30 Jan 21. US Majors Reported resilience in Results in the Fourth-Quarter reporting season, shrugging off the problems arising from the COVID-19 outbreak. Civil sales suffered drops due to the drop in civil aviation but defense sales continued to grow in most areas. Lockheed and GD showed a rare profit miss whilst Raytheon’s results exceeded expectations and the stock rose accordingly.

One result, as reported by Defense One on January 27^th was that Lockheed overtook Boeing as the largest US Aerospace and Defense Firm. Boeing, which saw no defense revenue growth last year, takes another financial hit from the tanker program. Boeing ceded its long-held top spot as America’s largest aerospace and defense firms to Lockheed Martin after reporting financial results from an abysmal 2020 on Wednesday. The Chicago-based company also said it would lose another $275m building Air Force KC-46 tankers because of “program primarily due to production inefficiencies including impacts of COVID-19 disruption.” The company has lost more than $4bn on the project.

The company closed 2020 — a year that saw the collapse of passenger air travel from the coronavirus pandemic and the return to flight of the 737 Max airliner — with just under $58.2bn in revenue, down 24 percent from the previous year.

While Lockheed — which on Tuesday reported $65.4bn in 2020 sales — has long been the world’s largest defense contractor, revenue from Boeing’s commercial airplane business has combined with its military work to keep it atop the defense-and-aerospace category for decades.

Boeing’s defense and space sales were flat year-over-year at just shy of $26.3bn. Its services business, which includes defense work, made $15.5bn, down 16 percent as thousands of aircraft remain grounded due to the pandemic.

“Overall, the government services and defense and space businesses remain significant and relatively stable and we continue to see solid global demand for our major programs,” CEO David Calhoun said on the company’s quarterly earnings call Wednesday. “Nevertheless, the scale of government spending on COVID-19 response has the potential to add pressure to global defense spending in the years ahead.”

U.S. defense spending is expected to flatten or decline in coming years as the Biden administration and a Democrat-controlled Congress focus more on domestic issues.

Calhoun said the company expects its defense business to grow in the “lower end of the single digits” in coming years.

“It’s hard to commit to a big uptick in any way on growth rates anytime soon, in light of what I think are the pressures,” he said.

Calhoun, who became CEO of the firm one year ago this month, said the coronavirus would continue to delay international defense contracts.

“The order activity in those international markets has pushed to the right, somewhat of an almost entirely because of COVID-related stuff, not because of any competitive issue one way or the other,” he said.

Like many of his colleagues in recent years, Calhoun touted Boeing’s classified military work as being “incredibly encouraging and incredibly important to us.”

Despite the continued problems with the KC-46, the Air Force has purchased 94 of a planned 179 aircraft. Just this month, it placed two orders totaling $3.8bn for 27 aircraft.

The FAA last month cleared the 737 Max for passenger flights in the United States. Some airlines have already resumed flights across North and South America.  European regulators on Wednesday said the plane can resume flights across the continent.

Boeing also disclosed Wednesday that it would not deliver its first 777X, a larger, more efficient version of the popular 777 jetliner, until late 2023. (Source: Defense One)

On Jan 27^th, Defense News reported that Boeing’s cost overruns on KC-46 now exceed initial contract with US Air Force. With the Jan. 27 announcement of a new $275m charge on the KC-46, Boeing has now paid as much in cost overruns for the troubled program as the U.S. Air Force invested in the tanker’s development.

The new charge, which the company reported as part of fourth-quarter 2020 earnings, means Boeing has now paid more than $5.0bn out of pocket to pay for the myriad technical problems and production issues that have cropped up since the company won the program in 2011. Under the firm, fixed-price contract signed then, Boeing is responsible for paying for any costs in excess of the contract’s $4.9bn ceiling.

The latest KC-46 overrun occurred “primarily due to production inefficiencies including impacts of COVID-19 disruption,” the company said.

Steve Trimble of Aviation Week put together a list of KC-46 charges by year, finding that the program documented its largest overrun in 2020 despite seeing charges decrease to only $148m in 2019.

The company previously attributed $494m in charges to the ongoing pandemic during the first, second and third quarters of 2020.

The KC-46 is a commercial-derivative plane based on the Boeing 767 airliner. Because it is manufactured on the 767 production line in Everett, Washington, before undergoing military-specific upgrades, any slowdown in commercial plane volume also makes it more expensive to produce the KC-46.

On January 26^th Reuters reported that Lockheed Martin reports rare profit miss as pandemic hits F-35 deliveries. Lockheed Martin Corp on Tuesday missed profit estimates for the first time in the last eight quarters as the COVID-19 pandemic disrupted deliveries of the U.S. weapons maker’s F-35 jets and caused supplier delays.Shares of the company were down about 2.3% after it said fourth-quarter deliveries of its F-35 jets fell to 42 from 51 a year earlier.

Progressive Democrats in Congress have called for cuts in military spending amid the global health crisis, although analysts have said sudden changes are unlikely in an industry that has supported countless jobs during the recession.

Analysts, however, were optimistic about Lockheed’s prospects, citing the company’s strong balance sheet and demand for its offerings.

Lockheed’s move to raise its full-year cash from operations outlook to at least $8.30bn from a prior $8.1bn, along with a robust backlog, shows the defense sector remains a very resilient business, an analyst from Vertical Research Partners said.

Bethesda, Maryland-based Lockheed signed deals with United Arab Emirates, Japan and Taiwan in the last quarter, while Israel said earlier this month it was looking to expand its squadron of stealth F-35 warplanes.

“The Missiles business remained solid, aided by global defense spending,” Jeff Windau, an analyst at Edward Jones, said in an email. Lockheed’s missiles and fire control unit, which makes missile defenses like the Terminal High Altitude Area Defense (THAAD) saw fourth-quarter sales increase $97m, or 4% over the same period a year earlier despite headwinds from the ongoing pandemic.

Lockheed now expects 2021 revenue between $67.10bn to $68.50bn, in line with analysts’ expectation of revenue of about $68.04bn, according to IBES data from Refinitiv.

Full-year earnings for 2021 are expected to be in the range of $26.00 to $26.30 per share.

Net earnings rose to $1.79bn, or $6.38 per share, in the fourth quarter ended Dec. 31, from $1.5bn, or $5.29 per share, a year earlier.

Analysts on average had expected net earnings of $6.41 per share.

Net sales rose 7.3% to $17.03bn, above estimates of $16.92bn.

On January 27^th Reuters reported that General Dynamics profit misses, but 2021 outlook boosts shares. Defense contractor General Dynamics Corp missed Wall Street estimates for quarterly profit and revenue on Wednesday, as its aerospace unit delivered fewer Gulfstream jets due to the COVID-19 pandemic, but 2021 revenue guidance sent shares up nearly 4% in early trading. During a post earnings conference call Phebe Novakovic, the General Dynamics CEO, said she expected 2021 revenue to be up $1bn to $39bn and forecast earnings share in the range of $11.00 to $11.05 per fully diluted share.

The 2021 outlook counteracted investor disappointment that quarterly Gulfstream jet deliveries declined to 40 units from 44 a year ago, which sent shares down slightly in early trading.

Business jet deliveries in 2020 were hampered by coronavirus shutdowns, making it harder for defense contractors like General Dynamics to deliver jets due to COVID-related travel restrictions and factory slow-downs.

Sales in the company’s aerospace unit posted a 16.9% fall to $2.44bn. Total revenue fell 2.7% to $10.48bn.

However, the broader business jet market saw an order boost late in 2020 as U.S. buyers rushed to take advantage of favorable tax rules they feared could change under the new Biden administration.

During the quarter, General Dynamics’ marine systems unit, which makes ships and submarines for the U.S. Navy, was awarded a $9.47bn contract for the construction of Columbia class submarines, moving the U.S. Navy’s top procurement priority out of the early-construction phase.

The shift to the construction phase for the first two Columbia class submarines added to General Dynamics’ backlog which sat at record-high $89.5bn at the end of the year.

Net earnings fell to $1bn, or $3.49 per share, in the fourth quarter ended Dec. 31, from $1.02bn, or $3.51 per share, a year earlier.

Analysts on average expected earnings of $3.54 per share on a revenue of $10.78bn, according to Refinitiv data.

On January 26^th Reuters reported that Raytheon posted better-than-expected profit and sales, shares jump. U.S. aerospace manufacturer Raytheon Technologies Corp reported better than expected quarterly profit and sales Tuesday but forecast lower than expected 2021 revenue amid a slow global economic environment triggered by disruptions from the COVID-19 pandemic.

Shares of the company rose as much as 6% in early trading after the company said its free cash flow could almost double to $4.5bn in 2021.

However, the company provided a full-year revenue outlook of about $63.4bn to $65.4bn which was below analysts’ estimate for revenue of about $67.28bn.

Still, the Waltham, Massachusetts-based company said it now expects 2021 full-year earnings per share to be in the range of $3.40 per share to $3.70 per share, beating analysts’ average expectation of $3.47 per share, according to IBES data from Refinitiv.

Raytheon also beat its 2020 cash flow guidance of about $2bn by posting $2.3bn, thanks to stability in its defense unit that contributes to more than half of the company’s overall sales.

Although progressive Democrats in Congress have called for cuts in military spending amid the pandemic, analysts have said sudden changes are unlikely in an industry that supports countless jobs during the recession.

The newly installed U.S. Secretary of Defense, Lloyd Austin, resigned from Raytheon’s board of directors on Friday following his confirmation by the U.S. Senate. Austin has told Congress he will recuse himself of Raytheon-related matters at the Pentagon.

On an adjusted basis, Raytheon earned $0.74 per share in the quarter, beating analysts’ estimate of $0.70 per share.

Net sales in the quarter were $16.4bn, just below analysts’ expectation of $16.92bn.

The company, which had about 195,000 employees when it merged with United Technologies last April, has laid off nearly 20,000 full-time and contract employees in its commercial aerospace business, which makes aircraft engines and spare parts.

Raytheon’s backlog at the end of the fourth quarter was $150.1bn and comprised of $82.8bn from commercial aerospace and $67.3bn from defense.

The company expects a 2021 tax rate about 19% versus 17.5% in 2020, management said on a post-earnings conference call with investors.

On January 29^th Reuters reported that Honeywell profit dropped 13% as pandemic hits aerospace sales. Honeywell International Inc HON.N on Friday reported a 13% fall in quarterly profit as the coronavirus crisis hurt sales in its main aerospace business, which makes parts for Boeing BA.N and Airbus AIR.PA planes. Still, the company forecast a rise in 2021 sales, likely expecting to benefit from deliveries of Boeing’s 737 MAX jet, which has been cleared to fly after a 20-month ban.

Boeing will mainly ship the 737 MAX jets this year from its stored inventory of about 450 planes, while slowly ramping up production of the jet as air travel picks up with the roll-out of coronavirus vaccines.

Honeywell’s aviation unit is also seeing improved demand for spares for business jets, as wealthy travelers look to avoid commercial flights during the COVID-19 pandemic.

The company forecast 2021 sales between $33.4bn and $34.4bn, up 2% to 5% compared with 2020, though the midpoint came in slightly below analysts’ expectation of $33.95bn.

Net income attributable to Honeywell fell to $1.36bn, or $1.91 per share, in the fourth quarter ended Dec. 31, from $1.56bn, or $2.16 per share, a year earlier.

Boeing

General Dynamics

Honeywell

L3Harris

Lockheed Martin

Northrop Grumman

Raytheon Technologies

Textron

Boeing

 

 

27 Jan 21. Boeing Reports Fourth-Quarter Results.

Fourth Quarter 2020

• Financial results significantly impacted by COVID-19, 737 MAX grounding, and commercial widebody programs
• 777X program recorded $6.5 bn pre-tax charge; first delivery expected in late 2023
• 737 MAX began receiving regulatory approval to resume operations and restarted deliveries
• Revenue of $15.3 bn, GAAP loss per share of ($14.65) and core (non-GAAP)* loss per share of ($15.25)

Full-Year 2020

• Revenue of $58.2 bn, GAAP loss per share of ($20.88) and core (non-GAAP)* loss per share of ($23.25)
• Operating cash flow of ($18.4) bn; cash and marketable securities of $25.6 bn
• Total backlog of $363 bn, including more than 4,000 commercial airplanes
• Strengthening safety processes, improving performance, managing liquidity and transforming for the future

The Boeing Company [NYSE: BA] reported fourth-quarter revenue of $15.3 bn, reflecting lower commercial deliveries and services volume primarily due to COVID-19 as well as 787 production issues, partially offset by a lower 737 MAX customer considerations charge in the quarter compared to the same period last year. GAAP loss per share of ($14.65) and core loss per share (non-GAAP)* of ($15.25) reflected a $6.5bn pre-tax charge on the 777X program and a tax valuation allowance, partially offset by a lower 737 MAX customer considerations charge. Boeing recorded operating cash flow of ($4.0)bn.

“2020 was a year of profound societal and global disruption which significantly constrained our industry. The deep impact of the pandemic on commercial air travel, coupled with the 737 MAX grounding, challenged our results. I am proud of the resilience and dedication our global team demonstrated in this environment as we strengthened our safety processes, adapted to our market and supported our customers, suppliers, communities and each other,” said Boeing President and Chief Executive Officer Dave Calhoun. “Our balanced portfolio of diverse defense, space and services programs continues to provide important stability as we lay the foundation for our recovery. While the impact of COVID-19 presents continued challenges for commercial aerospace into 2021, we remain confident in our future, squarely-focused on safety, quality and transparency as we rebuild trust and transform our business.”

The return to service of the 737 MAX in the U.S. and several other markets was an important step, and Boeing continues to follow the lead of global regulators and support its customers. Since the FAA’s approval to return to operations, Boeing has delivered over 40 737 MAX aircraft and five airlines have safely returned their fleets to service as of January 25, 2021, safely flying more than 2,700 revenue flights and approximately 5,500 flight hours.

Boeing now anticipates that the first 777X delivery will occur in late 2023. This schedule, and the associated financial impact, reflect a number of factors, including an updated assessment of global certification requirements, the company’s latest assessment of COVID-19 impacts on market demand, and discussions with its customers with respect to aircraft delivery timing.

The company continues to progress through its business transformation effort across five key areas including its infrastructure footprint, overhead and organizational structure, portfolio and investment mix, supply chain health and operational excellence. Boeing will continue these actions in 2021 to preserve liquidity, adapt to the new market, improve performance, sustain key investments and transform its business to be more productive, resilient and competitive for the long term.

Cash and investments in marketable securities decreased to $25.6bn, compared to $27.1bn at the beginning of the quarter, primarily driven by operating cash outflows partially offset by changes in the debt balance.

Total company backlog at quarter-end was $363bn.

Segment Results

Commercial Airplanes

Commercial Airplanes fourth-quarter revenue decreased to $4.7bn, driven by lower widebody delivery volume due to COVID-19 impacts as well as 787 production issues, partially offset by higher 737 deliveries and a lower 737 MAX customer consideration charge in the quarter compared to the same period last year. Fourth-quarter operating margin decreased to (161.8) percent, primarily driven by a $6.5bn pre-tax charge on the 777X program, lower delivery volume, and $468 m of abnormal production costs related to the 737 program, partially offset by a lower 737 MAX customer consideration charge.

Commercial Airplanes production rate assumptions reflect the continued impacts of COVID-19 on commercial demand, and the company will continue to assess them on an ongoing basis. The 737 program is currently producing at a low rate and expects to gradually increase production to 31 per month in early 2022 with further gradual increases to correspond with market demand. The 787 program plans to transition its production rate to 5 per month in March 2021, at which point 787 final assembly will be consolidated to Boeing South Carolina.

As discussed above, Commercial Airplanes now expects first delivery of the 777X to occur in late 2023 and has recorded a $6.5bn reach-forward loss on the 777X program. Among the factors contributing to the revised first delivery schedule and reach-forward loss are an updated assessment of certification requirements based on ongoing communication with civil aviation authorities, an updated assessment of market demand based on continued dialogue with customers, resulting adjustments to production rates and the program accounting quantity, increased change incorporation costs, and associated customer and supply chain impacts. The production rate expectation for the combined 777/777X program remains at 2 per month in 2021.

Commercial Airplanes captured orders for 75 737 aircraft from Ryanair and eight 777 freighters from DHL, as well as a commitment for 23 737 aircraft from Alaska Airlines. Commercial Airplanes delivered 59 airplanes during the quarter, and backlog included over 4,000 airplanes valued at $282 bn.

Defense, Space & Security

Defense, Space & Security fourth-quarter revenue increased to $6.8bn, primarily driven by higher volume on fighter programs and the rest of the portfolio as well as a charge on the Commercial Crew program in the same period last year. Fourth-quarter operating margin increased to 7.4 percent reflecting more favorable performance on multiple programs compared with the same period last year, partially offset by a $275m pre-tax charge on the KC-46A Tanker program primarily due to production inefficiencies including impacts of COVID-19 disruption.

During the quarter, Defense, Space & Security was awarded contracts for two KC-46A aircraft for Japan and AEW&C upgrades for the Republic of Korea Air Force. Defense, Space & Security achieved first flight of the MQ-25 unmanned aircraft with an aerial refueling store and demonstrated ski-jump launch capability of the F/A-18 Super Hornet for the Indian Navy. Also in the quarter, Defense, Space & Security completed engineering design review for the Wideband Global SATCOM-11+ communications satellite and critical design review of the Space Launch System Exploration Upper Stage for NASA.

Backlog at Defense, Space & Security was $61bn, of which 32 percent represents orders from customers outside the U.S.

Global Services

Global Services fourth-quarter revenue decreased to $3.7 bn, driven by lower commercial services volume due to COVID-19 (Table 6). Fourth-quarter operating margin decreased to 3.8 percent primarily due to lower commercial services volume and $290 m of pre-tax charges related to asset impairments driven by COVID-19.

During the quarter, Global Services was awarded a Performance Based Logistics contract for the Republic of Singapore Air Force F-15SG fleet, secured a F-15 spares and logistics support contract with the Qatar Emiri Air Force, and was selected to provide P-8A training for the Royal New Zealand Air Force. Global Services also announced a 10-year digital services agreement with Frontier Airlines.

Additional Financial Information

At quarter-end, Boeing Capital’s net portfolio balance was $2.0bn. The change in revenue from other unallocated items and eliminations was primarily due to the timing of eliminations for intercompany aircraft deliveries. Other unallocated items and eliminations included a $744m charge related to the previously announced agreement between Boeing and the U.S. Department of Justice in January 2021. Interest and debt expense increased due to higher debt balances. The fourth quarter 2020 effective tax rate primarily reflects an additional valuation allowance on certain deferred income tax assets, partially offset by the benefit of the five year net operating loss carryback provision in the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

Non-GAAP Measures Disclosures

We supplement the reporting of our financial information determined under Generally Accepted Accounting Principles in the United States of America (GAAP) with certain non-GAAP financial information. The non-GAAP financial information presented excludes certain significant items that may not be indicative of, or are unrelated to, results from our ongoing business operations. We believe that these non-GAAP measures provide investors with additional insight into the company’s ongoing business performance. These non-GAAP measures should not be considered in isolation or as a substitute for the related GAAP measures, and other companies may define such measures differently. We encourage investors to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure. The following definitions are provided:

Core Operating Earnings, Core Operating Margin and Core Earnings Per Share

Core operating earnings is defined as GAAP earnings from operations excluding the FAS/CAS service cost adjustment. The FAS/CAS service cost adjustment represents the difference between the FAS pension and postretirement service costs calculated under GAAP and costs allocated to the business segments. Core operating margin is defined as core operating earnings expressed as a percentage of revenue. Core earnings per share is defined as GAAP diluted earnings per share excluding the net earnings per share impact of the FAS/CAS service cost adjustment and Non-operating pension and postretirement expenses. Non-operating pension and postretirement expenses represent the components of net periodic benefit costs other than service cost. Pension costs, comprising service and prior service costs computed in accordance with GAAP are allocated to Commercial Airplanes and BGS businesses supporting commercial customers. Pension costs allocated to BDS and BGS businesses supporting government customers are computed in accordance with U.S. Government Cost Accounting Standards (CAS), which employ different actuarial assumptions and accounting conventions than GAAP. CAS costs are allocable to government contracts. Other postretirement benefit costs are allocated to all business segments based on CAS, which is generally based on benefits paid. Management uses core operating earnings, core operating margin and core earnings per share for purposes of evaluating and forecasting underlying business performance. Management believes these core earnings measures provide investors additional insights into operational performance as they exclude non-service pension and post-retirement costs, which primarily represent costs driven by market factors and costs not allocable to government contracts. A reconciliation between the GAAP and non-GAAP measures is provided on pages 13-14.

Free Cash Flow

Free cash flow is GAAP operating cash flow reduced by capital expenditures for property, plant and equipment. Management believes free cash flow provides investors with an important perspective on the cash available for shareholders, debt repayment, and acquisitions after making the capital investments required to support ongoing business operations and long term value creation. Free cash flow does not represent the residual cash flow available for discretionary expenditures as it excludes certain mandatory expenditures such as repayment of maturing debt. Management uses free cash flow as a measure to assess both business performance and overall liquidity. Table 2 provides a reconciliation of free cash flow to GAAP operating cash flow.

General Dynamics

 

General Dynamics Reports Fourth-Quarter and Full-Year 2020 Financial Results

• Strong fourth quarter performance in COVID environment
• $3.9 bn net cash provided by operating activities for the year, 122% of net earnings
• Record-high backlog of $89.5bn

27 Jan 21. General Dynamics (NYSE: GD) today reported quarterly net earnings of $1bn, or $3.49 per diluted share, on $10.5bn in revenue. For the full year, net earnings were $3.2bn, or $11.00 per diluted share, on revenue of $37.9bn.

On a sequential basis, both net earnings and earnings per share (EPS) were up 20% from the previous quarter. Operating margin was 12.3% in the quarter, up 90 basis points sequentially and up 20 basis points from the year-ago quarter. Backlog grew 9.8% in the quarter to a record-high $89.5 bn.

“Our continued focus on operating performance and on protecting the health and safety of our employees contributed to strong sequential improvements in earnings, margin and cash flow,” said Phebe N. Novakovic, chairman and chief executive officer. “Our defense segments continued to capture significant awards, leading to a record-high backlog, while our aerospace segment not only remained very profitable, but actually improved its margins throughout the year, even as the broader business aviation industry contracted severely due to the pandemic.”

Margin

Company-wide operating margin was 12.3%, up 90 basis points from the prior quarter. Aerospace margin was 16.5%, up 220 basis points from the prior quarter.

Cash

Net cash provided by operating activities in the quarter totaled $2.6bn, or 256% of net earnings. For the year, net cash provided by operating activities totaled $3.9bn, or 122% of net earnings. Free cash flow from operations, defined as net cash provided by operating activities less capital expenditures, was $2.2bn for the quarter, a 221% conversion of net earnings, and $2.9bn for the year, a 91% conversion of net earnings. During the quarter, the company reduced its net debt by $1.7bn, invested $345 m in capital expenditures, paid $315m in dividends, and repurchased $100.7m in shares at an average price of $143.80, ending 2020 with $2.8bn in cash and equivalents on hand.

Backlog

Orders remained strong across the company with a consolidated book-to-bill of 1.8-to-1 for the quarter and 1.1-to-1 for the year. In addition to backlog of $89.5bn, management’s estimate of additional value in unfunded indefinite delivery/indefinite quantity (IDIQ) contracts and unexercised options was $45.2bn at year-end. Total estimated contract value, representing the sum of all backlog components was $134.7bn, up 6.7% for the year.

Significant awards in the fourth quarter included a $9.5bn option exercise from the U.S. Navy for construction and test of the first two Columbia-class submarines; $4.4bn maximum potential value contract from the U.S. Department of Defense to provide cloud solutions for Office 365 deployment and migration; a $3.3bn maximum potential value contract from the U.S. State Department to provide business process support services; a $695m contract from the U.S. Army to provide information technology and professional services; $620m for several key contracts for classified customers; a $405m initial task order on a $4.3bn maximum potential value contract to upgrade Abrams tanks for the Army; a $230 m initial task order on an Army contract with a maximum potential contract value of $1.2bn to produce Stryker Initial Maneuver Short-Range Air Defense (IM-SHORAD) vehicles; $375 m from the Navy to provide lead yard services for the Virginia-class submarine program; and $265m from the Navy for maintenance and repair services for three ship classes.

Honeywell

 

 

Honeywell Overdelivers on Sales, Announces Four Acquisitions in the Fourth Quarter; Issues 2021 Guidance

• Reported Fourth Quarter Earnings Per Share of $1.91 and Adjusted EPS¹ of $2.07, Above High End of Guidance
• Delivered Fourth Quarter Operating Cash Flow of $2.8 Bn, Conversion of 205%, and Free Cash Flow of $2.5 Bn, Adjusted Conversion² of 170%
• Completed Three M&A Deals Aligned to Key Growth Vectors and Announced Agreement to Acquire Sparta Systems for $1.3 Bn
• Expect 2021 Earnings Per Share of $7.60 – $8.00, Up 13% – 19%, 7% – 13% Adjusted³

29 Jan 21. Honeywell (NYSE: HON) today announced results for the fourth quarter and full year 2020 that exceeded investor expectations, as well as its outlook for 2021.

The company reported a fourth-quarter year-over-year sales decline of 6%, down 7% on an organic basis, and a full-year sales decline of 11% on a reported and organic basis. For the full year, operating margin contracted 120 basis points and segment margin contracted 70 basis points, with earnings per share of $6.72 and adjusted earnings per share⁴ of $7.10, above the high end of our guidance.

“We finished a challenging 2020 with another quarter of sequential improvements in sales growth, margin expansion, and adjusted earnings per share,” said Darius Adamczyk, chairman and chief executive officer of Honeywell. “Our focus on delivering differentiated solutions drove double-digit organic sales growth in our defense and space, warehouse automation, personal protective equipment, and recurring connected software businesses for the second consecutive quarter. We continued to prudently reduce costs in the quarter, bringing our full-year total fixed cost savings to $1.5bn. Our fourth quarter adjusted earnings per share was $2.07, flat year-over-year on an adjusted basis¹ and above the high end of our guidance. We also continued our focus on generating cash and achieved 170% adjusted free cash flow conversion² in the quarter. For the year, we generated $6.2bn in operating cash flow with 130% conversion and $5.3bn in free cash flow with 105% adjusted free cash flow conversion⁵.

“Honeywell’s strong balance sheet put us in a good position to weather the challenges of 2020 while investing for future growth. We invested in high-return capital expenditures, repurchased $3.7bn of Honeywell shares, completed three acquisitions, made six new investments within Honeywell Ventures, and announced our 11th consecutive dividend increase. Even with this level of cash deployment, we ended 2020 with $15.2bn of cash and short-term investments on hand,” Adamczyk said.

The company also announced its outlook for 2021. Honeywell expects sales of $33.4bn to $34.4bn, representing year-over-year organic growth of 1% to 4%; segment margin expansion of 30 to 70 basis points; earnings per share of $7.60 to $8.00, up 7% to 13% adjusted³; operating cash flow of $5.7bn to $6.1bn, and free cash flow⁶ of $5.1 n to $5.5bn.

Adamczyk concluded, “I am very proud of the way Honeywell responded to the crisis in 2020. We quickly focused on liquidity, cost management, and execution, while rapidly innovating and ramping up production of a wide array of offerings to help the world recover, including critical personal protective equipment. We also remained focused on growth and investing in new markets and technologies. We entered 2021 with positive momentum following two quarters of sequential improvement. I am confident we are well-positioned for the economic recovery and will continue to perform for our shareowners, our customers, and our employees in the short and long term.”

Fourth-Quarter Performance

Honeywell sales for the fourth quarter were down 6% on a reported basis and down 7% on an organic basis. The fourth-quarter financial results can be found in Tables 2 and 3.

Aerospace sales for the fourth quarter were down 19% on an organic basis driven by lower commercial aftermarket demand due to the ongoing impact of reduced flight hours and lower volumes in commercial original equipment, partially offset by double-digit growth in Defense and Space. Segment margin expanded 150 basis points to 27.6% driven by productivity actions and commercial excellence.

Honeywell Building Technologies sales for the fourth quarter were down 4% on an organic basis driven by timing of Building Solutions projects and lower demand for security products and building management systems, partially offset by growth in commercial fire. Building Solutions orders were up double digits year-over-year, driven by large project bookings in the Americas and Europe. Segment margin expanded 110 basis points to 21.4%. Margin performance was driven by commercial excellence and productivity actions.

Performance Materials and Technologies sales for the fourth quarter were down 12% on an organic basis driven by continued delays in Process Solutions automation projects as well as volume declines in smart energy and thermal solutions, and lower gas processing projects, catalyst shipments, licensing, and engineering due to softness in the oil and gas sector in UOP, partially offset by return to growth in Advanced Materials driven by demand for fluorine products. Segment margin contracted 380 basis points to 18.7% driven by the impact of lower sales volumes and mix, partially offset by productivity actions.

Safety and Productivity Solutions sales for the fourth quarter were up 27% on an organic basis driven by double-digit Intelligrated and personal protective equipment growth as well as strength in productivity solutions and services. Orders were up double digits year-over-year for the fifth straight quarter, driven by strong personal protective equipment and productivity solutions and services orders growth. Backlog remained at a record high. Segment margin expanded 260 basis points to 15.3% driven by productivity actions and higher volumes.

L3Harris

 

 

 

29 Jan 21.  L3Harris Reports Fourth Quarter and 2020 Results; Initiates 2021 Guidance.

• Fourth Quarter 2020 Results
  • Revenue of $4.7bn, down 3.6% versus prior year; flat on an organic1 basis; funded book-to-bill of 0.93
  • Net income margin of 3.9%; adjusted earnings before interest and taxes (EBIT)2 margin of 18.5%
  • GAAP earnings per share from continuing operations (EPS) of $0.92, down 48%
  • Non-GAAP EPS2 of $3.14, up 10%
  • Operating cash flow of $698 m; adjusted free cash flow (FCF)2 of $642 m
• Full Year 2020 Results
  • Revenue of $18.2bn, up 42% versus prior year, 0.5% versus prior-year pro forma3, and 2.9% on an organic basis; funded book-to-bill of 1.04
  • Net income margin of 6.0%; adjusted EBIT margin of 18.0%
  • GAAP EPS of $5.19, down 34%; non-GAAP EPS of $11.60, up 13%
  • Operating cash flow of $2,790 m; adjusted FCF of $2,686 m
• Initiated 2021 guidance consistent with medium-term growth framework
• Raised quarterly dividend by 20% and established new $6 bn share repurchase authorization

-L3Harris Technologies, Inc. (NYSE: LHX) reported fourth quarter 2020 revenue of $4.7bn, down 3.6% versus prior year, and flat on an organic1 basis. GAAP net income was $184m, down 54% versus prior year. Adjusted EBIT2 was $864m, up 3.5% versus prior year, and adjusted EBIT margin expanded 120 basis points (bps) to 18.5%. GAAP EPS was $0.92, down 48%, and non-GAAP EPS2 was $3.14, up 10% versus prior year.

“Thanks to the hard work of our employees we continued to deliver the benefits of the merger and ended the year with solid performance, exceeding our initial 2020 guidance for margins, EPS and free cash flow as we overcame headwinds due to the global pandemic,” said William M. Brown, Chairman and Chief Executive Officer. “We’re clearly making progress in building a high-performance, technology-focused operating company and positioning L3Harris as a full end-to-end mission solutions prime. In 2021, we’ll build on our momentum as we remain focused on meeting employee, customer and shareholder commitments.”

Summary Financial Results

Fourth Quarter 2020 Results:

Fourth quarter revenue decreased 3.6% versus prior year primarily due to divestitures and COVID-related impacts, mainly for commercial-related sales. Organic revenue was flat for the quarter as 3.7% growth in core U.S. and international businesses, excluding commercial aviation and Public Safety, was offset by the anticipated COVID-related decline. At the segment level, revenue growth was driven by Space and Airborne Systems and Communication Systems, offset by a decline in Aviation Systems primarily due to COVID-related impacts. Funded book-to-bill was 0.93 for the quarter.

Fourth quarter GAAP EPS decreased 48% versus prior year primarily due to charges for the impairment of intangibles, goodwill and other assets related to the commercial aviation business and other COVID-related impacts. These charges and other impacts were partially offset by operational excellence, integration benefits, cost management, a decrease in integration costs and a lower share count. Non-GAAP EPS increased 10% versus prior year driven by operational excellence, integration benefits, cost management and a lower share count, partially offset by COVID and divestiture-related impacts. Net income margin contracted 440 bps and adjusted EBIT margin expanded 120 bps to 18.5% versus prior year.

Full Year 2020 Results:

Full-year revenue increased 42% versus prior year primarily due to the post-merger inclusion of L3 operations in results, partially offset by divestitures and COVID-related impacts, mainly for commercial-related sales. Full-year revenue increased 0.5% versus prior-year pro forma and 2.9% on an organic basis as 5.6% growth in core U.S. and international businesses, excluding commercial aviation and Public Safety, more than offset the COVID-related decline. At the segment level, revenue growth was driven by Space and Airborne Systems, Integrated Mission Systems and Communication Systems, partially offset by a decline in Aviation Systems primarily due to COVID-related impacts. Funded book-to-bill was 1.04 for the year.

Full-year GAAP EPS decreased 34% versus prior year primarily due to charges for impairment of goodwill and other assets and other COVID-related impacts, higher amortization of acquisition-related intangibles, divestitures and a higher share count. This decline was partially offset by the inclusion of L3 operations in results for the full year in 2020 compared with only the second half in 2019, operational excellence, integration benefits, cost management and a decrease in integration costs. Full-year non-GAAP EPS increased 13% versus prior year driven by operational excellence, integration benefits, cost management and a lower share count, net of COVID and divestiture-related impacts. Net income margin contracted 450 bps and adjusted EBIT margin expanded 120 bps to 18.0% versus prior year.

Segment Results

Integrated Mission Systems

Fourth Quarter 2020 Results:

Fourth quarter revenue was flat as strong growth in Maritime from a ramp in manned and classified platforms was offset by a moderate decline in ISR due to aircraft timing and in Electro Optical due to program timing. Fourth quarter operating income increased 7.2% to $209m, and operating margin expanded 100 bps to 14.3% versus prior year, driven by cost management, integration benefits and operational excellence.

Segment funded book-to-bill was 1.04 for the quarter.

In ISR, domestic and international demand remained strong with a 5-year, $668m single-award IDIQ to perform sustainment services for the U.S. Air Force C-130, enabling the Air Force to maintain its fleet readiness. L3Harris also received $142m in international orders, including a contract to provide ISR capabilities on a fleet of maritime patrol aircraft for an Asia Pacific customer.

In Maritime, the company received a $62m follow-on award to provide power systems in support of the U.S. Navy’s Virginia-class submarine program. In addition, the company received a $60m follow-on award to provide multiple autonomous surface vehicles (ASV) with advanced capabilities for the United Kingdom and France’s joint Maritime Mine Counter Measures (MMCM) program, strengthening the company’s position as a leader in unmanned surface vessel technology.

In Electro Optical, the company received several sensor awards, including a $26m order to deliver WESCAM turrets for SOCOM’s AC-130J aircraft and an $18m order for F-35 systems. The company also reinforced its international position with a $68m award to provide WESCAM sighting sensors for the Swiss Armed Forces’ new land-based TASYS tactical reconnaissance system.

Full Year 2020 Results:

 

For the full year, the comparison to prior-year GAAP operating results is not meaningful as the segment is almost entirely comprised of former L3 businesses. Full-year revenue increased 3.3% versus prior-year pro forma driven by strong growth in Maritime, from a ramp in manned and classified platforms, and moderate growth in ISR. Full-year operating income increased 21% to $847 m versus prior-year pro forma, and operating margin expanded 230 bps to 15.3%, driven by operational excellence and integration benefits. Funded book-to-bill was 1.17.

Space and Airborne Systems

Fourth Quarter 2020 Results:

Fourth quarter revenue increased 4.3% versus prior year and 4.8% on an organic basis, primarily due to a ramp on the F-35 platform in Mission Avionics and growth in Space from recent program wins, partially offset by a moderate decline in Intel & Cyber due to program timing. Fourth quarter operating income increased 13% to $245m, and operating margin expanded 150 bps to 19.5% versus prior year, driven by cost management, operational excellence and integration benefits, net of program mix.

Segment funded book-to-bill was 0.81 for the quarter.

The Space business received several key awards that extend L3Harris’ exquisite space franchise, including contracts totaling more than $100m to deliver imaging payloads for classified customers and a $137m award to provide four fully-digital navigation payloads to be integrated into GPS III follow-on space vehicles 13 to 16.

Within Mission Avionics and Electronic Warfare, L3Harris booked more than $200m in orders on long-term platforms (F-35, F/A-18 and F-16), increasing total orders for the year to more than $1.1bn on these aircraft.

In Intel & Cyber, the company received a $320 m ceiling increase up to $800 m on an existing sole-source IDIQ contract to provide continued end-to-end mission solutions for a classified customer, sustaining its ground-based adjacency franchise.

Full Year 2020 Results:

Full-year revenue and operating income increased 14% versus prior year, primarily due to the post-merger inclusion of L3 operations in results and the factors below regarding pro forma and organic revenue growth. Full-year revenue increased 5.5% versus prior-year pro forma and 5.8% on an organic basis, primarily due to a ramp on the F-35 platform in Mission Avionics and classified growth in Intel & Cyber, partially offset by program transition timing in Space and Electronic Warfare. Full-year operating income increased 6.8% to $932 m versus prior-year pro forma, and operating margin expanded 20 bps to 18.8%, driven by cost management, operational excellence and integration benefits, net of program mix. Funded book-to-bill was 0.99.

Communication Systems

Fourth Quarter 2020 Results

Fourth quarter revenue increased 2.1% versus prior year and 3.4% on an organic basis from strong growth in Tactical Communications, primarily from the Middle East and Central Asia, as well as the continued ramp in U.S. DoD modernization. This growth was partially offset by international program timing in Integrated Vision Solutions and lower demand within Public Safety due to anticipated COVID-related impacts. Fourth quarter operating income increased 14% to $296m, and operating margin expanded 280 bps to 25.9% versus prior year from operational excellence, integration benefits and cost management.

Segment funded book-to-bill was 0.95 for the quarter.

The Broadband business secured a key strategic win of the U.S. Navy’s Next Generation Jammer Low Band (NGJ-LB) Tactical Jamming System program to upgrade airborne electronic warfare capabilities for the EA-18G Growler fleet. Under this five-year, $496m contract, the company will deliver prototype tactical jamming pods designed to extend U.S. air superiority, with a significant multi-billion-dollar follow-on opportunity.

Tactical Communications received several key awards that support U.S. DoD modernization and strengthen its domestic and international presence:

• $57m award under the U.S. Army’s $3.9bn two-channel Leader radio IDIQ contract
• $41m in orders from the U.S. Air Force for advanced two-channel Falcon IV® manpack radios as well as vehicular C4I and radio systems
• Three-year, $115m contract from the Australian Defence Force to deliver tactical radios and waveforms that support emerging crypto modernization standards
• $70 m order from a country in the Middle East for Falcon III® products, bringing total orders booked to-date to the full contract value of $174m

In addition, the company received a five-year, $88m single-award IDIQ contract, with an initial $21m order, to deliver its Panther II Very Small Aperture Terminals (VSATs) under the U.S. Marine Corps Wideband Satellite-Expeditionary (MCWS-X) modernization program.

In Integrated Vision Solutions, the company received a $105 m contract to deliver advanced night vision goggles to the Australian Army under the Land 53 Tranche 2 modernization program, following successful performance on Tranche 1 and increasing inception-to-date awards to over $300m.

Full Year 2020 Results:

Full-year revenue increased 33%, operating income increased 30 and operating margin contracted 60 bps versus prior year, primarily due to the post-merger inclusion of L3 operations in results. Full-year revenue increased 3.9% versus prior-year pro forma and 4.4% on an organic basis from strong growth in Tactical Communications, primarily from the ramp in U.S. DoD modernization that also benefited Integrated Vision Solutions, partially offset by lower demand in Public Safety due to COVID-related impacts. Full-year GAAP and non-GAAP operating income increased 13%, and operating margin expanded 200 bps to 24.4% versus prior-year pro forma from operational excellence, integration benefits and cost management. Funded book-to-bill was 0.94.

Aviation Systems

Fourth Quarter 2020 Results:

		Fourth Quarter
	($ ms)	2020				2019				Change
	(GAAP to GAAP comparison)
	Revenue	$	845			$	1,090			(22%)
	Operating income (loss)	$	(131)			$	162			(181%)
	Operating margin	(15.5)		%		14.9		%		(3,040) bps
	(Non-GAAP to non-GAAP comparison)5
	Revenue	$	845			$	1,090			(22%)
	Operating income	$	126			$	162			(22%)
	Operating margin	14.9		%		14.9		%		— bps
	(Organic revenue comparison)1
	Organic revenue	$	845			$	949			(11%)

Fourth quarter revenue decreased 22% versus prior year primarily. due to the divestiture of the airport security and automation business, and 11% on an organic basis driven by COVID-related impacts in the commercial aviation business, consistent with expectations. This decline was partially offset by growth in Defense Aviation, from a ramp on classified programs and combat propulsion systems, and higher FAA volume in Mission Networks. The fourth quarter GAAP operating loss was driven by charges for impairment of goodwill and other assets related to our commercial aviation business, other COVID-related impacts and the divestiture of the airport security and automation business, partially offset by growth in Defense Aviation and Mission Networks. Non-GAAP operating income decreased 22% due to COVID-related impacts and the divestiture of the airport security and automation business, net of growth in Defense Aviation and Mission Networks. Non-GAAP operating margin was flat at 14.9% as operational excellence, integration benefits, and cost management offset COVID-related headwinds.

Segment funded book-to-bill was 0.89 for the quarter.

Order momentum in Defense Aviation was reflected in several key awards, including:

• $142m contract with a multi-m-dollar initial order from the U.S. Space and Missile Systems Center to develop next-generation application-specific integrated circuits (ASICs) for M-Code GPS receivers, a critical element in support of U.S. national security and bringing total awards to-date to over $500m
• $32m in orders for combat propulsion systems under a five-year, $974m sole-source IDIQ in support of the U.S. Army’s ground vehicle recapitalization
• More than $30m order to provide RF signal amplification for satellite communication in support of the Airbus OneSat program
• $29m follow-on production order for fuzing and ordnance systems from the U.S. Army

Full Year 2020 Results:

		Full Year
	($ ms)	2020				2019				Change
	(GAAP to GAAP comparison)
	Revenue	$	3,448			$	2,368			n/m
	Operating income (loss)	$	(177)			$	325			n/m
	Operating margin	(5.1)		%		13.7		%
	(GAAP to pro forma comparison)
	Revenue	$	3,448			$	3,917			(12%)
	Operating income (loss)	$	(177)			$	503			(135%)
	Operating margin	(5.1)		%		12.8		%		(1,790) bps
	(Non-GAAP to pro forma comparison)5
	Revenue	$	3,448			$	3,917			(12%)
	Operating income	$	476			$	503			(5.4%)
	Operating margin	13.8		%		12.8		%		100 bps
	(Organic revenue comparison)1
	Organic revenue	$	3,448			$	3,553			(3.0%)

n/m: Not meaningful

For the full year, the comparison to prior-year GAAP operating results is not meaningful as the segment is mainly comprised of former L3 businesses. Full-year revenue decreased 12% versus prior-year pro forma primarily due to the divestiture of the airport security and automation business, and 3.0% on an organic basis driven by COVID-related impacts in the commercial aviation business. This decline was partially offset by growth in Defense Aviation, from a ramp on classified programs and combat propulsion systems, and higher FAA volume in Mission Networks.

The full-year GAAP operating loss versus prior-year pro forma was due to charges for the impairment of goodwill and other assets, COVID-related impacts and the divestiture of the airport security and automation business, partially offset by growth in Defense Aviation and Mission Networks. Non-GAAP operating income decreased 5.4% to $476 m versus prior-year pro forma due to the divestiture of the airport security and automation business and COVID-related impacts, net of growth in Defense Aviation and Mission Networks. Non-GAAP operating margin expanded 100 bps to 13.8% as operational excellence, integration benefits and cost management more than offset COVID-related headwinds. Funded book-to-bill was 1.03.

Cash and Capital Deployment

		Fourth Quarter												Full Year
	($ ms)	2020				2019				Change				2020				2019				Change
	Operating cash flow	$	698			$	858			$	(160)			$	2,790			$	1,655			$	1,135
	Adjusted free cash flow	$	642			$	831			$	(189)			$	2,686			$	2,095			$	591

In the fourth quarter of fiscal 2020, L3Harris generated $642m in adjusted free cash flow and returned $619m to shareholders through $440m in share repurchases and $179 m in dividends. For the full year, the company generated $2,686m in adjusted free cash flow and returned $3,015m to shareholders through $2,290m in share repurchases and $725m in dividends.

The L3Harris Board of Directors approved a 20 percent increase in the company’s quarterly cash dividend rate from 85 cents per share to $1.02 per share, commencing with the dividend to be declared for the first quarter of 2021. The L3Harris Board also approved a new $6bn share repurchase authorization.

Guidance

L3Harris initiated the following guidance for 2021:

• Revenue
  • $18.5 bn – $18.9 bn, up organically 3.0% – 5.0%
• Margin and earnings
  • GAAP net income margin of 10.8% – 11.1%
  • Adjusted EBIT margin of 18.0% – 18.5%
  • GAAP EPS of $9.80 – $10.11
  • Non-GAAP EPS of $12.60 – $13.00
• Cash flow and capital deployment
  • Operating cash flow and adjusted free cash flow of $3.1bn – $3.2bn and $2.8bn – $2.9bn, respectively
  • ~$2.3bn in share repurchases, excluding use of divestiture proceeds

COVID

As communicated in connection with the company’s prior releases of quarterly financial results for 2020, the ongoing attempts to contain and reduce the spread of COVID, such as mandatory closures, “shelter-in-place” orders and travel and quarantine restrictions, have caused significant disruptions and adverse effects on the U.S. and global economies, such as impacts to supply chains, customer demand, international trade and capital markets. L3Harris’ response has involved increasing its focus on keeping its employees safe while striving to maintain continuity of operations, meet customer commitments and support suppliers. For example, the company instituted work-from-home (for employees who are able to work remotely) and social distancing arrangements; canceled travel and external events; procured personal protective equipment for employees; implemented health screening procedures at all facilities; staggered work shifts, redesigned work stations, implemented stringent cleaning protocols and initiated more detailed safety precautions and protocols for on-site work, such as daily health assessments and mandatory face coverings, which currently remain in effect. The company has also maintained an active dialog with key suppliers and developed plans to mitigate supply chain risks. The company has allowed certain essential business travel to resume, and continues to expect to utilize a phased approach based on local conditions for transitioning employees from work-from-home arrangements to on-site work. The U.S. Government response to COVID has included identifying the Defense Industrial Base as a Critical Infrastructure Sector and enhancing cash flow and liquidity for the Defense Industrial Base, such as by increasing progress payments and accelerating contract awards. As a part of the Defense Industrial Base, these actions have enabled the company to keep its U.S. production facilities largely operational in support of national security commitments to U.S. Government customers and to accelerate payments to small business suppliers, which it expects to continue while the U.S. Government’s responsive actions remain in effect.

Although the company believes that the large percentage of its revenue, earnings and cash flow that is derived from sales to the U.S. Government, whether directly or through prime contractors, will be relatively predictable, in part due to the responsive actions taken by the U.S. Government described above, the company’s commercial, international and public safety businesses are at a higher risk of adverse COVID-related impacts. For example, the severe decline in global air traffic from travel restrictions and the resulting downturn in the commercial aviation market and its impact on customer operations has significantly reduced demand for flight training, flight simulators and commercial avionics products in the company’s Aviation Systems segment’s Commercial Aviation Solutions sector. As a result, the company temporarily closed some of its flight training facilities, initiated restructuring and other actions to align its resources with the outlook for the commercial aviation market (including workforce reduction and facility consolidation) and also has recognized $767 m of charges for impairment of goodwill and other assets and other COVID-related impacts for full-year 2020.

The company’s 2021 guidance reflects the company’s current expectations and assumptions regarding disruptions, containment actions and other COVID-related impacts, including on the U.S. and global economies. These assumptions continue to include a measured assessment of the downturn in the commercial aerospace business and in demand for public safety solutions, as well as additional potential risks from facility shutdowns, supply chain disruptions and international activity weakness. The company’s current expectations and assumptions could change, which could negatively affect the company’s outlook. The extent of these disruptions and impacts, including on the company’s ability to perform under U.S. Government contracts and other contracts within agreed timeframes and ultimately on its results of operations and cash flows, will depend on future developments, including the severity and duration of COVID-related impacts and associated containment and mitigation actions taken by the U.S. Government, state and local government officials and international governments, and consequences thereof, and global air traffic demand and governmental subsidies to airlines, all of which are uncertain and unpredictable, could exacerbate other risks described in the company’s filings with the SEC and could materially adversely impact the company’s financial condition, results of operations and cash flows.

(Source: Google/ https://www.streetinsider.com)

Lockheed Martin

 

 

Lockheed Martin Reports Fourth Quarter and Full Year 2020 Results

– Net sales of $17.0bn in the fourth quarter and $65.4bn in 2020

– Net earnings from continuing operations of $1.8bn, or $6.38 per share, in the fourth quarter and $6.9bn, or $24.50 per share, in 2020

– Cash from operations of $1.8bn in the fourth quarter and $8.2bn in 2020, after discretionary pension contributions of $1.0bn

– Announced agreement to acquire Aerojet Rocketdyne

– 2021 financial outlook provided

 

26 Jan 21. Lockheed Martin Corporation [NYSE: LMT] today reported fourth quarter 2020 net sales of $17.0bn, compared to $15.9bn in the fourth quarter of 2019. Net earnings from continuing operations in the fourth quarter of 2020 were $1.8bn, or $6.38 per share, compared to $1.5bn, or $5.29 per share, in the fourth quarter of 2019. Cash from operations in the fourth quarter of 2020 was $1.8bn, compared to $1.5bn in the fourth quarter of 2019. Cash from operations was after discretionary pension contributions of $1.0bn in each of the fourth quarters of 2020 and 2019.

Net sales in 2020 were $65.4bn, compared to $59.8bn in 2019. Net earnings from continuing operations in 2020 were $6.9bn, or $24.50 per share, compared to $6.2bn, or $21.95 per share, in 2019. Cash from operations in 2020 was $8.2bn, compared to $7.3bn, in 2019. Cash from operations was after discretionary pension contributions of $1.0bn in each of 2020 and 2019.

“Throughout 2020, the men and women of Lockheed Martin overcame the public health, operational and supply chain challenges caused by the COVID-19 pandemic, and continued to deliver the platforms, systems, and services essential to the national defense of the U.S. and its allies and to the continuation of scientific discovery. In concert with our resilient operational performance, we delivered strong financial results on behalf of our shareholders and contributed to our communities through the production of PPE, accelerated payments to small and medium businesses, and elevated charitable contributions to support a range of important local and national services,” said Lockheed Martin president and CEO James Taiclet. “We also initiated an enhanced strategic vision for Lockheed Martin designed to accelerate the adoption of leading edge networking and related technologies into our national defense enterprise, while enhancing the performance and value of our major platforms to our customers. We intend to maintain our momentum as we enter 2021 in all of these dimensions for the benefit of our customers, communities and shareholders.”

Strategic Action

As previously announced, on Dec. 20, 2020, the corporation entered into an agreement to acquire Aerojet Rocketdyne Holdings, Inc. (Aerojet Rocketdyne) for $56 per share in cash, which is expected to be reduced to $51 per share after Aerojet Rocketdyne pays a pre-closing special dividend to its stockholders on March 24, 2021. This represents a post-dividend equity value of approximately $4.6 bn, on a fully diluted as-converted basis, and a transaction value of approximately $4.4 bn after the assumption of Aerojet Rocketdyne’s projected net cash balance. The corporation expects to finance the acquisition through a combination of cash on hand and new debt issuances. The acquisition provides the corporation the opportunity to integrate Aerojet Rocketdyne’s propulsion systems more effectively into its products, generate cost and revenue synergies, and improve efficiencies in Aerojet Rocketdyne’s production operations. The transaction will also allow customers incorporating Aerojet Rocketdyne products to offer more timely, innovative and affordable solutions, and reduce the prices paid by the U.S. Government for systems it buys. The transaction is expected to close in the second half of 2021 and is subject to the satisfaction of customary closing conditions, including regulatory approvals and approval by Aerojet Rocketdyne’s stockholders.

2021 Financial Outlook

The following table 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, or new accounting standards until such items have been consummated, enacted or adopted. For additional factors that may impact the corporation’s actual results, refer to the “Forward-Looking Statements” section in this news release.

COVID-19

The global outbreak of the coronavirus disease 2019 (COVID-19) was declared a pandemic by the World Health Organization and a national emergency by the U.S. Government in March 2020 and has negatively affected the U.S. and global economies, disrupted global supply chains, resulted in significant travel and transport restrictions, including mandated closures and orders to “shelter-in-place” and quarantine restrictions. Lockheed Martin has taken measures to protect the health and safety of its employees, work with its customers and suppliers to minimize disruptions and support its community in addressing the challenges posed by this ongoing global pandemic. The pandemic has presented unprecedented business challenges, and the corporation has experienced impacts in each business area related to COVID-19, primarily in increased coronavirus-related costs, delays in supplier deliveries, impacts of travel restrictions, site access and quarantine requirements, and the impacts of remote work and adjusted work schedules. Despite these challenges, the corporation and the U.S. Government’s pro-active efforts, especially with regard to the supply chain, helped to partially mitigate the disruptions caused by COVID-19 on the corporation’s operations in 2020. In addition, favorable contract award timing, strong operational performance and lower travel and overhead expenditures due to COVID-19 restrictions partially offset the impacts of COVID-19 on the corporation’s financial results in 2020. However, the ultimate impact of COVID-19 in future periods remains uncertain. The corporation’s 2021 financial outlook assumes, among other things, that its production facilities continue to operate and it does not experience significant work stoppages or closures, it is able to mitigate any supply chain disruptions and these do not worsen, and government funding priorities do not change. Working with its U.S. Government customers, the corporation continues to monitor COVID-19 risks and impacts as well as explore potential paths to recover any cost impacts. While these are the corporation’s current assumptions, they could change and will depend on future pandemic related developments, including the duration of the pandemic, any potential subsequent waves of COVID-19 infection, the effectiveness, distribution and acceptance of COVID-19 vaccines, and related government actions.

Cash Activities

The corporation’s cash activities in the quarter and year ended Dec. 31, 2020, included the following:

• making capital expenditures of $722m and $1.8bn during the quarter and year ended Dec. 31, 2020, compared to $643m and $1.5bn during the quarter and year ended Dec. 31, 2019;
• making discretionary pension contributions of $1.0bn during the quarter and year ended Dec. 31, 2020, and $1.0bn during the quarter and year ended Dec. 31, 2019;
• repayment of $500 m and $1.7bn of long-term debt during the quarter and year ended Dec. 31, 2020, compared to repayment of $900 m of long-term debt during the quarter and year ended Dec. 31, 2019;
• receiving $1.1bn of net proceeds from the issuance of debt during the year ended Dec. 31, 2020, compared to no net proceeds during the year ended Dec. 31, 2019;
• paying cash dividends of $728m and $2.8bn during the quarter and year ended Dec. 31, 2020, compared to $675 m and $2.6bn during the quarter and year ended Dec. 31, 2019; and
• no shares repurchased and repurchasing 3.0m shares for $1.1bn during the quarter and year ended Dec. 31, 2020, compared to repurchasing 1.3m shares for $490 m and 3.5m shares for $1.2bn during the quarter and year ended Dec. 31, 2019.

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), Rotary and Mission Systems (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.

Net sales and operating profit of the corporation’s business segments exclude intersegment sales, cost of sales, and profit as these activities are eliminated in consolidation. Operating profit of the corporation’s business segments includes the corporation’s share of earnings or losses from equity method investees as the operating activities of the investees are closely aligned with the operations of its business segments.

Operating profit of the corporation’s business segments also excludes the FAS/CAS operating adjustment described below, a portion of corporate costs not considered allowable or allocable to contracts with the U.S. Government under the applicable U.S. Government cost accounting standards (CAS) or federal acquisition regulations (FAR), and other items not considered part of management’s evaluation of segment operating performance such as a portion of management and administration costs, legal fees and settlements, environmental costs, stock-based compensation expense, retiree benefits, significant severance actions, significant asset impairments, gains or losses from significant divestitures, and other miscellaneous corporate activities.

The corporation recovers CAS pension cost through the pricing of its products and services on U.S. Government contracts and, therefore, recognizes CAS pension cost in each of its business segments’ net sales and cost of sales. The corporation’s consolidated financial statements must present pension and other postretirement benefit plan expense calculated in accordance with U.S. generally accepted accounting principles (referred to as FAS expense). The operating portion of the net FAS/CAS pension adjustment represents the difference between the service cost component of FAS pension expense and total CAS pension cost. The non-service FAS pension expense components are included in other non-operating expense. The net FAS/CAS pension adjustment increases or decreases CAS pension cost to equal total FAS pension expense (both service and non-service).

Changes in net sales and operating profit generally are expressed in terms of volume. Changes in volume refer to increases or decreases in sales or operating profit resulting from varying production activity levels, deliveries or service levels on individual contracts. Volume changes in segment operating profit are typically based on the current profit booking rate for a particular contract. In addition, comparability of the corporation’s segment sales, operating profit and operating margin may be impacted favorably or unfavorably by changes in profit booking rates on the corporation’s contracts for which it recognizes revenue over time using the percentage-of-completion cost-to-cost method to measure progress towards completion. Increases in profit booking rates, typically referred to as risk retirements, usually relate to revisions in the estimated total costs to fulfill the performance obligations that reflect improved conditions on a particular contract. Conversely, conditions on a particular contract may deteriorate, resulting in an increase in the estimated total costs to fulfill the performance obligations and a reduction in the profit booking rate. Increases or decreases in profit booking rates are recognized in the current period and reflect the inception-to-date effect of such changes.

Segment operating profit and margin may also be impacted favorably or unfavorably by other items, which may or may not impact sales. Favorable items may include the positive resolution of contractual matters, insurance recoveries and gains on sales of assets. Unfavorable items may include the adverse resolution of contractual matters; restructuring charges, except for significant severance actions which are excluded from segment operating results; reserves for disputes; certain asset impairments; and losses on sales of certain assets.

The corporation’s consolidated net adjustments not related to volume, including net profit booking rate adjustments, represented approximately 25 percent and 26 percent of total segment operating profit in the quarter and year ended Dec. 31, 2020, as compared to 25 percent and 28 percent in the quarter and year ended Dec. 31, 2019.

Aeronautics

Aeronautics’ net sales in the fourth quarter of 2020 increased $333m, or 5 percent, compared to the same period in 2019. The increase was primarily attributable to higher net sales of approximately $145m for the F-16 program due to increased volume on international sustainment contracts and production contracts; about $125m for higher volume on classified development contracts; and about $40m for the F-35 program due to increased volume on sustainment and development contracts, which was partially offset by lower volume on production contracts.

Aeronautics’ operating profit in the fourth quarter of 2020 increased $48m, or 7 percent, compared to the same period in 2019. Operating profit increased approximately $40m for the F-16 program due to higher volume and risk retirements on international sustainment contracts; about $20m for the C-130 program due to higher risk retirements on sustainment contracts; and about $15m for classified development contracts due to higher risk retirements. These increases were partially offset by a decrease of approximately $35 m for the F-35 program due to lower risk retirements and volume on production contracts. Adjustments not related to volume, including net profit booking rate adjustments, were $10 m higher in the fourth quarter of 2020 compared to the same period in 2019.

Aeronautics’ net sales in 2020 increased $2.6bn, or 11 percent, compared to 2019. The increase was primarily attributable to higher net sales of approximately $1.8bn for the F-35 program due to increased volume on sustainment, production, and development contracts; about $450 m for higher volume on classified development contracts; and about $300m for the F-16 program due to increased volume on international production and sustainment contracts.

Aeronautics’ operating profit in 2020 increased $322 m, or 13 percent, compared to 2019. Operating profit increased approximately $240 m for the F-35 program due to higher volume and risk retirements on development and sustainment contracts and higher volume on production contracts; about $70 m for the C-130 program due to higher risk retirements on sustainment contracts; and approximately $20m for classified development contracts due to higher risk retirements. Operating profit on the F-16 program was comparable as higher volume was offset by lower risk retirements. Adjustments not related to volume, including net profit booking rate adjustments, were $90m higher in 2020 compared to 2019.

Missiles and Fire Control

MFC’s net sales in the fourth quarter of 2020 increased $97m, or 4 percent, compared to the same period in 2019. The increase was primarily attributable to higher net sales of approximately $105 m for integrated air and missile defense programs due to increased volume (Terminal High Altitude Area Defense (THAAD) and Patriot Advanced Capability-3 (PAC-3)). This increase was partially offset by lower net sales of about $20 m due to the divestiture of the Distributed Energy Solutions business in November 2019.

MFC’s operating profit in the fourth quarter of 2020 increased $26m, or 7 percent, compared to the same period in 2019. Operating profit increased approximately $20 m for tactical and strike missile programs due to higher risk retirements (primarily Joint Air-to-Surface Standoff Missile (JASSM)). Operating profit for integrated air and missile defense programs was comparable as higher volume (THAAD and PAC-3) was offset by lower risk retirements (THAAD and PAC-3). Adjustments not related to volume, including net profit booking rate adjustments, were $15 m higher in the fourth quarter of 2020 compared to the same period in 2019.

MFC’s net sales in 2020 increased $1.1bn, or 11 percent, compared to 2019. The increase was primarily attributable to higher net sales of approximately $725 m for integrated air and missile defense programs due to increased volume (THAAD and PAC-3); and about $605 m for tactical and strike missile programs due to increased volume (primarily Guided Multiple Launch Rocket Systems (GMLRS), High Mobility Artillery Rocket System (HIMARS), JASSM, and hypersonics). These increases were partially offset by a decrease of approximately $80m for sensors and global sustainment programs due to lower volume on the Apache sensors program; and about $120 m as a result of the divestiture of the Distributed Energy Solutions business.

MFC’s operating profit in 2020 increased $104 m, or 7 percent, compared to 2019. Operating profit increased approximately $90 m for tactical and strike missile programs due to higher volume (primarily JASSM, hypersonics, GMLRS, and HIMARS); and approximately $30 m for integrated air and missile defense programs due to increased volume (THAAD and PAC-3), which was partially offset by lower risk retirements (THAAD and PAC-3). These increases were partially offset by a decrease of approximately $40 m for sensors and global sustainment programs primarily due to lower risk retirements and a reduction in the profit booking rate on the Apache sensors program. Adjustments not related to volume, including net profit booking rate adjustments, were $40 m lower in 2020 compared to 2019.

Rotary and Mission Systems

RMS’ net sales in the fourth quarter of 2020 increased $323m, or 8 percent, compared to the same period in 2019. The increase was primarily attributable to higher net sales of approximately $215 m for Sikorsky helicopter programs due to higher volume on production contracts (primarily Combat Rescue Helicopter (CRH), CH-53K and Seahawk); about $130m for integrated warfare systems and sensors (IWSS) programs due to higher volume (primarily Aegis Combat System (Aegis) and Advanced Hawkeye); and about $45m for C6ISR (command, control, communications, computers, cyber, combat systems, intelligence, surveillance, and reconnaissance) programs due to higher volume (primarily on undersea combat systems programs). These increases were partially offset by a $70 m decrease for various training and logistics solutions (TLS) programs due to lower volume.

RMS’ operating profit in the fourth quarter of 2020 increased $53m, or 15 percent, compared to the same period in 2019. Operating profit increased approximately $55m for IWSS programs due to higher risk retirements and volume (primarily Aegis, TPQ-53, and Advanced Hawkeye); and about $20 m for C6ISR programs due to improved performance and higher volume (primarily undersea combat systems). These increases were partially offset by a $25m decrease for Sikorsky helicopter programs primarily due to lower risk retirements on international military aircraft programs. Operating profit on TLS programs was comparable as higher margin volume was offset by lower risk retirements. Adjustments not related to volume, including net profit booking rate adjustments, were $35m higher in the fourth quarter of 2020 compared to the same period in 2019.

RMS’ net sales in 2020 increased $867m, or 6 percent, compared to 2019. The increase was primarily attributable to higher net sales of approximately $570 m for Sikorsky helicopter programs due to higher volume on production contracts (primarily Seahawk, VH-92A, CRH, and CH-53K), which was partially offset by lower volume on Black Hawk production programs; about $175m for IWSS programs due to higher volume (primarily Aegis); and approximately $165m for C6ISR programs due to higher volume (primarily undersea combat systems). These increases were partially offset by a $55m decrease for various TLS programs due to lower volume.

RMS’ operating profit in 2020 increased $194m, or 14 percent, compared to 2019. Operating profit increased approximately $90 m for TLS programs due to $80 m in charges for an army sustainment program in 2019 not repeated in 2020; about $70 m for Sikorsky helicopter programs primarily due to higher volume on production contracts (primarily VH-92A, Seahawk, CRH, and CH-53K); and about $35m for IWSS programs primarily due to higher volume and higher risk retirements on TPQ-53 and Advanced Hawkeye and lower charges on a ground-based radar program. Operating profit on C6ISR programs was comparable as higher volume was offset by lower risk retirements. Adjustments not related to volume, including net profit booking rate adjustments, were $15m higher in 2020 compared to 2019.

Space

Space’s net sales in the fourth quarter of 2020 increased $401 m, or 14 percent, compared to the same period in 2019. The increase was primarily attributable to higher net sales of approximately $245 m for government satellite programs due to higher volume (primarily Next Generation Overhead Persistent Infrared (Next Gen OPIR) and classified contracts); and about $105m for strategic and missile defense programs due to higher volume (primarily hypersonic development programs, inclusive of impacts due to the acquisition of Integration Innovation Inc.’s (i3) hypersonics portfolio in November 2020).

Space’s operating profit in the fourth quarter of 2020 increased $108m, or 42 percent, compared to the same period in 2019. Operating profit increased approximately $85m due to higher equity earnings from the corporation’s investment in United Launch Alliance (ULA) primarily due to higher launch volume and launch vehicle mix. Operating profit on government satellite programs was comparable as higher volume was offset by lower risk retirements. Operating profit for strategic and missile defense programs was also comparable as higher risk retirements and volume on hypersonic development programs were offset by lower risk retirements and volume on fleet ballistic missile programs. Adjustments not related to volume, including net profit booking rate adjustments, were $10m higher in the fourth quarter of 2020, compared to the same period in 2019.

Space’s net sales in 2020 increased $1.0bn, or 9 percent, compared to 2019. The increase was primarily attributable to higher net sales of approximately $525m for government satellite programs due to higher volume (primarily Next Gen OPIR); and about $430m for strategic and missile defense programs due to higher volume (primarily hypersonic development programs, inclusive of impacts due to the acquisition of i3’s hypersonics portfolio in November 2020).

Space’s operating profit in 2020 decreased $42m, or 4 percent, compared to 2019. Operating profit decreased approximately $90m for government satellite programs due to lower risk retirements on the various programs (primarily AEHF) that were partially offset by higher risk retirements and volume on the Next Gen OPIR program. This decrease was partially offset by increases of $40m for commercial satellite programs due to charges recorded for performance matters in 2019 not repeated in 2020. Operating profit for strategic and missile defense programs was comparable as higher risk retirements and volume on hypersonic development programs were offset by lower risk retirements and volume on fleet ballistic missile programs. Adjustments not related to volume, including net profit booking rate adjustments, were $100m lower in 2020 compared to 2019.

Total equity earnings recognized by Space (primarily ULA) represented approximately $90m, or 24 percent, and approximately $135m, or 12 percent, of Space’s operating profit during the quarter and year ended Dec. 31, 2020, compared to approximately $5m, or 2 percent and approximately $145m, or 12 percent in the quarter and year ended Dec. 31, 2019.

Income Taxes

The corporation’s effective income tax rate was 18.1 percent and 16.4 percent in the quarter and year ended Dec. 31, 2020, compared to 18.2 percent and 14.0 percent in the quarter and year ended Dec. 31, 2019. The rates for all periods benefited from tax deductions for foreign derived intangible income, dividends paid to the corporation’s defined contribution plans with an employee stock ownership plan feature, and employee equity awards. The rates for the year ended Dec. 31, 2020, and the quarter and year ended Dec. 31, 2019, also benefited from the research and development tax credit. The rate for the year ended Dec. 31, 2019, further benefited from additional research and development credits and tax deductions for 2018 attributable to foreign derived intangible income treatment resulting from the proposed tax regulations released on March 4, 2019.

Pension Transactions

In December 2020, certain of the corporation’s pension plans used pension trust assets to purchase two group annuity contracts from insurance companies for $2.2bn. The first transaction transferred $1.4bn of the corporation’s outstanding defined benefit pension obligations related to approximately 13,500 U.S. retirees and beneficiaries to an insurance company. As a result of this transaction, the insurance company assumed the outstanding pension obligations and is now required to pay and administer the retirement benefits owed to these retirees and beneficiaries. The second transaction requires another insurance company to reimburse our pension trust fund for all future benefit payments made to approximately 2,500 U.S. retirees and beneficiaries under a group annuity contract purchased for $793m. Under the terms of this transaction, the plan retains the outstanding pension obligations and will continue to pay and administer the retirement benefits to these retirees and beneficiaries but will be reimbursed for all future benefit payments covered by the contract with no net ongoing cash funding obligation to the plan for the covered participants as the cost of providing benefits is funded by the contract. These transactions have no impact on the amount, timing, or form of the monthly retirement benefit payments to the covered retirees and beneficiaries. Additionally, these transactions did not impact the corporation’s earnings or cash flows in 2020.

Use of Non-GAAP Financial Measures

This news release contains the following non-generally accepted accounting principles (non-GAAP) financial measures (as defined by U.S. Securities and Exchange Commission (SEC) Regulation G). While management believes that these non-GAAP financial measures may be useful in evaluating the financial performance of the corporation, this information should be considered supplemental and is not a substitute for financial information prepared in accordance with GAAP. In addition, the corporation’s definitions for non-GAAP financial measures may differ from similarly titled measures used by other companies or analysts.

Business segment operating profit represents operating profit from the corporation’s business segments before unallocated income and expense. This measure is used by the corporation’s senior management in evaluating the performance of its business segments and is a performance goal in the corporation’s annual incentive plan. Business segment operating margin is calculated by dividing business segment operating profit by sales. The table below reconciles the non-GAAP measure business segment operating profit with the most directly comparable GAAP financial measure, consolidated operating profit.

About Lockheed Martin

Headquartered in Bethesda, Maryland, Lockheed Martin Corporation is a global security and aerospace company that employs approximately 114,000 people worldwide and is principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services.

Forward-Looking Statements

This news release contains statements that, to the extent they are not recitations of historical fact, constitute forward-looking statements within the meaning of the federal securities laws, and are based on Lockheed Martin’s current expectations and assumptions. The words “believe,” “estimate,” “anticipate,” “project,” “intend,” “expect,” “plan,” “outlook,” “scheduled,” “forecast” and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks and uncertainties. Actual results may differ materially due to factors such as:

• the impact of COVID-19 or future pandemics or epidemics on our business, including the potential for facility closures or work stoppages, supply chain disruptions, program delays, our ability to recover our costs under contracts, and changing government funding and acquisition priorities and payment policies and regulations;
• our reliance on contracts with the U.S. Government, which are conditioned upon the availability of funding and can be terminated by the U.S. Government for convenience, and our ability to negotiate favorable contract terms;
• budget uncertainty, affordability initiatives or the risk of future budget cuts;
• risks related to the development, production, sustainment, performance, schedule, cost and requirements of complex and technologically advanced programs including our largest, the F-35 program;
• planned production rates for significant programs; compliance with stringent performance and reliability standards; materials availability;
• the performance and financial viability of key suppliers, teammates, joint ventures, joint venture partners, subcontractors and customers;
• economic, industry, business and political conditions including their effects on governmental policy and government actions that disrupt our supply chain or prevent the sale or delivery of our products (such as delays in obtaining Congressional approvals for exports requiring Congressional notification and export license delays due to COVID-19);
• trade policies or sanctions (including potential Chinese sanctions on us or our suppliers, teammates or partners; U.S. Government sanctions on Turkey and its removal from the F-35 program and potential U.S. Government actions to restrict sales to the Kingdom of Saudi Arabia and the United Arab Emirates);
• our success expanding into and doing business in adjacent markets and internationally and the differing risks posed by international sales;
• changes in foreign national priorities and foreign government budgets;
• the competitive environment for our products and services, including increased pricing pressures, aggressive pricing in the absence of cost realism evaluation criteria, competition from outside the aerospace and defense industry, and bid protests;
• the timing and customer acceptance of product deliveries;
• our ability to continue to innovate and develop new products and to attract and retain key personnel and transfer knowledge to new personnel; the impact of work stoppages or other labor disruptions;
• the impact of cyber or other security threats or other disruptions to our businesses;
• our ability to implement and continue, and the timing and impact of, capitalization changes such as share repurchases and dividend payments;
• our ability to recover costs under U.S. Government contracts and changes in contract mix;
• the accuracy of our estimates and projections and the potential impact of changes in U.S. or foreign tax laws;
• timing and estimates regarding pension funding and movements in interest rates and other changes that may affect pension plan assumptions, stockholders’ equity, the level of the FAS/CAS adjustment and actual returns on pension plan assets;
• the successful operation of joint ventures that we do not control and our ability to recover our investments;
• realizing the anticipated benefits of acquisitions or divestitures, joint ventures, teaming arrangements or internal reorganizations;
• risks related to our previously announced acquisition of Aerojet Rocketdyne, including the failure to obtain, delays in obtaining or adverse conditions contained in any required regulatory or other approvals and our ability to successfully and timely integrate the business and realize synergies and other expected benefits of the transaction;
• our efforts to increase the efficiency of our operations and improve the affordability of our products and services;
• the risk of an impairment of our assets, including the potential impairment of goodwill recorded as a result of the acquisition of the Sikorsky business;
• the availability and adequacy of our insurance and indemnities;
• our ability to benefit fully from or adequately protect our intellectual property rights;
• procurement and other regulations and policies affecting our industry, export of our products, cost allowability or recovery, preferred contract type, and performance and progress payments policy, including a reversal or modification to the DoD’s increase to the progress payment rate in response to COVID-19;
• the effect of changes in accounting, taxation, or export laws, regulations, and policies and their interpretation or application; and
• the outcome of legal proceedings, bid protests, environmental remediation efforts, audits, government investigations or government allegations that we have failed to comply with law, other contingencies and U.S. Government identification of deficiencies in our business systems.

These are only some of the factors that may affect the forward-looking statements contained in this news release. For a discussion identifying additional important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, see the corporation’s filings with the U.S. Securities and Exchange Commission including, but not limited to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” in the corporation’s Annual Report on Form 10-K for the year ended Dec. 31, 2019, and subsequent quarterly reports on Form 10-Q. The corporation’s filings may be accessed through the Investor Relations page of its website, www.lockheedmartin.com/investor, or through the website maintained by the SEC at www.sec.gov.

The corporation’s actual financial results likely will be different from those projected due to the inherent nature of projections. Given these uncertainties, forward-looking statements should not be relied on in making investment decisions. The forward-looking statements contained in this news release speak only as of the date of its filing. Except where required by applicable law, the corporation expressly disclaims a duty to provide updates to forward-looking statements after the date of this news release to reflect subsequent events, changed circumstances, changes in expectations, or the estimates and assumptions associated with them. The forward-looking statements in this news release are intended to be subject to the safe harbor protection provided by the federal securities laws.

Northrop Grumman

 

 

 

Northrop Grumman Reports Fourth Quarter and Full-Year 2020 Financial Results

• 2020 Net Awards Total $52.9bn; 1.4 Book to Bill
• Total Backlog Increases to $81.0bn
• Q4 Sales Increase 17 Percent to $10.2 bn; 2020 Sales Increase 9 Percent to $36.8bn
• Q4 EPS of $1.97; Q4 Mark-to-Market (MTM)-adjusted EPS^[1] of $6.59
• 2020 EPS of $19.03; 2020 MTM-adjusted EPS¹ of $23.65
• 2020 Cash from Operations of $4.3bn, after a $750m Discretionary Pension Contribution
• 2020 Adjusted Free Cash Flow¹ of $3.7bn
• Updated 2021 Guidance Reflects IT Services Divestiture and Planned Use of Proceeds
• Now Expects 2021 Sales of $35.1 to $35.5bn, MTM-adjusted EPS¹ of $23.15 to $23.65 and Adjusted Free Cash Flow¹ of $3.0 to $3.3bn
• Board Authorizes $3.0bn Additional Share Repurchases

28 Jan 21. Northrop Grumman Corporation (NYSE: NOC) reported fourth quarter 2020 sales increased 17 percent to $10.2bn and 2020 sales increased 9 percent to $36.8bn.

Fourth quarter 2020 net earnings increased to $330m and 2020 net earnings increased to $3.2bn. Excluding after-tax MTM expense of $774 m in both periods, MTM-adjusted fourth quarter 2020 net earnings¹ increased 16 percent to $1.1bn, or $6.59 per share, and 2020 MTM-adjusted net earnings¹ increased 10 percent to $4.0bn, or $23.65 per share.

“The Northrop Grumman team delivered outstanding results in 2020,” said Kathy Warden, chairman, chief executive officer and president. “Our team continues to show resilience and agility, which allows us to execute our strategy, deliver for our customers and support our employees and communities in the midst of a global pandemic. Our continued growth, strong performance and portfolio-shaping decisions position us for value-creating capital deployment.”

MTM-adjusted Net Earnings and EPS

Net earnings for both the fourth quarter and 2020 were reduced by a $774 m after-tax MTM expense. Excluding this expense, fourth quarter 2020 MTM-adjusted net earnings¹ increased 16 percent and 2020 MTM-adjusted net earnings¹ increased 10 percent. MTMadjusted earnings¹ and EPS¹ are the measures the company uses to compare performance to prior periods and for EPS guidance.

The table below reconciles net earnings and diluted EPS to MTM-adjusted net earnings¹ and MTM-adjusted diluted EPS¹:

Sales

Fourth quarter 2020 sales increased $1.5bn, or 17 percent, and 2020 sales increased $3.0bn, or 9 percent, due to higher sales at all four sectors and includes a $444m sale of equipment to a restricted customer at Aeronautics Systems.

Operating Income and Margin Rate

Fourth quarter 2020 operating income increased $16m, or 1 percent, primarily due to an increase in segment operating income, partially offset by higher unallocated corporate expense and a lower net FAS (service)/ CAS pension adjustment. Operating margin rate declined to 11.3 percent from 13.0 percent, principally due to a lower segment operating margin rate, higher unallocated corporate expense and lower net FAS (service)/CAS pension adjustment.

2020 operating income increased $96m, or 2 percent, primarily due to an increase in segment operating income, partially offset by higher unallocated corporate expense and a lower net FAS (service)/CAS pension adjustment. 2020 operating margin rate declined to 11.0 percent from 11.7 percent principally due to a lower segment operating margin rate, higher unallocated corporate expense and lower net FAS (service)/CAS pension adjustment.

Segment Operating Income and Margin Rate

Fourth quarter 2020 segment operating income¹ increased $89m, or 8 percent, principally due to higher operating income at Space Systems, Defense Systems and Aeronautics Systems. Segment operating margin rate¹ decreased to 11.2 percent from 12.1 percent principally due to lower operating margin rates at Mission Systems, Aeronautics Systems and Space Systems, partially offset by a higher operating margin rate at Defense Systems.

2020 segment operating income¹ increased $210m, or 5 percent, and reflects higher operating income at all four sectors. Segment operating margin rate¹ decreased to 11.4 percent from 11.8 percent principally due to a lower operating margin rate at Aeronautics Systems.

Beginning in the second quarter of 2020, certain unallowable compensation and other costs previously included in segment operating results are now reported in Unallocated corporate expense within operating income as the company no longer considers these costs as part of management’s evaluation of segment operating performance. This change, which had no impact on total operating income, increased fourth quarter and full year 2020 segment operating income by $23 m and $48 m, respectively, and has been applied retrospectively. Recast results are presented in Schedule 7.

Federal and Foreign Income Taxes

The fourth quarter 2020 effective tax rate decreased to (8.2) percent from 28.1 percent in the prior year period. MTM expense reduced the fourth quarter 2020 effective tax rate by 22.3 percentage points and increased the fourth quarter 2019 effective tax rate by 10.7 percentage points.

The 2020 effective tax rate increased to 14.5 percent from 11.8 percent in 2019. MTM expense reduced the 2020 effective tax rate by 1.3 percentage points and the 2019 effective tax rate by 3.7 percentage points.

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

Awards and Backlog

Fourth quarter and year to date 2020 net awards totaled $9.9bn and $52.9bn, respectively, and backlog was $81.0bn. Significant fourth quarter new awards include $4.3bn for restricted programs (principally at Aeronautics Systems), $0.5bn for B-2 programs, $0.4bn for Commercial Resupply Service Extension missions, $0.4 bn for Joint Stars and $0.3bn for Global Hawk. Significant 2020 new awards include $17.4bn for restricted programs ($9.0 bn at Space Systems, $6.0bn at Aeronautics Systems and $2.2 bn at Mission Systems), $13.3bn for the Ground Based Strategic Deterrent EMD program, $1.9bn for Next Gen OPIR, $1.7bn for F-35, $0.9bn for Triton, $0.9bn for E-2D and $0.8bn for Global Hawk.

Cash Flows

Fourth quarter and year to date 2020 cash provided by operating activities totaled $1.6bn and $4.3bn, respectively, after a $750m discretionary pre-tax pension contribution ($593m after-tax) made in December 2020. Fourth quarter and year-to-date adjusted free cash flow¹ totaled $1.8bn and $3.7bn, respectively.

Share Repurchase Authorization

On Jan. 25, 2021, the company’s board of directors authorized a new share repurchase program of up to an additional $3.0 bn in share repurchases of the company’s common stock, bringing the total outstanding authorization up to $5.8 bn.

Segment Operating Results

Segment operating results for the fourth quarter and full-year 2019 have been recast to reflect changes in the company’s organizational structure and reportable segments effective Jan. 1, 2020 (presented in Schedule 6). In addition, the unallowable costs change described above has been applied retrospectively in the following tables, and recast results are presented in Schedule 7.

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

AERONAUTICS SYSTEMS                   

Fourth quarter 2020 sales increased $680m, or 24 percent, due to higher sales in Manned Aircraft. Higher volume on restricted programs, including a $444 m sale of equipment to a restricted customer, and higher volume on E-2D production programs were partially offset by lower volume on the B-2 Defensive Management System (DMS) Modernization program as it nears completion.

2020 sales increased $1.1bn, or 9 percent, due to higher sales in both Manned Aircraft and Autonomous Systems. Higher volume on restricted programs, including a $444m sale of equipment to a restricted customer, E-2D and Triton were partially offset by lower volume on B-2 DMS as it nears completion.

Operating Income

Fourth quarter 2020 operating income increased $30m, or 10 percent, due to higher sales partially offset by a lower operating margin rate. Operating margin rate decreased to 9.7 percent from 11.0 percent principally due to the sale of equipment to a restricted customer, which was dilutive to the overall sector margin rate.

2020 operating income increased $18m, or 2 percent, due to higher sales partially offset by a lower operating margin rate. 2020 operating margin rate decreased to 9.9 percent from 10.7

percent principally due to lower net EAC adjustments as well as the sale of equipment to a restricted customer, which was dilutive to the overall sector margin rate.

DEFENSE SYSTEMS                                           

Fourth quarter 2020 sales increased $37m, or 2 percent, primarily due to higher volume at Mission Readiness. Mission Readiness sales increased principally due to higher volume on restricted and international programs, partially offset by lower volume on the Hunter sustainment program as it nears completion. Battle Management & Missile Systems sales were comparable to the prior period and reflect higher volume on the Guided Missile Launch Rocket System (GMLRS), Advanced Anti-Radiation Guided Missile (AARGM) and other missile products, offset by the close-out of our contract at the Army’s Lake City ammunition plant (Lake City contract) and lower volume on an international weapons program as it nears completion.

2020 sales increased $48m, or 1 percent, due to higher volume in both business areas. Battle Management & Missile Systems sales increased primarily due to higher volume on GMLRS, AARGM, the Counter-Rocket, Artillery and Mortar program and other missile products, partially offset by lower volume on programs nearing completion, including an international weapons program and the close-out of our Lake City contract. Mission Readiness sales increased principally due to higher volume on restricted and international programs, partially offset by lower volume on the Hunter sustainment program as it nears completion.

Operating Income

Fourth quarter 2020 operating income increased $38m, or 22 percent, primarily due to a higher operating margin rate. Operating margin rate increased to 11.2 percent from 9.4 percent due to improved performance at Battle Management & Missile Systems, including the close-out of our Lake City contract, and at Mission Readiness.

2020 operating income increased $53m, or 7 percent, primarily due to a higher operating margin rate. Operating margin increased to 11.2 percent from 10.6 percent principally due to improved performance at Battle Management & Missile Systems and Mission Readiness.

MISSION SYSTEMS                                         

Fourth quarter 2020 sales increased $250 m, or 10 percent, due to higher volume across all four business areas. Airborne Sensors & Networks sales increased primarily due to higher volume on restricted, Joint Counter Radio-Controlled Improvised Explosive Device Electronic Warfare (JCREW) and F-35 programs. Navigation, Targeting & Survivability sales increased principally due to higher volume on targeting programs, including LITENING, and self-protection programs. Cyber & Intelligence Mission Solutions sales increased primarily due to higher restricted volume. Maritime/Land Systems & Sensors sales increased primarily due to higher volume on land and marine systems, partially offset by lower international commercial volume due, in part, to COVID-19-related impacts.

2020 sales increased $670m, or 7 percent, due to higher volume across all four business areas. Airborne Sensors & Networks sales increased principally due to higher airborne radar volume, including the F-35, Multi-role Electronically Scanned Array (MESA) and Scalable Agile Beam Radar (SABR) programs, and higher restricted volume. Navigation, Targeting & Survivability sales increased primarily due to higher volume on self-protection, avionics and targeting programs, including LITENING, partially offset by lower volume on infrared countermeasures programs. Maritime/Land Systems & Sensors sales increased primarily due to higher volume on marine systems and restricted programs, partially offset by lower international commercial volume due, in part, to COVID-19-related impacts. Cyber & Intelligence Mission Solutions sales increased principally due to higher restricted volume, partially offset by lower volume on an intelligence program as it nears completion.

Operating Income

Fourth quarter 2020 operating income decreased $7m, or 2 percent, due to a lower operating margin rate, partially offset by higher sales. Operating margin rate decreased to 14.2 percent from 15.9 percent primarily due to lower margin rates at Maritime/Land Systems & Sensors, including COVID-19-related impacts on certain international commercial businesses, partially offset by improved performance on Navigation, Targeting & Survivability programs. Fourth quarter 2019 operating margin rate benefited from a $20m gain on a property sale.

2020 operating income increased $51m, or 4 percent, due to higher sales, partially offset by a lower operating margin rate. Operating margin rate decreased to 14.5 percent from 15.0 percent primarily due to lower margin rates at Maritime/Land Systems & Sensors, including COVID-19-related impacts on certain international commercial businesses.

SPACE SYSTEMS                                                 

Fourth quarter 2020 sales increased $599m, or 31 percent, due to higher sales in both Space and Launch & Strategic Missiles business areas. Space sales were driven by higher volume on restricted programs and the NASA Artemis and Next Generation Overhead Persistent Infrared (Next Gen OPIR) programs. Launch & Strategic Missiles sales increased primarily due to ramp-up on the GBSD program and higher volume on the Commercial Resupply Service missions.

2020 sales increased $1.3bn, or 18 percent, due to higher sales in both Space and Launch & Strategic Missiles. Space sales were driven by higher volume on restricted programs and the Next Gen OPIR and NASA Artemis programs. Launch & Strategic Missiles sales increased due to ramp-up on GBSD and higher volume on launch vehicles and hypersonics programs, partially offset by lower volume on the Ground-based Midcourse Defense program.

Operating Income

Fourth quarter 2020 operating income increased $38m, or 17 percent, due to higher sales, partially offset by a lower operating margin rate. Operating margin rate decreased to 10.1 percent from 11.3 percent primarily due to changes in contract mix as well as a $21m benefit recognized in the fourth quarter of 2019 from an increase in estimated recoveries of certain environmental remediation costs.

2020 operating income increased $99m, or 12 percent, due to higher sales, partially offset by a lower operating margin rate. Operating margin rate decreased to 10.2 percent from 10.7 percent principally due to lower net EAC adjustments and changes in contract mix.

Guidance

Financial guidance, as well as outlook, trends, expectations and other forward looking statements provided by the company for 2021 and beyond, reflect the company’s judgment based on the information available to the company at the time of this release. The company’s

2021 financial guidance and outlook beyond 2021 reflect what the company currently anticipates will be the impacts on the company from the global COVID-19 pandemic in 2021, based on what the company understands today and what the company has experienced to date. However, the company cannot predict how the pandemic will evolve or what impact it will continue to have, and there can be no assurance that the company’s underlying assumptions are correct. As discussed more fully in the company’s Form 10-K, and among other factors, disruptions to the company’s operations (or those of its customers or supply chain), additional costs and liabilities, disruptions in the market, and impacts on programs or payments relating to the global COVID-19 pandemic, today and as it may evolve, can be expected to affect the company’s ability to achieve guidance or meet expectations. In addition, the government budget, appropriations and procurement priorities and processes can impact our customers, programs and financial results. These priorities and processes, including the timing of appropriations and the occurrence of an extended continuing resolution and/or prolonged government shutdown, as well as a breach of the debt ceiling, or changes in support for our programs or in federal corporate tax rates, can impact the company’s ability to achieve guidance or meet expectations.

On Dec. 7, 2020, Northrop Grumman announced that it had reached a definitive agreement with Peraton Inc., a Veritas company, for the sale of the company’s IT and mission support services business, for approximately $3.4 bn in cash, subject to customary purchase price adjustments. The transaction is expected to close very soon, subject to government approvals and customary closing conditions. In 2020, this business generated $2.3 bn in revenue, $1.6 bn of which is in the Defense Systems sector, $0.5 bn of which is in the Mission Systems sector and the remaining $0.2 bn in the Space Systems sector. The company expects to use the sale proceeds primarily to fund share repurchases, to offset dilution from the transaction, and for debt retirement. The company’s 2021 financial guidance contemplates completion of the transaction very soon, excluding gain on sale, transaction costs and make-whole provisions.

Raytheon Technologies

Raytheon Technologies Reports Fourth Quarter 2020 Results, Announces 2021 Outlook

Exceeded 2020 cash conservation commitments

26 Jan 21. Raytheon Technologies Corp. (NYSE: RTX) reported fourth quarter 2020 and full year 2020 results, and announced its 2021 outlook.

Fourth quarter 2020

• Sales of $16.4bn; Adjusted sales of $16.6bn
• GAAP EPS from continuing operations of $0.10, which included $0.64 of net significant and/or non-recurring charges and acquisition accounting adjustments
• Adjusted EPS of $0.74
• Operating cash flow from continuing operations of $1.4bn; Free cash flow of $747m
• Achieved $1.8bn in cash conservation and $700 m in cost reduction actions
• Robust defense backlog of $67.3 bn

Outlook for full year 2021

• Sales of $63.4 – $65.4bn
• Adjusted EPS of $3.40 – $3.70
• Free cash flow of approximately $4.5bn
• Authorized a $5bn share repurchase program in December; plan to repurchase at least $1.5bn of shares in 2021

“We closed the year on a strong note with fourth quarter sales, EPS and free cash flow exceeding our expectations, as we delivered on our customer commitments and drove strong execution against our cost and cash actions,” said Raytheon Technologies CEO Greg Hayes. “As a result, we delivered $2.3bn in pro forma free cash flow for the year which includes $800 m of discretionary pension contributions.”

Hayes continued, “In 2021, our strategy of harnessing next-generation technologies across our resilient and balanced portfolio will continue to drive differentiated value for customers and advance our industry leadership for years to come. Combined with our recent structural actions, we’re well positioned for sustainable growth and profitability in 2021 and beyond, and remain committed to returning $18 to $20bn to shareowners in the four years following the merger.”

Raytheon Technologies reported fourth quarter sales of $16.4 bn and adjusted sales of $16.6 bn. GAAP EPS from continuing operations was $0.10 and included $0.64 of net significant and/or non-recurring charges and acquisition accounting adjustments. This includes $0.29 of acquisition accounting adjustments primarily related to intangible amortization, $0.29 for an adjustment associated with certain Middle East contracts which are subject to regulatory approval, $0.05 of charges due to the current economic environment primarily driven by the COVID-19 pandemic, and $0.05 of restructuring, which were partially offset by $0.04 of other items. Adjusted EPS was $0.74.

The company recorded net income from continuing operations in the fourth quarter of $146m, which included $976m of net significant and/or nonrecurring charges and acquisition accounting adjustments. Adjusted net income was $1,122m. Operating cash flow from continuing operations in the fourth quarter was $1.4bn, which includes $800m of discretionary pension contributions. Capital expenditures were $623m, resulting in free cash flow of $747 m. Free cash flow included approximately $360 m of merger costs, restructuring and tax payments on divestitures. This quarter’s performance included approximately $1.8 bn of cash conservation and $700 m of cost savings actions. Full year cash conservation actions were approximately $4.7 bn and cost savings were approximately $2.0 bn, exceeding the cash conservation and achieving the cost reduction commitments made early in 2020.

Summary Financial Results – Continuing Operations
($ in ms, except EPS)		4th Quarter 2020
Reported
Sales		$	16,419
Net Income		$	146
EPS		$	0.10
Adjusted
Sales		$	16,583
Net Income		$	1,122
EPS		$	0.74
Operating Cash Flow from Continuing Operations		$	1,370
Free Cash Flow		$	747

 

See “Use and Definitions of Non-GAAP Financial Measures” below for information regarding non-GAAP financial measures.

Bookings and Orders
Backlog at the end of the fourth quarter was $150.1bn, of which $82.8 bn was from commercial aerospace and $67.3bn was from defense.

Notable defense bookings during the quarter included:

• $947m of classified bookings at Raytheon Intelligence & Space (RIS)
• $354m for a classified program at Raytheon Missiles & Defense (RMD)
• $305m for F-119 spare parts at Pratt & Whitney
• $282m for F-135 sustainment services at Pratt & Whitney
• $240 m for StormBreaker production Lot 6 primarily for the U.S. Air Force at RMD
• $236m for the production of Silent Knight radar systems and spares for the U.S. Special Operations Command at RIS
• $234m for Tube-launched, Optionally-tracked, Wireless-guided missiles (TOW) Multi-Year 4 at RMD
• $217m for the AN/TPY-2 radar sustainment program for the Missile Defense Agency (MDA) at RMD

Segment Results
The company’s reportable segments are Collins Aerospace, Pratt & Whitney, Raytheon Intelligence & Space (RIS) and Raytheon Missiles & Defense (RMD). In connection with the merger, the company revised its segment presentation. Prior periods have been revised to reflect the current presentation. Refer to the accompanying tables for further details.

Collins Aerospace
	4th Quarter										Twelve Months
($ in ms)	2020				2019			% Change			2020				2019			% Change
Reported
Sales	$	4,374			$	6,444		(32)	%		$	19,288			$	26,028		(26)	%
Operating Profit	$	11			$	1,009		(99)	%		$	1,466			$	4,508		(67)	%
ROS	0.3		%		15.7		%				7.6		%		17.3		%
Adjusted
Sales	$	4,388			$	6,444		(32)	%		$	19,424			$	26,028		(25)	%
Operating Profit	$	89			$	1,061		(92)	%		$	1,470			$	4,849		(70)	%
ROS	2.0		%		16.5		%				7.6		%		18.6		%
Note: Prior periods have been revised to reflect the current segment presentation which excludes acquisition accounting adjustments and includes additional corporate expense allocations.

Collins Aerospace had fourth quarter 2020 adjusted sales of $4,388m, down 32 percent versus the prior year. Commercial OE was down 41 percent and commercial aftermarket was down 48 percent, while military was up 1 percent. Excluding the impact of the Military GPS and Space ISR divestitures, military was up 7 percent in the quarter. The decrease in commercial sales was driven primarily by the current environment which has resulted in lower flight hours, aircraft fleet utilization and commercial OEM deliveries, as well as the impact of the 737 MAX. This was slightly offset by higher sales across key military platforms.

Collins Aerospace recorded adjusted operating profit of $89m in the quarter, down 92 percent versus the prior year. The decrease in adjusted operating profit was driven by lower commercial aerospace OEM and aftermarket sales volume, as well as the impact of the Military GPS and Space ISR divestitures. This was partially offset by cost reduction actions and continued synergy capture.

Pratt & Whitney
	4th Quarter										Twelve Months
($ in ms)	2020				2019			% Change			2020				2019			% Change
Reported
Sales	$	4,465			$	5,645		(21)	%		$	16,799			$	20,902		(20)	%
Operating Profit	$	33			$	354		(91)	%		$	(564)			$	1,801		(131)	%
ROS	0.7		%		6.3		%				(3.4)		%		8.6		%
Adjusted
Sales	$	4,496			$	5,645		(20)	%		$	17,224			$	20,902		(18)	%
Operating Profit	$	105			$	470		(78)	%		$	426			$	1,934		(78)	%
ROS	2.3		%		8.3		%				2.5		%		9.3		%
Note: Prior periods have been revised to reflect the current segment presentation which excludes acquisition accounting adjustments and includes additional corporate expense allocations.

Pratt & Whitney had fourth quarter 2020 adjusted sales of $4,496m, down 20 percent versus the prior year. Commercial OE was down 46 percent and commercial aftermarket was down 32 percent, while military was up 18 percent. The decrease in commercial sales was primarily due to a significant reduction in shop visits and related spare part sales, and commercial engine deliveries principally driven by the current environment. This was slightly offset by higher F-135 engine sales and aftermarket growth across key military platforms.

Pratt & Whitney recorded adjusted operating income of $105m in the quarter, down 78 percent versus the prior year. The decrease in adjusted operating profit was primarily driven by lower commercial aerospace sales volume and unfavorable mix. This was partially offset by cost reduction actions and gross margin drop through on higher military volume.

Raytheon Intelligence & Space
	4th Quarter				Twelve Months
($ in ms)	2020				2020
Reported
Sales	$	3,853			$	10,841
Operating Profit	$	355			$	1,014
ROS	9.2		%		9.4		%
Adjusted
Sales	$	3,853			$	10,841
Operating Profit	$	355			$	1,014
ROS	9.2		%		9.4		%
Note: Twelve months 2020 reported and adjusted results include RIS since the merger date of April 3, 2020. Reported and adjusted numbers do not include RIS pre-merger stub period from March 30, 2020 to April 2, 2020 which had an estimated $200 m of sales and $20 m of operating profit.

RIS had fourth quarter adjusted sales of $3,853m and adjusted operating profit of $355m.

Raytheon Missiles & Defense
	4th Quarter				Twelve Months
($ in ms)	2020				2020
Reported
Sales	$	4,276			$	11,660
Operating Profit	$	40			$	890
ROS	0.9		%		7.6		%
Adjusted
Sales	$	4,395			$	11,660
Operating Profit	$	586			$	1,406
ROS	13.3		%		12.1		%
Note: Twelve months 2020 reported and adjusted results include RMD since the merger date of April 3, 2020. Reported and adjusted numbers do not include RMD pre-merger stub period from March 30, 2020 to April 2, 2020 which had an estimated $200 m of sales and $25 m of operating profit.

RMD had fourth quarter adjusted sales of $4,395 m and adjusted operating profit of $586 m.

Raytheon Technologies 2021 outlook
Outlook for full year 2021

• Sales of $63.4 – $65.4bn
• Adjusted EPS of $3.40 – $3.70
• Free cash flow of approximately $4.5 bn
• Plan to repurchase at least $1.5 bn of shares in 2021

Outlook for Q1 2021

• Sales of $14.8 – $15.4bn
• Adjusted EPS of $0.70 – $0.75

Textron

 

 

 

• EPS of $1.03; adjusted EPS of $1.06
• Fourth quarter manufacturing segment profit margin of 8.8%
• Full year net cash from operating activities of $833 m

27 Jan 21. Textron Inc. (NYSE: TXT) today reported fourth quarter 2020 net income of $1.03 per share. Adjusted net income, a non-GAAP measure that is defined and reconciled to GAAP in an attachment to this release, was $1.06 per share for the fourth quarter of 2020, compared to $1.11 per share in the fourth quarter of 2019. Adjusted net income for 2020 excludes $23 m of pre-tax special charges ($0.07 per share, after-tax) and a one-time favorable tax benefit related to the sale of TRU Canada ($0.04 per share).

Full-year 2020 net income was $1.35 per share. Full-year 2020 adjusted net income, a non-GAAP measure, was $2.07 per share, down from $3.74 in 2019.

“Textron closed out 2020 with a solid performance across all our manufacturing segments,” said Textron Chairman and CEO Scott C. Donnelly. “At Systems, Industrial and Bell, we saw margin improvements and at Aviation, we delivered 61 jets with continued order momentum.”

Cash Flow

Net cash provided by operating activities of the manufacturing group for the full year was $833 m, compared to $960 m 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, was $596 m compared to $642 m last year.

After reactivating the share repurchase program in the quarter, Textron returned $129 m to shareholders through repurchases.

Outlook

Textron is forecasting 2021 revenues of approximately $12.5 bn, up from $11.7 bn in 2020. Textron expects full-year 2021 GAAP earnings per share from continuing operations will be in the range of $2.64 to $2.88, or $2.70 to $2.90 on an adjusted basis (non-GAAP), which is reconciled to GAAP in an attachment to this release.

The company is estimating net cash provided by operating activities of the manufacturing group will be between $950 m and $1,050 m and manufacturing cash flow before pension contributions (a non-GAAP measure) will be between $600 m and $700 m, with planned pension contributions of about $50 m.

Donnelly continued, “Our outlook reflects continued improvement in our end-markets and our ongoing investments in new products and programs to drive earnings growth and margin expansion.”

Fourth Quarter Segment Results

Textron Aviation

Revenues at Textron Aviation of $1.6bn were down $169m, primarily due to lower Citation jet volume and lower aftermarket volume.

Textron Aviation delivered 61 jets, down from 71 last year, and 61 commercial turboprops, up from 59 last year.

Segment profit was $108m down from $134m a year ago, primarily due to the impact from lower volume and mix.

Textron Aviation backlog at the end of the fourth quarter was $1.6bn.

Bell

Bell revenues were $871 m down from $961 m last year, on lower military revenues and commercial volume.

Bell delivered 57 commercial helicopters in the quarter, down from 76 last year.

Segment profit of $110m was down $8m, largely on the lower volume partially offset by a favorable impact from performance, primarily reflecting higher favorable program adjustments.

Bell backlog at the end of the fourth quarter was $5.3bn.

Textron Systems

Revenues at Textron Systems were $357m, down from $399m last year, primarily due to lower volume in the TRU Simulation + Training business.

Segment profit of $49 m was up from $33m last year, primarily due to the favorable impact from performance.

Textron Systems’ backlog at the end of the fourth quarter was $2.6bn.

Industrial

Industrial revenues were $866 m, a decrease of $61 m from last year, primarily related to reduced demand in the ground support equipment business within the Specialized Vehicles product line.

Segment profit was $55 m, up 25% from the fourth quarter of 2019, largely due to a favorable impact from pricing and inflation, and favorable performance, partially offset by the impact of lower volume and mix.

Finance

Finance segment revenues in the quarter were $13m, and profit was $2m.

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