlog at quarter-end was $372bn.
Commercial Airplanes second-quarter revenue increased to $6.2bn, driven by higher 737 deliveries, partially offset by lower 787 deliveries. Operating margin of (3.9)% also reflects abnormal costs and period expenses, including higher R&D expense.
Boeing has nearly completed the global safe return to service of the 737 MAX and the fleet has flown more than 1.5m total flight hours since late 2020. The 737 production rate increased to 31 airplanes per month during the quarter.
On the 787 program, the company continues to work with the FAA to finalize actions to resume deliveries and is readying airplanes for delivery. The program is producing at a very low rate and will continue to do so until deliveries resume, with an expected gradual return to five per month over time. The company still anticipates 787 abnormal costs of approximately $2bn, with most being incurred by the end of 2023, including $283m recorded in the quarter.
Commercial Airplanes secured orders for 169 737 MAX airplanes and 13 freighters, including seven 777-8 Freighters from Lufthansa Group. Commercial Airplanes delivered 121 airplanes during the quarter and backlog included over 4,200 airplanes valued at $297bn.
Defense, Space & Security
Defense, Space & Security second-quarter revenue decreased to $6.2 bn and second-quarter operating margin decreased to 1.1 percent, primarily driven by charges on fixed-price development programs, including MQ-25 and Commercial Crew, as well as unfavorable performance on other programs and lower volume on derivative aircraft programs. The MQ-25 program recorded a $147m charge primarily due to higher costs to meet certain technical requirements. The Commercial Crew program also recorded a $93m charge, primarily driven by launch manifest updates and additional costs associated with OFT-2. During the quarter, the CH-47F Chinook Block II was selected as the German government’s future heavy-lift helicopter. Defense, Space & Security also successfully completed the CST-100 Starliner uncrewed OFT-2.
Backlog at Defense, Space & Security was $55bn, of which 33% percent represents orders from customers outside the U.S.
Global Services second-quarter revenue increased to $4.3bn and second-quarter operating margin increased to 16.9 percent primarily driven by higher commercial services volume and favorable mix.
During the quarter, Global Services received a contract for airlift flight dispatch services from the U.S. Air Force and was awarded a contract for avionics upgrades and cybersecurity support for the U.S. Navy. Global Services also delivered the first A-10 wing set to the U.S. Air Force.
Additional Financial Information
At quarter-end, Boeing Capital’s net portfolio balance was $1.6bn. The change in loss from other unallocated items and eliminations was primarily due to the recognition of deferred compensation income as compared to expense recorded in the second quarter 2021. The second quarter effective tax rate primarily reflects tax expense on pretax earnings and an increase to the valuation allowance.
27 Jul 22. General Dynamics Reports Second-Quarter 2022 Financial Results.
- Net earnings of $766m on revenue of $9.2bn
- Operating margin 10.6%, up 20 bps year over year, 90 bps sequentially
- Diluted EPS of $2.75, up 5.4% year over year
- Continued strong Gulfstream demand
General Dynamics (NYSE: GD) today reported second-quarter 2022 net earnings of $766m on revenue of $9.2bn. Diluted earnings per share (EPS) were $2.75, a 5.4% increase from the year-ago quarter.
“Demand in the quarter was very strong in Aerospace, with margins showing steady improvement year over year.” said Phebe N. Novakovic, chairman and chief executive officer. “Our defense segments demonstrated solid operating performance and had several important wins.”
Net cash provided by operating activities in the quarter totaled $659 m. During the quarter, the company invested $224m in capital expenditures, paid $349m in dividends, and used $800m to repurchase shares, ending the quarter with $2.2bn in cash and equivalents on hand. For the first half of the year, net cash provided by operating activities totaled $2.6 bn, or 176% of net earnings.
Orders remained strong across the company with a consolidated book-to-bill ratio, defined as orders divided by revenue, of 1.1-to-1 for the quarter, with particular strength in the Aerospace segment driven by strong order activity for Gulfstream aircraft. In addition to company-wide backlog of $87.6 bn, estimated potential contract value, representing management’s estimate of additional value in unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised options, was $38.7bn. Total estimated contract value, the sum of all backlog components, was $126.4 n at the end of the quarter.
Significant awards in the quarter for the three defense segments included $410m with a maximum potential value of $1.1bn from the U.S. Army to begin low-rate initial production (LRIP) of the Mobile Protected Firepower vehicle; $295m for various munitions and ordnance with additional option value of $465m; $525m from the Army to upgrade Stryker vehicles; $500m from the U.S. Navy for long-lead materials to support construction of two additional John Lewis-class (T-AO-205) fleet replenishment oilers; $355 m to produce Abrams main battle tanks in the system enhancement package version 3 (SEPv3) configuration for Australia; $160 m with a maximum potential value of $325 m from the U.S. Space Development Agency to build and operate ground systems for the new low earth orbit (LEO) satellite network; $315m from the Navy for submarine industrial base development and expansion for the Columbia-class submarine program; a contract with a maximum potential value of $300m for development and sustainment of applications and websites for the Administrative Office of the United States Courts; and $545m for several key classified contracts.
27 Jul 22. General Dynamics revenues miss as profit rises on jet demand. Gulfstream jet maker General Dynamics Corp (GD.N) on Wednesday posted a 3.9% rise in second-quarter profit as business jet demand remained strong, but revenues missed forecasts as supply chain problems continued to hamper the defense industry. Shares were up 1.6% in early trading after the Reston, Virginia-based company posted quarterly revenue of $9.2bn, a 0.3% drop over last year, missing Wall Street’s $9.4bn estimate. Business jet demand in the quarter remained robust as wealthier passengers opted for charter planes to avoid flight cancellations from regular carriers. Virginia-based General Dynamics reaffirmed expectations it would deliver 123 aircraft in 2022, chief financial officer Jason Aiken said during a call with analysts.
Aiken also flagged a strong growth in flight service activity driving up revenue and the outlook for its aerospace business.
Meanwhile, the company faces a shortage of skilled labor to work in the U.S. Navy’s Virginia-class attack submarine program. “The supply chain has stumbled a little bit more,” said Aiken.
The company delivered 22 Gulfstream business jets, up from 21 jets a year earlier, showing some signs of supply chain recovery for that segment of the business.
Sales in its aerospace unit rose to $1.86bn from $1.62bn a year earlier, while overall revenue fell to $9.19bn from $9.22bn.
General Dynamics’ Combat Systems business unit which makes tanks, saw its revenue fall 12% compared to the same period a year ago.
Net earnings rose to $766m, or $2.75 per share, in the second quarter, from $737m or $2.61 per share, a year earlier.
Revenues at weapons makers are expected to increase in the coming years as military spending globally spurred by the conflict in Ukraine hits the bottom line. (Source: Reuters)
28 Jul 22. Honeywell (NASDAQ: HON) today announced results for the second quarter, which met or exceeded the company’s guidance. The company also raised the low end of its full-year organic growth and adjusted EPS guidance ranges and raised its full-year segment margin guidance range.
- Sales Growth and Margin Expansion in Aerospace, Honeywell Building Technologies, and Performance Materials and Technologies
- Reported Sales up 2%, Organic Sales up 4%, Exceeding High End of Guidance Range
- Earnings Per Share of $1.84, Adjusted Earnings Per Share1 of $2.10, Exceeding High End of Guidance Range
- Orders up 12%; Backlog2 up 12% to $29.5bn, Led by Our Long-Cycle Businesses
- Deployed $2.3bn in Capital, including $1.4bn to Share Repurchases
The company reported second quarter organic sales growth of 4%, or 7% excluding the impact of lower COVID-mask volumes and the wind down of operations in Russia,3 exceeding the high end of the company’s guidance range. Operating margin contracted by 20 basis points to 17.9% primarily due to an additional charge related to Russia. Segment margin expanded by 50 basis points to 20.9%, or 80 basis points excluding the year-over-year impact of Quantinuum. Adjusted earnings per share1 was $2.10, up 4% year over year and 2 cents above the high end of the company’s guidance range. Operating cash flow was $0.8bn, down 38% year over year, and free cash flow was $0.8bn, down 43% year over year, due to higher working capital as expected ahead of anticipated volume growth in the back half.
“Honeywell met or exceeded guidance for all metrics in the second quarter despite a challenging macroeconomic backdrop,” said Darius Adamczyk, chairman and chief executive officer of Honeywell. “Organic sales grew 4% led by strong double-digit growth in our commercial aerospace, building products, advanced sensing technologies, and advanced materials businesses. Aerospace, Honeywell Building Technologies, and Performance Materials and Technologies all grew organically and expanded margins in the quarter. While we recognize macro crosscurrents are clouding the global economic growth outlook, we remain confident in our demand outlook for the back half of the year with orders up 12% year over year and closing backlog2 of $29.5bn, up 12% year over year, led by our long-cycle businesses, which will help drive growth for quarters to come. We once again demonstrated our operational agility by staying ahead of the inflation curve, enabling us to expand margins and beat the high end of our adjusted EPS guidance. We also continued to execute on our capital deployment strategy, deploying $2.3bn in the quarter, including $1.4bn of share repurchases.”
Adamczyk continued, “As we have shown, our rigorous operating principles enable us to mitigate external challenges and deliver results that maximize shareholder value. The continued recovery of our key commercial aviation, defense, energy, and non-residential end markets, our commercial excellence, and our technologically differentiated portfolio of solutions will allow us to capitalize on near-term growth opportunities and remain highly resilient amid ongoing uncertainties.”
As a result of the company’s second-quarter performance and management’s outlook for the remainder of the year, full-year sales are now expected to be in the range of $35.5bn to $36.1bn, up 5% to 7% organically, or up 7% to 9% excluding the one-point impact of COVID-driven mask sales declines and one-point impact of lost Russian sales. Segment margin expansion4 is now expected to be in the range of 30 to 70 basis points, including an approximate (30) basis point impact from investments in the Quantinuum business. Adjusted earnings per share4,5 is now expected to be in the range of $8.55 to $8.80. Operating cash flow is expected to be in the range of $5.5bn to $5.9bn, and free cash flow is expected to be $4.7 bn to $5.1bn.
Honeywell sales for the second quarter were up 2% year over year on a reported basis and 4% year over year on an organic basis.
Aerospace sales for the second quarter were up 5% year over year on an organic basis. Commercial aftermarket demand improved in the second quarter as flight hours continued to increase, resulting in approximately 20% growth in both air transport aftermarket and business and general aviation aftermarket. Business and general aviation original equipment grew double digits, while air transport original equipment grew over 25% year over year as we continue to see strong build rates. Growth in commercial aerospace was partially offset by lower defense volumes. Segment margin expanded 80 basis points to 26.5% in the second quarter, led by commercial excellence partially offset by cost inflation.
Honeywell Building Technologies sales for the second quarter were up 14% on an organic basis year over year driven by strength in both building products and building solutions. Orders were up double digits for the second consecutive quarter, led by building projects, building management systems, and security products. Segment margin expanded 110 basis points to 23.5% due to pricing actions partially offset by cost inflation.
Performance Materials and Technologies sales for the second quarter were up 10% on an organic basis year over year despite an approximately 3% headwind from Russia. Sales growth was led by solid pricing and greater volumes in advanced materials, as well as strength in petrochemical catalyst shipments and thermal solutions, which both grew over 20% in the quarter. This growth was partially offset by lower equipment volumes and lost Russian sales in UOP. Segment margin expanded 150 basis points to 22.3%, primarily driven by price actions partially offset by cost inflation.
Safety and Productivity Solutions sales for the second quarter decreased 10% on an organic basis year over year as strength in advanced sensing technologies and productivity solutions and services was offset by lower personal protective equipment and warehouse automation volumes. Excluding the impact of lower COVID-mask volumes, organic sales decreased by 5% in the quarter. Advanced sensing technologies grew 25% and productivity solutions and services grew 19%, demonstrating excellent execution in a difficult supply constrained environment. Segment margin contracted 140 basis points to 12.6%, primarily driven by lower volume leverage, cost inflation, and a one-time write-down of excess COVID-related mask inventory, partially offset by pricing and a favorable licensing agreement with a competitor. (Source: PR Newswire)
28 Jul 22. Northrop misses sales estimates as supply chain issues hamper production. Northrop Grumman Corp (NOC.N) missed estimates for quarterly sales on Thursday, as sustained labor shortages and global supply chain issues dent deliveries for the U.S. weapons maker.
An acute labor shortage triggered by the Omicron variant of COVID-19 at the beginning of 2022 continues to hamper production and deliveries across the aerospace sector. read more
Labor challenges were broad-based, Northrop’s Chief Financial Officer Dave Keffer said in an interview with Reuters, but “after a fairly flat first quarter in terms of net adds to our headcount, we did add a thousand net employees in the second quarter, particularly late in the quarter,” he said.
Northrop’s total sales fell to $8.80bn in the second quarter, below Wall Street estimates of $9.07bn, as delays from suppliers in deliveries of essential parts for the company’s products continued.
Sales at the company’s aeronautics unit, which makes military planes, were down 13% at $2.53bn in the quarter ended June 30.
Northrop, which led the industry team that made NASA’s James Webb telescope, reported an 8.4% rise in revenue in its space systems business, party offsetting a fall in total revenue.
Keffer said recent Pentagon contract awards for missile sensing and tracking as well as communications satellites were “good examples of our work in national security space where we really see an outstanding demand environment.”
Earlier this month, the U.S. House of Representatives passed a bill paving the way for the defense budget to exceed $800 billion next year, authorizing $37bn in spending on top of the record $773bn proposed by President Joe Biden.
The Falls Church, Virginia-based company reaffirmed its full-year outlook for the second time as it expects the labor market to start easing in the second half, projecting sales between $36.20 billion and $36.60 billion, and transaction-adjusted earnings per share in the range of $24.50 to $25.10.
Last week, Northrop’s peer Lockheed Martin Corp (LMT.N) lowered its 2022 revenue outlook as sales of its F-35 jets took a dip.
Northrop’s quarterly adjusted net earnings fell to $946m, or $6.06 per share, from $1.04bn, or $6.42 per share, a year ago. (Source: Reuters)
28 July 22. Northrop Grumman Reports Second Quarter 2022 Financial Results.
- Awards of $13.0bn, Book to Bill of 1.48
- Backlog Increases 6% to $80bn During the Second Quarter
- Sales of $8.8bn
- Operating Margin Rate of 10.8 Percent, Segment Operating Margin Rate1 of 12.2 Percent
- Diluted Earnings per Share of $6.06
- 2022 Company-Level Guidance Unchanged for Sales, EPS, and Transaction-adjusted
Northrop Grumman Corporation (NYSE: NOC) reported second quarter 2022 sales of $8.8bn, as compared with $9.2bn in the second quarter of 2021. Lower sales reflect continued headwinds from the macroeconomic environment, including a tight labor market and extended material lead times, which are affecting the timing of sales. Second quarter 2022 net earnings totaled $946m, or $6.06 per diluted share, as compared with $1.0bn, or $6.42 per diluted share, in the second quarter of 2021. Second quarter 2022 net earnings reflect solid segment margins and lower sales as well as a $51m, or $0.33 per diluted share, reduction for negative returns on marketable securities related to our non-qualified benefit plans and other non-operating assets.
“Northrop Grumman’s strategy to provide differentiated solutions in our customers’ highest priority areas is delivering results. In the second quarter, we had outstanding bookings and backlog growth, and strong segment operating margins,” said Kathy Warden, chair, chief executive officer and president. “Demand for Northrop Grumman products and our operational performance remain strong. We are affirming our full year guidance, as we see the tight labor market, that has impacted our growth in the first half, beginning to ease in the second half of the year.”
Net earnings during 2022 and the second quarter of 2021 were not impacted by the sale of the company’s IT services business and do not include any transaction-related adjustments. Transaction-adjusted net earnings1 and transaction-adjusted EPS1 are measures the company uses to compare performance to prior periods and for EPS guidance.
Second quarter 2022 sales decreased $350 m due to lower sales at Aeronautics Systems, Defense Systems and Mission Systems, partially offset by 8 percent growth at Space Systems. Second quarter 2022 sales reflect continued headwinds from the macroeconomic environment, including a tight labor market and extended material lead times, which are affecting the timing of sales. Operating Income and Margin Rate Second quarter 2022 operating income decreased $90m, or 9 percent, primarily due to a $69m reduction in the FAS/CAS operating adjustment and lower sales. Second quarter 2022 operating margin rate declined to 10.8 percent due to the lower FAS/CAS operating adjustment, partially offset by lower unallocated corporate expense. Segment Operating Income and Margin Rate Second quarter 2022 segment operating income decreased $44m, or 4 percent due to lower sales. Second quarter 2022 segment operating margin rate was comparable to the prior year period and reflects higher operating margin rates at Mission Systems and Defense Systems, offset by lower operating margin rates at Space Systems and Aeronautics Systems. Federal and Foreign Income Taxes The second quarter 2022 ETR decreased to 17.7 percent from 20.4 percent in the prior year period. The second quarter 2021 ETR was impacted by a change made in tax revenue recognition on certain long term contracts, which increased taxable income in years prior to the 2017 Tax Cuts and Jobs Act at a rate above the current statutory rate. Cash Flows Second quarter 2022 net cash used in operating activities was $197m compared to net cash provided by operating activities of $1.0bn in the prior year period. This change reflects increases in trade working capital due, in part, to unexpected delays in the timing of customer payments near the end of the quarter, which pushed certain cash receipts into the early part of the third quarter. In the second quarter of 2022, the company made approximately $450 m of federal tax payments related to Section 174 of the Internal Revenue Code. Beginning in 2022, Section 174 requires research and development expenditures to be amortized over five years; however, this provision is being considered for deferral by Congress. In the second quarter of 2021, the company made $390m of tax payments related to the IT services divestiture. Second quarter 2022 transaction-adjusted free cash flow1 decreased $1.7bn principally due to the decrease in net cash from operating activities described above.
Awards and Backlog
Second quarter and year to date 2022 net awards totaled $13.0bn and $21.5bn, respectively, and backlog totaled $80.0bn. Significant second quarter new awards include $3.5bn for F-35 at Aeronautics Systems, largely related to Lots 15-17, $2.2bn for restricted programs (at Aeronautics Systems, Space Systems and Mission Systems), $2.1bn for GEM63 solid rocket boosters, largely related to Amazon’s Project Kuiper, and $0.5bn for Triton.
Segment Operating Results
Three Months Ended June 30
Second quarter 2022 sales decreased $379m, or 13 percent, due to lower volume in both Manned Aircraft and Autonomous Systems, including restricted programs, F-35, Global Hawk, and the NATO Alliance Ground Surveillance (AGS) program, as Full System Handover occurred early in the second quarter of 2022. Second quarter 2022 operating income decreased $42m, or 14 percent, primarily due to lower sales. Operating margin rate decreased to 10.2 percent from 10.3 percent primarily due to lower net EAC adjustments, principally associated with restricted work and close-out of an international program, partially offset by a $38m gain on a property sale.
Three Months Ended June 30
Second quarter 2022 sales decreased $133m, or 9 percent, primarily due to completion of a Joint Services support program, lower scope on an international training program, and wind down of the UKAWACS and JSTARS programs.
Second quarter 2022 operating income decreased $9 m, or 5 percent, due to lower sales, partially offset by a higher operating margin rate. Operating margin rate increased to 13.0 percent from 12.4 percent primarily due to improved performance in Battle Management and Missile Systems.
Three Months Ended June 30
Second quarter 2022 sales decreased $72m, or 3 percent, primarily due to lower volume on Navigation, Targeting and Survivability programs, the Joint Counter Radio-Controlled Improvised Explosive Device Electronic Warfare (JCREW) program, and airborne radar programs. These decreases were partially offset by an increase in restricted sales in the Networked Information Solutions business area and higher volume on Ground/Air Task-Oriented Radar (G/ATOR) and Surface Electronic Warfare Improvement Program (SEWIP).
Second quarter 2022 operating income increased $5m, or 1 percent, due to a higher operating margin rate. Operating margin rate increased to 16.4 percent from 15.8 percent principally due to a $33m benefit recognized in connection with a contract-related legal matter, partially offset by lower net EAC adjustments at Maritime/Land Systems and Sensors.
Three Months Ended June 30
Second quarter 2022 sales increased $231m, or 8 percent, primarily due to higher sales in the Launch & Strategic Missiles business area due to ramp-up on development programs, including a $123m increase on the Next Generation Interceptor (NGI) program and a $95m increase on the Ground Based Strategic Deterrent (GBSD) program. Sales in the Space business area were comparable with the prior year period and reflect higher volume on restricted programs and the Space Development Agency (SDA) Tranche 1 Transport Layer (T1TL) program, partially offset by lower volume on the James Webb Space Telescope after its successful launch in December 2021.
Second quarter 2022 operating income increased $9m, or 3 percent, due to higher sales, partially offset by a lower operating margin rate. Operating margin rate decreased to 10.4 percent from 11.0 percent primarily due to higher volume on early-stage development programs, such as NGI and GBSD.
19 Jul 22. Lockheed Martin Reports Second Quarter 2022 Financial Results
- Net sales of $15.4bn
- Net earnings of $309m, or $1.16 per share, inclusive of non-operational charges of $1.7bn ($1.4bn, or $5.16 per share, after-tax)
- Cash from operations of $1.3bn and free cash flow of $1.0bn
- Returned $1.1bn of cash to shareholders through share repurchases and dividends
- Updates 2022 outlook for sales and earnings per share; maintains 2022 outlook for segment operating profit, cash from operations, and free cash flow
Lockheed Martin Corporation [NYSE: LMT] today reported second quarter 2022 net sales of $15.4bn, compared to $17.0bn in the second quarter of 2021. Net earnings in the second quarter of 2022 were $309m, or $1.16 per share, compared to $1.8bn, or $6.52 per share, in the second quarter of 2021. Cash from operations was $1.3bn in both the second quarter of 2022 and 2021. Free cash flow was $1.0bn in both the second quarter of 2022 and 2021.
“Lockheed Martin continued to deliver strong and consistent cash generation, returning over $1 bn in cash to shareholders in the second quarter through our industry leading dividend and our ongoing share repurchase program,” said Lockheed Martin Chairman, President and CEO James Taiclet. “Although revenue in the period was affected by supply chain impacts and the timing of customer contract negotiations, our cost management initiatives resulted in margin expansion. Moreover, our robust cash generation also continues to provide the resources to invest in building the foundation for future revenue and margin growth opportunities through our classified program capex projects, hypersonics development efforts, and our 21st Century Security and internal Digital Transformation initiatives.”
Net earnings for the quarter ended June 26, 2022 included non-operational charges totaling $1.7bn ($1.4bn, or $5.16 per share, after-tax). The table below shows the impact to earnings before income taxes, net earnings and diluted earnings per share (EPS) for these items.
F-35 Lots 15-17 Contract Update.
The company recently reached an agreement in principle with the U.S. Government on the F-35 Low Rate Initial Production (LRIP) Lots 15-17 production contract and continues to engage with the U.S. Government to definitize the contract. The company has been performing work on the Lots 15-17 production under customer authorization and initial funding to begin work under an advance acquisition contract received in December 2019. The company’s costs began to exceed the contract value and available funding on the Lots 15-17 advance acquisition contract in the second quarter of 2022. As a result, this prevented the recognition of approximately $325m of sales and associated operating profit in the second quarter. Additionally, it prevented the company from invoicing and receiving cash of approximately $465m for costs incurred in the second quarter of 2022. At the end of the second quarter of 2022, the company also had approximately $1bn in potential termination liability exposure to third parties related to LRIP Lots 15-17. The company expects to recover the unrecognized sales and resume invoicing costs incurred upon receiving contractual authorization and funding on the production contract with the U.S. Government, which it expects to occur in the third quarter of 2022. However, until a final agreement is reached or the U.S. Government otherwise provides additional contractual authorization and funding, the company’s results of operations, cash flows, and financial condition will continue to be negatively impacted and the impacts could be material. As part of the LRIP Lots 15-17 production contract, the U.S. Government reduced the acquisition quantities based on budget availability. While the company expects the LRIP Lots 15-17 contract to support its long-term objective to produce 156 aircraft a year, COVID-19 and other impacts experienced by the F-35 enterprise have required it to modify its near-term production plan. Deliveries are expected to remain in the range of 147-153 aircraft per year in 2023 and 2024, before the company achieves its 156 aircraft delivery target in 2025. The company continues to anticipate annual deliveries of 156 aircraft beyond 2025 for the foreseeable future.
2022 Financial Outlook
The following table and other sections of this news release contain forward-looking statements, which are based on the company’s current expectations. Actual results may differ materially from those projected. It is the company’s practice not to incorporate adjustments into its financial outlook for proposed acquisitions, divestitures, ventures, pension risk transfer transactions, financing transactions, changes in law, or new accounting standards until such items have been consummated, enacted or adopted. For additional factors that may impact the company’s actual results, refer to the “Forward-Looking Statements” section in this news release.
Cash Flows and Capital Deployment Activities
Cash from operations in the quarter ended June 26, 2022 was $1.3bn. Capital expenditures were $304m, resulting in free cash flow of $1.0bn. The operating and free cash flows for the quarter ended June 26, 2022 were comparable to the same period in 2021.
The company’s capital deployment activities in the quarter ended June 26, 2022 included the following:
- paying cash dividends of $744m; and
- paying $356m to repurchase 0.9 m shares (excluding 0.6m shares received upon settlement of an accelerated share repurchase agreement (ASR) in April 2022 for no additional consideration).
On May 5, 2022, the company received net proceeds of $2.3bn from a debt issuance of senior unsecured notes, consisting of $800m aggregate principal amount of 3.90% Notes due 2032, $850m aggregate principal amount of 4.15% Notes due 2053, and $650m aggregate principal amount of 4.30% Notes due 2062. The company used the net proceeds from this debt offering to redeem all of the outstanding $500 m in aggregate principal amount of its 3.10% Notes due 2023, $750 m in aggregate principal amount of its 2.90% Notes due 2025, and $1.0 bn of its outstanding $2.0bn in aggregate principal amount of its 3.55% Notes due 2026. As a result of these transactions, as of June 26, 2022, the company’s debt balance remained unchanged. The company incurred a charge of $34m ($26m, or $0.10 per share, after-tax) on these transactions.
The company 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. The following table presents summary operating results of the company’s business segments and reconciles these amounts to the company’s consolidated financial results. Net sales and operating profit of our business segments exclude intersegment sales, cost of sales, and profit as these activities are eliminated in consolidation and not included in management’s evaluation of performance of each segment. Business segment operating profit includes our 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 our business segments. Business segment operating profit excludes the FAS/CAS pension operating adjustment, a portion of corporate costs not considered allowable or allocable to contracts with the U.S. Government under the applicable U.S. Government cost accounting standards (CAS) or federal acquisition regulations (FAR), and other items not considered part of management’s evaluation of segment operating performance such as a portion of management and administration costs, legal fees and settlements, environmental costs, stock-based compensation expense, retiree benefits, significant severance actions, significant asset impairments, gains or losses from divestitures, and other miscellaneous corporate activities. Excluded items are included in the reconciling item “Unallocated items” between operating profit from our business segments and our consolidated operating profit. Changes in net sales and operating profit generally are expressed in terms of volume. Changes in volume refer to increases or decreases in sales or operating profit resulting from varying production activity levels, deliveries or service levels on individual contracts. Volume changes in segment operating profit are typically based on the current profit booking rate for a particular contract. In addition, comparability of the company’s segment sales, operating profit and operating margin may be impacted favorably or unfavorably by changes in profit booking rates on the company’s contracts. Increases in profit booking rates, typically referred to as favorable profit adjustments, 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 and are typically referred to as unfavorable profit adjustments. Increases or decreases in profit booking rates are recognized in the current period and reflect the inception-to-date effect of such changes. The company’s consolidated net adjustments not related to volume, including net profit booking rate adjustments, represented approximately 27% of total segment operating profit in the quarter ended June 26, 2022, as compared to 22% in the quarter ended June 27, 2021.
Aeronautics’ net sales during the quarter ended June 26, 2022 decreased $804m, or 12%, compared to the same period in 2021. Net sales decreased by approximately $945m for the F-35 program due to lower volume on production contracts as a result of supply chain performance delays and delays in receiving additional contractual authorization and funding under the Lots 15-17 contract, and about $50m on the F-16 program due to lower volume on sustainment contracts and an unfavorable profit adjustment on a production contract in the second quarter of 2022 as a result of manufacturing line ramp up delays, partially offset by higher volume on production contracts. These decreases were partially offset by an increase of approximately $210 m on classified contracts primarily due to higher volume. Aeronautics’ operating profit during the quarter ended June 26, 2022 increased $40m, or 7%, compared to the same period in 2021. Operating profit increased approximately $220 m on classified contracts due to a $225m loss in the second quarter of 2021 on a classified program; and approximately $40m for the F-22 program due to higher net favorable profit adjustments. These increases were partially offset by lower operating profit of approximately $145 m for the F-35 program due to lower volume on production contracts as described above; and about $55 m for the F-16 program due to an unfavorable profit adjustment on a production contract in the second quarter of 2022 as described above. Adjustments not related to volume, including net profit booking rate adjustments, were $120m higher in the second quarter of 2022 compared to the same period in 2021.
Missiles and Fire Control
MFC’s net sales during the quarter ended June 26, 2022 decreased $197m, or 7%, compared to the same period in 2021. The decrease was primarily attributable to lower net sales of approximately $155 m for sensors and global sustainment programs primarily due to lower volume on SOF GLSS as a result of troop withdrawals from Afghanistan and lower net favorable profit adjustments due to close out activities in the second quarter of 2021 related to the Warrior Capability Sustainment Program (Warrior); and about $45 m for tactical and strike missile programs due to lower volume (air dominance weapon systems). MFC’s operating profit during the quarter ended June 26, 2022 increased $17m, or 4%, compared to the same period in 2021. The increase was primarily attributable to higher operating profit of approximately $40m for tactical and strike missile programs due to higher net favorable profit adjustments (Joint Air-to-Surface Standoff Missile (JASSM), High Mobility Artillery Rocket System (HIMARS), and Hellfire); and about $10m for integrated air and missile defense programs due to higher net favorable profit adjustments (Patriot Advanced Capability-3 (PAC-3)). These increases were partially offset by a decrease of about $40m for sensors and global sustainment programs primarily due to lower net favorable profit adjustments as a result of the closeout of the Warrior program in 2021. In addition, operating margin was positively impacted when compared to the second quarter of 2021 due to contract mix (lower SOF GLSS volume and lower development volume at tactical and strike missiles). Adjustments not related to volume, including net profit booking rate adjustments in the second quarter of 2022 were comparable to the same period in 2021.
Rotary and Mission Systems
RMS’ net sales during the quarter ended June 26, 2022 decreased $230m, or 5%, compared to the same period in 2021. The decrease was primarily attributable to lower net sales of approximately $100m for Sikorsky helicopter programs due to lower production volume (Black Hawk); about $80m for integrated warfare systems and sensors (IWSS) programs due to lower volume (Littoral Combat Ship (LCS) and Advanced Hawkeye); and approximately $55m for various C6ISR (command, control, communications, computers, cyber, combat systems, intelligence, surveillance, and reconnaissance) programs due to lower volume. RMS’ operating profit during the quarter ended June 26, 2022 decreased $55m, or 12%, compared to the same period in 2021. The decrease was primarily attributable to approximately $20m for IWSS programs due to lower net favorable profit adjustments (Aegis and ground-based radar), about $10m for various C6ISR programs due to lower volume; and approximately $10m for Sikorsky helicopter programs due to lower production volume (Black Hawk). Adjustments not related to volume, including net profit booking rate adjustments, were $25m lower in the second quarter of 2022 compared to the same period in 2021.
Space’s net sales during the quarter ended June 26, 2022 decreased $352m, or 11%, compared to the same period in 2021. The decrease was primarily attributable to lower net sales of approximately $425m due to the previously announced renationalization of the AWE program on June 30, 2021, which was no longer included in the company’s financial results beginning in the third quarter of 2021; and about $55m for commercial civil space programs due to lower volume (Orion). These decreases were partially offset by higher net sales of about $130m for strategic and missile defense programs due to higher development volume (Next Generation Interceptor (NGI)). Space’s operating profit during the quarter ended June 26, 2022 decreased $67m, or 20%, compared to the same period in 2021. The decrease was primarily attributable to approximately $55 m for national security space programs primarily due to lower net favorable profit adjustments (primarily Space-Based Infrared System (SBIRS) and classified programs); and about $40 m of lower equity earnings from the company’s investment in United Launch Alliance (ULA). These decreases were partially offset by an increase of approximately $30m for strategic and missile defense programs due to higher net favorable profit adjustments (primarily Fleet Ballistic Missile (FBM) programs). Operating profit for the AWE program was comparable as its operating profit in the second quarter of 2021 was mostly offset by accelerated amortization expense for intangible assets as a result of the renationalization. Adjustments not related to volume, including net profit booking rate adjustments, were $30m lower in the second quarter of 2022 compared to the same period in 2021. Total equity earnings (primarily ULA) represented approximately $5m, or 2% of Space’s operating profit during the quarter ended June 26, 2022, compared to approximately $45m, or 13% during the quarter ended June 27, 2021.
The company’s effective income tax rate was 6.4% for the quarter ended June 26, 2022 and 16.4% for the quarter ended June 27, 2021. The rate for the second quarter of 2022 is lower primarily due to lower earnings before income taxes resulting from a noncash, non-operating pension settlement charge of $1.5bn, which reduced the tax expense by approximately $314m. The rates for both periods benefited from the research and development tax credit, tax deductions for foreign derived intangible income and dividends paid to the company’s defined contribution plans with an employee stock ownership plan feature.
26 Jul 22. Raytheon misses revenue estimates hit by supply chain snags.
- Sales $16.31bn (Wall Street estimates: $16.60bn) Adjusted EPS $1.16 (Refinitiv estimates: $1.12)
Raytheon Technologies Corp (RTX.N) on Tuesday reported lower-than-expected second-quarter revenue, as global supply chain issues dented production at the aerospace and defense firm.
Higher costs, supply chain snags, and early spring COVID-19 outbreaks have negatively impacted output both at Raytheon and its suppliers.
“We’re obviously working through some of these, supply chain inflation and labor availability challenges that we’ve talked a lot about. We expected supply chain to ease up this year in the second quarter. And we just did not see that happen,” Chief Financial Officer Neil Mitchill told Reuters in an interview.
The Arlington, Virginia-based company reported net sales of $16.31bn in the quarter, missing Wall Street estimates of $16.60bn.
However, adjusted earnings of $1.16 per share beat estimates of $1.12, Refinitiv data showed.
For the full year, Raytheon reaffirmed its previously provided outlook for revenue and profit.
Its Collins Aerospace unit, which makes both commercial and military jet parts, reported a 10.3% rise in quarterly sales.
On a post-earnings conference call, Raytheon CEO Greg Hayes said Russian sanctions and resulting titanium supply chain challenges meant the company’s Pratt and Whitney engine unit would fall short on deliveries for business jet customers but recover by mid-2023.
On the defense side, Mitchill expected the second half of the year to remain a challenge due to rocket motor supply chain problems as well as labor and microprocessor shortages.
The company is seeing requests for more missile defense products, Mitchill said, but does not expect that interest to turn into revenue in the near term. (Source: BUSINESS WIRE)
26 Jul 22. Raytheon Technologies Reports Q2 2022 Results. Commercial Aerospace continues to drive sales and EPS growth; Q2 defense book-to-bill of 1.35
Raytheon Technologies Corporation (NYSE: RTX) reported second quarter 2022 results.
Second quarter 2022
- Sales of $16.3bn, up 3 percent versus prior year including 4 percent organic growth
- GAAP EPS from continuing operations of $0.88, up 28 percent versus prior year, including $0.28 of acquisition accounting adjustments and net significant and/or non-recurring charges
- Adjusted EPS of $1.16, up 13 percent versus prior year
- Operating cash flow from continuing operations of $1.3bn; Free cash flow of $807m
- Achieved approximately $80m of incremental RTX gross cost synergies
- Repurchased over $1.0bn of RTX shares
Outlook for full year 2022
- Confirms sales of $67.75 – $68.75bn
- Confirms adjusted EPS to $4.60 – $4.80
- Confirms free cash flow of approximately $6.0bn. Assumes the legislation requiring R&D capitalization for tax purposes is deferred beyond 2022.
- Confirms share repurchase of at least $2.5 bn of RTX shares
“A strong start to the summer travel season drove continued top-line growth and adjusted EPS that exceeded our expectations,” said Raytheon Technologies Chairman and CEO Greg Hayes. “Resilient end-market demand along with our differentiated technology solutions generated over $24bn of awards in the quarter. Looking ahead, while we expect the global supply chain environment, labor availability and inflation will remain challenging near term, we are actively engaged with our customers and suppliers to meet demand and remain cost competitive. We continue to be focused on strategic investments in technology and innovation that will drive our industry leadership today and into the future.”
See “Use and Definitions of Non-GAAP Financial Measures” below for information regarding non-GAAP financial measures.
Second quarter 2022
Raytheon Technologies reported second quarter sales of $16.3bn, up 3 percent over the prior year, including 4 points of organic sales growth partially offset by 1 point of net acquisitions and divestitures headwind. GAAP EPS from continuing operations of $0.88 was up 28 percent versus the prior year and included $0.28 of acquisition accounting adjustments and net significant and/or non-recurring charges. This includes $0.23 of acquisition accounting adjustments primarily related to intangible amortization, $0.04 related to the disposition of non-core businesses at Collins Aerospace, and $0.01 of restructuring. Adjusted EPS of $1.16 was up 13 percent versus prior year. The company recorded net income from continuing operations in the second quarter of $1.3bn, up 25 percent versus prior year and included $418m of acquisition accounting adjustments and net significant and/or non-recurring charges. Adjusted net income was $1.7bn, up 10 percent versus prior year. Operating cash flow from continuing operations in the second quarter was $1.3bn. Capital expenditures were $479m, resulting in free cash flow of $807m.
Backlog and Bookings
Backlog at the end of the second quarter was $161bn, of which $96bn was from commercial aerospace and $65bn was from defense.
Notable defense bookings during the quarter included:
- $4.0bn for F135 production Lots 15 and 16 at Pratt & Whitney
- $1.2bn of classified bookings at Raytheon Intelligence & Space (RIS)
- $662m for Stinger replenishment for the U.S. Army at Raytheon Missiles & Defense (RMD)
- $648m for Standard Missile-3 (SM-3) for the Missile Defense Agency (MDA) at RMD
- $423m for a SPY-6 Hardware Production and Sustainment contract for the U.S. Navy at RMD
- $408m for F135 sustainment services at Pratt & Whitney
- $253m on the Development, Operations and Maintenance (DOMino) cyber program for the Department of Homeland Security (DHS) at RIS
- $217m for Tomahawk for the U.S. Navy at RMD
The company’s reportable segments are Collins Aerospace, Pratt & Whitney, Raytheon Intelligence & Space (RIS) and Raytheon Missiles & Defense (RMD).
Collins Aerospace had second quarter 2022 adjusted sales of $5,011m, up 10 percent versus the prior year. The increase in sales was driven by a 25 percent increase in commercial aftermarket and a 14 percent increase in commercial OE, which more than offset a 6 percent decline in military. The increase in commercial sales was driven primarily by the recovery of commercial air traffic which has resulted in higher flight hours, aircraft fleet utilization, and narrowbody OE volume. This was partially offset by lower material receipts on military programs and expected declines in F-35 volume. Collins Aerospace recorded adjusted operating profit of $617m in the quarter, up 19 percent versus the prior year. The increase in adjusted operating profit was primarily driven by drop through on higher commercial aftermarket, which more than offset higher SG&A expense, the absence of prior year favorable contract settlements, and lower military sales volume.
Pratt & Whitne
Pratt & Whitney had second quarter 2022 adjusted sales of $4,969m, up 16 percent versus the prior year. The increase in sales was driven by a 26 percent increase in commercial aftermarket, a 22 percent increase in commercial OE, and a 5 percent increase in military. The increase in commercial sales was primarily due to higher shop visits and related spare part sales and favorable large engine mix and volume. The increase in military sales was driven primarily by the timing of the award for the Lot 15 and 16 F135 production contract in Q2 and higher F135 aftermarket volume.
Pratt & Whitney recorded adjusted operating profit of $303m in the quarter, up 216 percent versus the prior year. The increase in adjusted operating profit was primarily driven by drop through on higher commercial aftermarket sales volume, favorable commercial OE mix, and higher military sales volume. This was partially offset by higher SG&A and R&D.
Raytheon Intelligence & Space
RIS had second quarter 2022 adjusted sales of $3,570m, down 6 percent versus the prior year. The decrease in sales was primarily driven by the divestiture of the Global Training and Services business. Excluding the impact of acquisitions and divestitures, sales were down 1 percent versus prior year. Lower expected sales in Command, Control and Communications as well as lower sales within Sensing and Effects were partially offset by higher sales in classified cyber programs within Cyber, Training and Services.
RIS recorded adjusted operating profit of $315m, down 24 percent versus the prior year. The decrease in adjusted operating profit was primarily driven by lower net program efficiencies, including unfavorable development program adjustments, the impact of the Global Training and Services divestiture, and the absence of a prior year land sale.
Raytheon Missiles & Defense
RMD had second quarter 2022 adjusted sales of $3,558m, down 11 percent versus prior year. The decrease in sales was primarily driven by continuing supply chain constraints and expected declines on certain Land Warfare and Air Defense programs, which were partially offset by higher volume on SPY-6 production and Next Generation Interceptor development.
RMD recorded adjusted operating profit of $348m, down 35 percent versus the prior year. The decrease in adjusted operating profit was driven primarily by lower net program efficiencies across various programs resulting from continued supply chain constraints, unfavorable program mix and lower volume primarily in Land Warfare and Air Defense programs.
About Raytheon Technologies
Raytheon Technologies Corporation is an aerospace and defense company that provides advanced systems and services for commercial, military and government customers worldwide. With four industry-leading businesses ― Collins Aerospace Systems, Pratt & Whitney, Raytheon Intelligence & Space and Raytheon Missiles & Defense ― the company delivers solutions that push the boundaries in avionics, cybersecurity, directed energy, electric propulsion, hypersonics, and quantum physics. The company, formed in 2020 through the combination of Raytheon Company and the United Technologies Corporation aerospace businesses, is headquartered in Arlington, Virginia.
28 Jul 22. Textron Reports Second Quarter 2022 Results
- EPS from continuing operations of $1.00, up $0.19 from the second quarter of 2021
- Aviation backlog $5.8bn, up $708m from the first quarter of 2022
- Net cash from operating activities of $364 m in the second quarter of 2022
- $282 m returned to shareholders through share repurchases in the second quarter of 2022
Textron Inc. (NYSE: TXT) today reported second quarter 2022 income from continuing operations of $1.00 per share, compared with $0.81 per share in the second quarter of 2021.
“We saw another solid quarter of earnings and cash generation in the second quarter,” said Textron Chairman and CEO Scott C. Donnelly. “At Aviation, we saw continued growth, strong execution and ongoing order momentum.”
Net cash provided by operating activities of the manufacturing group for the second quarter was $364m, compared to $572m last year. Manufacturing cash flow before pension contributions, a non-GAAP measure that is defined and reconciled to GAAP in an attachment to this release, totaled $309m for the second quarter, compared to $509m last year.
In the quarter, Textron returned $282 m to shareholders through share repurchases.
Textron reiterated its full year earnings per share expectation of $3.80 to $4.00. Textron now expects 2022 cash flow from continuing operations of the manufacturing group before pension contributions to be in a range of $800 to $900m, up $100m from the previous outlook.
Second Quarter Segment Results
Revenues at Textron Aviation of $1.3bn were up $12 m from the second quarter of 2021, largely due to higher aircraft and aftermarket volume.
Textron Aviation delivered 48 jets in the quarter, up from 44 last year, and 35 commercial turboprops, up from 33 in last year’s second quarter.
Segment profit was $155m in the second quarter, up $59m from a year ago, due to the impact from higher volume and mix of $25 m, a favorable impact from performance of $19 m and favorable pricing, net of inflation of $15m.
Textron Aviation backlog at the end of the second quarter was $5.8bn.
Bell revenues were $687m, down $204m from last year, due to lower military revenues of $170m, primarily related to the H-1 program, and lower commercial revenues of $34m.
Bell delivered 34 commercial helicopters in the quarter, down from 47 last year.
Segment profit of $63m was down $47m from last year’s second quarter, primarily reflecting the lower volume and mix, partially offset by a favorable impact from performance of $16m, which included lower operating expenses, partially offset by an unfavorable change in net program adjustments.
Bell backlog at the end of the second quarter was $5.3bn.
Revenues at Textron Systems were $293m, down $40m from last year’s second quarter due to lower volume of $44m, primarily reflecting the impact of the U.S. Army’s withdrawal from Afghanistan on our fee-for-service and aircraft support contracts.
Segment profit of $42m was down $6m, compared with the second quarter of 2021, primarily due to the lower volume and mix.
Textron Systems’ backlog at the end of the second quarter was $2.1bn.
Industrial revenues were $871m, up $77m from last year’s second quarter, primarily due to a favorable impact from pricing and higher volume and mix, principally in the Specialized Vehicles product line.
Segment profit of $41m was up $9m from the second quarter of 2021, primarily due to the higher volume and mix.
Textron eAviation segment revenues were $5m in the second quarter of 2022 and segment loss was $8m in the quarter.
Finance segment revenues were $14m, and profit was $10m.
(Source: BUSINESS WIRE)